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G.R. No.

182970 July 23, 2014

EMILIANO S. SAMSON, Petitioner,


vs.
SPOUSES JOSE and GUILLERMINA GABOR, TANAY RURAL BANK, INC., and REGISTER OF DEEDS OF
MORONG, RIZAL, Respondents.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse and set aside
the Order1 dated August 18, 2006 of the Regional Trial Court (RTC) of Pasig City in Civil Case No. 70750 and
Decision2 dated May 9, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 88335.

The antecedents of the case are as follows:

Respondent spouses Jose and Guillermina Gabor are the registered owners of a parcel of land with an area of Sixty-One
Thousand Eighty-Five (61,085) square meters, more or less, situated at Barrio Mapunso, Tanay, Rizal Province, and
covered by Transfer Certificate of Title (TCT) No. M-25565 issued by the Register of Deeds of Morong.3

On November 14, 1985, the Spouses Gabor executed a Deed of Assignment transferring Twenty Thousand Six Hundred
Thirty-One (20,631) square meters undivided portion of the aforementioned parcel of land in favor of petitioner Emiliano S.
Samson as attorney’s fees in payment for the services rendered by the latter for the former.

On October 22, 1987, petitioner Samson executed a Deed of Assignment transferring the same undivided portion in favor
of Ma. Remedios P. Ramos. Upon learning of the sale, respondent spouses filed an action for legal redemption with the
RTC of Tanay, Rizal. Immediately thereafter, petitioner Samson and Ramos executed an Agreement of Rescission
revoking the transfer of the undivided portion.4 On July 25, 1989, the RTC dismissed the suit for legal redemption. On
appeal, however, the CA, in CA-G.R. CV No. 25530, reversed the decision of the RTC and upheld the Spouses Gabor’s
right of legal redemption. No further appeals were pursued.

Instead, during the pendency of CA-G.R. CV No. 25530, petitioner Samson filed an action for Partition of Real Property
and Damages5 against respondent spouses with the RTC of Morong, Rizal, which dismissed the same on the ground that
the finality of CA-G.R. CV No. 25530 effectively barred the action for partition. Agreeing with the RTC, the CA, in CA-G.R.
CV No. 38373, upheld the lower court’s decision, in the following wise:

The appeal is not meritorious. In view of the final and executory decision in CA-G.R. No. 25530 upholding the right of
defendant’s appellees to exercise their right of legal redemption over the 20,631 square meters involved, plaintiff-appellant
is devoid of any legal right or personality to ask for partition of [the] subject property formerly owned in common. Having
assigned his undivided share therein to Ma. Remedios P. Ramos, plaintiff-appellant ceased to be a co-owner. By
exercising their right of legal redemption, which this Court upheld by final judgment, defendants-appellees now own the
entire area covered by TCT No. M-25565.

The subsequent execution of the Agreement of Rescission by plaintiff-appellant and Ma. Remedios P. Ramos did not
divest defendants appellees of the right of legal redemption vested in them upon the consummation of the assignment
plaintiff-appellant made to Ma. Remedios P. Ramos. x x x

When the pending appeal in CA-G.R. No. CV 25530 was decided and judgment therein became final and executory, the
lower court had to follow what was adjudged by this Court, and while plaintiff-appellant was not a party in the said Civil
Case No. 125-T and CA-G.R. CV No. 25530, plaintiff-appellant is bound by the judgment therein because he was fully
aware of the pendency of such cases. As a matter of fact, he testified in Civil Case No. 125-T. Therefore, the Agreement
of Rescission he later entered into with Ma. Remedios P. Ramos during the pendency of the said case, did not deprive
defendants-appellees of their right of legal redemption. The supposed re-acquisition by plaintiff-appellant of his undivided
share in question, having been effected pendente lite, the same was subject to the outcome of the case.8

Petitioner Samson then appealed to this Court via petition for review on certiorari, but the same was dismissed in a minute
resolution9 dated June 8, 1994 for failure to submit an affidavit of service. This court further denied Samson’s motion for
reconsideration with finality in its Resolution10 dated July 25, 1994 for having no compelling reason to warrant the
reconsideration sought.

On April 4, 2006, petitioner Samson filed a Complaint11 before the RTC of Pasig City for Recovery of Property or its Value
against respondent spouses, Tanay Rural Bank, Inc., and the Register of Deeds of Morong, Rizal, claiming that he had
been paying his one-third (1/3) share of realty taxes covering the subject portion of land for the years 2002 to 2004. In
2005, however, his payment was rejected by the Municipal Treasurer of Tanay, Rizal, at such time he discovered that
respondent spouses had already mortgaged the entire property in favor of respondent Bank back in November 2002.

On August 18, 2006, the RTC of Pasig City dismissed the complaint on the grounds of improper venue, res judicata, and
that the complaint states no cause of action.12 It held that the suit is a real action which should be filed in the RTC of
Morong, Rizal, where the property subject of the case is situated. Moreover, the lower court pointed out that as early as
1991, herein petitioner had already filed a Complaint for Partition of Real Property and Damages involving the same
subject property against the same parties, which complaint was already dismissed by this Court with finality. Thus, the
principle of res judicataapplies. Finally, the trial court held that petitioner’s complaint states no cause of action against
herein respondent Bank as it does not allege any details as to the liability or any violation of petitioner’s rights.
Claiming that the lower court erred in dismissing his complaint, petitioner Samson filed an appeal with the CA, which
likewise dismissed the same for having been improperly brought before it. The appellate court ruled in its Decision13dated
May 9, 2008 that since petitioner’s appeal raised only issues purely of law, it should be dismissed outright.

Undaunted, petitioner filed the instant petition invoking the following arguments:

I.

THE COURT OF APPEALS HAS JURISDICTION OVER PETITIONER’S APPEAL FROM THE ORDER OF THE
REGIONAL TRIAL COURT OF PASIG CITY.

II.

SINCE THE PETITIONER’S COMPLAINT IS BOTH REAL AND PERSONAL, IT WAS PROPERLY FILED WITH
THE REGIONAL TRIAL COURT OF PASIG CITY.

III.

PETITIONER’S COMPLAINT STATES A CAUSE OF ACTION.

IV.

PETITIONER’S COMPLAINT IS NOT BARRED BY RES JUDICATA.

The petition lacks merit.

We agree with the CA’s decision to dismiss petitioner’s appeal, pursuant to Section 2, Rule 50 of the 1997 Rules of Civil
Procedure which mandates the dismissal of an appeal that raises only questions of law.14 The appeal of petitioner, as
correctly held by the CA, essentially raised issues purely of law.

Time and again, this Court has distinguished cases involving pure questions of law from those of pure questions of fact in
the following manner:

A question of fact exists when a doubt or difference arises as to the truth or falsity of alleged facts. If the query requires a
re-evaluation of the credibility of witnesses or the existence or relevance of surrounding circumstances and their relation to
each other, the issue in that query is factual. On the other hand, there is a question of law when the doubt or difference
arises as to what the law is on certain state of facts and which does not call for an existence of the probative value of the
evidence presented by the parties-litigants. In a case involving a question of law, the resolution of the issue rests solely on
what the law provides on the given set of circumstances. Ordinarily, the determination of whether an appeal involves only
questions of law or both questions of law and fact is best left to the appellate court. All doubts as to the correctness of the
conclusions of the appellate court will be resolved in favor of the CA unless it commits an error or commits a grave abuse
of discretion.15

In the instant case, petitioner appealed the Order of the trial court which dismissed his complaint for improper venue, lack
of cause of action, and res judicata.16 Dismissals based on these grounds do not involve a review of the facts of the case
but merely the application of the law, specifically in this case, Rule 16 of the Revised Rules of Civil Procedure. The issue
to be resolved is limited towhether or not saidrule was properly applied, which will only involve a reviewof the complaint,
the motions to dismiss, and the trial court’s order of dismissal, but not the probative value of the evidence submitted nor
the truthfulness or falsity of the facts. Considering, therefore, that the subject appeal raised only questions of law, the CA
committed no error in dismissing the same.

We, likewise, agree with the decision of the RTC of Pasig City dismissing petitioner’s complaint on the ground that the
same should have been filed in the RTC of Morong, Rizal, where the property subject of this case is situated. Petitioner
claims that as shown by the caption of his complaint which reads "For Recovery of Property or its Value," his cause of
action is in the alternative, both real and personal. As such, his action may be commenced and tried where the petitioner
resides or where any of the respondents resides, at the election of the petitioner.17 Petitioner’s argument is misplaced. In
Latorre v. Latorre,18 we ruled that:

Sections 1 and 2, Rule 4 of the 1997 Rules of Civil Procedure provide an answer to the issue of venue. Actions affecting
title to or possession of real property or an interest therein (real actions) shall be commenced and tried in the proper court
that has territorial jurisdiction over the area where the real property is situated. On the other hand, all other actions
(personal actions) shall be commenced and tried in the proper courts where the plaintiff or any of the principal plaintiffs
resides or where the defendant or any of the principal defendants resides. x x x.

In this jurisdiction, we adhere to the principle that the nature of an action is determined by the allegations in the Complaint
itself, rather than by its title or heading. Itis also a settled rule that what determines the venue of a case is the primary
objective for the filing of the case. x x x19 While the complaint of the petitioner was denominated as one for "Recovery of
Property or its Value," all of his claims are actually anchored on his claim of ownership over the one-third (1/3) portion of
the subject property. In his complaint, petitioner sought the return of the portion of the subject property or its value on the
basis of his co-ownership thereof. Necessarily, his alternative claim for the value of the property is still dependent on the
determination of ownership, which is an action affecting title to or possession of real property or an interest therein.
Clearly, petitioner’s claim is a real action which should have been filed in the court where the property lies, which in this
case, is the RTC of Morong, Rizal.

We further agree with the RTC of Pasig City when it dismissed petitioner’s complaint on the ground that the same states
no cause of action in the following wise:
The complaint states no cause of action as herein defendant was impleaded without stating any details of its liabilities nor
any allegation of its violations to the plaintiff’s rights. The only allegation of the rights violated are Articles 19, 20, and 21 of
the Civil Code. More importantly, there are no allegations in the complaint that defendant TRB has violated the aforesaid
laws. There is no detailon why the defendant TRB has been impleaded in the instant case.20

A perusal of the complaint would show that aside from the fact that respondent spouses had mortgaged the property
subject herein to respondent bank, there is no other allegation of an act or omission on the part of respondent Bank in
violation of a right of petitioner. In Spouses Zepeda v. China Banking Corporation,21 We had occasion to discuss the
definition of the term "cause of action," to wit:

A cause of action is a formal statement of the operative facts that give rise to a remedial right. The question of whether the
complaint states a cause of action is determined by its averments regarding the acts committed by the defendant. Thus it
"must contain a concise statement of the ultimate or essential facts constituting the plaintiff’s cause of action." Failure to
make a sufficient allegation of a cause of action in the complaint "warrants its dismissal."

As defined in Section 2, Rule 2 of the Rules of Court, a cause of action is the act or omission by which a party violates the
right of another. Its essential elements are as follows:

1. A right in favor of the plaintiff by whatever means and under whatever law it arises or is created;

2. An obligation on the part of the named defendant to respect or not to violate such right; and

3. Act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a breach of
the obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of damages
or other appropriate relief.

It is, thus, only upon the occurrence of the last element that a cause of action arises, giving the plaintiff the right to
maintain an action in court for recovery of damages or other appropriate relief. In determining whether an initiatory
pleading states a cause of action, "the test is as follows: admitting the truth of the facts alleged, can the court render a
valid judgment in accordance with the prayer?" To be taken into account are only the material allegations in the complaint;
extraneous facts and circumstances or other matters aliunde are not considered. The court may consider in addition to the
complaint the appended annexes or documents, other pleadings of the plaintiff, or admissions in the records.22

As already mentioned, there is nothing in the complaint herein which states specific overt acts to show that respondent
Bank acted in disregard of the petitioner’s rights. Nowhere in the complaint was it alleged that respondent Bank had
knowledge nor could have known with the exercise of due diligence that respondent spouses had acted illegally, in order
to commit a wrong against the petitioner. Petitioner should have at least specified the details of his cause of action against
respondent Bank. The complaint of petitioner in Nacua-Jao v. China Banking Corporation,23 sheds light on the specific
allegations which must at least be stated to constitute a statement of cause of action, to wit:

We are unable to subscribe to the foregoing view of the CA. Even a cursory reading of the Complaint readily reveals a
clear statement of the cause of action of petitioner. The Complaint reads:

"x x x xxx xxx

3. That plaintiff is the lawful owner of Lot No. 561 and its improvements xxx covered by Title No. T-525552 issued
in her name xxx.

xxx xxx xxx

9. That sometime this year, plaintiff was only shocked to learn that a falsified and fraudulent Deed of Absolute Sale
executed on January 19, 1996 was presented to the Register of Deeds xxx in order to cause the cancellation of
plaintiff's title x x x.

10. That consequently, TCT No. T-525552 xxx was illegally cancelled and replaced by TCT No. T-602202 in the
name of defendant Gan spouses x x x.

xxx xxx xxx

12. That Lot No. 561, now covered by TCT No. T-602202 (Annex "H") in the name of defendant Gan spouses is
presently mortgaged to defendant China Banking Corporation in the amount of ₱1,600,000.00; the mortgage is
annotated at the back of Annex "H" and the annotation is marked as Annex "H-1"; all the proceeds thereof went to
defendant Gan Spouses.

13. That on knowing the falsification and the illegal cancellation of her title, plaintiff wrote defendant Jackson Gan
and defendant China Banking Corporation protesting against the unlawful transactions that not only involved Lot
No. 561 at Ternate, Cavite but also Lot No. 9, Blk. 89 at Parañaque, Metro Manila; machine copies of the letter-
protestsare hereto attached as Annexes "I" and "J", respectively, and made integral parts hereof;

xxx xxx xxx

15. That from the foregoing, therefore, it is very evident that defendants had connived and conspired to effect the
so-called sale and mortgage of Lot No. 561 and the transfer of the title thereof to Gan spouses' name. (Emphasis
ours)

xxxx
It appears that the aforementioned properties were unlawfully and criminally mortgaged to your Bankby one Jackson Gan
xxx who forged or caused to be forged and/or falsified or caused to be falsified two (2) separate instruments of sale in his
favor, covering the aforesaid properties making it appear that the said instruments were signed by our client when in truth
and in fact were not."

In sum, the Complaint recites that (1) petitioner was the registered owner of the subject property; (2) she was defrauded of
her rights to the property when title thereto was transferred in the name of Spouses Gan based on a forged deed of sale;
and (3) she was further defrauded of her rights to the property when respondent accepted the same as security for the
payment of a loan acquired by Spouses Gan even when the latter's title to the property is void.x x x24

In contrast, the most that petitioner’s complaint herein stated was Articles 19, 20, and 21 of the Civil Code and that "he
found out that in November 2002, defendants Gabor mortgaged the whole property x x x in favor of the defendant
bank."25 Said bare allegation is insufficient to establish any right or cause of action in favor of the petitioner.

Going now to the fourth and final argument, petitioner insists that his current action for Recovery of Property or its Value is
not barred by res judicata. He claims that not all the elements of the principle of res judicata are present in this case, since
the decision of this Court in the prior partition case was not a judgment on the merits but due to sheer technicality and that
the cause of action in the prior case is partition while the cause of action herein is for recovery of property.26

We disagree. In order for res judicata to bar the institution of a subsequent action, the following requisites must concur: (1)
the judgment sought to bar the new action must be final; (2) the decision must have been rendered by a court having
jurisdiction over the subject matter and the parties; (3) the disposition of the case must be a judgment on the merits; and
(4) there must be as between the first and second action, identity of parties, subject matter, causes of action as are
present in the civil cases below. The foundation principle upon which the doctrine of res judicatarests is that parties ought
not to be permitted to litigate the same issue more than once; that when a right or fact has been judicially tried and
determined by a court of competent jurisdiction, so long asit remains unreversed, it should be conclusive upon the parties
and those in privity with them in law or estate.27

In Selga v. Brar,28 we held that:

Res judicata means "a matter adjudged; a thing judicially acted upon or decided; a thing or matter settled by judgment." It
lays the rule that an existing final judgment or decree rendered on the merits, without fraud or collusion, by a court of
competent jurisdiction, upon any matter within its jurisdiction, is conclusive of the rights of the parties or their privies, in all
other actions or suits in the same or any other judicial tribunal of concurrent jurisdiction on the points and matters in issue
in the first suit.

It must be remembered that it is to the interest of the public that there should be an end to litigation by the parties over a
subject fully and fairly adjudicated. The doctrine of res judicatais a rule that pervades every well-regulated system of
jurisprudence and is founded upon two grounds embodied in various maxims of the common law, namely: (1) public policy
and necessity, which dictates that it would be in the interest of the State that there should be an end to litigation –
republicae ut sit litium; and (2) the hardship on the individual that he should be vexed twice for the same cause – nemo
debet bis vexari pro una et eadem causa. A contrary doctrine would subject public peace and quiet to the will and neglect
of individuals and prefer the gratification of the litigious disposition on the part ofsuitors to the preservation of public
tranquility and happiness.

Res judicata has two concepts. The first is bar by prior judgment under Rule 39, Section 47(b), and the second is
conclusiveness of judgment under Rule 39, Section 47(c).These concepts differ as to the extent of the effect of a judgment
or final order as follows:

SEC. 47. Effect of judgments or final orders. - The effect of a judgment or final order rendered by a court of the
Philippines, having jurisdiction to pronounce the judgment or final order, may be as follows:

xxxx

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

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

Jurisprudence taught uswell that res judicata under the first concept or as a bar against the prosecution of a second action
exists when there is identity of parties, subject matter and cause of action in the first and second actions. The judgment in
the first action is final as to the claim or demand in controversy, including the parties and those in privity with them, not
only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other
admissible matter which might have been offered for that purpose and of all matters that could have been adjudged in that
case. In contrast, res judicata under the second concept or estoppel by judgment exists when there is identity of parties
and subject matter but the causes of action are completely distinct. The first judgment is conclusive only as to those
matters actually and directly controverted and determined and not as to matters merely involved herein.29

Guided by the above discussion, We observe that the case at hand satisfies the essential requisites of res judicataunder
the first concept. With respect to the first three (3) requisites,We find that the judgment sought to bar the instant case was
a judgment on the merits by a court having jurisdiction over the subject matter and the parties, which properly obtained its
finality. As the records reveal, the decision to dismiss petitioner’s earlier complaint for Partition ofReal Property and
Damages30 was rendered by the RTC of Morong, Rizal, having jurisdiction over the subject matter and the parties, after a
consideration of the evidence or stipulations submitted by the parties at the trial of the case. Saidjudgment was rendered
based on the evidence and witnesses presented by the parties who were given ample opportunity to be heard as well as a
valid judgment by the CA, in the separate legal redemption case upholding spouses Gabor’s right of legal redemption,
which became final and executory upon the expiration of the period of appealing the same, the parties pursuing no further
appeal.

In the same way, petitioner’s complaint for partition likewise obtained finality when it was dismissed by this Court of last
resort. Petitioner contends that his Petition for Review on Certiorari was dismissed in a minute resolution 31dated June 8,
1âw phi1

1994 for failure to submit an affidavit of service, a sheer technicality, which is not a judgment on the merits. He failed to
mention, however, that this Court further denied his motion for reconsideration with finality in its Resolution32 dated July 25,
1994 for having no compelling reason to warrant the reconsideration sought. Thus, while this Court initially dismissed
petitioner’s appeal on a mere technicality, it had sufficient opportunity to reverse its dismissal on motion for
reconsideration if it found that any error or injustice has been committed. It, however, did not and in fact even affirmed the
dismissal by further denying petitioner’s motion for reconsideration. There is no question, therefore, that the dismissal of
petitioner’s partition case is final and executory.

Anent the fourth and final requisite, it is undisputed that there exists an identity of the parties and subject matter between
the prior action for partition and the instant subsequent action for recovery of property, the same being filed by herein
petitioner against the same spouses Gabor over the same portion of land in Tanay, Rizal. The fact that respondents Bank
and Register of Deeds were only impleaded in the subsequent case is of no moment since absolute identity of parties is
not required; mere substantial identity of parties, or a community of interests between the party in the first case and the
party in the subsequent case, shall suffice.33

Petitioner, however, contends that the causes of action in both cases differ inasmuch as in the prior case, the cause of
action is partition while in the case at hand, the cause of action is the recovery of property or its value.34

Petitioner is mistaken. In Philippine National Bank v. Gateway Property Holdings, Inc.,35 we have laid down certain
guidelines in determining whether there is identity of causes of action in the following manner:

The crux of the controversy in the instant case is whether there is an identity of causes of action inCivil Case Nos. TM-
1022 and TM-1108.

Section 2, Rule 2 of the Rules of Court defines a cause of action as "the act or omission by which a party violates a right of
another." Section 3 of Rule 2 provides that "[a] party may not institute more than one suit for a single cause of action."
Anent the act of splitting a single cause of action, Section 4 of Rule 2 explicitly states that "[i]f two or more suits are
instituted on the basis of the same cause of action, the filing of one or a judgment upon the merits in any one is available
as a ground for the dismissal of the others."

Apropos, Carlet v. Court of Appealsstates that:

As regards identity of causes ofaction, the test often used in determining whether causes of action are identical is to
ascertain whether the same evidence which is necessary to sustain the second action would have been sufficient to
authorize a recovery in the first, even if the forms or nature of the two actions be different. If the same facts or evidence
would sustain both actions, the two actions are considered the same within the rule that the judgment in the former is a bar
to the subsequent action; otherwise, it is not.36

Applying the above guideline to the instant case, while the two cases are captioned differently, petitioner cannot claim that
there is no res judicata by simply changing the title of the action from "Complaint for Partition of Real Property and
Damages" to a "Complaint for Recovery of Property or its Value." The records clearly reveal that the evidence submitted
by the parties in both cases are identical. Petitioner, in claiming that he had either the right to partition or to recover the
subject property, submitted the same Deed of Assignment37 transferring in his favor the subject property as payment for his
legal services as well as the same Agreement of Rescission of his earlier transfer of the subject property to Ms. Ramos.
As previously mentioned, all of his claims in both actions are actually anchored on his claim of ownership over the one-
third (1/3) portion of the subject property. If it be proven that he is not a co-owner of the subject portion, he will neither
have the right to partition in the prior action nor will he have the right to recover the subject property or its value in the
subsequent action. Hence, the ultimate question which the trial court had to resolve in both cases was whether or not
petitioner is a co-owner of the subject property.

Contrary to petitioner’s allegation thatan action of partition is merely a possessory action which could not bar a subsequent
action, the issue of ownership or co-ownership is necessarilyresolved before the trial court may issue an order of
partition,as we have held in Reyes-De Leon v. Del Rosario,38 viz.:

The issue of ownership or co-ownership, to be more precise, must first be resolved in order to effect a partition of
properties. This should be done in the action for partition itself.As held in the case of Catapusan v. Court of Appeals:

In actions for partition, the court cannot properly issue an order to divide the property, unless it first makes a determination
as to the existence of co -ownership. The court must initially settle the issue of ownership, the first stage in an action for
partition. Needless to state, an action for partition will not lie if the claimant has no rightful interest over the subject
property.In fact, Section 1 of Rule 69 requires the party filing the action to state in his complaint the "nature and extent of
his title" to the real estate. Until and unless the issue of ownership is definitely resolved, it would be premature to effect a
partition of the properties. x x x.39

Considering, therefore, that the RTC of Morong had long before resolved the issue of co-ownership against petitioner in
his complaint for Partition of Real Property, which was affirmed with finality by this Court, no less, petitioner’s subsequent
claim for Recovery ofProperty or its Value must likewise necessarily fail. To reiterate, even if the forms or nature of actions
in both cases are different, since the issues raised essentially involve the claim of ownership over the subjectproperty,
there isidentity of the causes of action.40
It is, therefore, clear from the discussion above that since all of the elements of res judicata are present, the instant suit for
Recovery of Property or its Value is barred by said principle. As we have consistently held, a udgment which has acquired
finality becomes immutable and unalterable, hence, may no longer be modified in any respect except to correct clerical
errors or mistakes, all the issues between the parties being deemed resolved and laid to rest.41 It is a fundamental principle
in our judicial system that every litigation must end and terminate sometime and somewhere, and it is essential to an
effective and efficient administration of justice that, once a judgment has become final, the winning party be, not through a
mere subterfuge, deprived of the fruits of the verdict.42

Exceptions to the immutability of final judgment are allowed only under the most extraordinary of circumstances.43Yet,
when petitioner is given ample opportunity to be heard, unbridled access to the appellate comis, as well as unbiased
judgments rendered after a consideration of evidence presented by the parties, as in the case at hand, We cannot
recklessly reverse the findings of the courts below.

In view of the foregoing, we find no compelling reason to disturb the findings of the RTC of Pasig City and CA. The RTC of
Pasig City correctly dismissed the complaint on the grounds of improper venue, res judicata, and that the complaint states
no cause of action. The CA likewise correctly dismissed petitioner's appeal for raising only issues purely of law.

WHEREFORE, premises considered, the instant petition is DENIED. The Order dated August 18, 2006 of the Regional
Trial Court of Pasig City in Civil Case No. 70750 and Decision dated May 9, 2008 of the Court of Appeals in CA-G.R. CV
No. 88335 are hereby AFFIRMED.

SO ORDERED.

G.R. No. 157163 June 25, 2014

BANK OF THE PHILIPPINE ISLANDS, Petitioner,


vs.
HON. JUDGE AGAPITO L. HONTANOSAS, JR., REGIONAL TRIAL COURT, BRANCH 16, CEBU CITY, SILVERIO
BORBON, SPOUSES XERXES AND ERLINDA FACULTAD, AND XM FACULTAD & DEVELOPMENT
CORPORATION, Respondents.

DECISION

BERSAMIN, J.:

Injunction should not issue except upon a clear showing that the applicant has a right in esse to be protected, and that the
acts sought to be enjoined are violative of such right. A preliminary injunction should not determine the merits of a case, or
decide controverted facts, for, being a preventive remedy, it only seeks to prevent threatened wrong, further injury, and
irreparable harm or injustice until the rights of the parties can be settled.

The Case

Under review at the instance of the defendant, now the petitioner herein, is the decision promulgated on July 9,
2002,1 whereby the Court of Appeals (CA) upheld the order issued on July 5, 2001 in Civil Case No. CEB-26468 entitled
Spouses Silverio & Zosima Borbon, et al. v. Bank of the Philippine Islands by the Regional Trial Court (RTC), Branch 16,
in Cebu City, presided by Hon. Judge Agapito L. Hontanosas, Jr.

Antecedents

On May 22, 2001, respondents Spouses Silverio and Zosima Borbon, Spouses Xerxes and Erlinda Facultad,and XM
Facultad and Development Corporation commenced Civil Case No. CEB-26468 to seek the declaration of the nullity of the
promissory notes,real estate and chattel mortgages and continuing surety agreement they had executed in favor of the
petitioner. They further sought damages and attorney’s fees, and applied for a temporary restraining order (TRO) or writ of
preliminary injunction to prevent the petitioner from foreclosing on the mortgages against their properties.

The complaint alleged that the respondents had obtained a loan from the petitioner, and had executed promissory notes
binding themselves, jointly and severally, to pay the sum borrowed; that as security for the payment of the loan, they had
constituted real estate mortgages on several parcels of land in favor of the petitioner; and that they had been made to sign
a continuing surety agreement and a chattel mortgage on their Mitsubishi Pajero.

It appears that the respondents’obligation to the petitioner had reached ₱17,983,191.49, but they had only been able to
pay ₱13 Million because they had been adversely affected by the economic turmoil in Asia in 1997. The petitioner required
them to issue postdated checks to cover the loan under threat of foreclosing on the mortgages. Thus, the complaint
sought a TRO or a writ of preliminary injunction to stay the threatened foreclosure.

On June 6, 2001, the petitioner filed its answer with affirmative defenses and counterclaim, as well as its opposition to the
issuance of the writ of preliminary injunction, contending that the foreclosure of the mortgages was within its legal right to
do.2

Also on June 6, 2001 the petitioner filed a motion to dismiss reiterating its affirmative defenses, to wit:

I) THAT THE COMPLAINT SHOULD BE DISMISSED BECAUSE VENUE IS IMPROPERLYLAID. (RULE 16,
SECITON 1, PARAGRAPH (C);
II) THAT THE COURT HAS NOTACQUIRED JURISDICTION OVER THE SUBJECT MATTER OFTHE CLAIM
BECAUSE THE PROPER LEGAL FEES HAS NOT BEEN PAID IN ACCORDANCE WITH RULE 14, OF THE
RULES OF COURT AND CIRCULAR NO. 7 OF THE SUPREME COURT, SERIES OF 1988;

III) THAT ZOSIMA BORBON’S COMPLAINT SHOULD BE DISMISSED BECAUSE PLAINTIFF ZOSIMA BORBON
HAS NO LEGAL PERSONALITY TO SUE BEING DECEASED, SPOUSE OF PLAINTIFF SILVERIO BORBON.
(RULE 16, SECTION 1(d);

IV) THAT THE ESTATE OF ZOSIMA BORBON BEING AN INDISPENSABLE PARTY, THE COMPLAINT
SHOULD BE AMENDED TO INCLUDE THE ESTATE OF ZOSIMA BORBON. (RULE 16, SECTION 1(j);

V) THAT THE COMPLAINT OF PLAINTIFF XM FACULTAD AND DEVELOPMENT CORPORATION, SHOULD


BE DISMISSED BECAUSE THERE IS NO BOARD RESOLUTION AUTHORIZING THE FILING OF THIS CASE.
[RULE 16, SECTION 1 (d)];

VI) THAT THE PLEADING ASSERTING THE CLAIM STATES NO CAUSE OF ACTION.3

On July 5, 2001, the RTC denied the petitioner’s motion to dismissfor being unmeritorious,4 but granted the respondents’
application for preliminary injunction,5 to wit:

WHEREFORE, premises considered, the application for preliminary injunction is GRANTED. Upon filing by the plaintiff
applicants of a bond in the amount of ₱2,000,000 in favor of defendant to the effect that applicants will pay to adverse
party all damages which it may sustain by reason of the injunction, let a writ of preliminary injunction be issued directing
the defendant and its agents or representatives, to cease and desist from commencing foreclosure and sale proceedings
of the mortgaged properties; from taking possession of the Mitsubishi Pajero subject of the chattel mortgage; and from
using the questioned post-dated checks as evidence for the filing of complaint against plaintiffs Facultad for violation of
Batas Pambansa Blg. 22, while the present case is pending litigation.

This writ of preliminary injunction shall continue until further orders from the Court.

Notify the parties of this Order.

SO ORDERED.6

The RTC later denied the petitioner’s motion for reconsideration through its order7 of August 22, 2001.

Ruling of the CA

Dissatisfied, the petitioner assailed the orders of the RTC by petition for certiorariin the CA, submitting the lone issue of:

WHETHER OR NOT THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT ISSUED
AN ORDER DENYING THE MOTION TO DISMISS AND GRANTING THE WRIT OF PRELIMINARY MANDATORY
INJUNCTION.

On July 9, 2002, however, the CA rendered the adverse decision under review, to wit:

WHEREFORE, premises considered, the assailed order of the Regional Trial Court (RTC) of Cebu City, Branch 16 dated
July 5, 2001 and August 22, 2001 are hereby AFFIRMED. Let the original records of this case be remanded immediately
to the court a quo for further proceedings. SO ORDERED.8

The CA held that the petitioner’s averment of non-payment of the proper docket fee by the respondents asthe plaintiffs in
Civil Case No. CEB-26468 was not substantiated; that even if the correct docket fee was not in fact paid, the strict
application of the rule thereon could be mitigated in the interest of justice; 9 and that Civil Case No. CEB-26468, being a
personal action, was properly filed in Cebu City where respondent XM Facultad and Development Corporation’s principal
office was located.10

The CA further held that Zosima Borbon’s death rendered respondent Silverio Borbon, her surviving spouse, the
successor to her estate; that although there was a valid transfer of interest pending the litigation, the dismissal of the
complaint would not be in order because it was permissible under the rules to continue the action in the name of the
original party;11 and that the RTC did not commit grave abuse of discretion in issuing the writ of preliminary injunction
because it thereby only applied the pertinent law and jurisprudence.12

The CA denied the petitioner’s motion for reconsideration through its resolution of February 12, 2003.13

Issues

Hence, this appeal, with the petitioner positing as follows:

1. Whether or not Civil Case No. CEB-26468 should be dismissed for (a) non-payment of the correct amount of
docket fee; and (b) improper venue;14

2. Whether or not the issuance of the writ of preliminary injunction against the petitioner, its agents and
representatives, was in order.

Ruling of the Court


The appeal is partly meritorious.

1. Civil Case No. CEB-26468 was a personal action; hence, venue was properly laid

The CA and the RTC held that Civil Case No. CEB-26468, being for the declaration of the nullity of a contract of loan and
its accompanying continuing surety agreement, and the real estate and chattel mortgages, was a personal action; hence,
its filing in Cebu City, the place of business of one of the plaintiffs, was correct under Section 2, Rule 4 of the Rules of
Court.

The petitioner contends, however, that Civil Case No. CEB-26468 was a real action that should be commenced and tried
in the proper court having jurisdiction over the area wherein the real property involved, or a portion thereof, was situated;
and thatconsequently the filing and docket fees for the complaintshould be based on the value of the property as stated in
the certificate of sale attached thereto.

We sustain the lower courts’ holdings.

The determinants of whether an action is of a real or a personal nature have been fixed by the Rules of Courtand relevant
jurisprudence. According to Section 1, Rule 4 of the Rules of Court, a real action is one that affects title to or possession of
real property, or an interest therein. Such action is to be commenced and tried in the proper court having jurisdiction over
the area wherein the real property involved, ora portion thereof, is situated, which explains why the action is also referred
to as a localaction. In contrast, the Rules of Courtdeclares all other actionsas personal actions.15 Such actions may include
those brought for the recovery of personal property, or for the enforcement of some contract or recovery of damages for its
breach, or for the recovery of damages for the commission of an injury to the person or property.16 The venue of a
personal action isthe place where the plaintiff or any of the principal plaintiffs resides,or where the defendant or
any of the principal defendants resides, or in the case of a non-resident defendant where he may be found, at the
election of the plaintiff,17 for which reason the action is considered a transitory one.

The complaint in Civil Case No. CEB-26468 pertinently alleged as follows:18

xxxx

3.1 Plaintiffs signed blank pre-printed forms of promissory note no. 501253-000, continuing surety agreement, real
estate mortgages, chattel mortgage which violates the principle of mutuality of contracts. These contracts are in
the nature of contracts of adhesion with provisions favouring defendant bank and plaintiffs had nothing to do
except to sign the unjust stipulations which should be declared as NULL AND VOID. These contracts do not reflect
the real agreement of the parties and the stipulations are tilted infavor of defendant bank.

3.2 Moreover, these real estate mortgages, chattel mortgages and continuing surety agreement are securing
specific amounts of obligation and upon the payment of ₱13,000,000 to defendant bank, automatically, these
became functus de oficioand should be released immediately without the encumbrance.

3.3 As the chattel mortgage involving the Mitsubishi Pajero secured only ₱600,000.00, upon liquidation of more
than ₱800,000.00 principal payment, the same became null and void, and defendant bank should be ordered to
cancel the mortgage and to be directed not to take any appropriate action to take possession.

3.4 In addition, Penbank Checks Nos. 11237 to 11242 with amounts of ₱200,000.00 each and BPI Check Nos.
019098 & 019099 with amounts of ₱400,000.00 each, issued against the will of plaintiffs Facultad and without any
consideration, should be declared null and void. Defendant bank should be directed not to deposit the same for
collection with the drawee bank.

xxxx

3.6 Furthermore, the total obligation of plaintiffs is void and baseless because it is based on illegal impositions of
exorbitant interest and excessive charges. Interest was converted into principal which in turn earns interest. These
illegal impositions are considered by law and jurisprudence as null and void. These excessive interest and charges
should be applied to the principal unless there is application, defendant bank is enriching itself at the expense of
plaintiffs. x x x x

Based on the aforequoted allegations of the complaintin Civil Case No. CEB-26468, the respondents seek the nullification
of the promissory notes, continuing surety agreement, checks and mortgage agreements for being executed against their
will and vitiated by irregularities, not the recovery of the possession or title to the properties burdened by the mortgages.
There was no allegation that the possession of the properties under the mortgages had already been transferred to the
petitioner in the meantime. Applying the determinants, Civil Case No. CEB-26468 was unquestionably a personal action,
for, as ruled in Chua v. Total Office Products and Services (Topros),Inc.:19

Well-settled is the rule that an action to annul a contract of loan and its accessory real estate mortgageis a personal
action. In a personal action, the plaintiff seeks the recovery of personal property, the enforcement of a contractor the
recovery of damages. In contrast, in a real action, the plaintiff seeks the recovery of real property, or, as indicated in
Section 2 (a), Rule 4 of the then Rules of Court, a real action is an action affecting title to real property or for the recovery
of possession, or for partition or condemnation of, or foreclosure of mortgage on, real property.

In the Pascual case, relied upon by petitioner, the contract of sale of the fishpond was assailed as fictitious for lack of
consideration. We held that there being no contract to begin with, there is nothing to annul. Hence, we deemed the action
for annulment of the said fictitious contract therein as one constituting a real action for the recovery of the fishpond subject
thereof.
We cannot, however, apply the foregoing doctrine to the instant case. Note that in Pascual, title to and possession of the
subject fishpond had already passed to the vendee. There was, therefore, a need to recover the said fishpond. But in the
instant case, ownership of the parcels of land subject of the questioned real estate mortgage was never transferred to
petitioner, but remained with TOPROS. Thus, no real action for the recovery of real property is involved. This being the
case, TOPROS’ action for annulment of the contracts of loan and real estate mortgage remains a personal action.

xxxx

The Court of Appeals finds that Hernandez v. Rural Bank of Lucena, Inc.provides the proper precedent in this case. In
Hernandez, appellants contended that the action of the Hernandez spouses for the cancellation of the mortgage on their
lots was a real action affecting title to real property, which should have been filed in the place where the mortgaged lots
were situated. Rule 4, Section 2 (a), of the then Rules of Court, was applied, to wit:

SEC. 2. Venue in Courts of First Instance. – (a) Real actions. – Actions affecting title to, or for recovery of possession, or
for partition or condemnation of, or foreclosure of mortgage on, real property, shall be commenced and tried in the
province where the property or any part thereof lies.

The Court pointed out in the Hernandezcase that with respect to mortgage, the rule on real actions only mentions an
action for foreclosure of a real estate mortgage. It does not include an action for the cancellation of a real estate mortgage.
Exclusio unios est inclusio alterius. The latter thus falls under the catch-all provision on personal actions under paragraph
(b) of the above-cited section, to wit:

SEC. 2 (b) Personal actions. – All other actions may be commenced and tried where the defendant or any of the
defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff.

In the same vein, the action for annulment of a real estate mortgage in the present case must fall under Section 2 of Rule
4, to wit:

SEC. 2. Venue of personal actions. – All other actions may be commenced and tried where the plaintiff or any of the
principal plaintiffs resides, orwhere the defendant or any of the principal defendants resides, or in the case of a
nonresident defendant where he may be found, at the election of the plaintiff.

Thus, Pasig City, where the parties reside, is the proper venue of the action to nullify the subject loan and real estate
mortgage contracts. The Court of Appeals committed no reversible error in upholding the orders of the Regional Trial
Court denying petitioner’s motion to dismiss the case on the ground of improper venue.

Being a personal action, therefore, Civil Case No. CEB-26468 was properly brought in the RTC in Cebu City, where
respondent XM Facultad and Development Corporation, a principal plaintiff, had its address.

Upon the same consideration, the petitioner’s contention that the filing and docket fees for the complaint should be based
on the assessed values of the mortgaged real properties due to Civil Case No. CEB-26468 being a real action cannot be
upheld for lack of factual and legal bases.

2. Respondents were not entitled to the writ of preliminary injunction

In their application for the issuance of the writ of preliminary injunction, the respondents averred that the nullity of the loan
and mortgage agreements entitled them to the relief of enjoining the petitioner from: (a) foreclosing the real estateand
chattel mortgages; (b)taking possession, by replevin, of the Mitsubishi Pajero; and (c) depositing the postdated checks;
that respondents Spouses Facultad would suffer injustice and irreparable injury should the petitioner foreclose the
mortgages and file criminal complaints for violation of Batas Pambansa Blg.22 against them; and that such threatened
acts, if done, would render ineffectual the judgment of the trial court.20 They prayed that the petitioner be enjoined from
doing acts that would disturb their material possession of the mortgaged properties, manifesting their willingness to post a
bond for the issuance of the writ of preliminary injunction.21

As mentioned, the RTC issued the writ of preliminary injunction on July 16, 2001 based on the foregoing allegations of the
respondents’ application,22 and the CA upheld the issuance in its assailed July 9, 2002 decision.23

The petitioner submits that the issuance of the writ of preliminary injunction constituted a violation of Administrative
Circular (AC) No. 07-99 dated June 25, 1999, and thus subjected respondent Judge to administrative sanction;24that
injunction could not issue to enjoin the prosecution of the criminal offenses because such prosecution was imbued with
public interest;25 and that the petitioner, as the mortgagee, could not be prohibited from exercising its legal right to
foreclose the mortgages because foreclosure of the mortgages was its proper remedy under the law.26

AC No. 07-99 was issued as a guideline for lower court judges in the issuance of TROs and writs of preliminary injunctions
to prevent the implementation of infrastructure projects, or the seizure and forfeiture proceedings by the Bureau of
Customs, viz:

ADMINISTRATIVE CIRCULAR NO. 07-99 June 25, 1999

TO: ALL JUDGES OF LOWER COURTS RE: EXERCISE OF UTMOST CAUTION, PRUDENCE, AND JUDICIOUSNESS
IN ISSUANCE OF TEMPORARY RESTRAINING ORDERS AND WRITS OF PRELIMINARY INJUNCTIONS

Despite well-entrenched jurisprudence and circulars regarding exercise of judiciousness and care in the issuance of
temporary restraining orders (TRO) or grant of writs ofpreliminary injunction, reports or complaints on abuses committed
by trial judges in connection therewith persist. Some even intimated thatirregularities, including corruption, might have
influenced the issuance ofthe TRO or the writ of preliminary injunction.
No less than the President of the Philippines has requested this Court to issue a circular reminding judges to respect P.D.
No. 1818, which prohibits the issuance of TROs in cases involving implementation of government infrastructure projects.
The Office of the President has likewise brought to the attention of this Court orders of judges releasing imported articles
under seizure and forfeiture proceedings by the Bureau of Customs.

Judges are thus enjoined to observe utmost caution, prudence and judiciousness in the issuance of TRO and in the grant
of writs of preliminary injunction to avoid any suspicion that its issuance or grant was for considerations other than the
strict merits of the case.

Judges should bear in mind that in Garcia v. Burgos(291 SCRA 546, 571-572 [1998]), this Court explicitly stated:

Sec. 1 of PD 1818 distinctly provides that "[n]o court in the Philippines shall have jurisdiction to issue any restraining order,
preliminary injunction, or preliminary mandatory injunction in any case, dispute, or controversy involving an infrastructure
project . . . of the government, . . . to prohibit any person or persons, entity or government official from proceeding with, or
continuing the execution or implementation of any such project . . . or pursuing any lawful activity necessary for such
execution, implementation or operation." At the risk of being repetitious, we stress that the foregoing statutory provision
expressly deprives courts of jurisdiction to issue injunctive writs against the implementation or execution of an
infrastructure project.

Their attention is further invited to Circular No. 68-94, issued on 3 November 1994 by the OCA OIC Deputy Court
Administrator Reynaldo L. Suarez, on the subject "Strict Observance of Section 1 of P.D. 1818 Envisioned by Circular No.
13-93 dated March 5, 1993, and Circular No. 20-92 dated March 24, 1992.

Finally, judges should never forget what the Court categorically declared in Mison v. Natividad(213 SCRA 734, 742 [1992]
that "[b]y express provision of law, amply supported by well-settled jurisprudence, the Collector of Customs has exclusive
jurisdiction over seizure and forfeiture proceedings, and regular courts cannot interfere with his exercise thereof or stifleor
put it to naught."

The Office of the Court Administrator shall see to it that this circular is immediately disseminated and shall monitor
implementation thereof.

STRICT OBSERVANCE AND COMPLIANCE of this Circular is hereby enjoined.

AC No. 07-99 was irrelevant herein, however, because Civil Case No. CEB-26468 did not involve the implementation of
infrastructure projects, or the seizure and forfeiture proceedings by the Bureau of Customs. Consequently, the petitioner’s
urging that respondent Judge be held administratively liable for violating AC No. 07-99 was misplaced.

However, the RTC’s issuance of the writ of preliminary injunction to enjoin the petitioner from proceeding withthe
foreclosure of the mortgages was plainly erroneous and unwarranted.

A preliminary injunction is an order granted at any stage of an action prior to the judgment or final order requiring a party
or a court, agency or a person to refrain from a particular act or acts.27 It is the "strong arm of equity," an extraordinary
peremptory remedy that must be used with extreme caution, affecting as it does the respective rights of the parties.28 The
requirements for the issuance of a writ of preliminary injunction or TRO are enumerated in Section 3, Rule 58 of the Rules
of Court, to wit:

Section 3. Grounds for issuance of preliminary injunction. - A preliminary injunction may be granted when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining
the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts,
eitherfor a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation
would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering
to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action
or proceeding, and tending to render the judgment ineffectual.

In City Government of Butuan v. Consolidated Broadcasting System (CBS), Inc.,29 the Court restated the nature and
concept of a writ of preliminary injunction, as follows:

A preliminary injunction is an order granted at any stage of an action or proceeding prior to the judgment orfinal order
requiring a party or a court, an agency, or a person to refrain from a particular act or acts. It may also require the
performance of a particular act or acts, in which case it is known as a preliminary mandatory injunction. Thus, a prohibitory
injunction is one that commands a party to refrain from doing a particular act, while a mandatory injunction commands the
performance of some positive act to correct a wrong in the past.

As with all equitable remedies, injunction must be issued only at the instance of a party who possesses sufficient interest
in or title to the right or the property sought to be protected. It is proper only when the applicant appears to be entitled to
the relief demanded in the complaint, which must aver the existence of the right and the violation of the right, or whose
averments must in the minimum constitute a prima facieshowing of a right to the final relief sought. Accordingly, the
conditions for the issuance of the injunctive writ are: (a) that the right to be protected exists prima facie; (b) that the act
sought to be enjoined is violative of that right; and (c) that there is an urgent and paramount necessity for the writ to
prevent serious damage. An injunction will not issue to protect a right not in esse, or a right which is merely contingent and
may never arise; or to restrain an act which does not give rise to a cause of action; or to prevent the perpetration of an act
prohibited bystatute. Indeed, a right, to be protected by injunction, means a right clearly founded on or granted by law or is
enforceable as a matter of law. (Bold emphasis supplied)

Under the circumstances averred in the complaintin Civil Case No. CEB-26468, the issuance ofthe writ of preliminary
injunction upon the application of the respondents was improper. They had admittedly constituted the real estate and
chattel mortgages to secure the performance of their loan obligation to the petitioner, and, as such, they were fully aware
of the consequences on their rights in the properties given as collaterals should the loan secured be unpaid. The
foreclosure of the mortgages would be the remedy provided by law for the mortgagee to exact payment. 30 In fact, they did
not dispute the petitioner’sallegations that they had not fully paid their obligation, and that Civil Case No. CEB-26468 was
precisely brought by them in order to stave off the impending foreclosure of the mortgages based on their claim that they
had been compelled to sign pre-printed standard bank loan forms and mortgage agreements.

It is true that the trial courts are given generous latitude to act on applications for the injunctive writ for the reason that
conflicting claims in an application for the writ more often than not involve a factual determination that is not the function of
the appellate courts;31 and that the exercise of sound discretion by the issuing courts in injunctive matters ought not to be
interfered with exceptwhen there is manifest abuse.32 Nonetheless, the exercise of such discretion must be sound, that is,
the issuance of the writ, though discretionary, should be upon the grounds and in the manner provided by law. 33 Judges
should always bear in mind that the writ of preliminary injunction is issued uponthe satisfaction of two requisite conditions,
namely: (1) the right to be protected exists prima facie; and (2) the acts sought to be enjoined are violative of that right.
According toSaulog v. Court of Appeals,34 the applicant must have a sufficient interest or right to be protected, but it is
enough that:-

x x x for the court to act, there must be an existing basis of facts affording a present right which is directly threatened by an
act sought to be enjoined. And while a clear showing ofthe right claimed is necessary, its existence need not be
conclusively established. In fact, the evidence to be submitted to justify preliminary injunction at the hearing thereon need
not be conclusive or complete but need only be a "sampling" intended merely to give the court an idea of the justification
for the preliminary injunction pending the decision of the case on the merits. This should really be so since our concern
here involves only the propriety of the preliminary injunction and not the merits of the case still pending with the trial court.

Thus, to be entitled to the writ ofpreliminary injunction, the private respondent needs only to show that it has the ostensible
right to the final relief prayed for in its complaint x x x.

It is also basic that the power to issue a writ of injunction is to be exercised only where the reason and necessity therefor
are clearly established, and only in cases reasonably free from doubt.35 For, truly, a preliminary injunction should not
determine the merits of a case,36 or decide controverted facts.37 As a preventive remedy, injunction only seeks to prevent
threatened wrong,38 further injury,39 and irreparable harm40 or injustice41 until the rights of the parties can be settled. As an
1âw phi 1

ancillary and preventive remedy, it may be resorted to by a party to protect or preserve his rights during the pendency of
the principal action, and for no other purpose.42 Such relief will accordingly protect the ability of the court to render a
meaningful decision;43 it will further serve to guard against a change of circumstances that will hamper or prevent the
granting of proper relief after a trial on the merits.44 Verily, its essential function is to preserve the status quo between the
parties until the merits of the case can be heard.45

Moreover, the applicant must prove that the violation sought to be prevented would cause an irreparable injustice.46But the
respondents failed to establish the irreparable injury they would suffer should the writ of preliminary injunction not be
issued. They principally feared the loss of their possession and ownership of the mortgaged properties, and faced the
possibility of a criminal prosecution for the post-dated checks they issued. But such fear of potential loss of possession
and ownership, or facing a criminal prosecution did not constitute the requisite irreparable injury that could have warranted
the issuance of the writ of injunction. "An injury is considered irreparable," according to Philippine National Bank v.
Castalloy Technology Corporation,47

x x x if it is of such constant and frequent recurrence that no fair or reasonable redress can be had therefor in a court of
law, or where there is no standard by which their amount can be measured with reasonable accuracy, that is, it is not
susceptible of mathematical computation. The provisional remedy of preliminary injunction may only be resorted to when
there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard of
compensation.

The injury being feared by the herein respondents is not of such nature. Ultimately, the amount to which the mortgagee-
bank shall be entitled will be determined by the disposition of the trial court in the main issue of the case. We have
explained in Equitable PCI Bank, Inc. v. OJMark Trading, Inc. that all is not lost for defaulting mortgagors whose properties
were foreclosed by creditors-mortgagees. The respondents will not be deprived outrightly of their property, given the right
of redemption granted to them under the law. Moreover, in extrajudicial foreclosures, mortgagors have the right to receive
any surplus in the selling price. Thus, if the mortgagee is retaining more of the proceeds of the sale than he is entitled to,
this fact alone will not affect the validity of the sale but will give the mortgagor a cause of action to recover such surplus.

As a general rule, the courts will not issue writs of prohibition or injunction – whether preliminary or final – in order to enjoin
or restrain any criminal prosecution.48 But there are extreme cases in which exceptions to the general rule have been
recognized, including: (1) when the injunction is necessary to afford adequate protection to the constitutional rights of the
accused; (2) when it is necessary for the orderly administration of justice or to avoid oppression or multiplicity of actions;
(3) when there is a prejudicial question that is sub judice; (4) when the acts of the officer are without or in excess of
authority; (5) when the prosecution is under an invalid law, ordinance or regulation; (6) when double jeopardy is clearly
apparent; (7) when the court has no jurisdiction over the offense; (8) when it is a case of persecution rather than
prosecution; (9) when the charges are manifestly false and motivated by the lust for vengeance; and (10) when there is
clearly no prima faciecase against the accused and a motion to quash on that ground has been denied. 49 However, the
respondents did not sufficiently show that Civil Case No. CEB-26468 came under any of the foregoing exceptions. Hence,
the issuance by the RTC of the writ of preliminary injunction to enjoin the petitioner from instituting criminal complaints for
violation of BP No. 22 against the respondents was unwarranted.
Every court should remember that an injunction should not be granted lightly or precipitately because it is a limitation upon
the freedom of the defendant's action. It should be granted only when the court is fully satisfied that the law permits it and
the emergency demands it,50 for no power exists whose exercise is more delicate, which requires greater caution and
deliberation, or is more dangerous in a doubtful case, than the issuance of an injunction.51

In view of the foregoing, the CA grossly erred in not declaring that the RTC committed grave abuse of discretion in
granting the application of the respondents as the plaintiffs in Civil Case No. CEB-26468. The RTC apparently disregarded
the aforecited well-known norms and guidelines governing the issuance of the writ of injunction. Thereby, the RTC acted
capriciously and arbitrarily. Grave abuse of discretion means either that the judicial or quasi-judicial power was exercised
in an arbitrary or despotic manner by reason of passion or personal hostility, or that the respondent judge, tribunal or
board evaded a positive duty, or virtually refused to perform the duty enjoined or to act in contemplation of law, such as
when such judge, tribunal or board exercising judicial or quasi-judicial powers acted in a capricious or whimsical manner
as to be equivalent to lack of jurisdiction.52

WHEREFORE, the Court PARTIALLY GRANTS the petition for review on certiorari; MODIFIES the decision promulgated
on July 9, 2002 by annulling and setting aside the writ of preliminary injunction in Civil Case No. CEB-26468 issued by the
Regional Trial Court, Branch 16, in Cebu City for being devoid of factual and legal bases; ORDERS the Regional Trial
Court, Branch 16, in Cebu City to proceed with dispatch in Civil Case No. CEB-26468; and DIRECTS the respondents to
pay the costs of suit.

SO ORDERED.

G.R. No. 186993 August 22, 2012

THEODORE and NANCY ANG, represented by ELDRIGE MARVIN B. ACERON, Petitioners,


vs.
SPOUSES ALAN and EM ANG, Respondents.

VELASCO, JR.,*

LEONARDO-DE CASTRO, **

DECISION

REYES, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside
the Decision1 dated August 28, 2008 and the Resolution2 dated February 20, 2009 rendered by the Court of Appeals (CA)
in CA-G.R. SP No. 101159. The assailed decision annulled and set aside the Orders dated April 12, 2007 3 and August 27,
20074 issued by the Regional Trial Court (RTC) of Quezon City, Branch 81 in Civil Case No. Q-06-58834.

The Antecedent Facts

On September 2, 1992, spouses Alan and Em Ang (respondents) obtained a loan in the amount of Three Hundred
Thousand U.S. Dollars (US$300,000.00) from Theodore and Nancy Ang (petitioners). On even date, the respondents
executed a promissory note5 in favor of the petitioners wherein they promised to pay the latter the said amount, with
interest at the rate of ten percent (10%) per annum, upon demand. However, despite repeated demands, the respondents
failed to pay the petitioners.

Thus, on August 28, 2006, the petitioners sent the respondents a demand letter asking them to pay their outstanding debt
which, at that time, already amounted to Seven Hundred Nineteen Thousand, Six Hundred Seventy-One U.S. Dollars and
Twenty-Three Cents (US$719,671.23), inclusive of the ten percent (10%) annual interest that had accumulated over the
years. Notwithstanding the receipt of the said demand letter, the respondents still failed to settle their loan obligation.

On August 6, 2006, the petitioners, who were then residing in Los Angeles, California, United States of America (USA),
executed their respective Special Powers of Attorney6 in favor of Attorney Eldrige Marvin B. Aceron (Atty. Aceron) for the
purpose of filing an action in court against the respondents. On September 15, 2006, Atty. Aceron, in behalf of the
petitioners, filed a Complaint7 for collection of sum of money with the RTC of Quezon City against the respondents.

On November 21, 2006, the respondents moved for the dismissal of the complaint filed by the petitioners on the grounds
of improper venue and prescription.8 Insisting that the venue of the petitioners’ action was improperly laid, the respondents
asserted that the complaint against them may only be filed in the court of the place where either they or the petitioners
reside. They averred that they reside in Bacolod City while the petitioners reside in Los Angeles, California, USA. Thus,
the respondents maintain, the filing of the complaint against them in the RTC of Quezon City was improper.

The RTC Orders

On April 12, 2007, the RTC of Quezon City issued an Order9 which, inter alia, denied the respondents’ motion to dismiss.
In ruling against the respondents’ claim of improper venue, the court explained that:

Attached to the complaint is the Special Power of Attorney x x x which clearly states that plaintiff Nancy Ang constituted
Atty. Eldrige Marvin Aceron as her duly appointed attorney-in-fact to prosecute her claim against herein defendants.
Considering that the address given by Atty. Aceron is in Quezon City, hence, being the plaintiff, venue of the action may
lie where he resides as provided in Section 2, Rule 4 of the 1997 Rules of Civil Procedure.10
The respondents sought reconsideration of the RTC Order dated April 12, 2007, asserting that there is no law which
allows the filing of a complaint in the court of the place where the representative, who was appointed as such by the
plaintiffs through a Special Power of Attorney, resides.11

The respondents’ motion for reconsideration was denied by the RTC of Quezon City in its Order12 dated August 27, 2007.

The respondents then filed with the CA a petition for certiorari 13 alleging in the main that, pursuant to Section 2, Rule 4 of
the Rules of Court, the petitioners’ complaint may only be filed in the court of the place where they or the petitioners
reside. Considering that the petitioners reside in Los Angeles, California, USA, the respondents assert that the complaint
below may only be filed in the RTC of Bacolod City, the court of the place where they reside in the Philippines.

The respondents further claimed that, the petitioners’ grant of Special Power of Attorney in favor of Atty. Aceron
notwithstanding, the said complaint may not be filed in the court of the place where Atty. Aceron resides, i.e., RTC of
Quezon City. They explained that Atty. Aceron, being merely a representative of the petitioners, is not the real party in
interest in the case below; accordingly, his residence should not be considered in determining the proper venue of the said
complaint.

The CA Decision

On August 28, 2008, the CA rendered the herein Decision,14 which annulled and set aside the Orders dated April 12, 2007
and August 27, 2007 of the RTC of Quezon City and, accordingly, directed the dismissal of the complaint filed by the
petitioners. The CA held that the complaint below should have been filed in Bacolod City and not in Quezon City. Thus:

As maybe clearly gleaned from the foregoing, the place of residence of the plaintiff’s attorney-in-fact is of no moment when
it comes to ascertaining the venue of cases filed in behalf of the principal since what should be considered is the
residence of the real parties in interest, i.e., the plaintiff or the defendant, as the case may be. Residence is the permanent
home – the place to which, whenever absent for business or pleasure, one intends to return. Residence is vital when
dealing with venue. Plaintiffs, herein private respondents, being residents of Los Angeles, California, U.S.A., which is
beyond the territorial jurisdiction of Philippine courts, the case should have been filed in Bacolod City where the
defendants, herein petitioners, reside. Since the case was filed in Quezon City, where the representative of the plaintiffs
resides, contrary to Sec. 2 of Rule 4 of the 1997 Rules of Court, the trial court should have dismissed the case for
improper venue.15

The petitioners sought a reconsideration of the Decision dated August 28, 2008, but it was denied by the CA in its
Resolution dated February 20, 2009.16

Hence, the instant petition.

Issue

In the instant petition, the petitioners submit this lone issue for this Court’s resolution:

WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR OF LAW WHEN IT RULED THAT
THE COMPLAINT MUST BE DISMISSED ON THE GROUND THAT VENUE WAS NOT PROPERLY LAID. 17

The Court’s Ruling

The petition is denied.

Contrary to the CA’s disposition, the petitioners maintain that their complaint for collection of sum of money against the
respondents may be filed in the RTC of Quezon City. Invoking Section 3, Rule 3 of the Rules of Court, they insist that Atty.
Aceron, being their attorney-in-fact, is deemed a real party in interest in the case below and can prosecute the same
before the RTC. Such being the case, the petitioners assert, the said complaint for collection of sum of money may be filed
in the court of the place where Atty. Aceron resides, which is the RTC of Quezon City.

On the other hand, the respondents in their Comment18 assert that the petitioners are proscribed from filing their complaint
in the RTC of Quezon City. They assert that the residence of Atty. Aceron, being merely a representative, is immaterial to
the determination of the venue of the petitioners’ complaint.

The petitioners’ complaint should


have been filed in the RTC of
Bacolod City, the court of the place
where the respondents reside, and
not in RTC of Quezon City.

It is a legal truism that the rules on the venue of personal actions are fixed for the convenience of the plaintiffs and their
witnesses. Equally settled, however, is the principle that choosing the venue of an action is not left to a plaintiff’s caprice;
the matter is regulated by the Rules of Court.19

The petitioners’ complaint for collection of sum of money against the respondents is a personal action as it primarily seeks
the enforcement of a contract. The Rules give the plaintiff the option of choosing where to file his complaint. He can file it
in the place (1) where he himself or any of them resides, or (2) where the defendant or any of the defendants resides or
may be found. The plaintiff or the defendant must be residents of the place where the action has been instituted at the
time the action is commenced.20
However, if the plaintiff does not reside in the Philippines, the complaint in such case may only be filed in the court of the
place where the defendant resides. In Cohen and Cohen v. Benguet Commercial Co., Ltd.,21 this Court held that there can
be no election as to the venue of the filing of a complaint when the plaintiff has no residence in the Philippines. In such
case, the complaint may only be filed in the court of the place where the defendant resides. Thus:

Section 377 provides that actions of this character "may be brought in any province where the defendant or any necessary
party defendant may reside or be found, or in any province where the plaintiff or one of the plaintiffs resides, at the election
of the plaintiff." The plaintiff in this action has no residence in the Philippine Islands. Only one of the parties to the action
resides here. There can be, therefore, no election by plaintiff as to the place of trial. It must be in the province where the
defendant resides. x x x.22 (Emphasis ours)

Here, the petitioners are residents of Los Angeles, California, USA while the respondents reside in Bacolod City. Applying
the foregoing principles, the petitioners’ complaint against the respondents may only be filed in the RTC of Bacolod City –
the court of the place where the respondents reside. The petitioners, being residents of Los Angeles, California, USA, are
not given the choice as to the venue of the filing of their complaint.

Thus, the CA did not commit any reversible error when it annulled and set aside the orders of the RTC of Quezon City and
consequently dismissed the petitioners’ complaint against the respondents on the ground of improper venue.

In this regard, it bears stressing that the situs for bringing real and personal civil actions is fixed by the Rules of Court to
attain the greatest convenience possible to the litigants and their witnesses by affording them maximum accessibility to the
courts.23 And even as the regulation of venue is primarily for the convenience of the plaintiff, as attested by the fact that the
choice of venue is given to him, it should not be construed to unduly deprive a resident defendant of the rights conferred
upon him by the Rules of Court.24

Atty. Aceron is not a real party in


interest in the case below; thus, his
residence is immaterial to the venue
of the filing of the complaint.

Contrary to the petitioners’ claim, Atty. Aceron, despite being the attorney-in-fact of the petitioners, is not a real party in
interest in the case below. Section 2, Rule 3 of the Rules of Court reads:

Sec. 2. Parties in interest. – A real party in interest is the party who stands to be benefited or injured by the judgment in
the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must
be prosecuted or defended in the name of the real party in interest. (Emphasis ours)

Interest within the meaning of the Rules of Court means material interest or an interest in issue to be affected by the
decree or judgment of the case, as distinguished from mere curiosity about the question involved.25 A real party in interest
is the party who, by the substantive law, has the right sought to be enforced.26

Applying the foregoing rule, it is clear that Atty. Aceron is not a real party in interest in the case below as he does not
stand to be benefited or injured by any judgment therein. He was merely appointed by the petitioners as their attorney-in-
fact for the limited purpose of filing and prosecuting the complaint against the respondents. Such appointment, however,
does not mean that he is subrogated into the rights of petitioners and ought to be considered as a real party in interest.

Being merely a representative of the petitioners, Atty. Aceron in his personal capacity does not have the right to file the
complaint below against the respondents. He may only do so, as what he did, in behalf of the petitioners – the real parties
in interest. To stress, the right sought to be enforced in the case below belongs to the petitioners and not to Atty. Aceron.
Clearly, an attorney-in-fact is not a real party in interest.27

The petitioner’s reliance on Section 3, Rule 3 of the Rules of Court to support their conclusion that Atty. Aceron is likewise
a party in interest in the case below is misplaced. Section 3, Rule 3 of the Rules of Court provides that:

Sec. 3. Representatives as parties. – Where the action is allowed to be prosecuted and defended by a representative or
someone acting in a fiduciary capacity, the beneficiary shall be included in the title of the case and shall be deemed to be
the real property in interest. A representative may be a trustee of an expert trust, a guardian, an executor or administrator,
or a party authorized by law or these Rules. An agent acting in his own name and for the benefit of an undisclosed
principal may sue or be sued without joining the principal except when the contract involves things belonging to the
principal. (Emphasis ours)

Nowhere in the rule cited above is it stated or, at the very least implied, that the representative is likewise deemed as the
real party in interest. The said rule simply states that, in actions which are allowed to be prosecuted or defended by a
representative, the beneficiary shall be deemed the real party in interest and, hence, should be included in the title of the
case.

Indeed, to construe the express requirement of residence under the rules on venue as applicable to the attorney-in-fact of
the plaintiff would abrogate the meaning of a "real party in interest", as defined in Section 2 of Rule 3 of the 1997 Rules of
Court vis-à-vis Section 3 of the same Rule.28

On this score, the CA aptly observed that:

As may be unerringly gleaned from the foregoing provisions, there is nothing therein that expressly allows, much less
implies that an action may be filed in the city or municipality where either a representative or an attorney-in-fact of a real
party in interest resides. Sec. 3 of Rule 3 merely provides that the name or names of the person or persons being
represented must be included in the title of the case and such person or persons shall be considered the real party in
interest. In other words, the principal remains the true party to the case and not the representative. Under the plain
meaning rule, or verba legis, if a statute is clear, plain and free from ambiguity, it must be given its literal meaning and
applied without interpretation. xxx29 (Citation omitted)

At this juncture, it bears stressing that the rules on venue, like the other procedural rules, are designed to insure a just and
orderly administration of justice or the impartial and even-handed determination of every action and proceeding.
Obviously, this objective will not be attained if the plaintiff is given unrestricted freedom to choose the court where he may
file his complaint or petition. The choice of venue should not be left to the plaintiff's whim or caprice. He may be impelled
by some ulterior motivation in choosing to file a case in a particular court even if not allowed by the rules on venue.30

WHEREFORE, in consideration of the foregoing disquisitions, the petition is DENIED. The Decision dated August 28,
2008 and Resolution dated February 20, 2009 rendered by the Court of Appeals in CA-G.R. SP No. 101159
are AFFIRMED.

SO ORDERED

G.R. No. 159507 April 19, 2006

ANICETO G. SALUDO, JR., Petitioner,


vs.
AMERICAN EXPRESS INTERNATIONAL, INC., and/or IAN T. FISH and DOMINIC MASCRINAS, Respondents.

DECISION

CALLEJO, SR., J.:

Before the Court is the Petition for Review on Certiorari filed by Aniceto G. Saludo, Jr. seeking to reverse and set aside
the Decision1 dated May 22, 2003 of the Court of Appeals in CA-G.R. SP No. 69553. The assailed decision directed the
Regional Trial Court (RTC) of Maasin City, Southern Leyte, Branch 25 thereof, to vacate and set aside its Orders dated
September 10, 2001 and January 2, 2002 in Civil Case No. R-3172, and enjoined the presiding judge2 thereof from
conducting further proceedings in said case, except to dismiss the complaint filed therewith on ground of improper venue.
The petition also seeks to reverse and set aside the appellate court's Resolution dated August 14, 2003 denying the
motion for reconsideration of the assailed decision.

The factual and procedural antecedents are as follows:

Aniceto G. Saludo, Jr. filed a complaint for damages against the American Express International, Inc. (AMEX) and/or its
officers Ian T. Fish, Vice-President and Country Manager, and Dominic Mascrinas, Head of Operations, with the RTC of
Maasin City, Southern Leyte. The case was raffled to Branch 25 of the said court.

The complaint alleged, inter alia, that plaintiff (herein petitioner Saludo) "is a Filipino citizen, of legal age, and a member of
the House of Representatives and a resident of Ichon, Macrohon, Southern Leyte, Philippines." On the other hand,
defendant (herein respondent AMEX, Inc.) "is a corporation doing business in the Philippines and engaged in providing
credit and other credit facilities and allied services with office address at 4th floor, ACE Building, Rada Street, Legaspi
Village, Makati City." The other defendants (herein respondents Fish and Mascrinas) are officers of respondent AMEX,
and may be served with summons and other court processes at their office address.

The complaint's cause of action stemmed from the alleged wrongful dishonor of petitioner Saludo's AMEX credit card and
the supplementary card issued to his daughter. The first dishonor happened when petitioner Saludo's daughter used her
supplementary credit card to pay her purchases in the United States some time in April 2000. The second dishonor
occurred when petitioner Saludo used his principal credit card to pay his account at the Hotel Okawa in Tokyo, Japan
while he was there with other delegates from the Philippines to attend the Congressional Recognition in honor of Mr.
Hiroshi Tanaka.

The dishonor of these AMEX credit cards were allegedly unjustified as they resulted from respondents' unilateral act of
suspending petitioner Saludo's account for his failure to pay its balance covering the period of March 2000. Petitioner
Saludo denied having received the corresponding statement of account. Further, he was allegedly wrongfully charged for
late payment in June 2000. Subsequently, his credit card and its supplementary cards were canceled by respondents on
July 20, 2000.

Petitioner Saludo claimed that he suffered great inconvenience, wounded feelings, mental anguish, embarrassment,
humiliation and besmirched political and professional standing as a result of respondents' acts which were committed in
gross and evident bad faith, and in wanton, reckless and oppressive manner. He thus prayed that respondents be
adjudged to pay him, jointly and severally, actual, moral and exemplary damages, and attorney's fees.

In their answer, respondents specifically denied the allegations in the complaint. Further, they raised the affirmative
defenses of lack of cause of action and improper venue. On the latter, respondents averred that the complaint should be
dismissed on the ground that venue was improperly laid because none of the parties was a resident of Leyte. They alleged
that respondents were not residents of Southern Leyte. Moreover, notwithstanding the claim in his complaint, petitioner
Saludo was not allegedly a resident thereof as evidenced by the fact that his community tax certificate, which was
presented when he executed the complaint's verification and certification of non-forum shopping, was issued at Pasay
City. To buttress their contention, respondents pointed out that petitioner Saludo's complaint was prepared in Pasay City
and signed by a lawyer of the said city. Respondents prayed for the dismissal of the complaint a quo.
Thereafter, respondents filed an Opposition to Ex-Parte Motion (to Set Case for Pre-Trial) and Motion for Preliminary
Hearing (on Affirmative Defense of Improper Venue) to which petitioner Saludo filed his Comments and/or Objections to
the Affirmative Defense of Improper Venue. He asserted that any allegation refuting his residency in Southern Leyte was
baseless and unfounded considering that he was the congressman of the lone district thereof at the time of the filing of his
complaint. He urged the court a quo to take judicial notice of this particular fact. As a member of Congress, he possessed
all the qualifications prescribed by the Constitution including that of being a resident of his district. He was also a member
of the Integrated Bar of the Philippines-Southern Leyte Chapter, and has been such ever since his admission to the Bar.
His community tax certificate was issued at Pasay City only because he has an office thereat and the office messenger
obtained the same in the said city. In any event, the community tax certificate is not determinative of one's residence.

In the Order dated September 10, 2001, the court a quo denied the affirmative defenses interposed by respondents. It
found the allegations of the complaint sufficient to constitute a cause of action against respondents. The court a quo
likewise denied respondents' affirmative defense that venue was improperly laid. It reasoned, thus:

x x x [T]he fact alone that the plaintiff at the time he filed the complaint was and still is, the incumbent Congressman of the
Lone District of Southern Leyte with residence at Ichon, Macrohon, Southern Leyte, is enough to dispell any and all doubts
about his actual residence. As a high-ranking government official of the province, his residence there can be taken judicial
notice of. As such his personal, actual and physical habitation or his actual residence or place of abode can never be in
some other place but in Ichon, Macrohon, Southern Leyte. It is correctly stated by the plaintiff, citing the case of Core v.
Core, 100 Phil. 321 that, "residence, for purposes of fixing venue of an action, is synonymous with domicile. This is
defined as the permanent home, the place to which, whenever absent for business or pleasure, one intends to return, and
depends on the facts and circumstances, in the sense that they disclose intent. A person can have but one domicile at a
time. A man can have but one domicile for one and the same purpose at any time, but he may have numerous places of
residence. Venue could be at place of his residence. (Masa v. Mison, 200 SCRA 715 [1991])3

Respondents sought the reconsideration thereof but the court a quo denied the same in the Order dated January 2, 2002.
They then filed with the appellate court a petition for certiorari and prohibition alleging grave abuse of discretion on the part
of the presiding judge of the court a quo in issuing the September 10, 2001 and January 2, 2002 Orders. Upon
respondents' posting of a bond, the appellate court issued on March 14, 2002 a temporary restraining order which
enjoined the presiding judge of the court a quo from conducting further proceedings in Civil Case No. R-3172.

On May 22, 2003, the appellate court rendered the assailed decision granting respondents' petition for certiorari as it found
that venue was improperly laid. It directed the court a quo to vacate and set aside its Orders dated September 10, 2001
and January 2, 2002, and enjoined the presiding judge thereof from further proceeding in the case, except to dismiss the
complaint.

The appellate court explained that the action filed by petitioner Saludo against respondents is governed by Section 2, Rule
4 of the Rules of Court. The said rule on venue of personal actions basically provides that personal actions may be
commenced and tried where plaintiff or any of the principal plaintiffs resides, or where defendant or any of the principal
defendants resides, at the election of plaintiff.

Venue was improperly laid in the court a quo, according to the appellate court, because not one of the parties was a
resident of Southern Leyte. Specifically, it declared that petitioner Saludo was not a resident thereof. The appellate court
pronounced that, for purposes of venue, the residence of a person is his personal, actual or physical habitation, or his
actual residence or place of abode, which may not necessarily be his legal residence or domicile provided he resides
therein with continuity and consistency.4

The appellate court quoted the following discussion in Koh v. Court of Appeals5 where the Court distinguished the terms
"residence" and "domicile" in this wise:

x x x [T]he term domicile is not exactly synonymous in legal contemplation with the term residence, for it is [an] established
principle in Conflict of Laws that domicile refers to the relatively more permanent abode of a person while residence
applies to a temporary stay of a person in a given place. In fact, this distinction is very well emphasized in those cases
where the Domiciliary Theory must necessarily supplant the Nationality Theory in cases involving stateless persons.

xxxx

"There is a difference between domicile and residence. Residence is used to indicate a place of abode, whether
permanent or temporary; domicile denotes a fixed permanent residence to which when absent, one has the intention of
returning. A man may have a residence in one place and a domicile in another. Residence is not domicile, but domicile is
residence coupled with intention to remain for an unlimited time. A man can have but one domicile for one and the same
purpose at any time, but he may have numerous places of residence. His place of residence generally is his place of
domicile, but is not by any means, necessarily so since no length of residence without intention of remaining will constitute
domicile."6 (Italicized for emphasis)

In holding that petitioner Saludo is not a resident of Maasin City, Southern Leyte, the appellate court referred to his
community tax certificate, as indicated in his complaint's verification and certification of non-forum shopping, which was
issued at Pasay City. Similarly, it referred to the same community tax certificate, as indicated in his complaint for
deportation filed against respondents Fish and Mascrinas. Under Republic Act No. 7160,7 the community tax certificate
shall be paid in the place of residence of the individual, or in the place where the principal office of the juridical entity is
located.8 It also pointed out that petitioner Saludo's law office, which was also representing him in the present case, is in
Pasay City. The foregoing circumstances were considered by the appellate court as judicial admissions of petitioner
Saludo which are conclusive upon him and no longer required proof.

The appellate court chided the court a quo for stating that as incumbent congressman of the lone district of Southern
Leyte, judicial notice could be taken of the fact of petitioner Saludo's residence thereat. No evidence had yet been
adduced that petitioner Saludo was then the congressman of Southern Leyte and actual resident of Ichon, Macrohon of
the said province.

The appellate court held that, based on his complaint, petitioner Saludo was actually residing in Pasay City. It faulted him
for filing his complaint with the court a quo when the said venue is inconvenient to the parties to the case. It opined that
under the rules, the possible choices of venue are Pasay City or Makati City, or any place in the National Capital Judicial
Region, at the option of petitioner Saludo.

It stressed that while the choice of venue is given to plaintiff, said choice is not left to his caprice and cannot deprive a
defendant of the rights conferred upon him by the Rules of Court.9 Further, fundamental in the law governing venue of
actions that the situs for bringing real and personal civil actions is fixed by the rules to attain the greatest possible
convenience to the party litigants by taking into consideration the maximum accessibility to them - i.e., to both plaintiff and
defendant, not only to one or the other - of the courts of justice.10

The appellate court concluded that the court a quo should have given due course to respondents' affirmative defense of
improper venue in order to avoid any suspicion that petitioner Saludo's motive in filing his complaint with the court a quo
was only to vex and unduly inconvenience respondents or even to wield influence in the outcome of the case, petitioner
Saludo being a powerful and influential figure in the said province. The latter circumstance could be regarded as a "specie
of forum shopping" akin to that in Investors Finance Corp. v. Ebarle11 where the Court mentioned that the filing of the civil
action before the court in Pagadian City "was a specie of forum shopping" considering that plaintiff therein was an
influential person in the locality.

The decretal portion of the assailed Decision dated May 22, 2003 of the appellate court reads:

UPON THE VIEW WE TAKE OF THIS CASE, THUS, the challenged orders must be, as they hereby are, VACATED and
SET ASIDE and the respondent judge, or any one acting in his place or stead, is instructed and enjoined to desist from
further proceeding in the case, except to dismiss it. The temporary restraining order earlier issued is hereby converted into
a writ of preliminary injunction, upon the posting this time by petitioners [herein respondents], within five (5) days from
receipt of this decision, of a bond in the amount of Five Million Pesos (P5,000,000.00), to answer for all damages that
private respondent [herein petitioner] may sustain by reason of the issuance of such injunction should the Court finally
decide that petitioners are not entitled thereto. Private respondent, if he so minded, may refile his case for damages before
the Regional Trial Court of Makati City or Pasay City, or any of the Regional Trial Courts of the National Capital Judicial
Region. Without costs.

SO ORDERED.12

Petitioner Saludo sought the reconsideration of the said decision but the appellate court, in the Resolution dated August
14, 2003, denied his motion for reconsideration. Hence, he filed the instant petition for review with the Court alleging that:

The Court of Appeals, (Special Fourth Division), in promulgating the afore-mentioned Decision and Resolution, has
decided a question of substance in a way probably not in accord with law or with applicable decisions of this Honorable
Court.

(a) the Court of Appeals erred in not taking judicial notice of the undisputed fact that herein petitioner is the
incumbent congressman of the lone district of Southern Leyte and as such, he is a residence (sic) of said district;

(b) the Court of Appeals erred in dismissing the complaint on the basis of improper venue due to the alleged
judicial admission of herein petitioner;

(c) the Court of Appeals in dismissing the complaint ignored applicable decisions of this Honorable Court; and 1avv phil .net

(d) the Court of Appeals erred in deciding that herein petitioner violated the rules on venue, and even speculated
that herein petitioner's motive in filing the complaint in Maasin City was only to vex the respondents.13

In gist, the sole substantive issue for the Court's resolution is whether the appellate court committed reversible error in
holding that venue was improperly laid in the court a quo in Civil Case No. R-3172 because not one of the parties,
including petitioner Saludo, as plaintiff therein, was a resident of Southern Leyte at the time of filing of the complaint.

The petition is meritorious.

Petitioner Saludo's complaint for damages against respondents before the court a quo is a personal action. As such, it is
governed by Section 2, Rule 4 of the Rules of Courts which reads:

SEC. 2. Venue of personal actions. - All other actions may be commenced and tried where the plaintiff or any of the
principal plaintiffs resides, or where the defendant or any of the principal defendants resides, or in the case of a non-
resident defendant where he may be found, at the election of the plaintiff.

The choice of venue for personal actions cognizable by the RTC is given to plaintiff but not to plaintiff's caprice because
the matter is regulated by the Rules of Court.14 The rule on venue, like other procedural rules, is designed to insure a just
and orderly administration of justice, or the impartial and evenhanded determination of every action and proceeding. 15 The
option of plaintiff in personal actions cognizable by the RTC is either the place where defendant resides or may be found,
or the place where plaintiff resides. If plaintiff opts for the latter, he is limited to that place.16

Following this rule, petitioner Saludo, as plaintiff, had opted to file his complaint with the court a quo which is in Maasin
City, Southern Leyte. He alleged in his complaint that he was a member of the House of Representatives and a resident of
Ichon, Macrohon, Southern Leyte to comply with the residency requirement of the rule.
However, the appellate court, adopting respondents' theory, made the finding that petitioner Saludo was not a resident of
Southern Leyte at the time of the filing of his complaint. It hinged the said finding mainly on the fact that petitioner Saludo's
community tax certificate, indicated in his complaint's verification and certification of non-forum shopping, was issued at
Pasay City. That his law office is in Pasay City was also taken by the appellate court as negating petitioner Saludo's claim
of residence in Southern Leyte.

The appellate court committed reversible error in finding that petitioner Saludo was not a resident of Southern Leyte at the
time of the filing of his complaint, and consequently holding that venue was improperly laid in the court a quo. In Dangwa
Transportation Co., Inc. v. Sarmiento,17 the Court had the occasion to explain at length the meaning of the term "resides"
for purposes of venue, thus:

In Koh v. Court of Appeals, we explained that the term "resides" as employed in the rule on venue on personal actions
filed with the courts of first instance means the place of abode, whether permanent or temporary, of the plaintiff or the
defendant, as distinguished from "domicile" which denotes a fixed permanent residence to which, when absent, one has
the intention of returning.

"It is fundamental in the law governing venue of actions (Rule 4 of the Rules of Court) that the situs for bringing real and
personal civil actions are fixed by the rules to attain the greatest convenience possible to the parties-litigants by taking into
consideration the maximum accessibility to them of the courts of justice. It is, likewise, undeniable that the term domicile is
not exactly synonymous in legal contemplation with the term residence, for it is an established principle in Conflict of Laws
that domicile refers to the relatively more permanent abode of a person while residence applies to a temporary stay of a
person in a given place. In fact, this distinction is very well emphasized in those cases where the Domiciliary Theory must
necessarily supplant the Nationality Theory in cases involving stateless persons.

"This Court held in the case of Uytengsu v. Republic, 50 O.G. 4781, October, 1954, reversing its previous stand in Larena
v. Ferrer, 61 Phil. 36, and Nuval v. Guray, 52 Phil. 645, that -

'There is a difference between domicile and residence. Residence is used to indicate a place of abode, whether
permanent or temporary; domicile denotes a fixed permanent residence to which when absent, one has the intention of
returning. A man may have a residence in one place and a domicile in another. Residence is not domicile, but domicile is
residence coupled with the intention to remain for an unlimited time. A man can have but one domicile for one and the
same purpose at any time, but he may have numerous places of residence. His place of residence generally is his place of
domicile, but is not by any means, necessarily so since no length of residence without intention of remaining will constitute
domicile.' (Italicized for emphasis)

"We note that the law on venue in Courts of First Instance (Section 2, of Rule 4, Rules of Court) in referring to the parties
utilizes the words 'resides or may be found,' and not 'is domiciled,' thus:

'Sec. 2(b) Personal actions - All other actions may be commenced and tried where the defendant or any of the defendants
resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff.' (Italicized for
emphasis)

"Applying the foregoing observation to the present case, We are fully convinced that private respondent Coloma's
protestations of domicile in San Nicolas, Ilocos Norte, based on his manifested intention to return there after the retirement
of his wife from government service to justify his bringing of an action for damages against petitioner in the C.F.I. of Ilocos
Norte, is entirely of no moment since what is of paramount importance is where he actually resided or where he may be
found at the time he brought the action, to comply substantially with the requirements of Sec. 2(b) of Rule 4, Rules of
Court, on venue of personal actions." (Koh v. Court of Appeals, supra, pp. 304-305.)

The same construction of the word "resides" as used in Section 1, Rule 73, of the Revised Rules of Court, was enunciated
in Fule v. Court of Appeals, et al. (G.R. No. L-40502) and Fule v. Hon. Ernani C. Paño, et al. (G.R. No. L-42670), decided
on November 29, 1976. Thus, this Court, in the aforecited cases, stated:

"2. But, the far-ranging question is this: What does the term 'resides' mean? Does it refer to the actual residence or
domicile of the decedent at the time of his death? We lay down the doctrinal rule that the term 'resides' connotes ex vi
termini 'actual residence' as distinguished from 'legal residence or domicile.' This term 'resides,' like the terms 'residing'
and 'residence' is elastic and should be interpreted in the light of the object or purposes of the statute or rule in which it is
employed. In the application of venue statutes and rules - Section 1, Rule 73 of the Revised Rules of Court is of such
nature - residence rather than domicile is the significant factor. Even where the statute uses the word 'domicile' still it is
construed as meaning residence and not domicile in the technical sense. Some cases make a distinction between the
terms 'residence' and 'domicile' but as generally used in statutes fixing venue, the terms are synonymous, and convey the
same meaning as the term 'inhabitant.' In other words, 'resides' should be viewed or understood in its popular sense,
meaning, the personal, actual or physical habitation of a person, actual residence or place of abode. It signifies physical
presence in a place and actual stay thereat. In this popular sense, the term means merely residence, that is, personal
residence, not legal residence or domicile. Residence simply requires bodily presence as an inhabitant in a given place,
while domicile requires bodily presence in that place and also an intention to make it one's domicile. No particular length of
time of residence is required though; however, the residence must be more than temporary."18

There is no dispute that petitioner Saludo was the congressman or the representative of the lone district of Southern Leyte
at the time of filing of his complaint with the court a quo. Even the appellate court admits this fact as it states that "it may
be conceded that private respondent ever so often travels to Maasin City, Southern Leyte, because he is its representative
in the lower house."19

As a member of the House of Representatives, petitioner Saludo was correctly deemed by the court a quo as possessing
the requirements for the said position,20 including that he was then a resident of the district which he was representing, i.e.,
Southern Leyte. Significantly, for purposes of election law, the term "residence" is synonymous with "domicile," thus:
x x x [T]he Court held that "domicile" and "residence" are synonymous. The term "residence," as used in the election law,
imports not only an intention to reside in a fixed place but also personal presence in that place, coupled with conduct
indicative of such intention. "Domicile" denotes a fixed permanent residence to which when absent for business or
pleasure, or for like reasons, one intends to return. x x x21

It can be readily gleaned that the definition of "residence" for purposes of election law is more stringent in that it is equated
with the term "domicile." Hence, for the said purpose, the term "residence" imports "not only an intention to reside in a
fixed place but also personal presence in that place, coupled with conduct indicative of such intention." 22When parsed,
therefore, the term "residence" requires two elements: (1) intention to reside in the particular place; and (2) personal or
physical presence in that place, coupled with conduct indicative of such intention. As the Court elucidated, "the place
where a party actually or constructively has a permanent home, where he, no matter where he may be found at any given
time, eventually intends to return and remain, i.e., his domicile, is that to which the Constitution refers when it speaks of
residence for the purposes of election law."23

On the other hand, for purposes of venue, the less technical definition of "residence" is adopted. Thus, it is understood to
mean as "the personal, actual or physical habitation of a person, actual residence or place of abode. It signifies physical
presence in a place and actual stay thereat. In this popular sense, the term means merely residence, that is, personal
residence, not legal residence or domicile. Residence simply requires bodily presence as an inhabitant in a given place,
while domicile requires bodily presence in that place and also an intention to make it one's domicile."24

Since petitioner Saludo, as congressman or the lone representative of the district of Southern Leyte, had his residence (or
domicile) therein as the term is construed in relation to election laws, necessarily, he is also deemed to have had his
residence therein for purposes of venue for filing personal actions. Put in another manner, Southern Leyte, as the domicile
of petitioner Saludo, was also his residence, as the term is understood in its popular sense. This is because "residence is
not domicile, but domicile is residence coupled with the intention to remain for an unlimited time."

Reliance by the appellate court on Koh v. Court of Appeals25 is misplaced. Contrary to its holding,26 the facts of the present
case are not similar to the facts therein. In Koh, the complaint was filed with the Court of First Instance in San Nicolas,
Ilocos Norte by plaintiff who admitted that he was a resident of Kamias, Quezon City. Save for the fact that he grew up in
San Nicolas, Ilocos Norte and that he manifested the intent to return there after retirement, plaintiff therein had not
established that he was actually a resident therein at the time of the filing of his complaint. Neither did he establish that he
had his domicile therein because although he manifested the intent to go back there after retirement, the element of
personal presence in that place was lacking. To reiterate, domicile or residence, as the terms are taken as synonyms,
imports "not only an intention to reside in a fixed place but also personal presence in that place, coupled with conduct
indicative of such intention."27

In contrast, petitioner Saludo was the congressman or representative of Southern Leyte at the time of filing of his
complaint with the court a quo. Absent any evidence to the contrary, he is deemed to possess the qualifications for the
said position, including that he was a resident therein. And following the definition of the term "residence" for purposes of
election law, petitioner Saludo not only had the intention to reside in Southern Leyte, but he also had personal presence
therein, coupled with conduct indicative of such intention. The latter element, or his bodily presence as an inhabitant in
Southern Leyte, was sufficient for petitioner Saludo to be considered a resident therein for purposes of venue.

The following ratiocination of the court a quo is apt:

Residence in civil law is a material fact, referring to the physical presence of a person in a place. A person can have two or
more residences, such as a country residence and a city residence. (Quetulio v. Ruiz, S.C. Off. Gaz. 156, Commentaries
and Jurisprudence in Civil Law, Vol. 1, page 211, Tolentino). Residence is acquired by living in a place; on the other hand,
domicile can exist without actually living in the place. The important thing for domicile is that, once residence has been
established in one place, there be an intention to stay there permanently, even if residence is also established in some
other place.

Thus, if a person lives with his family habitually in Quezon City, he would have his domicile in Quezon City. If he also has
a house for vacation purposes in the City of Baguio, and another house in connection with his business in the City of
Manila, he would have residence in all three places (Tolentino, Commentaries and Jurisprudence on Civil Law, Vol. 1,
Page 212, 1990 Edition) so that one[']s legal residence or domicile can also be his actual, personal or physical residence
or habitation or place of abode if he stays there with intention to stay there permanently.

In the instant case, since plaintiff has a house in Makati City for the purpose of exercising his profession or doing business
and also a house in Ichon, Macrohon, Southern Leyte, for doing business and/or for election or political purposes where
he also lives or stays physically, personally and actually then he can have residences in these two places. Because it
would then be preposterous to acknowledge and recognize plaintiff Aniceto G. Saludo, Jr. as congressman of Southern
Leyte without also recognizing him as actually, personally and physically residing thereat, when such residence is required
by law.28

The fact then that petitioner Saludo's community tax certificate was issued at Pasay City is of no moment because
granting arguendo that he could be considered a resident therein, the same does not preclude his having a residence in
Southern Leyte for purposes of venue. A man can have but one domicile for one and the same purpose at any time, but
he may have numerous places of residence.29

That petitioner Saludo was the congressman or representative of the lone district of Southern Leyte at the time of the filing
of his complaint was admitted as a fact by the court a quo. In this connection, it consequently held that, as such, petitioner
Saludo's residence in Southern Leyte, the district he was the representing, could be taken judicial notice of. The court a
quo cannot be faulted for doing so because courts are allowed "to take judicial notice of matters which are of public
knowledge, or are capable of unquestionable demonstration, or ought to be known to judges because of their judicial
functions." 30 Courts are likewise bound to take judicial notice, without the introduction of evidence, of the law in force in
the Philippines, 31 including its Constitution.
The concept of "facts of common knowledge" in the context of judicial notice has been explained as those facts that are
"so commonly known in the community as to make it unprofitable to require proof, and so certainly known to as to make it
indisputable among reasonable men." 32 Moreover, "though usually facts of 'common knowledge' will be generally known
throughout the country, it is sufficient as a basis for judicial notice that they be known in the local community where the
trial court sits." 33 Certainly, the fact of petitioner Saludo being the duly elected representative of Southern Leyte at the time
could be properly taken judicial notice of by the court a quo, the same being a matter of common knowledge in the
community where it sits.

Further, petitioner Saludo's residence in Southern Leyte could likewise be properly taken judicial notice of by the court a
quo. It is bound to know that, under the Constitution, one of the qualifications of a congressman or representative to the
House of Representatives is having a residence in the district in which he shall be elected.

In fine, petitioner Saludo's act of filing his complaint with the court a quo cannot be characterized as a "specie of forum-
shopping" or capricious on his part because, under the rules, as plaintiff, he is precisely given this option.

Finally, respondents' claim that the instant petition for review was not properly verified by petitioner Saludo deserves scant
consideration.

Section 4, Rule 7 of the Rules of Court reads:

Sec. 4. Verification. - Except when otherwise specifically required by law or rule, pleadings need not be under oath,
verified or accompanied by affidavit.

A pleading is verified by an affidavit that the affiant has read the pleading and that the allegations therein are true and
correct of his personal knowledge or based on authentic records.

A pleading required to be verified which contains a verification based on "information and belief," or upon "knowledge,
information and belief," or lacks proper verification, shall be treated as an unsigned pleading.

Petitioner Saludo's verification and certification of non-forum shopping states that he has "read the contents thereof
[referring to the petition] and the same are true and correct of my own personal knowledge and belief and on the basis of
the records at hand." The same clearly constitutes substantial compliance with the above requirements of the Rules of
Court.

WHEREFORE, premises considered, the petition is GRANTED. The Decision dated May 22, 2003 and Resolution dated
August 14, 2003 of the Court of Appeals in CA-G.R. SP No. 69553 are REVERSED and SET ASIDE. The Orders dated
September 10, 2001 and January 2, 2002 of the Regional Trial Court of Maasin City, Southern Leyte, Branch 25 thereof,
in Civil Case No. R-3172 are REINSTATED.

SO ORDERED.

G.R. No. 204444 January 14, 2015

VIRGILIO C. BRIONES, Petitioner,


vs.
COURT OF APPEALS and CASH ASIA CREDIT CORPORATION, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for certiorari1 are the Decision2 dated March 5, 2012 and the Resolution3 dated October 4, 2012 of
the Court of Appeals (CA) in CA-G.R. SP No. 117474, which annulled the Orders dated September 20, 2010 4 and October
22, 20105 of the Regional Trial Court of Manila, Branch 173 (RTC) in Civil Case No. 10-124040, denying private
respondent Cash Asia Credit Corporation's (Cash Asia) motion to dismiss on the ground of improper venue.

The Facts

The instant case arose from a Complaint6 dated August 2, 2010 filed by Virgilio C. Briones (Briones) for Nullity of Mortgage
Contract, Promissory Note, Loan Agreement, Foreclosure of Mortgage, Cancellation of Transfer Certificate of Title (TCT)
No. 290846, and Damages against Cash Asia before the RTC.7 In his complaint, Briones alleged that he is the owner of a
property covered by TCT No. 160689 (subject property), and that, on July 15, 2010, his sister informed him that his
property had been foreclosed and a writ of possession had already been issued in favor of Cash Asia.8 Upon investigation,
Briones discovered that: (a) on December 6, 2007, he purportedly executed a promissory note,9 loan agreement,10 and
deed of real estate mortgage11 covering the subject property (subject contracts) in favor of Cash Asia in order to obtain a
loan in the amount of ₱3,500,000.00 from the latter;12 and (b) since the said loan was left unpaid, Cash Asia proceeded to
foreclose his property.13 In this relation, Briones claimed that he never contracted any loans from Cash Asia as he has
been living and working in Vietnam since October 31, 2007. He further claimed that he only went back to the Philippines
on December 28, 2007 until January 3, 2008 to spend the holidays with his family, and that during his brief stay in the
Philippines, nobody informed him of any loan agreement entered into with Cash Asia. Essentially, Briones assailed the
validity of the foregoing contracts claiming his signature to be forged.14

For its part, Cash Asia filed a Motion to Dismiss15 dated August 25, 2010, praying for the outright dismissal of Briones’s
complaint on the ground of improper venue.16 In this regard, Cash Asia pointed out the venue stipulation in the subject
contracts stating that "all legal actions arising out of this notice in connection with the Real Estate Mortgage subject hereof
shall only be brought in or submitted tothe jurisdiction of the proper court of Makati City." 17In view thereof, it contended that
all actions arising out of the subject contracts may only be exclusively brought in the courts of Makati City, and as such,
Briones’s complaint should be dismissed for having been filed in the City of Manila.18

In response, Briones filed an opposition,19 asserting, inter alia, that he should not be covered by the venue stipulation in
the subject contracts as he was never a party therein. He also reiterated that his signatures on the said contracts were
forgeries.20

The RTC Ruling

In an Order21 dated September 20, 2010, the RTC denied Cash Asia’s motion to dismiss for lack of merit. In denying the
motion, the RTC opined that the parties must be afforded the right to be heard in view of the substance of Briones’s cause
of action against Cash Asia as stated in the complaint.22

Cash Asia moved for reconsideration23 which was, however, denied in an Order24 dated October 22, 2010. Aggrieved, it
filed a petition for certiorari25 before the CA.

The CA Ruling

In a Decision26 dated March 5, 2012, the CA annulled the RTC Orders, and accordingly, dismissed Briones’s complaint
without prejudice to the filing of the same before the proper court in Makati City.27 It held that the RTC gravely abused its
discretion in denying Cash Asia’s motion to dismiss, considering that the subject contracts clearly provide that actions
arising therefrom should be exclusively filed before the courts of Makati City only.28 As such, the CA concluded that
Briones’s complaint should have been dismissed outright on the ground of improper venue,29this, notwithstanding
Briones’s claim of forgery.

Dissatisfied, Briones moved for reconsideration,30 which was, however, denied in a Resolution31 dated October 4, 2012,
hence, this petition.

The Issue Before the Court

The primordial issue for the Court’s resolution is whether or not the CA gravely abused its discretion in ordering the
outright dismissal of Briones’s complaint on the ground of improper venue.

The Court’s Ruling

The petition is meritorious.

At the outset, the Court stresses that "[t]o justify the grant of the extraordinary remedy of certiorari, [the petitioner] must
satisfactorily show that the court or quasi-judicial authority gravely abused the discretion conferred upon it. Grave abuse of
discretion connotes judgment exercised in a capricious and whimsical manner that is tantamount to lack of jurisdiction. To
be considered ‘grave,’ discretion must be exercised in a despotic manner by reason of passion or personal hostility, and
must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined
by or to act at all in contemplation of law."32 Guided by the foregoing considerations, the Court finds that the CA gravely
abused its discretion in ordering the outright dismissal of Briones’s complaint against Cash Asia, without prejudice to its re-
filing before the proper court in Makati City.

Rule 4 of the Rules of Court governs the rules on venue of civil actions, to wit:

Rule 4
VENUE OF ACTIONS

SECTION 1. Venue of real actions. — Actions affecting title to or possession of real property, or interest therein, shall be
commenced and tried in the proper court which has jurisdiction over the area wherein the real property involved, or a
portion thereof, is situated.

Forcible entry and detainer actions shall be commenced and tried in the municipal trial court of the municipality or city
wherein the real property involved, or a portion thereof, is situated.

SEC. 2. Venue of personal actions. — All other actions may be commenced and tried where the plaintiff or any of the
principal plaintiffs resides, or where the defendant or any of the principal defendants resides, or in the case of a non-
resident defendant where he may be found, at the election of the plaintiff.

SEC. 3. Venue of actions against nonresidents. — If any of the defendants does not resideand is not found in the
Philippines, and the action affects the personal status of the plaintiff, or any property of said defendant located in the
Philippines,the action may be commenced and tried in the court of the place where the plaintiff resides, or where the
property or any portion thereof is situated or found.

SEC. 4. When Rule not applicable. — This Rule shall not apply –

(a) In those cases where a specific rule or law provides otherwise; or

(b) Where the parties have validly agreed in writing before the filing of the action on the exclusive venue thereof.
Based therefrom, the general rule is that the venue of real actions is the court which has jurisdiction over the area wherein
the real property involved, or a portion thereof, is situated; while the venue of personal actions is the court which has
jurisdiction where the plaintiff or the defendant resides, at the election of the plaintiff. As an exception, jurisprudence in
Legaspi v. Rep. of the Phils.33 instructs that the parties, thru a written instrument, may either introduce another venue
where actions arising from such instrument may be filed, or restrict the filing of said actions in a certain exclusive venue,
viz.:

The parties, however, are not precluded from agreeing in writing on an exclusive venue, as qualified by Section 4 of the
same rule. Written stipulations as to venue may be restrictive in the sense that the suit may be filed only in the place
agreed upon, or merely permissive in that the parties may file their suitnot only in the place agreed upon but also in the
places fixed by law. As in any other agreement, what is essential is the ascertainment of the intention of the parties
respecting the matter.

As regards restrictive stipulations on venue, jurisprudence instructs that it must be shown thatsuch stipulation is
exclusive. In the absence of qualifying or restrictive words, such as "exclusively," "waiving for this purpose any other
1âw phi1

venue," "shall only" preceding the designation of venue, "to the exclusion of the other courts," or words of similar import,
the stipulation should be deemed as merely an agreement on an additional forum,not as limiting venue to the specified
place.34 (Emphases and underscoring supplied)

In this relation, case law likewise provides that in cases where the complaint assails only the terms, conditions, and/or
coverage of a written instrument and not its validity, the exclusive venue stipulation contained therein shall still be binding
on the parties, and thus, the complaint may be properly dismissed on the ground of improper venue. 35 Conversely,
therefore, a complaint directly assailing the validity of the written instrument itself should not be bound by the exclusive
venue stipulation contained therein and should be filed in accordance with the general rules on venue. To be sure, it would
be inherently consistent for a complaint of this nature to recognize the exclusive venue stipulation when it, in fact, precisely
assails the validity of the instrument in which such stipulation is contained.

In this case, the venue stipulation found in the subject contracts is indeed restrictive in nature, considering that it
effectively limits the venue of the actions arising therefrom to the courts of Makati City. However, it must be emphasized
that Briones' s complaint directly assails the validity of the subject contracts, claiming forgery in their execution. Given this
circumstance, Briones cannot be expected to comply with the aforesaid venue stipulation, as his compliance therewith
would mean an implicit recognition of their validity. Hence, pursuant to the general rules on venue, Briones properly filed
his complaint before a court in the City of Manila where the subject property is located.

In conclusion, the CA patently erred and hence committed grave abuse of discretion in dismissing Briones's complaint on
the ground of improper venue.

WHEREFORE, the petition is GRANTED. Accordingly, the Decision dated March 5, 2012 and the Resolution dated
October 4, 2012 of the Court of Appeals in CA-G.R. SP No. 117474 are hereby ANNULLED and SET ASIDE. The Orders
dated September 20, 2010 and October 22, 2010 of the Regional Trial Court of Manila, Branch 173 in Civil Case No. 10-
124040 are REINSTATED.

SO ORDERED.

G.R. No. 179018 April 17, 2013

PAQLAUM MANAGEMENT & DEVELOPMENT CORP. and HEALTH MARKETING TECHNOLOGIES, INC.,Petitioners,
vs.
UNION BANK OF THE PHILIPPINES, NOTARY PUBLIC JOHN DOE, and REGISTER OF DEEDS of Cebu City and
Cebu Province, Respondents,
J. KING & SONS CO., INC., Intervenor.

RESOLUTION

SERENO, CJ.:

Union Bank filed this Motion for Reconsideration from our Decision 1 dated 18 June 2012. For the first time, it raises three
new arguments. First, it states that the 11 December 1998 Restructuring Agreement is null and void, because the
condition precedent - that the borrower should not be in default- was not complied with. Thus, the nullity of the agreement
revived the Real Estate Mortgages, which have a different venue stipulation.2 Second, assuming arguendo that the
Restructuring Agreement is enforceable, it was only between Health Tech and Union Bank. PAGLAUM was a party only to
the Real Estate Mortgages dated 11 February 1994 and 22 April 1998, and not to the Restructuring Agreement. Therefore,
the venue insofar as it is concerned is exclusively in Cebu City pursuant to the venue stipulation in the mortgage contracts.
3 Third, the Complaint being an accion reivindicatoria, the assessed value of the real property as stated therein
determines which court has exclusive jurisdiction over the case. Hence, as the Complaint does not show on its face the
assessed value of the parcels of land, the Regional Trial Court's (RTC's) assumption of jurisdiction over the case was
without basis.4

Union Bank also reiterates its argument in its Comment5 that the Restructuring Agreement is entirely separate and distinct
from the Real Estate Mortgages. Accordingly, since the Complaint relate exclusively to the mortgaged properties, the
venue stipulation in the Real Estate Mortgages should apply.6

We deny the Motion for Reconsideration.


Issues raised for the first time in a motion for reconsideration before this Court are deemed waived, because these should
have been brought up at the first opportunity.7 Nevertheless, there is no cogent reason to warrant a reconsideration or
modification of our 18 June 2012 Decision.

Union Bank raises three new issues that require a factual determination that is not within the province of this Court. 8These
questions can be brought to and resolved by the RTC as it is the proper avenue in which to raise factual issues and to
present evidence in support of these claims.

Anent Union Bank's last contention, there is no need for the Court to discuss and revisit the issue, being a mere rehash of
what we have already resolved in our Decision. 1âw phi 1

WHEREFORE, in view of the foregoing, we DENY the Motion for Reconsideration with FINALITY.

SO ORDERED.

G.R. No. 197923 June 22, 2015

RUBY RUTH S. SERRANO MAHILUM, Petitioner,


vs.
SPOUSES EDILBERTO ILANO and LOURDES ILANO, Respondents.

DECISION

DEL CASTILLO, J.:

Assailed in this Petition for Review on Certiorari 1 are the following dispositions of the Court of Appeals: 1) February 2,
2011 Decision2 in CA-G.R. SP No. 113782 which granted herein respondents' Petition for Certiorari and Prohibition and
thus nullified and set aside the January 5, 20103 and February 24, 20104 Orders of the Regional Trial Court of Las Pinas
City, Branch 255 in Civil Case No. LP-07-0109; and 2) July 28, 2011 Resolution5denying the herein petitioner's motion for
reconsideration.

Factual Antecedents

Petitioner Ruby Ruth S. Serrano Mahilum is the registered owner of a parcel of land covered by Transfer Certificate of
Title No. 855336 (TCT 85533) of the Registry of Deeds of Las Pinas City.

In September 2003, she entrusted the original owner’s duplicate copy of TCT 85533 to Teresa Perez (Perez) – a
purported real estate broker – who claimed that she can assist petitioner in obtaining a loan, with TCT 85533 serving as
collateral. After several months, petitioner demanded the return of the title, but Perez failed to produce the same; after
much prodding, Perez admitted that the title was lost. Thus, in June 2004, petitioner executed an Affidavit of Loss and
caused the same to be annotated upon the origin al registry copy of TCT 85533 as Entry No. 1668-247 on October 7,
2004.

In June 2006, petitioner received a letter from the Registry of Deeds of Las Piñas City informing her that the owner’s
duplicate copy of TCT 85533 was not lost, but that it was presented to the registry by respondents, spouses Edilberto and
Lourdes Ilano, who claimed that the property covered by the title was sold to them. In this connection, respondents –
instead of registering the supposed sale in their favor – executed an Affidavit of Non-Loss, which was entered on TCT
85533 on June 28, 2006 as Entry No.1875-27.8

Petitioner confronted respondents, w ho showed her a notarized Agreement9 with right of repurchase dated December 4,
2003 and a notarized and undated Deed of Absolute Sale,10 on which documents petitioner’s purported signatures were
affixed. These documents indicate that petitioner sold the property covered by TCT 85533 to respondents for 250,000.00
with right to repurchase the same within a period of 90 days. Petitioner told respondents that she did not execute these
documents, and that her purported signatures therein were in fact falsified and forged. She demanded the return of
TCT85533, but respondents refused to surrender the title to her. They claimed that the property was sold to them by Perez
and "a companion."

All this time, title to the property remained in petitioner’s name, as respondents have not registered the unnotarized and
undated Deed of Absolute Sale.

Civil Case No. LP-07-0109

On June 20, 2007, petitioner and her husband Richard instituted against respondents and Perez Civil Case No. LP-07-
0109 with the Regional Trial Court of Las Piñas City. Her Complaint11 for "annulment of agreement and deed of absolute
sale, specific performance, with damages," which contained the foregoing statement of facts, likewise contained the
following allegations and prayer:

18. That by reason of the actuations of the defendants in facilitating the execution of the aforesaid falsified documents,
and adamant refusal to return to plaintiffs the duplicate original owner’s copy of their title, which were all done with evident
bad faith, the plaintiffs suffered and continue to suffer sleepless nights, wounded feelings, besmirched reputation, serious
anxiety and other similar feelings, which, when quantified, can reasonably be compensated with the sum of Fifty Thousand
(50,000.00) Pesos, as moral damages;

PRAYER
WHEREFORE, it is most respectfully prayed of this Honorable Court, that after due notice and hearing, judgment be
rendered in favor of the plaintiffs and against the defendants, as follows:

1. Ordering the annulment of the documents denominated as Agreement (Deed of Sale with Right to Repurchase)
, dated December 4, 2003, and Deed of Absolute Sale and declaring the same as null and void;

2. Ordering defendants Ilano to surrender and return to plaintiffs the duplicate original owner’s copy of TCT No.
85533;

3. Ordering the defendants, jointly and severally, to pay the plaintiffs the sum of Fifty Thousand Pesos (50,000.00)
as moral damages;

[4.] Ordering the defendants, jointly and severally, to pay the plaintiffs the sum of Twenty Thousand Pesos (20,00
0.00) as attorney’s fees, and the additional amount of Two Thousand Pesos (2,000.00) for every court hearing;
and

[5.] Ordering the defendants to pay the costs of this suit.

Other reliefs deemed just and equitable are also prayed for.12

Respondents’ Amended Answer with Compulsory Counterclaim13 alleged and admitted, among others, that petitioner was
the owner of the lot covered by TCT 85533; that said title was entrusted to Perez; that petitioner executed an affidavit of
loss which was annotated on TC T 85533; that they caused the annotation of an affidavit of non-loss on TCT 85533, as
Entry No. 1875-27; that petitioner confronted them ; that they showed petitioner the Agreement and unnotarized Deed of
Absolute Sale; that they are in possession of the owner’s copy of TCT 85533; that sometime in October 2003, Perez –
accompanied by one Corazon Tingson (Tingson) "and a female person who introduced herself as Ruby Ruth Serrano" –
offered to sell to them the property covered by TCT 85533; that "in support of the identity of the said Ruby Ruth Serrano,
the original owner’s copies of the title (T CT No. T-85533), Declaration of Real Property, Tax Clearance, Barangay
Clearance, Community Tax Certificate with picture of Ruby Ruth Serrano attached therein" were presented to respondent
Edilberto Ilano (Edilberto); that upon being satisfied as to the "identity of the person who introduced herself as Ruby Ruth
Serrano," Edilberto instructed his secretary to verify the authenticity of the title with the Register of Deeds of Las Piñas City
and conduct an ocular inspection of the property; that "the person who introduced herself as Ruby Ruth Serrano" obtained
a cash advance of 50,000.00; that after verification confirmed that the property is indeed owned by and registered in the
name of Ruby Ruth Serrano, Edilberto – "believing in good faith that the person [with] whom he is dealing x x x is indeed
the real Ruby Ruth Serrano" – entered into the sale transaction; that on the same day, or October 30, 2004, petitioner
received the full consideration of 250,000.00 and signed the Agreement and Deed of Absolute Sale; that petitioner’s
affidavit of loss filed with the Registry of Deeds is false as TCT 85533 was never lost but was entrusted to Perez who,
together with Tingson "and another person he rein named as ‘Jane Doe’ whose identity is yet to be established who
introduced herself as Ruby Ruth Serrano," came to respondents’ office to obtain a loan because petitioner was in dire
need of money as she admitted in her complaint; that TCT 85533 was negotiated and/or sold by petitioner "or by her duly
authorized person, otherwise no one can present/deliver the original owner’s duplicate copy of the said title x x x and the
original copies of the documents x x x;" that "for failure of the registered owner, Ruby Ruth Serrano, to exercise her right of
repurchase within the agreed period, ownership of the subject property now lawfully belongs to" respondents; that the
complaint failed to allege that respondents were purchasers in bad faith or at least with notice of the defect in the title,
which leads to the conclusion that the complaint states no cause of action; and that respondents filed a perjury case
against petitioner with the Office of the City Prosecutor of Parañaque.

Respondents thus prayed for the dismissal of the complaint, and by way of counterclaim, sought indemnity for moral
damages in the amount of 300,000.00; 100,000.00 as nominal damages; 200,000.00 as exemplary damages; 100,000.00
for attorney’s fees; and costs of suit.

Pre-trial and presentation of petitioner’s evidence ensued. Thereafter, petitioner rested her case.

Respondents filed a Demurrer to Evidence,14arguing that the complaint failed to state a cause of action in that petitioner
failed to allege that respondents were purchasers in bad faith or with notice of a defect in the title; that in the absence of
such an allegation, the presumption that respondents are purchasers in good faith prevails. Petitioner filed a Comment/
Opposition,15 contending essentially that her complaint contained an allegation that respondents were purchasers in bad
faith, which is found in paragraphs 13 to 15 of the complaint; and that the issues raised in the demurrer may only be
resolved after trial on the merits.

Ruling of the Regional Trial Court

In a January 5, 2010 Order,16 the trial court denied respondents’ demurrer. It held that the question of whether respondents
are purchasers in bad faith can only be resolved after the parties present their respective evidence. Thus, it stated:

The Court, after taking into account a ll the foregoing, does not find merit in the above demurrer. For one, the Court
already held in its Order dated 11 April 2008 that "during the pre-trial held last 11 February 2008 one of the issues
submitted for resolution by the Court is whether or not [sic] defendants Sps. Ilano are buyers in good faith and for value of
the property subject hereof". This being so, the same can only be resolved upon presentation of evidence by the parties
herein regarding their respective positions."Thus, the instant case cannot just be dismissed simply because the
defendants said so base on their own evaluation of the evidence presented by the plaintiff.

If only to stress, as far as the Court is concerned the assertions of the defendants are merely conclusions they arrived at
on their own that [run] counter to the position of the plaintiffs. As such, the defendants will have to present their own
evidence to substantiate their claims.
More importantly, the Court cannot just disregard the evidence and testimonies of the witnesses presented by the
plaintiffs. Further, in order to ferret out the truth and determine the veracity of the assertions being made by the parties
herein, it is best that the "other side" be heard. It is only in allowing the defendants to present their evidence that this can
be achieved so that the herein case against them can be resolved judiciously.

In the end, it is for the Court to evaluate the evidence to be presented by the parties herein. The conclusions being
forwarded by the parties will have to be reckoned with what have been presented and not on their respective self-serving
assertions.

Indeed, a demurrer to evidence is anchored on the claim that "upon the facts and the law the plaintiff has shown no right to
relief" (Sec. 1, Rule 33, Rules of Court). With respect to the herein case, there is no clear showing that plaintiffs Sps.
Mahilum have no right to the reliefs being sought by them. On the contrary, and if not opposed by contravening evidence
by the defendants, their causes of action may end up being supported by evidence that may merit rulings in their favor.

WHEREFORE, premises considered, the "Demurrer to Evidence" dated 11 November 2009 filed by defendants Sps.
Edilberto and Lourdes Ilano is DENIED for lack of merit.

SO ORDERED.17

Respondents filed a Motion for Reconsideration,18but the trial court denied the same in a February 24, 2010 Order.19

Ruling of the Court of Appeals

Respondents went up to the Court of Appeals (CA) via an original Petition for Certiorari. 20 Docketed as CA-G.R. SP No.
113782, the petition essentially insisted that since petitioner’s complaint failed to include an allegation that respondents
were purchasers in bad faith, then her complaint for annulment of sale failed to state a cause of action, which entitles them
to a dismissal on demurrer; and that in denying their demurrer, the trial court disregarded existing jurisprudence to the
effect that where a complaint does not contain all the facts constituting the plaintiff’s cause of action, it is subject to a
motion to dismiss. In addition to seeking the reversal of the trial court’s January 5, 2010 and February 24, 2010 Orders,
respondents prayed for injunctive relief as well.

On July 15, 2010, the CA issued a Resolution21 denying respondents’ application for a temporary restraining order.

Petitioner filed her Comment to the Petition.

On February 2, 2011, the CA issued the assailed Decision, which contained the following decretal portion:

WHEREFORE, the above premises considered, the instant petition is GRANTED. The Orders of public respondent
Regional Trial Court of Las Piñas City, Branch 255 dated 5 January 2010 and 24 February 2010, respectively, are
NULLIFIED and SET ASIDE. Private respondents’ complaint for Annulment of Agreement and Deed of Absolute Sale,
Specific Performance with Damages is DISMISSED for lack of cause of action.

SO ORDERED.22

The CA held that –

A careful reading of private respondents’23 complaint before public respondent would show that private respondents indeed
failed to allege that petitioners24 were in bad faith or at least aw are of the misrepresentation of the vendor of the subject
property at the time they purchased the same.

Thus, absent an allegation in the subject complaint that petitioners were in bad faith or with notice of the vendor’s
misrepresentation at the time of sale or prior thereto, they are presumed to be innocent purchasers for value of the subject
property.

Under the law, a title procured through fraud and misrepresentation can still be the source of a completely legal and valid
title if the same is in the hands of an innocent purchaser for value and in good faith. Again, how can public respondent
render a valid judgment when, based on the allegations in the complaint, petitioners are presumed to have bought the
subject lot in good faith? Stated differently, private respondents have no cause of action against petitioners.

In their comment or opposition to petitioners’ demurrer to evidence, private respondents argued that it is not accurate that
they failed to allege bad faith because paragraphs 13, 14, and 15 of their complaint indicated the evident bad faith of
petitioners. However, a review of said averments would only prove that petitioners became aware of the alleged fraud or
misrepresentation after the execution of the assailed agreement and deed of sale when private respondents confronted
the former, and not before or during the execution of the same. The Supreme Court held:

"A person is considered in law as an innocent purchaser for value when he buys the property of another, without notice
that some other person has a right or an interest in such property, and pays a full price for the same at the time of such
purchase, or before he has notice of the claims or interest of some other person in the property. A person dealing with
registered land may safely rely on the correctness of the certificate of title of the vendor/transferor, and the law will in no
way oblige him to go behind the certificate to determine the condition of the property."25

When the complaint alleges that private respondents did not sell the subject property to petitioners but does not allege that
the latter were purchasers in bad faith or with notice of the defect in the title of their vendors, there is a failure to state a
cause of action.26 By reason of this failure, petitioners are presumed to be innocent purchasers for value and in good faith,
entitled to protection under the law.
"In Spouses Chu, Sr. v. Benelda Estate Development Corporation, this Court pronounced that it is crucial that a complaint
for annulment of title must allege that the purchaser was aware of the defect in the title, so that the cause of action against
him or her will be sufficient. Failure to do so, as in the case at bar, is fatal for the reason that the court cannot render a
valid judgment against the purchaser who is presumed to be in good faith in acquiring said property."27

It was further held that a title issued to an innocent purchaser and for value cannot be revoked on the basis that the deed
of sale was falsified, if he or she had no knowledge of the fraud committed.28 Here, there is clearly no imputation that
petitioners had knowledge of the fraud committed during the execution of the assailed agreement and deed of sale.
Furthermore, in the formal offer of the testimony of private respondent Ruby Ruth, proving bad faith was not even among
the purposes for which her testimony was offered. Accordingly, the testimony itself did not show bad faith on the part of
petitioners.

It is significant to note that in the subject complaint, formal offer of evidence, and oral testimony, only two things were
established: (1) private respondents did not sell the subject property to petitioners and (2) Teresa Perez breached the trust
given to her by private respondents. These facts cannot constitute a cause of action or relief against petitioners because,
absent an allegation of bad faith in the complain t, they are presumed to be innocent purchasers for value during the
execution of the agreement and deed of sale.

There is the established rule that if the defendant permits evidence to be introduced, without objection, which supp lies the
necessary allegations of a defective complaint, this evidence has the effect of curing the defects of such complaint, and a
demurrer thereafter is inadmissible on the ground that the complaint does not state fact s sufficient to constitute a cause of
action. This rule, however, cannot be applied in the instant case. Granting that petitioners did not object to the
presentation of evidence of private respondents, the latter still failed to cure the defect in their complaint since no evidence
of bad faith on the part of petitioners was presented before the court. Proofs of bad faith were all directed against Teresa
Perez and her companion who introduced herself as Ruby Ruth Serrano.

Although this Court relied on the transcript of stenographic notes quoted by petitioners, as complete records of the case
are still with public respondent, private respondents did not question in their Comment on the petition, the truthfulness of
the statements quoted therein. Hence, private respondents are deemed to have admitted the veracity of said transcript.
Without an imputation [or] a showing that petitioners were in bad faith or aware of the fraud perpetrated by Teresa Perez
and her companion, no action can be maintained against them.

In view of the foregoing, public respondent RTC committed grave abuse of discretion amounting to lack or excess of
jurisdiction when it denied the Demurrer to Evidence notwithstanding the complete absence of a cause of action against
petitioners. Public respondent RTC contravened and disregarded the settled and prevailing jurisprudence on the matter.29

Petitioner filed her Motion for Reconsideration,30 which the CA denied in its assailed July 28, 2011Resolution. Hence, the
present Petition.

Issues

Petitioner raises the following issues:

ON QUESTION OF LAW, WHETHER x x x FAILURE TO ALLEGE BAD FAITH IN THE COMPLAINT IS A FATAL
DEFECT CONSIDERING THAT THE SUBJECT DOCUMENTS (AGREEMENT/DEED OF ABSOLUTE SALE
WITH RIGHT TO REPURCHASE, AND UNNOTARIZED DEED OF SALE) WERE MERELY SIMULATED,
FICTITIOUS AND FORGERY [sic], AND HENCE, NULL AND VOID FROM THE BEGINNING.

II

ON QUESTION OF LAW, WHETHER x x x THE PETITIONER WAS DEPRIVED OF HER PROPERTY WHEN
THE COURT OF APPEALS GRANTED THE DEMURRER TO EVIDENCE ON THE GROUND THAT THERE
WAS NO CAUSE OF ACTION WHEN ONE OF THE ISSUED[sic] AGREED UPON BY THE PARTIES DURING
THE PRE-TRIAL BEFORE THE RTC WAS WHETHER x x x PRIVATE RESPONDENTS WERE PURCHASERS
IN GOOD FAITH.

III

WHETHER x x x PETITIONER/S WERE PREVENTED FROM CONFRONTING THE PRIVATE RESPONDENTS


AND THEIR WITNESSES TO DETERMINE WHETHER x x x THEY REALLY DEALT WITH PETITIONER AND
TO DETERMINE WHO WAS THE IMPOSTOR WHO SIGNED THE SUBJECT AGREEMENT AND DEED OF
ABSOLUTE SALE AND HENCE, ALLOW THE RTC COURT TO DETERMINE WHETHER THE SUBJECT
AGREEMENT AND DEED OF ABSOLUTE SALE WERE SIMULATED, FICTITIOUS AND NULL AND VOID AND
IF PRIVATE RESPONDENTS WERE REALLY PURCHASERS FOR VALUE IN GOOD FAITH THAT WILL AF
FECT THE OUTCOME OF THE INSTANT CASE.31

Petitioner’s Arguments

In praying that the assailed CA dispositions be set aside and that in effect the January 5, 2010 and February 24, 2010
Orders of the trial court denying respondents’ demurrer to evidence be re instated, petitioner insists in her Petition and
Reply32 that during the pre-trial conference, one of the issues agreed upon by the parties to be resolved was whether
respondents were buyers in good faith, which was reflected in the trial court’s January 5, 2010 Order;33that since the issue
of good or bad faith has been agreed upon by the parties as one of the matters to be tackled during trial, then the failure to
allege bad faith in the complaint is deemed cured, and the defense is deemed waived by the respondents with their assent
given during pre-trial; and that the agreement and deed of absolute sale, being forgeries, are null and void and without
force and effect.

Petitioner adds that although a complaint which does not contain all the facts constituting the plaintiff’s cause of action is
subject to a motion to dismiss, the defect is cured if the defendant permits the introduction of evidence which supplies or
remedies such defect;34 thus, respondents’ assent to the framing of the issues during pre-trial and their failure to object to
the presentation of evidence on the issue of good or bad faith cu red her defective complaint.

Finally, petitioner contends that the grant of respondents’ demurrer amounts to a deprivation of property without due
process of law, as she was prevented from defending her ownership over the same by duly confronting the respondents
and their witnesses and proving that the agreement and deed of absolute sale were mere forgeries.

Respondents’ Arguments

Respondents, on the other hand, argue in their Comment35 that the CA was correct in declaring that petitioner’s complaint
in Civil Case No. LP-07-0109 failed to state a cause of action owing to her failure to allege that the property in question
was purchased in bad faith. They add that petitioner failed to present evidence during trial to the effect that they bought
the subject property in bad faith; that the scope of her evidence covered only her claim that she did not execute the
subject agreement and deed of absolute sale, and that these documents are fictitious and forged – she did not present
evidence to show that they were buyers in bad faith. Thus, they maintain that for failing to allege and prove bad faith on
their part, the CA was correct in ordering the dismissal of Civil Case No. LP-07-0109.

Our Ruling

The Court grants the Petition.

In granting demurrer, the CA failed to consider that title to the property remained in petitioner’s name; TCT 85533 was
never cancelled and no new title was issued in respondents’ name. As a matter of fact, what they did when petitioner
annotated her affidavit of loss upon TCT 85533 was to cause the annotation of an "affidavit of non-loss" afterward.

Since a new title was never issued in respondents’ favor and, instead, title remained in petitioner’s name, the former never
came within the coverage and protection of the Torrens system, where the issue of good or bad faith becomes relevant.
Since respondents never acquired a new certificate of title in their name, the issue of their good or bad faith which is
central in an annulment of title case is of no consequence; petitioner’s case is for annulment of the Agreement and Deed
of Absolute Sale , and not one to annul title since the certificate of title is still in her name. The jurisprudential bases for the
CA’s pronouncement that there is a failure to state a cause of action if the e is no allegation in the complaint that
respondents were purchasers in bad faith – Castillo v. Heirs of Vicente Madrigal36and Heirs of Julian Tiro v. Philippine
Estates Corporation37 – involved complaints for annulment of new titles issued to the buyers ; they cannot apply to
petitioner’s case where title remains in her name.

Petitioner’s case is to annul the agreement and deed of sale based on the allegation that they are forgeries, and that
respondents were parties to the fraud; since no new title was issued in respondents ’ favor, there is no new title to annul.
Indeed, if the agreement and deed of sale are forgeries, then they are a nullity and convey no title.38 The underlying
principle is that no one can give what one does not have. Nemo dat quod non habet .

In Sps. Solivel v. Judge Francisco, we held that:

x x x in order that the holder of a certificate for value issued by virtue of the registration of a voluntary instrument may be
considered a holder in good faith for value, the instrument registered should not be forged. When the instrument presented
is forged, even if accompanied by the owner’s duplicate certificate of title, the registered owner does not thereby lose his
title, and neither does the assignee in the forged deed acquire any right or title to the property.

x x x The innocent purchaser for value protected by law is one who purchases a titled land by virtue of a deed executed by
the registered owner himself, not by a forged deed, as the law expressly states. x x x

In Instrade, Inc. v. Court of Appeals, we reiterated the said ruling maintaining that "[A]s early as Joaquin v. Madrid, x x x,
we said that in order that the holder of a certificate for value issued by virtue of the registration of a voluntary instrument
may be considered a holder in good faith and for value, the instrument registered should not be forged." Indubitably,
therefore, the questioned Deed of Absolute Sale did not convey any title to herein petitioners. Consequently, they cannot
take refuge in the protection accorded by the Torrens system on titled lands.

Thus, we hold that with the presentation of the forged deed, even if accompanied by the owner’s duplicate certificate of
title, the registered owner did not thereby lose his title, and neither does the assignee in the forged deed acquire any right
or title to the said property. x x x39

In this case, it is petitioner who must be protected under the Torrens system – as the registered owner of the subject
property. "A certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the
person whose name appears therein. The real purpose of the Torrens system of land registration is to quiet title to land
and put a stop forever to any question as to the legality of the title."40

In Tenio-Obsequio v. Court of Appeals , we explained the purpose of the Torrens system and its legal implications to third
persons dealing with registered land, as follows:

The main purpose of the Torrens system is to avoid possible conflicts of title to real estate and to facilitate transactions
relative thereto by giving the public the right to rely upon the face of a Torrens certificate of title and to dispense with the
need of inquiring further, except when the party concerned has actual knowledge of facts and circumstances that should
impel a reasonably cautious man to make such further inquiry. Where innocent third persons, relying on the correctness of
the certificate of title thus issued, acquire rights over the property, the court cannot disregard such rights and order the
total cancellation of the certificate. The effect of such an outright cancellation would be to impair public confidence in the
certificate of title, for everyone dealing with property registered under the Torrens syst em would have to inquire in every
instance as to whether the title has been regularly or irregularly issued by the court . Every person dealing with registered
land may safely rely on the correctness of the certificate of title issued there for and the law will in no way oblige him to go
beyond the certificate to determine the condition of the property.

The Torrens system was adopted in this country because it was believed to be the most effective measure to guarantee
the integrity of land titles and to protect their indefeasibility once the claim of ownership is established and recognized. If a
person purchases a piece of land on the assurance that the seller’s title thereto is valid, he should not run the risk of being
told later that his acquisition was ineffectual after all. This would not only be unfair to him. What is worse is that if this were
permitted, public confidence in the system would be eroded and land transactions would have to be attended by
complicated and not necessarily conclusive investigations and proof of ownership. The further consequence would be that
land conflicts could be even more numerous and complex than they are now and possibly also more abrasive, if not even
violent. The Government, recognizing the worthy purposes of the Torrens system, should be the first to accept the validity
of titles issued there under once the conditions laid down by the law are satisfied.

The Torrens system was intended to guarantee the integrity and conclusiveness of the certificate of registration, but the
system cannot be used for the perpetration of fraud against the real owner of the registered land. The system merely
confirms ownership and does not create it. It cannot be used to divest lawful owners of their title for the purpose of
transferring it to another one who has not acquired it by any of the modes allowed or recognized by law. Thus, the Torrens
system cannot be used to protect a usurper from the true owner or to shield the commission of fraud or to enrich oneself at
the expense of another.41

A cursory examination of the record will show that petitioner’s action does not appear to be groundless. There are
circumstances which lead one to believe that respondents are not exactly innocent of the charge. Their failure to register
the unnotarized and undated deed of absolute sale is at the very least unusual; it is contrary to experience. It is
uncharacteristic of a conscientious buyer of real estate not to cause the immediate registration of his deed of sale as well
as the issuance of a new certificate of title in his name. Having supposedly paid a considerable amount (250,000.00) for
the property, respondents certainly would have protected themselves by immediately registering the sale and obtaining a
new title in their name; but they did not. Even after petitioner caused the annotation of her affidavit of loss, respondents did
not register their supposed sale, but merely annotated an "affidavit of non-lo ss." This, together with the fact that the deed
of absolute sale is undated and unnotarized, places their claim that they are purchasers in good faith seriously in doubt.
The ruling in Rufloe v. Burgos42 comes to mind:

We cannot ascribe good faith to those who have not shown any diligence in protecting their rights, Respondents had know
ledge of facts that should have led them to inquire and investigate in order to acquaint themselves with possible defects in
the title of the seller of the property. However, they failed to do so. Thus, Leonarda, as well as the Burgos siblings, cannot
take cover under the protection the law accords to purchasers in good faith and for value. They cannot claim valid tit le to
the property.

Moreover, the defense of indefeasibility of a Torrens title does not extend to a transferee who takes it with notice of a flaw
in the title of his transferor. To be effective, the inscription in the regist ry must have been made in good faith. A holder in
1âwphi1

bad faith of a certificate of title is not entitled to the protection of the law, for the law cannot be used as a shield for fraud.

We quote with approval the following findings of the trial court showing that the sale between the Burgos siblings and
Leonarda is simulated :

1. The sale was not registered, a circumstance which is inconceivable in a legitimate transfer. A true vendee would not
brook any delay in registering the sale in his favor. Not only because registration is the operative act that effects property
covered by the Torrens System, but also because registration and issuance of new title to the transferee, enable this
transferee to assume domiciliary and possessory rights over the property. These benefits of ownership shall be denied
him if the titles of the property shall remain in the name of vendor. Therefore, it is inconceivable as contrary to behavioral
pattern of a true buyer and the empirical knowledge of man to assume that a buyer who invested on the property he
bought would be uninvolved and not endeavor to register the property he bought. The nonchalance of Leonarda amply
demonstrates the pretended sale to her, and the evident scheme of her brother

Amado who invested on the property he bought.43

Most telling is respondents’ Amended Answer with Compulsory Counterclaim, which tends to admit and indicate that when
the December 4, 2003 Agreement with right of repurchase and unnotarized and undated Deed of Absolute Sale were
executed, an individual – who falsely represented herself to be petitioner – appeared and signed these documents. Thus,
respondents alleged in their amended answer that sometime in October 2003, Perez – accompanied by one Corazon
Tingson (Tingson) " and a female person who introduced herself as Ruby Ruth Serrano" – offered to sell to them the
property covered by TCT 85533; that "in support of the identity of the said Ruby Ruth Serrano, the original owner’s copies
of the title (TCT No. T-85533), Declaration of Real Property, Tax Clearance, Barangay Clearance, Community Tax
Certificate with picture of Ruby Ruth Serrano attached therein" were presented to respondent Edilberto Ilano (Edilberto);
that upon being satisfied as to the "identity of the person who introduced herself as Ruby Ruth Serrano," Edilberto
instructed his secretary to verify the authenticity of the title from the Register of Deeds of Las Piñas City and conduct an
ocular inspection of the property; that " the person who introduced herself as Ruby Ruth Serrano " obtained a cash
advance of 50,000.00; that after verification confirmed that the property is indeed owned by and registered in the name of
Ruby Ruth Serrano, Edilberto – " believing in good faith that the person [with] whom he is dealing x x x is indeed the real
Ruby Ruth Serrano" – entered into the sale transaction; that petitioner’s affidavit of loss filed with the Registry of Deeds is
false as TCT 85533 was never lost but was entrusted to Perez who, together with Tingson "and another person herein
named as ‘Jane Doe’ whose identity is yet to be established who introduced herself as Ruby Ruth Serrano ," came to
respondents’ office to obtain a loan because petitioner was in dire need of money as she admitted in her complaint.
Even at the level of the CA, respondents admitted, in their petition for certiorari, that they bought the property not from
petitioner, but from their "co-defendants who had a defective title" – presumably Perez and the impostor. The pertinent
portion of their petition reads:

Bad faith cannot be presumed. It must be established by clear evidence. And it appearing that the subject complaint is for
recovery and possession of a parcel of land, and that defendants bought it from their co-defendants who had a defective
title, but does not allege in the complaint that the purchasers were buyers in bad faith or with notice of the defect in the title
of their vendors x x x44

The above allegations in respondents’ pleadings are certainly revealing. They already knew petitioner’s identity and how
she looked, having me t her even before the filing of the complaint – when petitioner confronted them and they showed her
the agreement and deed of sale. Thus, they should not have referred to the supposed seller as " another person herein
named as ‘Jane Doe’ whose identity is yet to be established who introduced herself as Ruby Ruth Serrano" or "the person
who introduced herself as Ruby Ruth Serrano" if indeed it was petitioner herself who appeared and signed the agreement
and deed of sale in question. They should have categorically alleged that they bought the property from petitioner herself if
indeed this was so. Their ambiguous allegations constitute a negative pregnant, which is in effect an admission.

Evidently, this particular denial had the earmark of what is called in the law on pleadings as 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
was in effect an admission of the averments it was directed at. Stated otherwise, a negative pregnant is a form of negative
expression which carries with it an affirmation or at least an implication of some kind favorable to the adverse party. It is a
denial pregnant with an admission of the substantial facts alleged in the pleading. Where a fact is alleged with qualifying or
modifying language and the words of the allegation as so qualified or modified are literally denied, it has been held that the
qualifying circumstances alone are denied while the fact itself is admitted.45

"If an allegation is not specifically denied or the denial is a negative pregnant, the allegation is deemed admitted." "Where
a fact is alleged with some qualifying or modifying language, and the denial is conjunctive, a 'negative pregnant' exists,
and only the qualification or modification is denied, while the fact itself is admitted." "A denial in the form of a negative
pregnant is an ambiguous pleading, since it cannot be ascertained whether it is the fact or only the qualification that is
intended to be denied." "Profession of ignorance about a fact which is patently and necessarily within the pleader's
knowledge, or means of knowing as ineffectual, is no denial at all.'46

Finally, petitioner's complaint in Civil Case No. LP-07-0109 clearly states that in the execution of the agreement and deed
of absolute sale, respondents and Perez acted in bad faith and connived in the forgery. Specifically, paragraph 18 of her
complaint states, as follows:

18. That by reason of the actuations of the defendants in facilitating the execution of the aforesaid falsified documents,
and adamant refusal to return to plaintiffs the duplicate original owner's copy of their title, which were all done with evident
bad faith, the plaintiffs suffered and continue to suffer sleepless nights, wounded feelings, besmirched reputation, serious
anxiety and other similar feelings, which, when quantified, can reasonably be compensated with the sum of Fifty Thousand
(₱50,000.00) Pesos, as moral damages;47

Thus, the CA' s pronouncement - that nowhere in the complaint is it alleged that respondents were purchasers in bad faith
- is patently erroneous. The primary ground for reversing the trial court's denial of respondents' demurrer is therefore
completely unfounded. Besides, the action itself, which is grounded on forgery, necessarily presupposes the existence of
bad faith.

With the foregoing pronouncement, the Court finds no need to tackle the other issues raised by petitioner. They are
rendered moot and irrelevant by the view taken and manner in which the case was resolved.

WHEREFORE, the Petition is GRANTED. The assailed February 2, 2011 Decision and July 28, 2011 Resolution of the
Court of Appeals in CA-G.R. SP No. 113782 are REVERSED and SET ASIDE. The case is remanded to the Regional
Trial Court of Las Pifias City, Branch 255 in Civil Case No. LP-07-0109 for proper disposition.

SO ORDERED.

G.R. No. 198752

ARTURO C. ALBA, JR., duly represented by his attorneys-in-fact, ARNULFO B. ALBA and ALEXANDER C.
ALBA, Petitioner,
vs.
RAYMUND D. MALAPAJO, RAMIL D. MALAPAJO and the Register of Deeds for the City of Roxas,Respondents.

DECISION

PERALTA, J.:

Assailed in this petition for review on certiorari are the Resolution1 dated February 28, 2011 and the Resolution2dated
August 31, 2011 issued by the Court of Appeals (CA) Cebu City, in CA-G.R. SP No. 05594.

The antecedents are as follows:

On October 19, 2009, petitioner Arturo C. Alba, Jr., duly represented by his attorneys-in-fact, Arnulfo B. Alba and
Alexander C. Alba, filed with the Regional Trial Court (RTC) of Roxas City, Branch 15, a Complaint 3 against respondents
Raymund D. Malapajo, Ramil D. Malapajo and the Register of Deeds of Roxas City for recovery of ownership and/or
declaration of nullity or cancellation of title and damages alleging, among others, that he was the previous registered
owner of a parcel of land consisting of 98,146 square meters situated in Bolo, Roxas City, covered by TCT No. T-22345;
that his title was subsequently canceled by virtue of a deed of sale he allegedly executed in favor of respondents Malapajo
for a consideration of Five Hundred Thousand Pesos (P500,000.00); that new TCT No. T-56840 was issued in the name
of respondents Malapajo; that the deed of sale was a forged document which respondents Malapajo were the co-authors
of.

Respondents Malapajo filed their Answer with Counterclaim contending that they were innocent purchasers for value and
that the deed was a unilateral document which was presented to them already prepared and notarized; that before the
sale, petitioner had, on separate occasions, obtained loans from them and their mother which were secured by separate
real estate mortgages covering the subject property; that the two real estate mortgages had never been discharged.
Respondents counterclaimed for damages and for reimbursement of petitioner's loan from them plus the agreed monthly
interest in the event that the deed of sale is declared null and void on the ground of forgery.

Petitioner filed a Reply to Answer and Answer to (Permissive) Counterclaim5 stating, among others, that the court had not
acquired jurisdiction over the nature of respondents' permissive counterclaim; and, that assuming without admitting that
the two real estate mortgages are valid, the rate of five percent (5%) per month uniformly stated therein is unconscionable
and must be reduced. Respondents filed their Rejoinder6 thereto.

Petitioner filed a Motion to Set the Case for Preliminary Hearing as if a Motion to Dismiss had been Filed 7 alleging that
respondents’ counterclaims are in the nature of a permissive counterclaim, thus, there must be payment of docket fees
and filing of a certification against forum shopping; and, that the supposed loan extended by respondents’ mother to
petitioner, must also be dismissed as respondents are not the real parties-in-interest. Respondents filed their
Opposition8 thereto.

On June 4, 2010, the RTC issued an Order9 denying petitioner's motion finding that respondents’ counterclaims are
compulsory. Petitioner’s motion for reconsideration was denied in an Order10 dated September 30, 2010.

Petitioner filed a petition for certiorari with the CA which sought the annulment of the RTC Orders dated June 4, 2010 and
September 30, 2010.

In a Resolution dated February 28, 2011, the CA dismissed the petition for certiorari saying that there was no proper proof
of service of the petition to the respondents, and that only the last page of the attached copy of the RTC Order was signed
and certified as a true copy of the original while the rest of the pages were mere machine copies.

Petitioner filed a motion for reconsideration which the CA denied in a Resolution dated August 31, 2011 based on the
following findings:

Nevertheless, while petitioner filed with the Petition his Affidavit of Service and incorporated the registry receipts, petitioner
still failed to comply with the requirement on proper proof of service. Post office receipt is not the required proof of service
by registered mail. Section 10, Rule 13 of the 1997 Rules of Civil Procedure specifically stated that service by registered
mail is complete upon actual receipt by the addressee, or after five (5) days from the date he received the first notice of
the postmaster, whichever is earlier. Verily, registry receipts cannot be considered sufficient proof of service; they are
merely evidence of the mail matter with the post office of the sender, not the delivery of said mail matter by the post office
to the addressee. Moreover, Section 13, Rule 13 of the 1997 Rules of Civil Procedure specifically stated that the proof of
personal service in the form of an affidavit of the party serving shall contain a full statement of the date, place and manner
of service, which was not true in the instant petition.11

Petitioner filed the instant petition for review raising the following assignment of errors:

I. CONTRARY TO THE ERRONEOUS RULING OF THE COURT A QUO, THE COUNTERCLAIMS INTERPOSED BY
RESPONDENTS MALAPAJO IN THEIR ANSWER WITH COUNTERCLAIM ARE, BASED ON APPLICABLE LAW AND
JURISPRUDENCE, PERMISSIVE IN NATURE, NOT COMPULSORY, AND THEREFORE, SUCH ANSWER WITH
RESPECT TO SUCH COUNTERCLAIMS IS IN REALITY AN INITIATORY PLEADING WHICH SHOULD HAVE BEEN
ACCOMPANIED BY A CERTIFICATION AGAINST FORUM SHOPPING AND CORRESPONDING DOCKET FEES,
THEREFORE, SHOULD HAVE BEEN PAID, FAILING IN WHICH THE COUNTERCLAIMS SHOULD HAVE BEEN
ORDERED DISMISSED. MOREOVER, AS REGARDS THE LOAN ALLEGEDLY EXTENDED BY THEIR MOTHER TO
PETITIONER, WHICH UP TO NOW IS SUPPOSEDLY STILL UNPAID, RESPONDENTS MALAPAJO ARE NOT THE
REAL PARTIES-IN-INTEREST AND IS, THEREFORE, DISMISSIBLE ON THIS ADDITIONAL GROUND; and

II. THE HONORABLE COURT OF APPEALS COMMITTED A VERY SERIOUS ERROR WHEN IT DISMISSED THE
PETITION FOR CERTIORARI BASED ON PURE TECHNICALITY, THEREBY GIVING MORE PREMIUM AND MORE
WEIGHT ON TECHNICALITIES RATHER THAN SUBSTANCE AND DISREGARDING THE MERITS OF THE
PETITION.12

We find that the CA erred in denying petitioner's petition for certiorari after the latter had clearly shown compliance with the
proof of service of the petition as required under Section 13 of Rule 13 of the 1997 Rules of Civil Procedure, which
provides:

Sec.13. Proof of service.

Proof of personal service shall consist of a written admission of the party served, or the official return of the server, or the
affidavit of the party serving, containing a full statement of the date, place and manner of service. If the service is by
ordinary mail, proof thereof shall consist of an affidavit of the person mailing of facts showing compliance with section 7 of
this Rule. If service is made by registered mail, proof shall be made by such affidavit and the registry receipt issued by the
mailing office. The registry return card shall be filed immediately upon its receipt by the sender, or in lieu thereof the
unclaimed letter together with the certified or sworn copy of the notice given by the postmaster to the addressee.

Clearly, service made through registered mail is proved by the registry receipt issued by the mailing office and an affidavit
of the person mailing of facts showing compliance with the rule. In this case, Nerissa Apuyo, the secretary of petitioner’s
counsel, had executed an affidavit13 of personal service and service by registered mail which she attached to the petition
marked as original filed with the CA. She stated under oath that she personally served a copy of the petition to the RTC of
Roxas City on December 6, 2010, as evidenced by a stamp mark of the RTC on the corresponding page of the petition;
that she also served copies of the petition by registered mail to respondents' counsels on December 6, 2010 as evidenced
by registry receipts numbers "PST 188" and "PST 189", both issued by the Roxas City Post Office. The registry receipts
issued by the post office were attached to the petition filed with the CA. Petitioner had indeed complied with the rule on
proof of service.

Since the case was dismissed outright on technicality, the arguments raised in the petition for certiorari were not at all
considered. However, we will now resolve the issue on the merits so as not to delay further the disposition of the case
instead of remanding it to the CA.

The issue for resolution is whether respondents’ counterclaim, i.e., reimbursement of the loan obtained from them in case
the deed of absolute sale is declared null and void on the ground of forgery, is permissive in nature which requires the
payment of docket fees and a certification against forum shopping for the trial court to acquire jurisdiction over the same.

A counterclaim is any claim which a defending party may have against an opposing party.14 A compulsory counterclaim is
one which, being cognizable by the regular courts of justice, arises out of or is connected with the transaction or
occurrence constituting the subject matter of the opposing party's claim and does not require for its adjudication the
presence of third parties of whom the court cannot acquire jurisdiction. Such a counterclaim must be within the jurisdiction
of the court both as to the amount and the nature thereof, except that in an original action before the Regional Trial Court,
necessarily connected with the subject matter of the opposing party's claim or even where there is such a connection, the
Court has no jurisdiction to entertain the claim or it requires for adjudication the presence of third persons over whom the
court acquire jurisdiction.15 A compulsory counterclaim is barred if not set up in the same action.

A counterclaim is permissive if it does not arise out of or is not necessarily connected with the subject matter of the
opposing party's claim.16 It is essentially an independent claim that may be filed separately in another case.

To determine whether a counterclaim is compulsory or permissive, we have devised the following tests: (a) Are the issues
of fact and law raised by the claim and by the counterclaim largely the same? (b) Would res judicata bar a subsequent suit
on defendants’ claims, absent the compulsory counterclaim rule? (c) Will substantially the same evidence support or refute
plaintiffs’ claim as well as the defendants’ counterclaim? and (d) Is there any logical relation between the claim and the
counterclaim?17 A positive answer to all four questions would indicate that the counterclaim is compulsory.18

Based on the above-mentioned tests, we shall determine the nature of respondents’ counterclaim. Respondents anchored
their assailed counterclaim on the following allegations in their affirmative defenses in their Answer with Counterclaim,
thus:

xxxx

10. The plaintiff's cause of action is based on his allegation that his signature on the Deed of Absolute Sale was forged.

The Deed of Absolute Sale is a unilateral instrument, i.e., it was signed only by the vendor, who is the plaintiff in this case
and his instrumental witnesses, who are his parents in this case. It was presented to defendants already completely
prepared, accomplished and notarized. Defendants had no hand in its preparation, accomplishment and notarization.

While the plaintiff claims that his signature on the instrument is forged, he never questioned the genuineness of the
signatures of his instrumental witnesses, his parents Arturo P. Alba, Sr. and Norma C. Alba, who signed the said
instrument below the words "SIGNED IN THE PRESENCE OF" and above the words "Father" and "Mother," respectively.

Furthermore, plaintiff acknowledged in par. 7 of his Complaint that the stated consideration in the Deed of Absolute Sale is
P500,000.00 and he never categorically denied having received the same.

11. Before the plaintiff sold the property to the defendants, he secured a loan from them in the sum of Six Hundred
Thousand Pesos (P600,000.00) payable on or before November 10, 2008. The loan is evidenced by a Promissory Note
and secured by a Real Estate Mortgage dated September 11, 2008, both executed by him, covering the parcel of land
subject of this case, Lot 2332-D, Psd 06-000738. Like the Deed of Absolute Sale, the Real Estate Mortgage is a unilateral
instrument, was signed solely by the plaintiff, and furthermore, his parents affixed their signatures thereon under the
heading "WITH MY PARENTAL CONSENT", and above the words, "Father" and "Mother," respectively.

Prior to this, or as early as July 25, 2008, the plaintiff also obtained a loan payable on or before September 6, 2008 from
defendants' mother, Alma D. David, and already mortgaged to her Lot 2332-D, Psd 06-000738. The loan is evidenced by a
Promissory Note and a Real Estate Mortgage, both of which were executed by plaintiff. Again, the Real Estate Mortgage is
an unilateral instrument, was signed solely by the plaintiff and furthermore, his parents also affixed their signatures
thereon under the heading, "WITH MY PARENTAL CONSENT " and above the words, "Father" and "Mother,"
respectively.

In both instances, the plaintiff was always represented by his parents, who always manifested their authority to transact in
behalf of their son the plaintiff.
1âwphi1

As in the case with the Deed of Absolute Sale, the defendants or their mother did not have any hand in the preparation,
accomplishment or notarization of the two Promissory Notes with accompanying Real Estate Mortgages, x x x.
Neither of the two Real Estate Mortgages have been discharged or extinguished.

12. Considering the foregoing, the plaintiff's allegation that his signature on the Deed of Absolute Sale was forged, and
that the defendants are the "co-authors" of the said forgery, are absolutely false and baseless.

13. If the Deed of Absolute Sale is declared null and void on the ground of forgery, then the plaintiff should reimburse the
defendants the loan he obtained from them, which he did not deny having obtained, plus the agreed monthly interest.19

Petitioner seeks to recover the subject property by assailing the validity of the deed of sale on the subject property which
he allegedly executed in favor of respondents Malapajo on the ground of forgery. Respondents counterclaimed that, in
case the deed of sale is declared null and void, they be paid the loan petitioner obtained from them plus the agreed
monthly interest which was covered by a real estate mortgage on the subject property executed by petitioner in favor of
respondents. There is a logical relationship between the claim and the counterclaim, as the counterclaim is connected with
the transaction or occurrence constituting the subject matter of the opposing party's claim. Notably, the same evidence to
sustain respondents' counterclaim would disprove petitioner's case. In the event that respondents could convincingly
establish that petitioner actually executed the promissory note and the real estate mortgage over the subject property in
their favor then petitioner's complaint might fail. Petitioner's claim is so related logically to respondents' counterclaim, such
that conducting separate trials for the claim and the counterclaim would result in the substantial duplication of the time and
effort of the court and the parties.20

Since respondents' counterclaim is compulsory, it must be set up in the same action; otherwise, it would be barred
forever.21 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.22 There is, therefore, no need
for respondents to pay docket fees and to file a certification against forum shopping for the court to acquire jurisdiction
over the said counterclaim.

We agree with the RTC’s disquisition in finding that respondents’ counterclaim is compulsory, to wit:

The arguments of the plaintiffs that this transaction is a permissive counterclaim do not convince.

By the manner in which the answer pertaining to this transaction was phrased, the real estate mortgage was the origin of
the Deed of Absolute Sale after the loan of P600,000.00 using the same property as security for the payment thereof was
not settled. In short, it is one of defendants' defenses and controverting evidence against plaintiffs' allegations of
falsification of the Deed of Absolute Sale, the property subject of the Deed of Sale being one and the same property
subject of the mortgage.23

xxxx

Can the Court adjudicate upon the issues [of whether or not the plaintiff could recover ownership and or whether or not the
title to the property in question may be canceled or declared null and void, and damages] without the presence of the
mother of defendants in whose favor the Real Estate Mortgage of the property subject of this action was executed?

Definitely, this Court can. That there was an allegation pertaining to the mortgage of the property in question to
defendants’ mother is only some sort of a backgrounder on why a deed of sale was executed by plaintiff in defendants’
favor, the truth or falsity of which will have to be evidentiary on the part of the parties hereto. In short, the Court does not
need the presence of defendants’ mother before it can adjudicate on whether or not the deed of absolute sale was
genuine or falsified and whether or not the title to the property may be cancelled.24

WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The Resolutions dated February 28,
2011 and August 31, 2011 issued by the Court of Appeals in CA-G.R. SP No. 05594 dismissing the petition
for certiorari and denying reconsideration thereof, respectively, for failure to show proper proof of service of the petition to
respondents, are SET ASIDE. Acting on the petition for certiorari, we resolve to DENY the same and AFFIRM the Order
dated June 4, 2010 of the Regional Trial Court of Roxas City, Branch 15, denying petitioner's motion to set the case for
hearing as if a motion to dismiss had been filed, and the Order dated September 30, 2010 denying reconsideration
thereof.

SO ORDERED.

G.R. No. 189532 June 11, 2014

VIRGINIA S. DIO and H.S. EQUITIES, LTD., Petitioners,


vs.
SUBIC BAY MARINE EXPLORATORIUM, INC., represented by its Chairman and Chief Executive Officer, TIMOTHY
DESMOND, Respondents.

DECISION

PEREZ, J.:

This is a Petition for Review on Certiorari1 pursuant to Rule 45 of the Revised Rules of Court, assailing the 3 April 2009
Order2 of the Regional Trial Court (RTC) of Balanga City, Bataan, on pure question of law. In its assailed Order, the RTC
denied the motion filed by petitioners to set their counterclaims for hearing on the ground that the main case was already
dismissed with finality by the Court of Appeals in CA-G.R. CV No. 87117.

In an Order3 dated 26 August 2009, the RTC refused to reconsider its earlier disposition.
The Facts

Petitioner H.S. Equities, Ltd., (HSE) is a foreign corporation duly organized and existing under the laws of the British Virgin
Islands, with registered address at Akara Building, 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British
Virgin Islands. It entered into an isolated transaction subject of the instant case. It is represented in this action by petitioner
Virginia S. Dio (Dio).

Respondent Subic Bay Marine Exploratorium, Inc. (SBME) is a domestic corporation, duly organized and existing under
the Philippine laws and is represented in this action by its Chief Executive Officer, respondent Timothy Desmond
(Desmond).

In 2002, SBME decided to expand its business by operating a beach resort inside the property administered by the Subic
Bay Metropolitan Authority (SBMA). For the business venture to take off, SBME needed to solicit investors who are willing
to infuse funds for the construction and operation of the beach resort project. HSE (formerly known as Westdale Assets
Limited) thru its authorized director, Dio, agreed to invest the amount of US$2,500,000.00 with SBME by purchasing
750,000 common shares with a par value of ₱100 per share from the increase in its authorized capital stock. The
agreement was reduced into writing wherein HSE, in order to protect its interest in the company, was afforded minority
protection rights such as the right to appoint a member of the board of directors and the right to veto certain board
resolutions. After HSE initially paid US$200,000.00 for its subscription, it refused to further lay out money for the
expansion project of the SBME due to the alleged mismanagement in the handling of corporate funds.

Consequently, SBME initiated an intra-corporate dispute before the RTC of Balanga City, Bataan against petitioners HSE
and Dio.4 Before petitioners could file their answer to the complaint, respondents impleaded its Corporate Secretary, Atty.
Winston Ginez, as additional defendant. In their Amended Complaint5 docketed as Civil Case No. 7572, SBME essentially
alleged that HSE unjustly refused to pay the balance of its unpaid subscription effectively jeopardizing the company’s
expansion project. Apart from their refusal to honor their obligation under the subscription contract, it was further alleged
by SBME that Dio tried to dissuade local investors and financial institutions from putting in capital to SBME by imputing
defamatory acts against Desmond. To protect the interest of the corporation and its stockholders, SBME sought that
petitioners be enjoined from committing acts inimical to the interest of the company.

To refute the claims of respondents, petitioners maintained in their Answer with Compulsory Counterclaim 6 that it would be
highly preposterous for them to dissuade investors and banks from putting in money to SBME considering that HSE and
Dio are stakeholders of the company with substantial investments therein. In turn, petitioners countered that their
reputation and good name in the business community were tarnished as a result of the filing of the instant complaint, and
thus prayed that they be indemnified in the amount of US$2,000,000.00 as moral damages. Constrained to litigate to
protect their rights, petitioners asked that they be indemnified in the amount of₱1,000,000.00 in litigation expenses.
Petitioners likewise sought to recover their investment of US$1,500,000.00 since they were purportedly inveigled by
Desmond into putting in money to SBME under the pretext that they will be accorded with minority protection rights. It was
alleged that after the filing of the instant complaint, Desmond, in collusion with other Board of Directors of SBME,
managed to unjustly deny HSE and Dio their rights under the Subscription Agreement. To curb similar socially abhorrent
actions, petitioners prayed that SBME and its Board of Directors, namely, Desmond, John Corcoran, Gaile Laule and
Gregorio Magdaraog, be jointly and severally held liable to pay exemplary damages in the amount of US$2,000,000.00.

After petitioners filed their Answer with Compulsory Counterclaim, the RTC, instead of setting the case for pre-trial, issued
an Order7 dated 15 August 2005 motu proprio dismissing Civil Case No. 7572. The dismissal was grounded on the
defective certificate of non-forum shopping which was signed by Desmond without specific authority from the Board of
Directors of SBME.

Armed with a board resolution specifically authorizing Desmond to sign the certificate of non-forum shopping on behalf of
SBME, respondents moved that Civil Case No. 7572 be reinstated and further proceedings thereon be conducted. A copy
of such authority was attached by respondents to their Motion for Reconsideration.

For lack of merit, RTC denied respondents’ motion and affirmed the dismissal in an Order 8 dated 22 September 2005. In
refusing to reinstate respondents’ complaint, the court a quo ruled that the belated submission of a board resolution
evidencing Desmond’s authority to bind the corporation did not cure the initial defect in the complaint and declared that
strict compliance with procedural rules is enjoined for the orderly administration of justice.

Aggrieved by the lower court’s refusal to reinstate their complaint, respondents elevated the matter before the Court of
Appeals assailing the propriety of the 15 August 2005 and 22 September 2005 RTC Orders via Petition for Review which
was docketed as CA-G.R. CV No. 87117.

For failure of the respondents to file their appellants’ brief, the appellate court proceeded to dismiss CA-G.R.CV No. 87117
and considered the case closed and terminated in its Resolution9 dated 2 January 2007.

After respondents failed to seasonably move for the reconsideration of the aforementioned Resolution, the dismissal of
CA-G.R. CV No. 87117 became final and executory, as shown in the Entry of Judgment10 dated 3 May 2007.

The procedural incidents before the appellate court having been resolved with finality, petitioners went back to the RTC to
file a motion to set their counterclaims for hearing11 which was opposed by the respondents on the ground that the filing of
the compulsory counterclaims was not accompanied by payment of the required docket fees precluding the court from
acquiring jurisdiction over the case.12

Acting on the motions filed by the opposing parties, the RTC, in an Order 13 dated 3 April 2009 granted the motion of the
respondents, thereby directing the dismissal of petitioners’ counterclaims but not on the ground of non-payment of docket
fees. In disallowing petitioners’ counterclaims to proceed independently of respondents’ complaint, the lower court pointed
out that in view of the dismissal of the main case, which has already been affirmed with finality by the appellate court, it
has already lost its jurisdiction to act on petitioners’ counterclaim, the compulsory counterclaim being merely ancillary to
the principal controversy.

In an Order14 dated 26 August 2009, the RTC refused to reconsider its earlier disposition. Petitioners filed this instant
Petition for Review on Certiorari15 on pure question of law seeking the reversal of the 3 April 2009 and 26 August 2009
RTC Orders on the ground that:

THE TRIAL COURT COMMITTED AN ERROR OF LAW WHEN IT REFUSED TO SET [PETITIONERS’]
COUNTERCLAIMS FOR HEARING ON THE GROUND THATTHE CASE WAS DEEMED "CLOSED AND TERMINATED"
BYTHE COURT OF APPEALS AFTER THE LATTER DISMISSED RESPONDENTS’ APPEAL BECAUSE OF THEIR
FAILURE TOFILE THEIR APPELLANTS’ BRIEF.16

The Court’s Ruling

Petitioners argue that despite the dismissal of the main case, the counterclaim may still remain for independent
adjudication under Section 6, Rule 16 of the Revised Rules of Court.17 Petitioners pointed out that while the dismissal of
respondents’ complaint is a confirmation of Desmonds’ lack of legal personality to file the case, this does not, however,
mean that they also do not have the qualification to pursue their counterclaim. To fault petitioners for the fatal infirmity in
the respondents’ complaint would not only work injustice to the former but would result to an absurd situation where the
fate of their counterclaims is placed entirely in the hands of the respondents.

For their part, respondents posit that, in directly assailing the adverse RTC Orders before the Court, petitioners
erroneously availed themselves of an erroneous remedy arguing that this petition should have been initially filed with the
appellate court. By seeking relief directly from the Court, petitioners ignored the judicial hierarchy warranting the
peremptory dismissal of their petition. Unless special and important reasons were clearly and specifically set out in the
petition, and in this case it was not, a direct invocation of this Court’s original jurisdiction may not be allowed.

The established policy of strict observance of the judicial hierarchy of courts, as a rule, requires that recourse must first be
made to the lower ranked court exercising concurrent jurisdiction with a higher court. A regard for judicial hierarchy clearly
indicates that petitions for the issuance of extraordinary writs against first level courts should be filed in the RTC and those
against the latter should be filed in the Court of Appeals. The rule is not iron-clad, however, as it admits of certain
exceptions.18

Thus, a strict application of the rule is unnecessary when cases brought before the appellate courts do not involve factual
but purely legal questions.19 In fact, Rule 41, Section 2(c)20 of the Revised Rules of Court provides that a decision or order
of the RTC may as it was done in the instant case, be appealed to the Supreme Court by petition for review on certiorari
under Rule 45, provided that such petition raises only questions of law.

A question of law exists when the doubt or controversy concerns the correct application of law or jurisprudence to a certain
set of facts; or when the issue does not call for the examination of the probative value of the evidence presented, the truth
or falsehood of facts being admitted. A question of fact exists when the doubt or difference arises as to the truth or
falsehood of facts or when the query invites calibration of the whole evidence considering mainly the credibility of the
witnesses, the existence and relevancy of specific surrounding circumstances, as well as their relation to each other and
to the whole, and the probability of the whole situation.21 Thus, the test of whether a question is one of law or of fact is not
the appellation given to such question by the party raising the same; rather, it is whether the appellate court can determine
the issue raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a
question of fact.22

Petitioners here raise the solitary issue of the propriety of the dismissal of their counterclaim on the basis of the reasoning
of the lower court that the counterclaim derives its jurisdictional support from the complaint which has already been
dismissed. Petitioners maintain that the court a quo erred in arriving at the legal conclusion that the counterclaim can no
longer stand for independent adjudication after the main case was already dismissed with finality. In order to resolve this
issue, the Court need only to look into the pleadings, depositions, admissions, and affidavits submitted by the respective
parties without going into the truth or falsity of such documents. Consequently, the petitioners’ remedy for assailing the
correctness of the dismissal of their counterclaims, involving as it does a pure question of law, indeed lies with this Court.
Now to the issue of the propriety of the dismissal of the counterclaim.

The dismissal of the complaint resulted from respondents’ failure to append to the complaint a copy of the board resolution
authorizing Desmond to sign the certificate of non-forum shopping on behalf of SBME. The subsequent dismissal of the
counterclaim, in turn, erroneously proceeded from the ratio that since the main action has already been dismissed with
finality by the appellate court, the lower court has lost its jurisdiction to grant any relief under the counterclaim.

In the significant case of Pinga v. Heirs of German Santiago,23 this Court speaking through Justice Dante Tinga, resolved
the nagging question as to whether or not the dismissal of the complaint carries with it the dismissal of the counterclaim.
Putting to rest the remaining confusion occasioned by Metals Engineering Resources Corp. v. Court of Appeals 24 and BA
Finance Corporation v. Co,25 the Court articulated that, in light of the effectivity of the 1997 Rules of Civil Procedure, the
correct and prevailing doctrine is as follows:

To be certain, when the Court promulgated the 1997 Rules of Civil Procedure, including the amended Rule17, those
previous jural doctrines that were inconsistent with the new rules incorporated in the 1997 Rules of Civil Procedure were
implicitly abandoned insofar as incidents arising after the effectivity of the new procedural rules on 1 July 1997. BA
Finance, or even the doctrine that a counterclaim may be necessarily dismissed along with the complaint, clearly conflicts
with the 1997 Rules of Civil Procedure. The abandonment of BA Finance as doctrine extends as far back as 1997, when
the Court adopted the new Rules of Civil Procedure. If, since then, such abandonment has not been affirmed in
jurisprudence, it is only because no proper case has arisen that would warrant express confirmation of the new rule. That
opportunity is here and now, and we thus rule that the dismissal of a complaint due to fault of the plaintiff is without
prejudice to the right of the defendant to prosecute any pending counterclaims of whatever nature in the same or separate
action. We confirm that BA Finance and all previous rulings of the Court that are inconsistent with this present holding are
now abandoned.

xxxx

Thus, the present rule embodied in Sections 2 and 3 of Rule 17 ordains a more equitable disposition of the counterclaims
by ensuring that any judgment thereon is based on the merit of the counterclaim itself and not on the survival of the main
complaint. Certainly, if the counterclaim is palpably without merit or suffers jurisdictional flaws which stand independent of
the complaint, the trial court is not precluded from dismissing it under the amended rules, provided that the judgment or
order dismissing the counterclaim is premised on those defects. At the same time, if the counterclaim is justified, the
amended rules now unequivocally protect such counterclaim from peremptory dismissal by reason of the dismissal of the
complaint.26 Reviewing the vacated position, in Metals Engineering Resources Corp., severance of causes of action was
not be permitted in order to prevent circuity of suits and to avert the possibility of inconsistent rulings based on the same
set of facts, viz:

For all intents and purposes, such proposition runs counter to the nature of a compulsory counterclaim in that it cannot
remain pending for independent adjudication by the court. This is because a compulsory counterclaim is auxiliary to the
proceeding in the original suit and derives its jurisdictional support therefrom, inasmuch as it arises out of or is necessarily
connected with the transaction or occurrence that is the subject matter of the complaint. It follows that if the court does not
have jurisdiction to entertain the main action of the case and dismisses the same, then the compulsory counterclaim,
being ancillary to the principal controversy, must likewise be dismissed since no jurisdiction remained for any grant of relief
under the counterclaim.

The aforementioned doctrine is in consonance with the primary objective of a counterclaim which is to avoid and prevent
circuity of action by allowing the entire controversy between the parties to be litigated and finally determined in one action,
wherever this can be done with entire justice to all parties before the court. The philosophy of the rule is to discourage
multiplicity of suits. It will be observed that the order of the trial court allowing herein private respondent to proceed with
1âw phi 1

the presentation of his evidence in support of the latter's counterclaim is repugnant to the very purpose and intent of the
rule on counterclaims.27

In BA Finance Corporation, we likewise refused to entertain the compulsory counterclaim after the trial court lost its
jurisdiction in the main case, thus:

The rule is that a compulsory counterclaim cannot "remain pending for independent adjudication by the court." This is
because a compulsory counterclaim is auxiliary to the proceeding in the original suit and merely derives its jurisdictional
support therefrom.

Thus, it necessarily follows that if the trial court no longer possesses jurisdiction to entertain the main action of the case,
as when it dismisses the same, then the compulsory counterclaim being ancillary to the principal controversy, must
likewise be similarly dismissed since no jurisdiction remains for the grant of any relief under the counterclaim.28

As the rule now stands, the nature of the counterclaim notwithstanding, the dismissal of the complaint does not ipso jure
result in the dismissal of the counterclaim, and the latter may remain for independent adjudication of the court, provided
that such counterclaim, states a sufficient cause of action and does not labor under any infirmity that may warrant its
outright dismissal. Stated differently, the jurisdiction of the court over the counterclaim that appears to be valid on its face,
including the grant of any relief thereunder, is not abated by the dismissal of the main action. The court’s authority to
proceed with the disposition of the counterclaim independent of the main action is premised on the fact that the
counterclaim, on its own, raises a novel question which may be aptly adjudicated by the court based on its own merits and
evidentiary support.

In Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporartion,29 a case on all fours with the present one, we
expounded our ruling in Pinga and pointed out that the dismissal of the counterclaim due to the fault of the plaintiff is
without prejudice to the right of the defendant to prosecute any pending counterclaims of whatever nature in the same or
separate action, thus: Based on the aforequoted ruling of the Court, if the dismissal of the complaint somehow eliminates
the cause of the counterclaim, then the counterclaim cannot survive. Conversely, if the counterclaim itself states sufficient
cause of action then it should stand independently of and survive the dismissal of the complaint. Now, having been directly
confronted with the problem of whether the compulsory counterclaim by reason of the unfounded suit may prosper even if
the main complaint had been dismissed, we rule in the affirmative.

It bears to emphasize that petitioner's counterclaim against respondent is for damages and attorney's fees arising from the
unfounded suit. While respondent's Complaint against petitioner is already dismissed, petitioner may have very well
already incurred damages and litigation expenses such as attorney's fees since it was forced to engage legal
representation in the Philippines to protect its rights and to assert lack of jurisdiction of the courts over its person by virtue
of the improper service of summons upon it. Hence, the cause of action of petitioner's counterclaim is not eliminated by
the mere dismissal of respondent's complaint.30 (Emphasis theirs).

Once more, we allow the counterclaim of the petitioners to proceed independently of the complaint of the respondents.

WHEREFORE, premises considered, the petition is GRANTED. The assailed R TC Orders dated 3 April 2009 and 26
August 2009 are hereby REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of Balanga
City, Bataan for further proceedings, on the matter of petitioners Virginia S. Dio and H.S. Equities, Ltd. 's counterclaims.
No pronouncement as to costs.

SO ORDERED.

G.R. No. 161909 April 25, 2012


PHILTRANCO SERVICE ENTERPRISES, INC., Petitioner,
vs.
FELIX PARAS AND INLAND TRAILWAYS, INC., AND HON. COURT OF APPEALS, Respondents.

DECISION

BERSAMIN, J.:

In an action for breach of contract of carriage commenced by a passenger against his common carrier, the plaintiff can
recover damages from a third-party defendant brought into the suit by the common carrier upon a claim based on tort or
quasi-delict. The liability of the third-party defendant is independent from the liability of the common carrier to the
passenger.

Philtranco Service Enterprises, Inc. (Philtranco) appeals the affirmance with modifications by the Court of Appeals (CA) of
the decision of the Regional Trial Court (RTC) awarding moral, actual and temperate damages, as well as attorney’s fees
and costs of suit, to respondent Felix Paras (Paras), and temperate damages to respondent Inland Trailways, Inc. (Inland),
respectively the plaintiff and the defendant/third-party plaintiff in this action for breach of contract of carriage, upon a
finding that the negligence of the petitioner and its driver had caused the serious physical injuries Paras sustained and the
material damage Inland’s bus suffered in a vehicular accident.

Antecedents

The antecedent facts, as summarized by the CA, are as follows:

Plaintiff-appellant [respondent] Felix Paras (Paras for brevity), who hails from Cainta, Rizal is engaged in the buy and sell
of fish products. Sometime on 08 February 1987, on his way home to Manila from Bicol Region, he boarded a bus with
Body No. 101 and Plate No. EVE 508, owned and operated by Inland Trailways, Inc. (Inland for brevity) and driven by its
driver Calvin Coner (Coner for brevity).

At approximately 3:50 o’clock in the morning of 09 February 1987, while the said bus was travelling along Maharlika
Highway, Tiaong, Quezon, it was bumped at the rear by another bus with Plate No. EVB 259, owned and operated by
Philtranco Service Enterprises, Inc. (Philtranco for brevity). As a result of the strong and violent impact, the Inland bus was
pushed forward and smashed into a cargo truck parked along the outer right portion of the highway and the shoulder
thereof. Consequently, the said accident bought considerable damage to the vehicles involved and caused physical
injuries to the passengers and crew of the two buses, including the death of Coner who was the driver of the Inland Bus at
the time of the incident.

Paras was not spared from the pernicious effects of the accident. After an emergency treatment at the San Pablo Medical
Center, San Pablo City, Laguna, Paras was taken to the National Orthopedic Hospital. At the latter hospital, he was found
and diagnosed by Dr. Antonio Tanchuling, Jr. to be affected with the following injuries: a) contusion/hematoma; b)
dislocation of hip upon fracture of the fibula on the right leg; c) fractured small bone on the right leg; and d) close fracture
on the tibial plateau of the left leg. (Exh. "A", p. 157, record)

On 04 March 1987 and 15 April 1987, Paras underwent two (2) operations affecting the fractured portions of his body.
(Exhs. "A-2" and "A-3", pp. 159 and 160 respectively, record)

Unable to obtain sufficient financial assistance from Inland for the costs of his operations, hospitalization, doctors’ fees and
other miscellaneous expenses, on 31 July 1989, Paras filed a complaint for damages based on breach of contract of
carriage against Inland.

In its answer, defendant Inland denied responsibility, by alleging, among others, that its driver Coner had observed an
utmost and extraordinary care and diligence to ensure the safety of its passengers. In support of its disclaimer of
responsibility, Inland invoked the Police Investigation Report which established the fact that the Philtranco bus driver of
[sic] Apolinar Miralles was the one which violently bumped the rear portion of the Inland bus, and therefore, the direct and
proximate cause of Paras’ injuries.

On 02 March 1990, upon leave of court, Inland filed a third-party complaint against Philtranco and Apolinar Miralles (Third
Party defendants). In this third-party complaint, Inland, sought for exoneration of its liabilities to Paras, asserting that the
latter’s cause of action should be directed against Philtranco considering that the accident was caused by Miralles’ lack of
care, negligence and reckless imprudence. (pp. 50 to 56, records).

After trial, the RTC (Branch 71) in Antipolo, Rizal rendered its judgment on July 18, 1997,1 viz:

WHEREFORE, third-party defendant Philtranco and Apolinar Miralles are hereby ordered to pay plaintiff jointly and
severally, the following amounts:

1.₱54,000.00 as actual damages;

2.₱50,000.00 as moral damages;

3.₱20,000.00 as attorney’s fees and costs.

SO ORDERED.

All the parties appealed to the CA on different grounds.


On his part, Paras ascribed the following errors to the RTC, to wit:

I. THE TRIAL COURT ERRED IN HOLDING THAT ONLY THIRD-PARTY DEFENDANT-APPELLANT


PHILTRANCO IS LIABLE FOR THE DAMAGES SUFFERED BY APPELLANT PARAS.

II. THE TRIAL COURT ERRED IN NOT HOLDING APPELLANT INLAND TRAILWAYS INC. TO BE JOINTLY AND
SEVERALLY LIABLE FOR THE DAMAGES SUFFERED BY PARAS.

III. THE TRIAL COURT ERRED IN NOT AWARDING UNEARNED INCOME AS ADDITIONAL ACTUAL
DAMAGES SUFFERED BY APPELLANT PARAS AS HIS PHYSICAL DISABILITY IS PERMANENT IN NATURE.

IV. THE TRIAL COURT ERRED IN NOT AWARDING EXEMPLARY DAMAGES IN FAVOR OF APPELLANT
PARAS.

On the other hand, Inland assigned the following errors to the RTC, namely:

THE TRIAL COURT ERRED WHEN IT FAILED TO AWARD DAMAGES UNTO THE THIRD PARTY PLAINTIFF
NOTWITHSTANDING CLEAR FINDING THAT:

‘It is clear from the evidence that the plaintiff sustained injuries because of the reckless, negligence, and lack of precaution
of third party defendant Apolinar Miralles, an employee of Philtranco.’

AND, COMPLETELY DISREGARDED THE UNCONTROVERTED ORAL AND DOCUMENTARY EVIDENCES


ESTABLISHING THE EXTENT AND DEGREE OF DAMAGES SUSTAINED BY THE THIRD PARTY PLAINTIFF.

Lastly, Philtranco stated that the RTC erred thuswise:

THE COURT A QUO MISERABLY ERRED IN AWARDING ACTUAL DAMAGES GREATER THAN WHAT WAS
ALLEGED IN THE COMPLAINT ITSELF, AND EVEN MUCH MORE GREATER THAN WHAT WERE PROVED
DURING THE TRIAL, HENCE, PERPETUATING UNJUST ENRICHMENT.

II

THE COURT A QUO SERIOUSLY ERRED IN AWARDING MORAL DAMAGES TO A CAUSE OF ACTION OF
CULPA-CONTRACTUAL EVEN WITHOUT ANY EVIDENCE OF GROSS BAD FAITH; HENCE, CONTRARY TO
THE ESTABLISHED DOCTRINE IN THE CASES OF PHIL. RABBIT BUS LINES VS. ESGUERRA; SOBERANO
VS. BENGUET AUTO LINE AND FLORES VS. MIRANDA.

III

THE COURT A QUO MISERABLY ERRED IN HOLDING THAT MIRALLES WAS THE ONE AT FAULT MERELY
ON THE STRENGHT OF THE TESTIMONY OF THE POLICE INVESTIGATOR WHICH IS IN TURN BASED ON
THE STATEMENTS OF ALLEGED WITNESSES WHO WERE NEVER PRESENTED ON THE WITNESS STAND.

IV

THE COURT A QUO COMMITTED A GRIEVOUS ERROR IN DISREGARDING THE TESTIMONY OF


APPELLANTS’ WITNESSES WHO TESTIFIED AS TO THE DEFENSE OF EXERCISE OF DUE DILIGENCE IN
THE SELECTION AND SUPERVISION OF EMPLOYEES PURSUANT TO ART. 2180, LAST PARAGRAPH, NEW
CIVIL CODE.

On September 25, 2002, the CA promulgated its decision,2 disposing:

WHEREFORE, in consideration of the foregoing premises, the assailed decision dated 18 July 19(9)7 is perforce affirmed
with the following modifications:

1. Third party defendants-appellants Philtranco and Apolinar Miralles are ordered to pay plaintiff-appellant Felix
Paras jointly and severally the following amounts:

a) ₱1,397.95 as actual damages;

b) ₱50,000.00 as temperate damages;

c) ₱50,000.00 as moral damages; and

d) ₱20,000.00 as attorney’s fees and costs of suit.

2. On the third party plaintiff-appellant Inland’s claims, the third party defendant-appellants Philtranco and Apolinar
Miralles are hereby ordered to pay the former (Inland) jointly and severally the amount of ₱250,000.00 as and by
way of temperate damages.

SO ORDERED.
The CA agreed with the RTC’s finding that no trace of negligence at the time of the accident was attributable to Inland’s
driver, rendering Inland not guilty of breach of contract of carriage; that faulty brakes had caused Philtranco’s bus to
forcefully bump Inland’s bus from behind, making it hit the rear portion of a parked cargo truck; that the impact had
resulted in considerable material damage to the three vehicles; and that Paras and others had sustained various physical
injuries.

Accordingly, the CA:– (a) sustained the award of moral damages of ₱50,000.00 in favor of Paras pursuant to Article 2219
of the Civil Code based on quasi-delict committed by Philtranco and its driver; (b) reduced the actual damages to be paid
by Philtranco to Paras from ₱54,000.00 to ₱1,397.95 because only the latter amount had been duly supported by receipts;
(c) granted temperate damages of ₱50,000.00 (in lieu of actual damages in view of the absence of competent proof of
actual damages for his hospitalization and therapy) to be paid by Philtranco to Paras; and (d) awarded temperate
damages of ₱250,000.00 under the same premise to be paid by Philtranco to Inland for the material damage caused to
Inland’s bus.

Philtranco moved for reconsideration,3 but the CA denied its motion for reconsideration on January 21, 2004.4

Issues

Hence, this appeal, in which the petitioner submits that the CA committed grave abuse of discretion amounting to lack of
jurisdiction in awarding moral damages to Paras despite the fact that the complaint had been anchored on breach of
contract of carriage; and that the CA committed a reversible error in substituting its own judgment by motu proprio
awarding temperate damages of ₱250,000.00 to Inland and ₱50,000.00 to Paras despite the clear fact that temperate
damages were not raised on appeal by Paras and Inland.

Ruling

The appeal lacks merit.

The Court does not disturb the unanimous findings by the CA and the RTC on the negligence of Philtranco and its driver
being the direct cause of the physical injuries of Paras and the material damage of Inland.

Nonetheless, we feel bound to pass upon the disparate results the CA and the RTC reached on the liabilities of Philtranco
and its driver.

1.

Paras can recover moral damages


in this suit based on quasi-delict

Philtranco contends that Paras could not recover moral damages because his suit was based on breach of contract of
carriage, pursuant to which moral damages could be recovered only if he had died, or if the common carrier had been
guilty of fraud or bad faith. It argues that Paras had suffered only physical injuries; that he had not adduced evidence of
fraud or bad faith on the part of the common carrier; and that, consequently, Paras could not recover moral damages
directly from it (Philtranco), considering that it was only being subrogated for Inland.

The Court cannot uphold the petitioner’s contention.

As a general rule, indeed, moral damages are not recoverable in an action predicated on a breach of contract. This is
because such action is not included in Article 2219 of the Civil Code 5 as one of the actions in which moral damages may
be recovered. By way of exception, moral damages are recoverable in an action predicated on a breach of contract: (a)
where the mishap results in the death of a passenger, as provided in Article 1764,6 in relation to Article 2206, (3),7 of the
Civil Code; and (b) where the common carrier has been guilty of fraud or bad faith,8 as provided in Article 22209 of the Civil
Code.

Although this action does not fall under either of the exceptions, the award of moral damages to Paras was nonetheless
proper and valid. There is no question that Inland filed its third-party complaint against Philtranco and its driver in order to
establish in this action that they, instead of Inland, should be directly liable to Paras for the physical injuries he had
sustained because of their negligence. To be precise, Philtranco and its driver were brought into the action on the theory
of liability that the proximate cause of the collision between Inland’s bus and Philtranco’s bus had been "the negligent,
reckless and imprudent manner defendant Apolinar Miralles drove and operated his driven unit, the Philtranco Bus with
Plate No. 259, owned and operated by third-party defendant Philtranco Service Enterprises, Inc."10 The apparent objective
of Inland was not to merely subrogate the third-party defendants for itself, as Philtranco appears to suggest,11 but, rather, to
obtain a different relief whereby the third-party defendants would be held directly, fully and solely liable to Paras and
Inland for whatever damages each had suffered from the negligence committed by Philtranco and its driver. In other
words, Philtranco and its driver were charged here as joint tortfeasors who would be jointly and severally be liable to Paras
and Inland.

Impleading Philtranco and its driver through the third-party complaint filed on March 2, 1990 was correct. The device of the
third-party action, also known as impleader, was in accord with Section 12, Rule 6 of the Revised Rules of Court, the rule
then applicable, viz:

Section 12. Third-party complaint. – A third-party complaint is a claim that a defending party may, with leave of court, file
against a person not a party to the action, called the third-party defendant, for contribution, indemnity, subrogation or any
other relief, in respect of his opponent’s claim.12

Explaining the application of Section 12, Rule 6, supra, the Court said in Balbastro v. Court of Appeals,13 to wit:
Section 12 of Rule 6 of the Revised Rules of Court authorizes a defendant to bring into a lawsuit any person "not a party to
the action . . . for contribution, indemnity, subrogation or any other relief in respect of his opponent's claim." From its
explicit language it does not compel the defendant to bring the third-parties into the litigation, rather it simply permits the
inclusion of anyone who meets the standard set forth in the rule. The secondary or derivative liability of the third-party is
central — whether the basis is indemnity, subrogation, contribution, express or implied warranty or some other theory. The
impleader of new parties under this rule is proper only when a right to relief exists under the applicable substantive law.
This rule is merely a procedural mechanism, and cannot be utilized unless there is some substantive basis under
applicable law.

Apart from the requirement that the third-party complainant should assert a derivative or secondary claim for relief from the
third-party defendant there are other limitations on said party’s ability to implead. The rule requires that the third-party
defendant is "not a party to the action" for otherwise the proper procedure for asserting a claim against one who is already
a party to the suit is by means of counterclaim or cross-claim under sections 6 and 7 of Rule 6. In addition to the aforecited
requirement, the claim against the third-party defendant must be based upon plaintiff's claim against the original defendant
(third-party claimant). The crucial characteristic of a claim under section 12 of Rule 6, is that the original "defendant is
attempting to transfer to the third-party defendant the liability asserted against him by the original plaintiff."

Accordingly, the requisites for a third-party action are, firstly, that the party to be impleaded must not yet be a party to the
action; secondly, that the claim against the third-party defendant must belong to the original defendant; thirdly, the claim of
the original defendant against the third-party defendant must be based upon the plaintiff’s claim against the original
defendant; and, fourthly, the defendant is attempting to transfer to the third-party defendant the liability asserted against
him by the original plaintiff.14

As the foregoing indicates, the claim that the third-party complaint asserts against the third-party defendant must be
predicated on substantive law. Here, the substantive law on which the right of Inland to seek such other relief through its
third-party complaint rested were Article 2176 and Article 2180 of the Civil Code, which read:

Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for
the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a
quasi-delict and is governed by the provisions of this chapter. (1902a)

Article 2180. The obligation imposed by article 2176 is demandable not only for one’s own acts or omissions, but also for
those of persons for whom one is responsible.

xxx

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged in any business or industry.

xxx

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage. (1903a)

Paras’ cause of action against Inland (breach of contract of carriage) did not need to be the same as the cause of action of
Inland against Philtranco and its driver (tort or quasi-delict) in the impleader. It is settled that a defendant in a contract
action may join as third-party defendants those who may be liable to him in tort for the plaintiff’s claim against him, or even
directly to the plaintiff.15 Indeed, Prof. Wright, et al., commenting on the provision of the Federal Rules of Procedure of the
United States from which Section 12, supra, was derived, observed so, to wit:16

The third-party claim need not be based on the same theory as the main claim. For example, there are cases in which the
third-party claim is based on an express indemnity contract and the original complaint is framed in terms of negligence.
Similarly, there need not be any legal relationship between the third-party defendant and any of the other parties to the
action. Impleader also is proper even though the third party’s liability is contingent, and technically does not come into
existence until the original defendant’s liability has been established. In addition, the words ‘is or may be liable’ in Rule
14(a) make it clear that impleader is proper even though the third-party defendant’s liability is not automatically established
once the third-party plaintiff’s liability to the original plaintiff has been determined.

Nor was it a pre-requisite for attachment of the liability to Philtranco and its driver that Inland be first declared and found
liable to Paras for the breach of its contract of carriage with him.17 As the Court has cogently discoursed in Samala v.
Judge Victor:18

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

Quite apparent from these arguments is the misconception entertained by appellants with respect to the nature and office
of a third party complaint.

Section 16, Rule 6 of the Revised Rules of Court defines a third party complaint as a "claim that a defending party may,
with leave of court, file against a person not a party to the action, called the third-party defendant, for contribution,
indemnification, subrogation, or any other relief, in respect of his opponent’s claim." In the case of Viluan vs. Court of
Appeals, et al., 16 SCRA 742 [1966], this Court had occasion to elucidate on the subjects covered by this Rule, thus:
... As explained in the Atlantic Coast Line R. Co. vs. U.S. Fidelity & Guaranty Co., 52 F. Supp. 177 (1943:)

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

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

The provision in the rule that, ‘The third-party defendant may assert any defense which the third-party plaintiff may assert
to the plaintiffs claim,’ applies to the other subject, namely, the alleged liability of third party defendant. The next sentence
in the rule, ‘The third-party defendant is bound by the adjudication of the third party plaintiffs liability to the plaintiff, as well
as of his own to the plaintiff or to the third-party plaintiff applies to both subjects. If third party is brought in as liable only to
defendant and judgment is rendered adjudicating plaintiff's right to recover against defendant and defendant’s rights to
recover against third party, he is bound by both adjudications.That part of the sentence refers to the second subject. If
third party is brought in as liable to plaintiff, then third party is bound by the adjudication as between him and plaintiff. That
refers to the first subject. If third party is brought in as liable to plaintiff and also over to defendant, then third party is bound
by both adjudications. xxx

Under this Rule, a person not a party to an action may be impleaded by the defendant either (a) on an allegation of liability
to the latter; (b) on the ground of direct liability to the plaintiff-; or, (c) both (a) and (b). The situation in (a) is covered by the
phrase "for contribution, indemnity or subrogation;" while (b) and (c) are subsumed under the catch all "or any other relief,
in respect of his opponent’s claim."

The case at bar is one in which the third party defendants are brought into the action as directly liable to the plaintiffs upon
the allegation that "the primary and immediate cause as shown by the police investigation of said vehicular collision
between (sic) the above-mentioned three vehicles was the recklessness and negligence and lack of imprudence (sic) of
the third-party defendant Virgilio (should be Leonardo) Esguerra y Ledesma then driver of the passenger bus." The effects
are that "plaintiff and third party are at issue as to their rights respecting the claim" and "the third party is bound by the
adjudication as between him and plaintiff." It is not indispensable in the premises that the defendant be first adjudged
liable to plaintiff before the third-party defendant may be held liable to the plaintiff, as precisely, the theory of defendant is
that it is the third party defendant, and not he, who is directly liable to plaintiff. The situation contemplated by appellants
would properly pertain to situation (a) above wherein the third party defendant is being sued for contribution, indemnity or
subrogation, or simply stated, for a defendant's "remedy over".19

It is worth adding that allowing the recovery of damages by Paras based on quasi-delict, despite his complaint being upon
contractual breach, served the judicial policy of avoiding multiplicity of suits and circuity of actions by disposing of the
entire subject matter in a single litigation.20

2.

Award of temperate damages was in order

Philtranco assails the award of temperate damages by the CA considering that, firstly, Paras and Inland had not raised the
matter in the trial court and in their respective appeals; secondly, the CA could not substitute the temperate damages
granted to Paras if Paras could not properly establish his actual damages despite evidence of his actual expenses being
easily available to him; and, thirdly, the CA gravely abused its discretion in granting motu proprio the temperate damages
of ₱250,000.00 to Inland although Inland had not claimed temperate damages in its pleading or during trial and even on
appeal.

The Court cannot side with Philtranco.

Actual damages, to be recoverable, must not only be capable of proof, but must actually be proved with a reasonable
degree of certainty. The reason is that the court "cannot simply rely on speculation, conjecture or guesswork in
determining the fact and amount of damages," but "there must be competent proof of the actual amount of loss, credence
can be given only to claims which are duly supported by receipts."21

The receipts formally submitted and offered by Paras were limited to the costs of medicines purchased on various times in
the period from February 1987 to July 1989 (Exhibits E to E-35, inclusive) totaling only ₱1,397.95.22 The receipts by no
means included hospital and medical expenses, or the costs of at least two surgeries as well as rehabilitative therapy.
Consequently, the CA fixed actual damages only at that small sum of ₱1,397.95. On its part, Inland offered no definite
proof on the repairs done on its vehicle, or the extent of the material damage except the testimony of its witness,
Emerlinda Maravilla, to the effect that the bus had been damaged beyond economic repair.23 The CA rejected Inland’s
showing of unrealized income worth ₱3,945,858.50 for 30 months (based on alleged average weekly income of
₱239,143.02 multiplied by its guaranteed revenue amounting to 55% thereof, then spread over a period of 30 months, the
equivalent to the remaining 40% of the vehicle’s un-depreciated or net book value), finding such showing arbitrary,
uncertain and speculative.24 As a result, the CA allowed no compensation to Inland for unrealized income.

Nonetheless, the CA was convinced that Paras should not suffer from the lack of definite proof of his actual expenses for
the surgeries and rehabilitative therapy; and that Inland should not be deprived of recourse to recover its loss of the
economic value of its damaged vehicle. As the records indicated, Paras was first rushed for emergency treatment to the
San Pablo Medical Center in San Pablo City, Laguna, and was later brought to the National Orthopedic Hospital in
Quezon City where he was diagnosed to have suffered a dislocated hip, fracture of the fibula on the right leg, fracture of
the small bone of the right leg, and closed fracture on the tibial plateau of the left leg. He underwent surgeries on March 4,
1987 and April 15, 1987 to repair the fractures.25 Thus, the CA awarded to him temperate damages of ₱50,000.00 in the
absence of definite proof of his actual expenses towards that end. As to Inland, Maravilla’s testimony of the bus having
been damaged beyond economic repair showed a definitely substantial pecuniary loss, for which the CA fixed temperate
damages of ₱250,000.00. We cannot disturb the CA’s determination, for we are in no position today to judge its
reasonableness on account of the lapse of a long time from when the accident occurred.26

In awarding temperate damages in lieu of actual damages, the CA did not err, because Paras and Inland were definitely
shown to have sustained substantial pecuniary losses. It would really be a travesty of justice were the CA now to be held
bereft of the discretion to calculate moderate or temperate damages, and thereby leave Paras and Inland without redress
from the wrongful act of Philtranco and its driver.27 We are satisfied that the CA exerted effort and practiced great care to
ensure that the causal link between the physical injuries of Paras and the material loss of Inland, on the one hand, and the
negligence of Philtranco and its driver, on the other hand, existed in fact. It also rejected arbitrary or speculative proof of
loss. Clearly, the costs of Paras’ surgeries and consequential rehabilitation, as well as the fact that repairing Inland’s
vehicle would no longer be economical justly warranted the CA to calculate temperate damages of ₱50,000.00 and
₱250,000.00 respectively for Paras and Inland.

There is no question that Article 2224 of the Civil Code expressly authorizes the courts to award temperate damages
despite the lack of certain proof of actual damages, to wit:

Article 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may
be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of
the case, be proved with certainty.

The rationale for Article 2224 has been stated in Premiere Development Bank v. Court of Appeals 28 in the following
manner:

Even if not recoverable as compensatory damages, Panacor may still be awarded damages in the concept of temperate or
moderate damages. When the court finds that some pecuniary loss has been suffered but the amount cannot, from the
nature of the case, be proved with certainty, temperate damages may be recovered. Temperate damages may be allowed
in cases where from the nature of the case, definite proof of pecuniary loss cannot be adduced, although the court is
convinced that the aggrieved party suffered some pecuniary loss.

The Code Commission, in explaining the concept of temperate damages under Article 2224, makes the following
comment:

In some States of the American Union, temperate damages are allowed. There are cases where from the nature of the
case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. For
instance, injury to one’s commercial credit or to the goodwill of a business firm is often hard to show with certainty in terms
of money. Should damages be denied for that reason? The judge should be empowered to calculate moderate damages
in such cases, rather than that the plaintiff should suffer, without redress from the defendant’s wrongful act.

3.

Paras’ loss of earning capacity


must be compensated

In the body of its decision, the CA concluded that considering that Paras had a minimum monthly income of ₱8,000.00 as
a trader he was entitled to recover compensation for unearned income during the 3-month period of his hospital
confinement and the 6-month period of his recovery and rehabilitation; and aggregated his unearned income for those
periods to ₱72,000.00.29 Yet, the CA omitted the unearned income from the dispositive portion.

The omission should be rectified, for there was credible proof of Paras’ loss of income during his disability. According to
Article 2205, (1), of the Civil Code, damages may be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury. Indeed, indemnification for damages comprehends not only the loss suffered
(actual damages or damnum emergens) but also the claimant’s lost profits (compensatory damages or lucrum
cessans).30 Even so, the formula that has gained acceptance over time has limited recovery to net earning capacity; hence,
the entire amount of ₱72,000.00 is not allowable. The premise is obviously that net earning capacity is the person’s
capacity to acquire money, less the necessary expense for his own living.31 To simplify the determination, therefore, the net
earning capacity of Paras during the 9-month period of his confinement, surgeries and consequential therapy is pegged at
only half of his unearned monthly gross income of ₱8,000.00 as a trader, or a total of ₱36,000.00 for the 9-month period,
the other half being treated as the necessary expense for his own living in that period.

It is relevant to clarify that awarding the temperate damages (for the substantial pecuniary losses corresponding to Paras’s
surgeries and rehabilitation and for the irreparability of Inland’s damaged bus) and the actual damages to compensate lost
earnings and costs of medicines give rise to no incompatibility. These damages cover distinct pecuniary losses suffered by
Paras and Inland,32 and do not infringe the statutory prohibition against recovering damages twice for the same act or
omission.33

4.

Increase in award of attorney’s fees

Although it is a sound policy not to set a premium on the right to litigate,34 we consider the grant to Paras and Inland of
reasonable attorney’s fees warranted. Their entitlement to attorney’s fees was by virtue of their having been compelled to
litigate or to incur expenses to protect their interests,35 as well as by virtue of the Court now further deeming attorney’s fees
to be just and equitable.36
In view of the lapse of a long time in the prosecution of the claim,37 the Court considers it reasonable and proper to grant
attorney’s fees to each of Paras and Inland equivalent to 10% of the total amounts hereby awarded to them, in lieu of only
₱20,000.00 for that purpose granted to Paras.

5.

Legal interest on the amounts awarded

Pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals,38 legal interest at the rate of 6% per annum accrues on the
amounts adjudged reckoned from July 18, 1997, the date when the RTC rendered its judgment; and legal interest at the
rate of 12% per annum shall be imposed from the finality of the judgment until its full satisfaction, the interim period being
regarded as the equivalent of a forbearance of credit.

WHEREFORE, the Court AFFIRMS WITH MODIFICATION the decision of the Court of Appeals promulgated on
September 25, 2002, by ordering PHILTRANCO SERVICE ENTERPRISES, INC. and APOLINAR MIRALLES to pay,
jointly and severally, as follows:

1. To Felix Paras:

(a) ₱1,397.95, as reimbursement for the costs of medicines purchased between February 1987 and July
1989;

(b) ₱50,000.00 as temperate damages;

(c) ₱50,000.00 as moral damages;

(d) ₱36,000.00 for lost earnings;

(e) 10% of the total of items (a) to (d) hereof as attorney’s fees; and

(f) Interest of 6% per annum from July 18, 1997 on the total of items (a) to (d) hereof until finality of this
decision, and 12% per annum thereafter until full payment.

2. To Inland Trailways, Inc.:

(a) ₱250,000.00 as temperate damages;

(b) 10% of item (a) hereof; and

(c) Interest of 6% per annum on item (a) hereof from July 18, 1997 until finality of this decision, and 12%
per annum thereafter until full payment.

3. The petitioner shall pay the costs of suit.

SO ORDERED.

G.R. No. 139884 February 15, 2001

SPOUSES OCTAVIO and EPIFANIA LORBES, petitioners,


vs.
COURT OF APPEALS, RICARDO DELOS REYES and JOSEFINA CRUZ, respondents.

GONZAGA-REYES, J.:

This petition for review on certiorari arose from an action for reformation of instrument and damages originally filed with
the Regional Trial Court of Antipolo, Rizal, Branch 74, the decision on which was reviewed and reversed by the Third
Division of the Court of Appeals.

Petitioners were the registered owners of a 225-square meter parcel of land located in Antipolo, Rizal covered by Transfer
Certificate of Title No. 165009. Sometime in August 1991, petitioners mortgaged this property to Florencio and Nestor
Carlos in the amount of P150,000.00.

About a year later, the mortgage obligation had increased to P500,000.00 and fearing foreclosure of the property,
petitioners asked their son-in-law, herein private respondent Ricardo delos Reyes, for help in redeeming their property.
Private respondent delos Reyes agreed to redeem the property but because he allegedly had no money then for the
purpose he solicited the assistance of private respondent Josefina Cruz, a family friend of the delos Reyeses and an
employee of the Land Bank of the Philippines. 1âwphi 1.nêt

It was agreed that petitioners will sign a deed of sale conveying the mortgaged property in favor of private respondent
Cruz and thereafter, Cruz will apply for a housing loan with Land Bank, using the subject property as collateral. It was
further agreed that out of the proceeds of the loan, P500,000.00 will be paid to the Carloses as mortgagees, and an such
balance will be applied by petitioners for capital gains tax, expenses for the cancellation of the mortgage to the Carloses,
transfer of title to Josefina Cruz, and registration of a mortgage in favor of Land Bank.1 Moreover, the monthly amortization
on the housing loan which was supposed to be deducted from the salary of private respondent Cruz will be reimbursed by
private respondent delos Reyes.

On September 29, 1992, the Land Bank issued a letter of guarantee in favor of the Carloses, informing them that Cruz’s
loan had been approved. On October 22, 1992, Transfer Certificate of Title No. 165009 was cancelled and Transfer
Certificate of Title No. 229891 in the name of Josefina Cruz was issued in lieu thereof. 2 On November 25, 1992, the
mortgage was discharged.

Sometime in 1993, petitioners notified private respondent delos Reyes that they were ready to redeem the property but the
offer was refused. Aggrieved, petitioners filed on July 22, 1994 a complaint for reformation of instrument and damages
with the RTC of Antipolo, Rizal, docketed as Civil Case No. 94-3296.

In the complaint, petitioners claimed that the deed was merely a formality to meet the requirements of the bank for the
housing loan, and that the real intention of the parties in securing the loan was to apply the proceeds thereof for the
payment of the mortgage obligation.3 They alleged that the deed of sale did not reflect the true intention of the parties, and
that the transaction was not an absolute sale but an equitable mortgage, considering that the price of the sale was
inadequate considering the market value of the subject property and because they continued paying the real estate taxes
thereto even after the execution of the said deed of sale. Petitioners averred that they did not see any reason why private
respondents would retract from their original agreement other than that they (petitioners) and the members of their family
resigned en masse from the Mahal Namin Organization, of which private respondent delos Reyes was the president and
chairman of the board of directors, and private respondent Cruz was the treasurer. In the same complaint, they demanded
moral damages, exemplary damages, and attorney’s fees.

On July 29, 1996, the trial court issued a temporary restraining order enjoining private respondents from ejecting
petitioners from the premises of the disputed property; this was soon replaced by a writ of preliminary injunction.

Summons and a copy of the complaint were served upon private respondents on August 1, 1994. Private respondents
filed their answer beyond the reglamentary period, or only on September 1, 1994. Thus, on September 5, 1994, petitioners
filed a motion to declare private respondents in default, which the trial court granted in an order dated September 16,
1994. On September 30 of the same year, petitioners presented their evidence ex parte before the trial court. The principal
witness presented was petitioner Octavio Lorbes, whose testimony was corroborated by his son, Atty. Salvador Lorbes.

On October 12, 1994, private respondents filed a motion to lift order of default and to strike out evidence presented ex
parte, which the court denied in an order dated October 26, 1994.

On June 20, 1995, the trial court rendered judgment in favor of petitioners, upon finding that: (1) the Deed of Absolute Sale
dated October 21, 1992 did not reflect the true intention of the parties, and (2) the transaction entered into between
petitioners and Cruz was not an absolute sale but an equitable mortgage, considering that the price stated in the Deed of
Absolute Sale was insufficient compared to the value of the property, petitioners are still in possession of the property, and
petitioners had continued to pay the real estate taxes thereon after the execution of the said deed of sale. As explained by
the trial court in its decision:

The foregoing uncontroverted facts clearly show that the transaction entered into between the plaintiffs and the
defendants is not an absolute sale but merely an equitable mortgage as the sale was executed in order to secure
a loan from a certain bank to save the property from the danger of foreclosure and to use it as collateral thereof for
bank loan purposes and that the same does not reflect the real intention of the parties in executing the said Deed
of Sale. The court notes that at the time the transaction and the Deed of Absolute Sale was executed by the
plaintiffs sometime in 1992, the prevailing market value of the lot alone was P400,000.00 per square meter such
that the lot alone consisting of 255 square meters, excluding the house and improvements thereon would already
cost more than a million pesos already hence, the consideration of P600,000.00 in the said Deed of Sale is
considerably insufficient compared to the value of the property. Further, the plaintiffs are still in possession of the
subject property and had been paying the realty taxes thereon even after the execution of the sale and the transfer
of the title from the plaintiffs to defendant Josephine Cruz which clearly evinces the true badge of the transaction
which occurred between the plaintiffs and defendants as that of an equitable mortgage and not an absolute sale
and that the plaintiffs were only compelled to enter into the said transaction of sale with the defendants as the
former were in extreme need of money in order to redeem their only conjugal property and to save it from being
foreclosed for non-payment of the mortgage obligation and that it was never the intention of the plaintiffs to sell the
property to the defendants, as it was their agreement that plaintiffs can redeem the property or any member of the
family thereof, when they become financially stable.4

The dispositive portion of the trial court’s decision thus provides:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, ordering the latter jointly and severally, as follows:

1. To reconvey the subject property to the plaintiffs upon payment of the price stipulated in the contract of
sale;

2. To pay plaintiffs the sum of P50,000.00 as moral damages;

3. To pay plaintiffs the sum of P50,000.00 as and by way of attorney’s fees plus P1,000.00 per court
appearance;

4. To pay the costs of suit.

SO ORDERED.5
The Court of Appeals reversed the above decision, finding that private respondents were denied due process by the
refusal of the trial court to lift the order of default against them, and that the transaction between petitioners and Cruz was
one of absolute sale, not of equitable mortgage. It also held the RTC decision to be constitutionally infirm for its failure to
clearly and distinctly state the facts and the law on which it is based.

The Court of Appeals held that the reformation of the Deeds of Absolute Sale in the instant case is improper because
there is no showing that such instrument failed to express the true intention of the parties by reason of mistake, fraud,
inequitable conduct, or accident in the execution thereof.6 To the Court of Appeals, the transaction was unmistakably a
contract of sale, as evidenced by the numerous supporting documents thereto, such as the Contract to Sell dated June
1992, Affidavit of Waiver/Assignment dated August 14, 1992, Receipt of Partial Advance Payment dated September 9,
1992, and Transfer Certificate of Title No. 229891 issued in the name of private respondent Cruz. Going over the
indicators giving rise to a presumption of equitable mortgage cited in the decision of the RTC, the Court of Appeals held:
(1) inadequacy of price is material only in a sale with right to repurchase, which is not the case with herein petitioners and
Cruz; moreover, the estimate of the market value of the property came only from the bare testimony of petitioner Octavio
Lorbes, (2) petitioners’ remaining in possession of the property resulted only from their refusal to vacate the same despite
the lawful demands of private respondent Cruz, and (3) there was no documentary evidence that petitioners continued
paying the taxes on the disputed property after the execution of the Deed of Absolute Sale.

In its decision, the Court of Appeals also pointed out that under the usual arrangement of pacto de retro the vendor of the
property is a debtor of the vendee, and the property is used as security for his obligation. In the instant case, the mortgage
creditors (the Carloses) are third persons to the Deed of Absolute Sale.

This petition raises three issues before the Court: (1) whether respondent court erred in ruling that the Deed of Absolute
Sale dated October 21, 1992 was an equitable mortgage, (2) whether respondent court erred in ruling that by declaring
private respondents in default they were denied due process of law, and (3) whether respondent court erred in ruling that
the trial court’s decision violates the constitutional requirement that it should clearly and distinctly state the facts and the
law on which it is based.7

We shall first deal with the second and third issues, these being preliminary matters.

Well-settled is the rule that courts should be liberal in setting aside orders of default for judgments of default are frowned
upon, unless in cases where it clearly appears that the reopening of the case is intended for delay. 8 The issuance of
orders of default should be the exception rather than the rule, to be allowed only in clear cases of obstinate refusal by the
defendant to comply with the orders of the trial court.9

Under the factual milieu of this case, the RTC was indeed remiss in denying private respondents’ motion to lift the order of
default and to strike out the evidence presented by petitioners ex parte, especially considering that an answer was filed,
though out of time. We thus sustain the holding of the Court of Appeals that the default order of the RTC was immoderate
and in violation of private respondents’ due process rights. However, we do not think that the violation was of a degree as
to justify a remand of the proceedings to the trial court, first, because such relief was not prayed for by private
respondents, and second, because the affirmative defenses and evidence that private respondents would have presented
before the RTC were capably ventilated before respondent court, and were taken into account by the latter in reviewing
the correctness of the evaluation of petitioners’ evidence by the RTC and ultimately, in reversing the decision of the RTC.
This is evident from the discussions in the decision of the Court of Appeals, which cited with approval a number of private
respondents’ arguments and evidence, including the documents annexed to their opposition to the issuance of a writ of
preliminary injunction filed with the RTC.10 To emphasize, the reversal of respondent court was not simply on due process
grounds but on the merits, going into the issue of whether the transaction was one of equitable mortgage or of sale, and
so we find that we can properly take cognizance of the substantive issue in this case, while of course bearing in mind the
inordinate manner by which the RTC issued its default order.

As regards the third issue, we reverse for being unfounded the holding of the Court of Appeals since the RTC decision,
some parts of which we even reproduced in our earlier discussions, clearly complied with the constitutional requirement to
state clearly and distinctly the facts and the law on which it was based.

Thus, the one issue essential to the resolution of this case is the nature of the transaction between petitioners and private
respondent Cruz concerning the subject parcel of land. Did the parties intend for the contested Deed of Absolute Sale to
be a bona fide and absolute conveyance of the property, or merely an equitable mortgage?

On the outset, it must be emphasized that there is no conclusive test to determine whether a deed absolute on its face is
really a simple loan accommodation secured by a mortgage.11 "The decisive factor in evaluating such agreement is the
intention of the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding
circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct, declarations of the
parties, the negotiations between them leading to the deed, and generally, all pertinent facts having a tendency to fix and
determine the real nature of their design and understanding. As such, documentary and parol evidence may be submitted
and admitted to prove the intention of the parties."12

The conditions which give way to a presumption of equitable mortgage, as set out in Article 1602 of the Civil Code, apply
with equal force to a contract purporting to be one of absolute sale.13 Moreover, the presence of even one of the
circumstances laid out in Article 1602, and not a concurrence of the circumstances therein enumerated, suffices to
construe a contract of sale to be one of equitable mortgage.14 This is simply in consonance with the rule that the law favors
the least transmission of property rights.15

Thus, under Article 1602 of the Civil Code, a contract shall be presumed to be an equitable mortgage when --- (a) the
price of a sale with right to repurchase is unusually inadequate; (b) the vendor remains in possession as lessee or
otherwise; (c) upon or after the expiration of the right of repurchase another instrument extending the period of redemption
or granting a new period is executed; (d) the purchaser retains for himself a part of the purchase price; (e) the vendor
binds himself to pay the taxes on the thing sold; and, (f) in any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other
obligation.

Applying the foregoing considerations to the instant case, the Court finds that the true intention between the parties for
executing the Deed of Absolute Sale was not to convey ownership of the property in question but merely to secure the
housing loan of Cruz, in which petitioners had a direct interest since the proceeds thereof were to be immediately applied
to their outstanding mortgage obligation to the Carloses.

It is not disputed that before the execution of the Deed of Absolute Sale petitioners’ mortgage obligation to the Carloses as
nearing maturity and they were in dire need of money to meet the same. Hence, they asked for the help of their son-in-law
delos Reyes who in turn requested Cruz to take out a housing loan with Land Bank. Since collateral is a standard
requirement of banks in giving out loans, it was made to appear that the subject property was sold to Cruz so she can
declare the same as collateral for the housing loan. This was simply in line with the basic requirement in our laws that the
mortgagor be the absolute owner of the property sought to be mortgaged.16Consistent with their agreement, as soon as
the housing loan was approved, the full amount of the proceeds were immediately turned over to petitioners, who promptly
paid P500,000.00 therefrom to the Carloses in full satisfaction of their mortgage obligation. The balance was spent by
petitioners in transferring title to the property to Cruz and registering the new mortgage with Land Bank.

Understandably, the Deed of Absolute Sale and its supporting documents do not reflect the true arrangement between the
parties as to how the loan proceeds are to be actually applied because it was not the intention of the parties for these
documents to do so. The sole purpose for preparing these documents was to satisfy Land Bank that the requirement of
collateral relative to Cruz’s application for a housing loan was met.

Were we to accept, as respondent court had, that the loan that Cruz took out with Land Bank was indeed a housing loan,
then it is rather curious that Cruz kept none of the loan proceeds but allowed for the bulk thereof to be immediately applied
to the payment of petitioners outstanding mortgage obligation. It also strains credulity that petitioners, who were
exhausting all means to save their sole conjugal real property from being foreclosed by the Carloses, would concurrently
part with the same in favor of Cruz.

Such urgent prospect of foreclosure helps to explain why petitioners would subscribe to an agreement like the Deed of
Absolute Sale in the herein case, which on its face represents their unconditional relinquishment of ownership over their
property. Passing upon previous similar situations the Court has declared that "while it was true that plaintiffs were aware
of the contents of the contracts, the preponderance of the evidence showed however that they signed knowing that said
contracts did not express their real intention, and if they did so notwithstanding this, it was due to the urgent necessity of
obtaining funds. "Necessitous men are not, truly speaking, free men; but to answer a present emergency, will submit to
any terms that the crafty may impose upon them.’"17

The facts further bear out that petitioners remained in possession of the disputed property after the execution of the Deed
of Absolute Sale and the transfer of registered title to Cruz in October 1992. Cruz made no demand on petitioners to
vacate the subject premises until March 19, 1994;18 interestingly, this was two days after petitioners signified their intention
to redeem the property by paying the full amount of P600,000.00.19 On this basis, the finding of respondent court that
petitioners remained in possession of the property only because they refused to vacate on Cruz’s demand is not accurate
because the records reflect that no such demand was made until more than a year since the purported sale of the
property.

Copies of realty tax receipts attached to the record also show that petitioners continued paying for the taxes on the
property for the period 1992 to 1994,20 or after the property was supposed to have been sold to Cruz.

From the above, the Court is satisfied that enough of the circumstances set out in Article 1602 of the Civil Code are
attendant in the instant case, as to show that the true arrangement between petitioners and private respondent Cruz was
an equitable mortgage.

That a transfer certificate of title was issued in favor of private respondent Cruz also does not import conclusive evidence
of ownership or that the agreement between the parties was one of sale. As was stated in Oronce vs. Court of
Appeals,21 citing Macapinlac vs. Gutierrez Repide22:

xxx it must be borne in mind that the equitable doctrine xxx to the effect that any conveyance intended as security
for a debt will be held in effect to be a mortgage, whether so actually expressed in the instrument or not, operates
regardless of the form of the agreement chosen by the contracting parties as the repository of their will. Equity
looks through the form and considers the substance; and no kind of engagement can be adopted which will enable
the parties to escape from the equitable doctrine to which reference is made. In other words, a conveyance of
land, accompanied by registration in the name of the transferee and the issuance of a new certificate, is no more
secured from the operation of the equitable doctrine than the most informal conveyance that could be devised.

Before we fully set aside this issue, it will be recalled that the instant petition originated as a complaint for reformation filed
before the RTC of Antipolo, Rizal. The Court of Appeals found petitioners’ action for reformation unmeritorious because
there was no showing that the failure of the deed of sale to express the parties’ true intention was because of mistake,
fraud, inequitable conduct, or accident.23 Indeed, under the facts of the present case, reformation may not be proper for
failure to fully meet the requisites in Article 1359 of the Civil Code, and because as the evidence eventually bore out the
contested Deed of Absolute Sale was not intended to reflect the true agreement between the parties but was merely to
comply with the collateral requirements of Land Bank. However, the fact that the complaint filed by petitioners before the
trial court was categorized to be one for reformation of instrument should not preclude the Court from passing upon the
issue of whether the transaction was in fact an equitable mortgage as the same has been squarely raised in the complaint
and had been the subject of arguments and evidence of the parties. Thus we have held that it is not the caption of the
pleading but the allegations therein that determine the nature of the action, and the Court shall grant relief warranted by
the allegations and the proof even if no such relief is prayed for.24
Finally, on the award of damages. Considering the due process flaws that attended the default judgment of the RTC, and
applying the rule adopted by this Court that in instances where no actual damages are adjudicated the awards for moral
and exemplary damages may be reduced,25 we reduce the award for moral damages in the instant case from P50,000.00
to P30,000.00. At the same time, we sustain the award of attorney’s fees in the amount of P50,000.00, it being clear that
petitioners were compelled to incur expenses and undergo the rigors of litigation to recover their property.
1âw phi1.nêt

WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional Trial
Court of Antipolo, Rizal is REINSTATED, with the MODIFICATION that the award of moral damages is reduced to
P30,000.00, and in all other respects AFFIRMED. Costs against private respondents.

SO ORDERED.

G.R. No. 173559 January 7, 2013

LETICIA DIONA, represented by her Attorney-in-Fact, MARCELINA DIONA, Petitioner,


vs.
ROMEO A. BALANGUE, SONNY A. BALANGUE, REYNALDO A. BALANGUE, and ESTEBAN A. BALANGUE,
JR., Respondents.

DECISION

DEL CASTILLO, J.:

The great of a relief neither sought by the party in whose favor it was given not supported by the evidence presented
violates the opposing party’s right to due process and may be declared void ab initio in a proper proceeding.

This Petition for Review on Certiorari1 assails the November 24, 2005 Resolution2 of the Court of Appeals (CA) issued in
G.R. SP No. 85541 which granted the Petition for Annulment of Judgment3 filed by the respondents seeking to nullify that
portion of the October 17, 2000 Decision4 of the Regional Trial Court (RTC), Branch 75, Valenzuela City awarding
petitioner 5% monthly interest rate for the principal amount of the loan respondent obtained from her.

This Petition likewise assails the CA’s June 26, 2006 Resolution5 denying petitioner’s Motion for Reconsideration.

Factual Antecedents

The facts of this case are simple and undisputed.

On March 2, 1991, respondents obtained a loan of ₱45,000.00 from petitioner payable in six months and secured by a
Real Estate Mortgage6 over their 202-square meter property located in Marulas, Valenzuela and covered by Transfer
Certificate of Title (TCT) No. V-12296.7 When the debt became due, respondents failed to pay notwithstanding demand.
Thus, on September 17, 1999, petitioner filed with the RTC a Complaint8 praying that respondents be ordered:

(a) To pay petitioner the principal obligation of ₱45,000.00, with interest thereon at the rate of 12% per annum,
from 02 March 1991 until the full obligation is paid.

(b) To pay petitioner actual damages as may be proven during the trial but shall in no case be less than
₱10,000.00; ₱25,000.00 by way of attorney’s fee, plus ₱2,000.00 per hearing as appearance fee.

(c) To issue a decree of foreclosure for the sale at public auction of the aforementioned parcel of land, and for the
disposition of the proceeds thereof in accordance with law, upon failure of the respondents to fully pay petitioner
within the period set by law the sums set forth in this complaint.

(d) Costs of this suit.

Other reliefs and remedies just and equitable under the premises are likewise prayed for.9 (Emphasis supplied)

Respondents were served with summons thru respondent Sonny A. Balangue (Sonny). On October 15, 1999, with the
assistance of Atty. Arthur C. Coroza (Atty. Coroza) of the Public Attorney’s Office, they filed a Motion to Extend Period to
Answer. Despite the requested extension, however, respondents failed to file any responsive pleadings. Thus, upon
motion of the petitioner, the RTC declared them in default and allowed petitioner to present her evidence ex parte.10

Ruling of the RTC sought to be annulled.

In a Decision11 dated October 17, 2000, the RTC granted petitioner’s Complaint. The dispositive portion of said Decision
reads:

WHEREFORE, judgment is hereby rendered in favor of the petitioner, ordering the respondents to pay the petitioner as
follows:

a) the sum of FORTY FIVE THOUSAND (₱45,000.00) PESOS, representing the unpaid principal loan obligation
plus interest at 5% per month [sic] reckoned from March 2, 1991, until the same is fully paid;

b) ₱20,000.00 as attorney’s fees plus cost of suit;


c) in the event the [respondents] fail to satisfy the aforesaid obligation, an order of foreclosure shall be issued
accordingly for the sale at public auction of the subject property covered by Transfer Certificate of Title No. V-
12296 and the improvements thereon for the satisfaction of the petitioner’s claim.

SO ORDERED.12 (Emphasis supplied)

Subsequently, petitioner filed a Motion for Execution,13 alleging that respondents did not interpose a timely appeal despite
receipt by their former counsel of the RTC’s Decision on November 13, 2000. Before it could be resolved, however,
respondents filed a Motion to Set Aside Judgment14 dated January 26, 2001, claiming that not all of them were duly served
with summons. According to the other respondents, they had no knowledge of the case because their co-respondent
Sonny did not inform them about it. They prayed that the RTC’s October 17, 2000 Decision be set aside and a new trial be
conducted.

But on March 16, 2001, the RTC ordered15 the issuance of a Writ of Execution to implement its October 17, 2000 Decision.
However, since the writ could not be satisfied, petitioner moved for the public auction of the mortgaged property, 16 which
the RTC granted.17 In an auction sale conducted on November 7, 2001, petitioner was the only bidder in the amount of
₱420,000.00. Thus, a Certificate of Sale18 was issued in her favor and accordingly annotated at the back of TCT No. V-
12296.

Respondents then filed a Motion to Correct/Amend Judgment and To Set Aside Execution Sale 19 dated December 17,
2001, claiming that the parties did not agree in writing on any rate of interest and that petitioner merely sought for a 12%
per annum interest in her Complaint. Surprisingly, the RTC awarded 5% monthly interest (or 60% per annum) from March
2, 1991 until full payment. Resultantly, their indebtedness inclusive of the exorbitant interest from March 2, 1991 to May
22, 2001 ballooned from ₱124,400.00 to ₱652,000.00.

In an Order20 dated May 7, 2002, the RTC granted respondents’ motion and accordingly modified the interest rate awarded
from 5% monthly to 12% per annum. Then on August 2, 2002, respondents filed a Motion for Leave To Deposit/Consign
Judgment Obligation21 in the total amount of ₱126,650.00.22

Displeased with the RTC’s May 7, 2002 Order, petitioner elevated the matter to the CA via a Petition for Certiorari 23under
Rule 65 of the Rules of Court. On August 5, 2003, the CA rendered a Decision 24 declaring that the RTC exceeded its
jurisdiction in awarding the 5% monthly interest but at the same time pronouncing that the RTC gravely abused its
discretion in subsequently reducing the rate of interest to 12% per annum. In so ruling, the CA ratiocinated:

Indeed, We are convinced that the Trial Court exceeded its jurisdiction when it granted 5% monthly interest instead of the
12% per annum prayed for in the complaint. However, the proper remedy is not to amend the judgment but to declare that
portion as a nullity. Void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any right nor the
creator of any obligation (Leonor vs. CA, 256 SCRA 69). No legal rights can emanate from a resolution that is null and
void (Fortich vs. Corona, 312 SCRA 751).

From the foregoing, the remedy of the respondents is to have the Court declare the portion of the judgment providing for a
higher interest than that prayed for as null and void for want of or in excess of jurisdiction. A void judgment never
acquire[s] finality and any action to declare its nullity does not prescribe (Heirs of Mayor Nemencio Galvez vs. CA, 255
SCRA 672).

WHEREFORE, foregoing premises considered, the Petition having merit, is hereby GIVEN DUE COURSE. Resultantly,
the challenged May 7, 2002 and September 5, 2000 orders of Public Respondent Court are hereby ANNULLED and SET
ASIDE for having been issued with grave abuse of discretion amounting to lack or in excess of jurisdiction. No costs.

SO ORDERED.25 (Emphases in the original; italics supplied.)

Proceedings before the Court of Appeals

Taking their cue from the Decision of the CA in the special civil action for certiorari, respondents filed with the same court
a Petition for Annulment of Judgment and Execution Sale with Damages.26 They contended that the portion of the RTC
Decision granting petitioner 5% monthly interest rate is in gross violation of Section 3(d) of Rule 9 of the Rules of Court
and of their right to due process. According to respondents, the loan did not carry any interest as it was the verbal
agreement of the parties that in lieu thereof petitioner’s family can continue occupying respondents’ residential building
located in Marulas, Valenzuela for free until said loan is fully paid.

Ruling of the Court of Appeals

Initially, the CA denied due course to the Petition.27 Upon respondents’ motion, however, it reinstated and granted the
Petition. In setting aside portions of the RTC’s October 17, 2000 Decision, the CA ruled that aside from being
unconscionably excessive, the monthly interest rate of 5% was not agreed upon by the parties and that petitioner’s
Complaint clearly sought only the legal rate of 12% per annum. Following the mandate of Section 3(d) of Rule 9 of the
Rules of Court, the CA concluded that the awarded rate of interest is void for being in excess of the relief sought in the
Complaint. It ruled thus:

WHEREFORE, respondents’ motion for reconsideration is GRANTED and our resolution dated October 13, 2004 is,
accordingly, REVERSED and SET ASIDE. In lieu thereof, another is entered ordering the ANNULMENT OF:

(a) public respondent’s impugned October 17, 2000 judgment, insofar as it awarded 5% monthly interest in favor of
petitioner; and

(b) all proceedings relative to the sale at public auction of the property titled in respondents’ names under Transfer
Certificate of Title No. V-12296 of the Valenzuela registry.
The judgment debt adjudicated in public respondent’s impugned October 17, 2000 judgment is, likewise, ordered
RECOMPUTED at the rate of 12% per annum from March 2, 1991. No costs.

SO ORDERED.28 (Emphases in the original.)

Petitioner sought reconsideration, which was denied by the CA in its June 26, 2006 Resolution.29

Issues

Hence, this Petition anchored on the following grounds:

I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS ERROR OF LAW WHEN IT
GRANTED RESPONDENTS’ PETITION FOR ANNULMENT OF JUDGMENT AS A SUBSTITUTE OR
ALTERNATIVE REMEDY OF A LOST APPEAL.

II. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS ERROR AND
MISAPPREHENSION OF LAW AND THE FACTS WHEN IT GRANTED RESPONDENTS’ PETITION FOR
ANNULMENT OF JUDGMENT OF THE DECISION OF THE REGIONAL TRIAL COURT OF VALENZUELA,
BRANCH 75 DATED OCTOBER 17, 2000 IN CIVIL CASE NO. 241-V-99, DESPITE THE FACT THAT SAID
DECISION HAS BECOME FINAL AND ALREADY EXECUTED CONTRARY TO THE DOCTRINE OF
IMMUTABILITY OF JUDGMENT.30

Petitioner’s Arguments

Petitioner claims that the CA erred in partially annulling the RTC’s October 17, 2000 Decision. She contends that a
Petition for Annulment of Judgment may be availed of only when the ordinary remedies of new trial, appeal, petition for
relief or other appropriate remedies are no longer available through no fault of the claimant. In the present case, however,
respondents had all the opportunity to question the October 17, 2000 Decision of the RTC, but because of their own
inaction or negligence they failed to avail of the remedies sanctioned by the rules. Instead, they contented themselves with
the filing of a Motion to Set Aside Judgment and then a Motion to Correct/Amend Judgment and to Set Aside Execution
Sale.

Petitioner likewise argues that for a Rule 47 petition to prosper, the same must either be based on extrinsic fraud or lack of
jurisdiction. However, the allegations in respondents’ Rule 47 petition do not constitute extrinsic fraud because they simply
pass the blame to the negligence of their former counsel. In addition, it is too late for respondents to pass the buck to their
erstwhile counsel considering that when they filed their Motion to Correct/Amend Judgment and To Set Aside Execution
Sale they were already assisted by their new lawyer, Atty. Reynaldo A. Ruiz, who did not also avail of the remedies of new
trial, appeal, etc. As to the ground of lack of jurisdiction, petitioner posits that there is no reason to doubt that the RTC had
jurisdiction over the subject matter of the case and over the persons of the respondents.

While conceding that the RTC patently made a mistake in awarding 5% monthly interest, petitioner nonetheless invokes
the doctrine of immutability of final judgment and contends that the RTC Decision can no longer be corrected or modified
since it had long become final and executory. She likewise points out that respondents received a copy of said Decision
on November 13, 2000 but did nothing to correct the same. They did not even question the award of 5% monthly interest
when they filed their Motion to Set Aside Judgment which they anchored on the sole ground of the RTC’s lack of
jurisdiction over the persons of some of the respondents.

Respondents’ Arguments

Respondents do not contest the existence of their obligation and the principal amount thereof. They only seek quittance
from the 5% monthly interest or 60% per annum imposed by the RTC. Respondents contend that Section (3)d of Rule 9 of
the Rules of Court is clear that when the defendant is declared in default, the court cannot grant a relief more than what is
being prayed for in the Complaint. A judgment which transgresses said rule, according to the respondents, is void for
having been issued without jurisdiction and for being violative of due process of law.

Respondents maintain that it was through no fault of their own, but through the gross negligence of their former counsel,
Atty. Coroza, that the remedies of new trial, appeal or petition for relief from judgment were lost. They allege that after
filing a Motion to Extend Period to Answer, Atty. Coroza did not file any pleading resulting to their being declared in
default. While the said lawyer filed on their behalf a Motion to Set Aside Judgment dated January 26, 2001, he however
took no steps to appeal from the Decision of the RTC, thereby allowing said judgment to lapse into finality. Citing Legarda
v. Court of Appeals,31 respondents aver that clients are not always bound by the actions of their counsel, as in the present
case where the clients are to lose their property due to the gross negligence of their counsel.

With regard to petitioner’s invocation of immutability of judgment, respondents argue that said doctrine applies only to valid
and not to void judgments.

Our Ruling

The petition must fail.

We agree with respondents that the award of 5% monthly interest violated their right to due process and, hence, the same
may be set aside in a Petition for Annulment of Judgment filed under Rule 47 of the Rules of Court.

Annulment of judgment under Rule 47; an exception to the final judgment rule; grounds therefor.
A Petition for Annulment of Judgment under Rule 47 of the Rules of Court is a remedy granted only under exceptional
circumstances where a party, without fault on his part, has failed to avail of the ordinary remedies of new trial, appeal,
petition for relief or other appropriate remedies. Said rule explicitly provides that it is not available as a substitute for a
remedy which was lost due to the party’s own neglect in promptly availing of the same. "The underlying reason is
traceable to the notion that annulling final judgments goes against the grain of finality of judgment. Litigation must end and
terminate sometime and somewhere, and it is essential to an effective administration of justice that once a judgment has
become final, the issue or cause involved therein should be laid to rest."32

While under Section 2, Rule 4733 of the Rules of Court a Petition for Annulment of Judgment may be based only on the
grounds of extrinsic fraud and lack of jurisdiction, jurisprudence recognizes lack of due process as additional ground to
annul a judgment.34 In Arcelona v. Court of Appeals,35 this Court declared that a final and executory judgment may still be
set aside if, upon mere inspection thereof, its patent nullity can be shown for having been issued without jurisdiction or for
lack of due process of law.

Grant of 5% monthly interest is way beyond the 12% per annum interest sought in the Complaint and smacks of violation
of due process.

It is settled that courts cannot grant a relief not prayed for in the pleadings or in excess of what is being sought by the
party. They cannot also grant a relief without first ascertaining the evidence presented in support thereof. Due process
considerations require that judgments must conform to and be supported by the pleadings and evidence presented in
court. In Development Bank of the Philippines v. Teston,36 this Court expounded that:

Due process considerations justify this requirement. It is improper to enter an order which exceeds the scope of relief
sought by the pleadings, absent notice which affords the opposing party an opportunity to be heard with respect to the
proposed relief. The fundamental purpose of the requirement that allegations of a complaint must provide the measure of
recovery is to prevent surprise to the defendant.

Notably, the Rules is even more strict in safeguarding the right to due process of a defendant who was declared in default
than of a defendant who participated in trial. For instance, amendment to conform to the evidence presented during trial is
allowed the parties under the Rules.37 But the same is not feasible when the defendant is declared in default because
Section 3(d), Rule 9 of the Rules of Court comes into play and limits the relief that may be granted by the courts to what
has been prayed for in the Complaint. It provides:

(d) Extent of relief to be awarded. – A judgment rendered against a party in default shall not exceed the amount or be
different in kind from that prayed for nor award unliquidated damages.

The raison d’être in limiting the extent of relief that may be granted is that it cannot be presumed that the defendant would
not file an Answer and allow himself to be declared in default had he known that the plaintiff will be accorded a relief
greater than or different in kind from that sought in the Complaint.38 No doubt, the reason behind Section 3(d), Rule 9 of
the Rules of Court is to safeguard defendant’s right to due process against unforeseen and arbitrarily issued judgment.
This, to the mind of this Court, is akin to the very essence of due process. It embodies "the sporting idea of fair play"39 and
forbids the grant of relief on matters where the defendant was not given the opportunity to be heard thereon.

In the case at bench, the award of 5% monthly interest rate is not supported both by the allegations in the pleadings and
the evidence on record. The Real Estate Mortgage40 executed by the parties does not include any provision on interest.
When petitioner filed her Complaint before the RTC, she alleged that respondents borrowed from her "the sum of FORTY-
FIVE THOUSAND PESOS (₱45,000.00), with interest thereon at the rate of 12% per annum"41 and sought payment
thereof. She did not allege or pray for the disputed 5% monthly interest. Neither did she present evidence nor testified
thereon. Clearly, the RTC’s award of 5% monthly interest or 60% per annum lacks basis and disregards due process. It
violated the due process requirement because respondents were not informed of the possibility that the RTC may award
5% monthly interest. They were deprived of reasonable opportunity to refute and present controverting evidence as they
were made to believe that the complainant petitioner was seeking for what she merely stated in her Complaint.

Neither can the grant of the 5% monthly interest be considered subsumed by petitioner’s general prayer for "other reliefs
and remedies just and equitable under the premises x x x."42 To repeat, the court’s grant of relief is limited only to what has
been prayed for in the Complaint or related thereto, supported by evidence, and covered by the party’s cause of
action.43 Besides, even assuming that the awarded 5% monthly or 60% per annum interest was properly alleged and
proven during trial, the same remains unconscionably excessive and ought to be equitably reduced in accordance with
applicable jurisprudence. In Bulos, Jr. v. Yasuma,44 this Court held:

In the case of Ruiz v. Court of Appeals, citing the cases of Medel v. Court of Appeals, Garcia v. Court of Appeals, Spouses
Bautista v. Pilar Development Corporation and the recent case of Spouses Solangon v. Salazar, this Court considered the
3% interest per month or 36% interest per annum as excessive and unconscionable. Thereby, the Court, in the said case,
equitably reduced the rate of interest to 1% interest per month or 12% interest per annum. (Citations omitted)

It is understandable for the respondents not to contest the default order for, as alleged in their Comment, "it is not their
intention to impugn or run away from their just and valid obligation."45 Nonetheless, their waiver to present evidence should
never be construed as waiver to contest patently erroneous award which already transgresses their right to due process,
as well as applicable jurisprudence.

Respondents’ former counsel was grossly negligent in handling the case of his clients; respondents did not lose ordinary
remedies of new trial, petition for relief, etc. through their own fault.

Ordinarily, the mistake, negligence or lack of competence of counsel binds the client. This is based on the rule that any
1âwphi1

act performed by a counsel within the scope of his general or implied authority is regarded as an act of his client. A
recognized exception to the rule is when the lawyers were grossly negligent in their duty to maintain their client’s cause
and such amounted to a deprivation of their client’s property without due process of law.46 In which case, the courts must
step in and accord relief to a client who suffered thereby.47

The manifest indifference of respondents’ former counsel in handling the cause of his client was already present even
from the beginning. It should be recalled that after filing in behalf of his clients a Motion to Extend Period to Answer, said
counsel allowed the requested extension to pass without filing an Answer, which resulted to respondents being declared in
default. His negligence was aggravated by the fact that he did not question the awarded 5% monthly interest despite
receipt of the RTC Decision on November 13, 2000.48 A simple reading of the dispositive portion of the RTC Decision
readily reveals that it awarded exorbitant and unconscionable rate of interest. Its difference from what is being prayed for
by the petitioner in her Complaint is so blatant and very patent. It also defies elementary jurisprudence on legal rate of
interests. Had the counsel carefully read the judgment it would have caught his attention and compelled him to take the
necessary steps to protect the interest of his client. But he did not. Instead, he filed in behalf of his clients a Motion to Set
Aside Judgment49 dated January 26, 2001 based on the sole ground of lack of jurisdiction, oblivious to the fact that the
erroneous award of 5% monthly interest would result to his clients’ deprivation of property without due process of law.
Worse, he even allowed the RTC Decision to become final by not perfecting an appeal. Neither did he file a petition for
relief therefrom. It was only a year later that the patently erroneous award of 5% monthly interest was brought to the
attention of the RTC when respondents, thru their new counsel, filed a Motion to Correct/Amend Judgment and To Set
Aside Execution Sale. Even the RTC candidly admitted that it "made a glaring mistake in directing the defendants to pay
interest on the principal loan at 5% per month which is very different from what was prayed for by the plaintiff."50

"A lawyer owes entire devotion to the interest of his client, warmth and zeal in the maintenance and defense of his rights
and the exertion of his utmost learning and ability, to the end that nothing can be taken or withheld from his client except in
accordance with the law."51 Judging from how respondents’ former counsel handled the cause of his clients, there is no
doubt that he was grossly negligent in protecting their rights, to the extent that they were deprived of their property without
due process of law.

In fine, respondents did not lose the remedies of new trial, appeal, petition for relief and other remedies through their own
fault. It can only be attributed to the gross negligence of their erstwhile counsel which prevented them from pursuing such
remedies. We cannot also blame respondents for relying too much on their former counsel. Clients have reasonable
expectations that their lawyer would amply protect their interest during the trial of the case.52 Here,

"respondents are plain and ordinary people x x x who are totally ignorant of the intricacies and technicalities of law and
legal procedures. Being so, they completely relied upon and trusted their former counsel to appropriately act as their
interest may lawfully warrant and require."53

As a final word, it is worth noting that respondents’ principal obligation was only ₱45,000.00. Due to their former counsel’s
gross negligence in handling their cause, coupled with the RTC’s erroneous, baseless, and illegal award of 5% monthly
interest, they now stand to lose their property and still owe petitioner a large amount of money. As aptly observed by the
CA:

x x x If the impugned judgment is not, therefore, rightfully nullified, petitioners will not only end up losing their property but
will additionally owe private respondent the sum of ₱232,000.00 plus the legal interest said balance had, in the meantime,
earned. As a court of justice and equity, we cannot, in good conscience, allow this unconscionable situation to prevail.54

Indeed, this Court is appalled by petitioner’s invocation of the doctrine of immutability of judgment. Petitioner does not
contest as she even admits that the RTC made a glaring mistake in awarding 5% monthly interest.55 Amazingly, she wants
to benefit from such erroneous award. This Court cannot allow this injustice to happen.

WHEREFORE, the instant Petition is hereby DENIED and the assailed November 24, 2005 and June 26, 2006 Resolution
of the Court of Appeals in CA-G.R. SP No. 85541 are AFFIRMED.

SO ORDERED.

G.R. No. 185066 October 2, 2009

PHILIPPINE CHARTER INSURANCE CORPORATION, Petitioner,


vs.
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, Respondent.

RESOLUTION

BRION, J.:

Petitioner Philippine Charter Insurance Corporation (PCIC) submits the present motion for the reconsideration1 of our
Resolution dated December 17, 2008, which denied due course to its petition for review on certiorari.2 It seeks to reinstate
the petition and effect a reversal of the Court of Appeals (CA) Decision3 and Resolution4 dated January 7, 2008 and
October 29, 2008, respectively, in CA-G.R. CV No. 86948. In its petition, the petitioner imputes reversible error on the
appellate court for ruling that it is liable under PCIC Bond No. 27547 and under PCIC Bond No. 27546, as the latter bond
was not covered by the complaint for collection of sum of money filed by respondent Philippine National Construction
Corporation (PNCC).5

The facts, as drawn from the records, are briefly summarized below.
PNCC is engaged in the construction business and tollway operations. On October 16, 1997, PNCC conducted a public
bidding for the supply of labor, materials, tools, supervision, equipment, and other incidentals necessary for the fabrication
and delivery of 27 tollbooths to be used for the automation of toll collection along the expressways. Orlando Kalingo
(Kalingo) won in the bidding and was awarded the contract.

On November 13, 1997, PNCC issued – in favor of Kalingo – Purchase Order (P.O.) No. 71024L for 25 units of tollbooths
for a total of ₱2,100,000.00, and P.O. No. 71025L for two units of tollbooths amounting to ₱168,000.00. These issuances
were subject to the condition, among others, that each P.O. shall be covered by a surety bond equivalent to 100% of the
total down payment (50% of the total cost reflected on the P.O.), and that the surety bond shall continue in full force until
the supplier shall have complied with all the undertakings and covenants to the full satisfaction of PNCC.

Kalingo, hence, posted surety bonds – Surety Bond Nos. 27546 and 27547 – issued by the PCIC and whose terms and
conditions read:

Surety Bond No. 27546

To supply labor, materials, tools, supervision equipment, and other incidentals necessary for the fabrication and delivery of
Two (2) Units Toll Booth at San Fernando Interchange SB Entry as per Purchase Order No. 71025L, copy of which is
attached as Annex "A." This bond also guarantees the repayment of the down payment or whatever balance thereof in the
event of failure on the part of the Principal to finish the project due to his own fault.

It is understood that the liability of the Surety under this bond shall in no case exceed the sum of P84,000.00, Philippine
Currency.6

Surety Bond No. 27547

To supply labor, materials, tools, supervision equipment, and other incidentals necessary for the fabrication and delivery of
Twenty-five (25) Units Toll Booth at designated Toll Plaza as per Purchase Order No. 71024L, copy of which is attached
as Annex "A." This bond also guarantees the repayment of the down payment or whatever balance thereof in the event of
failure on the part of the Principal to finish the project due to his own fault.

It is understood that the liability of the Surety under this bond shall in no case exceed the sum of P1,050,000.00, Philippine
Currency.7

To illustrate, the PCIC surety bonds are in the amounts corresponding to down payments on each P.O., as follows:

Surety Bond No. Purchase Order Units Total Cost Surety


Covered Amount (equivalent to
50% down payment)
Bond No. 27547 P.O. No. 71024L 25 P2,100,000 P1,050,000
Bond No. 27546 P.O. No. 71025L 2 P 168,000 P 84,000

Both surety bonds also contain the following conditions: (1) the liability of PCIC under the bonds expires on March 16,
1998; and (2) a written extrajudicial demand must first be tendered to the surety, PCIC, within 15 days from the
expiration date; otherwise PCIC shall not be liable thereunder and the obligee waives the right to claim or file any
court action to collect on the bond. The following stipulation appears in the last paragraph of these bonds:

The liability of PHILIPPINE CHARTER INSURANCE CORPORATION under this bond will expire on March 16, 1998.
Furthermore, it is hereby agreed and understood that PHILIPPINE CHARTER INSURANCE CORPORATIONwill not be
liable for any claim not presented to it in writing within FIFTEEN (15) DAYS from the expiration of this bond, and
that the Obligee hereby waives its right to claim or file any court action against the Surety after the termination of
FIFTEEN (15) DAYS from the time its cause of action accrues.8 (Emphasis supplied.)

PNCC released two checks to Kalingo representing the down payment of 50% of the total project cost, which were
properly receipted by Kalingo.9 Kalingo in turn submitted the two PCIC surety bonds securing the down payments, which
bonds were accepted by PNCC.

On March 3, 4, and 5, 1998, Kalingo made partial/initial delivery of four units of tollbooths under P.O. No. 71024L.
However, the tollbooths delivered were incomplete or were not fabricated according to PNCC specifications. Kalingo failed
to deliver the other 23 tollbooths up to the time of filing of the complaint; despite demands, he failed and refused to comply
with his obligation under the POs.

On March 9, 1998, six days before the expiration of the surety bonds and after the expiration of the delivery period
provided for under the award, PNCC filed a written extrajudicial claim against PCIC notifying it of Kalingo’s default and
demanding the repayment of the down payment on P.O. No. 71024L as secured by PCIC Bond No. 27547, in the amount
of ₱1,050,000.00. The claim went unheeded despite repeated demands. For this reason, on April 24, 2001, PNCC filed
with the Regional Trial Court (RTC), Mandaluyong City a complaint for collection of a sum of money against Kalingo and
PCIC.10 PNCC's complaint against PCIC called solely on PCIC Bond No. 27547; it did not raise or plead collection under
PCIC Bond No. 27546 which secured the down payment of ₱84,000.00 on P.O. No. 71025L.

PCIC, in its answer, argued that the partial delivery of four out of the 25 units of tollbooth by Kalingo under P.O. No.
71024L should reduce Kalingo's obligation.

The RTC, by Decision of October 31, 2005, ruled in favor of PNCC and ordered PCIC and Kalingo to jointly and severally
pay the latter ₱1,050,000.00, representing the value of PCIC Bond No. 27547, plus legal interest from last demand, and
₱50,000.00 as attorney's fees. Reconsideration of the trial court's decision was denied. The trial court made no ruling on
PCIC’s liability under PCIC Bond No. 27546, a claim that was not pleaded in the complaint.

On appeal, the CA, by Decision11 of January 7, 2008, held that the RTC erred in ruling that PCIC's liability is limited only to
the payment of ₱1,050,000.00 under PCIC Bond No. 27547 which secured the down payment on P.O. No. 71024L. The
appellate court held that PCIC, as surety, is liable jointly and severally with Kalingo for the amount of the two bonds
securing the two POs to Kalingo; thus, the CA also held PCIC liable under PCIC Bond No. 27546 which secured the
₱84,000.00 down payment on P.O. No. 71025L.

Reconsideration having been denied by the appellate court in its Resolution 12 of October 29, 2008, the PCIC lodged a
petition for review on certiorari13 before this Court.

The Court, by Resolution of December 17, 2008, denied due course to the petition.14 Hence, the PCIC filed the present
motion for reconsideration submitting the following issues for our resolution:

I. WHETHER THE APPELLATE COURT ERRED IN RULING THAT PCIC SHOULD ALSO BE HELD LIABLE
UNDER BOND NO. 27546, COLLECTION UNDER WHICH WAS NOT SUBJECT OF RESPONDENT PNCC's
COMPLAINT FOR COLLECTION OF SUM OF MONEY;

II. WHETHER THE CHECKS ISSUED IN "1997" BY RESPONDENT PNCC TO KALINGO WERE GIVEN 10
MONTHS PRIOR TO THE AWARD OF THE PROJECT AND AMOUNTS TO CONCEALMENT OF MATERIAL
FACT VITIATING THE SURETY BONDS ISSUED BY THE PETITIONER; and

III. WHETHER THE APPELLATE COURT ERRED IN HOLDING PETITIONER PCIC LIABLE FOR ATTORNEY'S
FEES.

The second issue is a factual matter not proper in proceedings before this Court. The PCIC’s position that the checks were
issued 10 months prior to the award had already been rejected by both the RTC and the CA; both found that the year
"1997" appearing on the checks was a mere typographical error which should have been written as
"1998."15 Consequently, we shall no longer discuss the PCIC's allegation of material concealment; the factual findings of
the RTC, as affirmed by the CA, are conclusive on us.

Our consideration shall focus on the remaining two issues.

The PCIC presents, as its first issue, the argument that "[w]hen the Court of Appeals rendered judgment on Bond No.
27546, which was not subject of respondent's complaint, on the ground that respondent was incorrect in not filing suit for
Bond No. 27546, the Court of Appeals virtually acted as lawyer for respondent."16

We find the PCIC’s position meritorious.

The issue before us calls for a discussion of a court’s basic appreciation of allegations in a complaint. The fundamental
rule is that reliefs granted a litigant are limited to those specifically prayed for in the complaint; other reliefs prayed for may
be granted only when related to the specific prayer(s) in the pleadings and supported by the evidence on record.
Necessarily, any such relief may be granted only where a cause of action therefor exists, based on the complaint, the
pleadings, and the evidence on record.

Section 2, Rule 2 of the 1997 Rules of Civil Procedure defines a cause of action as the act or omission by which a party
violates the right of another. It is the delict or the wrongful act or omission committed by the defendant in violation of the
primary right of the plaintiff.17 Its essential elements are as follows:

1. A right in favor of the plaintiff by whatever means and under whatever law it arises or is created;

2. An obligation on the part of the named defendant to respect or not to violate such right; and

3. Act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a breach of the
obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of damages or other
appropriate relief.18

Only upon the occurrence of the last element does a cause of action arise, giving the plaintiff the right to maintain an
action in court for recovery of damages or other appropriate relief.19

Each of the surety bonds issued by PCIC created a right in favor of PNCC to collect the repayment of the bonded down
payments made on the two POs if contractor Kalingo defaults on his obligation under the award to fabricate and deliver to
PNCC the tollbooths contracted for. Concomitantly, PCIC, as surety, had the obligation to comply with its undertaking
under the bonds to repay PNCC the down payments the latter made on the POs if Kalingo defaults.

It must be borne in mind that each of the two bonds is a distinct contract by itself, subject to its own terms and conditions.
They each contain a provision that the surety, PCIC, will not be liable for any claim not presented to it in writing within 15
days from the expiration of the bond, and that the obligee (PNCC) thereby waives its right to claim or file any court action
against the surety (PCIC) after the termination of 15 days from the time its cause of action accrues. This written claim
provision creates a condition precedent for the accrual of: (1) PCIC’s obligation to comply with its promise under
the particular bond, and of (2) PNCC's right to collect or sue on these bonds. PCIC’s liability to repay the bonded
down payments arises only upon PNCC's filing of a written claim – notifying PCIC of principal Kalingo’s default
and demanding collection under the bond – within 15 days from the bond’s expiry date. PNCC’s failure to comply
with the written claim provision has the effect of extinguishing PCIC’s liability and constitutes a waiver by PNCC
of the right to claim or sue under the bond.
Liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly assumed therein. We have
repeatedly held that the extent of a surety's liability is determined only by the clause of the contract of suretyship and by
the conditions stated in the bond. It cannot be extended by implication beyond the terms of the contract. 20 Equally basic is
the principle that obligations arising from contracts have the force of law between the parties and should be complied with
in good faith.21 Nothing can stop the parties from establishing stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.22 Here,
nothing in the records shows the invalidity of the written claim provision; therefore, the parties must strictly and in good
faith comply with this requirement.

The records reveal that PNCC complied with the written claim provision, but only with respect to PCIC Bond No. 27547.
PNCC filed an extrajudicial demand with PCIC informing it of Kalingo’s default under the award and demanding the
repayment of the bonded down payment on P.O. No. 71024L. Conversely, nothing in the records shows that PNCC ever
complied with the provision with respect to PCIC Bond No. 27546. Why PNCC complied with the written claim provision
with respect to PCIC Bond No. 27547, but not with respect to PCIC Bond No. 27546, has not been explained by
PNCC. Under the circumstances, PNCC’s cause of action with respect to PCIC Bond No. 27546 did not and cannot
exist, such that no relief for collection thereunder may be validly awarded.

Hence, the trial court’s decision finding PCIC liable solely under PCIC Bond No. 27547 is correct – not only
because collection under the other bond, PCIC Bond No. 27546, was not raised or pleaded in the complaint, but
for the more important reason that no cause of action arose in PNCC’s favor with respect to this bond.
Consequently, the appellate court was in error for including liability under PCIC Bond No. 27546.

PNCC insists that conformably with the ruling of the CA, it should be entitled to collection under PCIC Bond No. 27546,
although collection thereunder was not specifically raised or pleaded in its complaint, because the bond was attached to
the complaint and formed part of the records. Also, considering that PCIC’s liability as surety has been duly proven before
the trial and appellate courts, PNCC posits that it is entitled to repayment under PCIC Bond No. 27546.

PNCC might be alluding to Section 2(c), Rule 7 of the Rules of Court, which provides that a pleading shall specify the relief
sought, but may add a general prayer for such further or other reliefs as may be deemed just and equitable. Under this
rule, a court can grant the relief warranted by the allegation and the proof even if it is not specifically sought by the injured
party;23 the inclusion of a general prayer may justify the grant of a remedy different from or together with the specific
remedy sought,24 if the facts alleged in the complaint and the evidence introduced so warrant.25

We find PNCC’s argument to be misplaced. A general prayer for "other reliefs just and equitable" appearing on a
complaint or pleading normally enables the court to award reliefs supported by the complaint or other pleadings, by the
facts admitted at the trial, and by the evidence adduced by the parties, even if these reliefs are not specifically prayed for
in the complaint. We cannot, however, grant PNCC the "other relief" of recovering under PCIC Bond No. 27546 because
of the respect due the contractual stipulations of the parties. While it is true that PCIC’s liability under PCIC Bond No.
27546 would have been clear under ordinary circumstances (considering that Kalingo's default under his contract with
PNCC is now beyond dispute), it cannot be denied that the bond contains a written claim provision, and compliance with it
is essential for the accrual of PCIC’s liability and PNCC’s right to collect under the bond.

As already discussed, this provision is the law between the parties on the matter of liability and collection under the bond.
Knowing fully well that PCIC Bond No. 27546 is a matter of record, duly proven and susceptible of the court’s scrutiny, the
trial and appellate courts must respect the terms of the bond and cannot just disregard its terms and conditions in the
absence of any showing that they are contrary to law, morals, good customs, public order, or public policy. For its failure to
file a written claim with PCIC within 15 days from the bond’s expiry date, PNCC clearly waived its right to collect under
PCIC Bond No. 27546. That, wittingly or unwittingly, PNCC did not collect under one bond in favor of calling on the other
creates no other conclusion than that the right to collect under the former had been lost. Consequently, PNCC’s cause of
action with respect to PCIC Bond No. 27546 cannot juridically exist and no relief therefore may be validly given. Hence,
the CA invalidly rendered judgment with respect to PCIC Bond No. 27546, and its award based on this bond must be
deleted.

On the third issue, we hold that PCIC should be held liable for the attorney's fees PNCC incurred in bringing suit. PCIC’s
unjust refusal to pay despite PNCC’s written claim compelled the latter to hire the services of an attorney to collect on
PCIC Bond No. 27547.

WHEREFORE, premises considered, we SET ASIDE our Resolution of December 17, 2008 and GRANT the present
motion for reconsideration. The petition for review on certiorari is PARTLY GRANTED. The assailed Court of Appeals
Decision of January 7, 2008 and Resolution of October 29, 2008 are hereby AFFIRMED with MODIFICATION, deleting
petitioner PCIC's liability under PCIC Bond No. 27546. All other matters in the assailed Court of Appeals decision and
resolution are AFFIRMED.

SO ORDERED.

G.R. No. 192650 October 24, 2012

FELIX MARTOS, JIMMY ECLANA, RODEL PILONES, RONALDO NOVAL, JONATHAN PAILAGO, ERNESTO
MONTANO, DOYONG JOSE, DEO MAMALATEO, ROSELO MAGNO, BONNIE SANTILLAN, ARSENIO GONZALES,
ALEX EDRADAN, MICHAEL ERASCA, MARLON MONTANO, VICENTE OLIVEROS, REYNALDO LAMBOSON,
DOMINGO ROTA, EDDIE ROTA, ZALDY OLIVEROS, ANTONIO NATIL, HERMIE BUISON, ROGER BUISON,
MARIANO LAZATE, JUAN VILLABER, LIMUEL LLANETA, LITO BANTILO, TERSO GARAY, ROWEL BESTOLO,
JERRY YORTAS, PASTOR PANTIG, GAVINO NICOLAS, RAFAEL VILLA, FELIX YORTAS, MELVIN GARAY, NEIL
DOMINGUEZ REYNALDO EVANGELISTA, JR., JOSE RAMOS, ELVIN ROSALES, JUN GRANEHO, DANNY
ASPARES, SALVEDOR TONLOC, ROLANDO EVANGELISTA, RICKY M. FRANCISCO, EDUARDO ALEGRIA,
SALVADOR SANTOS, GREG BISONIA, RUFO CARBILLO, MARVIN MONTERO, DANILO BESSIRE, ALLAN
CABALLERO, ORLANDO LIMOS, EDGARDO BICLAR, MANDY MAMALATEO, ALFRED GAJO, ERIC CASTRENCE,
ANTHONY MOLINA, JAIME SALIM, ROY SILVA, DANILO BEGORIE, PEPING CALISANA, ERIC RONDA, RUFO
CARBANILLO, ROWEL BATA, RICARDO TOLENTINO, ARNEL ARDINEZ, FERDINAND R. ARANDIA, ROMEO R.
GARBO, ANTONIO ROTA, REYNIELANDRE QUINTANILLA, JOSELITO HILARIO, JIMMY CAMPANA, DANILO LIDO-
AN, EMERSON PENAFLOR, CESAR PABALINAS, JONATHAN MELCHOR, ALEX DAVID, EUTIQUIO ALCALA,
MICHAEL CARANDANG, EDUARDO MANUEL, RAMON EVANGELISTA, RUBEN MENDOZA, ERNESTO MENDOZA,
RICKY RAMOS, ROBERTO NOVELLA, RUBEN CONDE, DANILO POLISTICO, DOMINGO MENDOZA, FERNANDO
SAN GABRIEL, AND DOMINGO ROTO,Petitioners,
vs.
NEW SAN JOSE BUILDERS, INC., Respondent.

DECISION

MENDOZA, J.:

Questioned in this Petition for Review is the July 31, 2009 Decision 1 of the Court of Appeals (CA) and its June 17, 2010
Resolution,2 which reversed and set aside the July 30, 2008 Decision3 and October 28, 2008, Resolution4 of the National
Labor Relations Commission (NLRC); and reinstated the May 23, 2003 Decision 5 of the Labor Arbiter (LA). The dispositive
portion of the CA Decision reads:

WHEREFORE, decision is hereby rendered, as follows:

1. Declaring the complainant Felix Martos was illegally dismissed and ordering respondent New San Jose Builders, Inc. to
pay him his separation pay, backwages, salary differentials, 13th month pay, service incentive leave pay, and attorney’s
fees in the total amount of TWO HUNDRED SIXTY THOUSAND SIX HUNDRED SIXTY ONE PESOS and 50/1000 (P260,
661.50).

The awards for separation pay, backwages and the corresponding attorney’s fees are subject to further computation until
the decision in this case becomes final and executory; and

2. Dismissing the complaints/claim of the other complainants without prejudice.

SO ORDERED.6

The Facts

The factual and procedural antecedents were succinctly summarized by the CA as follows:

New San Jose Builders, Inc. (hereafter petitioner) is a domestic corporation duly organized and existing under the laws of
the Philippines and is engaged in the construction of road, bridges, buildings, and low cost houses primarily for the
government. One of the projects of petitioner is the San Jose Plains Project (hereafter SJPP), located in Montalban, Rizal.
SJPP, which is also known as the "Erap City" calls for the construction of low cost housing, which are being turned over to
the National Housing Authority to be awarded to deserving poor families.

Private respondents alleged that, on various dates, petitioner hired them on different positions, hereunder specified:
1âw phi1

Names Date Employed Date Dismissed

1. Felix Martos October 5, 1998 February 25, 2002


2. Jimmy Eclana 1999 July 2001

3. Rodel Pilones February 1999 July 2001


4. Ronaldo Noval
5. Jonathan Pailago

6. Ernesto Montaño 1998 2000


7. Doyong Jose 1996 July 2001
8. Deo Mamalateo 1999 July 2001

9. Roselo Magno 1994 November 2000


10. Bonnie Santillan 1998 July 2001
11. Arsenio Gonzales 1998 July 2001

12. Alex Edradan 1998 November 2001


13. Michael Erasca 1999 July 2001
14. Marlon Montaño 1998 July 2001
15. Vicente Oliveros April 5, 1998 July 2001

16. Reynaldo Lamboson 1999 July 2001

17. Domingo Rota 1998


18. Eddie Rota 1998
19. Zaldy Oliveros 1999 July 2001
20. Antonio Natel 1998 July 2001

21. Hermie Buison 1998 July 2001


22. Roger Buison 1998 2000

23. Mariano Lazate February 19, 1995

24. Juan Villaber January 10, 1997


25. Limuel Llaneta March 5, 1994
26. Lito Bantilo May 1987
27. Terso Garay October 3, 1986

28. Rowel Bestolo February 6, 1999

29. Jerry Yortas May 1994


30. Pastor Pantig April 11,1998

31. Gavino Nicolas June 20, 1997

32. Rafael Villa March 9, 1998


33. Felix Yortas 1992

34. Melvin Garay February 2, 1994


35. Neil Dominguez February 16, 1998

36. Reynaldo Evangelista, Jr. October 10, 1998

37. Jose Ramos October 10, 1998


38. Elvis Rosales June 14, 1998

39. Jun Graneho January 15, 1998


40. Danny Espares April 1999

41. Salvador Tonloc January 8, 1998

42. Rolando Evangelista March 15, 1998


43. Ricky M. Francisco September 28, 1991

44. Eduardo Alegria May 2001

45. Salvador Santos September 22, 2000


46. Greg Bisonia March 28, 1993

47. Rufo Carbillo March 28, 1993


48. Marvin Montero 1997 January 2001

49. Danilo Bessiri 1997 2002

50. Allan Caballero 1997 2002


51. Orlando Limos 1997 July 2001

52. Edgardo Biclar 1997 July 2001


53. Mandy Mamalatco 1989 2002

54. Alfred Gajo 1998 July 2001

55. Eric Castrence 1988 2002


56. Anthony Molina 1997 2002

57. Jaime Salin

58. Roy Silva 1997 2002


59. Danilo V. Begorie 1994 January 2001

60. Peping Celisana 1999 July 2001


61. Eric Ronda 1998 July 2001

62. Rufo Carbanillo 1998 July 2001

63. Rowel Batta 1999 July 2001


64. Ricardo Tolentino 1997 July 2001
65. Arnel Ardinez 1998 July 2001

66. Ferdinand P. Arandia 1998 1999


67. Romeo R. Garbo 1998 2000

68. Antonio Rota 1998 July 2001

69. Reynielande Quintanilla February 28, 1998 2002


70. Joselito Hilario 1998 2002
71. Jimmy Campana August 15, 1998 August 2001
72. Danilo Lido-An September 8, 1998

73. Emerson Peñaflor August 8,1998

74. Cesar Pabalinas


75. Jonathan Melchor November 1998

76. Alex David 1998

77. Eutiquio Alcala December 1999


78. Michael Carandang June 2000

79. Eduardo Nanuel October 1999


80. Ramon Evangelista February 15, 1998

81. Ruben Mendoza 1999 July 2001

82. Ernesto A. Mendoza 1998 July 2001


83. Ricky Ramos 1999 July 2001

84. Roberto Novella 1998 July 2001


85. Ruben Conde 1998 July 2001

86. Ramon Evangelista 1997 July 2001

87. Danilo Polistico 1999 July 2001


88. Domingo Mendoza 1999 July 2001

89. Fernando San Gabriel 1999 July 2001

90. Domingo Roto 1994 July 2001

Sometime in 2000, petitioner was constrained to slow down and suspend most of the works on the SJPP project due to
lack of funds of the National Housing Authority. Thus, the workers were informed that many of them [would] be laid off and
the rest would be reassigned to other projects. Juan Villaber, Terso Garay, Rowell Batta, Pastor Pantig, Rafael Villa, and
Melvin Garay were laid off. While on the other hand, Felix Martos, Ariel Dominguez, Greg Bisonia, Allan Caballera,
Orlando Limos, Mandy Mamalateo, Eric Castrence, Anthony Molina, and Roy Silva were among those who were retained
and were issued new appointment papers to their respective assignments, indicating therein that they are project
employees. However, they refused to sign the appointment papers as project employees and subsequently refused to
continue to work.

On different dates, three (3) Complaints for Illegal Dismissal and for money claims were filed before the NLRC against
petitioner and Jose Acuzar, by private respondents who claimed to be the former employees of petitioner, to wit:

1. Complaint dated March 11, 2002, entitled "Felix Martos, et al. vs. NSJBI", docketed as NLRC-NCR Case No.
03-01639-2002;

2. Complaint dated July 9, 2002, entitled "Jimmy Campana, et al. vs. NSJBI," docketed as NLRC-NCR Case No.
07-04969-2002;

3. Complaint dated July 4, 2002, entitled "Greg Bisonia, et al. vs. NSJBI", docketed as NLRC-NCR Case No. 07-
02888-2002.

Petitioner denies that private respondents were illegally dismissed, and alleged that they were project employees, whose
employments were automatically terminated upon completion of the project for which they were hired. On the other hand,
private respondents claim that petitioner hired them as regular employees, continuously and without interruption, until their
dismissal on February 28, 2002.

Subsequently, the three Complaints were consolidated and assigned to Labor Arbiter Facundo Leda.7

Ruling of the Labor Arbiter


As earlier stated, on May 23, 2003, the LA handed down a decision declaring, among others, that petitioner Felix Martos
(Martos) was illegally dismissed and entitled to separation pay, backwages and other monetary benefits; and dismissing,
without prejudice, the complaints/claims of the other complainants (petitioners).

Ruling of The NLRC

Both parties appealed the LA decision to the NLRC. Petitioners appealed that part which dismissed all the complaints,
without prejudice, except that of Martos. On the other hand, New San Jose Builders, Inc. (respondent) appealed that part
which held that Martos was its regular employee and that he was illegally dismissed.

On July 30, 2008, the NLRC resolved the appeal by dismissing the one filed by respondent and partially granting that of
the other petitioners. The dispositive portion of the NLRC decision reads as follows:

WHEREFORE, premises considered, respondent’s appeal is DISMISSED for lack of merit. The appeal of the
complainants is, however, PARTIALLY GRANTED by modifying the 23 May 2003 Decision of the Labor Arbiter Facundo
L. Leda, in that, respondents are ordered to reinstate all the complainants to their former positions, without loss of seniority
rights and with full backwages, counted from the time their compensation was withheld from them until actual
reinstatement.

Respondents are likewise ordered to pay complainants their salary differentials, service incentive leave pay, and 13th
month pay, using, as basis, the computation made on the claims of complainant Felix Martos.

In all other aspects, the Decision is AFFIRMED.

SO ORDERED.8

Ruling Of The CA

After the denial of its motion for reconsideration, respondent filed before the CA a petition for certiorari under Rule 65 of
the 1997 Rules of Civil Procedure, as amended, raising the following issues:

I) The public respondent has committed grave abuse of discretion in holding that the private respondents were
regular employees and, thus, have been illegally dismissed.

II) The public respondent has committed grave abuse of discretion in reviving the complaints of the other private
respondents despite their failure to verify the same.

III) The public respondent has committed grave abuse of discretion when it upheld the findings of the Labor Arbiter
granting relief in favor of those supposed complainants who did not even render service to the petitioner and,
hence, are not on its payroll.

On July 31, 2009, the CA rendered a decision reversing and setting aside the July 30, 2008 Decision and the October 28,
2008 Resolution of the NLRC and reinstating the May 23, 2003 Decision of the LA. The dispositive portion of the CA
decision reads:

WHEREFORE, premises considered, the present petition is hereby GRANTED. Accordingly, the assailed Resolution
dated October 28, 2008 of public respondent National Labor Relations Commission is REVERSED and SET ASIDE, and
the Decision dated May 23, 2003 of Labor Arbiter Facundo L. Leda, is hereby ordered reinstated.

SO ORDERED.9

The CA explained that the NLRC committed grave abuse of discretion in reviving the complaints of petitioners despite their
failure to verify the same. Out of the 102 complainants, only Martos verified the position paper and his counsel never
offered any explanation for his failure to secure the verification of the others. The CA also held that the NLRC gravely
abused its discretion when it took cognizance of petitioners’ appeal because Rule 41, Section 1(h) of the 1997 Rules of
Civil Procedure, as amended, which is suppletory, provides that no appeal may be taken from an order dismissing an
action without prejudice.

Nevertheless, the CA stated that the factual circumstances of Martos’ employment and his dismissal from work could not
equally apply to petitioners because they were not similarly situated. The NLRC did not even bother to look at the
evidence on record and inappropriately granted monetary awards to petitioners who had either denied having filed a case
or withdrawn the case against respondent. According to the CA, the position papers should have covered only those
claims and causes of action raised in the complaint excluding those that might have been amicably settled.

With respect to Martos, the CA ruled that he was a regular employee of respondent and his termination was illegal. It
explained that Martos should have been considered a regular employee because there was no indication that he was
merely a project employee when he was hired. To show otherwise, respondent should have presented his employment
contract for the alleged specific project and the successive employment contracts for the different projects or phases for
which he was hired. In the absence of such document, he could not be considered such an employee because his work
was necessary and desirable to the respondent’s usual business and that he was not required to sign any employment
contract fixing a definite period or duration of his engagement. Thus, Martos already attained the status of a regular
employee. Moreover, the CA noted that respondent did not report the termination of Martos’ supposed project employment
to the Department of Labor and Employment (DOLE), as required under Department Order No. 19.
Being a regular employee, the CA concluded that he was constructively dismissed when he was asked to sign a new
appointment paper indicating therein that he was a project employee and that his appointment would be co-terminus with
the project.

Not in conformity with the CA decision, petitioners filed this petition anchored on the following

ASSIGNMENT OF ERRORS

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS AND THE LABOR ARBITER BELOW
GRAVELY ERRED IN DISMISSING THE COMPLAINTS OF THE NINETY NINE (99) PETITIONERS DUE TO
FAILURE OF THE LATTER TO VERIFY THEIR POSITION PAPER WHEN, OBVIOUSLY, SUCH TECHNICALITY
SHOULD NOT HAVE BEEN RESORTED TO BY THEM AS IT WILL DEPRIVE THESE PETITIONERS OF THEIR
PROPERTY RIGHT TO WORK.

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS AND THE LABOR ARBITER BELOW
GRAVELY ERRED IN NOT ORDERING THE REINSTATEMENT OF PETITIONER MARTOS AND THE OTHER
99 PETITIONERS WHEN, OBVIOUSLY, AND AS FOUND BY THEM, THE DISMISSAL OF MARTOS IS ILLEGAL
WHICH WOULD WARRANT HIS REINSTATEMENT AND THE GRANT TO HIM OF FULL BACKWAGES AND
OTHER EMPLOYEES’ BENEFITS.

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT ORDERING THE
RESPONDENTS TO PAY THE PETITIONERS ACTUAL, MORAL AND EXEMPLARY DAMAGES.

Position of Petitioners

Petitioners basically argue that the CA was wrong in affirming the dismissal of their complaints due to their failure to verify
their position paper. They insist that the lack of verification of a position paper is only a formal and not a jurisdictional
defect. Hence, it was not fatal to their cause of action considering that the CA could have required them to submit the
needed verification.

The CA overlooked the fact that all of them verified their complaints by declaring under oath relevant and material facts
such as their names, addresses, employment status, salary rates, facts, causes of action, and reliefs common to all of
them. The information supplied in their complaints is sufficient to prove their status of employment and entitlement of their
monetary claims. In the adjudication of labor cases, the adherence to stringent technical rules may be relaxed in the
interest of the working man. Moreover, respondent failed to adduce evidence of payment of their money claims.

Finally, petitioners argue that they and Martos were similarly situated. The award of separation pay instead of
reinstatement to an illegally dismissed employee was improper because the strained relations between the parties was not
clearly established. Moreover, they are entitled to actual, moral and exemplary damages for respondent’s illegal act of
violating labor standard laws, the minimum wage law and the 13th month pay law.

Position of Respondents

On the other hand, respondent principally counters that the CA and the LA 1) did not err in dismissing the complaints of
the 88 petitioners who failed to verify their position paper, without prejudice; 2) correctly ruled that Martos and the 88
petitioners concerned were not entitled to reinstatement; and 3) correctly ruled that petitioners were not entitled to an
award of actual, moral and exemplary damages.

Petitioners have the propensity to disregard the mandatory provisions of the 2005 Revised Rules of Procedure of the
NLRC (NLRC Rules) which require the parties to submit simultaneously their verified position papers with supporting
documents and affidavits. In the proceedings before the LA, the complaints of the 99 workers were dismissed because
they failed to verify or affix their signatures to the position paper filed with the LA.

While it is true that the NLRC Rules must be liberally construed and that the NLRC is not bound by the technicalities of law
and procedure, it should not be the first to arbitrarily disregard specific provisions of the rules which are precisely intended
to assist the parties in obtaining just, expeditious and inexpensive settlement of labor disputes. It was only Felix Martos
who verified their position paper and their memorandum of appeal. It was only he alone who was vigilant in looking after
his interest and enforcing his rights. Petitioners should be considered to have waived their rights and interests in the case
for their consistent neglect and passive attitude.

Moreover, Martos was never authorized by any of his fellow complainants through a special power of attorney or other
document in the proceedings to represent them before the LA and the NLRC. His acts and verifications were made only in
his own personal capacity and did not bind or benefit petitioners. There is only one logical reason why a majority of them
failed to verify their position paper, their appeal and now their petition: they were not in any way employees of the
respondent. They were total strangers to the respondent. They even refused to identify themselves during the proceedings
by their failure to appear thereat. Hence, it is too late for the others to participate in the fruits, if any, of this litigation.

Finally, the reinstatement being sought by Martos and the others was no longer practicable because of the strained
relation between the parties. Petitioners can no longer question this fact. This issue was never raised or taken up on
appeal before the NLRC. It was only when the petitioners lost in the appeal in the CA that they first raised the issue of
strained relation. Moreover, no proof of actual damages was presented by the petitioners. There is no clear and
convincing evidence on record showing that the termination of an employee’s services had been carried out in an
arbitrary, capricious or malicious manner.

The Court’s Ruling

The Court is basically asked to resolve two (2) issues: 1 whether or not the CA was correct in dismissing the complaints
filed by those petitioners who failed to verify their position papers; and 2 whether or not Martos should be reinstated.

Regarding the first issue, the Court agrees with the respondent.

Sections 4 and 5 of Rule 7 of the 1997 Rules of Civil Procedure provide:

SEC. 4. Verification. – Except when otherwise specifically required by law or rule, pleadings need not be under oath,
verified or accompanied by affidavit.

A pleading is verified by an affidavit that the affiant has read the pleadings and that the allegations therein are true and
correct of his personal knowledge or based on authentic records.

A pleading required to be verified which contains a verification based on "information and belief" or upon "knowledge,
information and belief" or lacks a proper verification, shall be treated as an unsigned pleading.

SEC. 5. Certification against forum shopping. – The plaintiff or principal party shall certify under oath in the complaint or
other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed
therewith:

(a) that he has not theretofore commenced any action or filed any claim involving the same issues in any court, tribunal or
quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is
such other pending action or claim, a complete statement of the present status thereof; and (c) if he should thereafter
learn that the same or similar action or claim has been filed or is pending, he shall report that fact within five (5) days
therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other
initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided, upon
motion and after hearing. The submission of a false certification or non-compliance with any of the undertakings therein
shall constitute indirect contempt of court, without prejudice to the corresponding administrative and criminal actions. If the
acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the same shall be ground for
summary dismissal with prejudice and shall constitute direct contempt, as well as a cause for administrative sanctions. x x
x. [Emphases supplied]

The verification requirement is significant, as it is intended to secure an assurance that the allegations in the pleading are
true and correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in good
faith.10 Verification is deemed substantially complied with when, as in this case, one who has ample knowledge to swear to
the truth of the allegations in the complaint or petition signs the verification, and when matters alleged in the petition have
been made in good faith or are true and correct.11

The absence of a proper verification is cause to treat the pleading as unsigned and dismissible.12

The lone signature of Martos would have been sufficient if he was authorized by his co-petitioners to sign for them.
Unfortunately, petitioners failed to adduce proof that he was so authorized. The complaints of the other parties in the case
of Nellie Vda. De Formoso v. v. PNB13 suffered a similar fate. Thus:

Admittedly, among the seven (7) petitioners mentioned, only Malcaba signed the verification and certification of non-forum
shopping in the subject petition. There was no proof that Malcaba was authorized by his co-petitioners to sign for them.
There was no special power of attorney shown by the Formosos authorizing Malcaba as their attorney-in-fact in filing a
petition for review on certiorari. Neither could the petitioners give at least a reasonable explanation as to why only he
signed the verification and certification of non-forum shopping.

The liberal construction of the rules may be invoked in situations where there may be some excusable formal deficiency or
error in a pleading, provided that the same does not subvert the essence of the proceeding and it at least connotes a
reasonable attempt at compliance with the rules. Besides, fundamental is the precept that rules of procedure are meant
not to thwart but to facilitate the attainment of justice; hence, their rigid application may, for deserving reasons, be
subordinated by the need for an apt dispensation of substantial justice in the normal course. They ought to be relaxed
when there is subsequent or even substantial compliance, consistent with the policy of liberality espoused by Rule 1,
Section 6.14 Not being inflexible, the rule on verification allows for such liberality.15

Considering that the dismissal of the other complaints by the LA was without prejudice, the other complainants should
have taken the necessary steps to rectify their procedural mistake after the decision of the LA was rendered. They should
have corrected this procedural flaw by immediately filing another complaint with the correct verification this time.
Surprisingly, they did not even attempt to correct this technical blunder. Worse, they committed the same procedural error
when they filed their appeal16 with the NLRC.

Under the circumstances, the Court agrees with the CA that the dismissal of the other complaints were brought about by
the own negligence and passive attitude of the complainants themselves. In Formoso, the Court further wrote:

The petitioners were given a chance by the CA to comply with the Rules when they filed their motion for reconsideration,
but they refused to do so. Despite the opportunity given to them to make all of them sign the verification and certification of
non-forum shopping, they still failed to comply. Thus, the CA was constrained to deny their motion and affirm the earlier
resolution.

The Court can only do so much for them.

Most probably, as the list17 submitted is not complete with the information as to when each started and when each was
dismissed there must be some truth in the claim of respondent that those complainants who failed to affix their signatures
in the verification were either not employees of respondent at all or they simply refused to prosecute their complaints. In its
position paper,18 respondent alleged that, aside from the four (4) complainants who withdrew their complaints, only 17 out
of the more or less 104 complainants appeared on its records as its former project employees or at least known by it to
have worked in one of its construction projects. From the sworn statements executed by Felix Yortas,19 Marvin Batta,20

Lito Bantillo,21 Gavino Felix Nicolas,22 and Romeo Pangacian Martos,23 they already withdrew their complaints against
respondent. Their status and cause of action not being clear and proven, it is just not right that these complaints be
considered as similarly situated as Martos and entitled to the same benefits.

As to Martos, the Court agrees that the reinstatement being sought by him was no longer practicable because of strained
relation between the parties. Indeed, he can no longer question this fact. This issue was never raised or taken up on
appeal before the MLRC. It was only after he lost the appeal in the CA that he raised it.

Thus, the Court deems it fair to award separation pay in lieu of reinstatement. In addition to his separation pay. Martos is
1âw phi 1

also entitled to payment of full backwages, 13th month pay, service incentive leave pay, and attorney’s fees.

The accepted doctrine is that separation pay may avail in lieu of reinstatement if reinstatement is no longer practical or in
the best interest of the parties. Separation pay in lieu of reinstatement may likewise be awarded if the employee decides
not to be reinstated.

Under the doctrine of stained relations, the payment of separation pay is considered an acceptable alternative to
reinstatement when the latter opinion is no longer desirable or viable. On one hand, such payment liberates the employee
from what could be highly oppressive work environment. On the other hand, it release the employer from the grossly
unpalatable obligation of maintaining in its employ a worker it could no longer trust.24

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. Nos. 174941 February 1, 2012

ANTONIO P. SALENGA and NATIONAL LABOR RELATIONS COMMISSION, Petitioners,


vs.
COURT OF APPEALS and CLARK DEVELOPMENT CORPORATION, Respondents.

DECISION

SERENO, J.:

The present Petition for Certiorari under Rule 65 assails the Decision1 of the Court of Appeals (CA) promulgated on 13
September 2005, dismissing the Complaint for illegal dismissal filed by petitioner Antonio F. Salenga against respondent
Clark Development Corporation (CDC). The dispositive portion of the assailed Decision states:

WHEREFORE, premises considered, the original and supplemental petitions are GRANTED. The assailed resolutions of
the National Labor Relations Commission dated September 10, 2003 and January 21, 2004 are ANNULLED and SET
ASIDE. The complaint filed by Antonio B. Salenga against Clark Development is DISMISSED. Consequently, Antonio B.
Salenga is ordered to restitute to Clark Development Corporation the amount of P3,222,400.00, which was received by
him as a consequence of the immediate execution of said resolutions, plus interest thereon at the rate of 6% per annum
from date of

such receipt until finality of this judgment, after which the interest shall be at the rate of 12% per annum until said amount
is fully restituted.

SO ORDERED.2

The undisputed facts are as follows:

On 22 September 1998, President/Chief Executive Officer (CEO) Rufo Colayco issued an Order informing petitioner that,
pursuant to the decision of the board of directors of respondent CDC, the position of head executive assistant – the
position held by petitioner – was declared redundant. Petitioner received a copy of the Order on the same day and
immediately went to see Colayco. The latter informed him that the Order had been issued as part of the reorganization
scheme approved by the board of directors. Thus, petitioner’s employment was to be terminated thirty (30) days from
notice of the Order.

On 17 September 1999, petitioner filed a Complaint for illegal dismissal with a claim for reinstatement and payment of
back wages, benefits, and moral and exemplary damages against respondent CDC and Colayco. The Complaint was filed
with the National Labor Relations Commission-Regional Arbitration Branch (NLRC-RAB) III in San Fernando, Pampanga.
In defense, respondents, represented by the Office of the Government Corporate Counsel (OGCC), alleged that the NLRC
had no jurisdiction to entertain the case on the ground that petitioner was a corporate officer and, thus, his dismissal was
an intra-corporate matter falling properly within the jurisdiction of the Securities and Exchange Commission (SEC).

On 29 February 2000, labor arbiter (LA) Florentino R. Darlucio issued a Decision3 in favor of petitioner Salenga. First, the
LA held that the NLRC had jurisdiction over the Complaint, considering that petitioner was not a corporate officer but a
managerial employee. He held the position of head executive assistant, categorized as a Job Level 12 position, not
subject to election or appointment by the board of directors.

Second, the LA pointed out that respondent CDC and Colayco failed to establish a valid cause for the termination of
petitioner’s employment. The evidence presented by respondent CDC failed to show that the position of petitioner was
superfluous as to be classified "redundant." The LA further pointed out that respondent corporation had not disputed the
argument of petitioner Salenga that his position was that of a regular employee. Moreover, the LA found that petitioner had
not been accorded the right to due process. Instead, the latter was dismissed without the benefit of an explanation of the
grounds for his termination, or an opportunity to be heard and to defend himself.

Finally, considering petitioner’s reputation and contribution as a government employee for 40 years, the LA awarded moral
damages amounting to ₱2,000,000 and exemplary damages of ₱500,000. The dispositive portion of the LA’s Decision
reads:

WHEREFORE, premises considered, judgment is hereby rendered declaring respondent Clark Development Corporation
and Rufo Colayco guilty of illegal dismissal and for which they are ordered, as follows:

1. To reinstate complainant to his former or equivalent position without loss of seniority rights and privileges;

2. To pay complainant his backwages reckoned from the date of his dismissal on September 22, 1998 until actual
reinstatement or merely reinstatement in the payroll which as of this date is in the amount of P722,400.00;

3. To pay complainant moral damages in the amount of P2,000,000.00; and,

4. To pay complainant exemplary damages in the amount of P500,000.00.

SO ORDERED.4

At the time the above Decision was rendered, respondent CDC was already under the leadership of Sergio T. Naguiat.
When he received the Decision on 10 March 2000, he subsequently instructed Atty. Monina C. Pineda, manager of the
Corporate and Legal Services Department and concurrent corporate board secretary, not to appeal the Decision and to so
inform the OGCC.5

Despite these instructions, two separate appeals were filed before LA Darlucio on 20 March 2000. One appeal 6 was from
the OGCC on behalf of respondent CDC and Rufo Colayco. The OGCC reiterated its allegation that petitioner was a
corporate officer, and that the termination of his employment was an intra-corporate matter. The Memorandum of Appeal
was verified and certified by Hilana Timbol-Roman, the executive vice president of respondent CDC. The Memorandum
was accompanied by a UCPB General Insurance Co., Inc. supersedeas bond covering the amount due to petitioner as
adjudged by LA Darlucio. Timbol-Roman and OGCC lawyer Roy Christian Mallari also executed on 17 March 2000 a Joint
Affidavit of Declaration wherein they swore that they were the "respective authorized representative and counsel" of
respondent corporation. However, the Memorandum of Appeal and the Joint Affidavit of Declaration were not
accompanied by a board resolution from respondent’s board of directors authorizing either Timbol-Roman or Atty. Mallari,
or both, to pursue the case or to file the appeal on behalf of respondent.

It is noteworthy that Naguiat, who was president/CEO of respondent CDC from 3 February 2000 to 5 July 2000, executed
an Affidavit on 20 March 2002,7 wherein he stated that without his knowledge, consent or approval, Timbol-Roman and
Atty. Mallari filed the above-mentioned appeal. He further alleged that their statements were false.

The second appeal, meanwhile, was filed by former CDC President/CEO Rufo Colayco. Colayco alleged that petitioner
was dismissed not on 22 September 1998, but twice on 9 March 1999 and 23 March 1999. The dismissal was allegedly
approved by respondent’s CDC board of directors pursuant to a new organizational structure. Colayco likewise stated that
he had posted a supersedeas bond – the same bond taken out by Timbol-Roman – issued by the UCPB General
Insurance Co. dated 17 March 2000 in order to secure the monetary award, exclusive of moral and exemplary damages.

Petitioner thereafter opposed the two appeals on the grounds that both appellants, respondent CDC – as allegedly
represented by Timbol-Roman and Atty. Mallari – and Rufo Colayco had failed to observe Rule VI, Sections 4 to 6 of the
NLRC Rules of Procedure; and that appellants had not been authorized by respondent’s board of directors to represent
the corporation and, thus, they were not the "employer" whom the Rules referred to. Petitioner also alleged that appellants
failed to refute the findings of LA Darlucio in the previous Decision.

In the meantime, while the appeal was pending, on 19 October 2000, respondent’s board chairperson and concurrent
President/CEO Rogelio L. Singson ordered the reinstatement of petitioner to the latter’s former position as head executive
assistant, effective 24 October 2000.8

On 28 May 2001, respondent CDC’s new President/CEO Emmanuel Y. Angeles issued a Memorandum, which offered all
managers of respondent corporation an early separation/redundancy program. Those who wished to avail themselves of
the program were to be given the equivalent of their 1.25-month basic salary for every year of service and leave credits
computed on the basis of the same 1.25-month equivalent of their basic salary.9

In August 2001, respondent CDC offered another retirement plan granting higher benefits to the managerial employees.
Thus, on 12 September 2001, petitioner filed an application for the early retirement program, which Angeles approved on
3 December 2001.
Meanwhile, in the proceedings of the NLRC, petitioner received on 12 September 2001 its 30 July 2001 Decision10on the
appeal filed by Timbol-Roman and Colayco. It is worthy to note that the said Decision referred to the reports of reviewer
arbiters Cristeta D. Tamayo and Thelma M. Concepcion, who in turn found that petitioner Salenga was a corporate officer
of CDC. Nevertheless, the First Division of the NLRC upheld LA Darlucio’s ruling that petitioner Salenga was indeed a
regular employee. It also found that redundancy, as an authorized cause for dismissal, has not been sufficiently proven,
rendering the dismissal illegal. However, the NLRC held that the award of exemplary and moral damages were
unsubstantiated. Moreover, it also dropped Colayco as a respondent to the case, since LA Darlucio had failed to provide
any ground on which to anchor the former’s solidary liability.

Petitioner Salenga thereafter moved for a partial reconsideration of the above-mentioned Decision. He sought the
reinstatement of the award of exemplary and moral damages. He likewise insisted that the NLRC should not have
entertained the appeal on the following grounds: (1) respondent CDC did not file an appeal and did not post the required
cash or surety bond; (2) both Timbol-Roman and Colayco were admittedly not real parties-in-interest; (3) they were not the
employer or the employer’s authorized representative and, thus, had no right to appeal; and (4) both appeals had not been
perfected for failure to post the required cash or surety bond. In other words, petitioner’s theory revolved on the fact that
neither Timbol-Roman nor Colayco was authorized to represent the corporation, so the corporation itself did not appeal LA
Darlucio’s Decision. As a result, that Decision should be considered as final and executory.

For its part, the OGCC also filed a Motion for Reconsideration11 of the NLRC’s 30 July 2001 Decision insofar as the finding
of illegal dismissal was concerned. It no longer questioned the commission’s finding that petitioner was a regular
employee, but instead insisted that he had been dismissed as a consequence of his redundant position. The motion,
however, was not verified by the duly authorized representative of respondent CDC.

On 5 December 2002, the NLRC denied petitioner Salenga’s Motion for Partial Reconsideration and dismissed the
Complaint. The dispositive portion of the Resolution12 reads as follows:

WHEREFORE, complainant’s partial motion for reconsideration is denied. As recommended by Reviewer Arbiters Cristeta
D. Tamayo in her August 2, 2000 report and Thelma M. Concepcion in her November 25, 2002 report, the decision of
Labor Arbiter Florentino R. Darlucio dated 29 February 2000 is set aside.

The complaint below is dismissed for being without merit.

SO ORDERED.13

Meanwhile, pending the Motions for Reconsideration of the NLRC’s 30 July 2001 Decision, another issue arose with
regard to the computation of the retirement benefits of petitioner. Respondent CDC did not immediately give his requested
retirement benefits, pending clarification of the computation of these benefits. He claimed that the computation of his
retirement benefits should also include the forty (40) years he had been in government service in accordance with
Republic Act No. (R.A.) 8291, or the GSIS Act, and should not be limited to the length of his employment with respondent
corporation only, as the latter insisted.

In a letter dated 14 March 2003, petitioner Salenga’s counsel wrote to the board of directors of respondent to follow up the
payment of the retirement benefits allegedly due to petitioner.14

Pursuant to the NLRC’s dismissal of the Complaint of petitioner Salenga, Angeles subsequently denied the former’s
request for his retirement benefits, to wit:15

Please be informed that we cannot favorably grant your client’s claim for retirement benefits considering that Clark
Development Corporation's dismissal of Mr. Antonio B. Salenga had been upheld by the National Labor Relations
Commission through a Resolution dated December 5, 2002...

xxx xxx xxx

As it is, the said Resolution dismissed the Complaint filed by Mr. Salenga for being without merit. Consequently, he is not
entitled to receive any retirement pay from the corporation.

Meanwhile, petitioner Salenga filed a second Motion for Reconsideration of the 5 December 2002 Resolution of the NLRC,
reiterating his claim that it should not have entertained the imperfect appeal, absent a proper verification and certification
against forum-shopping from the duly authorized representative of respondent CDC. Without that authority, neither could
the OGCC act on behalf of the corporation.

The OGCC, meanwhile, resurrected its old defense that the NLRC had no jurisdiction over the case, because petitioner
Salenga was a corporate officer.

The parties underwent several hearings before the NLRC First Division. During these times, petitioner Salenga demanded
from the OGCC to present a board resolution authorizing it or any other person to represent the corporation in the
proceedings. This, the OGCC failed to do.

After giving due course to the Motion for Reconsideration filed by petitioner Salenga, the NLRC issued a Resolution16 on 10
September 2003, partially granting the motion. This time, the First Division of the NLRC held that, absent a board
resolution authorizing Timbol-Roman to file the appeal on behalf of respondent CDC, the appeal was not perfected and
was thus a mere scrap of paper. In other words, the NLRC had no jurisdiction over the appeal filed before it.

The NLRC further held that respondent CDC had failed to show that petitioner Salenga’s dismissal was pursuant to a valid
corporate reorganization or board resolution. It also deemed respondent estopped from claiming that there was indeed a
redundancy, considering that petitioner Salenga had been reinstated to his position as head executive assistant. While it
granted the award of moral damages, it nevertheless denied exemplary damages. Thus, the dispositive portion of its
Decision reads:

WHEREFORE, premises considered, the complainant’s Motion for Reconsideration is GRANTED and We set aside our
Resolution of December 5, 2002. The Decision of the Labor Arbiter dated February 29, 2000 is REINSTATED with the
MODIFICATION that:

1.) Being a nominal party, respondent Rufo Colayco is declared to be not jointly and severally liable with
respondent Clark Development Corporation;

2.) Respondent Clark Development Corporation is ordered to pay the complainant his full backwages and other
monetary claims to which he is entitled under the decision of the Labor Arbiter;

3.) Respondent CDC is likewise ordered to pay the complainant moral and exemplary damages as provided under
the Labor Arbiter’s Decision; and

4.) All other money claims are DENIED for lack of merit.

In the meantime, respondent CDC is ordered to pay the complainant his retirement benefits without further delay.

SO ORDERED.17

On 3 October 2003, the OGCC filed a Motion for Reconsideration18 despite the absence of a verification and the
certification against forum shopping.

On 21 January 2004, the motion was denied by the NLRC for lack of merit.19

On 5 February 2004, the executive clerk of the NLRC First Division entered the judgment on the foregoing case.
Thereafter, on 9 February 2004, the NLRC forwarded the entire records of the case to the NLRC-RAB III Office in San
Fernando, Pampanga for appropriate action.

On 4 March 2004, petitioner Salenga filed a Motion for Issuance of Writ of Execution before the NLRC-RAB III, Office of
LA Henry D. Isorena. The OGCC opposed the motion on the ground that it had filed with the CA a Petition for Certiorari
seeking the reversal of the NLRC Decision dated 30 July 2001 and the Resolutions dated 10 September 2003 and 21
January 2004, respectively. It is noteworthy that, again, there was no board resolution attached to the Petition authorizing
its filing.

Despite the pending Petition with the CA, LA Isorena issued a Writ of Execution enforcing the 10 September 2003
Resolution of the NLRC. On 1 April 2004, the LA issued an Order20 to the manager of the Philippine National Bank, Clark
Branch, Angeles City, Pampanga, to immediately release in the name of NLRC-RAB III the amount of ₱3,222,400
representing partial satisfaction of the judgment award, including the execution fee of ₱31,720.

Respondent CDC filed with the CA in February 2004 a Petition for Certiorari with a prayer for the issuance of a temporary
restraining order and/or a writ of preliminary injunction. However, the Petition still lacked a board resolution from the board
of directors of respondent corporation authorizing its then President Angeles to verify and certify the Petition on behalf of
the board. It was only on 16 March 2004 that counsel for respondent filed a Manifestation/Motion 21 with an attached
Secretary’s Certificate containing the board’s Resolution No. 86, Series of 2001. The Resolution authorized Angeles to
represent respondent corporation in prosecuting, maintaining, or compromising any lawsuit in connection with its business.

Meanwhile, in the proceedings before LA Isorena, both respondent CDC’s legal department and the OGCC on 6 April
2004 filed their respective Motions to Quash Writ of Execution.22 They both cited the failure to afford to respondent due
process in the issuance of the writ. They claimed that the pre-conference hearing on the execution of the judgment had
not pushed through. They also reiterated that the Petition for Certiorari dated 11 February 2004 was still pending with the
CA.

Both motions were denied by LA Isorena for lack of factual and legal bases.

On 6 May 2004, respondent filed with LA Isorena another Motion to Quash Writ of Execution, again reiterating the pending
Petition with the CA.

This active exchange of pleadings and motions and the delay in the payment of his money claims eventually led petitioner
Salenga to file an Omnibus Motion23 before LA Isorena. In his motion, he recomputed the amount due him representing
back wages, other benefits or allowances, legal interests and attorney’s fees. He also prayed for the computation of his
retirement benefits plus interests in accordance with R.A. 829124 and R.A. 1616.25 He insisted that since respondent CDC
was a government-owned and -controlled corporation (GOCC), his previous government service totalling 40 years must
also be credited in the computation of his retirement pay. Thus, he demanded the payment of the total amount of
₱23,920,772.30, broken down as follows:

a. From the illegal dismissal suit: (In Philippine peso)


a. Recomputed award 3,758,786
b. Legal interest 5,089,342.58
c. Attorney’s fees 1,196,052.80
d. Litigation expenses 250,000
b. Retirement pay
a. Retirement gratuity 6,987,944
b. Unused vacation and sick leave 1,440,328
c. Legal interest 4,050,544.96
d. Attorney’s fees 1,147,781.90

On 11 May 2004, the CA issued a Resolution26 ordering petitioner Salenga to comment on the Petition and holding in
abeyance the issuance of a temporary restraining order.

The parties thereafter filed their respective pleadings.

On 19 July 2004, the CA temporarily restrained the NLRC from enforcing the Decision dated 29 February 2000 for a
period of 60 days.27 After the lapse of the 60 days, LA Isorena issued a Notice of Hearing/Conference scheduled for 1
October 2004 on petitioner’s Omnibus Motion dated 7 May 2004.

Meanwhile, on 24 September 2004, the CA issued another Resolution,28 this time denying the application for the issuance
of a writ of preliminary injunction, after finding that the requisites for the issuance of the writ had not been met.

Respondent CDC subsequently filed a Supplemental Petition29 with the CA, challenging the computation petitioner Salenga
made in his Omnibus Motion filed with the NLRC. Respondent alleged that the examiner had erred in including the other
years of government service in the computation of retirement benefits. It claimed that, since respondent corporation was
created under the Corporation Code, petitioner Salenga was not covered by civil service laws. Hence, his retirement
benefits should only be limited to the number of years he had been employed by respondent.

Subsequently, respondent CDC filed an Omnibus Motion30 to admit the Supplemental Petition and to reconsider the CA’s
Resolution denying the issuance of a writ of preliminary injunction. In the motion, respondent alleged that petitioner
Salenga had been more than sufficiently paid the amounts allegedly due him, including the award made by LA Darlucio.
On 12 March 2002, respondent CDC had issued a check amounting to ₱852,916.29, representing petitioner’s retirement
pay and terminal pay. Meanwhile, on 2 April 2004, ₱3,254,120 representing the initial award was debited from the account
of respondent CDC.

On 7 February 2005, respondent CDC filed a Motion31 once again asking the CA to issue a writ of preliminary injunction in
the light of a scheduled 14 February 2005 conference called by LA Mariano Bactin, who had taken over the case from LA
Isorena.

At the 14 February 2005 hearing, the parties failed to reach an amicable settlement and were thus required to submit their
relevant pleadings and documents in support of their respective cases.

On 16 February 2005, the CA issued a Resolution32 admitting the Supplemental Petition filed by respondent, but denying
the prayer for the issuance of an injunctive writ.

Thereafter, on 8 March 2005, LA Bactin issued an Order33 resolving the Omnibus Motion filed by petitioner Salenga for the
recomputation of the monetary claims due him. In the Order, LA Bactin denied petitioner’s Motion for the recomputation of
the award of back wages, benefits, allowances and privileges based on the 29 February 2000 Decision of LA Darlucio. LA
Bactin held that since the Decision had become final and executory, he no longer had jurisdiction to amend or to alter the
judgment.

Anent the second issue of the computation of retirement benefits, LA Bactin also denied the claim of petitioner Salenga,
considering that the latter’s retirement benefits had already been paid. The LA, however, did not rule on whether petitioner
was entitled to retirement benefits, either under the Government Service Insurance System (GSIS) or under the Social
Security System (SSS), and held that this issue was beyond the expertise and jurisdiction of a LA.

Petitioner Salenga thereafter appealed to the NLRC, which granted the appeal in a Resolution34 dated 22 July 2005. First, it
was asked to resolve the issue of the propriety of having the Laguesma Law Office represent respondent CDC in the
proceedings before the LA. The said law firm entered its appearance as counsel for respondent during the pre-execution
conference/hearing on 1 October 2004. On this issue, the NLRC held that respondent corporation’s legal department,
which had previously been representing the corporation, was not validly substituted by the Laguesma Law Office. In
addition, the NLRC held that respondent had failed to comply with Memorandum Circular No. 9, Series of 1998, which
strictly prohibits the hiring of lawyers of private law firms by GOCCs without the prior written conformity and acquiescence
of the Office of Solicitor General, as the case may be, and the prior written concurrence of the Commission on Audit
(COA). Thus, the NLRC held that all actions and submissions undertaken by the Laguesma Law Office on behalf of
respondent were null and void.

The second issue raised before the NLRC was whether LA Bactin acted without jurisdiction in annulling and setting aside
the former’s final and executory judgment contained in its 10 September 2003 Resolution, wherein it held that the appeal
had not been perfected, absent the necessary board resolution allowing or authorizing Timbol-Roman and Atty. Mallari to
file the appeal. On this issue, the NLRC stated:

The final and executory judgment in this case is clearly indicated in the dispositive portion of Our Resolution promulgated
on September 10, 2003 GRANTING complainant’s motion for reconsideration, SETTING ASIDE Our Resolution of
December 5, 2002, and REINSTATING the Decision of the Labor Arbiter dated February 29, 2000 with the following
modification[s]: (1) declaring respondent Rufo Colayco not jointly and severally liable with respondent Clark Development
Corporation; (2) ordering respondent CDC to pay the complainant his full backwages and other monetary claims to which
he is entitled under the decision of the Labor Arbiter; (3) ordering respondent CDC to pay complainant moral and
exemplary damages as provided under the Labor Arbiter’s Decision; and (4) ordering respondent CDC to pay the
complainant his retirement benefits without further delay. This was entered in the Book of Entry of Judgment as final and
executory effective as of February 2, 2004.

Implementing this final and executory judgment, Arbiter Isorena issued an Order dated May 24, 2004, DENYING
respondent’s Motion to Quash the Writ of Execution dated March 22, 2004, correctly stating thusly:
"Let it be stressed that once a decision has become final and executory, it becomes the ministerial duty of this Office to
issue the corresponding writ of execution. The rationale behind it is based on the fact that the winning party has suffered
enough and it is the time for him to enjoy the fruits of his labor with dispatch. The very purpose of the pre-execution
conference is to explore the possibility for the parties to arrive at an amicable settlement to satisfy the judgment award
speedily, not to delay or prolong its implementation."

Thus, when Arbiter Bactin, who took over from Arbiter Isorena upon the latter’s filing for leave of absence due to poor
health in January 2005, issued the appealed Order nullifying, instead of implementing, the final and executory judgment of
this Commission, the labor arbiter a quo acted WITHOUT JURISDICTION.35

xxx xxx xxx

WHEREFORE, premises considered, the appeal of herein complainant is hereby GRANTED, and We declare NULL AND
VOID the appealed Order of March 8, 2005 and SET ASIDE said Order; We direct the immediate issuance of the
corresponding Alias Writ of Execution to enforce the final and executory judgment of this Commission as contained in Our
September 10, 2003 Resolution.

SO ORDERED.36

Unwilling to accept the above Resolution of the NLRC, the Laguesma Law Office filed a Motion for Reconsideration dated
29 August 2005 with the NLRC. Again, the motion lacked proper verification and certification against non-forum shopping.

In the meantime, the OGCC also filed with the CA a Motion for the Issuance of a Writ of Preliminary Injunction dated 30
August 200537 against the NLRC’s 22 July 2005 Resolution. The OGCC alleged that the issues in the Resolution
addressed monetary claims that were raised by petitioner Salenga only in his Omnibus Motion dated 7 May 2004 or after
the issuance of the 10 September 2003 Decision of LA Darlucio. Thus, the OGCC insisted that the NLRC had no
jurisdiction over the issue, for the matter was still pending with the CA.

The OGCC likewise filed another Motion for Reconsideration38 dated 31 August 2005 with the NLRC. The OGCC
maintained that it was only acting in a collaborative manner with the legal department of respondent CDC, for which the
former remained the lead counsel. The OGCC reiterated that, as the statutory counsel of GOCCs, it did not need
authorization from them to maintain a case, and thus, LA Bactin had jurisdiction over that case. Finally, it insisted that
petitioner Salenga was not covered by civil service laws on retirement, the CDC having been created under the
Corporation Code.

On 13 September 2005, the CA promulgated the assailed Decision. Relying heavily on the reports of Reviewer Arbiters
Cristeta D. Tamayo and Thelma M. Concepcion, it held that petitioner Salenga was a corporate officer. Thus, the issue
before the NLRC was an intra-corporate dispute, which should have been lodged with the Securities and Exchange
Commission (SEC), which had jurisdiction over the case at the time the issue arose. The CA likewise held that the NLRC
committed grave abuse of discretion when it allowed and granted petitioner Salenga’s second Motion for Reconsideration,
which was a prohibited pleading.

Petitioner subsequently filed a Motion for Reconsideration on 7 October 2005, alleging that the CA committed grave abuse
of discretion in reconsidering the findings of fact, which had already been found to be conclusive against respondent; and
in taking cognizance of the latter’s Petition which had not been properly verified.

The CA, finding no merit in petitioner’s allegations, denied the motion in its 17 August 2006 Resolution.

On 4 September 2006, petitioner Salenga filed a Motion for Extension of Time to File a Petition for Review on Certiorari
under Rule 45, praying for an extension of fifteen (15) days within which to file the Petition. The motion was granted
through this Court’s Resolution dated 13 September 2006. The case was docketed as G.R. No. 174159.

On 25 September 2006, however, petitioner filed a Manifestation39 withdrawing the motion. He manifested before us that
he would instead file a Petition for Certiorari under Rule 65, which was eventually docketed as G.R. No. 174941. On 7 July
2008, this Court, through a Resolution, considered the Petition for Review in G.R. No. 174159 closed and terminated.

Petitioner raises the following issues for our resolution:

I.

The Court of Appeals acted without jurisdiction in reviving and re-litigating the factual issues and matters of
petitioner’s illegal dismissal and retirement benefits.

II.

The Court of Appeals had no jurisdiction to entertain the original Petition as a remedy for an appeal that had
actually not been filed, absent a board resolution allowing the appeal.

III.

The Court of Appeals acted with grave abuse of discretion when it did the following:

a. It failed to dismiss the original and supplemental Petitions despite the lack of a board resolution authorizing the
filing thereof.
b. It failed to dismiss the Petitions despite the absence of a proper verification and certification against non-forum
shopping.

c. It failed to dismiss the Petitions despite respondent’s failure to inform it of the pending proceedings before the
NLRC involving the same issues.

d. It failed to dismiss the Petitions on the ground of forum shopping.

e. It did not dismiss the Petition when respondent failed to attach to it certified true copies of the assailed NLRC 30
July 2001 Decision; 10 September 2003 Resolution; 21 January 2004 Resolution; copies of material portions of
the record as are referred to therein; and copies of pleadings and documents relevant and pertinent thereto.

f. It did not act on respondent’s failure to serve on the Office of the Solicitor General a copy of the pleadings,
motions and manifestations the latter had filed before the Court of Appeals, as well as copies of pertinent court
resolutions and decisions, despite the NLRC being a party to the present case.

g. It disregarded the findings of fact and conclusions of law arrived at by LA Darlucio, subjecting them to a second
analysis and evaluation and supplanting them with its own findings.

h. It granted the Petition despite respondent’s failure to show that the NLRC committed grave abuse of discretion
in rendering the latter’s 30 July 2001 Decision, 10 September 2003 Resolution and 21 January 2004 Resolution.

i. It dismissed the complaint for illegal dismissal and ordered the restitution of the P3,222,400 already awarded to
petitioner, plus interest thereon.

In its defense, private respondent insists that the present Petition for Certiorari under Rule 65 is an improper remedy to
question the Decision of the CA, and thus, the case should be dismissed outright. Nevertheless, it reiterates that private
petitioner was a corporate officer whose employment was dependent on board action. As such, private petitioner’s
employment was an intra-corporate controversy cognizable by the SEC, not the NLRC. Private respondent also asserts
that it has persistently sought the reversal of LA Darlucio’s Decision by referring to the letters sent to the OGCC, as well as
Verification and Certificate against forum-shopping. However, these documents were signed only during Angeles’ time as
private respondent’s president/CEO, and not of the former presidents. Moreover, private respondent contends that private
petitioner is not covered by civil service laws, thus, his years in government service are not creditable for the purpose of
determining the total amount of retirement benefits due him. In relation to this, private respondent enumerates the
amounts already paid to private petitioner.

The Court’s Ruling

The Petition has merit.

This Court deigns it proper to collapse the issues in this Petition to simplify the matters raised in what appears to be a
convoluted case. First, we need to determine whether the NLRC and the CA committed grave abuse of discretion
amounting to lack or excess of jurisdiction, when they entertained respondent’s so-called appeal of the 29 February 2000
Decision rendered by LA Darlucio.

Second, because of the turn of events, a second issue – the computation of retirement benefits – cropped up while the
first case for illegal dismissal was still pending. Although the second issue may be considered as separate and distinct
from the illegal dismissal case, the issue of the proper computation of the retirement benefits was nevertheless considered
by the relevant administrative bodies, adding more confusion to what should have been a simple case to begin with.

The NLRC had no jurisdiction


to entertain the appeal filed by
Timbol-Roman and former
CDC CEO Colayco.

To recall, on 29 February 2000, LA Darlucio rendered a Decision in favor of petitioner, stating as follows:

xxxComplainant cannot be considered as a corporate officer because at the time of his termination, he was holding the
position of Head Executive Assistant which is categorized as a Job Level 12 position that is not subject to the election or
appointment by the Board of Directors. The approval of Board Resolution Nos. 200 and 214 by the Board of Directors in its
meeting held on February 11, 1998 and March 25, 1998 clearly refers to the New CDC Salary Structure where the pay
adjustment was based and not to complainant’s relief as Vice-President, Joint Ventures and Special Projects. While it is
true that his previous positions are classified as Job Level 13 which are subject to board confirmation, the status of his
appointment was permanent in nature. In fact, he had undergone a six-month probationary period before having acquired
the permanency of his appointment. However, due to the refusal of the board under then Chairman Victorino Basco to
confirm his appointment, he was demoted to the position of Head Executive Assistant. Thus, complainant correctly
postulated that he was not elected to his position and his tenure is not dependent upon the whim of the boardxxx

xxx xxx xxx

Anent the second issue, this Office finds and so holds that respondents have miserably failed to show or establish the
valid cause in terminating the services of complainant.

xxx xxx xxx


In the case at bar, respondents failed to adduce any evidence showing that the position of Head Executive Assistant is
superfluous. In fact, they never disputed the argument advanced by complainant that the position of Head Executive
Assistant was classified as a regular position in the Position Classification Study which is an essential component of the
Organizational Study that had been approved by the CDC board of directors in 1995 and still remains intact as of the end
of 1998. Likewise, studies made since 1994 by various management consultancy groups have determined the need for
the said position in the Office of the President/CEO in relation to the vision, mission, plans, programs and overall corporate
goals and objectives of respondent CDC. There is no evidence on record to show that the position of Head Executive
Assistant was abolished by the Board of Directors in its meeting held in the morning of September 22, 1998. The minutes
of the meeting of the board on said date, as well as its other three meetings held in the month of September 1998
(Annexes "B", "C", "D" and "E", Complainant’s Reply), clearly reveal that no abolition or reorganization plan was discussed
by the board. Hence, the ground of redundancy is merely a device made by respondent Colayco in order to ease out the
complainant from the respondent corporation.

Moreover, the other ground for complainant’s dismissal is unclear and unknown to him as respondent did not specify nor
inform the complainant of the alleged recent developmentsxxx

This Office is also of the view that complainant was not accorded his right to due process prior to his termination. The law
requires that the employer must furnish the worker sought to be dismissed with two (2) written notices before termination
may be validly effected: first, a notice apprising the employee of the particular acts or omissions for which his dismissal is
sought and, second, a subsequent notice informing the employee of the decision to dismiss him. In the case at bar,
complainant was not apprised of the grounds of his termination. He was not given the opportunity to be heard and defend
himselfxxx40

The OGCC, representing respondent CDC and former CEO Colayco separately appealed from the above Decision. Both
alleged that they had filed the proper bond to cover the award granted by LA Darlucio.

It is clear from the NLRC Rules of Procedure that appeals must be verified and certified against forum-shopping by the
parties-in-interest themselves. In the case at bar, the parties-in-interest are petitioner Salenga, as the employee, and
respondent Clark Development Corporation as the employer.

A corporation can only exercise its powers and transact its business through its board of directors and through its officers
and agents when authorized by a board resolution or its bylaws. The power of a corporation to sue and be sued is
exercised by the board of directors. The physical acts of the corporation, like the signing of documents, can be performed
only by natural persons duly authorized for the purpose by corporate bylaws or by a specific act of the board. The purpose
of verification is to secure an assurance that the allegations in the pleading are true and correct and have been filed in
good faith.41

Thus, we agree with petitioner that, absent the requisite board resolution, neither Timbol-Roman nor Atty. Mallari, who
signed the Memorandum of Appeal and Joint Affidavit of Declaration allegedly on behalf of respondent corporation, may
be considered as the "appellant" and "employer" referred to by Rule VI, Sections 4 to 6 of the NLRC Rules of Procedure,
which state:

SECTION 4. REQUISITES FOR PERFECTION OF APPEAL. - (a) The Appeal shall be filed within the reglementary period
as provided in Section 1 of this Rule; shall be verified by appellant himself in accordance with Section 4, Rule 7 of the
Rules of Court, with proof of payment of the required appeal fee and the posting of a cash or surety bond as provided in
Section 6 of this Rule; shall be accompanied by memorandum of appeal in three (3) legibly typewritten copies which shall
state the grounds relied upon and the arguments in support thereof; the relief prayed for; and a statement of the date
when the appellant received the appealed decision, resolution or order and a certificate of non-forum shopping with proof
of service on the other party of such appeal. A mere notice of appeal without complying with the other requisites
aforestated shall not stop the running of the period for perfecting an appeal.

(b) The appellee may file with the Regional Arbitration Branch or Regional Office where the appeal was filed, his
answer or reply to appellant's memorandum of appeal, not later than ten (10) calendar days from receipt thereof.
Failure on the part of the appellee who was properly furnished with a copy of the appeal to file his answer or reply
within the said period may be construed as a waiver on his part to file the same.

(c) Subject to the provisions of Article 218, once the appeal is perfected in accordance with these Rules, the
Commission shall limit itself to reviewing and deciding specific issues that were elevated on appeal.

SECTION 5. APPEAL FEE. -The appellant shall pay an appeal fee of one hundred fifty pesos (P150.00) to the Regional
Arbitration Branch or Regional Office, and the official receipt of such payment shall be attached to the records of the case.

SECTION 6. BOND. - In case the decision of the Labor Arbiter or the Regional Director involves a monetary award, an
appeal by the employer may be perfected only upon the posting of a cash or surety bond. The appeal bond shall either be
in cash or surety in an amount equivalent to the monetary award, exclusive of damages and attorney’s fees.

In case of surety bond, the same shall be issued by a reputable bonding company duly accredited by the Commission or
the Supreme Court, and shall be accompanied by:

(a) a joint declaration under oath by the employer, his counsel, and the bonding company, attesting that the bond
posted is genuine, and shall be in effect until final disposition of the case.

(b) a copy of the indemnity agreement between the employer-appellant and bonding company; and

(c) a copy of security deposit or collateral securing the bond.


A certified true copy of the bond shall be furnished by the appellant to the appellee who shall verify the regularity and
genuineness thereof and immediately report to the Commission any irregularity.

Upon verification by the Commission that the bond is irregular or not genuine, the Commission shall cause the immediate
dismissal of the appeal.

No motion to reduce bond shall be entertained except on meritorious grounds and upon the posting of a bond in a
reasonable amount in relation to the monetary award.

The filing of the motion to reduce bond without compliance with the requisites in the preceding paragraph shall not stop
the running of the period to perfect an appeal. (Emphasis supplied)

The OGCC failed to produce any valid authorization from the board of directors despite petitioner Salenga’s repeated
demands. It had been given more than enough opportunity and time to produce the appropriate board resolution, and yet it
failed to do so. In fact, many of its pleadings, representations, and submissions lacked board authorization.

We cannot agree with the OGCC’s attempt to downplay this procedural flaw by claiming that, as the statutorily assigned
counsel for GOCCs, it does not need such authorization. In Constantino-David v. Pangandaman-Gania,42we exhaustively
explained why it was necessary for government agencies or instrumentalities to execute the verification and the
certification against forum-shopping through their duly authorized representatives. We ruled thereon as follows:

But the rule is different where the OSG is acting as counsel of record for a government agency. For in such a case it
becomes necessary to determine whether the petitioning government body has authorized the filing of the petition and is
espousing the same stand propounded by the OSG. Verily, it is not improbable for government agencies to adopt a stand
different from the position of the OSG since they weigh not just legal considerations but policy repercussions as well. They
have their respective mandates for which they are to be held accountable, and the prerogative to determine whether
further resort to a higher court is desirable and indispensable under the circumstances.

The verification of a pleading, if signed by the proper officials of the client agency itself, would fittingly serve the purpose of
attesting that the allegations in the pleading are true and correct and not the product of the imagination or a matter of
speculation, and that the pleading is filed in good faith. Of course, the OSG may opt to file its own petition as a "People's
Tribune" but the representation would not be for a client office but for its own perceived best interest of the State.

The case of Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., is not also a precedent that may be
invoked at all times to allow the OSG to sign the certificate of non-forum shopping in place of the real party-in-interest. The
ruling therein mentions merely that the certification of non-forum shopping executed by the OSG constitutes substantial
compliance with the rule since "the OSG is the only lawyer for the petitioner, which is a government agency mandated
under Section 35, Chapter 12, Title III, Book IV, of the 1987 Administrative Code (Reiterated under Memorandum Circular
No. 152 dated May 17, 1992) to be represented only by the Solicitor General."

By its very nature, "substantial compliance" is actually inadequate observance of the requirements of a rule or regulation
which are waived under equitable circumstances to facilitate the administration of justice there being no damage or injury
caused by such flawed compliance. This concept is expressed in the statement "the rigidity of a previous doctrine was
thus subjected to an inroad under the concept of substantial compliance." In every inquiry on whether to accept
"substantial compliance," the focus is always on the presence of equitable conditions to administer justice effectively and
efficiently without damage or injury to the spirit of the legal obligation.

xxx xxx xxx

The fact that the OSG under the 1987 Administrative Code is the only lawyer for a government agency wanting to file a
petition, or complaint for that matter, does not operate per se to vest the OSG with the authority to execute in its name the
certificate of non-forum shopping for a client office. For, in many instances, client agencies of the OSG have legal
departments which at times inadvertently take legal matters requiring court representation into their own hands without the
intervention of the OSG. Consequently, the OSG would have no personal knowledge of the history of a particular case so
as to adequately execute the certificate of non-forum shopping; and even if the OSG does have the relevant information,
the courts on the other hand would have no way of ascertaining the accuracy of the OSG's assertion without precise
references in the record of the case. Thus, unless equitable circumstances which are manifest from the record of a case
prevail, it becomes necessary for the concerned government agency or its authorized representatives to certify for non-
forum shopping if only to be sure that no other similar case or incident is pending before any other court.

We recognize the occasions when the OSG has difficulty in securing the attention and signatures of officials in charge of
government offices for the verification and certificate of non-forum shopping of an initiatory pleading. This predicament is
especially true where the period for filing such pleading is non-extendible or can no longer be further extended for reasons
of public interest such as in applications for the writ of habeas corpus, in election cases or where sensitive issues are
involved. This quandary is more pronounced where public officials have stations outside Metro Manila.

But this difficult fact of life within the OSG, equitable as it may seem, does not excuse it from wantonly executing by itself
the verification and certificate of non-forum shopping. If the OSG is compelled by circumstances to verify and certify the
pleading in behalf of a client agency, the OSG should at least endeavor to inform the courts of its reasons for doing
so, beyond instinctively citing City Warden of the Manila City Jail v. Estrella and Commissioner of Internal Revenue v. S.C.
Johnson and Son, Inc.

Henceforth, to be able to verify and certify an initiatory pleading for non-forum shopping when acting as counsel of record
for a client agency, the OSG must (a) allege under oath the circumstances that make signatures of the concerned officials
impossible to obtain within the period for filing the initiatory pleading; (b) append to the petition or complaint such authentic
document to prove that the party-petitioner or complainant authorized the filing of the petition or complaint and understood
and adopted the allegations set forth therein, and an affirmation that no action or claim involving the same issues has
been filed or commenced in any court, tribunal or quasi-judicial agency; and, (c) undertake to inform the court promptly
and reasonably of any change in the stance of the client agency.

Anent the document that may be annexed to a petition or complaint under letter (b) hereof, the letter-endorsement of the
client agency to the OSG, or other correspondence to prove that the subject-matter of the initiatory pleading had been
previously discussed between the OSG and its client, is satisfactory evidence of the facts under letter (b) above. In this
exceptional situation where the OSG signs the verification and certificate of non-forum shopping, the court reserves the
authority to determine the sufficiency of the OSG's action as measured by the equitable considerations discussed herein.
(Emphasis ours, italics provided)

The ruling cited above may have pertained only to the Office of the Solicitor General’s representation of government
agencies and instrumentalities, but we see no reason why this doctrine cannot be applied to the case at bar insofar as the
OGCC is concerned.

While in previous decisions we have excused transgressions of these rules, it has always been in the context of upholding
justice and fairness under exceptional circumstances. In this case, though, respondent failed to provide any iota of rhyme
or reason to compel us to relax these requirements. Instead, what is clear to us is that the so-called appeal was done
against the instructions of then President/CEO Naguiat not to file an appeal. Timbol-Roman, who signed the Verification
and the Certification against forum-shopping, was not even an authorized representative of the corporation. The OGCC
was equally remiss in its duty. It ought to have advised respondent corporation, the proper procedure for pursuing an
appeal. Instead, it maintained the appeal and failed to present any valid authorization from respondent corporation even
after petitioner had questioned OGCC’s authority all throughout the proceedings. Thus, it is evident that the appeal was
made in bad faith.

The unauthorized and overzealous acts of officials of respondent CDC and the OGCC have led to a waste of the
government’s time and resources. More alarmingly, they have contributed to the injustice done to petitioner Salenga. By
taking matters into their own hands, these officials let the case drag on for years, depriving him of the enjoyment of
property rightfully his. What should have been a simple case of illegal dismissal became an endless stream of motions and
pleadings.

Time and again, we have said that the perfection of an appeal within the period prescribed by law is jurisdictional, and the
lapse of the appeal period deprives the courts of jurisdiction to alter the final judgment.43 Thus, there is no other recourse
but to respect the findings and ruling of the labor arbiter. Clearly, therefore, the CA committed grave abuse of discretion in
entertaining the Petition filed before it after the NLRC had dismissed the case based on lack of jurisdiction. The assailed
CA Decision did not even resolve petitioner Salenga’s consistent and persistent claim that the NLRC should not have
taken cognizance of the appeal in the first place, absent a board resolution. Thus, LA Darlucio’s Decision with respect to
the liability of the corporation still stands.

However, we note from that Decision that Rufo Colayco was made solidarily liable with respondent corporation. Colayco
thereafter filed his separate appeal. As to him, the NLRC correctly held in its 30 July 2001 Decision that he may not be
held solidarily responsible to petitioner. As a result, it dropped him as respondent. Notably, in the case at bar, petitioner
does not question that ruling.

Based on the foregoing, all other subsequent proceedings regarding the issue of petitioner’s dismissal are null and void for
having been conducted without jurisdiction. Thus, it is no longer incumbent upon us to rule on the other errors assigned in
the matter of petitioner Salenga’s dismissal.

CDC is not under the civil service laws on retirement.

While the case was still persistently being pursued by the OGCC, a new issue arose when petitioner Salenga reached
retirement age: whether his retirement benefits should be computed according to civil service laws.

To recall, the issue of how to compute the retirement benefits of petitioner was raised in his Omnibus Motion dated 7 May
2004 filed before the NLRC after it had reinstated LA Darlucio’s original Decision. The issue was not covered by
petitioner’s Complaint for illegal dismissal, but was a different issue altogether and should have been properly addressed
in a separate Complaint. We cannot fault petitioner, though, for raising the issue while the case was still pending with the
NLRC. If it were not for the "appeal" undertaken by Timbol-Roman and the OGCC through Atty. Mallari, the issue would
have taken its proper course and would have been raised in a more appropriate time and manner. Thus, we deem it
proper to resolve the matter at hand to put it to rest after a decade of litigation.

Petitioner Salenga contends that respondent CDC is covered by the GSIS Law. Thus, he says, the computation of his
retirement benefits should include all the years of actual government service, starting from the original appointment forty
(40) years ago up to his retirement.

Respondent CDC owes its existence to Executive Order No. 80 issued by then President Fidel V. Ramos. It was meant to
be the implementing and operating arm of the Bases Conversion and Development Authority (BCDA) tasked to manage
the Clark Special Economic Zone (CSEZ). Expressly, respondent was formed in accordance with Philippine corporation
laws and existing rules and regulations promulgated by the SEC pursuant to Section 16 of Republic Act (R.A.)
7227.44 CDC, a government-owned or -controlled corporation without an original charter, was incorporated under the
Corporation Code. Pursuant to Article IX-B, Sec. 2(1), the civil service embraces only those government-owned or -
controlled corporations with original charter. As such, respondent CDC and its employees are covered by the Labor Code
and not by the Civil Service Law, consistent with our ruling in NASECO v. NLRC,45 in which we established this distinction.
Thus, in Gamogamo v. PNOC Shipping and Transport Corp.,46 we held:

Retirement results from a voluntary agreement between the employer and the employee whereby the latter after reaching
a certain age agrees to sever his employment with the former.
Since the retirement pay solely comes from Respondent's funds, it is but natural that Respondent shall disregard
petitioner's length of service in another company for the computation of his retirement benefits.

Petitioner was absorbed by Respondent from LUSTEVECO on 1 August 1979. Ordinarily, his creditable service shall be
reckoned from such date. However, since Respondent took over the shipping business of LUSTEVECO and agreed to
assume without interruption all the service credits of petitioner with LUSTEVECO, petitioner's creditable service must start
from 9 November 1977 when he started working with LUSTEVECO until his day of retirement on 1 April 1995. Thus,
petitioner's creditable service is 17.3333 years.

We cannot uphold petitioner's contention that his fourteen years of service with the DOH should be considered because
his last two employers were government-owned and controlled corporations, and fall under the Civil Service Law. Article
IX(B), Section 2 paragraph 1 of the 1987 Constitution states —

Sec. 2. (1)The civil service embraces all branches, subdivisions, instrumentalities, and agencies of the Government,
including government-owned or controlled corporations with original charters.

It is not at all disputed that while Respondent and LUSTEVECO are government-owned and controlled corporations, they
have no original charters; hence they are not under the Civil Service Law. In Philippine National Oil Company-Energy
Development Corporation v. National Labor Relations Commission, we ruled:

xxx "Thus under the present state of the law, the test in determining whether a government-owned or controlled
corporation is subject to the Civil Service Law are [sic] the manner of its creation, such that government corporations
created by special charter(s) are subject to its provisions while those incorporated under the General Corporation Law are
not within its coverage." (Emphasis supplied)

Hence, petitioner Salenga is entitled to receive only his retirement benefits based only on the number of years he was
employed with the corporation under the conditions provided under its retirement plan, as well as other benefits given to
him by existing laws.1âwphi1

WHEREFORE, in view of the foregoing, the Petition in G.R. No. 174941 is partially GRANTED. The Decision of LA
Darlucio is REINSTATED insofar as respondent corporation’s liability is concerned. Considering that petitioner did not
maintain the action against Rufo Colayco, the latter is not solidarily liable with respondent Clark Development Corporation.

The case is REMANDED to the labor arbiter for the computation of petitioner’s retirement benefits in accordance with the
Social Security Act of 1997 otherwise known as Republic Act No. 8282, deducting therefrom the sums already paid by
respondent CDC. If any, the remaining amount shall be subject to the legal interest of 6% per annum from the filing date of
petitioner’s Omnibus Motion on 11 May 2004 up to the time this judgment becomes final and executory. Henceforth, the
rate of legal interest shall be 12% until the satisfaction of judgment.

SO ORDERED.

G.R. No. 193415 April 18, 2012

SPOUSES DAISY and SOCRATES M. AREVALO, Petitioners,


vs.
PLANTERS DEVELOPMENT BANK and THE REGISTER OF DEEDS OF PARAÑAQUE CITY, Respondents.

DECISION

SERENO, J.:

This is a Rule 45 Petition for Review, which seeks to reverse the Decision dated 24 March 2010 1 and Resolution dated 05
August 20102 of the Court of Appeals (CA) in CA-G.R. SP No. 110806. The CA affirmed the trial court’s Decision not to
grant petitioners’ application for a writ of preliminary injunction.

As stated, this case involves the trial court’s refusal to issue a writ of preliminary injunction in favor of petitioner Spouses
Daisy and Socrates M. Arevalo (Spouses Arevalo) based on their failure to comply with Section 2 of the Procedure in
Extra-Judicial or Judicial Foreclosure of Real Estate Mortgages (Procedure on Foreclosure) 3 issued by this Court. This
procedure required them to pay twelve percent (12%) per annum interest on the amount of the principal obligation, as
stated in the application for foreclosure sale, before an injunctive writ may issue against the extra-judicial foreclosure of
real estate mortgage.4

We deny the instant Petition for the following reasons: (1) the Petition is moot, because the trial court has already
dismissed the Complaint dated 07 April 2009 (the First Complaint),5 upon which petitioners’ application for the provisional
remedy of preliminary injunction was based; and (2) petitioners are guilty of forum-shopping.

The conflict between the parties arose from a Loan Agreement6 petitioners executed with respondent Planters
Development Bank (Bank). Petitioners obtained from respondent Bank a ₱ 2,100,000 loan secured by a mortgage on their
property situated in Muntinlupa. Due to their failure to pay the loaned amount, the Bank undertook to extra-judicially
foreclose the mortgage. The Clerk of Court issued a Notice of Sheriff’s Sale and set the auction sale on 21 and 28 April
2009.7

Petitioners thereafter filed the First Complaint wherein they asked for the nullification of interests, penalties and other
charges, as well as for specific performance with an application for a temporary restraining order (TRO) and writ of
preliminary injunction to enjoin the then impending auction sale of their Muntinlupa property. They alleged that it was
respondent Bank who breached its obligations under the loan agreement; and that the auction sale was premature,
arbitrary and confiscatory, as their inability to pay the loan was caused and aggravated by the Bank’s illegal schemes.8
During the hearing of petitioners’ application for preliminary injunction, the trial court ruled that, as a precondition for the
issuance of the writ and pursuant to the Procedure on Foreclosure, petitioners were directed to pay 12% per annum
interest on the principal obligation as stated in the application for foreclosure sale. Otherwise, the writ shall not issue. 9 The
trial court further ruled that the evidence in support of their application was evidentiary in nature and should thus be
presented during trial.10

Petitioner Spouses Arevalo sought to clarify the trial court’s Order,11 inquiring whether they should be required to pay 12%
per annum interest. They argue that the rule requiring the payment of 12% interest as a condition for the issuance of an
injunctive writ against an impending foreclosure sale was applicable only when applicant alleges that the interest rate is
unconscionable.12 According to petitioners, nowhere in the Complaint did they allege that the interest charges were
unconscionable.13 Instead, what they raised in the First Complaint as their principal cause of action was the Bank’s
deliberate withholding of loan releases on various pretexts and the propriety of the acts of the Bank charging them with
interests and penalties due to the delay caused by the Bank itself.14 The trial court, however, affirmed its earlier ruling.15

Petitioners moved for reconsideration,16 but their motion was denied.17 Consequently, they did not pay the required interest;
thus, no writ of preliminary injunction was issued in their favor.

Aggrieved, petitioner Spouses Arevalo filed a Rule 65 Petition18 with the CA to assail the Orders of the trial court involving
the non-issuance of the injunctive writ.19

Meanwhile, proceedings for the First Complaint ensued at the trial court. Acting on the Motion to Dismiss filed by
respondent Bank, the trial court granted the motion and dismissed the First Complaint for lack of cause of
action.20Petitioner Spouses Arevalo then proceeded again to the CA to appeal21 the dismissal of the main case. The record
does not reveal the status of the case.

With regard to the Rule 65 Petition to the CA questioning the non-issuance of the writ, respondent Bank filed its
Comment22 thereon. Subsequently, the CA rendered the present assailed Decision dated 24 March 2010, affirming the
applicability of Section 2 of the Procedure on Foreclosure. It ruled that the trial court was correct in refusing to issue the
writ due to petitioners’ inexplicable failure and even stubborn refusal to pay the accrued interest at 12% per annum. 23 The
CA held that the words used by petitioners in their First Complaint, such as "manifestly unjust," "purely potestative
condition," "void ab initio," "clearly contravenes morals, good customs and public policy," "whimsical," "capricious violation
of the legal and inherent principles of mutuality of contracts," "illegal, invalid, unilateral impositions"—all of which pertained
to interest imposed by the Bank—undeniably meant that petitioners were challenging the interest for being
unconscionable, while opting to use other words of similar import.24

Petitioners moved for reconsideration, but the CA denied their motion.25

Aggrieved, they filed the instant Rule 45 Petition to assail the Decision of the CA affirming the non-issuance of the
injunctive writ.

There are thus two (2) cases arising from similar facts and circumstances; more particularly, the instant Rule 45 Petition
and the appeal of the dismissal of the main case with the CA.26 It appears on record also that on 12 November 2010,
petitioners filed yet another Complaint dated 11 November 201027 (Second Complaint) with the trial court. This time, they
prayed for the nullification of the real estate mortgage, the extra-judicial foreclosure sale, and the subsequent proceedings,
with a prayer for preliminary injunction and TRO.

With regard to the instant Rule 45 Petition, petitioners assail the Decision and Resolution of the CA based on the following
grounds:28 (1) they were deprived of the opportunity to present evidence on their application for a writ of preliminary
injunction; and (2) the CA erred when it required them to pay 12% interest per annum based on Section 2 of the
Procedure on Foreclosure, when the core of their First Complaint was not excessiveness of the interest but the Bank’s
supposed breach of their obligations in the loan agreement.29

Respondent Bank, on the other hand, countered as follows:30 (1) petitioner Spouses Arevalo were not denied due process,
since they were accorded several opportunities to be heard on their application for the issuance of an injunctive writ; (2)
the CA correctly required petitioners to pay the interest; and (3) petitioner Spouses Arevalo were guilty of forum-shopping
when they filed their Second Complaint. For forum-shopping, respondent Bank likewise moved to hold them in
contempt,31 arguing that they had sought similar reliefs in their Second Complaint with the trial court as in the present
Petition.

Petitioners filed their Reply32 and Comment33 to the charges on contempt.

Based on the parties’ submissions, the following issues are presented for the resolution of this Court:

1. Whether the requirement to pay 12% interest per annum before the issuance of an injunctive writ to enjoin an
impending foreclosure sale is applicable to the instant case; and

2. Whether petitioner Spouses Arevalo are guilty of forum-shopping and should consequently be punished for
contempt.

RULING OF THE COURT

I. The issue of the applicability to this case of the requirement to pay 12% interest per annum before the issuance of an
injunctive writ to enjoin an impending foreclosure sale is moot.

The Court rules that upon dismissal of the First Complaint by the trial court on 27 October 2009, 34 the issue of whether the
writ of injunction should issue has become moot. Although both parties failed to raise this particular argument in their
submissions, we deny the instant Petition on this ground.
A case becomes moot and academic when there is no more actual controversy between the parties or useful purpose that
can be served in passing upon the merits.35

There remains no actual controversy in the instant Petition because the First Complaint has already been dismissed by
the trial court. Upon its dismissal, the question of the non-issuance of a writ of preliminary injunction necessarily died with
it.

A writ of preliminary injunction is a provisional remedy. It is auxiliary to, an adjunct of, and subject to the outcome of the
main case.36 Thus, a writ of preliminary injunction is deemed lifted upon dismissal of the main case, any appeal therefrom
notwithstanding,37 as this Court emphasized in Buyco v. Baraquia38 from which we quote:

The writ is provisional because it constitutes a temporary measure availed of during the pendency of the action and it is
ancillary because it is a mere incident in and is dependent upon the result of the main action.

It is well-settled that the sole object of a preliminary injunction, whether prohibitory or mandatory, is to preserve the status
quo until the merits of the case can be heard. It is usually granted when it is made to appear that there is a substantial
controversy between the parties and one of them is committing an act or threatening the immediate commission of an act
that will cause irreparable injury or destroy the status quo of the controversy before a full hearing can be had on the merits
of the case.

xxx xxx xxx

The present case having been heard and found dismissible as it was in fact dismissed, the writ of preliminary injunction is
deemed lifted, its purpose as a provisional remedy having been served, the appeal therefrom notwithstanding.

Unionbank v. Court of Appeals enlightens:

xxx a dismissal, discontinuance or non-suit of an action in which a restraining order or temporary injunction has been
granted operates as a dissolution of the restraining order or temporary injunction," regardless of whether the period for
filing a motion for reconsideration of the order dismissing the case or appeal therefrom has expired. The rationale therefor
is that even in cases where an appeal is taken from a judgment dismissing an action on the merits, the appeal does not
suspend the judgment, hence the general rule applies that a temporary injunction terminates automatically on the
dismissal of the action. (Emphases supplied.)39

There will be no practical value in resolving the question of the non-issuance of an injunctive writ in this case. Setting
aside the assailed Orders is manifestly pointless, considering that the First Complaint itself has already been dismissed,
and there is nothing left to enjoin. The reversal of the assailed Orders would have a practical effect only if the dismissal
were set aside and the First Complaint reinstated.40 In this case, however, petitioner Spouses Arevalo admitted to the
impossibility of the reinstatement of the First Complaint when they filed their Second Complaint.41

Even petitioners’ plea that this Court give due course to the Petition for a ruling on the proper application of the Procedure
on Foreclosure42 cannot compel us to resolve this issue.

The Constitution provides that judicial power "includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable."43 The exercise of judicial power requires an actual case
calling for it. The courts have no authority to pass upon issues through advisory opinions, or to resolve hypothetical or
feigned problems or friendly suits collusively arranged between parties without real adverse interests.44 Furthermore, courts
do not sit to adjudicate mere academic questions to satisfy scholarly interest, however intellectually challenging. 45 As a
condition precedent to the exercise of judicial power, an actual controversy between litigants must first exist.46 An actual
case or controversy involves a conflict of legal rights, an assertion of opposite legal claims susceptible of judicial
resolution, as distinguished from a hypothetical or abstract difference or dispute.47 There must be a contrariety of legal
rights that can be interpreted and enforced on the basis of existing law and jurisprudence.48

This Court cannot issue a mere advisory opinion in relation to the applicability of the provisions of the Procedure on
Foreclosure.

II. Petitioners are guilty of forum-shopping.

Petitioners have committed two distinct acts of forum-shopping,49 namely: (1) petitioners willfully and deliberately went to
different courts to avail themselves of multiple judicial remedies founded on similar facts and raising substantially similar
reliefs, and (2) they did not comply with their undertaking to report the filing of the Second Complaint within five days from
its filing.

A. Petitioners filed multiple suits based on similar facts while seeking similar reliefs—acts proscribed by the rules on
forum-shopping.

We rule that petitioners were guilty of willful and deliberate forum-shopping when they filed their Second Complaint with
the trial court insofar as they undertook to obtain similar reliefs as those sought in the instant Petition.

Respondent Bank argues that the rights asserted by petitioners, as well as the reliefs petitioners seek in the instant
Petition, are identical to those raised in their Second Complaint.50

Petitioners, on the other hand, counter that the disparity between the two cases lies in the issue to be resolved. More
particularly, they allege that the issue in this Petition is the summary application of the payment of 12% interest per annum
as a precondition for the issuance of a writ, as opposed to the issue in the Second Complaint involving the validity of the
real estate mortgage and compliance with the rules on the holding of the extrajudicial foreclosure sale.51
Forum shopping is the act of litigants who repetitively avail themselves of multiple judicial remedies in different fora,
simultaneously or successively, all substantially founded on the same transactions and the same essential facts and
circumstances; and raising substantially similar issues either pending in or already resolved adversely by some other
court; or for the purpose of increasing their chances of obtaining a favorable decision, if not in one court, then in
another.52 The rationale against forum-shopping is that a party should not be allowed to pursue simultaneous remedies in
two different courts, for to do so would constitute abuse of court processes which tends to degrade the administration of
justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets of the
courts.53

In Yu v. Lim,54 this Court enumerated the requisites of forum-shopping, as follows:

Forum-shopping exists when the elements of litis pendentia are present or where a final judgment in one case will amount
to res judicata in another. Litis pendentia requires the concurrence of the following requisites: (1) identity of parties, or at
least such parties as those representing the same interests in both actions; (2) identity of rights asserted and reliefs
prayed for, the reliefs being founded on the same facts; and (3) identity with respect to the two preceding particulars in the
two cases, such that any judgment that may be rendered in the pending case, regardless of which party is successful,
would amount to res judicata in the other case.55

What is essential in determining the existence of forum-shopping is the vexation caused the courts and litigants by a party
who asks different courts and/or administrative agencies to rule on similar or related causes and/or grant the same or
substantially similar reliefs, in the process creating the possibility of conflicting decisions being rendered upon the same
issues.56

A comparison of the reliefs sought by petitioners in the instant Petition and in their Second Complaint confirms that they
are substantially similar on two points: (1) revocation and cancellation of the Certificate of Sale and (2) permanent
injunction on any transfer and/or consolidation of title in favor of respondent Bank. These similarities undoubtedly create
the possibility of conflicting decisions from different courts:

Instant Petition Second Complaint

WHEREFORE, it is most respectfully prayed WHEREFORE, it is respectfully prayed of


that immediately upon filing of this petition, the Honorable Court that pending
the same be given due course, and an order consideration and hearing on the principal
issue, ex parte: reliefs herein prayed for, a Temporary
Restraining order (TRO) and/or Writ of
(1) A Resolution be issued directing the Ex- Preliminary Injunction be issued
Officio Sheriff and his Assisting Sheriff to immediately restraining and/or stopping the
undo, cancel, revoke the Certificate of Sale defendants Ex-Officio Sheriff Atty. Jerry R.
they issued; Toledo and Deputy Sheriff Paulo Jose N.
Cusi from executing and issuing a final
(2) Enjoining the Register of Deeds of deed of sale in favor of the defendant bank
Paranaque (or any of her subordinates, and further ordering the defendant Registrar
agents, representatives and persons acting in of Deeds of Paranaque City to hold in
their behalf to cease and desist from allowing abeyance the registration of the final deed
any transfer and/or consolidation of of sale and other documents of
respondents banks title to the property in consolidation pending resolution of this
question and an order be issued directing the Honorable Court. Plaintiffs pray for the
Register of Deeds to undo, cancel and revoke following additional reliefs:
the registration of the Certificate of Sale on
November 13, 2009 and other proceedings 1. After hearing on the merits, the Real
had thereafter, the petition be given due Estate Mortgage be declared and rescinded
course and judgment be rendered as follows: and/or null and void;

1. Making the injunction permanent. 2. The Certificate of Sale [dated November


4, 2009] issued by the defendant Sheriffs
2. Issuing a writ of mandatory injunction for and its subsequent registration on
the respondent Ex-Officio Sheriff to undo, November 13, 2009 with the Registry of
revoke and cancel the Certificate of Sale Deeds be declared null and void;
issued and/or directing the Register of Deeds
to undo, revoke and cancel the registration of 3. After due hearing, the preliminary
the Certificate of Sale and/or defer any injunction be declared permanent. x x
consolidation of title in favor of respondent x58 (Emphases supplied.)
bank pending final resolution of this petition.

3. Reversing and setting aside the Decision of


the Court of Appeals dated March 24, 2010
and Resolution dated August 5,
2010.57(Emphasis supplied.)

As illustrated above, there is a clear violation of the rules on forum-shopping, as the Court is being asked to grant
substantially similar reliefs as those that may also be granted by the trial court, in the process creating a possibility of
conflicting decisions.

We emphasize that the grave evil sought to be avoided by the rule against forum-shopping is the rendition by two
competent tribunals of two separate and contradictory decisions.59 To avoid any confusion, this Court adheres strictly to the
rules against forum shopping, and any violation of these rules results in the dismissal of a case. 60 The acts committed and
described herein can possibly constitute direct contempt.61

B. Petitioners did not report the filing of their Second Complaint within five (5) days, in violation of their undertaking to do
so.

Aside from the fact that petitioners sought substantially similar reliefs from different courts, they likewise failed to disclose
to this Court the filing of their Second Complaint within five (5) days from its filing, in violation of their previous undertaking
to do so.62

Every litigant is required to notify the court of the filing or pendency of any other action or such other proceeding involving
the same or similar action or claim within five (5) days of learning of that fact.63 Petitioners claim that it was merely due to
inadvertence that they failed to disclose the said filing within five (5) days, contrary to their undertaking. 64
1âwphi1

This Court is not inclined to accept this self-serving explanation. We cannot disregard the glaring fact that respondents
had to call the attention of petitioners to the said requirement before the latter admitted that they had indeed filed their
Second Complaint.

As previously established, petitioners have violated two (2) components of forum-shopping, more particularly: (1)
petitioners willfully and deliberately went to different courts to avail themselves of multiple judicial remedies founded on
similar facts and raising substantially similar reliefs, an act which may be punishable as direct contempt;65 and (2) they did
not comply with their undertaking to report the filing of the Second Complaint within five days from its filing. The latter
action may also possibly be construed as a separate count for indirect contempt.

While in a limited sense, petitioners have already been given the chance to rebut the prayer to hold them in contempt, We
hereby provide sufficient avenue for them to explain themselves by requiring them to show cause, within fifteen (15) days,
why they should not be held in direct and indirect contempt of court.

WHEREFORE, the instant Petition for Review filed by Spouses Daisy Arevalo and Socrates M. Arevalo is hereby
DENIED. The Decision dated 24 March 2010 and Resolution dated 05 August 2010 issued by the Court of Appeals in CA-
G.R. SP No. 110806 are AFFIRMED.

Accordingly, petitioners are required to SHOW CAUSE, within fifteen (15) days from receipt of this Decision, why they
should not be held in contempt; more specifically: (a) for direct contempt of court—for availing of multiple judicial remedies
founded on similar facts and raising substantially similar reliefs from different courts; and (b) for indirect contempt of
court—for not complying with their undertaking to report the filing of the Second Complaint within five days from its filing.

SO ORDERED.

G.R. No. 186730 June 13, 2012

JESSE YAP, Petitioner,


vs.
COURT OF APPEALS (SPECIAL ELEVENTH [11th] DIVISION), and ELIZA CHUA and EVELYN TE,Respondents.

RESOLUTION

REYES, J.:

This is a petition for review on certiorari of the Decision1 dated December 10, 2008 and Resolution2 dated February 19,
2009 of the Court of Appeals (CA) in CA-G.R. SP No. 93974. The dispositive portion of the CA’s assailed Decision states:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us GRANTING the petition filed in this
case and the Orders issued by the public respondent Judge Rommel O. Baybay dated October 21, 2005 and January 18,
2006 are hereby SET ASIDE. Consequently, Civil Case No. 04-030 is hereby ordered as DISMISSED on account of litis
pendentia and violation of the rule against forum-shopping.

SO ORDERED.3

On January 9, 2004, petitioner Jesse Yap (Yap) filed a complaint against respondents Eliza Chua (Chua) and Evelyn Te
(Te) with the Regional Trial Court (RTC) of Makati City principally praying for the cancellation or discharge of several
checks that he drew against his account with the Bank of the Philippine Islands (BPI). Yap’s complaint was docketed as
Civil Case No. 04-030 and raffled to Branch 66.

Yap alleged that he purchased several real properties through Te, a real estate broker, and as payment, delivered to her a
number of checks either payable to her, the property owners or to the various individuals who agreed to finance his
acquisitions. He agreed to effect payment in such manner on Te’s claim that this will expedite the transfer of the titles in
his favor.

Chua, one of those who funded his purchases, asked him to issue checks with her as payee to replace the checks he
delivered to Te. Obliging, he drew six (6) checks payable to her against his account with BPI, which were uniformly
postdated July 30, 1997. Particularly:

Check No. Amount


659599 ₱3,000,000.00
708158 ₱2,500,000.00
708160 ₱2,756,666.00
712418 ₱10,900,000.00
712417 ₱10,900,000.00
727214 ₱960,000.00

He stopped payment on the above checks and closed his account when Te failed to deliver the titles on the properties. He
also did the same on the following checks that Te endorsed to Chua for rediscounting without his consent:

Check No. Date Amount


0727205 September 15, 1997 ₱770,833.33
0727206 September 30, 1997 ₱770,833.33

He delivered to Te these checks, which were payable to a certain Badoria Bagatao (Bagatao), for the purchase of a parcel
of land that, as Te represented, Bagatao supposedly owns. He, however, was later informed of the contrary leading to the
conclusion that as no consideration attended the contract with Bagatao and all the other contracts of sale that he entered
into through Te, it was just proper that the checks he issued as payment be cancelled or annulled.

Chua presented an altogether different version of the facts. According to Chua, she released ₱9,415,000.00 to Yap
through a certain Jovita Dimalanta (Dimalanta) sometime in January 1997 in exchange for two (2) postdated checks
payable to her with a face value of ₱5,000,000.00 each. A similar transaction took place in February 1997, where she
delivered to Dimalanta ₱9,415,000.00 upon request of Yap, with the latter issuing in her favor two (2) postdated checks
payable to her in the total amount of ₱10,000,000.00. Yap twice requested for an extension and for Chua not to encash
the four (4) checks. In return, he issued two (2) checks payable to Chua with a face value of ₱1,400,000.00 and
₱1,206,066.66 to cover the interest due.

Yap later replaced the four (4) checks with a face value of ₱5,000,000.00 each with a check payable to Chua for
₱20,000,000.00 and postdated April 22, 1997. When this check became due, Yap once again requested Chua for an
extension and replaced it with BPI Check Nos. 712418 and 712417 to include the interest that would accrue until June 15,
1997. Thereafter, Yap, who asked for another extension, issued to Chua BPI Check No. 727214 to include payment of the
interest that would accrue until July 30, 1997 on the ₱20,000,000.00 covered by BPI Check Nos. 712418 and 712417.

Apparently, Yap also delivered to Chua BPI Check Nos. 659599 and 708158 to replace the checks drawn against his
account, which a certain Jesus Dy endorsed to her. Yap likewise delivered a check payable to Canda Medical Clinic and
Hospital to Te, who in turn, endorsed it to Chua for rediscounting. Sometime in June 1997, Yap replaced this check with
BPI Check No. 708160 to cover the interest from March to May 1997. Yap also gave Te two (2) checks payable to
Bagatao, BPI Check Nos. 0727205 and 0727206, which were subsequently endorsed to Chua for rediscounting.

BPI Check Nos. 659599, 708158, 708160, 712418, 712417 and 727214 were dishonored for the reason "account closed".
On the other hand, Yap stopped payment on BPI Check Nos. 727205 and 727206.4

Verbal demands for Yap to make good the checks he issued proved to be futile. Thus, Chua filed with the RTC of General
Santos City a complaint5 for sum of money against Yap and his wife, Bessie. Chua’s complaint was docketed as Civil Case
No. 6236 and raffled to Branch 23.

On June 8, 2001, the RTC of General Santos City issued a Decision,6 the dispositive portion of which states:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering the latter to pay the
former the following:

1. ₱32,558,332.00 as principal with interest at 6% per annum from the date of the filing of the case until the whole
amount is fully paid;

2. ₱150,000.00 as moral damages;

3. ₱50,000,00 as exemplary damages;

4. ₱1,000,000.00 in concept of attorney’s fees; and

5. The cost of suit.

The third-party complaint is DISMISSED.7

Armed with the foregoing narration, Chua moved for the dismissal of Civil Case No. 04-030 on the twin grounds of litis
pendentia and forum shopping. Chua averred that Yap violated the rule against forum shopping when he failed to inform
the RTC of Makati City of Civil Case No. 6236 and the pendency of his appeal of the decision rendered therein. The
elements of litis pendentia exist, and forum shopping as the logical consequence thereof, considering that the two (2)
cases arose from the same set of facts and involve the same parties.

In an Order8 dated October 21, 2005, the RTC of Makati City refused to dismiss the case, ratiocinating as follows:
On litis pendentia as a ground for dismissal, the Court is not convinced. As correctly stated by the plaintiff, the reliefs
prayed for in the two cases are different from each other considering that the collection case before the RTC of General
Santos City is different from the instant case praying for the discharge/annulment of issued checks. As such the
fundamental requisites of [litis pendentia] have not been met.

Anent dismissal on ground of forum shopping, the same is likewise denied for lack of merit. It is well-settled that it is the
duty of the plaintiff, not the defendant, to declare pending suits it initiated between and among parties in its verification and
certificate of non-forum shopping and not the other way around. A plaintiff in a civil case therefore, is not mandated under
the Rules to declare that said plaintiff was a defendant in a prior suit instituted against him and other defendants by the
defendant in a subsequent case of different nature.9

In an Order10 dated January 18, 2006, the RTC of Makati City denied Chua’s motion for reconsideration.

Chua filed a petition for certiorari with the CA, alleging that grave abuse of discretion attended the Orders of the RTC of
Makati City dated October 21, 2005 and January 18, 2006. By virtue of the assailed decision, this was given due course
and the CA ordered the dismissal of Civil Case No. 04-030.

After a careful and judicious scrutiny of the whole matter, together with the applicable laws and jurisprudence on the
premises, we have come up with a finding that the respondent judge committed grave abuse of discretion in issuing the
assailed orders.

The requisites of [litis pendentia] are: (a) the identity of parties or at least such as representing the same interests in both
actions; (b) the identity of rights asserted and the relief prayed for, the relief being founded on the same facts; and (c) the
identity of the two cases such that judgment in one, regardless of which party is successful, would amount to res judicata
in the other.

The relief sought in Chua in Civil Case No. 6236 was for Yap to pay the amount that he owed to Chua based on BPI
Checks (sic) Nos. 0727205, 0727206, 659599, 708158, 708160, 712418, 712417 and 727214 that he issued. On the other
hand, the relief prayed for by Yap in Civil Case No. 04-030 was for BPI Checks (sic) Nos. 0727205, 0727206, 659599,
708158, 708160, 712418, 712417 and 727214 that he issued to Chua purportedly without any valid consideration to be
declared as null and void.

The cause of action of Yap in Civil Case No. 04-030 was also his defense in Civil Case No. 6236. Necessarily, in
determining the liability of Yap in Civil Case No. 6236, the lower court addressed the issue of the validity of the subject
checks. Branch 23 of the RTC in General Santos City ruled that the checks were validly issued and declared Chua as a
holder in due course thereof. Moreover, the lack of consideration was raised as an affirmative defense and as the basis for
his counterclaim and third-party complaint by Yap in Civil Case No. 6236. Therefore, Branch 66 of the RTC in Makati City
committed grave abuse of discretion amounting to lack of jurisdiction when it took cognizance of Civil Case No. 04-030
and denied Chua’s motion to dismiss it on account of the pendency of another action in another court between them for
the same case.

Yap, in filing Civil Case No. 04-030, also violated the rule against forum shopping. In the test to determine whether a party
violated the rule against forum shopping, the most important factor to ask is whether the elements of litis pendencia (sic)
are present, or whether a final judgment in one case will amount to res judicata in another, i.e., whether in the two or more
cases pending, there is identity of parties, rights or causes of action, and the reliefs sought.

A Motion to Dismiss was timely filed by Chua invoking litis pendencia (sic) and violation of the rule against forum
shopping. After having been appraised of the pending appeal before the Supreme Court of a case involving the same
parties based on the same rights and reliefs sought, the respondent judge should have granted the said motion of Chua
and dismissed Civil Case No. 04-030.11 (Citations omitted)

Yap urges this Court to reverse and set aside the CA’s dismissal of his complaint against Chua and Te, claiming that he is
not guilty of forum shopping as the alleged existence of litis pendentia is belied by the incomparable causes of action he
and Chua advanced in the separate complaints they initiated against each other. Yap claimed that his prayer for the
cancellation or discharge of the subject checks entails a determination of their validity and on whether a valid
consideration exists for their issuance, which is immaterial or irrelevant in determining whether he should be liable for the
amounts that Chua released to Te and Dimalanta.

Forum shopping is the institution of two or more actions or proceedings involving the same parties for the same cause of
action, either simultaneously or successively, on the supposition that one or the other court would make a favorable
disposition. Forum shopping may be resorted to by any party against whom an adverse judgment or order has been
issued in one forum, in an attempt to seek a favorable opinion in another, other than by appeal or a special civil action for
certiorari. Forum shopping trifles with the courts, abuses their processes, degrades the administration of justice and
congest court dockets.12 What is critical is the vexation brought upon the courts and the litigants by a party who asks
different courts to rule on the same or related causes and grant the same or substantially the same reliefs and in the
process creates the possibility of conflicting decisions being rendered by the different fora upon the same issues.13 Willful
and deliberate violation of the rule against forum shopping is a ground for summary dismissal of the case; it may also
constitute direct contempt.14

To determine whether a party violated the rule against forum shopping, the most important factor to ask is whether the
elements of litis pendentia are present, or whether a final judgment in one case will amount to res judicata in another;
otherwise stated, the test for determining forum shopping is whether in the two (or more) cases pending, there is identity of
parties, rights or causes of action, and reliefs sought.15

Litis pendentia as a ground for the dismissal of a civil action refers to that situation wherein another action is pending
between the same parties for the same cause of action, such that the second action becomes unnecessary and vexatious.
The underlying principle of litis pendentia is the theory that a party is not allowed to vex another more than once regarding
the same subject matter and for the same cause of action. This theory is founded on the public policy that the same
subject matter should not be the subject of controversy in courts more than once, in order that possible conflicting
judgments may be avoided for the sake of the stability of the rights and status of persons.

The requisites of litis pendentia are: (a) the identity of parties, or at least such as representing the same interests in both
actions; (b) the identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the
identity of the two cases such that judgment in one,
regardless of which party is successful, would amount to res judicata in the other.16

The foregoing guided this Court in determining whether Yap is liable for forum shopping for filing a complaint for
annulment or discharge of checks following Chua’s filing of a complaint for a sum of money with the two cases allegedly
involving the same factual antecedents, issues and arguments. In so doing, this Court agrees with the CA that all the
elements of litis pendentia exist and that Yap had indulged in the detestable act of forum shopping, warranting the outright
and summary dismissal of Civil Case No. 04-030.

The first requisite of litis pendentia is present as there is identity of parties. The second and third requisites are likewise
1âwphi 1

present. Apart from the fact that the same factual antecedents prompted the filing of the two cases, that Yap’s defense in
1âwphi1

Civil Case No. 6236 constitutes his cause of action in Civil Case No. 04-030 necessarily implies reliance on the same
evidence for the resolution of both cases.

Hornbook is the rule that identity of causes of action does not mean absolute identity; otherwise, a party could easily
escape the operation of res judicata by changing the form of the action or the relief sought. The test to determine whether
the causes of action are identical is to ascertain whether the same evidence will sustain both actions, or whether there is
an identity in the facts essential to the maintenance of the two actions. If the same facts or evidence would sustain both,
the two actions are considered the same, and a judgment in the first case is a bar to the subsequent action. Hence, a
party cannot, by varying the form of action or adopting a different method of presenting his case, escape the operation of
the principle that one and the same cause of action shall not be twice litigated between the same parties or their privies.
Among the several tests resorted to in ascertaining whether two suits relate to a single or common cause of action are: (1)
whether the same evidence would support and sustain both the first and second causes of action; and (2) whether the
defenses in one case may be used to substantiate the complaint in the other.17 Also fundamental is the test of determining
whether the cause of action in the second case existed at the time of the filing of the first complaint.18

This Court takes note of the fact that Yap filed his complaint for the annulment of the checks he issued to Chua after he
was adjudged by the RTC of General Santos City liable. This strikes the Court as indicative of his deliberate and willful
attempt to render nugatory and defeat the adverse decision of the RTC of General Santos City and relieve himself of his
obligation to pay by having the checks he issued annulled, albeit the remedy of appeal was available and which he, in fact,
resorted to. Chua’s complaint is anchored on the amounts Yap received from her and the RTC of General Santos City
decided in her favor on the strength of the checks that Yap issued and endorsed to her. By seeking to cancel or discharge
such checks, Yap attempted to use the RTC of Makati City to destroy the evidentiary foundation of the decision of the RTC
of General Santos City. In doing so, Yap trifled with court processes and exposed the courts to the possibility of rendering
conflicting decisions. Worse, Yap sought to accomplish the prohibited - a court reversing a decision rendered by a court of
co-equal rank. Thus, it matters not that the factual findings and conclusions of law of the RTC of General Santos City, the
RTC of Makati City, the CA and even of this Court may concur. It is the fact that our judicial system is rendered vulnerable
to such uncertainties and vexations that any and all efforts to forum shop should be treated with aversion.

As this Court held in Madara v. Perello:19

Other permutations depending on the rulings of the two courts and the timing of these rulings are possible. In every case,
our justice system suffers as this kind of sharp practice opens the system to the possibility of manipulation; to uncertainties
when conflict of rulings arise; and at least to vexation for complications other than conflict of rulings. Thus, it matters not
that ultimately the Court of Appeals may completely agree with the RTC; what the rule on forum shopping addresses are
the possibility and the actuality of its harmful effects on our judicial system.20

WHEREFORE, premises considered, the petition is DENIED. The Decision dated December 10, 2008 and Resolution
dated February 19, 2009 of the Court of Appeals in CA-G.R. SP No. 93974 are AFFIRMED. Costs against the petitioner.

SO ORDERED.

G.R. No. 163433 August 22, 2011

SPOUSES NELSON R. VILLANUEVA and MYRA P. VILLANUEVA, Petitioners,


vs.
THE COURT OF APPEALS, PROVIDENT RURAL BANK OF SANTA CRUZ (LAGUNA), INC., and THE CLERK OF
COURT OF THE REGIONAL TRIAL COURT OF LAGUNA AS EX-OFFICIO PROVINCIAL SHERIFF,Respondents.

DECISION

PERALTA, J.:

Assailed in the present petition for review on certiorari under Rule 45 of the Rules of Court are the Decision 1 and
Resolution2 of the Court of Appeals (CA) dated June 16, 2003 and April 28, 2004, respectively, in CA-G.R. CV No. 73256.
The CA Decision affirmed the July 31, 2001 Order3 of the Regional Trial Court (RTC) of Santa Cruz, Laguna, Branch 91,
which dismissed herein petitioners' petition for declaratory relief, while the CA Resolution denied petitioners' Motion for
Reconsideration.

The pertinent facts of the case are as follows:


Sometime in 1994, herein petitioners applied for separate loans amounting to ₱100,000.00 and ₱125,000.00, which were
granted by herein respondent Provident Rural Bank of Sta. Cruz, Laguna, Inc. (respondent Bank).

As security for the loans, petitioners executed two separate promissory notes the due dates of which both fall on August
20, 1995.4 Petitioners also executed two separate real estate mortgages over the same parcel of agricultural land located
in Sta. Cruz, Laguna.5

Petitioners failed to pay their loans when they became due.

As a consequence, on June 14, 1996, respondent Bank filed a petition for extrajudicial foreclosure of the abovementioned
mortgages with the Office of the Provincial Sheriff of Laguna. As of June 10, 1996, petitioners' obligations amounted to
₱287,187.50, plus interests, charges and expenses. On June 25, 1996 the Provincial Sheriff issued a Notice of Sale of the
subject mortgaged property.6 It would appear, however, that the auction sale did not push through because on June 9,
2000, respondent Bank re-applied for extrajudicial foreclosure of the same mortgage. On July 25, 2000, the Provincial
Sheriff issued a Notice of Sale Re-Application of Foreclosure Case and set the public auction of the subject property on
August 25, 2000.7 As of June 15, 2000, petitioners' mortgage debt was ₱713,465.35, plus interests, charges and
expenses.

Petitioners then wrote a letter-request addressed to the Officer-in-Charge of the Office of the Clerk of Court of the RTC,
Santa Cruz, Laguna questioning the amount of its outstanding obligations to respondent Bank and requesting that the
public auction scheduled on August 25, 2000 be suspended until after its objection to the amount being sought by
respondent Bank is resolved by the court.8

However, petitioners’ letter-request was denied.

Aggrieved, petitioners filed, on August 2, 2000, a Petition for Declaratory Relief, Accounting and Damages praying that the
stipulated interests, charges and expenses on its loans be declared null and void for being contrary to law, morals, good
customs, public order or public policy as they are exorbitant, usurious, iniquitous and unconscionable. The Petition was
docketed as Civil Case No. SC-4032.9

On September 5, 2000, respondent Bank filed a Motion to Dismiss contending that the petition is barred by res
judicata and that petitioners are guilty of forum shopping.10 Respondent Bank argued that: on August 23, 1996, petitioners
filed a complaint (docketed as Civil Case No. SC-3422) against it (respondent Bank) before the RTC of Sta. Cruz, Laguna,
Branch 86, seeking to declare as usurious the interests, penalties and other charges which petitioners and respondent
Bank had agreed upon in the subject real estate mortgages and promissory notes; that these same stipulated interest,
penalties and other charges are the subject matter of the petition for declaratory relief; that respondent Bank also filed a
Motion to Dismiss in Civil Case No. SC-3422 on the ground of lack of cause of action and suspension of the usury law;
that respondent Bank's Motion to Dismiss was denied by the RTC but upon appeal, the CA, in CA-G.R. SP No. 49065,
annulled the RTC Order and granted the said Motion.

Petitioners filed their Opposition to respondent Bank's Motion to Dismiss.11

Subsequently, on July 31, 2001, the RTC issued an Order dismissing petitioners' Petition for Declaratory Relief holding
that the said Petition is barred by prior judgment, considering that the decision of the CA in CA-G.R. SP No. 49065 already
settled the issues of usury and the right of petitioners to claim the abolition or reduction of the subject interest rates, which
are the same issues raised by petitioners in their Petition for Declaratory Relief.12

Petitioners then filed an appeal with the CA assailing the abovementioned Order of the RTC.

On June 16, 2003, the CA promulgated the presently assailed Decision affirming the Order of the RTC and ruling that all
the elements of res judicata are present.

Petitioners' Motion for Reconsideration was denied by the CA via its April 28, 2004 Resolution.

Hence, the present petition for review on certiorari.

Petitioners contend that the principle of res judicata does not apply in the present case on the ground that there is no
identity of subject matter and cause of action in Civil Case Nos. 3422 and 4032.

Petitioners further argue that even if all the elements of res judicata are present in the instant case, equity dictates that this
principle should not be applied; otherwise, the court would be sanctioning respondent Bank's enrichment at the expense of
petitioners through the imposition of exorbitant, unconscionable and usurious interest rates, penalties and other charges;
in such a case, petitioners claim that justice would be sacrificed in favor of technicality.

Lastly, petitioners aver that they did not violate the rule on forum shopping because Civil Case No. SC-3422, the case
being cited by respondent Bank in its Motion to Dismiss, was already decided by the CA in 1999, before petitioners filed
their Petition for Declaratory Relief on August 2, 2000, and that there is no other pending case involving the same parties,
subject matter and cause of action.

The petition lacks merit.

Anent petitioners' first contention, res judicata literally means "a matter adjudged; a thing judicially acted upon or decided;
a thing or matter settled by judgment."13 It lays the rule that an existing final judgment or decree rendered on the merits,
without fraud or collusion, by a court of competent jurisdiction, upon any matter within its jurisdiction, is conclusive of the
rights of the parties or their privies, in all other actions or suits in the same or any other judicial tribunal of concurrent
jurisdiction on the points and matters in issue in the first suit.14
The elements of res judicata are: (1) the judgment sought to bar the new action must be final; (2) the decision must have
been rendered by a court having jurisdiction over the subject matter and the parties; (3) the disposition of the case must
be a judgment on the merits; and (4) there must be as between the first and second action, identity of parties, subject
matter, and causes of action.15 The Court finds that the CA and the RTC did not err in finding that all of the
abovementioned elements are present in the instant case.

There is no dispute that the first three elements, as enumerated above, are present. As correctly held by the CA, the
issues raised in Civil Case No. SC-3422 were already decided with finality by this Court when it denied petitioners' petition
for review on certiorari in its Resolution dated August 23, 1999 in G.R. No. 139385. The said Resolution became final and
executory on December 20, 1999.

With respect to the fourth element, there is also no dispute that there is identity of parties. However, the Court is not
persuaded by petitioners' argument that there is no identity of subject matter and cause of action.

On the issue of identity of subject matter, this Court has held that the subject of an action is defined as the matter or thing
with respect to which the controversy has arisen, concerning which a wrong has been done.16

The subject matters in Civil Case No. SC-3422 are the interest rates as well as penalties and other charges stipulated in
the promissory notes and real estate mortgages executed by petitioners. These are the same subject matters in Civil Case
No. SC-4032.

As to the cause of action, Rule 2, Section 2 of the Rules of Court defines cause of action as the act or omission by which a
party violates a right of another. With respect to the identity of causes of action, this Court has laid down the test in
determining whether or not the causes of action in the first and second cases are identical, to wit: would the same
evidence support and establish both the present and former cause of action? If so, the former recovery is a bar; if
otherwise, it does not stand in the way of the former action.17

In the instant case, the cause of action in both Civil Case Nos. SC-3422 and 4032 is the act of respondent Bank in
imposing what petitioners alleged as exorbitant, unconscionable and usurious interest rates, penalties and other charges.
There is, thus, no doubt that the same evidence is required to establish the cause of action in both of these cases.

In fact, the issues (whether or not the interest rates, penalties and charges imposed by respondent Bank are usurious and
unconscionable) and the reliefs sought (reduction of the said interest rates, penalties and surcharges to an amount not
exceeding 12% per annum) in both cases are essentially the same.

Neither is the Court persuaded by petitioners' contention that, in any case, the Court should not apply the principle of res
judicata because to do so would be tantamount to allowing respondent Bank to unjustifiably and illegally enrich itself at the
expense of petitioners by imposing interests, penalties and other charges beyond what the law and equity allows.

It is true that res judicata is to be disregarded if its rigid application would involve the sacrifice of justice to
technicality.18 However, the present case does not fall under this exception.

Petitioners contend that the interest rate of 24% per annum stipulated in the mortgage contract, which they executed in
favor of respondent Bank, is usurious. This Court has consistently held that for sometime now, usury has been legally non-
existent and that interest can now be charged as lender and borrower may agree upon.19 In fact, Section 1 of Central Bank
Circular No. 905, Series of 1982, which took effect on January 1, 1983, expressly provides that "[t]he rate of interest,
including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits,
regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether
natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended."
Nonetheless, this Court has also held in a number of cases, that nothing in the circular grants lenders carte
blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of
their assets.20 Thus, the stipulated interest rates are illegal if they are unconscionable.

The question now is whether the 24% per annum interest rate is unreasonable under the circumstances obtaining in the
present case.

The Court rules in the negative.

In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and Mortgage Bank, Dagupan City
Branch,21 this Court held that the interest rate of 24% per annum on a loan of ₱244,000.00, agreed upon by the parties,
may not be considered as unconscionable and excessive. As such, the Court ruled that the borrowers cannot renege on
their obligation to comply with what is incumbent upon them under the contract of loan as the said contract is the law
between the parties and they are bound by its stipulations.22

Also, in Garcia v. Court of Appeals,23 this Court sustained the agreement of the parties to a 24% per annum interest on an
₱8,649,250.00 loan finding the same to be reasonable and clearly evidenced by the amended credit line agreement
entered into by the parties as well as two promissory notes executed by the borrower in favor of the lender.

Based on the above jurisprudence, the Court finds that the 24% per annum interest rate, provided for in the subject
mortgage contracts for a loan of ₱225,000.00, may not be considered unconscionable. Moreover, considering that the
mortgage agreement was freely entered into by both parties, the same is the law between them and they are bound to
comply with the provisions contained therein.

The Court also upholds the validity of the 6% per annum penalty charge. In Development Bank of the Philippines v. Family
Foods Manufacturing Co., Ltd.,24 this Court, sustaining the validity of an 8% per annum penalty charge on separate loans
of ₱500,000.00 and ₱440,000.00, held that:
This Court has recognized a penalty clause as an accessory obligation which the parties attach to a principal obligation for
the purpose of insuring the performance thereof by imposing on the debtor a special prestation (generally consisting in the
payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled. The enforcement
of the penalty can be demanded by the creditor only when the non-performance is due to the fault or fraud of the debtor.
The non-performance gives rise to the presumption of fault; in order to avoid the payment of the penalty, the debtor has
the burden of proving an excuse — the failure of the performance was due to either force majeure or the acts of the
creditor himself.

In this case, respondents failed to discharge the burden. Thus, they cannot avoid the payment of the agreed penalty
charge.25

In a similar manner, herein petitioners bound themselves to pay the stipulated penalty charge of 6% per annum "of the
principal amount of loan as penalty for inexcusable neglect to pay any amount of t[he] loan when due."26 Since petitioners
failed to present evidence that their failure to perform their obligation was due to either force majeure or the acts of
respondent Bank or to any justifiable or excusable cause, they are obliged to pay the penalty charge as agreed upon.

Lastly, it is wrong for petitioners to argue that they are not guilty of forum shopping on the ground that there is no other
pending case involving the same parties, subject matter and cause of action as their petition for declaratory relief. 1avvphi1

Settled is the rule that forum shopping is the act of a litigant who repetitively availed of several judicial remedies in different
courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts
and circumstances, and all raising substantially the same issues, either pending in or already resolved adversely by some
other court, to increase his chances of obtaining a favorable decision if not in one court, then in another.27

Forum shopping can be committed in three ways: (1) by filing multiple cases based on the same cause of action and with
the same prayer, the previous case not having been resolved yet (where the ground for dismissal is litis pendentia); (2) by
filing multiple cases based on the same cause of action and with the same prayer, the previous case having been finally
resolved (where the ground for dismissal is res judicata); and (3) by filing multiple cases based on the same cause of
action but with different prayers (splitting of causes of action, where the ground for dismissal is also either litis
pendentia or res judicata).28

More particularly, the elements of forum-shopping are: (a) identity of parties or at least such parties that represent the
same interests in both actions; (b) identity of rights asserted and reliefs prayed for, the relief being founded on the same
facts; (c) identity of the two preceding particulars, such that any judgment rendered in the other action will, regardless of
which party is successful, amount to res judicata in the action under consideration.29

All the abovementioned elements are present in the instant case. As discussed earlier, petitioners’ petition for declaratory
relief involves the same parties, cause of action and reliefs prayed for as Civil Case No. SC-3422 which case was decided
with finality by this Court as shown by the entry of judgment dated December 20, 1999 in G.R. No. 139385. In addition, it
has been held above that the judgment in Civil Case No. SC-3422 (G.R. No. 139385) amounts to res judicata in the
present case.

Contrary to petitioners' asseveration, Civil Case No. SC-3422 need not be pending in order that the rule on forum
shopping may apply, because as mentioned above, forum shopping may still be committed if one files multiple cases
involving the same parties’ causes of action and prayer and the previous case has already been finally resolved.

Hence, there is no other conclusion than that petitioners are guilty of forum shopping.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated June 16, 2003 and
April 28, 2004, respectively, are AFFIRMED.

SO ORDERED.

G.R. No. 207266 June 25, 2014

HEIRS OF PACIANO YABAO, Represented by REMEDIOS CHAN, Petitioners,


vs.
PAZ LENTEJAS VAN DER KOLK, Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari seeking to reverse and set aside the May 28, 2012 Decision1 and the May 2, 2013
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 04532, essentially dismissing the complaint of petitioners for
ownership and possession for failure to prove it by the required quantum of evidence, though without prejudice.

The case traces its roots to the cornplaint3 for ownership and possession filed on March 8, 2001 by the Heirs of the late
Paciano Yabao (Heirs of Yabao), represented by Remedios Chan, before the Municipal Trial Court in Cities of Calbayog
City (MTCC),against Paz Lentejas Van der Kolk (Van der Kolk),docketed as Civil Case No. 1184. The salient averments in
the complaint are hereunder quoted:

xxxx

2. That plaintiffs herein are the sole surviving heirs of the late spouses Paciano Yabao and Mercedes Cano;
3. That they are the absolute co-owners of the parcel of land more particularly described and bounded as follows:

"A parcel of rice land designated as Lot 2473, situated at Brgy. Capoocan, Calbayog City, bounded on the North
by 03-005(1472)04-001(2474); on the East by 04-031(2774); on the South by 05-009(2462), 008(2461), 004-2458,
003(2457), and on the West by 03-005(2472), 001(2463), containing an area of 6,433 square meters more or less,
declared in Declaration of Real Property ARP No. 96-01015-00398 in the name of the late Paciano Yabao, with an
assessed value of ₱2,760.00"

4. That sometime in 1996, defendant herein asserted claim of ownership and allowed a person to possess the
above-described property, notwithstanding vehement opposition thereto by plaintiffs herein;

5. That notwithstanding demands for the defendant to vacate the premises usurped and occupied by her, she
refused and still continue to refuse, to leave the said premises;

6. That, aside from taking possession of the premises in question, defendant also applied for free patent for the
property in question with the DENR Office of Samar, to which plaintiffs herein have filed a timely opposition; x x x4

The Heirs of Yabao prayed that they be declared the co-owners and possessors of a parcel of land designated as Lot
2473 located in Brgy. Capoocan, Calbayog City (subject lot);that possession thereof be restored to them; and that Van der
Kolk be ordered to pay them attorney’s fees, litigation expenses as well as reasonable rental of ₱2,000.00 per month.

Copies of the summons and the complaint were served upon the attorney-in-fact of Van der Kolk, Ma. Narcisa
Fabregaras-Ventures (Ventures),whom she authorized, among others, to institute and defend all actions for the protection
of her rights and interests over her properties, including the subject lot, by virtue of a special power of attorney5 executed
on August 22, 1999. It was noted in the Sheriff’s Return of Service6 that Van der Kolk was in the Netherlands at the time of
the service.

On April 2, 2001, Van der Kolk filed a Motion to Dismiss7 the complaint anchored on the following grounds: 1] lack of
jurisdiction by the MTCC over her person due to defective service of summons; and 2] lack of cause of action. Van der
Kolk alleged that the service of summons should have been made in accordance with Section 15, Rule 14 of the Rules of
Court because she was not actually residing in the Philippines. She contended that the predecessors-in-interest of the
Heirs of Yabao had executed a joint affidavit on July 16, 1980, wherein they renounced their hereditary rights over the
subject lot and declared that Faustina Yabao, mother of Van der Kolk, as its true owner.

The Heirs of Yabao filed their opposition to the said motion and moved to declare Van der Kolk in default contending that
the motion to dismiss was filed beyond the 15-day reglementary period and no answer had been filed.8

On July 27, 2004, the MTCC issued a Resolution9 denying the motion to dismiss and holding that there was proper service
of summons. It also denied the motion to declare defendant in default, stating that the motion to dismiss was seasonably
filed. The MTCC further directed Van der Kolk to file an answer within 10 days from receipt of the aforesaid resolution.

On September 6, 2004, Van Der Kolk’s counsel, Atty. Felidito Dacut, filed a Manifestation with Motion 10 praying that he be
relieved as her counsel because she never contacted him about the case after he was informed that she had revoked the
authority of Ventures and, thereafter, asked for the documents in his possession.

The Heirs of Yabao still reiterated their motion to declare Van der Kolk in default during the December 20, 2004 hearing
because no answer had yet been filed.

On March 7, 2005, Van der Kolk, through her new counsel, Atty. Eduardo Tibo (Atty. Tibo),filed her Answer 11 to the
complaint which was appended to the Motion for Allowance12 To Belatedly File Defendant’s Answer.

On December 4, 2006, the MTCC rendered its Decision,13 declaring Van der Kolk in default giving the reason that her non-
filing of an answer within the fresh 10-day period was deliberately calculated to delay the early termination of the case and
resolving the case on the merits taking into account only the allegations of the complaint. The pertinent portions of the
decision, including the dispositive portion, read:

Finding the Motion to Declare Defendant in Default for her failure to file her answer or any responsive pleading within the
fresh period of ten (10) days given her in the Resolution of July 27, 2004, tenable, the Court hereby declares the said
defendant in default, and considering the allegations of the complaint to contain clear allegations warranting the relief and
claims prayed for therein, renders its judgment, declaring and ordering as follows:

1. That the plaintiffs are the lawful co-owners and possessors of the parcel of land designate das Lot 2473,
situated at Brgy. Capoocan, Calbayog City, more particularly described in paragraph 3 of the complaint; and

2. The defendant and all persons claiming and/or acting under her and her command shall immediately vacate the
premises in question mentioned in No. 1 hereof and restore the same to the plaintiffs;

3. To pay plaintiffs the amount of Php30,000.00 as attorney’s fees; and

4. To pay the costs of suit.

SO ORDERED.14

Aggrieved, Van der Kolk appealed the MTCC decision before the Regional Trial Court, Branch 32, Calbayog City (RTC).
On October 22, 2007, counsel for Van der Kolk received the notice of the RTC Clerk of Court requiring her to file a
memorandum on appeal within 15 days from such receipt or until November 6, 2007. On November 5, 2007, Atty. Tibo
moved for additional time of 30 days from November 6, 2007 alleging that he could not seasonably file the saidpleading
due to heavy pressures of work. The appeal memorandum was filed only on November 21, 2007.15 On October 27, 2008,
the Heirs of Yabao filed a Motion to Dismiss the appeal,16 citing the failure of Van der Kolk to file the appeal memorandum
within the 15-day reglementary period fixed under Section 7(b), Rule 40 of the Rules of Court.

On May 6, 2009, the RTC issued the Order17 dismissing the appeal for failure of Van de Kolk to file the memorandum on
appeal within the period mandated by the Rules of Court. The RTC considered the reasons advanced by her counsel in
the motion for extension of time as not compelling enough to warrant a relaxation or suspension of the requirements of
Section 7(b) of Rule 40. It added that the right to appeal is a statutory privilege and one who seeks to avail the same must
comply with the requirements of the statute or rules. The fallo of which reads:

WHEREFORE, for the foregoing reasons, defendant appellant’s appeal is hereby ordered DISMISSED.

No pronouncement as to costs.

SO ORDERED.18

Van der Kolk’s motion for reconsideration of the above order was denied by the RTC for lack of merit in its Order, 19dated
August 24, 2009.

Unfazed, Van der Kolk filed a petition for review20 under Rule 42 before the CA on the following grounds: 1] the MTCC did
not acquire jurisdiction over her person because the summons was served upon Ventures, a non-party to the case; 2]
Remedios Chan was not authorized to institute Civil Case No. 1184 in representation of the Heirs of Yabao; 3] the MTCC
gravely abused its discretion in declaring her in default and in granting the execution of the December 4, 2006 Decision
pending its appeal; and 4] the RTC erred in dismissing her appeal.

On May 28, 2012, the CA rendered the assailed decision granting the petition "on grounds not raised herein but disclosed
by the records."21 It stated that the MTCC erred in granting the reliefs prayed for by the Heirs of Yabao because they were
not warranted by their complaint. According to the CA, the MTCC should have required the Heirs of Yabao to present
evidence ex parte, after it had declared Van der Kolk in default, to prove the allegations in the complaint. The CA adjudged
as follows:

Hence, We find merit in this petition albeit not on the grounds relied on by petitioner. We rule that the respondents were
not able to sufficiently prove by competent evidence their entitlement over the lot in issue and, therefore, the judgments of
the lower courts should be reversed.

WHEREFORE, premises considered, the August 29, 2008 Decision of the Regional Trial Court, Branch 10 in Civil Case
No. CEB-30866 is REVERSED and SET ASIDE. Likewise, the Resolution/Decision of the MTCC dated December 4, 2006
and Order dated July 30, 2007 are REVERSED and SET ASIDE. All other issuances relative to this case, including the
writ of execution delivering possession to the plaintiffs-respondents are NULLIFIED. Civil Case No. 1184 is ordered
DISMISSED for respondent’s FAILURE to prove by the required quantum of evidence their entitlement to Lot No. 2473,
without prejudice to the refiling of another case involving the same parties and property.

No pronouncement as to costs.

SO ORDERED.22

The motion for reconsideration filed by the Heirs of Yabao was denied by the CA in its Resolution, dated May 2, 2013.

Hence, this petition.

ISSUES:

IN REVERSING AND SETTING ASIDE THE 29 AUGUST 2008 DECISION OF THE REGIONAL TRIAL COURT
RENDERED IN EXERCISE OF ITS APPELLATE JURISDICTION AND THE 04 DECEMBER 2006
RESOLUTION/DECISION OF THE MUNICIPAL TRIAL COURT INCITIES, THE COURT OF APPEALS RENDERED ITS
DECISION IN THE PETITION FOR REVIEW NOT IN ACCORDANCE WITH LAW AND APPLICABLE JURISPRUDENCE,
IN THAT:

A. THE COURT OF APPEALS GRANTED THE RESPONDENT’S PETITION FOR REVIEW NOT BYPASSING
UPON THE ISSUES RAISED IN THE SAID PETITION, BUT, BY RESOLVING TO GIVE DUE COURSE TO THE
SAME ON THE BASIS OF GROUNDS PURPORTEDLY DISCLOSED BY THE RECORDS WHICH ARE EVEN
INCONCLUSIVE AND HEARSAY.

B. THE HONORABLE COURT OFAPPEALS FAILED TO RECOGNIZE THAT THE REGIONAL TRIAL COURT, IN
THE EXERCISE OF ITS APPELLATE JURISDICTION, DID NOT COMMIT ANY ERROR, OR ACTED WITHOUT
OR IN EXCESS OF JURISDICTION, NOR GRAVELY ABUSED ITS DISCRETION WHEN IT DISMISSED THE
ORDINARY APPEAL FOR RESPONDENT’S FAILURE TOFILE HER MEMORANDUM ON APPEAL WITHIN THE
REGLEMENTARY PERIOD, BUT, WAS ACTING IN ACCORDANCE WITH SECTION 7(b), RULE 40 OF THE
RULES OF COURT.

C. THE COURT OF APPEALS GRAVELY ERRED IN SETTING ASIDE THE RESOLUTION DECREEING
RESPONDENTS (AS PLAINTIFFS) AS THE LAWFUL CO-OWNERS AND POSSESSORS OF THE PROPERTY
SUBJECT MATTER OF THE PRESENT CASE.
D. THE COURT OF APPEALS GRAVELY ERRED IN SETTING ASIDE THE RESOLUTION/DECISION
RENDERED BY THE MTCC OR COURT A QUO OVER WHICH IT HAS NO APPELLATE JURISDICTION. 23

It is the stance of the petitioners, Heirs of Yabao, that the findings and conclusions of the CA are not in accord with law
and applicable jurisprudence. They aver that the CA erred in holding that the MTCC should have required them to present
evidence ex parte to substantiate their claims because under Section 3 of Rule 9, when a defendant is declared in default,
the court has the option to either proceed to render judgment granting the claimant such relief as his pleading may warrant
or require the claimant to adduce his evidence ex parte. In this case, the petitioners contend that the MTCC, in the
exercise of its discretion, selected the first option. They stress that the CA erred when it set aside the December 4, 2006
MTCC decision because the CA had no appellate jurisdiction over the MTCC and could not entertain a direct appeal from
the said decision. They harp on the unjustified failure of the CA to rule on the correctness of the dismissal of the ordinary
appeal taken by Van der Kolk before the RTC.

The Court’s Ruling

The Court finds no merit in the petition.

The Court has allowed the consideration of other grounds not raised or assigned as errors in several instances. In the
case of Manila International Airport Authority v. Rivera Village Lessee Homeowners Association, Incorporated,24the Court
enumerated such instances. Thus:

For instance, the Court has allowed the consideration of other grounds not raised or assigned as errors specifically in the
following instances: (1) grounds not assigned as errors but affecting jurisdiction over the subject matter; (2) matters not
assigned as errors on appeal but are evidently plain or clerical errors within the contemplation of the law; (3) matters not
assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution
of the case or to serve the interest of justice or to avoid dispensing piecemeal justice; (4) matters not specifically assigned
as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted
which the parties failed to raise or which the lower court ignored; (5) matters not assigned as errors on appeal but closely
related to an error assigned; and (6) matters not assigned as errors on appeal but upon which the determination of a
question properly assigned is dependent.

In the case at bench, the Court agrees with the observation, analysis and conclusion of the CA. The several errors
committed by the MTCC, which when taken collectively, justify the reversal of its December 4, 2006 Decision.

The Court agrees with the CA that the MTCC erred when it granted the reliefs prayed by the Heirs of Yabao because the
same were not warranted by the allegations in the complaint. The Court notes that the allegations pertinent to the
petitioners’ cause of action, particularly on their claim of ownership and right to possession over Lot 2473, were not
supported by any document annexed to the complaint. Mere assertions, as what the petitioners proffered, do not suffice.
In this regard, the Court quotes with approval the observations of the CA on this score:

Ownership by the heirs cannot be established by mere lip service and bare allegations in the complaint. As in all matters,
a party must establish his/her averments in the complaint by sufficient evidence necessary to prove such claim. In the
case at bench, the respondents, as plaintiffs in the MTCC, merely alleged that they are the heirs of Paciano Yabao without
presenting any proof why they are the latter’s heirs and in what degree or capacity. xxx

It is significant that the basis of respondents’ claim of ownership was a mere tax declaration that was supposedly in the
name of their putative ancestor Paciano Yabao. However, a tax declaration is not a proof of ownership; it is not a
conclusive evidence of ownership of real property. In the absence of actual, public, and adverse possession, the
declaration of the land for tax purposes does not prove ownership. It can only be a strong indication of ownership if
coupled with possession. In the case at bench, it was the petitioner who was in possession of the property and not the
respondents. Consequently, the tax declaration, standing alone, is not an acceptable proof of ownership.

Moreover, it should be noted that in a Motion to Dismiss, there was already an allegation that the putative heirs or the
children of Paciano Yabao executed an affidavit whereby they indicated that they are not claiming ownership over the
averred property since it was erroneously surveyed and included in the landholdings of said decedent. At that point,
respondents, instead of merely stating that there was no sale made by Paciano Yabao, ought to have already presented
proof to rebut this point advanced by petitioner.25

Accordingly, the petitioners’ entitlement to their claims was not proven by preponderance of evidence. As correctly
1âwphi1

pointed out by the CA, the MTCC should have, after it declared Van der Kolk in default, directed the Heirs of Yabao to
adduce evidence to substantiate the allegations in their complaint. After all, he who alleges a fact has the burden of
proving it and mere allegation is not evidence.26

The Court also notes other flaws in the handling by the MTCC of the case.

One. The MTCC failed to consider the absence of any allegation in the complaint regarding the authority of
Remedios Chan to institute Civil Case No. 1184 for the Heirs of Yabao. Section 4, Rule 8 of the Rules of Court
provides that facts showing the capacity of a party to sue or be sued, or the authority of a party to sue or be sued
in a representative capacity must be averred in the complaint. The party bringing suit has the burden of proving the
sufficiency of the representative character that he claims. If a complaint is filed by one who claims to represent a
party as plaintiff but who, in fact, is not authorized to do so, such complaint is not deemed filed and the court does
not acquire jurisdiction over the complaint. It bears stressing that an unauthorized complaint does not produce any
legal effect.27

Two. The MTCC should have admitted Van der Kolk’s answer, which was appended to her motion for allowance to
belatedly file answer, filed on March 7, 2005 instead of declaring her in default. Record shows that the MTCC
rendered the judgment of default only on December 4, 2006 and thus, it slept on Van der Kolk’s said motion for 1
year and nine months, just as it also slept on the petitioners’ motion to declare her in default for almost two years.
This is procedurally unsound.

It is within the sound discretion of the trial court to permit the defendant to file his answer and to be heard on the merits
even after the reglementary period for filing the answer expires.28

The rule is that the defendant's answer should be admitted where it is filed before a declaration of default and no prejudice
is caused to the plaintiff.29 In this case, Van der Kolk filed the answer beyond the reglementary period but before she was
declared in default, and there was no showing that she intended to delay the prompt disposition of the case.
Consequently, her Answer should have been admitted.

The MTCC must be reminded that it is the policy of the law that every litigant should be afforded the opportunity to have
his case be tried on the merits as much as possible. Hence, judgments by default are frowned upon. 30 It must be
emphasized that a case is best decided when all contending parties are able to ventilate their respective claims, present
their arguments and adduce evidence in support of their positions. By giving the parties the chance to be heard fully, the
demands of clue process are subserved. Moreover, it is only amidst such an atmosphere that accurate factual findings
and correct legal conclusions can be reached by the courts.31

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. No. 185590 December 3, 2014

METROPOLITAN BANK AND TRUST COMPANY, Petitioner,


vs.
LEY CONSTRUCTION AND DEVELOPMENT CORPORATION and SPOUSES MANUEL LEY and JANET
LEY,Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks the reversal of the Court of Appeals'
Decision1 dated September 4, 2008 in CA-G.R. CV No. 75590 dismissing the appeal of petitioner Metropolitan Bank and
Trust Company assailing the dismissal of its complaint by the Regional Trial Court (RTC) of Makati City, Branch 56, and
the Resolution2 dated December 5, 2008 denying the Bank's motion for reconsideration.

The Court of Appeals adopted the following recital of facts in the Decision 3 dated July 3, 2001 of the RTC in Civil Case No.
91-1878:

This is an action for recovery of a sum of money and damages with a prayer for the issuance of writ of preliminary
attachment filed by the plaintiff Philippine Banking Corporation4 against the defendants, namely: Ley Construction and
Development Corporation (hereafter "LCDC") and Spouses Manuel and Janet C. Ley (hereafter "[defendant]-spouses").

The complaint alleges that: Defendant LCDC, a general contracting firm, through the oral representations of defendant-
spouses, applied with plaintiff, a commercial bank, for the opening of a Letter of Credit. Plaintiff issued, on April 26, 1990,
Letter of Credit DC 90[-]303-C in favor of the supplier-beneficiary Global Enterprises Limited, in the amount of Eight
Hundred Two Thousand Five Hundred U.S. Dollars (USD 802,500.00). The letter of credit covered the importation by
defendant LCDC of Fifteen Thousand (15,000) metric tons of Iraqi cement from Iraq. Defendant applied for and filed with
plaintiff two (2) Applications for Amendment of Letter of Credit on May 3, 1990 and May 11, 1990, respectively.

Thereafter, the supplier-beneficiary Global Enterprises, Inc. negotiated its Letter of Credit with the negotiating bank Credit
Suisse of Zurich, Switzerland. Credit Suisse then sent a reimbursement claim by telex to American Express Bank Ltd.,
New York on July 25, 1990 for the amount of Seven Hundred Sixty[-]Six Thousand Seven Hundred Eight U.S. Dollars
(USD 766,708.00) with a certification that all terms and conditions of the credit were complied with. Accordingly, on July
30, 1990, American Express Bank debited plaintiff’s account Seven Hundred Seventy Thousand Six Hundred Ninety[-]One
U.S. Dollars and Thirty Cents (USD 770,691.30) and credited Credit Suisse Zurich Account with American Express Bank,
Ltd., New Yorkfor the negotiation of Letter of Credit. On August 6, 1990, plaintiff received from Credit Suisse the
necessary shipping documents pertaining to Letter of Credit DC 90-303-C that were in turn delivered to the defendant.
Upon receipt of the aforesaid documents, defendants executed a trust receipt. However, the cement that was to be
imported through the opening of the subject Letter of Credit never arrived in the Philippines.

The prompt payment of the obligation of the defendant LCDC was guaranteed by [defendant]-spouses under the
Continuing Surety Agreement executed by the latter in favor of the defendant. The obligation covered by the subject Letter
of Credit in the amount of USD 802,500.00 has long been overdue and unpaid, notwithstanding repeated demands for
payment thereof. Plaintiff, therefore, instituted the instant complaint for recovery of the following amounts: Twenty[-]Three
[M]illion Two Hundred [F]ifty[-]Nine Thousand One Hundred Twenty[-]Four Pesos and Fourteen Centavos
(PH₱23,259,124.14) as of June 15, 1991, inclusive of interestand penalty, plus additional interest thereon of Thirty percent
(30%) per annum; attorney’s fees equivalent to Twenty[-]Five percent [25%] of the total obligation; and costs of suit.

In support of its cause of action against defendant, plaintiff presented the testimony of Mr. Fenelito Cabrera, Head of the
Foreign Department of plaintiff’s Head Office. (T.S.N. dated June 16, 1995, p. 4) There being no other witness to be
presented by the plaintiff (Order dated June 27, 1997), the plaintiff filed its formal offer of exhibits dated July 18, 1997 to
which defendant filed its comments/objections to formal offer of evidence dated February 23, 1998. In an order dated
March 4, 1998, Exhibits "A" to "N" to "N-4" including [their] sub-markings were admitted for the purposes they were
respectively offered. However, on defendants’ motion for reconsideration dated [March 30,] 1998 that was duly opposed
by the plaintiff in itsopposition dated June 3, 1998, this Court partially granted defendants’ motion for reconsideration.
Consequently, Exhibits "D", "E", "H","I", "J", "K", "L", and "M" and their sub-markings were not admitted for not being
properly identified and authenticated by a competent witness. Only Exhibits "A", "B", "C", "C-1", and "N", "N-1" to "N-4"
remain admitted in evidence. (Order dated September 9, 1998) Defendant filed a motion to dismiss by way of demurrer to
evidence on the ground that plaintiff’s witness Mr. Fenelito Cabrera was incompetent to testify with respect tothe
transaction between the plaintiff and the defendant and that the plaintiff’s documentary exhibits were not properly identified
and authenticated.5

The trial court found that the Bank’s only witness, Fenelito Cabrera, was incompetent to testify on the documents
presented by the Bank during the trial. Cabrera was with the Bank’s Dasmariñas Branch and not with the Head Office from
March 1990 to June 1991, the period the transaction covered by the documents took place. Thus, he could not have
properly identified and authenticated the Bank’s documentary exhibits. His lack of competence was even admitted by the
Bank’s counsel who did not even ask Cabrera to identify the documents. Asthe documents were not identified and duly
authenticated, the Bank’s evidence was not preponderant enough to establish its right to recover from LCDC and the
spouses Ley.6

The trial court further ruled that only the following documents remained admitted in evidence:

Exhibit Document
"A" Continuing Surety Agreement dated July 25, 1989
"B" Application and Agreement for Commercial Letter of Credit
"C" and "C-1" Letter of Credit No. DC 90-303-C
"N" and "N-1" to "N-4" Statement of Outstanding Obligations

For the trial court, these were insufficient to show that LCDC and the spouses Ley were responsible for the improper
negotiation of the letter of credit. Thus, the trial court concluded in its Decision dated July 3, 2001 that the Bank failed to
establish its cause ofaction and to make a sufficient or preponderant case.7 The dispositive portion of the decision reads:

WHEREFORE, the demurrer to evidence is granted. The case is dismissed.8 The Bank appealed to the Court of Appeals.
It claimed that the trial court erred in granting the demurrer toevidence of LCDC and the spouses Ley on the ground that
the Bank failed to establish its cause of action. The Bank insisted that, even without considering the exhibits excluded in
evidence by the trial court, the Bank was able to prove by preponderant evidence that it had a right and that right was
violated by LCDC and the spouses Ley. It explained that the trial court was wrong in considering only Exhibits "A," "B,"
"C," "C-1," "N" and "N-1" to "N-4" as the following documents were also admitted in evidence and should have been
considered in the resolution of the demurrer to evidence.9

Exhibit Document
"F" Register Copy or Memorandum on the Letter of Credit
"G" Trust Receipt No. TRI432/90 dated August 16, 1990
"G-1" Bank Draft
"G-2" Bill of Exchange

The Bank asserted that the consideration of Exhibits "F," "G" and "G-1" to "G-2" would have established the following:

(a) On August 16, 1990, LCDC and the spouses Ley received from the Bank the necessary shipping documents
relative to the Letter of Credit evidencing title to the goods subject matter of the importation which the Bank had
previously received from Credit Suisse;

(b) Upon receipt of the shipping documents, LCDC and the spouses Ley executed a trust receipt, Trust Receipt
No. TRI432/90, in favor of the Bank covering the importation of cement under Letter of Credit No. DC 90-303-C;

(c) The issuance of the trust receipt was an acknowledgement by LCDC and the spouses Ley of their receipt of the
shipping documents and of their liability to the Bank;

(d) By signing the trust receipt, constituted an admission by LCDC and the spouses Ley that the Letter of Credit
was in order, including the Bank’s payment of the amountof US$766,708.00 under the Letter of Credit.10

Thus, even with only the testimony ofCabrera and Exhibits "A," "B," "C," "C-1," "N" and "N-1" to "N-4" and "F," "G" and "G-
1" to "G-2," the demurrer should have been denied and LCDC and the spouses Ley held liable to the Bank.

Moreover, the Bank contended that its Exhibits "D," "E," "H," and "I" should have been also admitted in evidence because
LCDC and the spouses Ley effectively admitted the authenticity of the said documents when they stated in the pre-trial
brief which they submitted during the pretrial of the case atthe trial court:

III. DOCUMENTARY EXHIBITS

Defendants shall adopt the documents submitted by plaintiff and marked as Annexes "A", "B", "C", "D","E", "E-1", "F", "G",
"G-1", "H" and "H-1" in the plaintiff’s complaint.

Defendants reserve the right tomark or adopt such other documentary evidence as may be discovered or warranted to
support its claim in the course of the trial. x x x.11
The Court of Appeals found no merit in the Bank’s appeal. It observed that Cabrera, the Bank’s onlywitness, prepared and
properly identified Exhibits "F," "G," "N" and "N-1" to "N-4" only. The Bank’s counsel even admitted in open court during
Cabrera’s direct examination that Cabrera was incompetent to testify onthe rest of the Exhibits. The trial court was
therefore correct in not giving any evidentiary weight to those Exhibits not properly identified by Cabrera.12

For the Court of Appeals, the statement in the pre-trial brief that LCDC and the spouses Ley "shall adopt" Annexes "A,"
"B," "C," "D," "E," "E-1," "F," "G," "G-1," "H" and "H-1" of the Bank’s complaint did not constitute an admission of the said
documents by LCDC and the spouses Ley. However, the appellate court noted that LCDC and the spouses Ley admitted
the existence and authenticity of the Bank’s Exhibits "A," "B," "C," "C-1," and "G."13

Nevertheless, the Court of Appeals ruled that the following Exhibits of the Bank were admitted in evidence:

Exhibit Document
"A" Continuing Surety Agreement dated July 25, 1989
"B" Application and Agreement for Commercial Letter of Credit
"C" and "C-1" Letter of Credit No. DC 90-303-C
"F" Register Copy or Memorandum on the Letter of Credit
"G" Trust Receipt No. TRI432/90 dated August 16, 1990
"N" and "N-1" to "N-4" Statement of Outstanding Obligations

Even upon inclusion and consideration of the above-mentioned exhibits, the Court of Appeals held that the Bank still failed
to show that LCDC and the spouses Ley were directly responsible for the improper negotiation of the letter of credit. Thus,
the Court of Appeals, in its Decision dated September 4, 2008, dismissed the appeal and affirmed the decision of the trial
court.14 The dispositive portion of the Decision of the Court of Appeals reads:

WHEREFORE, premises considered, the instant appeal is hereby DISMISSED and the assailed decision of the RTC,
National Capital Judicial Region, Branch 56, Makati City in Civil Case No. 91-1878 is AFFIRMED.15

The Court of Appeals denied the Bank’s motion for reconsideration, prompting the Bank to file this petition.

The Bank insists that it has been ableto establish its cause of action not only through preponderance of evidence but even
by the admissions of LCDC and the spouses Ley. It maintains that its cause of action is not predicated on the improper
negotiation of the letter of credit but on the breach of the terms and conditions of the trust receipt.16

The petition fails.

First, the Bank’s petition suffers from a fatal infirmity. In particular, it contravenes the elementary rule of appellate
procedure that an appeal to this Court by petition for review on certiorari under Rule 45 of the Rules of Court "shall raise
only questions of law."17 The rule is based on the nature of this Court’s appellate function – this Court is not a trier of
facts18 – and on the evidentiary weight given to the findings of fact of the trial court which have been affirmed on appeal by
the Court of Appeals – they are conclusive on this Court.19 While there are recognized exceptions to the rule,20 this Court
sees no reason to apply the exception and not the rule in this case.

The conceptual distinction between a question of law and a question of fact is well-settled in case law:

There is a "question of law" when the doubt or difference arises as to what the law is on a certain state of facts, and which
does not call for an examination of the probative value of the evidence presented by the parties-litigants. On the other
hand, there is a "question of fact" when the doubt or controversy arises as to the truth or falsity of the alleged facts. x x x.21

The issue of whether or not the Bank was able to establish its cause of action by preponderant evidence is essentially a
question of fact. Stated in another way, the issue which the Bank raises in this petition is whether the evidence it
presented during the trial was preponderant enough to hold LCDC and the spouses Ley liable.

The required burden of proof, or that amount of evidence necessary and sufficient to establish one’s claim or defense, in
civil cases is preponderance of evidence.22 Preponderance of evidence is defined as follows:

Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually
considered to be synonymous with the term "greater weight of evidence" or "greater weight of the credible evidence."
Preponderance of evidence is a phrase which, in the last analysis, means probability to truth. It is evidence which is more
convincing to the court as worthier of belief than that which is offered in opposition thereto.23(Emphasis supplied, citation
omitted.)

As preponderance of evidence refers to the probability to truth of the matters intended to be proven as facts, it concerns a
determination of the truth or falsity of the alleged facts based on the evidence presented. Thus, a review of the respective
findings of the trial and the appellate courts as to the preponderance of a party’s evidence requires that the reviewing court
address a question of fact.

Moreover, a demurrer to evidence is a motion to dismiss on the ground of insufficiency of evidence. Evidence is the
means, sanctioned by the Rules of Court, of ascertaining in a judicial proceeding the truth respecting a matter of fact.24 As
such, the question of sufficiency or insufficiency of evidence, the basic issue presented by the Bank, pertains to the
question of whether the factual matters alleged by the Bank are true. Plainly, it is a question of fact and, as such, not
proper subject of a petition for review on certiorari under Rule 45 of the Rules of Court. It was incumbent upon the Bank to
demonstrate that this case fell under any of the exceptions to this rule but it failed to do so.
Second, the Bank attempts to avoid the "only questions of law" rule for appeals filed under Rule 45 by invoking the
misapprehension of facts exception.25 According to the Bank, the trial and the appellate courts misapprehended the facts
with respect tothe determination of the basis of the Bank’s cause of action.26 In particular, the Bank contends that both the
trial and the appellate courts erred in the consideration of the proper actionable document upon which the Bank based its
cause of action. The Bank asserts that its cause of action isnot grounded on the Letter of Credit but on the Trust Receipt.

The Bank’s reference to the Trust Receipt as its "primary actionable document"27 is mistaken and misleading.

The nature of the cause of action isdetermined by the facts alleged in the complaint. 28 A party’s cause of action is not what
the party says it is, nor is it what the designation of the complaint states, but what the allegations in the body define and
describe.29

In this case, the Bank’s allegations asto the basis of its cause of action against LCDC and the spouses Ley, however,
belie the Bank’s claim. In particular, the relevant portion of the Bank’s Complaint30 reads:

1.2 The defendants:

a. Ley Construction and Development Corporation (LCDC) is a general contracting firm engaged in the
construction of buildings, infrastructures, and other civil works with principal office at Mapulang Lupa St.,
Malinta, Valenzuela, Metro Manila where it [may be] served with summons and other processes of this
Court.

b. Sps. Manuel and Janet C. Ley, the major stockholders of defendant (LCDC)with business address at
23rd Floor Pacific Star Bldg., Makati Avenue, Makati, Metro Manila where the processes of this Honorable
Court [may be] served upon them are impleaded herein in their capacity as Surety for the obligation
incurred by defendant LCDC with the herein plaintiff by virtue of a Continuing Surety Agreement they
executed in favor of the plaintiff, a copy of which is hereto attached as Annex "A";

2. STATEMENT OF CAUSE OF ACTION AGAINST DEFENDANT LCDC AND SPOUSES MANUEL AND JANET LEY

2.1 In conjunction with its business, defendant LCDC sought to import "Iraqi Cement" from Iraq thru its
supplier "Global Enterprises, Limited" with address at 15 A. Tuckeys Lane, Gibraltar.

2.2 To finance this importation, defendant LCDC applied with the plaintiff for the opening of Letter of Credit
as evidenced by the Application and Agreement for Commercial Letter of Credit, copy of which is marked
as Annex "B" and made integral part hereof.

2.3 Acting on defendant[’]s oral representation and those stated in its application (Annex "B"), plaintiff
issued on April 26, 1990 its Letter of Credit No. DC 90[-]303-C in favor of the supplier Global Enterprises
Limited, as beneficiary in the amount of U.S. Dollars: EIGHT HUNDRED TWO THOUSAND FIVE
HUNDRED (US $802,500) for the account of defendant, covering the importation of 15,000 metric tons of
Iraqi Cement from Iraq, copy of the Letter of Credit is marked as Annex "C" and made integral part hereof;

2.4 On May 3, 1990, defendant applied for and filed with plaintiff an Application for Amendment of Letter of
Credit, copy of which is attached as Annex "D" hereof, and another application for amendment was filed on
May 11, 1990 copy of which is marked as Annexes "E" and "E-1" hereof;

2.5 After these amendments were communicated to the negotiating bank, Credit Suisse of Zurich,
Switzerland, the beneficiary negotiated its Letter of Credit therewith. Thereafter, Credit Suisse sent a
reimbursement claim by telex to American Express Bank Ltd., New York on July 25, 1990 for the amount
of US$766,708.00 with a Certification that all terms and conditions of the credit were complied with;

2.6 Accordingly, on July 30, 1990, American Express Bank debited plaintiff’s account US$770,691.30 and
credited Credit Suisse Zurich Account with American Express Bank Ltd., New York for the negotiation of
Letter of Credit;

2.7 On August 6, 1990, plaintiff received from Credit Suisse the necessary shipping documents pertaining
to Letter of Credit DC 90-303-C all of which were in turn delivered and received by the defendant on
August 16, 1990 as evidenced by their acknowledgment appearing on the plaintiff’s register copy, a copy
of which is hereto attached as Annex "F";

2.8 Upon defendant’s receipt of the shipping documents and other documents of title to the imported
goods, defendant signed a trust receipt manifesting its acceptance/conformity that the negotiation of the
LC is in order. A copy of the TR and the draft issued by the defendant as a means of paying its LC
obligation to the plaintiff are hereto attached and marked as Annexes "G" and "G-1" hereof;

2.9 Sometime during the 3rd week of August, defendant LCDC informed the plaintiff that the expected
shipment of cement subject matter of the LC was allegedly held up in Iraq purportedly on account of the
trade embargo imposed against it by the United Nation[s] and sought assistance from the plaintiff to secure
no-dollar import permit from the Central Bank as defendant was negotiating with its supplier Global
Enterprises Limited, Inc. for an alternate shipment of Syrian Cement.

2.10 Plaintiff acceded to the request of the defendant and conformably secured the requested approval
from Central Bank to allow the defendant to import cement on a no-dollar basis, a copy of the defendant’s
request as well as the Central Bank approval are hereto attached as Annexes "H" and "H-1".
2.11 About two months after the plaintiff has obtained the requested Central Bank approval (Annex "H-
1")[,] plaintiff was again advised by the defendant that the alternate shipment of Syrian Cement is no
longer forthcoming and that defendant LCDC after a series of negotiation with its supplier has agreed with
the latter for a reimbursement of the value of the negotiated Letter of Credit.

2.12 While defendant was negotiating with its supplier for that replacement of Syrian cement, defendant
advised plaintiff not to initiate any move as it might jeopardize defendant’s negotiation with its supplier.

2.13 In December 1990, four (4) months from defendant’s receipt of the shipping and export documents
from plaintiff, as it became perceptible that defendant’s negotiation with its supplier for reimbursement or
replacement would fail[,] defendant for the first time asked for copies of the beneficiary’s draft, the Charter
Party Agreement even as it contested the validity of defendant’s obligation to plaintiff.

2.14 For the first time, defendant also began to assail the validity of the payment made by the plaintiff to
the supplier (Global Enterprises Ltd.) through Credit Suisse, with the intention of avoiding the payment of
its lawful obligation to reimburse the plaintiff the amount of US $802,500 which obligation is now long
overdue and unpaid notwithstanding repeated demands.

2.15 The obligation covered by the aforesaid Letter of Credit bears interest and charges at the rateof 30%
per annum which rate [may be] increased or decreased within the limits allowed by the law.

2.16 The prompt payment of the obligations contracted by defendant LCDC from the plaintiff inclusive of
the subject Letter of Creditis guaranteed by defendant Sps.Manuel and Janet Ley by making themselves
jointly and severally liable with the defendant LCDC in accordance with the terms of a Continuing Surety
Agreement which they executed in favor of the plaintiff (Annex "A").31 (Emphases supplied.)

That the Bank’s cause of action was hinged on the Letter of Credit is unmistakable. Taken as a whole, the Bank’s
allegations make a cause of action based on the Letter of Credit. The Trust Receipt was mentioned incidentally and
appears only in paragraph 2.8 of the Complaint.32 In stark contrast, the Letter of Credit figures prominently in the Complaint
as it is mentioned in almost all of the paragraphs of Part 2 (Statement of Cause of Action Against Defendant LCDC and
Spouses Manuel and Janet Ley). More tellingly, in paragraph 2.15, the Bank speaks of "the obligation covered by the
aforesaid Letter of Credit."33

Moreover, under paragraphs1.2(b) and 2.16 of the Complaint, the spouses Ley have been impleaded as co-defendants of
LCDC on account of their execution of a Continuing Surety Agreement in the Bank’s favor to guarantee the "prompt
payment of the obligations contracted by defendant LCDC from the plaintiff inclusive of the subject Letter of Credit." 34 In
short, the Bank seeks to hold liable (1) LCDC for its obligations under the Letter of Credit, and (2) the spouses Ley for their
obligations under the Continuing Surety Agreement which stands as security for the Letter of Credit and not for the Trust
Receipt.

Another significant factor that contradicts the Bank’s assertion that its "primary actionable document" is the Trust Receipt
is the manner it pleaded the Letter of Credit and the Trust Receipt, respectively.

The relevant rule on actionable documents is Section 7, Rule 8 of the Rules of Court which provides:

Section 7. Action or defense based on document. – Whenever an action or defense is based upon a written instrument or
document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy
thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy
may with like effect be set forth in the pleading.

An "actionable document" is a written instrument or document on which an action or defense is founded. It may be
pleaded in either of two ways:

(1) by setting forth the substance ofsuch document in the pleading and attaching the document thereto as an
annex, or

(2) by setting forth said document verbatim in the pleading.35

A look at the allegations in the Complaint quoted abovewill show that the Bank did not set forth the contents of the Trust
Receipt verbatim in the pleading. The Bank did not also set forth the substance of the Trust Receipt in the Complaint but
simply attached a copy thereof as an annex. Rather than setting forth the substance of the Trust Receipt, paragraph 2.8 of
the Complaint shows that the Bank simply described the Trust Receipt as LCDC’s manifestation of "its
acceptance/conformity that the negotiation of the [Letter of Credit] is in order."36

In contrast, while the Bank did not set forth the contents of the Letter of Credit verbatim in the Complaint, the Bank set
forth the substance of the Letter of Credit in paragraph 2.3 of the Complaint and attached a copy thereof as Annex "C" of
the Complaint. The Bank stated that it "issued on April 26, 1990 its Letter of Credit No. DC 90[-]303-C in favor of the
1aw p++i1

supplier Global Enterprises Limited, as beneficiary[,] in the amount of U.S. Dollars: EIGHT HUNDRED TWO THOUSAND
FIVE HUNDRED (US$802,500.00) for the account of defendant [LCDC], covering the importation of 15,000 metric tonsof
Iraqi Cement from Iraq."37

Thus, the Bank’s attempt to cling to the Trust Receipt as its so-called "primary actionable document" is negated by the
manner of its allegations in the Complaint. Thus, too, the trial and the appellate courts did not misapprehend the facts
when they considered the Letter of Credit as the basis of the Bank’s cause of action.

Third, a look at the Letter of Credit, the actionable document on which the Bank relied in its case against LCDC and the
spouses Ley, confirms the identical findings of the Regional Trial Court and the Court of Appeals.
In Keng Hua Paper Products Co., Inc. v. Court of Appeals, we held38:

In a letter of credit, there are three distinct and independent contracts: (1) the contract of sale between the buyer and the
seller, (2) the contract of the buyer with the issuing bank, and (3) the letter of credit proper in which the bank promises to
pay the seller pursuant to the terms and conditions stated therein. x x x.

Here, what is involved is the second contract – the contract of LCDC, as the buyer of Iraqi cement, with the Bank, as the
issuer of the Letter of Credit. The Bank refers to that contract in the Petition for Review on Certiorari and the Memorandum
filed by the Bank in this case when the Bank argues that, as LCDC and the spouses Ley have admitted the issuance of
the Letter of Credit in their favor, they are "deemed to have likewise admitted the terms and conditions thereof, as
evidenced by the stipulation therein appearing above the signature of respondent Janet Ley,"39 viz:

"In consideration of your arranging, at my/o[u]r request[,] for the establishment of this commercial letter of credit
(thereinafter referred to as the ["]Credit["]) substantially in accordance with the foregoing, I/we hereby covenant and agree
to eachand all of [the] provisions and conditions stipulated on the reverse side hereof."40

The above stipulation actually appears on the Application and Agreement for Commercial Letter of Credit, the Bank’s
Exhibit "B." It is the contract which contains the provisions and conditions governing the legal relationship of the Bank and
LCDC, particularly their respective rights and obligations, in connection with the Bank’s issuance of Letter of Credit No. DC
90-303-C. The importance of the provisions and conditions supposed to be stipulated on the reverse side of the
Application and Agreement for Commercial Letter of Credit is underscored by the following note appearing below the
space for the signature of Janet Ley:

IMPORTANT: PLEASE READ PROVISIONS AND CONDITIONS ON REVERSE SIDE HEREOF BEFORE SIGNING
ABOVE.41

However, the Bank’s Exhibit "B" has nothing on its reverse side. In other words, the reverse side of the Application and
Agreement for Commercial Letter of Credit is a blank page.42 Even the copy of the Application and Agreement for
Commercial Letter of Credit attached to the Bank’s Complaint also has nothing on its back page.43

A cause of action – the act or omission by which a party violates the right of another44 – has three essential elements:

(1) the existence of a legal right in favor of the plaintiff;

(2) a correlative legal duty of the defendant to respect such right; and

(3) an act or omission by such defendant in violation of the right of the plaintiff with a resulting injury or damage to
the plaintiff for which the latter may maintain an action for the recovery of relief from the defendant.45

Although the first two elements may exist, a cause of action arises only upon the occurrence of the last element, giving the
plaintiff the right to maintain an action in court for recovery of damages or other appropriate relief. 46 In this case, however,
even the legal rights of the Bank and the correlative legal duty of LCDC have not been sufficiently established by the Bank
in view of the failure of the Bank's evidence to show the provisions and conditions that govern its legal relationship with
LCDC, particularly the absence of the provisions and conditions supposedly printed at the back of the Application and
Agreement for Commercial Letter of Credit. Even assuming arguendo that there was no impropriety in the negotiation of
the Letter of Credit and the Bank's cause of action was simply for the collection of what it paid under said Letter of Credit,
the Bank did not discharge its burden to prove every element of its cause of action against LCDC.

This failure of the Bank to present preponderant evidence that will establish the liability of LCDC under the Letter of Credit
necessarily benefits the spouses Ley whose liability is supposed to be based on a Continuing Surety Agreement
guaranteeing the liability of LCDC under the Letter of Credit.

The Court therefore finds no reason to disturb the rulings of the courts a quo as the petition put forward insufficient basis
to warrant their reversal.

WHEREFORE, the petition is hereby DENIED.

SO ORDERED.

G.R. NO. 207970

FERNANDO MEDICAL ENTERPRISES, INC., Petitioner,


vs.
WESLEYAN UNIVERSITY PHILIPPINES, INC., Respondent.

DECISION

BERSAMIN, J.:

The trial court may render a judgment on the pleadings upon motion of the claiming party when the defending party's
answer fails to tender an issue, or otherwise admits the material allegations of the adverse party's pleading. For that
purpose, only the pleadings of the parties in the action are considered. It is error for the trial court to deny the motion for
judgment on the pleadings because the defending party's pleading in another case supposedly tendered an issue of fact.

The Case
The petitioner appeals the decision promulgated on July 2, 2013,1 whereby the Court of Appeals (CA) affirmed the order
issued on November 23, 2011 by the Regional Trial Court (RTC), Branch 1, in Manila, denying its motion for judgment on
the pleadings in Civil Case No. 09-122116 entitled Fernando Medical Enterprises, Inc. v. Wesleyan University-Philippines.2

Antecedents

From January 9, 2006 until February 2, 2007, the petitioner, a domestic corporation dealing with medical equipment and
supplies, delivered to and installed medical equipment and supplies at the respondent’s hospital under the following
contracts:

a. Memorandum of Agreement dated January 9, 2006 for the supply of medical equipment in the total amount of
P18,625,000.00;3

b. Deed of Undertaking dated July 5, 2006 for the installation of medical gas pipeline system valued at
P8,500,000.00;4

c. Deed of Undertaking dated July 27, 2006 for the supply of one unit of Diamond Select Slice CT and one unit of
Diamond Select CV-P costing P65,000,000.00;5 and

d. Deed of Undertaking dated February 2, 2007 for the supply of furnishings and equipment worth
P32,926,650.00.6

According to the petitioner, the respondent paid only P67,357,683.23 of its total obligation of P123,901,650.00, leaving
unpaid the sum of P54,654,195.54.7 However, on February 11, 2009, the petitioner and the respondent, respectively
represented by Rafael P. Fernando and Guillermo T. Maglaya, Sr., entered into an agreement,8 whereby the former
agreed to reduce its claim to only P50,400,000.00, and allowed the latter to pay the adjusted obligation on installment
basis within 36 months.9

In the letter dated May 27, 2009,10 the respondent notified the petitioner that its new administration had reviewed their
contracts and had found the contracts defective and rescissible due to economic prejudice or lesion; and that it was
consequently declining to recognize the February 11, 2009 agreement because of the lack of approval by its Board of
Trustees and for having been signed by Maglaya whose term of office had expired.

On June 24, 2009, the petitioner sent a demand letter to the respondent.11

Due to the respondent’s failure to pay as demanded, the petitioner filed its complaint for sum of money in the
RTC,12averring as follows:

xxxx

2. On January 9, 2006, plaintiff supplied defendant with hospital medical equipment for an in consideration of
P18,625,000.00 payable in the following manner: (2.1) For nos. 1 to 9 of items to be sourced from Fernando
Medical Equipment, Inc. (FMEI) – 30% down payment of P17,475,000 or P5,242,500 with the balance of
P12,232,500 or 70% payable in 24 equal monthly instalments of P509,687.50 and (2.2.) cash transaction
amounting to P1,150,000.00 (2.3) or an initial cash payment of P6,392,500.00 with the remaining balance payable
in 24 equal monthly installments every 20th day of each month until paid, as stated in the Memorandum of
Agreement, copy of which is hereto attached as Annex "A";

3. On July 5, 2006, plaintiff installed defendants medical gas pipeline system in the latter’s hospital building
complex for and in consideration of P8,500,000.00 payable upon installation thereof under a Deed of Undertaking,
copy of which is hereto attached as Annex "B";

4. On July 27, 2006, plaintiff supplied defendant one (1) unit Diamond Select Slice CT and one (1) unit Diamond
Select CV-9 for and in consideration of P65,000,000.00 thirty percent (30%) of which shall be paid as down
payment and the balance in 30 equal monthly instalments as provided in that Deed of Undertaking, copy of which
is hereto attached as Annex "C";

5. On February 2, 2007, plaintiff supplied defendants hospital furnishings and equipment for an in consideration of
P32,926,650.00 twenty percent (20%) of which was to be paid as downpayment and the balance in 30 months
under a Deed of Undertaking, copy of which is hereto attached as Annex "D";

6. Defendant’s total obligation to plaintiff was P123,901,650.00 as of February 15, 2009, but defendant was able to
pay plaintiff the sum of P67,357,683.23 thus leaving a balance P54,654,195.54 which has become overdue and
demandable;

7. On February 11, 2009, plaintiff agreed to reduce its claim to only P50,400,000.00 and extended its payment for
36 months provided defendants shall pay the same within 36 months and to issue 36 postdated checks therefor in
the amount of P1,400,000.00 each to which defendant agreed under an Agreement, copy of which is hereto
attached as Annex "E";

8. Accordingly, defendant issued in favor of plaintiff 36 postdated checks each in the [a]mount of P1,400,000.00
but after four (4) of the said checks in the sum of P5,600,000.00 were honored defendant stopped their payment
thus making the entire obligation of defendant due and demandable under the February 11, 2009 agreement;

9. In a letter dated May 27, 2009, defendant claimed that all of the first four (4) agreements may be rescissible and
one of them is unenforceable while the Agreement dated February 11, 2009 was without the requisite board
approval as it was signed by an agent whose term of office already expired, copy of which letter is hereto attached
as Annex "F";

10. Consequently, plaintiff told defendant that if it does not want to honor the February 11, 2009 contract then
plaintiff will insists [sic] on its original claim which is P54,654,195.54 and made a demand for the payment thereof
within 10 days from receipt of its letter copy of which is hereto attached as Annex "G";

11. Defendant received the aforesaid letter on July 6, 2009 but to date it has not paid plaintiff any amount, either in
the first four contracts nor in the February 11, 2009 agreement, hence, the latter was constrained to institute the
instant suit and thus incurred attorney’s fee equivalent to 10% of the overdue account but only after endeavouring
to resolve the dispute amicable and in a spirit of friendship[;]

12. Under the February 11, 2009 agreement the parties agreed to bring all actions or proceedings thereunder or
characterized therewith in the City of Manila to the exclusion of other courts and for defendant to pay plaintiff 3%
per months of delay without need of demand;13

xxxx

The respondent moved to dismiss the complaint upon the following grounds,14 namely: (a) lack of jurisdiction over the
person of the defendant; (b) improper venue; (c) litis pendentia; and (d) forum shopping. In support of the ground of litis
pendentia, it stated that it had earlier filed a complaint for the rescission of the four contracts and of the February 11, 2009
agreement in the RTC in Cabanatuan City; and that the resolution of that case would be determinative of the petitioner’s
action for collection.15

After the RTC denied the motion to dismiss on July 19, 2009,16 the respondent filed its answer (ad cautelam),17averring
thusly:

xxxx

2. The allegations in Paragraphs Nos. 2, 3, 4, and 5 of the complaint are ADMITTED subject to the special and
affirmative defenses hereafter pleaded;

3. The allegations in Paragraphs Nos. 6, 7 and 8 of the complaint are DENIED for lack of knowledge or information
sufficient to form a belief as to the truth or falsity thereof, inasmuch as the alleged transactions were undertaken
during the term of office of the past officers of defendant Wesleyan University-Philippines. At any rate, these
allegations are subject to the special and affirmative defenses hereafter pleaded;

4. The allegations in Paragraphs Nos. 9 and 10 of the complaint are ADMITTED subject to the special and
affirmative defenses hereafter pleaded;

5. The allegations in Paragraphs Nos. 11 and 12 of the complaint are DENIED for being conclusions of law.18

xxxx

The petitioner filed its reply to the answer.19

On September 28, 2011, the petitioner filed its Motion for Judgment Based on the Pleadings,20 stating that the respondent
had admitted the material allegations of its complaint and thus did not tender any issue as to such allegations.

The respondent opposed the Motion for Judgment Based on the Pleadings, arguing that it had specifically denied the
material allegations in the complaint, particularly paragraphs 6, 7, 8, 11 and 12.21

On November 23, 2011, the RTC issued the order denying the Motion for Judgment Based on the Pleadings of the
petitioner, to wit:

At the hearing of the "Motion for Judgment Based on the Pleadings" filed by the plaintiff thru counsel, Atty. Jose Mañacop
on September 28, 2011, the court issued an Order dated October 27, 2011 which read in part as follows:

xxxx

Considering that the allegations stated on the Motion for Judgment Based on the Pleadings, are evidentiary in nature, the
Court, instead of acting on the same, hereby sets this case for pre-trial, considering that with the Answer and the Reply,
issues have been joined.

xxxx

In view therefore of the Order of the Court dated October 27, 2011, let the Motion for Judgment Based on the Pleadings
be hereby ordered DENIED on reasons as abovestated and hereto reiterated.

xxxx

SO ORDERED.22

The petitioner moved for reconsideration,23 but its motion was denied on December 29, 2011.24
The petitioner assailed the denial in the CA on certiorari.25

Judgment of the CA

On July 2, 2013, the CA promulgated its decision. Although observing that the respondent had admitted the contracts as
well as the February 11, 2009 agreement, viz.:

It must be remembered that Private Respondent admitted the existence of the subject contracts, including Petitioner’s
fulfilment of its obligations under the same, but subjected the said admission to the "special and affirmative defenses"
earlier raised in its Motion to Dismiss.

xxxx

Obviously, Private Respondent’s special and affirmative defenses are not of such character as to avoid Petitioner’s claim.
The same special and affirmative defenses have been passed upon by the RTC in its Order dated July 19, 2010 when it
denied Private Respondent’s Motion to Dismiss. As correctly found by the RTC, Private Respondent’s special and
affirmative defences of lack of jurisdiction over its person, improper venue, litis pendentia and wilful and deliberate forum
shopping are not meritorious and cannot operate to dismiss Petitioner’s Complaint. Hence, when Private Respondent
subjected its admission to the said defenses, it is as though it raised no defense at all.

Not even is Private Respondent’s contention that the rescission case must take precedence over Petitioner’s Complaint
for Sum of Money tenable. To begin with, Private Respondent had not yet proven that the subject contracts are
1avvphi1

rescissible. And even if the subject contracts are indeed rescissible, it is well-settled that rescissible contracts are valid
contracts until they are rescinded. Since the subject contracts have not yet been rescinded, they are deemed valid
contracts which may be enforced in legal contemplation.

In effect, Private Respondent admitted that it entered into the subject contracts and that Petitioner had performed its
obligations under the same.

As regards Private Respondent’s denial by disavowal of knowledge of the Agreement dated February 11, 2009, We agree
with Petitioner that such denial was made in bad faith because such allegations are plainly and necessarily within its
knowledge.

In its letter dated May 27, 2009, Private Respondent made reference to the Agreement dated February 11, 2009, viz.:

"The Agreement dated 11 February 2009, in particular, was entered into by an Agent of the University without the requisite
authority from the Board of Trustees, and executed when said agent’s term of office had already expired. Consequently,
such contract is, being an unenforceable contract."

Also, Private Respondent averred in page 5 of its Complaint for Rescission, which it attached to its Motion to Dismiss, that:

"13. On 6 February 2009, when the terms of office of plaintiff’s Board of Trustess chaired by Dominador Cabasal, as well
as of Atty. Guillermo C. Maglaya as President, had already expired, thereby rendering them on a hold-over capacity, the
said Board once again authorized Atty. Maglaya to enter into another contract with defendant FMEI, whereby the plaintiff
was obligated to pay and deliver to defendant FMEI the amount of Fifty Million Four Hundred Thousand Pesos
(Php50,400,000.00) in thirty five (35) monthly instalments of One Million Four Hundred Thousand Pesos
(Php1,400,000.00), representing the balance of the payment for the medical equipment supplied under the afore-cited
rescissible contracts. This side agreement, executed five (5) days later, or on 11 February 2009, and denominated as
"AGREEMENT", had no object as a contract, but was entered into solely for the purpose of getting the plaintiff locked-in to
the payment of the balance price under the rescissible contracts; x x x"

From the above averments, Private Respondent cannot deny knowledge of the Agreement dated February 11, 2009. In
one case, it was held that when a respondent makes a "specific denial" of a material allegation of the petition without
setting forth the substance of the matters relied upon to support its general denial, when such matters where plainly within
its knowledge and the defendant could not logically pretend ignorance as to the same, said defendant fails to properly
tender an issue.26

the CA ruled that a judgment on the pleadings would be improper because the outstanding balance due to the petitioner
remained to be an issue in the face of the allegations of the respondent in its complaint for rescission in the RTC in
Cabanatuan City, to wit:

However, Private Respondent’s disavowal of knowledge of its outstanding balance is well-taken. Paragraph 6 of
Petitioner’s Complaint states that Private Respondent was able to pay only the amount of P67,357,683.23. Taken together
with paragraph 8, which states that Private Respondent was only able to make good four (4) check payments worth
P1,400,000.00 or a total of P5,600,000.00, Private Respondent’s total payments would be, in Petitioner’s
view, P72,957,683.23. However, in its Complaint for Rescission, attached to its Motion to Dismiss Petitioner’s Complaint
for Sum of Money, Private Respondent alleged that:

"16. To date, plaintiff had already paid defendant the amount of Seventy Eight Million Four Hundred One Thousand Six
Hundred Fifty Pesos (P78,401,650.00)"

It is apparent that Private Respondent’s computation and Petitioner’s computation of the total payments made by Private
Respondent are different. Thus, Private Respondent tendered an issue as to the amount of the balance due to Petitioner
under the subject contracts.27

Hence, this appeal.


Issue

The petitioner posits that the CA erred in going outside of the respondent’s answer by relying on the allegations contained
in the latter’s complaint for rescission; and insists that the CA should have confined itself to the respondent’s answer in the
action in order to resolve the petitioner’s motion for judgment based on the pleadings. 1âwphi1

In contrast, the respondent contends that it had specifically denied the material allegations of the petitioner’s complaint,
including the amount claimed; and that the CA only affirmed the previous ruling of the RTC that the pleadings submitted by
the parties tendered an issue as to the balance owing to the petitioner.

Did the CA commit reversible error in affirming the RTC’s denial of the petitioner’s motion for judgment on the pleadings?

Ruling of the Court

The appeal is meritorious.

The rule on judgment based on the pleadings is Section 1, Rule 34 of the Rules of Court, which provides thus:

Section 1. Judgment on the pleadings. – Where an answer fails to tender an issue, or otherwise admits the material
allegations of the adverse party’s pleading, the court may, on motion of that party, direct judgment on such pleading. x x x

The essential query in resolving a motion for judgment on the pleadings is whether or not there are issues of fact
generated by the pleadings.28 Whether issues of fact exist in a case or not depends on how the defending party’s answer
has dealt with the ultimate facts alleged in the complaint. The defending party’s answer either admits or denies the
allegations of ultimate facts in the complaint or other initiatory pleading. The allegations of ultimate facts the answer admit,
being undisputed, will not require evidence to establish the truth of such facts, but the allegations of ultimate facts the
answer properly denies, being disputed, will require evidence.

The answer admits the material allegations of ultimate facts of the adverse party’s pleadings not only when it expressly
confesses the truth of such allegations but also when it omits to deal with them at all.29 The controversion of the ultimate
facts must only be by specific denial. Section 10, Rule 8 of the Rules of Court recognizes only three modes by which the
denial in the answer raises an issue of fact. The first is by the defending party specifying each material allegation of fact
the truth of which he does not admit and, whenever practicable, setting forth the substance of the matters upon which he
relies to support his denial. The second applies to the defending party who desires to deny only a part of an averment, and
the denial is done by the defending party specifying so much of the material allegation of ultimate facts as is true and
material and denying only the remainder. The third is done by the defending party who is without knowledge or information
sufficient to form a belief as to the truth of a material averment made in the complaint by stating so in the answer. Any
material averment in the complaint not so specifically denied are deemed admitted except an averment of the amount of
unliquidated damages.30

In the case of a written instrument or document upon which an action or defense is based, which is also known as the
actionable document, the pleader of such document is required either to set forth the substance of such instrument or
document in the pleading, and to attach the original or a copy thereof to the pleading as an exhibit, which shall then be
deemed to be a part of the pleading, or to set forth a copy in the pleading.31 The adverse party is deemed to admit the
genuineness and due execution of the actionable document unless he specifically denies them under oath, and sets forth
what he claims to be the facts, but the requirement of an oath does not apply when the adverse party does not appear to
be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused.32

In Civil Case No. 09-122116, the respondent expressly admitted paragraphs no. 2, 3, 4, 5, 9 and 10 of the complaint. The
admission related to the petitioner’s allegations on: (a) the four transactions for the delivery and installation of various
hospital equipment; (b) the total liability of the respondent; (c) the payments made by the respondents; (d) the balance still
due to the petitioner; and (e) the execution of the February 11, 2009 agreement. The admission of the various
agreements, especially the February 11, 2009 agreement, significantly admitted the petitioner’s complaint. To recall, the
petitioner’s cause of action was based on the February 11, 2009 agreement, which was the actionable document in the
case. The complaint properly alleged the substance of the February 11, 2009 agreement, and contained a copy thereof as
an annex. Upon the express admission of the genuineness and due execution of the February 11, 2009 agreement,
judgment on the pleadings became proper.33 As held in Santos v. Alcazar:34

There is no need for proof of execution and authenticity with respect to documents the genuineness and due execution of
which are admitted by the adverse party. With the consequent admission engendered by petitioners’ failure to properly
deny the Acknowledgment in their Answer, coupled with its proper authentication, identification and offer by the
respondent, not to mention petitioners’ admissions in paragraphs 4 to 6 of their Answer that they are indeed indebted to
respondent, the Court believes that judgment may be had solely on the document, and there is no need to present
receipts and other documents to prove the claimed indebtedness. The Acknowledgment, just as an ordinary
acknowledgment receipt, is valid and binding between the parties who executed it, as a document evidencing the loan
agreement they had entered into. The absence of rebutting evidence occasioned by petitioners’ waiver of their right to
present evidence renders the Acknowledgment as the best evidence of the transactions between the parties and the
consequential indebtedness incurred. Indeed, the effect of the admission is such that a prima facie case is made for the
plaintiff which dispenses with the necessity of evidence on his part and entitled him to a judgment on the pleadings unless
a special defense of new matter, such as payment, is interposed by the defendant.35 (citations omitted)

The respondent denied paragraphs no. 6, 7 and 8 of the complaint "for lack of knowledge or information sufficient to form
a belief as to the truth or falsity thereof, inasmuch as the alleged transactions were undertaken during the term of office of
the past officers of defendant Wesleyan University-Philippines." Was the manner of denial effective as a specific denial?

We answer the query in the negative. Paragraph no. 6 alleged that the respondent’s total obligation as of February 15,
2009 was P123,901,650.00, but its balance thereafter became only P54,654,195.54 because it had since then paid
P67,357,683.23 to the petitioner. Paragraph no. 7 stated that the petitioner had agreed with the respondent on February
11, 2009 to reduce the balance to only P50,400,000.00, which the respondent would pay in 36 months through 36
postdated checks of P1,400,000.00 each, which the respondent then issued for the purpose. Paragraph no. 8 averred that
after four of the checks totalling P5,600,000.00 were paid the respondent stopped payment of the rest, rendering the entire
obligation due and demandable pursuant to the February 11, 2009 agreement. Considering that paragraphs no. 6, 7 and 8
of the complaint averred matters that the respondent ought to know or could have easily known, the answer did not
specifically deny such material averments. It is settled that denials based on lack of knowledge or information of matters
clearly known to the pleader, or ought to be known to it, or could have easily been known by it are insufficient, and
constitute ineffective36 or sham denials.37

That the respondent qualified its admissions and denials by subjecting them to its special and affirmative defenses of lack
of jurisdiction over its person, improper venue, litis pendentia and forum shopping was of no consequence because the
affirmative defenses, by their nature, involved matters extrinsic to the merits of the petitioner’s claim, and thus did not
negate the material averments of the complaint.

Lastly, we should emphasize that in order to resolve the petitioner’s Motion for Judgment Based on the Pleadings, the trial
court could rely only on the answer of the respondent filed in Civil Case No. 09-122116. Under Section 1, Rule 34 of
the Rules of Court, the answer was the sole basis for ascertaining whether the complaint’s material allegations were
admitted or properly denied. As such, the respondent’s averment of payment of the total of P78,401,650.00 to the
petitioner made in its complaint for rescission had no relevance to the resolution of the Motion for Judgment Based on the
Pleadings. The CA thus wrongly held that a factual issue on the total liability of the respondent remained to be settled
through trial on the merits. It should have openly wondered why the respondent's answer in Civil Case No. 09-122116 did
not allege the supposed payment of the P78,401,650.00, if the payment was true, if only to buttress the specific denial of
its alleged liability. The omission exposed the respondent's denial of liability as insincere.

WHEREFORE, the Court REVERSES and SETS ASIDE the decision promulgated on July 2, 2013; DIRECTS the
Regional Trial Court, Branch 1, in Manila to resume its proceedings in Civil Case No. 09-122116 entitled Fernando
Medical Enterprises, Inc. v. Wesleyan University-Philippines, and to forthwith act on and grant the Motion for Judgment
Based on the Pleadings by rendering the proper judgment on the pleadings; and ORDERS the respondent to pay the
costs of suit.

SO ORDERED.

G.R. No. 187487 June 29, 2015

GO TONG ELECTRICAL SUPPLY CO., INC. and GEORGE C. GO, Petitioners,


vs.
BPI FAMILY SAVINGS BANK, INC., substituted by PHILIPPINE INVESTMENT ONE [SPV-AMC], INC.,*Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated February 17, 2009 and the Resolution3dated April
13, 2009 of the Court of Appeals (CA) in CA-G.R. CV No. 86749 which affirmed the Decision 4 dated September 6, 2005 of
the Regional Trial Court of Makati City, Branch 143 (RTC) in Civil Case No. 02-1203, an action for collection of sum of
money, rendered in favor of respondent BPI Family Savings Bank, Inc. (respondent).

The Facts

On October 4, 2002, respondent filed a complaint5against petitioners Go Tong Electrical Supply Co., Inc. (Go Tong
Electrical) and its President, George C. Go (Go; collectively petitioners), docketed as Civil Case No. 02-1203, seeking that
the latter be held jointly and severally liable to it for the payment of their loan obligation in the aggregate amount of
₱87,086,398.71, inclusive of the principal sum, interests, and penalties as of May 28, 2002, as well as attorney’s fees,
litigation expenses, and costs of suit.6 As alleged by respondent as early as 1996, Go Tong Electrical had applied for and
was granted financial assistance by the then Bank of South East Asia (BSA). Subsequently, DBS 7 Bank of the Philippines,
Inc. (DBS) became the successor in interest of BSA. The application for financial assistance was renewed on January 6,
1999 through a Credit Agreement.8 On even date, Go Tong Electrical, represented by Go, among others, obtained a loan
from DBS in the principal amount of ₱40,491,051.65, for which Go Tong Electrical executed Promissory Note No. 82-91-
00176-79 (PN) for the same amount in favor of DBS, maturing on February 5, 200010 Under the PN’s terms, Go Tong
Electrical bound itself to pay a default penalty interest at the rate of one percent (1%) per month in addition to the current
interest rate,11 as well as attorney’s fees equivalent to twenty-five percent (25%) of the amount sought to be recovered.12 As
additional security, Go executed a Comprehensive Surety Agreement13 (CSA) covering any and all obligations undertaken
by Go Tong Electrical, including the aforesaid loan.14 Upon default of petitioners, DBS – and later, its successor-in-interest,
herein respondent15 – demanded payment from petitioners,16 but to no avail,17 hence, the aforesaid complaint.

In their Answer with Counterclaim18 (Answer), petitioners merely stated that they "specifically deny" 19 the allegations under
the complaint. Of particular note is their denial of the execution of the loan agreement, the PN, and the CSA "for being
self-serving and pure conclusions intended to suit [respondent's] purposes."20 By way of special and affirmative defenses,
petitioners argued, among others, that: (a) the real party-in-interest should be DBS and not respondent; (b) no demand
was made upon them; and (c) Go cannot be held liable under the CSA since there was supposedly no solidarity of
debtors.21 Petitioners further interposed counterclaims for the payment of moral and exemplary damages, as well as
litigation and attorney's fees in the total amount of ₱1,250,000.00.22During trial, respondent presented Ricardo 0.
Suñio23 (Suñio ), the Account Officer handling petitioners' loan accounts, as its witness. Sunio attested to the existence of
petitioners' loan obligation in favor of respondent, 24 and identified a Statement of Account25 which shows the amount due
as of June 16, 2004 as follows:
SUMMARY
PRINCIPAL ₱40,491,051.65
PAST DUE INTEREST ₱31,437,800.28
PENALTY ₱47,473,042.27

SUB-TOTAL ₱119,401,894.20
PLUS
UNPAID INTEREST ₱1,805,507.21
UNPAID PENALTY ₱1,776,022.80

SUB-TOTAL ₱122,983,424.21
LESS: PAYMENTS -1,877,286.08

121,106,138.1326

On cross-examination, Suñio nonetheless admitted that he had no knowledge of how the PN was prepared, executed, and
signed, nor did he witness its signing27

For their part, petitioners presented Go Tong Electrical's Finance Officer, Jocelyn Antonette Lim, who testified that Go
Tong Electrical was able to pay its loan, albeit partially. However, she admitted that she does not know how much
payments were made, nor does she have a rough estimate thereof, as these were allegedly paid for in dollars.28

The RTC Ruling

In a Decision29 dated September 6, 2005, the RTC ruled in favor of respondent, thereby ordering petitioners to jointly and
severally pay the former: (a) the principal sum of ₱40,491,051.65, with legal interest to be reckoned from the filing of the
Complaint; ( b) penalty interest of one percent (1 %) per month until the obligation is fully paid; and (c) attorney's fees in
the sum of ₱50,000.00.30

It found that respondent had amply demonstrated by competent evidence that it was entitled to the reliefs it prayed for.
Particularly, respondent's documentary evidence - the authenticity of which the RTC observed to be undisputed - showed
the existence of petitioners' valid and demandable obligation. On the other hand, petitioners failed to discharge the burden
of proving that they had already paid the same, even partially. 31 Further, the RTC debunked petitioners' denial of the
demands made by respondent since, ultimately, the Credit Agreement, PN, and CSA clearly stated that no demand was
needed to render them in default.32 Likewise, the argument that Go could not be held solidarily liable was not sustained
since he bound himself as a surety under the CSA, which was executed precisely to induce respondent's predecessor-in-
interest, DBS, to grant the loan. 33 Separately, the RTC found the penalty interest at three percent (3%) per month sought
by respondent to be patently iniquitous and unconscionable and thus, was reduced to twelve percent(12%) per annum, or
one percent (1 %) per month. Attorney's fees were also tempered to the reasonable amount of ₱50,000.00.34

Unconvinced, petitioners appealed35 to the CA.

The CA Ruling

In a Decision36 dated February 17, 2009, the CA sustained the RTC's ruling in toto, finding the following facts to be beyond
cavil: (a) that Go Tong Electrical applied for and was granted a loan accommodation from DBS in the amount of
₱40,491,051.65 after the execution of the Credit Agreement and the PN dated January 6, 1999, maturing on February 5,
2000; (b) that as additional security, Go executed the CSA binding himself jointly and severally to pay the obligation of Go
Tong Electrical; and (c) that petitioners failed to pay the loan obligation upon maturity, despite written demands from then
DBS, now, herein respondent.37 In this relation, the CA discredited petitioners' argument that respondent's sole witness,
Suñio, was incompetent to testify on the documentary evidence presented as he had no personal knowledge of the loan
documents' execution,38 given that petitioners, in their Answer, did not deny under oath the genuineness and due
execution of the PN and CSA and, hence, are deemed admitted under Section 8, Rule 8 of the Rules of Court
(Rules).39 Besides, the CA observed that, despite the aforesaid admission, respondent still presented the testimony of
Suñio who, having informed the court that the loan documents were in his legal custody as the designated Account Officer
when DBS merged with herein respondent, had personal knowledge of the existence of the loan documents. 40 It added
that, although he was not privy to the execution of the same, it does not significantly matter as their genuineness and due
execution were already admitted.41

Petitioners filed a motion for reconsideration,42 which was, however, denied in a Resolution43 dated April 13, 2009, hence,
this petition.

The Issue Before The Court

The issue for the Court's resolution is whether or not the CA erred in upholding the RTC's ruling.

The Court's Ruling

The petition lacks merit. The Court concurs with the CA Decision holding that the genuineness and due execution of the
loan documents in this case were deemed admitted by petitioners under the parameters of Section 8, Rule 8 of the Rules
which provides:

SEC. 8. How to contest such documents. - When an action or defense is founded upon a written instrument, copied in or
attached to the corresponding pleading as provided in the preceding Section, the genuineness and due execution of the
instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what
he claims to be the facts; but the requirement of an oath does not apply when the adverse party does not appear to be a
party to the instrument or when compliance with an order for an inspection of the original instrument is refused.

A reading of the Answer shows that petitioners failed to specifically deny the execution of the Credit Agreement, PN, and
CSA under the auspices of the above-quoted rule. The mere statement in paragraph 4 of their Answer, i.e., that they
"specifically deny" the pertinent allegations of the Complaint "for being self-serving and pure conclusions intended to suit
plaintiffs purposes,"44 does not constitute an effective specific denial as contemplated by law.45Verily, a denial is not specific
simply because it is so qualified by the defendant. Stated otherwise, a general denial does not become specific by the use
of the word "specifically."46 Neither does it become so by the simple expedient of coupling the same with a broad
conclusion of law that the allegations contested are "self-serving" or are intended "to suit plaintiffs purposes."

In Permanent Savings & Loan Bank v. Velarde47 (Permanent Savings & Loan Bank), citing the earlier case of Songco v.
Sellner,48 the Court expounded on how to deny the genuineness and due execution of an actionable document, viz.:

This means that the defendant must declare under oath that he did not sign the document or that it is otherwise false or
fabricated. Neither does the statement of the answer to the effect that the instrument was procured by fraudulent
representation raise any issue as to its genuineness or due execution. On the contrary such a plea is an- admission both
of the genuineness and due execution thereof, since it seeks to avoid the instrument upon a ground not affecting either.49

To add, Section 8, Rule 8 of the Rules further requires that the defendant "sets forth what he claims to be the facts," which
requirement, likewise, remains absent from the Answer in this case.

Thus, with said pleading failing to comply with the "specific denial under oath" requirement under Section 8, Rule 8 of the
Rules, the proper conclusion, as arrived at by the CA, is that petitioners had impliedly admitted the due execution and
genuineness of the documents evidencing their loan obligation to respondent.

To this, case law enlightens that "[t]he admission of the genuineness and due execution of a document means that the
party whose signature it bears admits that he voluntarily signed the document or it was signed by another for him and with
his authority; that at the time it was signed it was in words and figures exactly as set out in the pleading of the party relying
upon it; that the document was delivered; and that any formalities required by law, such as a seal, an acknowledgment, or
revenue stamp, which it lacks, are waived by him. Also, it effectively eliminated any defense relating to the authenticity and
due execution of the document, e.g., that the document was spurious, counterfeit, or of different import on its face as the
one executed by the parties; or that the signatures appearing thereon were forgeries; or that the signatures were
unauthorized."50

Accordingly, with petitioners' admission of the genuineness and due execution of the loan documents as above-discussed,
the competence of respondent's witness Suñio to testify in order to authenticate the same is therefore of no moment. As
the Court similarly pointed out in Permanent Savings & Loan Bank, "[w]hile Section [20],51 Rule 132 of the [Rules] requires
that private documents be proved of their due execution and authenticity before they can be received in evidence, i.e.,
presentation and examination of witnesses to testify on this fact; in the present case, there is no need for proof of
execution and authenticity with respect to the loan documents because of respondent's implied admission thereof."52

The Court clarifies that while the "[ f]ailure to deny the genuineness and due execution of an actionable document does
not preclude a party from arguing against it by evidence of fraud, mistake, compromise, payment, statute of limitations,
estoppel and want of consideration [nor] bar a party from raising the defense in his answer or reply and prove at the trial
that there is a mistake or imperfection in the writing, or that it does not express the true agreement of the parties, or that
the agreement is invalid or that there is an intrinsic ambiguity in the writing,"53 none of these defenses were adequately
argued or proven during the proceedings of this case.

Of particular note is the affirmative defense of payment raised during the proceedings a quo. While petitioners insisted that
they had paid, albeit partially, their loan obligation to respondent, the fact of such payment was never established by
petitioners in this case. Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of proving it;
the burden rests on the defendant, i.e., petitioners, to prove payment, rather than on the plaintiff, i.e., respondent, to prove
non-payment. When the creditor is in possession of the document of credit, proof of non-payment is not needed for it is
presumed. 54 Here, respondent's possession of the Credit Agreement, · PN, and CSA, especially with their genuineness
and due execution already having been admitted, cements its claim that the obligation of petitioners has not been
extinguished. Instructive too is the Court's disquisition in Jison v. CA55 on the evidentiary burdens attendant in a civil
proceeding, to wit:

Simply put, he who alleges the affirmative of the issue has the burden of proof, and upon the plaintiff in a civil case, the
burden of proof never parts. However, in the course of trial in a civil case, once plaintiff makes out a prima facie case in his
favor, the duty or the burden of evidence shifts to defendant to controvert plaintiffs prima facie case, otherwise, a verdict
must be returned in favor of plaintiff. Moreover, in civil cases, the party having the burden of proof must produce a
preponderance of evidence thereon, with plaintiff having to rely on the strength of his own evidence and not upon the
weakness of the defendant's. The concept of "preponderance of evidence" refers to evidence which is of greater weight, or
more convincing, that which is offered in opposition to it; at bottom, it means probability of truth.56

Finally, the Court finds as untenable petitioners' theory on Go's supposed non-liability. As established through the CSA,
Go had clearly bound himself as a surety to Go Tong Electrical's loan obligation. Thus, there is no question that Go's
liability thereto is solidary with the former. As provided in Article 204757 of the Civil Code, "the surety undertakes to be
bound solidarily with the principal obligor. That undertaking makes a surety agreement an ancillary contract as it
presupposes the existence of a principal contract. Although the contract of a surety is in essence secondary only to a valid
principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal
interest over the obligations nor does it receive any benefit therefrom. Let it be stressed that notwithstanding the fact that
the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the
undertaking,"58 as Go in this case.
However, while petitioners' liability has been upheld in this case, the Court finds it proper to modify the RTC's ruling, as
affirmed by the CA, with respect to the following:

First, the partial payment made by Go Tong Electrical on June 16, 2004 in the amount of ₱1,877,286.08, as admitted by
respondent through a Statement of Account,59 formally offered as Exhibit "G" and duly identified by Suñio during trial,
should be deducted from the principal amount of ₱40,491,05 l .65 due respondent.

Second, with respect to the interests and penalties:

(a) petitioners should be held liable for the twenty percent (20%) per annum stipulated interest rate reckoned 31
days from January 6, 1999, as agreed upon in the PN,60 until its maturity date on February 5, 2000, which period is
regarded as the initial period in said PN. Said interest rate should be upheld as this was stipulated by the parties,
and the rate cannot be considered unconscionable.61 The same shall be computed based on the entire principal
amount due, i.e., ₱40,491,05 l.65, since the records disclose that the admitted partial payment of Pl,877,286.08
was still unpaid before the complaint was filed on October 4, 2002,62 or before the February 5, 2000 maturity date;
and

(b) the reduced interest rate of one percent (1%) per month and penalty rate of one percent (1%) per month are
upheld,63 but should accrue from the PN's February 5, 2000 maturity date64 until June 16, 2004, or the date when
the partial payment of ₱1,877,286.08 has been made by Go Tong Electrical, and computed based on the entire
principal amount of ₱40,491,051.65. Interest and penalty, at the same reduced rate, due thereafter (i.e., from June
17, 2004 until full payment) shall be computed based on the net amount of ₱38,613,765.57 (i.e., the amount
arrived at after deducting the partial payment of ₱1,877,286.08 from the principal amount of ₱40,491,051.65).

WHEREFORE, the petition is DENIED. The Decision dated February 17, 2009 and the Resolution dated April 13, 2009 of
the Court of Appeals in CA-G.R. CV No. 86749 are hereby AFFIRMED with the above-stated MODIFICATIONS.

SO ORDERED.

G.R. No. 175514 February 14, 2011

PHILIPPINE BANK OF COMMUNICATIONS, Petitioner,


vs.
SPOUSES JOSE C. GO and ELVY T. GO, Respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 filed by petitioner Philippine Bank of Communications (PBCom)
seeking to set aside the July 28, 2006 Decision,1 and the November 27, 2006 Resolution2 of the Court of Appeals (CA) in
CA G.R. CV No. 77714. The CA decision reversed and set aside the January 25, 2002 Decision of the Regional Trial
Court, Branch 42, Manila (RTC), which granted the motion for summary judgment and rendered judgment on the basis of
the pleadings and attached documents.

THE FACTS

On September 30, 1999, respondent Jose C. Go (Go) obtained two loans from PBCom, evidenced by two promissory
notes, embodying his commitment to pay ₱17,982,222.22 for the first loan, and ₱80 million for the second loan, within a
ten-year period from September 30, 1999 to September 30, 2009.3

To secure the two loans, Go executed two (2) pledge agreements, both dated September 29, 1999, covering shares of
stock in Ever Gotesco Resources and Holdings, Inc. The first pledge, valued at ₱27,827,122.22, was to secure payment of
the first loan, while the second pledge, valued at ₱70,155,100.00, was to secure the second loan.4

Two years later, however, the market value of the said shares of stock plunged to less than ₱0.04 per share. Thus,
PBCom, as pledgee, notified Go in writing on June 15, 2001, that it was renouncing the pledge agreements.5

Later, PBCom filed before the RTC a complaint6 for sum of money with prayer for a writ of preliminary attachment against
Go and his wife, Elvy T. Go (Spouses Go), docketed as Civil Case No. 01-101190. PBCom alleged that Spouses Go
defaulted on the two (2) promissory notes, having paid only three (3) installments on interest payments—covering the
months of September, November and December 1999. Consequently, the entire balance of the obligations of Go became
immediately due and demandable. PBCom made repeated demands upon Spouses Go for the payment of said
obligations, but the couple imposed conditions on the payment, such as the lifting of garnishment effected by the Bangko
Sentral ng Pilipinas (BSP) on Go’s accounts.7

Spouses Go filed their Answer with Counterclaim8 denying the material allegations in the complaint and stating, among
other matters, that:

8. The promissory note referred to in the complaint expressly state that the loan obligation is payable within the period of
ten (10) years. Thus, from the execution date of September 30, 1999, its due date falls on September 30, 2009 (and not
2001 as erroneously stated in the complaint). Thus, prior to September 30, 2009, the loan obligations cannot be deemed
due and demandable.

In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall
depend upon the happening of the event which constitutes the condition. (Article 1181, New Civil Code)
9. Contrary to the plaintiff’s proferrence, defendant Jose C. Go had made substantial payments in terms of his monthly
payments. There is, therefore, a need to do some accounting works (sic) to reconcile the records of both parties.

10. While demand is a necessary requirement to consider the defendant to be in delay/default, such has not been
complied with by the plaintiff since the former is not aware of any demand made to him by the latter for the settlement of
the whole obligation.

11. Undeniably, at the time the pledge of the shares of stock were executed, their total value is more than the amount of
the loan or at the very least, equal to it. Thus, plaintiff was fully secured insofar as its exposure is concerned.

12. And even assuming without conceding, that the present value of said shares x x x went down, it cannot be considered
as something permanent since the prices of stocks in the market either increases (sic) or decreases (sic) depending on
the market forces. Thus, it is highly speculative for the plaintiff to consider said shares to have suffered tremendous
decrease in its value. More so, it is unfair for the plaintiff to renounce or abandon the pledge agreements.

On September 28, 2001, PBCom filed a verified motion for summary judgment9 anchored on the following grounds:

I. MATERIAL AVERMENTS OF THE COMPLAINT ADMITTED BY DEFENDANT-SPOUSES IN THEIR ANSWER


TO OBVIATE THE NECESSITY OF TRIAL

II. NO REAL DEFENSES AND NO GENUINE ISSUES AS TO ANY MATERIAL FACT WERE TENDERED BY
THE DEFENDANT-SPOUSES IN THEIR ANSWER

III. PLANTIFF’S CAUSES OF ACTIONS ARE SUPPORTED BY VOLUNTARY ADMISSIONS AND AUTHENTIC
DOCUMENTS WHICH MAY NOT BE CONTRADICTED.10

PBCom contended that the Answer interposed no specific denials on the material averments in paragraphs 8 to 11 of the
complaint such as the fact of default, the entire amount being already due and demandable by reason of default, and the
fact that the bank had made repeated demands for the payment of the obligations.11

Spouses Go opposed the motion for summary judgment arguing that they had tendered genuine factual issues calling for
the presentation of evidence.12

The RTC granted PBCom’s motion in its Judgment13 dated January 25, 2002, the dispositive portion of which states:

WHEREFORE, in view of all the foregoing, judgment is rendered for the plaintiff and against the defendants ordering them
to pay plaintiff jointly and severally the following:

1. The total amount of ₱117,567,779.75, plus interests and penalties as stipulated in the two promissory notes;

2. A sum equivalent to 10% of the amount involved in this case, by way of attorney’s fees; and

3. The costs of suit.

SO ORDERED.14

Spouses Go moved for a reconsideration but the motion was denied in an order15 dated March 20, 2002.

RULING OF THE COURT OF APPEALS

In its Decision dated July 28, 2006, the CA reversed and set aside the assailed judgment of the RTC, denied PBCom’s
motion for summary judgment, and ordered the remand of the records to the court of origin for trial on the merits. The
dispositive portion of the decision states:

WHEREFORE, premises considered, the assailed judgment of the Regional Trial Court, Branch 42 of Manila in Civil Case
No. 01-101190 is hereby REVERSED and SET ASIDE, and a new one entered denying plaintiff-appellee’s motion for
summary judgment. Accordingly, the records of the case are hereby remanded to the court of origin for trial on the merits.

SO ORDERED.16

The CA could not agree with the conclusion of the RTC that Spouses Go admitted paragraphs 3, 4 and 7 of the complaint.
It found the supposed admission to be insufficient to justify a rendition of summary judgment in the case for sum of money,
since there were other allegations and defenses put up by Spouses Go in their Answer which raised genuine issues on the
material facts in the action.17

The CA agreed with Spouses Go that paragraphs 3 and 4 of the complaint merely dwelt on the fact that a contract of loan
was entered into by the parties, while paragraph 7 simply emphasized the terms of the promissory notes executed by Go
in favor of PBCom. The fact of default, the amount of the outstanding obligation, and the existence of a prior demand,
which were all material to PBCom’s claim, were "hardly admitted"18 by Spouses Go in their Answer and were, in fact,
effectively questioned in the other allegations in the Answer.19

PBCom’s motion for reconsideration was denied in a resolution20 dated November 27, 2006.

Thus, this petition for review.


THE ISSUES

WHETHER THE COURT OF APPEALS ERRED OR ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK, OR EXCESS OF JURISDICTION IN RULING THAT THERE EXISTS A GENUINE ISSUE AS TO MATERIAL
FACTS IN THE ACTION IN SPITE OF THE UNEQUIVOCAL ADMISSIONS MADE IN THE PLEADINGS BY
RESPONDENTS; AND

II

WHETHER THE COURT OF APPEALS ERRED OR ACTED IN GRAVE ABUSE OF JURISDICTION [DISCRETION] IN
HOLDING THAT ISSUES WERE RAISED ABOUT THE FACT OF DEFAULT, THE AMOUNT OF THE OBLIGATION,
AND THE EXISTENCE OF PRIOR DEMAND, EVEN WHEN THE PLEADING CLEARLY POINTS TO THE CONTRARY.

Petitioner PBCom’s Position: Summary judgment was proper, as there were no genuine issues raised as to any
material fact.

PBCom argues that the material averments in the complaint categorically admitted by Spouses Go obviated the necessity
of trial. In their Answer, Spouses Go admitted the allegations in paragraphs 3 and 4 of the Complaint pertaining to the
security for the loans and the due execution of the promissory notes,21 and those in paragraph 7 which set forth the
acceleration clauses in the promissory note. Their denial of paragraph 5 of the Complaint pertaining to the Schedules of
Payment for the liquidation of the two promissory notes did not constitute a specific denial required by the Rules.22

Even in the Comment23 of Spouses Go, the clear, categorical and unequivocal admission of paragraphs 3, 4, and 7 of the
Complaint had been conceded.24

PBCom faults the CA for having formulated non-existent issues pertaining to the fact of default, the amount of outstanding
obligation and the existence of prior demand, none of which is borne by the pleadings or the records.25

The Spouses Go, PBCom argues, cannot negate or override the legal effect of the acceleration clauses embodied in each
of the two promissory notes executed by Go. Moreover, the non-payment of arrearages constituting default was admitted
by Go in his letters to PBCom dated March 3 and April 7, 2000, respectively.26 Therefore, by such default, they have lost
the benefit of the period in their favor, pursuant to Article 119827 of the Civil Code.

Further, PBCom claims that its causes of action are supported by authentic documents and voluntary admissions which
cannot be contradicted. It cites the March 3 and April 7, 2000 letters of Go requesting deferment of interest payments on
his past due loan obligations to PBCom, as his assets had been placed under attachment in a case filed by the
BSP.28 PBCom emphasizes that the said letters, in addition to its letters of demand duly acknowledged and received by
Go, negated their claim that they were not aware of any demand having been made.29

Respondent spouses’ position: Summary judgment was not proper.

The core contention of Spouses Go is that summary judgment was not proper under the attendant circumstances, as there
exist genuine issues with respect to the fact of default, the amount of the outstanding obligation, and the existence of prior
demand, which were duly questioned in the special and affirmative defenses set forth in the Answer. Spouses Go agree
with the CA that the admissions in the pleadings pertained to the highlight of the terms of the contract. Such admissions
merely recognized the existence of the contract of loan and emphasized its terms and conditions.30 Moreover, although
they admitted paragraphs 3, 4, and 7, the special and affirmative defenses contained in the Answer tendered genuine
issues which could only be resolved in a full-blown trial.31

On the matter of specific denial, Spouses Go posit that the Court decisions cited by PBCom 32 do not apply on all fours in
this case. Moreover, the substance of the repayment schedule was not set forth in the complaint. It, therefore, follows that
the act of attaching copies to the complaint is insufficient to secure an implied admission. Assuming arguendo that it was
impliedly admitted, the existence of said schedule and the promissory notes would not immediately make private
respondents liable for the amount claimed by PBCom.33 Before respondents may be held liable, it must be established,
first, that they indeed defaulted; and second, that the obligations has remained outstanding.34

Spouses Go also state that although they admitted paragraphs 3, 4 and 7 of the Complaint, the fact of default, the amount
of outstanding obligation and the existence of prior demand were fully questioned in the special and affirmative defenses.35

RULING OF THE COURT

The Court agrees with the CA that "[t]he supposed admission of defendants-appellants on the x x x allegations in the
complaint is clearly not sufficient to justify the rendition of summary judgment in the case for sum of money, considering
that there are other allegations embodied and defenses raised by the defendants-appellants in their answer which raise a
genuine issue as to the material facts in the action."36

The CA correctly ruled that there exist genuine issues as to three material facts, which have to be addressed during
trial: first, the fact of default; second, the amount of the outstanding obligation, and third, the existence of prior demand.

Under the Rules, following the filing of pleadings, if, on motion of a party and after hearing, the pleadings, supporting
affidavits, depositions and admissions on file show that, "except as to the amount of damages, there is no genuine issue
as to any material fact, and that the moving party is entitled to a judgment as a matter of law,"37 summary judgment may
be rendered. This rule was expounded in Asian Construction and Development Corporation v. Philippine Commercial
International Bank,38 where it was written:
Under Rule 35 of the 1997 Rules of Procedure, as amended, except as to the amount of damages, when there is no
genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law, summary judgment
may be allowed.39 Summary or accelerated judgment is a procedural technique aimed at weeding out sham claims or
defenses at an early stage of litigation thereby avoiding the expense and loss of time involved in a trial.40

Under the Rules, summary judgment is appropriate when there are no genuine issues of fact which call for the
presentation of evidence in a full-blown trial. Even if on their face the pleadings appear to raise issues, when the affidavits,
depositions and admissions show that such issues are not genuine, then summary judgment as prescribed by the Rules
must ensue as a matter of law. The determinative factor, therefore, in a motion for summary judgment, is the presence or
absence of a genuine issue as to any material fact.

A "genuine issue" is an issue of fact which requires the presentation of evidence as distinguished from a sham, fictitious,
contrived or false claim. When the facts as pleaded appear uncontested or undisputed, then there is no real or genuine
issue or question as to the facts, and summary judgment is called for. The party who moves for summary judgment has
the burden of demonstrating clearly the absence of any genuine issue of fact, or that the issue posed in the complaint is
patently unsubstantial so as not to constitute a genuine issue for trial. Trial courts have limited authority to render
summary judgments and may do so only when there is clearly no genuine issue as to any material fact. When the facts as
pleaded by the parties are disputed or contested, proceedings for summary judgment cannot take the place of
trial.41 (Underscoring supplied.)

Juxtaposing the Complaint and the Answer discloses that the material facts here are not undisputed so as to call for the
rendition of a summary judgment. While the denials of Spouses Go could have been phrased more strongly or more
emphatically, and the Answer more coherently and logically structured in order to overthrow any shadow of doubt that
such denials were indeed made, the pleadings show that they did in fact raise material issues that have to be addressed
and threshed out in a full-blown trial.

PBCom anchors its arguments on the alleged implied admission by Spouses Go resulting from their failure to specifically
deny the material allegations in the Complaint, citing as precedent Philippine Bank of Communications v. Court of
Appeals,42 and Morales v. Court of Appeals. Spouses Go, on the other hand, argue that although admissions were made
in the Answer, the special and affirmative defenses contained therein tendered genuine issues.

Under the Rules, every pleading must contain, in a methodical and logical form, a plain, concise and direct statement of
the ultimate facts on which the party pleading relies for his claim or defense, as the case may be, omitting the statement of
mere evidentiary facts.43

To specifically deny a material allegation, a defendant must specify each material allegation of fact the truth of which he
does not admit, and whenever practicable, shall set forth the substance of the matters upon which he relies to support his
denial. Where a defendant desires to deny only a part of an averment, he shall specify so much of it as is true and material
and shall deny only the remainder. Where a defendant is without knowledge or information sufficient to form a belief as to
the truth of a material averment made in the complaint, he shall so state, and this shall have the effect of a denial.44

Rule 8, Section 10 of the Rules of Civil Procedure contemplates three (3) modes of specific denial, namely: 1) by
specifying each material allegation of the fact in the complaint, the truth of which the defendant does not admit, and
whenever practicable, setting forth the substance of the matters which he will rely upon to support his denial; (2) by
specifying so much of an averment in the complaint as is true and material and denying only the remainder; (3) by stating
that the defendant is without knowledge or information sufficient to form a belief as to the truth of a material averment in
the complaint, which has the effect of a denial.45

The purpose of requiring the defendant to make a specific denial is to make him disclose the matters alleged in the
complaint which he succinctly intends to disprove at the trial, together with the matter which he relied upon to support the
denial. The parties are compelled to lay their cards on the table.46

Again, in drafting pleadings, members of the bar are enjoined to be clear and concise in their language, and to be
organized and logical in their composition and structure in order to set forth their statements of fact and arguments of law
in the most readily comprehensible manner possible. Failing such standard, allegations made in pleadings are not to be
taken as stand-alone catchphrases in the interest of accuracy. They must be contextualized and interpreted in relation to
the rest of the statements in the pleading.

In Spouses Gaza v. Lim, the Court ruled that the CA erred in declaring that the petitioners therein impliedly admitted
respondents' allegation that they had prior and continuous possession of the property, as petitioners did in fact enumerate
their special and affirmative defenses in their Answer. They also specified therein each allegation in the complaint being
denied by them. The Court therein stated:

The Court of Appeals held that spouses Gaza, petitioners, failed to deny specifically, in their answer, paragraphs 2, 3 and
5 of the complaint for forcible entry quoted as follows:

xxx xxx xxx

2. That plaintiffs are the actual and joint occupants and in prior continuous physical possession since 1975 up to Nov. 28,
1993 of a certain commercial compound described as follows:

A certain parcel of land situated in Bo. Sta. Maria, Calauag, Quezon. Bounded on the N., & E., by Julian de Claro; on the
W., by Luis Urrutia. Containing an area of 5,270 square meters, more or less. Declared under Ramon J. Lim's Tax Dec.
No. 4576 with an Ass. Value of P26,100.00

3. That plaintiffs have been using the premises mentioned for combined lumber and copra business. Copies of plaintiffs'
Lumber Certificate of Registration No. 2490 and PCA Copra Business Registration No. 6265/76 are hereto attached as
Annexes "A" and "B" respectively; the Mayor's unnumbered copra dealer's permit dated Dec. 31, 1976 hereto attached as
Annex "C";

xxx xxx xxx

5. That defendants' invasion of plaintiffs' premises was accomplished illegally by detaining plaintiffs' caretaker Emilio
Herrera and his daughter inside the compound, then proceeded to saw the chain that held plaintiffs' padlock on the main
gate of the compound and then busted or destroyed the padlock that closes the backyard gate or exit. Later, they forcibly
opened the lock in the upstairs room of plaintiff Agnes J. Lim's quarters and defendants immediately filled it with other
occupants now. Copy of the caretaker's (Emilio Herrera) statement describing in detail is hereto attached as Annex "D";

xxx xxx x x x7

The Court of Appeals then concluded that since petitioners did not deny specifically in their answer the above-quoted
allegations in the complaint, they judicially admitted that Ramon and Agnes Lim, respondents, "were in prior physical
possession of the subject property, and the action for forcible entry which they filed against private respondents (spouses
Gaza) must be decided in their favor. The defense of private respondents that they are the registered owners of the
subject property is unavailing."

We observe that the Court of Appeals failed to consider paragraph 2 of petitioners' answer quoted as follows:

2. That defendants specifically deny the allegations in paragraph 2 and 3 of the complaint for want of knowledge or
information sufficient to form a belief as to the truth thereof, the truth of the matter being those alleged in the special and
affirmative defenses of the defendants;"8

Clearly, petitioners specifically denied the allegations contained in paragraphs 2 and 3 of the complaint that respondents
have prior and continuous possession of the disputed property which they used for their lumber and copra business.
Petitioners did not merely allege they have no knowledge or information sufficient to form a belief as to truth of those
allegations in the complaint, but added the following:

SPECIAL AND AFFIRMATIVE DEFENSES

That defendants hereby reiterate, incorporate and restate the foregoing and further allege:

5. That the complaint states no cause of action;

"From the allegations of plaintiffs, it appears that their possession of the subject property was not supported by any
concrete title or right, nowhere in the complaint that they alleged either as an owner or lessee, hence, the alleged
possession of plaintiffs is questionable from all aspects. Defendants Sps. Napoleon Gaza and Evelyn Gaza being the
registered owner of the subject property has all the right to enjoy the same, to use it, as an owner and in support thereof, a
copy of the transfer certificate of title No. T-47263 is hereto attached and marked as Annex "A-Gaza" and a copy of the
Declaration of Real Property is likewise attached and marked as Annex "B-Gaza" to form an integral part hereof;

6. That considering that the above-entitled case is an ejectment case, and considering further that the complaint did not
state or there is no showing that the matter was referred to a Lupon for conciliation under the provisions of P.D. No. 1508,
the Revised Rule on Summary Procedure of 1991, particularly Section 18 thereof provides that such a failure is
jurisdictional, hence subject to dismissal;

7. That the Honorable Court has no jurisdiction over the subject of the action or suit;

The complaint is for forcible entry and the plaintiffs were praying for indemnification in the sum of ₱350,000.00 for those
copra, lumber, tools, and machinery listed in par. 4 of the complaint and ₱100,000.00 for unrealized income in the use of
the establishment, considering the foregoing amounts not to be rentals, Section 1 A (1) and (2) of the Revised Rule on
Summary Procedure prohibits recovery of the same, hence, the Honorable Court can not acquire jurisdiction over the
same. Besides, the defendants Napoleon Gaza and Evelyn Gaza being the owners of those properties cited in par. 4 of
the complaint except for those copra and two (2) live carabaos outside of the subject premises, plaintiffs have no rights
whatsoever in claiming damages that it may suffer, as and by way of proof of ownership of said properties cited in
paragraph 4 of the complaint attached herewith are bunche[s] of documents to form an integral part hereof;

8. That plaintiffs' allegation that Emilio Herrera was illegally detained together with his daughter was not true and in
support thereof, attached herewith is a copy of said Herrera's statement and marked as Annex "C-Gaza."

xxx xxx x x x9

The above-quoted paragraph 2 and Special and Affirmative Defenses contained in petitioners' answer glaringly show that
petitioners did not admit impliedly that respondents have been in prior and actual physical possession of the property.
Actually, petitioners are repudiating vehemently respondents' possession, stressing that they (petitioners) are the
registered owners and lawful occupants thereof.

Respondents' reliance on Warner Barnes and Co., Ltd. v. Reyes10 in maintaining that petitioners made an implied
admission in their answer is misplaced. In the cited case, the defendants' answer merely alleged that they were "without
knowledge or information sufficient to form a belief as to the truth of the material averments of the remainder of the
complaint" and "that they hereby reserve the right to present an amended answer with special defenses and
counterclaim."11 In the instant case, petitioners enumerated their special and affirmative defenses in their answer. They
also specified therein each allegation in the complaint being denied by them. They particularly alleged they are the
registered owners and lawful possessors of the land and denied having wrested possession of the premises from the
respondents through force, intimidation, threat, strategy and stealth. They asserted that respondents' purported
possession is "questionable from all aspects." They also averred that they own all the personal properties enumerated in
respondents' complaint, except the two carabaos. Indeed, nowhere in the answer can we discern an implied admission of
the allegations of the complaint, specifically the allegation that petitioners have priority of possession.

Thus, the Court of Appeals erred in declaring that herein petitioners impliedly admitted respondents' allegation that they
have prior and continuous possession of the property.47 (Underscoring supplied.)

In this case, as in Gaza, the admissions made by Spouses Go are to be read and taken together with the rest of the
allegations made in the Answer, including the special and affirmative defenses.

For instance, on the fact of default, PBCom alleges in paragraph 8 of the Complaint that Go defaulted in the payment for
both promissory notes, having paid only three interest installments covering the months of September, November, and
December 1999.

In paragraph 6 of the Answer, Spouses Go denied the said allegation, and further alleged in paragraphs 8 to 13 that Go
made substantial payments on his monthly loan amortizations.

The portions of the pleadings referred to are juxtaposed below:

Complaint Answer
8. The defendant defaulted in the payment of the 6. Defendants deny the allegations in paragraphs
obligations on the two (2) promissory notes 8, 9, 10 and 11 of the Complaint;
(Annexes "A" and "B" hereof) as he has paid only
three (3) installments on interests (sic) payments xxx
covering the months of September, November and
December, 1999, on both promissory notes, 8. The promissory notes referred to in the
respectively. As a consequence of the default, the complaint expressly state that the loan obligation
entire balance due on the obligations of the is payable within the period of ten (10) years.
defendant to plaintiff on both promissory notes Thus, from the execution date of September 30,
immediately became due and demandable 1999, its due date falls on September 3o, 2009
pursuant to the terms and conditions embodied in (and not 2001 as erroneously stated in the
the two (2) promissory notes;48 complaint). Thus, prior to September 30, 2009, the
loan obligations cannot be deemed due and
demandable.

In conditional obligations, the acquisition of rights,


as well as the extinguishment or loss of those
already acquired, shall depend upon the
happening of the event which constitutes the
condition. (Article 1181, New Civil Code)

9. Contrary to the plaintiff’s preference, defendant


Jose C. Go has made substantial payments in
terms of his monthly payments. There is therefore,
a need to do some accounting works (sic) just to
reconcile the records of both parties.

10. While demand is a necessary requirement to


consider the defendant to be in delay/default, such
has not been complied with by the plaintiff since
the former is not aware of any demand made to
him by the latter for the settlement of the whole
obligation.

11. Undeniably, at the time the pledge of the


shares of stocks were executed, their total value is
more than the amount of the loan, or at the very
least, equal to it. Thus, plaintiff was fully secured
insofar as its exposure is concerned.49

12. And even assuming without conceding, that


the present value of said shares has went (sic)
down, it cannot be considered as something
permanent since, the prices of stocks in the
market either increases (sic) or (sic) decreases
depending on the market forces. Thus, it is highly
speculative for the plaintiff to consider said shares
to have suffered tremendous decrease in its value.
Moreso (sic), it is unfair for the plaintiff to renounce
or abandon the pledge agreements.

13. As aptly stated, it is not aware of any


termination of the pledge agreement initiated by
the plaintiff.
Moreover, in paragraph 10 of the Answer, Spouses Go also denied the existence of prior demand alleged by PBCom in
paragraph 10 of the Complaint. They stated therein that they were not aware of any demand made by PBCom for the
settlement of the whole obligation. Both sections are quoted below:

Complaint Answer
10. Plaintiff made repeated demands from (sic)
defendant for the payment of the obligations which
the latter acknowledged to have incurred however,
defendant imposed conditions such as [that] his
10. While demand is a necessary requirement to
[effecting] payments shall depend upon the lifting
consider the defendant to be in delay/default, such
of garnishment effected by the Bangko Sentral on
has not been complied with by the plaintiff since
his accounts. Photocopies of defendant’s
the former is not aware of any demand made to
communication dated March 3, 2000 and April 7,
him by the latter for the settlement of the whole
2000, with plaintiff are hereto attached
obligation.
as Annexes "F" and "G" hereof, as well as its
demand to pay dated April 18, 2000. Demand by
plaintiff is hereto attached as Annex
"H"hereof.50 [Emphases supplied]

Finally, as to the amount of the outstanding obligation, PBCom alleged in paragraph 9 of the Complaint that the
outstanding balance on the couples’ obligations as of May 31, 2001 was ₱21,576,668.64 for the first loan and
₱95,991,111.11, for the second loan or a total of ₱117,567,779.75.

In paragraph 9 of the Answer, however, Spouses Go, without stating any specific amount, averred that substantial monthly
payments had been made, and there was a need to reconcile the accounting records of the parties.

Complaint Answer
9. Defendants’ outstanding obligations under the
9. Contrary to the plaintiff’s preference, defendant
two (2) promissory notes as of May 31, 2001 are:
Jose C. Go has made substantial payments in
P21,576,668.64 (Annex "A") and P95,991,111.11
terms of his monthly payments. There is therefore,
(Annex "B"), or a total of P117,567,779.75. Copy
a need to do some accounting works just to
of the Statement of Account is hereto attached
reconcile the records of both parties.52
as Annex "E" hereof.51

Clearly then, when taken within the context of the entirety of the pleading, it becomes apparent that there was no implied
admission and that there were indeed genuine issues to be addressed.

As to the attached March 3, 2000 letter, the Court is in accord with the CA when it wrote:

The letter dated March 3, 2000 is insufficient to support the material averments in PBCom’s complaint for being equivocal
and capable of different interpretations. The contents of the letter do not address all the issues material to the bank’s claim
and thus do not conclusively establish the cause of action of PBCom against the spouses Go. As regards the letter dated
April 7, 2000, the trial court itself ruled that such letter addressed to PBCom could not be considered against the
defendants-appellants simply because it was not signed by defendant-appellant Jose Go.

Notably, the trial court even agreed with the defendant-appellants on the following points:

The alleged default and outstanding obligations are based on the Statement of Account. This Court agrees with the
defendants that since the substance of the document was not set forth in the complaint although a copy thereof was
attached thereto, or the said document was not set forth verbatim in the pleading, the rule on implied admission does not
apply.53

It must also be pointed out that the cases cited by PBCom do not apply to this case. Those two cases involve denial of
1avv phi 1

lack of knowledge of facts "so plainly and necessarily within [the knowledge of the party making such denial] that such
averment of ignorance must be palpably untrue."54 Also, in both cases, the documents denied were the same documents
or deeds sued upon or made the basis of, and attached to, the complaint.

In Philippine Bank of Communications v. Court of Appeals,55 the Court ruled that the defendant’s contention that it had no
truth or information sufficient to form a belief as to the truth of the deed of exchange was an invalid or ineffectual denial
pursuant to the Rules of Court,56 as it could have easily asserted whether or not it had executed the deed of exchange
attached to the petition. Citing Capitol Motors Corporations v. Yabut,57 the Court stated that:

x x x The rule authorizing an answer to the effect that the defendant has no knowledge or information sufficient to form a
belief as to the truth of an averment and giving such answer the effect of a denial, does not apply where the fact as to
which want of knowledge is asserted, is so plainly and necessarily within the defendant’s knowledge that his averment of
ignorance must be palpably untrue.58

The Warner Barnes case cited above sprung from a suit for foreclosure of mortgage, where the document that defendant
denied was the deed of mortgage sued upon and attached to the complaint. The Court then ruled that it would have been
easy for the defendants to specifically allege in their answer whether or not they had executed the alleged mortgage.

Similarly, in Capitol Motors, the document denied was the promissory note sued upon and attached to the complaint. In
said case, the Court ruled that although a statement of lack of knowledge or information sufficient to form a belief as to the
truth of a material averment in the complaint was one of the modes of specific denial contemplated under the Rules,
paragraph 2 of the Answer in the said case was insufficient to constitute a specific denial. 59 Following the ruling in
the Warner Barnes case, the Court held that it would have been easy for defendant to specifically allege in the Answer
whether or not it had executed the promissory note attached to the Complaint.60

In Morales v. Court of Appeals,61 the matter denied was intervenor’s knowledge of the plaintiff’s having claimed ownership
of the vehicle in contention. The Court therein stated:

Yet, despite the specific allegation as against him, petitioner, in his Answer in Intervention with Counterclaim and
Crossclaim, answered the aforesaid paragraph 11, and other paragraphs, merely by saying that "he has no knowledge or
information sufficient to form a belief as to its truth." While it may be true that under the Rules one could avail of this
statement as a means of a specific denial, nevertheless, if an allegation directly and specifically charges a party to have
done, performed or committed a particular act, but the latter had not in fact done, performed or committed it, a categorical
and express denial must be made. In such a case, the occurrence or non-occurrence of the facts alleged may be said to
be within the party’s knowledge. In short, the petitioner herein could have simply expressly and in no uncertain terms
denied the allegation if it were untrue. It has been held that when the matters of which a defendant alleges of having no
knowledge or information sufficient to form a belief, are plainly and necessarily within his knowledge, his alleged ignorance
or lack of information will not be considered as specific denial. His denial lacks the element of sincerity and good faith,
hence, insufficient.62

Borrowing the phraseology of the Court in the Capitol Motors case, clearly, the fact of the parties’ having executed the
very documents sued upon, that is, the deed of exchange, deed or mortgage or promissory note, is so plainly and
necessarily within the knowledge of the denying parties that any averment of ignorance as to such fact must be palpably
untrue.

In this case, however, Spouses Go are not disclaiming knowledge of the transaction or the execution of the promissory
notes or the pledge agreements sued upon. The matters in contention are, as the CA stated, whether or not respondents
were in default, whether there was prior demand, and the amount of the outstanding loan. These are the matters that the
parties disagree on and by which reason they set forth vastly different allegations in their pleadings which each will have to
prove by presenting relevant and admissible evidence during trial.

Furthermore, in stark contrast to the cited cases where one of the parties disclaimed knowledge of something so patently
within his knowledge, in this case, respondents Spouses Go categorically stated in the Answer that there was no prior
demand, that they were not in default, and that the amount of the outstanding loan would have to be ascertained based on
official records.

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. No. 166859 June 26, 2006

REPUBLIC OF THE PHILIPPINES, Petitioner,


vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO, JR., AGRICULTURAL CONSULTANCY
SERVICES, INC., ARCHIPELAGO REALTY CORP., BALENTE RANCH, INC., BLACK STALLON RANCH, INC.,
CHRISTENSEN PLANTATION COMPANY, DISCOVERY REALTY CORP., DREAM PASTURES, INC., ECHO RANCH,
INC., FAR EAST RANCH, INC., FILSOV SHIPPING COMPANY, INC., FIRST UNITED TRANSPORT, INC., HABAGAT
REALTY DEVELOPMENT, INC., KALAWAKAN RESORTS, INC., KAUNLARAN AGRICULTURAL CORP., LABAYUG
AIR TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LHL CATTLE CORPORATION, LUCENA
OIL FACTORY, INC., MEADOW LARK PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY MOUNTAIN
AGRICULTURAL CORP., NORTHEAST CONTRACT TRADERS, INC., NORTHERN CARRIERS CORPORATION,
OCEANSIDE MARITIME ENTERPRISES, INC., ORO VERDE SERVICES, INC., PASTORAL FARMS, INC., PCY OIL
MANUFACTURING CORP., PHILIPPINE TECHNOLOGIES, INC., PRIMAVERA FARMS, INC., PUNONG-BAYAN
HOUSING DEVELOPMENT CORP., PURA ELECTRIC COMPANY INC., RADIO AUDIENCE DEVELOPERS
INTEGRATED ORGANIZATION, INC., RADYO PILIPINO CORPORATION, RANCHO GRANDE, INC., REDDEE
DEVELOPERS, INC., SAN ESTEBAN DEVELOPMENT CORP., SILVER LEAF PLANTATIONS, INC., SOUTHERN
SERVICE TRADERS, INC., SOUTHERN STAR CATTLE CORP., SPADE ONE RESORTS CORP., UNEXPLORED
LAND DEVELOPERS, INC., VERDANT PLANTATATIONS, INC., VESTA AGRICULTURAL CORP. AND WINGS
RESORTS CORPORATION, Respondents.

RESOLUTION

CARPIO MORALES, J.:

For resolution is the Urgent Motion for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction
which was filed by petitioner, Republic of the Philippines, during the pendency of its Petition for Certiorari before this Court
challenging the denial by public respondent, the Sandiganbayan, of its Motion for Partial Summary Judgment in Civil Case
No. 0033-F (the civil case).

In support of its present urgent motion, petitioner pleads that the issue it raised in its Petition for Certiorari — whether
public respondent committed grave abuse of discretion in denying its Motion for Partial Summary Judgment — must first
be resolved, as a continuation of the proceedings in the civil case by public respondent might be rendered unnecessary in
the event that its Petition before this Court is resolved in its favor.

The mere elevation of an interlocutory matter to this Court through a petition for Certiorari under Rule 65 of the Rules of
Court, like in the present case, does not by itself merit a suspension of the proceedings before a public respondent, unless
a temporary restraining order or a writ of preliminary injunction has been issued against the public respondent. Rule 65,
Section 7 of the Rules of Court so provides:
SECTION 7. Expediting proceedings; injunctive relief. — The court in which the petition [for Certiorari, Prohibition and
Mandamus] is filed may issue orders expediting the proceedings, and it may also grant a temporary restraining order or a
writ of preliminary injunction for the preservation of the rights of the parties pending such proceedings. The petition
shall not interrupt the course of the principal case unless a temporary restraining order or a writ of preliminary injunction
has been issued against the public respondent from further proceeding in the case. (Emphasis and underscoring supplied)

The burden is thus on the petitioner in a petition for Certiorari, Prohibition and Mandamus to show that there is a
meritorious ground for the issuance of a temporary restraining order or writ of preliminary injunction for the purpose of
suspending the proceedings before the public respondent.1 Essential for granting injunctive relief is the existence of an
urgent necessity for the writ in order to prevent serious damage.2

The Court finds that petitioner has failed to discharge the burden. The ground on which it bases its urgent motion is the
alleged futility of proceeding with the trial of the case. This assertion, however, is speculative, anchored on the mere
supposition that the petition would be decided in its favor.

There is thus, in this case, a marked absence of any urgent necessity for the issuance of a temporary restraining order or
writ of preliminary injunction.

It is gathered though that even prior to the filing of the instant motion, public respondent suspended the proceedings in the
civil case, the absence of any temporary restraining order or writ of preliminary injunction from this Court notwithstanding.
Thus, petitioner brought to this Court’s attention private respondents’ insistence to have the civil case set for trial by public
respondent, citing private respondents’ filing of a "Motion Reiterating Motion to Set Case for Trial" dated June 27, 2005,
"Second Motion Reiterating Motion to Set Case for Trial" dated October 26, 2005, and "Manifestation and Motion
Reiterating Motion to Set Case for Trial" dated December 8, 2005.3

The earlier quoted Section 7 of Rule 65 provides the general rule that the mere pendency of a special civil action for
Certiorari commenced in relation to a case pending before a lower court or court of origin does not stay the proceedings
therein in the absence of a writ of preliminary injunction or temporary restraining order.4

There are of course instances where even if there is no writ of preliminary injunction or temporary restraining order issued
by a higher court, it would be proper for a lower court or court of origin to suspend its proceedings on the precept of
judicial courtesy. As this Court explained in Eternal Gardens Memorial Park v. Court of Appeals:5

Although this Court did not issue any restraining order against the Intermediate Appellate Court to prevent it from taking
any action with regard to its resolutions respectively granting respondents' motion to expunge from the records the
petitioner's motion to dismiss and denying the latter's motion to reconsider such order, upon learning of the petition, the
appellate court should have refrained from ruling thereon because its jurisdiction was necessarily limited upon the filing of
a petition for certiorari with this Court questioning the propriety of the issuance of the above-mentioned resolutions. Due
respect for the Supreme Court and practical and ethical considerations should have prompted the appellate court to
wait for the final determination of the petition before taking cognizance of the case and trying to render moot exactly what
was before this court x x x (Emphasis and underscoring supplied)

A reading of Eternal Gardens Memorial Park shows that the appellate court’s failure to observe judicial courtesy which
was frowned upon by this Court lay in its recall of its (the appellate court’s) Orders expunging from the records the Motion
to Dismiss filed by the therein petitioner, which Orders were the orders being questioned before this Court via a petition for
Certiorari and Mandamus. Such act of the appellate court tended to render moot and academic the said petition. No parity
of circumstances obtains in the present case, however, where merely setting the case for trial would not have the effect of
rendering the present petition moot.

This Court explained, however, that the rule on "judicial courtesy" applies where "there is a strong probability that the
issues before the higher court would be rendered moot and moribund as a result of the continuation of the proceedings in
the lower court [or court of origin]".6

A final word. This Court takes notice that in most cases where its interlocutory orders are challenged before this Court,
public respondent, Sandiganbayan, suspends proceedings in the cases in which these assailed interlocutory orders are
issued despite the non-issuance by this Court of a temporary restraining order or writ of preliminary injunction and the
absence of a strong probability that the issues raised before this Court would be rendered moot by a continuation of the
proceedings before it (Sandiganbayan).

WHEREFORE, the URGENT MOTION FOR ISSUANCE OF TEMPORARY RESTRAINING ORDER AND/OR WRIT OF
PRELIMINARY INJUNCTION filed by petitioner REPUBLIC OF THE PHILIPPINES is DENIED.

The SANDIGANBAYAN is, however, ORDERED,in light of the foregoing discussion, to continue the proceedings in Civil
Case No. 0033-F, as well as in all other cases where its interlocutory orders are on challenge before this Court but no
Temporary Restraining Order or Writ of Preliminary Injunction has been issued and there is no strong probability that the
issues raised before this Court would be rendered moot and moribund.

SO ORDERED.

G.R. No. 176951 November 18, 2008

LEAGUE OF CITIES OF THE PHILIPPINES (LCP) represented by LCP National President


JERRY P. TREÑAS, CITY OF ILOILO represented by MAYOR JERRY P. TREÑAS, CITY
OF CALBAYOG represented by MAYOR MEL SENEN S. SARMIENTO, and JERRY P.
TREÑAS in his personal capacity as taxpayer, petitioners,
vs.
COMMISSION ON ELECTIONS; MUNICIPALITY OF BAYBAY, PROVINCE OF LEYTE;
MUNICIPALITY OF BOGO, PROVINCE OF CEBU; MUNICIPALITY OF CATBALOGAN,
PROVINCE OF WESTERN SAMAR; MUNICIPALITY OF TANDAG, PROVINCE OF
SURIGAO DEL SUR; MUNICIPALITY OF BORONGAN, PROVINCE OF EASTERN SAMAR;
and MUNICIPALITY OF TAYABAS, PROVINCE OF QUEZON, respondents.
CITY OF TARLAC, CITY OF SANTIAGO, CITY OF IRIGA, CITY OF LIGAO, CITY OF
LEGAZPI, CITY OF TAGAYTAY, CITY OF SURIGAO, CITY OF BAYAWAN, CITY OF SILAY,
CITY OF GENERAL SANTOS, CITY OF ZAMBOANGA, CITY OF GINGOOG, CITY OF
CAUAYAN, CITY OF PAGADIAN, CITY OF SAN CARLOS, CITY OF SAN FERNANDO,
CITY OF TACURONG, CITY OF TANGUB, CITY OF OROQUIETA, CITY OF URDANETA,
CITY OF VICTORIAS, CITY OF CALAPAN, CITY OF HIMAMAYLAN, CITY OF BATANGAS,
CITY OF BAIS, CITY OF CADIZ, and CITY OF TAGUM, petitioners-in-intervention.

x-----------------------------x

G.R. No. 177499 November 18, 2008

LEAGUE OF CITIES OF THE PHILIPPINES (LCP) represented by LCP National President


JERRY P. TREÑAS, CITY OF ILOILO represented by MAYOR JERRY P. TREÑAS, CITY
OF CALBAYOG represented by MAYOR MEL SENEN S. SARMIENTO, and JERRY P.
TREÑAS in his personal capacity as taxpayer, petitioners,
vs.
COMMISSION ON ELECTIONS; MUNICIPALITY OF LAMITAN, PROVINCE OF BASILAN;
MUNICIPALITY OF TABUK, PROVINCE OF KALINGA; MUNICIPALITY OF BAYUGAN,
PROVINCE OF AGUSAN DEL SUR; MUNICIPALITY OF BATAC, PROVINCE OF ILOCOS
NORTE; MUNICIPALITY OF MATI, PROVINCE OF DAVAO ORIENTAL; and MUNICIPALITY
OF GUIHULNGAN, PROVINCE OF NEGROS ORIENTAL, respondents.
CITY OF TARLAC, CITY OF SANTIAGO, CITY OF IRIGA, CITY OF LIGAO, CITY OF
LEGAZPI, CITY OF TAGAYTAY, CITY OF SURIGAO, CITY OF BAYAWAN, CITY OF SILAY,
CITY OF GENERAL SANTOS, CITY OF ZAMBOANGA, CITY OF GINGOOG, CITY OF
CAUAYAN, CITY OF PAGADIAN, CITY OF SAN CARLOS, CITY OF SAN FERNANDO,
CITY OF TACURONG, CITY OF TANGUB, CITY OF OROQUIETA, CITY OF URDANETA,
CITY OF VICTORIAS, CITY OF CALAPAN, CITY OF HIMAMAYLAN, CITY OF BATANGAS,
CITY OF BAIS, CITY OF CADIZ, and CITY OF TAGUM, petitioners-in-intervention.

x - - - - - - - - - - - - - - - - - - - - - - - - - - --x

G.R. No. 178056 November 18, 2008

LEAGUE OF CITIES OF THE PHILIPPINES (LCP) represented by LCP National President


JERRY P. TREÑAS, CITY OF ILOILO represented by MAYOR JERRY P. TREÑAS, CITY
OF CALBAYOG represented by MAYOR MEL SENEN S. SARMIENTO, and JERRY P.
TREÑAS in his personal capacity as taxpayer, petitioners
vs.
COMMISSION ON ELECTIONS; MUNICIPALITY OF CABADBARAN, PROVINCE OF
AGUSAN DEL NORTE; MUNICIPALITY OF CARCAR, PROVINCE OF CEBU; and
MUNICIPALITY OF EL SALVADOR, MISAMIS ORIENTAL, respondents.
CITY OF TARLAC, CITY OF SANTIAGO, CITY OF IRIGA, CITY OF LIGAO, CITY OF
LEGAZPI, CITY OF TAGAYTAY, CITY OF SURIGAO, CITY OF BAYAWAN, CITY OF SILAY,
CITY OF GENERAL SANTOS, CITY OF ZAMBOANGA, CITY OF GINGOOG, CITY OF
CAUAYAN, CITY OF PAGADIAN, CITY OF SAN CARLOS, CITY OF SAN FERNANDO,
CITY OF TACURONG, CITY OF TANGUB, CITY OF OROQUIETA, CITY OF URDANETA,
CITY OF VICTORIAS, CITY OF CALAPAN, CITY OF HIMAMAYLAN, CITY OF BATANGAS,
CITY OF BAIS, CITY OF CADIZ, and CITY OF TAGUM, petitioners-in-intervention.

DECISION

CARPIO, J.:

The Case
These are consolidated petitions for prohibition1 with prayer for the issuance of a writ of
preliminary injunction or temporary restraining order filed by the League of Cities of the
Philippines, City of Iloilo, City of Calbayog, and Jerry P. Treñas2 assailing the constitutionality
of the subject Cityhood Laws and enjoining the Commission on Elections (COMELEC) and
respondent municipalities from conducting plebiscites pursuant to the Cityhood Laws.

The Facts

During the 11th Congress,3 Congress enacted into law 33 bills converting 33 municipalities into
cities. However, Congress did not act on bills converting 24 other municipalities into cities.

During the 12th Congress,4 Congress enacted into law Republic Act No. 9009 (RA
9009),5 which took effect on 30 June 2001. RA 9009 amended Section 450 of the Local
Government Code by increasing the annual income requirement for conversion of a
municipality into a city from P20 million to P100 million. The rationale for the amendment was
to restrain, in the words of Senator Aquilino Pimentel, "the mad rush" of municipalities to
convert into cities solely to secure a larger share in the Internal Revenue Allotment despite the
fact that they are incapable of fiscal independence.6

After the effectivity of RA 9009, the House of Representatives of the 12th Congress7 adopted
Joint Resolution No. 29,8 which sought to exempt from the P100 million income requirement in
RA 9009 the 24 municipalities whose cityhood bills were not approved in the 11 th Congress.
However, the 12thCongress ended without the Senate approving Joint Resolution No. 29.

During the 13th Congress,9 the House of Representatives re-adopted Joint Resolution No. 29
as Joint Resolution No. 1 and forwarded it to the Senate for approval. However, the Senate
again failed to approve the Joint Resolution. Following the advice of Senator Aquilino Pimentel,
16 municipalities filed, through their respective sponsors, individual cityhood bills. The 16
cityhood bills contained a common provision exempting all the 16 municipalities from the P100
million income requirement in RA 9009.

On 22 December 2006, the House of Representatives approved the cityhood bills. The Senate
also approved the cityhood bills in February 2007, except that of Naga, Cebu which was
passed on 7 June 2007. The cityhood bills lapsed into law (Cityhood Laws 10) on various dates
from March to July 2007 without the President's signature.11

The Cityhood Laws direct the COMELEC to hold plebiscites to determine whether the voters in
each respondent municipality approve of the conversion of their municipality into a city.

Petitioners filed the present petitions to declare the Cityhood Laws unconstitutional for violation
of Section 10, Article X of the Constitution, as well as for violation of the equal protection
clause.12Petitioners also lament that the wholesale conversion of municipalities into cities will
reduce the share of existing cities in the Internal Revenue Allotment because more cities will
share the same amount of internal revenue set aside for all cities under Section 285 of the
Local Government Code.13

The Issues

The petitions raise the following fundamental issues:

1. Whether the Cityhood Laws violate Section 10, Article X of the Constitution; and

2. Whether the Cityhood Laws violate the equal protection clause.

The Ruling of the Court

We grant the petitions.

The Cityhood Laws violate Sections 6 and 10, Article X of the Constitution, and are thus
unconstitutional.
First, applying the P100 million income requirement in RA 9009 to the present case is a
prospective, not a retroactive application, because RA 9009 took effect in 2001 while the
cityhood bills became law more than five years later.

Second, the Constitution requires that Congress shall prescribe all the criteria for the creation
of a city in the Local Government Code and not in any other law, including the Cityhood Laws.

Third, the Cityhood Laws violate Section 6, Article X of the Constitution because they prevent a
fair and just distribution of the national taxes to local government units.

Fourth, the criteria prescribed in Section 450 of the Local Government Code, as amended by
RA 9009, for converting a municipality into a city are clear, plain and unambiguous, needing no
resort to any statutory construction.

Fifth, the intent of members of the 11th Congress to exempt certain municipalities from the
coverage of RA 9009 remained an intent and was never written into Section 450 of the Local
Government Code.

Sixth, the deliberations of the 11th or 12th Congress on unapproved bills or resolutions are not
extrinsic aids in interpreting a law passed in the 13th Congress.

Seventh, even if the exemption in the Cityhood Laws were written in Section 450 of the Local
Government Code, the exemption would still be unconstitutional for violation of the equal
protection clause.

Preliminary Matters

Prohibition is the proper action for testing the constitutionality of laws administered by the
COMELEC,14 like the Cityhood Laws, which direct the COMELEC to hold plebiscites in
implementation of the Cityhood Laws. Petitioner League of Cities of the Philippines has legal
standing because Section 499 of the Local Government Code tasks the League with the
"primary purpose of ventilating, articulating and crystallizing issues affecting city government
administration and securing, through proper and legal means, solutions thereto."15 Petitioners-
in-intervention,16 which are existing cities, have legal standing because their Internal Revenue
Allotment will be reduced if the Cityhood Laws are declared constitutional. Mayor Jerry P.
Treñas has legal standing because as Mayor of Iloilo City and as a taxpayer he has sufficient
interest to prevent the unlawful expenditure of public funds, like the release of more Internal
Revenue Allotment to political units than what the law allows.

Applying RA 9009 is a Prospective Application of the Law

RA 9009 became effective on 30 June 2001 during the 11th Congress. This law specifically
amended Section 450 of the Local Government Code, which now provides:

Section 450. Requisites for Creation. – (a) A municipality or a cluster of barangays may
be converted into a component city if it has a locally generated average annual income,
as certified by the Department of Finance, of at least One hundred million pesos
(P100,000,000.00) for the last two (2) consecutive years based on 2000 constant
prices, and if it has either of the following requisites:

(i) a contiguous territory of at least one hundred (100) square kilometers, as


certified by the Land Management Bureau; or

(ii) a population of not less than one hundred fifty thousand (150,000) inhabitants,
as certified by the National Statistics Office.

The creation thereof shall not reduce the land area, population and income of the original
unit or units at the time of said creation to less than the minimum requirements
prescribed herein.

(b) The territorial jurisdiction of a newly-created city shall be properly identified by metes
and bounds. The requirement on land area shall not apply where the city proposed to be
created is composed of one (1) or more islands. The territory need not be contiguous if it
comprises two (2) or more islands.

(c) The average annual income shall include the income accruing to the general fund,
exclusive of special funds, transfers, and non-recurring income. (Emphasis supplied)

Thus, RA 9009 increased the income requirement for conversion of a municipality into a city
from P20 million to P100 million. Section 450 of the Local Government Code, as amended by
RA 9009, does not provide any exemption from the increased income requirement.

Prior to the enactment of RA 9009, a total of 57 municipalities had cityhood bills pending in
Congress. Thirty-three cityhood bills became law before the enactment of RA 9009. Congress
did not act on 24 cityhood bills during the 11th Congress.

During the 12th Congress, the House of Representatives adopted Joint Resolution No. 29,
exempting from the income requirement of P100 million in RA 9009 the 24 municipalities
whose cityhood bills were not acted upon during the 11th Congress. This Resolution reached
the Senate. However, the 12th Congress adjourned without the Senate approving Joint
Resolution No. 29.

During the 13th Congress, 16 of the 24 municipalities mentioned in the unapproved Joint
Resolution No. 29 filed between November and December of 2006, through their respective
sponsors in Congress, individual cityhood bills containing a common provision, as follows:

Exemption from Republic Act No. 9009. - The City of x x x shall be exempted from the
income requirement prescribed under Republic Act No. 9009.

This common provision exempted each of the 16 municipalities from the income
requirement of P100 million prescribed in Section 450 of the Local Government Code, as
amended by RA 9009. These cityhood bills lapsed into law on various dates from March to
July 2007 after President Gloria Macapagal-Arroyo failed to sign them.

Indisputably, Congress passed the Cityhood Laws long after the effectivity of RA 9009. RA
9009 became effective on 30 June 2001 or during the 11th Congress. The 13th Congress
passed in December 2006 the cityhood bills which became law only in 2007. Thus,
respondent municipalities cannot invoke the principle of non-retroactivity of laws.17 This basic
rule has no application because RA 9009, an earlier law to the Cityhood Laws, is not being
applied retroactively but prospectively.

Congress Must Prescribe in the Local Government Code All Criteria

Section 10, Article X of the 1987 Constitution provides:

No province, city, municipality, or barangay shall be created, divided, merged, abolished


or its boundary substantially altered, except in accordance with the criteria
established in the local government code and subject to approval by a majority of the
votes cast in a plebiscite in the political units directly affected. (Emphasis supplied)

The Constitution is clear. The creation of local government units must follow the criteria
established in the Local Government Code and not in any other law. There is only one Local
Government Code.18 The Constitution requires Congress to stipulate in the Local Government
Code all the criteria necessary for the creation of a city, including the conversion of a
municipality into a city. Congress cannot write such criteria in any other law, like the Cityhood
Laws.

The criteria prescribed in the Local Government Code govern exclusively the creation of a city.
No other law, not even the charter of the city, can govern such creation. The clear intent of the
Constitution is to insure that the creation of cities and other political units must follow the
same uniform, non-discriminatory criteria found solely in the Local Government Code.
Any derogation or deviation from the criteria prescribed in the Local Government Code violates
Section 10, Article X of the Constitution.
RA 9009 amended Section 450 of the Local Government Code to increase the income
requirement from P20 million to P100 million for the creation of a city. This took effect on 30
June 2001. Hence, from that moment the Local Government Code required that any
municipality desiring to become a city must satisfy the P100 million income
requirement. Section 450 of the Local Government Code, as amended by RA 9009, does not
contain any exemption from this income requirement.

In enacting RA 9009, Congress did not grant any exemption to respondent municipalities, even
though their cityhood bills were pending in Congress when Congress passed RA 9009. The
Cityhood Laws, all enacted after the effectivity of RA 9009, explicitly exempt respondent
municipalities from the increased income requirement in Section 450 of the Local Government
Code, as amended by RA 9009. Such exemption clearly violates Section 10, Article X of
the Constitution and is thus patently unconstitutional. To be valid, such exemption must
be written in the Local Government Code and not in any other law, including the
Cityhood Laws.

Cityhood Laws Violate Section 6, Article X of the Constitution

Uniform and non-discriminatory criteria as prescribed in the Local Government Code are
essential to implement a fair and equitable distribution of national taxes to all local government
units. Section 6, Article X of the Constitution provides:

Local government units shall have a just share, as determined by law, in the national
taxes which shall be automatically released to them. (Emphasis supplied)

If the criteria in creating local government units are not uniform and discriminatory, there can
be no fair and just distribution of the national taxes to local government units.

A city with an annual income of only P20 million, all other criteria being equal, should not
receive the same share in national taxes as a city with an annual income of P100 million or
more. The criteria of land area, population and income, as prescribed in Section 450 of the
Local Government Code, must be strictly followed because such criteria, prescribed by law, are
material in determining the "just share" of local government units in national taxes. Since the
Cityhood Laws do not follow the income criterion in Section 450 of the Local Government
Code, they prevent the fair and just distribution of the Internal Revenue Allotment in violation of
Section 6, Article X of the Constitution.

Section 450 of the Local Government Code is Clear,


Plain and Unambiguous

There can be no resort to extrinsic aids – like deliberations of Congress – if the language of the
law is plain, clear and unambiguous. Courts determine the intent of the law from the literal
language of the law, within the law's four corners.19 If the language of the law is plain, clear and
unambiguous, courts simply apply the law according to its express terms. If a literal application
of the law results in absurdity, impossibility or injustice, then courts may resort to extrinsic aids
of statutory construction like the legislative history of the law.20

Congress, in enacting RA 9009 to amend Section 450 of the Local Government Code, did not
provide any exemption from the increased income requirement, not even to respondent
municipalities whose cityhood bills were then pending when Congress passed RA 9009.
Section 450 of the Local Government Code, as amended by RA 9009, contains no exemption
whatsoever. Since the law is clear, plain and unambiguous that any municipality desiring to
convert into a city must meet the increased income requirement, there is no reason to go
beyond the letter of the law in applying Section 450 of the Local Government Code, as
amended by RA 9009.

The 11th Congress' Intent was not Written into the Local Government Code

True, members of Congress discussed exempting respondent municipalities from RA 9009, as


shown by the various deliberations on the matter during the 11th Congress. However, Congress
did not write this intended exemption into law. Congress could have easily included such
exemption in RA 9009 but Congress did not. This is fatal to the cause of respondent
municipalities because such exemption must appear in RA 9009 as an amendment to Section
450 of the Local Government Code. The Constitution requires that the criteria for the
conversion of a municipality into a city, including any exemption from such criteria, must all be
written in the Local Government Code. Congress cannot prescribe such criteria or exemption
from such criteria in any other law. In short, Congress cannot create a city through a law
that does not comply with the criteria or exemption found in the Local Government
Code.

Section 10 of Article X is similar to Section 16, Article XII of the Constitution prohibiting
Congress from creating private corporations except by a general law. Section 16 of Article XII
provides:

The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability. (Emphasis supplied)

Thus, Congress must prescribe all the criteria for the "formation, organization, or regulation" of
private corporations in a general law applicable to all without discrimination.21 Congress
cannot create a private corporation through a special law or charter.

Deliberations of the 11th Congress on Unapproved Bills Inapplicable

Congress is not a continuing body.22 The unapproved cityhood bills filed during the
11th Congress became mere scraps of paper upon the adjournment of the 11th Congress. All
the hearings and deliberations conducted during the 11th Congress on unapproved bills also
became worthless upon the adjournment of the 11th Congress. These hearings and
deliberations cannot be used to interpret bills enacted into law in the 13th or subsequent
Congresses.

The members and officers of each Congress are different. All unapproved bills filed in one
Congress become functus officio upon adjournment of that Congress and must be re-filed
anew in order to be taken up in the next Congress. When their respective authors re-filed the
cityhood bills in 2006 during the 13th Congress, the bills had to start from square one again,
going through the legislative mill just like bills taken up for the first time, from the filing to the
approval. Section 123, Rule XLIV of the Rules of the Senate, on Unfinished Business,
provides:

Sec. 123. x x x

All pending matters and proceedings shall terminate upon the expiration of one (1)
Congress, but may be taken by the succeeding Congress as if presented for the first
time. (Emphasis supplied)

Similarly, Section 78 of the Rules of the House of Representatives, on Unfinished Business,


states:

Section 78. Calendar of Business. The Calendar of Business shall consist of the
following:

a. Unfinished Business. This is business being considered by the House at the


time of its last adjournment. Its consideration shall be resumed until it is disposed
of. The Unfinished Business at the end of a session shall be resumed at the
commencement of the next session as if no adjournment has taken place. At the
end of the term of a Congress, all Unfinished Business are deemed
terminated. (Emphasis supplied)

Thus, the deliberations during the 11th Congress on the unapproved cityhood bills, as well as
the deliberations during the 12th and 13th Congresses on the unapproved resolution exempting
from RA 9009 certain municipalities, have no legal significance. They do not qualify as extrinsic
aids in construing laws passed by subsequent Congresses.

Applicability of Equal Protection Clause


If Section 450 of the Local Government Code, as amended by RA 9009, contained an
exemption to the P100 million annual income requirement, the criteria for such exemption
could be scrutinized for possible violation of the equal protection clause. Thus, the criteria for
the exemption, if found in the Local Government Code, could be assailed on the ground of
absence of a valid classification. However, Section 450 of the Local Government Code, as
amended by RA 9009, does not contain any exemption. The exemption is contained in the
Cityhood Laws, which are unconstitutional because such exemption must be prescribed in the
Local Government Code as mandated in Section 10, Article X of the Constitution.

Even if the exemption provision in the Cityhood Laws were written in Section 450 of the Local
Government Code, as amended by RA 9009, such exemption would still be unconstitutional for
violation of the equal protection clause. The exemption provision merely states, "Exemption
from Republic Act No. 9009 ─ The City of x x x shall be exempted from the income
requirement prescribed under Republic Act No. 9009." This one sentence exemption
provision contains no classification standards or guidelines differentiating the exempted
municipalities from those that are not exempted.

Even if we take into account the deliberations in the 11th Congress that municipalities with
pending cityhood bills should be exempt from the P100 million income requirement, there is still
no valid classification to satisfy the equal protection clause. The exemption will be based
solely on the fact that the 16 municipalities had cityhood bills pending in the
11th Congress when RA 9009 was enacted. This is not a valid classification between those
entitled and those not entitled to exemption from the P100 million income requirement.

To be valid, the classification in the present case must be based on substantial distinctions,
rationally related to a legitimate government objective which is the purpose of the law,23 not
limited to existing conditions only, and applicable to all similarly situated. Thus, this Court has
ruled:

The equal protection clause of the 1987 Constitution permits a valid classification under
the following conditions:

1. The classification must rest on substantial distinctions;

2. The classification must be germane to the purpose of the law;

3. The classification must not be limited to existing conditions only; and

4. The classification must apply equally to all members of the same class.24

There is no substantial distinction between municipalities with pending cityhood bills in the
11thCongress and municipalities that did not have pending bills. The mere pendency of a
cityhood bill in the 11th Congress is not a material difference to distinguish one municipality
from another for the purpose of the income requirement. The pendency of a cityhood bill in the
11th Congress does not affect or determine the level of income of a municipality. Municipalities
with pending cityhood bills in the 11th Congress might even have lower annual income than
municipalities that did not have pending cityhood bills. In short, the classification criterion −
mere pendency of a cityhood bill in the 11th Congress − is not rationally related to the purpose
of the law which is to prevent fiscally non-viable municipalities from converting into cities.

Municipalities that did not have pending cityhood bills were not informed that a pending
cityhood bill in the 11th Congress would be a condition for exemption from the increased P100
million income requirement. Had they been informed, many municipalities would have caused
the filing of their own cityhood bills. These municipalities, even if they have bigger annual
income than the 16 respondent municipalities, cannot now convert into cities if their income is
less than P100 million.

The fact of pendency of a cityhood bill in the 11th Congress limits the exemption to a specific
condition existing at the time of passage of RA 9009. That specific condition will never happen
again. This violates the requirement that a valid classification must not be limited to existing
conditions only. This requirement is illustrated in Mayflower Farms, Inc. v. Ten Eyck,25 where
the challenged law allowed milk dealers engaged in business prior to a fixed date to sell at a
price lower than that allowed to newcomers in the same business. In Mayflower, the U.S.
Supreme Court held:

We are referred to a host of decisions to the effect that a regulatory law may be
prospective in operation and may except from its sweep those presently engaged in the
calling or activity to which it is directed. Examples are statutes licensing physicians and
dentists, which apply only to those entering the profession subsequent to the passage of
the act and exempt those then in practice, or zoning laws which exempt existing
buildings, or laws forbidding slaughterhouses within certain areas, but excepting existing
establishments. The challenged provision is unlike such laws, since, on its face, it
is not a regulation of a business or an activity in the interest of, or for the
protection of, the public, but an attempt to give an economic advantage to those
engaged in a given business at an arbitrary date as against all those who enter the
industry after that date. The appellees do not intimate that the classification bears any
relation to the public health or welfare generally; that the provision will discourage
monopoly; or that it was aimed at any abuse, cognizable by law, in the milk business. In
the absence of any such showing, we have no right to conjure up possible situations
which might justify the discrimination. The classification is arbitrary and unreasonable
and denies the appellant the equal protection of the law. (Emphasis supplied)

In the same vein, the exemption provision in the Cityhood Laws gives the 16 municipalities a
unique advantage based on an arbitrary date − the filing of their cityhood bills before the end of
the 11thCongress - as against all other municipalities that want to convert into cities after the
effectivity of RA 9009.

Furthermore, limiting the exemption only to the 16 municipalities violates the requirement that
the classification must apply to all similarly situated. Municipalities with the same income as the
16 respondent municipalities cannot convert into cities, while the 16 respondent municipalities
can. Clearly, as worded the exemption provision found in the Cityhood Laws, even if it were
written in Section 450 of the Local Government Code, would still be unconstitutional for
violation of the equal protection clause.

WHEREFORE, we GRANT the petitions and declare UNCONSTITUTIONAL the Cityhood


Laws, namely: Republic Act Nos. 9389, 9390, 9391, 9392, 9393, 9394, 9398, 9404, 9405,
9407, 9408, 9409, 9434, 9435, 9436, and 9491.

SO ORDERED.
G.R. No. 185922 January 15, 2014

HEIRS OF DR. MARIANO FAVIS SR. represented by their co-heirs and Attorneys-in-Fact MERCEDES A. FAVIS and
NELLY FAVIS- VILLAFUERTE, Petitioners,
vs.
JUANA GONZALES, her son MARIANO G. FAVIS, MA. THERESA JOANA D. FAVIS, JAMES MARK D. FAVIS, all
minors represented herein by their parents SPS. MARIANO FAVIS and LARCELITA D. FAVIS,Respondents.

DECISION

PEREZ, J.:

Before this Court is a petition for review assailing the 10 April 2008 Decision1 and 7 January 2009 Resolution2 of the Court
of Appeals in CA-G.R. CV No. 86497 dismissing petitioners’ complaint for annulment of the Deed of Donation for failure to
exert earnest efforts towards a compromise.

Dr. Mariano Favis, Sr. (Dr. Favis) was married to Capitolina Aguilar (Capitolina) with whom he had seven children named
Purita A. Favis, Reynaldo Favis, Consolacion Favis-Queliza, Mariano A. Favis, Jr., Esther F. Filart, Mercedes A. Favis,
and Nelly Favis-Villafuerte. When Capitolina died in March 1944, Dr. Favis took Juana Gonzales (Juana) as his common-
law wife with whom he sired one child, Mariano G. Favis (Mariano). When Dr. Favis and Juana got married in 1974, Dr.
Favis executed an affidavit acknowledging Mariano as one of his legitimate children. Mariano is married to Larcelita D.
Favis (Larcelita), with whom he has four children, named Ma. Theresa Joana D. Favis, Ma. Cristina D. Favis, James Mark
D. Favis and Ma. Thea D. Favis.

Dr. Favis died intestate on 29 July 1995 leaving the following properties:

1. A parcel of residential land located at Bonifacio St. Brgy. 1, Vigan, Ilocos Sur, consisting an area of 898 square
meters, more or less, bounded on the north by Salvador Rivero; on the East by Eleutera Pena; on the South by
Bonifacio St., and on the West by Carmen Giron; x x x;
2. A commercial building erected on the aforesaid parcel of land with an assessed value of ₱126,000.00; x x x;

3. A parcel of residential land located in Brgy. VII, Vigan, Ilocos Sur, containing an area of 154 sq. ms., more or
less, bounded on the North by the High School Site; on the East by Gomez St., on the South by Domingo [G]o;
and on the West by Domingo Go; x x x;

4. A house with an assessed value of ₱17,600.00 x x x;

5. A parcel of orchard land located in Brgy. VI, Vigan, Ilocos Sur, containing an area of 2,257 sq. ma. (sic) more or
less, bounded on the North by Lot 1208; on the East by Mestizo River; on the South by Lot 1217 and on the West
by Lot 1211-B, 1212 and 1215 x x x.3

Beginning 1992 until his death in 1995, Dr. Favis was beset by various illnesses, such as kidney trouble, hiatal hernia,
congestive heart failure, Parkinson’s disease and pneumonia. He died of "cardiopulmonary arrest secondary to multi-
organ/system failure secondary to sepsis secondary to pneumonia."4

On 16 October 1994, he allegedly executed a Deed of Donation5 transferring and conveying properties described in (1)
and (2) in favor of his grandchildren with Juana.

Claiming that said donation prejudiced their legitime, Dr. Favis’ children with Capitolina, petitioners herein, filed an action
for annulment of the Deed of Donation, inventory, liquidation and partition of property before the Regional Trial Court
(RTC) of Vigan, Ilocos Sur, Branch 20 against Juana, Spouses Mariano and Larcelita and their grandchildren as
respondents.

In their Answer with Counterclaim, respondents assert that the properties donated do not form part of the estate of the late
Dr. Favis because said donation was made inter vivos, hence petitioners have no stake over said properties.6

The RTC, in its Pre-Trial Order, limited the issues to the validity of the deed of donation and whether or not respondent
Juana and Mariano are compulsory heirs of Dr. Favis.7

In a Decision dated 14 November 2005, the RTC nullified the Deed of Donation and cancelled the corresponding tax
declarations. The trial court found that Dr. Favis, at the age of 92 and plagued with illnesses, could not have had full
control of his mental capacities to execute a valid Deed of Donation. Holding that the subsequent marriage of Dr. Favis
and Juana legitimated the status of Mariano, the trial court also declared Juana and Mariano as compulsory heirs of Dr.
Favis. The dispositive portion reads:WHEREFORE, in view of all the foregoing considerations, the Deed of Donation dated
October 16, 1994 is hereby annulled and the corresponding tax declarations issued on the basis thereof cancelled. Dr.
Mariano Favis, Sr. having died without a will, his estate would result to intestacy. Consequently, plaintiffs Heirs of Dr.
Mariano Favis, Sr., namely Purita A. Favis, Reynaldo A. Favis, Consolacion F. Queliza, Mariano A. Favis, Jr., Esther F.
Filart, Mercedes A. Favis, Nelly F. Villafuerte and the defendants Juana Gonzales now deceased and Mariano G. Favis,
Jr. shall inherit in equal shares in the estate of the late Dr. Mariano Favis, Sr. which consists of the following:

1. A parcel of residential land located at Bonifacio St. Brgy. 1, Vigan City, Ilocos Sur, consisting an area of 89 sq.
meters more or less, bounded on the north by Salvador Rivero; on the East by Eleutera Pena; on the South by
Bonifacio St., and on the West by Carmen Giron;

2. A commercial building erected on the aforesaid parcel of land with an assessed value of ₱126,000.00;

3. One-half (1/2) of the house located in Brgy. VI, Vigan City, Ilocos Sur[,] containing an area of 2,257 sq. meters
more or less, bounded on the north by Lot 1208; on the east by Mestizo River; on the South by Lot 1217 and on
the West by Lot 1211-B, 1212 and 1215.

4. The accumulated rentals of the new Vigan Coliseum in the amount of One Hundred Thirty [Thousand]
(₱130,000.00) pesos per annum from the death of Dr. Mariano Favis, Sr.8

Respondents interposed an appeal before the Court of Appeals challenging the trial court’s nullification, on the ground of
vitiated consent, of the Deed of Donation in favor of herein respondents. The Court of Appeals ordered the dismissal of the
petitioners’ nullification case. However, it did so not on the grounds invoked by herein respondents as appellant.

The Court of Appeals motu proprio ordered the dismissal of the complaint for failure of petitioners to make an averment
that earnest efforts toward a compromise have been made, as mandated by Article 151 of the Family Code. The appellate
court justified its order of dismissal by invoking its authority to review rulings of the trial court even if they are not assigned
as errors in the appeal.

Petitioners filed a motion for reconsideration contending that the case is not subject to compromise as it involves future
legitime.

The Court of Appeals rejected petitioners’ contention when it ruled that the prohibited compromise is that which is entered
between the decedent while alive and compulsory heirs. In the instant case, the appellate court observed that while the
present action is between members of the same family it does not involve a testator and a compulsory heir. Moreover, the
appellate court pointed out that the subject properties cannot be considered as "future legitime" but are in fact, legitime, as
the instant complaint was filed after the death of the decedent.

Undaunted by this legal setback, petitioners filed the instant petition raising the following arguments:

1. The Honorable Court of Appeals GRAVELY and SERIOUSLY ERRED in DISMISSING the COMPLAINT.
2. Contrary to the finding of the Honorable Court of Appeals, the verification of the complaint or petition is not a
mandatory requirement.

3. The Honorable Court of Appeals seriously failed to appreciate that the filing of an intervention by Edward Favis
had placed the case beyond the scope of Article 151 of the Family Code.

4. Even assuming arguendo without admitting that the filing of intervention by Edward Favis had no positive effect
to the complaint filed by petitioners, it is still a serious error for the Honorable Court of Appeals to utterly disregard
the fact that petitioners had substantially complied with the requirements of Article 151 of the Family Code.

5. Assuming arguendo that petitioners cannot be construed as complying substantially with Article 151 of the
Family Code, still, the same should be considered as a non-issue considering that private respondents are in
estoppel.

6. The dismissal of the complaint by the Honorable Court of Appeals amounts to grave abuse of discretion
amounting to lack and excess of jurisdiction and a complete defiance of the doctrine of primacy of substantive
justice over strict application of technical rules.

7. The Honorable Court of Appeals gravely and seriuosly erred in not affirming the decision of the Court a quo that
the Deed of Donation is void.9

In their Comment, respondents chose not to touch upon the merits of the case, which is the validity of the deed of
donation. Instead, respondents defended the ruling the Court of Appeals that the complaint is dismissible for failure of
petitioners to allege in their complaint that earnest efforts towards a compromise have been exerted.

The base issue is whether or not the appellate court may dismiss the order of dismissal of the complaint for failure to
allege therein that earnest efforts towards a compromise have been made. The appellate court committed egregious error
in dismissing the complaint. The appellate courts’ decision hinged on Article 151 of the Family Code, viz:

Art. 151. No suit between members of the same family shall prosper unless it should appear from the verified complaint or
petition that earnest efforts toward a compromise have been made, but that the same have failed. If it is shown that no
such efforts were in fact made, the case must be dismissed.

This rule shall not apply to cases which may not be the subject of compromise under the Civil Code.

The appellate court correlated this provision with Section 1, par. (j), Rule 16 of the 1997 Rules of Civil Procedure, which
provides:

Section 1. Grounds. — Within the time for but before filing the answer to the complaint or pleading asserting a claim, a
motion to dismiss may be made on any of the following grounds:

xxxx

(j) That a condition precedent for filing the claim has not been complied with.

The appellate court’s reliance on this provision is misplaced. Rule 16 treats of the grounds for a motion to dismiss the
complaint. It must be distinguished from the grounds provided under Section 1, Rule 9 which specifically deals with
dismissal of the claim by the court motu proprio. Section 1, Rule 9 of the 1997 Rules of Civil Procedure provides:

Section 1. Defenses and objections not pleaded. − Defenses and objections not pleaded either in a motion to dismiss or in
the answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has
no jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause,
or that the action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim.

Section 1, Rule 9 provides for only four instances when the court may motu proprio dismiss the claim, namely: (a) lack of
jurisdiction over the subject matter; (b) litis pendentia ; (c) res judicata ; and (d) prescription of action. 10Specifically in
Gumabon v. Larin,11 cited in Katon v. Palanca, Jr.,12 the Court held:

x x x [T]he motu proprio dismissal of a case was traditionally limited to instances when the court clearly had no jurisdiction
over the subject matter and when the plaintiff did not appear during trial, failed to prosecute his action for an unreasonable
length of time or neglected to comply with the rules or with any order of the court. Outside of these instances, any motu
proprio dismissal would amount to a violation of the right of the plaintiff to be heard. Except for qualifying and expanding
Section 2, Rule 9, and Section 3, Rule 17, of the Revised Rules of Court, the amendatory 1997 Rules of Civil Procedure
brought about no radical change. Under the new rules, a court may motu proprio dismiss a claim when it appears from the
pleadings or evidence on record that it has no jurisdiction over the subject matter; when there is another cause of action
pending between the same parties for the same cause, or where the action is barred by a prior judgment or by statute of
limitations. x x x.13

The error of the Court of Appeals is evident even if the consideration of the issue is kept within the confines of the
language of Section 1(j) of Rule 16 and Section 1 of Rule 9. That a condition precedent for filing the claim has not been
complied with, a ground for a motion to dismiss emanating from the law that no suit between members from the same
family shall prosper unless it should appear from the verified complaint that earnest efforts toward a compromise have
been made but had failed, is, as the Rule so words, a ground for a motion to dismiss. Significantly, the Rule requires that
such a motion should be filed "within the time for but before filing the answer to the complaint or pleading asserting a
claim." The time frame indicates that thereafter, the motion to dismiss based on the absence of the condition precedent is
barred. It is so inferable from the opening sentence of Section 1 of Rule 9 stating that defense and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived. There are, as just noted, only four exceptions to this
Rule, namely, lack of jurisdiction over the subject matter; litis pendentia ; res judicata ; and prescription of action. Failure to
allege in the complaint that earnest efforts at a compromise has been made but had failed is not one of the exceptions.
Upon such failure, the defense is deemed waived.

It was in Heirs of Domingo Valientes v. Ramas14 cited in P.L. Uy Realty Corporation v. ALS Management and Development
Corporation15 where we noted that the second sentence of Section 1 of Rule 9 does not only supply exceptions to the rule
that defenses not pleaded either in a motion to dismiss or in the answer are deemed waived, it also allows courts to
dismiss cases motu propio on any of the enumerated grounds. The tenor of the second sentence of the Rule is that the
allowance of a motu propio dismissal can proceed only from the exemption from the rule on waiver; which is but logical
because there can be no ruling on a waived ground.

Why the objection of failure to allege a failed attempt at a compromise in a suit among members of the same family is
waivable was earlier explained in the case of Versoza v. Versoza,16 a case for future support which was dismissed by the
trial court upon the ground that there was no such allegation of infringement of Article 222 of the Civil Code, the origin of
Article 151 of the Family Code. While the Court ruled that a complaint for future support cannot be the subject of a
compromise and as such the absence of the required allegation in the complaint cannot be a ground for objection against
the suit, the decision went on to state thus:

The alleged defect is that the present complaint does not state a cause of action. The proposed amendment seeks to
complete it. An amendment to the effect that the requirements of Article 222 have been complied with does not confer
jurisdiction upon the lower court. With or without this amendment, the subject-matter of the action remains as one for
support, custody of children, and damages, cognizable by the court below.

To illustrate, Tamayo v. San Miguel Brewery, Inc.,17 allowed an amendment which " merely corrected a defect in the
allegation of plaintiff-appellant’s cause of action, because as it then stood, the original complaint stated no cause of
action." We there ruled out as inapplicable the holding in Campos Rueda Corporation v. Bautista,18 that an amendment
cannot be made so as to confer jurisdiction on the court x x x. (Italics supplied).

Thus was it made clear that a failure to allege earnest but failed efforts at a compromise in a complaint among members of
the same family, is not a jurisdictional defect but merely a defect in the statement of a cause of action. Versoza was cited
in a later case as an instance analogous to one where the conciliation process at the barangay level was not priorly
resorted to. Both were described as a "condition precedent for the filing of a complaint in Court." 19 In such instances, the
consequence is precisely what is stated in the present Rule. Thus:

x x x The defect may however be waived by failing to make seasonable objection, in a motion to dismiss or answer, the
defect being a mere procedural imperfection which does not affect the jurisdiction of the court.20 (Underscoring supplied).

In the case at hand, the proceedings before the trial court ran the full course. The complaint of petitioners was answered
by respondents without a prior motion to dismiss having been filed. The decision in favor of the petitioners was appealed
by respondents on the basis of the alleged error in the ruling on the merits, no mention having been made about any
defect in the statement of a cause of action. In other words, no motion to dismiss the complaint based on the failure to
comply with a condition precedent was filed in the trial court; neither was such failure assigned as error in the appeal that
respondent brought before the Court of Appeals.

Therefore, the rule on deemed waiver of the non-jurisdictional defense or objection is wholly applicable to respondent. If 1âwphi1

the respondents as parties-defendants could not, and did not, after filing their answer to petitioner’s complaint, invoke the
objection of absence of the required allegation on earnest efforts at a compromise, the appellate court unquestionably did
not have any authority or basis to motu propio order the dismissal of petitioner’s complaint.

Indeed, even if we go by the reason behind Article 151 of the Family Code, which provision as then Article 222 of the New
Civil Code was described as "having been given more teeth"21 by Section 1(j), Rule 16 of the Rule of Court, it is safe to say
that the purpose of making sure that there is no longer any possibility of a compromise, has been served. As cited in
commentaries on Article 151 of the Family Code –

This rule is introduced because it is difficult to imagine a sudden and more tragic spectacle than a litigation between
members of the same family. It is necessary that every effort should be made towards a compromise before a litigation is
allowed to breed hate and passion in the family. It is known that a lawsuit between close relatives generates deeper
bitterness than between strangers.22

The facts of the case show that compromise was never an option insofar as the respondents were concerned. The
impossibility of compromise instead of litigation was shown not alone by the absence of a motion to dismiss but on the
respondents’ insistence on the validity of the donation in their favor of the subject properties. Nor could it have been
otherwise because the Pre-trial Order specifically limited the issues to the validity of the deed and whether or not
respondent Juana and Mariano are compulsory heirs of Dr. Favis. Respondents not only confined their arguments within
the pre-trial order; after losing their case, their appeal was based on the proposition that it was error for the trial court to
have relied on the ground of vitiated consent on the part of Dr. Favis.

The Court of Appeals ignored the facts of the case that clearly demonstrated the refusal by the respondents to
compromise. Instead it ordered the dismissal of petitioner’s complaint on the ground that it did not allege what in fact was
shown during the trial. The error of the Court of Appeals is patent.

Unfortunately for respondents, they relied completely on the erroneous ruling of the Court of Appeals even when
petitioners came to us for review not just on the basis of such defective motu propio action but also on the proposition that
the trial court correctly found that the donation in question is flawed because of vitiated consent. Respondents did not
answer this argument. The trial court stated that the facts are:
x x x To determine the intrinsic validity of the deed of donation subject of the action for annulment, the mental
state/condition of the donor Dr. Mariano Favis, Sr. at the time of its execution must be taken into account. Factors such as
his age, health and environment among others should be considered. As testified to by Dr. Mercedes Favis, corroborated
by Dr. Edgardo Alday and Dra. Ofelia Adapon, who were all presented as expert witnesses, Dr. Mariano Favis, Sr. had
long been suffering from Hiatal Hernia and Parkinson’s disease and had been taking medications for years. That a person
with Parkinson’s disease for a long time may not have a good functioning brain because in the later stage of the disease,
1/3 of death develop from this kind of disease, and or dementia. With respect to Hiatal Hernia, this is a state wherein
organs in the abdominal cavity would go up to the chest cavity, thereby occupying the space for the lungs causing the
lungs to be compromised. Once the lungs are affected, there is less oxygenation to the brain. The Hernia would cause the
heart not to pump enough oxygen to the brain and the effect would be chronic, meaning, longer lack of oxygenation to the
brain will make a person not in full control of his faculties. Dr. Alday further testified that during his stay with the house of
Dr. Mariano Favis, Sr. (1992-1994), he noticed that the latter when he goes up and down the stairs will stop after few
seconds, and he called this pulmonary cripple – a very advanced stage wherein the lungs not only one lung, but both
lungs are compromised. That at the time he operated on the deceased, the left and right lung were functioning but the left
lung is practically not even five (5%) percent functioning since it was occupied by abdominal organ. x x x.

Dr. Mariano Favis, Sr. during the execution of the Deed of Donation was already 92 years old; living with the defendants
and those years from 1993 to 1995 were the critical years when he was sick most of the time. In short, he’s dependent on
the care of his housemates particularly the members of his family. It is the contention of the defendants though that Dr.
Mariano Favis, Sr. had full control of his mind during the execution of the Deed of Donation because at that time, he could
go on with the regular way of life or could perform his daily routine without the aid of anybody like taking a bath, eating his
meals, reading the newspaper, watching television, go to the church on Sundays, walking down the plaza to exercise and
most importantly go to the cockpit arena and bet. Dr. Ofelia Adapon, a neurology expert however, testified that a person
suffering from Parkinson’s disease when he goes to the cockpit does not necessarily mean that such person has in full
control of his mental faculties because anyone, even a retarded person, a person who has not studied and have no
intellect can go to the cockpit and bet. One can do everything but do not have control of his mind. x x x That Hiatal Hernia
creeps in very insidiously, one is not sure especially if the person has not complained and no examination was done. It
could be there for the last time and no one will know. x x x.

The Deed of Donation in favor of the defendants Ma. Theresa, Joana D. Favis, Maria Cristina D. Favis, James Mark D.
Favis and Maria Thea D. Favis, all of whom are the children of Mariano G. Favis, Jr. was executed on [16 October] 1994,
seven (7) months after Dra. Mercedes Favis left the house of Dr. Favis, Sr. at Bonifacio St., Vigan City, Ilocos Sur, where
she resided with the latter and the defendants.

Putting together the circumstances mentioned, that at the time of the execution of the Deed of Donation, Dr. Mariano
Favis, Sr. was already at an advanced age of 92, afflicted with different illnesses like Hiatal hernia, Parkinsons’ disease
and pneumonia, to name few, which illnesses had the effects of impairing his brain or mental faculties and the deed being
executed only when Dra. Mercedes Favis had already left his father’s residence when Dr. Mariano Favis, Sr. could have
done so earlier or even in the presence of Dra. Mercedes Favis, at the time he executed the Deed of Donation was not in
full control of his mental faculties. That although age of senility varies from one person to another, to reach the age of 92
with all those medications and treatment one have received for those illnesses, yet claim that his mind remains
unimpaired, would be unusual. The fact that the Deed of Donation was only executed after Dra. Mercedes Favis left his
father's house necessarily indicates that they don't want the same to be known by the first family, which is an indicia of
bad faith on the part of the defendant, who at that time had influence over the donor.23

The correctness of the finding was not touched by the Court of Appeals. The respondents opted to rely only on what the
appellate court considered, erroneously though, was a procedural infirmity. The trial court's factual finding, therefore,
stands unreversed; and respondents did not provide us with any argument to have it reversed.

The issue of the validity of donation was fully litigated and discussed by the trial court. Indeed, the trial court's findings
were placed at issue before the Court of Appeals but the appellate court chose to confine its review to the procedural
aspect. The judgment of the Court of Appeals, even if it dealt only with procedure, is deemed to have covered all issues
including the correctness of the factual findings of the trial court. Moreover, remanding the case to the Court of Appeals
would only constitute unwarranted delay in the final disposition of the case.

WHEREFORE, the Decision of the Court of Appeals is REVERSED and SET ASIDE and the Judgment of the Regional
Trial Court of Vigan, Ilocos Sur, Branch 20 is AFFIRMED.

SO ORDERED.

G.R. No. 195592 September 5, 2012

MAGDIWANG REALTY CORPORATION, RENATO P. DRAGON and ESPERANZA TOLENTINO, Petitioners,


vs.
THE MANILA BANKING CORPORATION, substituted by FIRST SOVEREIGN ASSET MANAGEMENT (SPV-AMC),
INC., Respondent.

DECISION

REYES, J.:

This resolves the petition for review on certiorari filed under Rule 45 of the Rules of Court which questions. the
Decision1 dated October 11, 201 0 and Resolution2 dated January 31, 2011 of the Court of Appeals (CA) in CA-G .R. CV
No. 90098 entitled The Manila Banking Corporation, substituted by First Sovereign Asset Management, Inc., Plaintiff-
Appellee, v. Magdiwang Realty Corporation, Renata P. Dragon and Esperanza Tolentino, Defendants-Appellants.

The Factual Antecedents


The case stems from a complaint3 for sum of money filed on April 18, 2000 before the Regional Trial Court (RTC), Makati
City by herein respondent, The Manila Banking Corporation (TMBC), against herein petitioners, Magdiwang Realty
Corporation (Magdiwang), Renato P. Dragon (Dragon) and Esperanza Tolentino (Tolentino), after said petitioners
allegedly defaulted in the payment of their debts under the five promissory notes4 they executed in favor of TMBC, which
contained the following terms:

Maturity Date Amount

Promissory Note No. 4953 December 27, 1976 Php500,000.00

Promissory Note No. 10045 March 27, 1982 Php500,000.00


Promissory Note No. 10046 March 27, 1982 Php500,000.00

Promissory Note No. 10047 March 27, 1982 Php500,000.00


Promissory Note No. 10048 March 27, 1982 Php500,000.00

All promissory notes included stipulations on the payment of interest and additional charges in case of default by the
debtors. Despite several demands for payment made by TMBC, the petitioners allegedly failed to heed to the bank’s
demands, prompting the filing of the complaint for sum of money. The case was docketed as Civil Case No. 00-511 and
raffled to Branch 148 of the RTC of Makati City.

Instead of filing a responsive pleading with the trial court, the petitioners filed on October 12, 2000, which was notably
beyond the fifteen (15)-day period allowed for the filing of a responsive pleading, a Motion for Leave to Admit Attached
Motion to Dismiss5 and a Motion to Dismiss,6 raising therein the issues of novation, lack of cause of action against
individuals Dragon and Tolentino, and the impossibility of the novated contract due to a subsequent act of the Congress.
The motions were opposed by the respondent TMBC, via its Opposition7 which likewise asked that the petitioners be
declared in default for their failure to file their responsive pleading within the period allowed under the law.

Acting on these incidents, the RTC issued an Order8 on July 5, 2001 declaring the petitioners in default given the following
findings:

The record shows that as per Officer’s Return dated 19 September 2000, summons were served on even date by way of
substituted service. Summons were received by a certain LINDA G. MANLIMOS, a person of sufficient age and discretion
then working/residing at the address indicated in the Complaint at No. 15 Tamarind St., Forbes Park, Makati City.

Consequently, in accordance with the Rules, defendants should have filed an Answer or Motion to Dismiss or any
responsive pleading for that matter within the reglementary period, which is fifteen (15) days from receipt of Summons and
a copy of the complaint with attached annexes. Accordingly, defendants should have filed their responsive pleading on
October 2, 2000 but no pleading was filed on the aforesaid date, not even a Motion for Extension of Time. Instead,
defendant’s Motion to Dismiss found its way into the court only on the 13th day of October, clearly beyond the period
contemplated by the Rules. A perusal of the Motion for Leave to Admit the Motion to Dismiss filed by defendants reveals
that the case, as claimed by the counsel for defendants, was just referred to the counsel only on October 10, and further
insinuated that the Motion to Dismiss was only filed on the said date in view of the complicated factual and legal issues
involved. While this Court appreciates the efforts and tenacity shown by defendants’ counsel for having prepared a
[lengthy] pleading for his clients in so short a time, the Court will have to rule that the Motion to Dismiss was nonetheless
filed out of time, hence, there is sufficient basis to declare defendants in default. x x x.9

The decretal portion of the Order then reads:

WHEREFORE, premises considered, defendants’ Motion to Dismiss is hereby treated as a pleading which has not been
filed at all and cannot be ruled upon by the Court anymore for the same has been filed out of time. Plaintiff’s prayer to
declare defendants in default is hereby GRANTED, and as a consequence, defendants are hereby declared in DEFAULT.

SO ORDERED.10

The petitioners’ motion for reconsideration was denied by the trial court in its Order11 dated August 2, 2005. The ex parte
presentation of evidence by the bank before the trial court’s Presiding Judge was scheduled in the same Order.

Unsatisfied with the RTC orders, the petitioners filed with the CA a petition for certiorari, which was docketed as CA-G.R.
SP No. 91820. In a Decision12 dated December 2, 2006, the CA affirmed the RTC orders after ruling that the trial court did
not commit grave abuse of discretion when it declared herein petitioners in default. The denial of petitioners’ motion for
reconsideration prompted the filing of a petition for review on certiorari before this Court, which, through its Resolutions
dated March 5, 200813 and June 25, 2008,14 denied the petition for lack of merit.

In the meantime, TMBC’s presentation of evidence ex parte proceeded before Presiding Judge Oscar B. Pimentel of the
RTC of Makati City.

The Ruling of the RTC

On May 20, 2007, the RTC rendered its Decision15 in favor of TMBC and against herein petitioners. The decision’s
dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff as against:
1. Defendant Magdiwang Realty Corporation, requiring said defendant to pay plaintiff the sum of ₱ 500,000.00 as
indicated in Promissory Note No. 4953;

2. Requiring defendant Magdiwang Realty Corporation to pay the plaintiff interest to the principal loan at the rate of 14%
per annum from 27 December 1976 until the amount is paid;

3. Requiring the defendant Magdiwang Realty Corporation to pay plaintiff penalty charges of 4% per annum from
December 27, 1976 until the whole amount is paid; and

4. Requiring defendant Magdiwang Realty Corporation to pay plaintiff attorney’s fees equivalent to 10% of the total
outstanding obligation.

Further, judgment is rendered in favor of plaintiff and against defendants Magdiwang Realty Corporation, Renato Dragon
and Esperanza Tolentino ordering said defendants to jointly and severally pay the plaintiff the following:

1. The principal amount of ₱ 500,000.00 as indicated in Promissory Note No. 10045;

2. To pay the principal amount of ₱ 500,000.00 as indicated in Promissory Note No. 10046;

3. To pay the principal amount of ₱ 500,000.00 as indicated in Promissory Note No. 10047;

4. To pay the principal amount of ₱ 500,000.00 as indicated in Promissory Note No. 10048;

5. To pay interest in the principal loan at the rate of sixteen (16%) percent per annum as stipulated in PN
Nos. 10045, 10046, 10047 and 10048 from March 27, 1981 until the whole amount is paid;

6. To pay penalty at the rate of one percent a month (1%) on the principal amount [of] loan plus unpaid
interest at the rate of 16% per annum in PN Nos. 10045, 10046, 10047 and 10048 starting from March 27,
1981 until the whole amount is paid; and

7. To pay 10% of the total amount due and outstanding under PN Nos. 10045, 10046, 10047 and 10048 as
attorney’s fees.

Costs against the defendants.

SO ORDERED.16

The petitioners’ motion for reconsideration was denied by the trial court via its Order 17 dated November 5, 2007. Feeling
aggrieved, the petitioners appealed to the CA, imputing error on the part of the trial court in: (1) not declaring that TMBC’s
cause of action was already barred by the statute of limitations; (2) declaring herein petitioners liable to pay TMBC despite
the alleged novation of the subject obligations; (3) declaring TMBC entitled to its claims despite the alleged failure of the
bank to substantiate its claims; (4) declaring TMBC entitled to attorney’s fees and litigation expenses; and (5) declaring
herein petitioners in default.

While appeal was pending before the appellate court, TMBC and First Sovereign Asset Management (SPV-AMC), Inc.
(FSAMI) filed a Joint Motion for Substitution, asking that TMBC be substituted by FSAMI after the former executed in favor
of the latter a Deed of Assignment covering all of its rights, title and interest over the loans subject of the case.

The Ruling of the CA

On October 11, 2010, the CA rendered its Decision18 dismissing the petitioners’ appeal. The decision’s dispositive portion
reads:

WHEREFORE, in view of the foregoing premises, the appeal filed in this case is hereby DENIED and,
consequently, DISMISSED. The assailed Decision dated May 20, 2007 and Order dated November 5, 2007 of the
Regional Trial Court, Branch 148, in Makati City in Civil Case No. 00-511 are hereby AFFIRMED.

SO ORDERED.19

On the issue of prescription, the CA cited the rule that the prescriptive period is interrupted in any of the following
instances: (1) when an action is filed before the court; (2) when there is a written extrajudicial demand by the creditors;
and (3) when there is any written acknowledgment of the debt by the debtor. The appellate court held:

As shown by the evidence, we arrived at the conclusion that the prescriptive period was legally interrupted on September
19, 1984 when the defendants-appellants, through several letters, proposed for the restructuring of their loans until the
plaintiff-appellee sent its final demand letter on September 10, 1999. Indeed, the period during which the defendants-
appellants were seeking reconsideration for the non-settlement of their loans and proposing payment schemes of the
same should not be reckoned against it. When prescription is interrupted, all the benefits acquired so far from the lapse of
time cease and, when prescription starts anew, it will be entirely a new one. This concept should not be equated with
suspension where the past period is included in the computation being added to the period after prescription is resumed.
Consequently, when the plaintiff-appellee sent its final demand letter to the defendants appellants, thus, foreclosing all
possibilities of reaching a settlement of the loans which could be favorable to both parties, the period of ten years within
which to enforce the five promissory notes under Article 1142 of the New Civil Code began to run again and, therefore, the
action filed on April 18, 2000 to compel the defendants-appellants to pay their obligations under the promissory notes had
not prescribed. The written communications of the defendants-appellants proposing for the restructuring of their loans and
the repayment scheme are, in our view, synonymous to an express acknowledgment of the obligation and had the effect
of interrupting the prescription. x x x.20 (Citation omitted)

The defense of novation was also rejected by the CA, citing the absence of two requirements for a valid novation, namely:
(1) the clear and express release of the original debtor from the obligation upon the assumption by the new debtor of the
obligation; and (2) the consent of the creditor thereto.

A motion for reconsideration filed by the petitioners was denied by the CA in its Resolution 21 dated January 31, 2011.
Hence, the present petition for review on certiorari.

The Present Petition

The petitioners present the following grounds to support their petition:

1. THE COURT OF APPEALS ERRED WHEN IT HELD THAT THE PRESCRIPTIVE PERIOD WAS LEGALLY
INTERRUPTED ON 19 SEPTEMBER 1984 WHEN PETITIONERS, THROUGH SEVERAL LETTERS, PROPOSED FOR
THE RESTRUCTURING OF THEIR LOANS UNTIL THE RESPONDENT SENT ITS FINAL DEMAND LETTER ON 10
SEPTEMBER 1999.

2. THE COURT OF APPEALS ERRED WHEN IT HELD THAT THE PRINCIPLE OF NOVATION BY THE SUBSTITUTION
OF DEBTORS WAS ERRONEOUSLY EMPLOYED BY THE PETITIONERS TO EXTRICATE THEMSELVES FROM
THEIR OBLIGATION TO RESPONDENT.

3. THE COURT OF APPEALS ERRED WHEN IT AFFIRMED THE TRIAL COURT’S RULING HOLDING THAT
PETITIONERS ARE LIABLE FOR ATTORNEY’S FEES.22

This Court’s Ruling

The petition is dismissible.

At the outset, we explain that based on the issues being raised by the petitioners, together with the arguments and the
evidence being invoked in support thereof, we hold that the petition involves questions of fact that are beyond the ambit of
a petition for review on certiorari. Section 1, Rule 45 of the Rules of Court, as amended, reads:

Sec. 1. Filing of petition with Supreme Court. – A party desiring to appeal by certiorari from a judgment, final order or
resolution of the Court of Appeals, the Sandiganbayan, the Court of Tax Appeals, the Regional Trial Court or other courts,
whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition may
include an application for a writ of preliminary injunction or other provisional remedies and shall raise only questions of
law, which must be distinctly set forth. The petitioner may seek the same provisional remedies by verified motion filed in
the same action or proceeding at any time during its pendency. (Emphasis ours)

Section 1, Rule 45 then categorically states that a petition for review on certiorari shall raise only questions of law, which
must be distinctly set forth. A question of law arises when there is doubt as to what the law is on a certain state of facts,
while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be
one of law, the same must not involve an examination of the probative value of the evidence presented by the litigants or
any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once
it is clear that the issue invites a review of the evidence presented, the question posed is one of fact.23

On the first issue of prescription, the petitioners argue that there was no written extrajudicial demand by the creditor TMBC
that could have validly interrupted the ten (10)-year prescriptive period.24 They claim, among other things, that the bank
failed to prove that it sent the demand letter dated September 10, 1999 to the petitioners, and that it was actually received
by said petitioners. The petitioners also question the several other letters supposedly exchanged between the parties.
These contentions are now being raised even after the trial court that admitted the evidence of the respondent has
categorically declared in its Decision dated May 20, 2007 the fact of the respondent’s service, and the petitioners’ receipt,
of the demands.25 In its Order dated November 5, 2007, the trial court had also cited the several other correspondences
exchanged between the parties, including the letters of November 14, 1984, March 24, 1987, February 14, 1990 and
September 10, 1999 that negated the defenses of prescription and novation.26

On appeal, these factual findings were even affirmed by the CA, which again cited the several letters exchanged between
the parties in relation to the subject debts, and which correspondences were declared to have effectively interrupted the
running of the prescriptive period to initiate the action for sum of money against the petitioners.

Applying the guidelines laid down by jurisprudence on the criteria for distinguishing a question of law from a question of
fact, it is clear that the petitioners are now asking this Court to determine a question of fact, as their arguments delve on
the truth or falsity of the trial and appellate courts’ factual findings, the existence and authenticity of the respondent’s
documentary evidence, as well as the truth or falsity of the TMBC’s narration of facts in their complaint and the testimonial
evidence presented before the Presiding Judge in support of said allegations.

Similarly, the issue of the alleged novation involves a question of fact, as it necessarily requires a factual determination on
the existence of the following requisites of novation: (1) there must be a previous valid obligation; (2) the parties
concerned must agree to a new contract; (3) the old contract must be extinguished; and (4) there must be a valid new
contract.27 Needless to say, the respondent’s entitlement to attorney’s fees also depends upon the questioned factual
findings.

The settled rule is that conclusions and findings of fact of the trial court are entitled to great weight on appeal and should
not be disturbed unless for strong and cogent reasons because the trial court is in a better position to examine real
evidence, as well as observe the demeanor of the witnesses while testifying in the case. The fact that the CA adopted the
findings of fact of the trial court makes the same binding upon this Court.28 The Supreme Court is not a trier of facts. It is
not our function to review, examine and evaluate or weigh the probative value of the evidence presented. A question of
fact would arise in such event.29 Although jurisprudence admits of several exceptions to the foregoing rules, the present
case does not fall under any of them.

Even granting that the issues being raised by the petitioners may still be validly entertained by this Court through the
instant petition for review on certiorari, we hold that their arguments and defenses are bound to fail for lack of merit.

Significantly, the petitioners failed to file their answer to TMBC’s complaint within the reglementary period allowed under
the Rules of Court. The validity of the trial court’s declaration of their default is a settled matter, following the denial of the
petitions previously brought by the petitioners before the CA and this Court questioning it. As correctly stated by the CA in
the Decision dated October 11, 2010:

At the outset, it behooves this Court to accentuate that the Order of the trial court declaring the defendants-appellants in
default for their failure to file their responsive pleading to the complaint within the period prescribed under Section 3 of
Rule 9 of the Revised Rules of Court had been declared final and beyond review already by the Supreme Court through its
Resolution dated March 5, 2008 and June 25, 2008. Judicial decisions of the Supreme Court, as the final arbiter of any
justiciable controversy, assume the same authority as the law itself. Thus, the issue raised by the defendants-appellants
questioning the wisdom of the trial court’s decision in declaring them in default is now rendered moot and academic by the
aforecited Supreme Court resolutions.30

The petitioners’ default by their failure to file their answer led to certain consequences. Where defendants before a trial
court are declared in default, they thereby lose their right to object to the reception of the plaintiff’s evidence establishing
his cause of action.31 This is akin to a failure to, despite due notice, attend in court hearings for the presentation of the
complainant’s evidence, which absence would amount to the waiver of such defendant’s right to object to the evidence
presented during such hearing, and to cross-examine the witnesses presented therein.32

Taking into consideration the bank’s allegations in its complaint and the totality of the evidence presented in support
thereof, coupled with the said circumstance that the petitioners, by their own inaction, failed to make their timely objection
or opposition to the evidence, both documentary and testimonial, presented by TMBC to support its case, we find no
cogent reason to reverse the trial and appellate courts’ findings. We stress that in civil cases, the party having the burden
of proof must establish his case only by a preponderance of evidence. Preponderance of evidence is the weight, credit,
and value of the aggregate evidence on either side and is usually considered to be synonymous with the term "greater
weight of evidence" or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the last
analysis, means probability to truth. It is evidence which is more convincing to the court as worthier of belief than that
which is offered in opposition thereto.33

We agree with the trial and appellate courts, for as the records bear, that the ten (10)-year prescriptive period to file an
action based on the subject promissory notes was interrupted by the several letters exchanged between the parties. This
is in conformity with the second and third circumstances under Article 1155 of the New Civil Code (NCC) which provides
that the prescription of actions is interrupted when: (1) they are filed before the court; (2) there is a written extrajudicial
demand by the creditors; and (3) there is any written acknowledgment of the debt by the debtor. In TMBC’s complaint
against the petitioners, the bank sufficiently made the allegations on its service and the petitioners’ receipt of the subject
demand letters, even attaching thereto copies thereof for the trial court’s consideration. Thus, the complaint states in part:

23. However, despite numerous demands by plaintiff for the payment of the loan obligations obtained by defendants and
evidenced by the five Promissory Notes, defendants MAGDIWANG, Dragon and Tolentino failed to settle their obligations
with plaintiff.

Copies of plaintiff’s demand letters with respect to the five Promissory Notes (PN Nos. 4953, 10045, 10046, 10047,
10048) duly received by defendants, as well as defendants letters in reply to the demand letters and requesting for
restructuring of loan or extension of time to pay the same are herewith attached as Annexes "F" to "O", respectively, and
made integral parts of this Complaint.34

During the bank’s presentation of evidence ex parte, the testimony of witness Mr. Megdonio Isanan was also offered to
further support the claim on the demand made by the bank upon the petitioners. In the absence of a timely objection from
the petitioners on these claims, no error can be imputed on the part of the trial court, and even the appellate court, in
taking due consideration thereof. 1âwphi1

As against the bare denial belatedly made by the petitioners of their receipt of the written extrajudicial demands made by
TMBC, especially of the letter of September 10, 1999 which was the written demand sent closest in time to the institution
of the civil case, the appreciation of evidence and pronouncements of the trial court in its Order dated November 5, 2007
shall stand, to wit:

In the 14 November 1984 Letter of Kalilid Wood Industries, Inc., through Mr. Uriel Balboa, the counter-offer of the plaintiff
was acknowledged but Kalilid, while manifesting that the counter offer is acceptable, made some reservations and other
conditions which likewise constitute as counter offers. Hence, no meeting of the minds happened regarding the
restructuring of the loan. Likewise, based on this letter, the debt was also acknowledged. Another letter dated 24 March
1987 was issued and a repayment plan has been proposed by the Magdiwang Realty Corporation. There was also a
correspondence dated February 14, 1990 from defendant Renato P. Dragon’s Office regarding the obligation. While a
demand letter dated September 1999 was given by the plaintiff to the defendants. Hence, from all indications, the
prescription of the obligation does not set in.35

In addition to these, we take note that letters prior to the letter of September 1999 also form part of the case records, and
the existence of said letters were not directly denied by the petitioners. The following letters that form part of the complaint
and included in TMBC’s formal offer of exhibits were correctly claimed by the respondents in their Comment 36 as also
containing the petitioners’ acknowledgment of their debts and TMBC’s demand to its debtors: (1) Exhibit "M-29", which is a
letter dated January 4, 1995 requesting for an updated Statement of Account of the corporations owned by petitioner
Dragon, including the account of petitioner Magdiwang; and (2) Exhibit "M-30", which is the letter dated January 12, 1995
from the Office of the Statutory Receiver of TMBC and providing the Statements of Account requested for in the letter of
January 4, 1995. Significantly, the petitioners failed to adequately negate the authority of the first letter’s signatory to act
for and on behalf of the petitioners, the reasonable conclusion being that said signatory and the company it represented
were designated by the petitioners, as the debtors in the loans therein indicated, to deal with the TMBC.

On the issue of novation, no evidence was presented to adequately establish that such novation ensued. What the letters
1âwphi1

being invoked by the petitioners as supposedly establishing novation only indicate that efforts on a repayment scheme
were exerted by the parties. However, nowhere in the records is it indicated that such novation ever materialized.

Regarding the award of attorney’s fees, the applicable provision is Article 2208(2) of the NCC which allows the grant
thereof when the defendants’ act or omission compelled the plaintiff to litigate or to incur expenses to protect its interest.
Considering the circumstances that led to the filing of the complaint in court, and the clear refusal of the petitioners to
satisfy their existing debt to the bank despite the long period of time and the accommodations granted to it by the
respondent to enable them to satisfy their obligations, we agree that the respondent was compelled by the petitioners' acts
to litigate for the protection of the bank's interests, making the award of attorney's fees proper.

WHEREFORE, premises considered, the instant petition is hereby DENIED. The Decision dated October 11, 2010 and
Resolution dated January 31, 2011 of the Court of Appeals in CA-G.R. CV No. 90098 are hereby AFFIRMED.

SO ORDERED.

G.R. No. 205249 October 15, 2014

SPOUSES BENEDICT and SANDRA MANUEL, Petitioners,


vs.
RAMON ONG, Respondent.

DECISION

LEONEN, J.:

This resolves a petition1 for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, praying that the June
28, 2012 decision2 and the December 19, 2012 resolution3 of the Court of Appeals in CA-G.R. SP No. 119270 be reversed
and set aside. The assailed June 28, 2012 decision dismissed for lack of merit the petition for certiorari under Rule 65 of
the 1997 Rules of Civil Procedure filed by petitioners Benedict and Sandra Manuel (the Spouses Manuel) and sustained
the November 30, 2010 and February 16, 2011 orders of the Regional Trial Court, La Trinidad, Benguet.4 The assailed
December 19, 2012 resolution of the Court of Appeals denied the Spouses Manuel’s motion for reconsideration. The
Regional Trial Court’s November 30, 2010 order denied their motion to lift order of default, while its February 16, 2011
order denied their motion for reconsideration.5

On December 21, 2009, respondent Ramon Ong (Ong) filed with the Regional Trial Court, La Trinidad, Benguet, a
complaint for accion reivindicatoria.6 Ong charged the Spouses Manuel with having constructed improvements — through
force, intimidation, strategy, threats, and stealth — on a property he supposedly owned.7 The case was docketed as Civil
Case No. 09-CV-2582.8

On January 19, 2010, Ong filed an "amended complaint."9 On February 3, 2010, summons was issued directed to the
Spouses Manuel.10

On April 23, 2010, Ong filed with the Regional Trial Court a motion to declare the Spouses Manuel in default. 11 Per the
sheriff’s return on summons, on February 12, 2010, Sheriff Joselito Sales, along with Ong’s counsel, Atty. Christopher
Donaal, and a certain Federico Laureano, attempted to personally serve summons on the Spouses Manuel at their
address in Lower Bacong, Loacan, Itogon, Benguet.12 The Spouses Manuel, however, requested that service be made at
another time considering that petitioner Sandra Manuel's mother was then critically ill.13 The sheriff’s return further
indicates that on March 16, 2010, another attempt at personal service was made. After Sheriff Joselito Sales had
personally explained to petitioner Sandra Manuel the content of the summons and the complaint, the latter refused to sign
and receive the summons and the complaint. Sheriff Joselito Sales was thus prompted to merely tender the summons and
complaint to petitioner Sandra Manuel and to advise her to file their answer within fifteen (15) days.14 As the Spouses
Manuel failed to file their answer within this period, Ong asked that they be declared in default.15

On June 28, 2010, the Regional Trial Court issued an order granting Ong's motion to declare the Spouses Manuel in
default. Following this, Ong moved for the ex parte presentation ofevidence, which the Regional Trial Court granted.16

On September 13, 2010, the Spouses Manuel filed a motion to lift the order of default. They alleged thatit is the siblings of
petitioner Sandra Manuel who resided in Lower Bacong, Itogon, Benguet, while they resided in Ambiong, La Trinidad,
Benguet. Thus, summons could not have been properly served on them in the former address. They surmised that Ong
and his companions mistook petitioner Sandra Manuel’s siblings as the defendants in Civil Case No. 09-CV-2582.They
further claimed that they only subsequently received via registered mail copies of (1) a compliance and manifestation filed
by Ong and (2) the Regional Trial Court’s order scheduling the ex parte presentation of evidence. Attachedto the Spouses
Manuel’s motion to lift order of default was their answer.17

In its order dated November 30, 2010,the Regional Trial Court denied the Spouses Manuel’s motion to lift order of default.
It noted that, first, their motion was not sworn to, as required by the 1997 Rules of Civil Procedure, and, second, they did
not showthat their failure to timely file an answer "was due to fraud, accident, mistake or excusable negligence." 18 In its
order dated February16, 2011, the Regional Trial Court denied the Spouses Manuel’s motion for reconsideration.19
Aggrieved, the Spouses Manuel filed a petition for certiorari before the Court of Appeals.20

As mentioned, the assailed June 28, 2012 decision of the Court of Appeals dismissed the Spouses Manuel’s Rule 65
petition for lack of merit. The assailed December 19, 2012 resolution of the Court of Appeals denied their motion for
reconsideration.

Hence, this petition.

For resolution is the sole issue ofwhether the Spouses Manuel may be granted relief from the Regional Trial Court’s June
28, 2010 order of default.

Jurisdiction over the persons of the Spouses Manuel acquired

As a preliminary matter, we ruleon whether jurisdiction over the persons of the Spouses Manuel, as defendants in Civil
Case No. 09-CV-2582, was validly acquired. This preliminary matter is determinative of whether the fifteen-day period
within which they must file their answer started to run, thereby facilitating the context in which they could have validly been
declared to be in default.

We hold that jurisdiction over the persons of both defendants in Civil Case No. 09-CV-2582 — the Spouses Benedict and
Sandra Manuel — was validly acquired. This is so because personal service of summons, via tender to petitioner Sandra
Manuel, was made by Sheriff Joselito Sales on March 16, 2010.

Rule 14, Section 6 of the 1997 Rules of Civil Procedure provides:

SEC. 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.

Tendering summons is itself a means of personal service as it is contained in Rule 14, Section 6. Personal service, as
provided by Rule 14, Section 6, is distinguished from its alternative — substituted service — as provided by Rule 14,
Section 7:

SEC. 7. Substituted service. — If, 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 defendant's
residence with some person of suitable age and discretion then residing therein, or (b) by leaving the copies at defendant's
office or regular place of business with some competent person in charge thereof. (Emphasis supplied)

In this case, the sheriff’s returnon summons indicated that Sheriff Joselito Sales endeavored to personallyhand the
summons and a copy of the complaint to the Spouses Manuel on two (2) separate occasions. He relented from doing so
on the first occasion in deference to the medical condition of petitioner Sandra Manuel’s mother. On the second occasion,
he was constrained to tender the summons and copy of the complaint as petitioner Sandra Manuel refused to accept
them.

The Spouses Manuel did not deny the occurrence of the events narrated in the sheriff’s return but claimed that no valid
service of summons was made. They claimed that they did not reside in Lower Bacong, Loacan, Itogon, Benguet, where
the service of summons was made. From this, they surmised that the "Sandra Manuel" who was specifically identified in
the sheriff’s return was someone other than petitioner Sandra Manuel.

The Spouses Manuel cannot capitalize on the supposed variance of address. Personal service of summons has nothing to
do with the location where summons is served. A defendant’saddress is inconsequential. Rule 14, Section 6 of the 1997
Rules of Civil Procedure is clear in what it requires: personally handing the summons to the defendant (albeit tender is
sufficient should the defendant refuseto receive and sign). What is determinative of the validity of personal service is,
therefore, the person of the defendant, not the locus of service.

In any case, the Court of Appeals iscorrect in pointing out that the Spouses Manuel’s self-serving assertion must crumble
in the face of the clear declarations in the sheriff’s return.21 Pursuant to Rule 131, Section 3(m) of the Revised Rules on
Evidence,22 the acts of Sheriff Joselito Sales and the events relating to the attempt to personally hand the summons and a
copy of the complaint to the Spouses Manuel, as detailed in the sheriff’s return, enjoy the presumption of
regularity.23 Moreover, Sheriff Joselito Sales must be presumed to have taken ordinary care and diligence in carrying out
his duty to make service upon the proper person(s) and not upon an impostor.24

A sheriff’s return, if complete on its face, must be accorded the presumption of regularity and, hence, taken to be an
accurate and exhaustive recital of the circumstances relating to the steps undertaken by a sheriff. In this case, the
Spouses Manuel have harped on their (self-serving) claim of maintaining residence elsewhere but failed to even allege
that there was anything irregular about the sheriff’sreturn or that it was otherwise incomplete.

Having alleged irregularities in the service of summons, it was incumbent upon the Spouses Manuel to adduce proof of
their claims. All they mustered was their self-serving allegation of an alternative address. If at all, this claim of maintaining
residence elsewhere should not even be lent an iota of credibility considering that, as respondent Ramon Ong pointed out,
the barangay clearances, which the Spouses Manuel themselves attached to one of their pleadings (as proof of their
identities), actually indicated that they were residents of Bacong Loacan, Itogon, Benguet.25 Their lie is, thus, revealed by
their own pleading.

As the Spouses Manuel not only failed in discharging the burden of proving their allegation but even succeeded in
contradicting themselves, Sheriff Joselito Sales’ recollection of events must be taken tobe true. Thus, valid personal
service of summons, via tender to petitioner Sandra Manuel, was made. From this, it follows that jurisdiction over the
persons of petitioners Benedict and Sandra Manuel was acquired by the Regional Trial Court, La Trinidad, Benguet, in
Civil Case No. 09-CV-2582.
The Spouses Manuel are not entitled to relief from the order of default

As valid service of summons was made on them, it was incumbent upon the Spouses Manuel, pursuant to Rule 11,
Section 1 of the 1997 Rules of Civil Procedure,26 to file their answer withinfifteen (15) days from March 16, 2011. Having
failed to do so, they wererightly declared to be in default.

Rule 9, Section 3 of the 1997 Rules of Civil Procedure provides for when a party to an action may be declared in default.
Further, Rule 9, Section 3(b) governs the grant of relief from orders of default:

SEC. 3. Default; declaration of.— If the defending party fails to answer within the time allowed therefor, the court shall,
upon motion of the claiming party with notice to the defending party, and proof of such failure, declare the defending party
in default. Thereupon, the court shall proceed to render judgment granting the claimant such relief as his pleading may
warrant, unless the court in its discretion requires the claimant to submit evidence. Such reception of evidence may be
delegated to the clerk of court.

(a) Effect of order of default. — A party in default shall be entitled to notice of subsequent proceedingsbut not to take part
in the trial. (b)

Relief from order of default.— A party declared in default may at any time after notice thereof and before judgment file a
motion under oathto set aside the order of default upon proper showing that his failure to answer was due to fraud,
accident, mistake or excusable negligence and that he has a meritorious defense. In such case, the order of default may
be set aside on such terms and conditions as the judge may impose in the interest of justice. (Emphasis supplied)

Pursuant to Rule 9, Section 3, a court may proceed to render judgment as the pleading may warrant should a defendant
fail to timely file his or her answer. However, a court may decline from immediately rendering judgment and instead require
the plaintiff to present evidence. Per Rule 9, Section 3(a), a party declared to be indefault shall nevertheless be "entitled to
notice of subsequent proceedings," although he or she may no longer take part in the trial.

As explained in Spouses Delos Santos v. Carpio,27 "there are three requirements which must be complied with by the
claiming party before the court may declare the defending party in default:

(1) the claiming party must filea motion asking the court to declare the defending party in default;

(2) the defending party must be notified of the motion to declare him in default;

(3) the claiming party must provethat the defending party has failed to answer within the period provided by the
Rule."28

All these requisites were complied with by respondent Ramon Ong.

It is not disputed that Ong filed a motion to declare the Spouses Manuel in default. It is also not disputed that the latter
filed their answer after the fifteen-day period, counted from March 16, 2010, had lapsed. The Spouses Manuel only filed
their answer along with their motion to lift order of default on September 13, 2010.

It is similarly settled that the Spouses Manuel were notified that a motion to declare them in default had been filed. They
acknowledged in the present petition for certiorari that on June 23, 2010, Ong filed a compliance to the Regional Trial
Court’s April 30, 2010 order that required the submission of the registry return card evidencing the mailing to the Spouses
Manuel of a copy of the motion to have them declared in default.

Not only were the requisites for declaring a party in default satisfied, the Spouses Manuel’s motion to lift order of default
was also shown to be procedurally infirm.

Consistent with Rule 9, Section 3(b) of the 1997 Rules of Civil Procedure, "the remedy against an order of default is a
motion to set it aside on the ground of fraud, accident, mistake, or excusable negligence."29 However, it is not only the
motion to lift order of default which a defendant must file. As this court emphasized in Agravante v. Patriarca, 30to the
motion to lift order of default must "be appended an affidavit showing the invoked ground, and another, denominated
affidavit of merit, setting forth facts constituting the party's meritorious defense or defenses."31

The need for an affidavit of merit isconsistent with Rule 8, Section 5 of the 1997 Rules of Civil Procedure, 32 which requires
that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake must be statedwith
particularity."

In Montinola, Jr. v. Republic Planters Bank,33 this court noted that the three (3) requisites that must be satisfied by a motion
in order "to warrant the setting aside of an order of default for failure to file answer, are:

(1) it must be made by motion under oath by one that has knowledge of the facts;

(2) it must be shown that the failure to file answer was due to fraud, accident, mistake or excusable negligence;
and

(3) there must be a proper showing of the existence of a meritorious defense."34 (Citations omitted)

Consistent with Agravante, it is through an affidavit of merit that a defendant seeking relief from an order of default shows
that "the failure to file answer was due to fraud, accident, mistake or excusable negligence."35
In this case, the Court of Appeals noted that the Spouses Manuel’s motion to lift order of default was not made under oath.
We add that this motion was not accompanied by an affidavit of merit specifying the facts which would show that their non-
filing of an answer within fifteen (15) days from March 16, 2010 was due to fraud, accident, mistake, or excusable
negligence.

Failing both in making their motion under oath and in attaching an affidavit of merits, the Spouses Manuel’s motion to lift
order of default must be deemed pro-forma. It is not even worthy of consideration.

Certainly, there is jurisprudence to the effect that an affidavit of merit is not necessary "where a motion to lift an order of
default is grounded on the very root of the proceedings [such as] where the court has not acquired jurisdiction over the
defendants."36 Similarly, there is jurisprudence stating that "when a motion to lift an order ofdefault 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."37

However, in this case, the Spouses Manuel failed not only in attaching an affidavit of merit but alsoin making their motion
under oath. They are, therefore, left without any alternative on which to rest. Their motion is utterly ineffectual.

Apart from their failure to make their motion to lift order of default under oath and to attach to it an affidavit of merit, the
Court of Appeals also noted that the Spouses Manuel set their motion to lift order of default for hearing on the same date
that they filed it(i.e., September 13, 2010). Thus, they also violated Rule 15, Section 4 of the 1997 Rules of Civil
Procedure,38 which requires that service of a motion upon an adverse party must be made in such a manner that ensures
receipt by the latter "at least three (3) days before the date of hearing. . . ."

We do not lose sight of the admonitions that have been made in jurisprudence that, as a rule, courts should be liberal in
setting aside orders of default and that default judgments are frowned upon.39 Indeed, apart from a motion to lift order of
default,other remedies are available to a defaulted defendant evenafter judgment has been rendered. Thus, if judgment
had already been rendered but has not yet become final and executory, an appeal asserting that the judgment was
contrary to the law or to the evidence,40 or a motion for new trial under Rule 37, may be filed.41 In the case of the latter, the
same affidavits as are required in a motion to lift order of default must be attached.42 If judgment has become final and
executory, a defaulted defendant may file a petition for relief from judgment under Rule 38.43 Still, should the defaulted
defendant fail tofile a petition for relief, a petition for annulment ofjudgment on the ground of lack of jurisdiction or extrinsic
fraud remains available.44

However, jurisprudence, too, has qualified the intent that animates this liberality. As this court stated in Acance v. Court of
1âwphi1

Appeals:45

The issuance of the orders of default should be the exception rather than the rule, to be allowed only in clear cases of
obstinate refusal by the defendant to comply with the orders of the trial court.46 (Emphasis supplied)

Moreover, this liberality must be tempered with a recognition that, in the first place, it is a defendant who is at fault in failing
to timely file an answer.

Rule 9, Section 3(b) gives an exclusive list of only four (4) grounds that allow for relief from orders of default. Moreover,
these grounds — extrinsic fraud, accident, mistake, and excusable negligence — relate to factors that are extraneous to a
defendant, that is, grounds that show that a defendant was prevented, by reasons beyond his or her influence, from timely
filing an answer.

The recognition that it is the defendant who is at fault and must suffer the consequences of his or her own failure is
analogous to the dismissal of an action due to the fault of a plaintiff, as provided by Rule 17, Section 3 of the 1997 Rules
of Civil Procedure. Rule 17, Section 3 reads:

SEC. 3. Dismissal due to fault of plaintiff.— If for no justifiable cause, the plaintiff fails to appear on the date of the
presentation of his evidence in chief on the complaint, or to prosecute his action for an unreasonable length of time, or to
comply with these Rules or any order of the court, the complaint may be dismissed upon motion of the defendant or upon
the court's own motion, without prejudice to the right of the defendant to prosecute his counterclaim in the same or in a
separate action. This dismissal shall have the effect of an adjudication upon the merits, unless otherwise declared by the
court.

Rule 17, Section 3 is qualified by the phrase "for no justifiable cause." Thus, in cases covered by Rule 17, Section 3,
should the failure to comply with court processes be the result of the plaintiff’s own fault, it is but logical that a plaintiff must
suffer the consequences of his own heedlessness. Rule 9, Section 3 — on default — applies the same logic to a culpable
defendant. In this case, the Spouses Manuel only have themselves to blame in not properly receiving the summons and
copyof the complaint served on them. It has been shown that their claim that service of summons was made on persons
other than them deserves no credence. Quite the contrary, it is quite apparent that Sheriff Joselito Sales notonly explained
the contents of the summons and the complaint but actually told them that they must file their answer in fifteen (15) days.
It was petitioner Sandra Manuel who refused to sign and receive the summons and the complaint. This is evidently an act
of obstinate refusal to submit to and to comply with court processes. Thus, the Spouses Manuel are not deserving of any
leniency.

WHEREFORE, the petition for review on certiorari is DENIED. The June 28, 2012 decision and the December 19, 2012
resolution of the Court of Appeals in CA-G.R. SP No. 119270 are AFFIRMED.

SO ORDERED

G.R. No. 158401 January 28, 2008


PHILIPPINE PORTS AUTHORITY, petitioner,
vs.
WILLIAM GOTHONG & ABOITIZ (WG&A), INC., respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

This resolves the Petition for Review on Certiorari filed by the Philippine Ports Authority (petitioner) seeking the reversal of
the Decision1 of the Court of Appeals (CA) promulgated on October 24, 2002 and its Resolution dated May 15, 2003.

The antecedent facts are accurately narrated by the CA as follows:

Petitioner William Gothong & Aboitiz, Inc. (WG&A for brevity), is a duly organized domestic corporation engaged in
the shipping industry. Respondent Philippine Ports Authority (PPA for brevity), upon the other hand, is a
government-owned and controlled company created and existing by virtue of the provisions of P.D. No. 87 and
mandated under its charter to operate and administer the country's sea port and port facilities.

After the expiration of the lease contract of Veterans Shipping Corporation over the Marine Slip Way in the North
Harbor on December 31, 2000, petitioner WG&A requested respondent PPA for it to be allowed to lease and
operate the said facility. Thereafter, then President Estrada issued a memorandum dated December 18, 2000
addressed to the Secretary of the Department of Transportation and Communication (DOTC) and the General
Manager of PPA, stating to the effect that in its meeting held on December 13, 2000, the Economic Coordinating
Council (ECC) has approved the request of petitioner WG&A to lease the Marine Slip Way from January 1 to June
30, 2001 or until such time that respondent PPA turns over its operations to the winning bidder for the North
Harbor Modernization Project.

Pursuant to the said Memorandum, a Contract of Lease was prepared by respondent PPA containing the following
terms:

1. The lease of the area shall take effect on January 1 to June 30, 2001 or until such time that PPA turns
over its operation to the winning bidder for the North Harbor modernization;

2. You shall pay a monthly rental rate of P12.15 per square meter or an aggregate monthly rental amount
of P886,950.00;

3. All structures/improvements introduced in the leased premises shall be turned over to PPA;

4. Water, electricity, telephone and other utility expenses shall be for the account of William, Gothong &
Aboitiz, Inc.;

5. Real Estate tax/insurance and other government dues and charges shall be borne by WG&A.

The said contract was eventually conformed to and signed by the petitioner company, through its President/Chief
Executive Officer Endika Aboitiz, Jr. Thereafter, in accordance with the stipulations made in the lease agreement,
PPA surrendered possession of the Marine Slip Way in favor of the petitioner.

However, believing that the said lease already expired on June 30, 2001, respondent PPA subsequently sent a
letter to petitioner WG&A dated November 12, 2001 directing the latter to vacate the contested premises not later
than November 30, 2001 and to turnover the improvements made therein pursuant to the terms and conditions
agreed upon in the contract.

In response, petitioner WG&A wrote PPA on November 27, 2001 urging the latter to reconsider its decision to eject
the former. Said request was denied by the PPA via a letter dated November 29, 2001.

On November 28, 2001, petitioner WG&A commenced an Injunction suit before the Regional Trial Court of Manila.
Petitioner claims that the PPA unjustly, illegally and prematurely terminated the lease contract. It likewise prayed
for the issuance of a temporary restraining order to arrest the evacuation. In its complaint, petitioner also sought
recovery of damages for breach of contract and attorney's fees.

On December 11, 2001, petitioner WG&A amended its complaint for the first time. The complaint was still
denominated as one for Injunction with prayer for TRO. In the said amended pleading, the petitioner incorporated
statements to the effect that PPA is already estopped from denying that the correct period of lease is "until such
time that the North Harbor Modernization Project has been bidded out to and operations turned over to the winning
bidder. It likewise included, as its third cause of action, the additional relief in its prayer, that should the petitioner
be forced to vacate the said facility, it should be deemed as entitled to be refunded of the value of the
improvements it introduced in the leased property.

Following the first amendment in the petitioner's complaint, respondent PPA submitted its answer on January 23,
2002. Meanwhile, the TRO sought by the former was denied by the trial court by way of an order dated January
16, 2002.

Petitioner later moved for the reconsideration of the said Order on February 11, 2002. Shortly thereafter, petitioner
filed a Motion to Admit Attached Second Amended Complaint. This time, however, the complaint was already
captioned as one for Injunction with Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction
and damages and/or for Reformation of Contract. Also, it included as its fourth cause of action and additional relief
in its prayer, the reformation of the contract as it failed to express or embody the true intent of the contracting
parties.

The admission of the second amended complaint met strong opposition from the respondent PPA. It postulated
that the reformation sought for by the petitioner constituted substantial amendment, which if granted, will
substantially alter the latter's cause of action and theory of the case.

On March 22, 2002, the respondent judge issued an Order denying the Admission of the Second Amended
Complaint. Petitioner filed a motion for reconsideration of the aforesaid order but the same was again denied in an
order dated April 26, 2002.2

Herein respondent WG&A then filed a petition for certiorari with the CA seeking the nullification of the aforementioned
RTC orders.

In its Decision dated October 24, 2002, the CA granted respondent's petition, thereby setting aside the RTC orders and
directing the RTC to admit respondent's second amended complaint pursuant to Section 3, Rule 10 of the 1997 Rules of
Civil Procedure. Petitioner moved for reconsideration but the same was denied per Resolution dated May 15, 2003.

Hence, the present petition where the only issue raised is whether the CA erred in ruling that the RTC committed grave
abuse of discretion when it denied the admission of the second amended complaint.

The Court finds the petition without merit.

The CA did not err in finding that the RTC committed grave abuse of discretion in issuing the Order dated March 22, 2002
denying the admission of respondent's second amended complaint.

The RTC applied the old Section 3, Rule 10 of the Rules of Court:

Section 3. Amendments by leave of court. – after the case is set for hearing, substantial amendments may be
made only upon leave of court. But such leave may be refused if it appears to the court that the motion was made
with intent to delay the action or that the cause of action or defense is substantially altered. Orders of the court
upon the matters provided in this section shall be made upon motion filed in court, and after notice to the adverse
party, and an opportunity to be heard.

instead of the provisions of the 1997 Rules of Civil Procedure, amending Section 3, Rule 10, to wit:

SECTION 3. Amendments by leave of court. Except as provided in the next preceding section, substantial
amendments may be made only upon leave of court. But such leave may be refused if it appears to the
court that the motion was made with intent to delay. Orders of the court upon the matters provided in this
section shall be made upon motion filed in court, and after notice to the adverse party, and an opportunity to be
heard.

The Court has emphasized the import of Section 3, Rule 10 of the 1997 Rules of Civil Procedure in Valenzuela v. Court of
Appeals,3 thus:

Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil Procedure amended the former rule in such manner that
the phrase "or that the cause of action or defense is substantially altered" was stricken-off and not retained in the
new rules. The clear import of such amendment in Section 3, Rule 10 is that under the new rules, "the
amendment may (now) substantially alter the cause of action or defense." This should only be true, however,
when despite a substantial change or alteration in the cause of action or defense, the amendments sought to be
made shall serve the higher interests of substantial justice, and prevent delay and equally promote the laudable
objective of the rules which is to secure a "just, speedy and inexpensive disposition of every action and
proceeding."4

The application of the old Rules by the RTC almost five years after its amendment by the 1997 Rules of Civil Procedure
patently constitutes grave abuse of discretion.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Appeals promulgated on October 24,
2002 and its Resolution dated May 15, 2003 are hereby AFFIRMED in toto.

SO ORDERED.

G.R. No. 174433 February 24, 2014

PHILIPPINE NATIONAL BANK, Petitioner,


vs.
SPOUSES ENRIQUE MANALO & ROSALINDA JACINTO, ARNOLD J. MANALO, ARNEL J. MANALO, and ARMA J.
MANALO, Respondents.

DECISION

BERSAMIN, J.:

Although banks are free to determine the rate of interest they could impose on their borrowers, they can do so only
reasonably, not arbitrarily. They may not take advantage of the ordinary borrowers' lack of familiarity with banking
procedures and jargon. Hence, any stipulation on interest unilaterally imposed and increased by them shall be struck
down as violative of the principle of mutuality of contracts.

Antecedents

Respondent Spouses Enrique Manalo and Rosalinda Jacinto (Spouses Manalo) applied for an All-Purpose Credit Facility
in the amount of ₱1,000,000.00 with Philippine National Bank (PNB) to finance the construction of their house. After PNB
granted their application, they executed a Real Estate Mortgage on November 3, 1993 in favor of PNB over their property
covered by Transfer Certificate of Title No. S- 23191 as security for the loan.1 The credit facility was renewed and
increased several times over the years. On September 20, 1996, the credit facility was again renewed for ₱7,000,000.00.
As a consequence, the parties executed a Supplement to and Amendment of Existing Real Estate Mortgage whereby the
property covered by TCT No. 171859 was added as security for the loan.

The additional security was registered in the names of respondents Arnold, Arnel, Anthony, and Arma, all surnamed
Manalo, who were their children.2

It was agreed upon that the Spouses Manalo would make monthly payments on the interest. However, PNB claimed that
their last recorded payment was made on December, 1997. Thus, PNB sent a demand letter to them on their overdue
account and required them to settle the account. PNB sent another demand letter because they failed to heed the first
demand.3

After the Spouses Manalo still failed to settle their unpaid account despite the two demand letters, PNB foreclose the
mortgage. During the foreclosure sale, PNB was the highest bidder for ₱15,127,000.00 of the mortgaged properties of the
Spouses Manalo. The sheriff issued to PNB the Certificate of Sale dated November 13, 2000.4

After more than a year after the Certificate of Sale had been issued to PNB, the Spouses Manalo instituted this action for
the nullification of the foreclosure proceedings and damages. They alleged that they had obtained a loan for
₱1,000,000.00 from a certain Benito Tan upon arrangements made by Antoninus Yuvienco, then the General Manager of
PNB’s Bangkal Branch where they had transacted; that they had been made to understand and had been assured that the
₱1,000,000.00 would be used to update their account, and that their loan would be restructured and converted into a long-
term loan;5 that they had been surprised to learn, therefore, that had been declared in default of their obligations, and that
the mortgage on their property had been foreclosed and their property had been sold; and that PNB did not comply with
Section 3 of Act No. 3135, as amended.6

PNB and Antoninus Yuvienco countered that the ₱1,000,000.00 loan obtained by the Spouses Manalo from Benito Tan
had been credited to their account; that they did not make any assurances on the restructuring and conversion of the
Spouses Manalo’s loan into a long-term one;7 that PNB’s right to foreclose the mortgage had been clear especially
because the Spouses Manalo had not assailed the validity of the loans and of the mortgage; and that the Spouses Manalo
did not allege having fully paid their indebtedness.8

Ruling ofthe RTC

After trial, the RTC rendered its decision in favor of PNB, holding thusly:

In resolving this present case, one of the most significant matters the court has noted is that while during the pre-trial held
on 8 September 2003, plaintiff-spouses Manalo with the assistance counsel had agreed to stipulate that defendants had
the right to foreclose upon the subject properties and that the plaintiffs[‘] main thrust was to prove that the foreclosure
proceedings were invalid, in the course of the presentation of their evidence, they modified their position and claimed [that]
the loan document executed were contracts of adhesion which were null and void because they were prepared entirely
under the defendant bank’s supervision. They also questioned the interest rates and penalty charges imposed arguing that
these were iniquitous, unconscionable and therefore likewise void.

Not having raised the foregoing matters as issues during the pre-trial, plaintiff-spouses are presumably estopped from
allowing these matters to serve as part of their evidence, more so because at the pre-trial they expressly recognized the
defendant bank’s right to foreclose upon the subject property (See Order, pp. 193-195).

However, considering that the defendant bank did not interpose any objection to these matters being made part of
plaintiff’s evidence so much so that their memorandum contained discussions rebutting plaintiff spouses arguments on
these issues, the court must necessarily include these matters in the resolution of the present case.9

The RTC held, however, that the Spouses Manalo’s "contract of adhesion" argument was unfounded because they had
still accepted the terms and conditions of their credit agreement with PNB and had exerted efforts to pay their
obligation;10 that the Spouses Manalo were now estopped from questioning the interest rates unilaterally imposed by PNB
because they had paid at those rates for three years without protest;11 and that their allegation about PNB violating the
notice and publication requirements during the foreclosure proceedings was untenable because personal notice to the
mortgagee was not required under Act No. 3135.12

The Spouses Manalo appealed to the CA by assigning a singular error, as follows:

THE COURT A QUO SERIOUSLY ERRED IN DISMISSING PLAINTIFF-APPELLANTS’ COMPLAINT FOR BEING (sic)
LACK OF MERIT NOTWITHSTANDING THE FACT THAT IT WAS CLEARLY SHOWN THAT THE FORECLOSURE
PROCEEDINGS WAS INVALID AND ILLEGAL.13

The Spouses Manalo reiterated their arguments, insisting that: (1) the credit agreements they entered into with PNB were
contracts of adhesion;14 (2) no interest was due from them because their credit agreements with PNB did not specify the
interest rate, and PNB could not unilaterally increase the interest rate without first informing them;15 and (3) PNB did not
comply with the notice and publication requirements under Section 3 of Act 3135. 16 On the other hand, PNB and Yuvienco
did not file their briefs despite notice.17

Ruling ofthe CA

In its decision promulgated on March 28, 2006,18 the CA affirmed the decision of the RTC insofar as it upheld the validity of
the foreclosure proceedings initiated by PNB, but modified the Spouses Manalo’s liability for interest. It directed the RTC
to see to the recomputation of their indebtedness, and ordered that should the recomputed amount be less than the
winning bid in the foreclosure sale, the difference should be immediately returned to the Spouses Manalo.

The CA found it necessary to pass upon the issues of PNB’s failure to specify the applicable interest and the lack of
mutuality in the execution of the credit agreements considering the earlier cited observation made by the trial court in its
decision. Applying Article 1956 of the Civil Code, the CA held that PNB’s failure to indicate the rate of interest in the credit
agreements would not excuse the Spouses Manalo from their contractual obligation to pay interest to PNB because of the
express agreement to pay interest in the credit agreements. Nevertheless, the CA ruled that PNB’s inadvertence to specify
the interest rate should be construed against it because the credit agreements were clearly contracts of adhesion due to
their having been prepared solely by PNB.

The CA further held that PNB could not unilaterally increase the rate of interest considering that the credit agreements
specifically provided that prior notice was required before an increase in interest rate could be effected. It found that PNB
did not adduce proof showing that the Spouses Manalo had been notified before the increased interest rates were
imposed; and that PNB’s unilateral imposition of the increased interest rate was null and void for being violative of the
principle of mutuality of contracts enshrined in Article 1308 of the Civil Code. Reinforcing its "contract of adhesion"
conclusion, it added that the Spouses Manalo’s being in dire need of money rendered them to be not on an equal footing
with PNB. Consequently, the CA, relying on Eastern Shipping Lines, v. Court of Appeals,19 fixed the interest rate to be paid
by the Spouses Manalo at 12% per annum, computed from their default.

The CA deemed to be untenable the Spouses Manalo’s allegation that PNB had failed to comply with the requirements for
notice and posting under Section 3 of Act 3135. The CA stated that Sheriff Norberto Magsajo’s testimony was sufficient
proof of his posting of the required Notice of Sheriff’s Sale in three public places; that the notarized Affidavit of Publication
presented by Sheriff Magsajo was prima facie proof of the publication of the notice; and that the Affidavit of Publication
enjoyed the presumption of regularity, such that the Spouses Manalo’s bare allegation of non-publication without other
proof did not overcome the presumption.

On August 29, 2006, the CA denied the Spouses Manalo’s Motion for Reconsideration and PNB’s Partial Motion for
Reconsideration.20

Issues

In its Memorandum,21 PNB raises the following issues:

WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN NULLIFYING THE INTEREST RATES IMPOSED
ON RESPONDENT SPOUSES’ LOAN AND IN FIXING THE SAME AT TWELVE PERCENT (12%) FROM DEFAULT,
DESPITE THE FACT THAT (i) THE SAME WAS RAISED BY THE RESPONDENTS ONLY FOR THE FIRST TIME ON
APPEAL (ii) IT WAS NEVER PART OF THEIR COMPLAINT (iii) WAS EXLUDED AS AN ISSUE DURING PRE-TRIAL,
AND WORSE, (iv) THERE WAS NO FORMALLY OFFERED PERTAINING TO THE SAME DURING TRIAL.

II

WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED THAT THERE WAS NO MUTUALITY OF
CONSENT IN THE IMPOSITION OF INTEREST RATES ON THE RESPONDENT SPOUSES’ LOAN DESPITE THE
EXISTENCE OF FACTS AND CIRCUMSTANCES CLEARLY SHOWING RESPONDENTS’ ASSENT TO THE RATES OF
INTEREST SO IMPOSED BY PNB ON THE LOAN.

Anent the first issue, PNB argues that by passing upon the issue of the validity of the interest rates, and in nullifying the
rates imposed on the Spouses Manalo, the CA decided the case in a manner not in accord with Section 15, Rule 44 of the
Rules of Court, which states that only questions of law or fact raised in the trial court could be assigned as errors on
appeal; that to allow the Spouses Manalo to raise an issue for the first time on appeal would "offend the basic rules of fair
play, justice and due process;"22 that the resolution of the CA was limited to the issues agreed upon by the parties during
pre-trial;23 that the CA erred in passing upon the validity of the interest rates inasmuch as the Spouses Manalo did not
present evidence thereon; and that the Judicial Affidavit of Enrique Manalo, on which the CA relied for its finding, was not
offered to prove the invalidity of the interest rates and was, therefore, inadmissible for that purpose.24

As to the substantive issues, PNB claims that the Spouses Manalo’s continuous payment of interest without protest
indicated their assent to the interest rates imposed, as well as to the subsequent increases of the rates; and that the CA
erred in declaring that the interest rates and subsequent increases were invalid for lack of mutuality between the
contracting parties.

Ruling

The appeal lacks merit.

1.
Procedural Issue
Contrary to PNB’s argument, the validity of the interest rates and of the increases, and on the lack of mutuality between
the parties were not raised by the Spouses Manalo’s for the first time on appeal. Rather, the issues were impliedly raised
during the trial itself, and PNB’s lack of vigilance in voicing out a timely objection made that possible.

It appears that Enrique Manalo’s Judicial Affidavit introduced the issues of the validity of the interest rates and the
increases, and the lack of mutuality between the parties in the following manner, to wit:

5. True to his words, defendant Yuvienco, after several days, sent us a document through a personnel of
defendant PNB, Bangkal, Makati City Branch, who required me and my wife to affix our signature on the said
document;

6. When the document was handed over me, I was able to know that it was a Promissory Note which was in ready
made form and prepared solely by the defendant PNB;

xxxx

21. As above-noted, the rates of interest imposed by the defendant bank were never the subject of any stipulation
between us mortgagors and the defendant PNB as mortgagee;

22. The truth of the matter is that defendant bank imposed rate of interest which ranges from 19% to as high as
28% and which changes from time to time;

23. The irregularity, much less the invalidity of the imposition of iniquitous rates of interest was aggravated by the
fact that we were not informed, notified, nor the same had our prior consent and acquiescence therefor. x x x25

PNB cross-examined Enrique Manalo upon his Judicial Affidavit. There is no showing that PNB raised any objection in the
course of the cross examination.26 Consequently, the RTC rightly passed upon such issues in deciding the case, and its
having done so was in total accord with Section 5, Rule 10 of the Rules of Court, which states:

Section 5. Amendment to conform to or authorize presentation of evidence. – When issues not raised by the pleadings are
tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in
the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to
raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not
affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues
made by the pleadings, the court may allow the pleadings to be amended and shall do so with liberality if the presentation
of the merits of the action and the ends of substantial justice will be subserved thereby. The court may grant a continuance
to enable the amendment to be made.

In Bernardo Sr. v. Court of Appeals,27 we held that:

It is settled that even if the complaint be defective, but the parties go to trial thereon, and the plaintiff, without objection,
introduces sufficient evidence to constitute the particular cause of action which it intended to allege in the original
complaint, and the defendant voluntarily produces witnesses to meet the cause of action thus established, an issue is
joined as fully and as effectively as if it had been previously joined by the most perfect pleadings. Likewise, 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.

The RTC did not need to direct the amendment of the complaint by the Spouses Manalo. Section 5, Rule 10 of the Rules
of Court specifically declares that the "failure to amend does not affect the result of the trial of these issues." According to
Talisay-Silay Milling Co., Inc. v. Asociacion de Agricultores de Talisay-Silay, Inc.:28

The failure of a party to amend a pleading to conform to the evidence adduced during trial does not preclude an
adjudication by the court on the basis of such evidence which may embody new issues not raised in the pleadings, or
serve as a basis for a higher award of damages. Although the pleading may not have been amended to conform to the
evidence submitted during trial, judgment may nonetheless be rendered, not simply on the basis of the issues alleged but
also on the basis of issues discussed and the assertions of fact proved in the course of trial. The court may treat the
1âwphi 1

pleading as if it had been amended to conform to the evidence, although it had not been actually so amended. Former
Chief Justice Moran put the matter in this way:

When evidence is presented by one party, with the expressed or implied consent of the adverse party, as to issues not
alleged in the pleadings, judgment may be rendered validly as regards those issues, which shall be considered as if they
have been raised in the pleadings. There is implied, consent to the evidence thus presented when the adverse party fails
to object thereto." (Emphasis supplied)

Clearly, a court may rule and render judgment on the basis of the evidence before it even though the relevant pleading
had not been previously amended, so long as no surprise or prejudice is thereby caused to the adverse party. Put a little
differently, so long as the basic requirements of fair play had been met, as where litigants were given full opportunity to
support their respective contentions and to object to or refute each other's evidence, the court may validly treat the
pleadings as if they had been amended to conform to the evidence and proceed to adjudicate on the basis of all the
evidence before it.

There is also no merit in PNB’s contention that the CA should not have considered and ruled on the issue of the validity of
the interest rates because the Judicial Affidavit of Enrique Manalo had not been offered to prove the same but only "for the
purpose of identifying his affidavit."29 As such, the affidavit was inadmissible to prove the nullity of the interest rates.

We do not agree.
Section 5, Rule 10 of the Rules of Court is applicable in two situations. The first is when evidence is introduced on an
1âwphi1

issue not alleged in the pleadings and no objection is interposed by the adverse party. The second is when evidence is
offered on an issue not alleged in the pleadings but an objection is raised against the offer.30 This case comes under the
first situation. Enrique Manalo’s Judicial Affidavit would introduce the very issues that PNB is now assailing. The question
of whether the evidence on such issues was admissible to prove the nullity of the interest rates is an entirely different
matter. The RTC accorded credence to PNB’s evidence showing that the Spouses Manalo had been paying the interest
imposed upon them without protest. On the other hand, the CA’s nullification of the interest rates was based on the credit
agreements that the Spouses Manalo and PNB had themselves submitted.

Based on the foregoing, the validity of the interest rates and their increases, and the lack of mutuality between the parties
were issues validly raised in the RTC, giving the Spouses Manalo every right to raise them in their appeal to the CA.
PNB’s contention was based on its wrong appreciation of what transpired during the trial. It is also interesting to note that
PNB did not itself assail the RTC’s ruling on the issues obviously because the RTC had decided in its favor. In fact, PNB
did not even submit its appellee’s brief despite notice from the CA.

2.
Substantive Issue

The credit agreement executed succinctly stipulated that the loan would be subjected to interest at a rate "determined by
the Bank to be its prime rate plus applicable spread, prevailing at the current month."31 This stipulation was carried over to
or adopted by the subsequent renewals of the credit agreement. PNB thereby arrogated unto itself the sole prerogative to
determine and increase the interest rates imposed on the Spouses Manalo. Such a unilateral determination of the interest
rates contravened the principle of mutuality of contracts embodied in Article 1308 of the Civil Code.32

The Court has declared that a contract where there is no mutuality between the parties partakes of the nature of a contract
of adhesion,33 and any obscurity will be construed against the party who prepared the contract, the latter being presumed
the stronger party to the agreement, and who caused the obscurity.34 PNB should then suffer the consequences of its
failure to specifically indicate the rates of interest in the credit agreement. We spoke clearly on this in Philippine Savings
Bank v. Castillo,35 to wit:

The unilateral determination and imposition of the increased rates is violative of the principle of mutuality of contracts
under Article 1308 of the Civil Code, which provides that ‘[t]he contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.’ A perusal of the Promissory Note will readily show that the increase
or decrease of interest rates hinges solely on the discretion of petitioner. It does not require the conformity of the maker
before a new interest rate could be enforced. Any contract which appears to be heavily weighed in favor of one of the
parties so as to lead to an unconscionable result, thus partaking of the nature of a contract of adhesion, is void. Any
stipulation regarding the validity or compliance of the contract left solely to the will of one of the parties is likewise invalid.
(Emphasis supplied)

PNB could not also justify the increases it had effected on the interest rates by citing the fact that the Spouses Manalo had
paid the interests without protest, and had renewed the loan several times. We rule that the CA, citing Philippine National
Bank v. Court of Appeals,36 rightly concluded that "a borrower is not estopped from assailing the unilateral increase in the
interest made by the lender since no one who receives a proposal to change a contract, to which he is a party, is obliged
to answer the same and said party’s silence cannot be construed as an acceptance thereof."37

Lastly, the CA observed, and properly so, that the credit agreements had explicitly provided that prior notice would be
necessary before PNB could increase the interest rates. In failing to notify the Spouses Manalo before imposing the
increased rates of interest, therefore, PNB violated the stipulations of the very contract that it had prepared. Hence, the
varying interest rates imposed by PNB have to be vacated and declared null and void, and in their place an interest rate of
12% per annum computed from their default is fixed pursuant to the ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals.38

The CA’s directive to PNB (a) to recompute the Spouses Manalo’s indebtedness under the oversight of the RTC; and (b)
to refund to them any excess of the winning bid submitted during the foreclosure sale over their recomputed indebtedness
was warranted and equitable. Equally warranted and equitable was to make the amount to be refunded, if any, bear legal
interest, to be reckoned from the promulgation of the CA’s decision on March 28, 2006.39Indeed, the Court said in Eastern
Shipping Lines, Inc. v. Court of Appeals40 that interest should be computed from the time of the judicial or extrajudicial
demand. However, this case presents a peculiar situation, the peculiarity being that the Spouses Manalo did not demand
interest either judicially or extrajudicially. In the RTC, they specifically sought as the main reliefs the nullification of the
foreclosure proceedings brought by PNB, accounting of the payments they had made to PNB, and the conversion of their
loan into a long term one.41 In its judgment, the RTC even upheld the validity of the interest rates imposed by PNB. 42 In
their appellant’s brief, the Spouses Manalo again sought the nullification of the foreclosure proceedings as the main
relief.43 It is evident, therefore, that the Spouses Manalo made no judicial or extrajudicial demand from which to reckon the
interest on any amount to be refunded to them. Such demand could only be reckoned from the promulgation of the CA’s
decision because it was there that the right to the refund was first judicially recognized. Nevertheless, pursuant to Eastern
Shipping Lines, Inc. v. Court of Appeals,44 the amount to be refunded and the interest thereon should earn interest to be
computed from the finality of the judgment until the full refund has been made.

Anent the correct rates of interest to be applied on the amount to be refunded by PNB, the Court, in Nacar v. Gallery
Frames45 and S.C. Megaworld Construction v. Parada,46 already applied Monetary Board Circular No. 799 by reducing the
interest rates allowed in judgments from 12% per annum to 6% per annum.47 According to Nacar v. Gallery Frames, MB
Circular No. 799 is applied prospectively, and judgments that became final and executory prior to its effectivity on July 1,
2013 are not to be disturbed but continue to be implemented applying the old legal rate of 12% per annum. Hence, the old
legal rate of 12% per annum applied to judgments becoming final and executory prior to July 1, 2013, but the new rate of
6% per annum applies to judgments becoming final and executory after said dater.

Conformably with Nacar v. Gallery Frames and S.C. Megaworld Construction v. Parada, therefore, the proper interest
rates to be imposed in the present case are as follows:
1. Any amount to be refunded to the Spouses Manalo shall bear interest of 12% per annum computed from March
28, 2006, the date of the promulgation of the CA decision, until June 30, 2013; and 6% per annum computed from
July 1, 2013 until finality of this decision; and

2. The amount to be refunded and its accrued interest shall earn interest of 6% per annum until full refund.

WHEREFORE, the Court AFFIRMS the decision promulgated by the Court of Appeals on March 28, 2006 in CA-G.R. CV
No. 84396, subject to the MODIFICATION that any amount to be refunded to the respondents shall bear interest of 12%
per annum computed from March 28, 2006 until June 30, 2013, and 6% per annum computed from July 1, 2013 until
finality hereof; that the amount to be refunded and its accrued interest shall earn interest at 6o/o per annum until full
refund; and DIRECTS the petitioner to pay the costs of suit.

SO ORDERED.

G.R. No. 161849 July 9, 2010

WALLEM PHILIPPINES SHIPPING, INC., Petitioner,


vs.
S.R. FARMS, INC., Respondent.

DECISION

PERALTA, J.:

Assailed in the present petition for review on certiorari are the Decision1 and Resolution2 of the Court of Appeals (CA)
dated June 2, 2003 and January 15, 2004, respectively, in CA-G.R. CV No. 65857. The CA Decision reversed and set
aside the Decision3 dated October 8, 1999 of the Regional Trial Court (RTC) of Manila, Branch 11, in Civil Case No. 93-
65021, while the CA Resolution denied petitioners’ Motion for Reconsideration.

The facts of the case, as found by the RTC and affirmed by the CA, are as follows:

x x x On March 25, 1992, Continental Enterprises, Ltd. loaded on board the vessel M/V "Hui Yang," at Bedi Bunder, India,
a shipment of Indian Soya Bean Meal, for transportation and delivery to Manila, with plaintiff [herein respondent] as
consignee/notify party. The said shipment is said to weigh 1,100 metric tons and covered by Bill of Lading No. BEDI 4
dated March 25, 1992 (Exhibit A; also Exhibit I). The vessel is owned and operated by defendant Conti-Feed, with
defendant [herein petitioner] Wallem as its ship agent.

The subject cargo is part of the entire shipment of Indian Soya Bean Meal/India Rapeseed Meal loaded in bulk on board
the said vessel for delivery to several consignees. Among the consignees were San Miguel Corporation and Vitarich
Corporation, including the herein plaintiff (Exhibit A; Exhibits 1 to 6; TSN, p. 13, June 28, 1996).

On April 11, 1992, the said vessel, M/V "Hui Yang" arrived at the port of Manila, Pier 7 South Harbor. Thereafter, the
shipment was discharged and transferred into the custody of the receiving barges, the NorthFront-333 and NorthFront-
444. The offloading of the shipment went on until April 15, 1992 and was handled by [Ocean Terminal Services, Inc.] OTSI
using its own manpower and equipment and without the participation of the crew members of the vessel. All throughout
the entire period of unloading operation, good and fair weather condition prevailed.

At the instance of the plaintiff, a cargo check of the subject shipment was made by one Lorenzo Bituin of Erne Maritime
and Allied Services, Co. Inc., who noted a shortage in the shipment which was placed at 80.467 metric tons based on draft
survey made on the NorthFront-33 and NorthFront-444 showing that the quantity of cargo unloaded from the vessel was
only 1019.53 metric tons. Thus, per the bill of lading, there was an estimated shortage of 80.467.

Upon discovery thereof, the vessel chief officer was immediately notified of the said short shipment by the cargo surveyor,
who accordingly issued the corresponding Certificate of Discharge dated April 15, 1992 (Exhibit D). The survey conducted
and the resultant findings thereon are embodied in the Report of Superintendence dated April 21, 1992 (Exhibits C to C-2)
and in the Barge Survey Report both submitted by Lorenzo Bituin (Exhibits C-3 and C-4). As testified to by Lorenzo Bituin,
this alleged shortage of 80.467 metric tons was arrived at using the draft survey method which calls for the measurement
of the light and loaded condition of the barge in relation to the weight of the water supposedly displaced.4

Petitioner then filed a Complaint for damages against Conti-Feed & Maritime Pvt. Ltd., a foreign corporation doing
business in the Philippines and the owner of M/V "Hui Yang"; RCS Shipping Agencies, Inc., the ship agent of Conti-Feed;
Ocean Terminal Services, Inc. (OTSI), the arrastre operator at Anchorage No. 7, South Harbor, Manila; and Cargo Trade,
the customs broker.5

On June 7, 1993, respondent filed an Amended Complaint impleading herein petitioner as defendant alleging that the
latter, and not RCS, was the one which, in fact, acted as Conti-Feed’s ship agent.6

On June 22, 1993, the complaint against Cargo Trade was dismissed at the instance of respondent on the ground that it
has no cause of action against the former.7

Subsequently, upon motion of RCS, the case against it was likewise dismissed for lack of cause of action.8

Meanwhile, defendant OTSI filed its Answer with Counterclaim and Crossclaim9 denying the material allegations of the
Complaint and alleging that it exercised due care and diligence in the handling of the shipment from the carrying vessel
unto the lighters; no damage or loss whatsoever was sustained by the cargo in question while being discharged by OTSI;
petitioner’s claim had been waived, abandoned or barred by laches or estoppels; liability, if any, is attributable to its co-
defendants.

For its part, petitioner denied the allegations of respondent claiming, among others, that it is not accountable nor
responsible for any alleged shortage sustained by the shipment while in the possession of its co-defendants; the alleged
shortage was due to negligent or faulty loading or unloading of the cargo by the stevedores/shipper/consignee; the
shortage, if any, was due to pre-shipment damage, inherent nature, vice or defect of the cargo for which herein petitioner
is not liable; respondent’s claim is already barred by laches and/or prescription.10

Conti-Feed did not file an Answer.

Pre-Trial Conference was conducted, after which trial ensued.

On October 8, 1999, the RTC rendered its Decision11 dismissing respondent’s complaint, as well as the opposing parties’
counterclaims and crossclaims.

Aggrieved by the RTC Decision, respondent filed an appeal with the CA.

On June 2, 2003, the CA rendered its presently assailed Decision disposing as follows:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and another one entered ordering
defendants-appellees Conti-Feed and Maritime Pvt. Ltd. and Wallem Philippines Shipping, Inc., to pay the sum
representing the value of the 80.467 metric tons of Indian Soya Beans shortdelivered, with legal interest from the time the
judgment becomes final until full payment, plus attorney’s fees and expenses of litigation of ₱10,000.00, as well as the
cost of suit.

SO ORDERED.12

Petitioner filed a Motion for Reconsideration.

On July 8, 2003, respondent filed a Motion for a More Definite Dispositive Portion 13 praying that the value of the 80.467
metric tons of Indian Soya Beans, which petitioner and Conti-Feed were ordered to pay, be specified in the dispositive
portion of the CA Decision.

Petitioner filed its Comment/Opposition14 to private respondent’s Motion.

On January 15, 2004, the CA issued a Resolution denying petitioner’s Motion for Reconsideration and modifying the
dispositive portion of its Decision, thus:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and another one entered ordering
defendants-appellees Conti-Feed and Maritime Pvt. Ltd. and Wallem Shipping, Inc., to pay the sum of $19,070.06
representing the value of the 80.467 metric tons of Indian Soya Beans short delivered, with legal interest from the time the
judgment becomes final until full payment, plus attorney’s fees and expenses of litigation of ₱10,000.00, as well as the
costs of suit.

SO ORDERED.15

Hence, the instant petition based on the following Assignment of Errors:

THE COURT OF APPEALS ERRED IN APPLYING THE PRESUMPTION OF NEGLIGENCE UNDER ARTICLE 1735 OF
THE CIVIL CODE. THIS PROVISION DOES NOT APPLY IN THIS CASE BECAUSE THERE WAS NO LOSS OR
SHORTAGE OR SHORTDELIVERY.

II

THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO THE CASE CONSIDERING THAT:

A. THE CLAIM WAS ALREADY TIME-BARRED WHEN THE CASE WAS FILED AGAINST HEREIN
PETITIONER ON 8 MAY 1993, AS PROVIDED IN SECTION 3 (6) OF THE COGSA. THE ONE-YEAR
PRESCRIPTIVE PERIOD COMMENCED ON 15 APRIL 1992 WHEN THE SUBJECT SHIPMENT WAS
DELIVERED TO PRIVATE RESPONDENT AND LAPSED ON 15 APRIL 1993; AND

B. [RESPONDENT] WAIVED ITS RIGHT OF ACTION WHEN IT DID NOT GIVE A WRITTEN NOTICE OF
LOSS TO THE PETITIONER WITHIN THREE (3) DAYS FROM DISCHARGE OF THE SUBJECT
SHIPMENT AS PROVIDED IN SECTION 3 (6) OF THE COGSA.

III

IN THE REMOTE POSSIBILITY OF LOSS OR SHORTAGE OR SHORTDELIVERY, THE COURT OF APPEALS ERRED
IN IMPUTING NEGLIGENCE AGAINST THE PETITIONER WHICH WAS NOT RESPONSIBLE IN LOADING AND/OR
DISCHARGING THE SUBJECT SHIPMENT.

IV
THE COURT OF APPEALS ERRED IN GRANTING [RESPONDENT’S] MOTION FOR A MORE DEFINITE DISPOSITIVE
PORTION WITHOUT STATING IN THE DECISION, THE LEGAL BASES FOR DOING SO.

THE COURT OF APPEALS ERRED IN GRANTING THE MOTION FOR A MORE DEFINITE DISPOSITIVE PORTION
BECAUSE [RESPONDENT] FILED SAID MOTION MORE THAN FIFTEEN (15) DAYS AFTER [RESPONDENT]
RECEIVED THE DECISION OF THE COURT OF APPEALS. THE COURT OF APPEALS FURTHER ERRED IN
INSERTING A DEFINITE MONETARY VALUE OF THE ALLEGED SHORTAGE BECAUSE THERE WAS NO FACTUAL
FINDING, BOTH IN THE TRIAL COURT AND IN THE COURT OF APPEALS, AS TO THE SPECIFIC AMOUNT OF THE
ALLEGED SHORTDELIVERED CARGO.16

The Court finds it proper to resolve first the question of whether the claim against petitioner was timely filed.

With respect to the prescriptive period involving claims arising from shortage, loss of or damage to cargoes sustained
during transit, the law that governs the instant case is the Carriage of Goods by Sea Act17 (COGSA), Section 3 (6) of which
provides:

Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his
agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to delivery
thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the
goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of
delivery.

Said notice of loss or damage may be endorsed upon the receipt for the goods given by the person taking delivery thereof.

The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint
survey or inspection.

In any event, the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date when the goods should have been
delivered; Provided, That, if a notice of loss or damage, either apparent or concealed, is not given as provided for in this
section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the
goods or the date when the goods should have been delivered.

In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give all reasonable facilities to
each other for inspecting and tallying the goods.

Petitioner claims that pursuant to the above-cited provision, respondent should have filed its Notice of Loss within three
days from delivery. It asserts that the cargo was fully discharged from the vessel on April 15, 1992, but that respondent
failed to file any written notice of claim. Petitioner also avers that, pursuant to the same provision of the COGSA,
respondent’s claim had already prescribed because the complaint for damages was filed more than one year after the
shipment was discharged.

The Court agrees.

Under Section 3 (6) of the COGSA, notice of loss or damages must be filed within three days of delivery. Admittedly,
respondent did not comply with this provision.

Under the same provision, however, a failure to file a notice of claim within three days will not bar recovery if a suit is
nonetheless filed within one year from delivery of the goods or from the date when the goods should have been
delivered.18

In Loadstar Shipping Co., Inc. v. Court of Appeals,19 the Court ruled that a claim is not barred by prescription as long as
the one-year period has not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G. Davide Jr.:

Inasmuch as neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the
Carriage of Goods by Sea Act (COGSA) -- which provides for a one-year period of limitation on claims for loss of, or
damage to, cargoes sustained during transit -- may be applied suppletorily to the case at bar.20

In the instant case, the Court is not persuaded by respondent’s claim that the complaint against petitioner was timely filed.
Respondent argues that the suit for damages was filed on March 11, 1993, which is within one year from the time the
vessel carrying the subject cargo arrived at the Port of Manila on April 11, 1993, or from the time the shipment was
completely discharged from the vessel on April 15, 1992.

There is no dispute that the vessel carrying the shipment arrived at the Port of Manila on April 11, 1992 and that the cargo
was completely discharged therefrom on April 15, 1992. However, respondent erred in arguing that the complaint for
damages, insofar as the petitioner is concerned, was filed on March 11, 1993. 1awph!l

As the records would show, petitioner was not impleaded as a defendant in the original complaint filed on March 11,
1993.21 It was only on June 7, 1993 that the Amended Complaint, impleading petitioner as defendant, was filed.

Respondent cannot argue that the filing of the Amended Complaint against petitioner should retroact to the date of the
filing of the original complaint.
The settled rule is that the filing of an amended pleading does not retroact to the date of the filing of the original; hence,
the statute of limitation runs until the submission of the amendment.22 It is true that, as an exception, this Court has held
that an amendment which merely supplements and amplifies facts originally alleged in the complaint relates back to the
date of the commencement of the action and is not barred by the statute of limitations which expired after the service of
the original complaint.23 The exception, however, would not apply to the party impleaded for the first time in the amended
complaint.24

The rule on the non-applicability of the curative and retroactive effect of an amended complaint, insofar as newly
impleaded defendants are concerned, has been established as early as in the case of Aetna Insurance Co. v. Luzon
Stevedoring Corporation.25 In the said case, the defendant Barber Lines Far East Service was impleaded for the first time
in the amended complaint which was filed after the one-year period of prescription. The order of the lower court dismissing
the amended complaint against the said defendant on ground of prescription was affirmed by this Court.

In the instant case, petitioner was only impleaded in the amended Complaint of June 7, 1993, or one (1) year, one (1)
month and twenty-three (23) days from April 15, 1992, the date when the subject cargo was fully unloaded from the
vessel. Hence, reckoned from April 15, 1992, the one-year prescriptive period had already lapsed.

Having ruled that the action against petitioner had already prescribed, the Court no longer finds it necessary to address
the other issues raised in the present petition.

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals dated June 2, 2003 and its
Resolution dated January 15, 2004 in CA-G.R. CV No.