PLEADINGS CASES

Gerales vs. Court of Appeals February 9, 1993. [GRN 85909 February 9, 1993] TERESITA C. GERALES, CESAR DELA FUENTE, MARCELA GOLDIN G, MARIA VERGARA and PERLITO TRIGERO, petitioners, vs. HON. COURT OF APPEALS, ENRIQUE E. PIMENTEL, and LETICIA FIDELDIA, respondents. PETITION for review on certiorari to reverse and set aside the decision of the Court of Appeals. The facts are stated in the opinion of the Court. Jose B. Daguna, Jr. for petitioners. Camacho and Associates for private respondents BIDIN, J.: This is a petition for review on certiorari which seeks to reverse and set aside: (1) the decision of the Court of Appeals promulgated on September 26, 1988 in C.A.-G.R. S.P. No. 11811 entitled "Enrique E. Pimentel and Leticia T. Fideldia v. Hon. Ruben T. Reyes, as Regional Trial Court Judge, Branch 1, Balanga, Bataan and Teresita C. Gerales, Cesar Dela Fuente, Marcela Golding, Maria Vergara, and Perlito Trigero" dismissing Civil Case No. 5210 and reversing the decision of the trial court and (2) the resolution of the Court of Appeals promulgated on November 15, 1988 denying the Motion for Reconsideration The undisputed facts of the case are as follows: On July 9, 1984,a car owned by Leticia Fideldia, then driven by Enrique E. Pimentel, hit ancother car, owned by Teresita Gerales then driven by Cesar Dela Fuente; with Marcela Golding, Maria Vergara and Perlito Trigero as passengers at San Jose, San Fernando, Pampanga. On August 17,1984, private respondent Enrique E. Pimentel was charged before the Municipal Trial Court of San Fernando, Pampanga with the crime of Damage to Property with Multiple Physical Injuries thru Reckless Imprudence, docketed as Criminal Case No. 84-9302 (Rollo, p. 18, Annex "A", p. 1). During the pendency Of the criminal Ase, particularly on January 11, 1985, private offended parties (now petitioners) Maria Vergara, Perlito Trigero, Marcela del Rosario Golding, Cesar Dela Fuente, and Teresita Gerales filed a civil case for Damages in the total amount of P400,000.00 docketed as Civil Case No. 5210, in the Regional Trial Court of Bataan against Enrique E. Pimentel and Leticia Fidelia. This civil case is based on the same incident for which private respondent, Enrique E. Pimentel was charged in Criminal Case No. 84-9302 (Rollo, p. 19, Annex "A", p. 2). On April 23, 1985, or after the filing of Civil Case No. 5210 but before the service of summons upon the defendants (herein private respondents), the claims of the offended parties (plaintiffs in Civil Case No. 5210) were amicably settled, to wit: Cesar Dela FuentereceivedP15,016.79 Marcela Goldingreceived10,171.75 Maria Vergarareceived7,674.96 Teresita Geralesreceived15,000.00 Perlito Trigeroreceived2,136.50 as full and final settlement of all their claims, both civil and criminal, in connection with the vehicular accident that occurred on July 9, 1984, These offended parties (now petitioners), whose claims were amicably settled, individually executed' and signed a "Release of Claim," the contents of winch substantial1v reads as follows: "For the sole consideration of x x x, the receipt whereof is hereby acknowledged, I, (We) x x x for myself, my heirs, representatives, successors and assigns do hereby forever release, discharge and absolve Atty. Enrique E. Pimentel, Leticia Fideldia & F.E. Zuellig (M), Inc. of and from all actions, claims and demands whatsoever that now exist or may hereafter develop and particularly on account of all known, unknown and unanticipated injuries and damages arising out of and in consequence of the accident l illness occurring on or about July 9, 1984 at about 6. 00 p.m. along the North Expressway, San Fernando, Pampanga when I sustained serious physical injuries while riding as a passenger of a Toyota Corona Sedan with Plate No. CFR-447 was hit and bumped by a Mit. Lancer Sedan with Plate No. NLL-979 driven by Atty. Enrique E. Pimentel and owned by Leticia Fideldia. The undersigned furthermore agrees that the foregoing sum is voluntarily accepted as full and final compromise, adjustment and settlement of all claims with respect to both civil and/or criminal actions that may have been filed in connection with the above accident; that the payment of said amount shall never be construed as an admission of liability by the party/parties hereby released." (Rollo, Annexes "I" to "I-C", pp. 79-82; italics supplied) A Motion to Dismiss the criminal case was filed by Atty. Jaime C. Bueza, counsel of the offended parties, with the conformity of the Prosecuting Fiscal, based on the Affidavits of Desistance executed by the offended parties. On April 23,1985, the Municipal Trial Court of San Fernando, Pampanga, Branch IV, acting on the Motion to Dismiss, accordingly dismissed Criminal Case No. 84-9302. After the dismissal of the criminal charge against private respondent Enrique E. Pimentel, the latter and respondent Leticia Fideldia were served on July 30, 1985 with summons and a copy of the complaint in Civil Case No. 52 10 (Rollo, p. 19, Annex "A", p. 3). On August 14, 1985, respondent Enrique E. Pimentel wrote a letter addressed to the Clerk of Court of the Regional Trial Court of Bataan, which reads: "Please (sic) refer to summons Civil Case No. 5210 Balanga, Bataan dated July 1, 1985 which was received on July 30, 1985. In relation thereto, is Criminal Case. No. 84-9302 wherein a Motion to Dismiss was submitted on April 23, 1985, 9:30 a.m. thus the affected parties mutually settled the case before the Municipal Trial Court of Pampanga, Branch IV. In view thereof, may we request that said settlement be considered." (Annex "G") On August 21, 1985, or after receipt of respondent Pimentel's letter, the Presiding Judge of Branch 1 of the Regional Trial Court of Balanga Bataan issued an order in Civil Case No. 5210, to wit: "It appearing that defendants Enrique E. Pimentel and Leticia T. Fideldia were served with summons and copies of the complaint on July 30, 1985 at their Quezon City residence and they have not filed their answer up to now, plaintiffs are hereby ordered to file the necessary motion within (5) days from receipt of this order. "Should plaintiffs fail to comply herewith, the Court shall consider that they have no more interest in the prosecution of this action, especially considering that according to a letter of defendant Enrique E. Pimentel dated August 14, 1985, a motion to dismiss was filed by plaintiffs' counsel in the related criminal case (C.C. Case No. 9302) before the Municipal Trial Court of San Fernando, Pampanga, Branch IV." (Annex "H") On motion of petitioners, the trial court issued an order declaring respondents Enrique E. Pimentel and Leticia Fideldia in default and forthwith set the case for presentation of petitioners' evidence ex-parte on October 8, 1985. A ropy of said order was received by private respondents on September 18, 1985. Judgment was rendered in favor of the petitioners, ordering respondents Enrique E. Pimentel and Leticia T. Fideldia, to pay jointly and severally the following:

(1) To Cesar Dela Fuente, actual damages in the amount of P55,771.05; (2) To Marcela Golding, actual damages in the amount of P30,101.55; (3) To Maria Vergara, actual damages in the amount of P21,142,00; (4) To Teresita Gerales, compensatory damages in the amount of P50,000.00; (5) No further award is due Perlito Trigero as he had been fully compensated; (6) To all plaintiffs, attorney's fees in the total amount of P50,000.00 plus costs of suit. Copy of the said judgement was received by private respondents on February 12, 1986. On March 10, 1986, private respondents filed a Petition for Relief from Judgment. On February 20, 1987, the trial judge denied the Petition for Relief from Judgment. A writ of execution was issued on March 6, 1987 (Rollo, p. 20, Annex "A", p. 3). Private respondents received a copy of the order of denial on March 26, 1987 (Rollo, p. 20, Annex "A", p. 3). Private respondents filed a Petition for Certiorari, Mandamus and Prohibition with Prayer for Writ of Preliminary Injunction and Restraining Order with the Court of Appeals to set aside the aforementioned judgment and orders of the Regional Trial Court in Civil Case No. 5210, alleging among others that the trial court acted without or in excess of its jurisdiction and with grave abuse of discretion amounting to lack of jurisdiction in rendering a judgment by default against private respondents, in denying the petition for relief from judgment and in issuing a writ of execution. The Court of Appeals, citing the case of Ledesma v. Avelino (82 SCRA 396 [19781), reversed the decision of the trial court, the dispositive portion of which reads as follows: "Following the action of the Supreme Court in said case and considering that the only defense of the petitioners is the release of claims signed by all the respondents which released all the petitioners i-orn all actions, claims and demands whatsoever that now may exist or may hereafter develop and particularly on all known and unknown and unanticipated injuries and damages arising out of and in, consequence of the accident, a new decision is entered dismissing the complaint, against petitioners" (Rollo, p. 18, Annex "A', p. 6). The Motion for Reconsideration filed by petitioners we denied in a resolution promulgated on November 15, 1988 (Rollo, p 25, Annex "B", p. 2) Hence, this petition, In a resolution dated March 1, 1989, this Court gave due course to the petition and required both parties to file their respective memoranda. Petitioners raise the issue of whether of not the respondent Court of Appeals committed reversible in deciding private respondents' petition on the merits, thereby reversing the decision of the trial court and disregarding petitioners' evidence. Petitioners claim that the respondent Court of Appeals should have denied and dismissed private respondents' petition for certiorari as there was no error of jurisdiction correctible by certiorari under Rule 65 of the Rules of Court. They insist that the court a quo had jurisdiction over the subject matter of the case and over the persons of the private respondents when the latter were duly served with summons on July 30, 1985. Hence, whatever error may have been committed in the case was not an error of jurisdiction correctible by certiorari. They claim that the respondent court, in dismissing the civil case for damages on the sole basis of the "releases of claims," had denied them procedural due process as they were not afforded the opportunity to refute, assail, and overcome their probative value (Rollo, pp. 10-12). On the other hand, private respondents maintain that the trial court committed grave abuse of discretion in not considering their letter dated August 14, 1985 as their responsive pleading and in consequently declaring them in default; in denying in its order dated February 20, 1987 their petition for relief from judgment; and in issuing a writ of execution on March 6, 1987, even before they received a copy of the order denying their petition for relief from judgment. An examination of the records of the case shows that the trial court, after taking judicial notice of the letter of private respondents informing the court that the parties have mutually settled the case, and that a Motion to Dismiss was even filed by petitioners' counsel in the related criminal case, altogether did not consider nor treat it as private respondents' responsive pleading to the complaint for damages. In fact, on motion of petitioners, the private respondents were declared in default and accordingly, a judgment by a default was rendered against them (private respondents). Under the factual setting of the case, the trial court ought to have consicered the letter of respondent Enrique E. Pimentel as a responsive pleading even if it lacks the formalities required by law. Undoubtedly, th that the parties mutually settled the case, which allegation may be deemed as an averment of an affirmative defense and if proven in a preliminary hearing pursuant to Section 5, Rule 16, would constitute a meritorious defense of private respondents which would bar petitioners from recovering damages from the former as the claim or demand set forth in plaintiffs' (petitioners') pleading had been paid or extinguished. Pleadings as well as remedial laws should be liberally construed in order that the litigant may have ample opportunity to prove their respective claims, and possible denial of substantial justice, due to technicalities, may be avoided (Cabutin, et al. v. Amacio, 170 SCRA 750 (19891, citing Quibuyen v. CA, 9 SCRA 741 [19631). Litigations should as much as possible be decided on the merits and not on technicality (Fonseca v. Court of Appeals, 165 SCRA 40 [19881, citing A-One I Feeds, Inc. v. Court of Appeals, 100 SCRA 590, 594 [19801). Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts (American Express International, Inc. v. Intermediate Appellate Court, 167 SCRA 209 (19881 citing Alonso v. Villamor, 16 Phil. 315 [1910]), and because there is no vested right in technicalities, in meritorious cases, a liberal, not literal interpretation of the rules becomes imperative and technicalities should not be resorted to in derogation of the intent and purpose of the rules, which is the proper and just determination of a litigation (Fonseca v. C.A., supra.). In addition thereto, the trial court's denial of private respondents' petition for relief from judgment, inspite of the fact that they raise the meritorious defense of full settlement and/or payment of the claim is improper. The trial judge should have granted the aforesaid petition as it would ultimately afford both parties the opportunity to prove their respective claims by fully and fairly laying before the Court, the facts in issue and seek justice upon the merits thereof and that possible denial of justice due to legal technicalities may be avoided. The courts should be liberal in setting aside orders of default for default judgment is frowned upon, and unless it clearly appears that the reopening of the case is intended for delay, it is best that the trial courts give both parties every chance to fight their case fairly and in the open without resort to technicality (Zenith Insurance Corporation v. Hon. Fidel Purisima, 114 SCRA 62 [1982], citing Pineda v. Court of Appeals, 67 SCRA 229 [1975]). In the light of the foregoing, it is evident that indeed the trial court committed grave abuse of discretion in declaring private respondents in default, and in denying their petition for relief from judgment. Consequently, the validity of the order of default and all the proceedings that transpired subsequent thereto cannot be sustained. A petition for Certiorari lies when any tribunal, board or officer exercising judicial functions, has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law (Section I of Rule 65 of the Rules of Court). It is the inadequacy-not the mere absence of all other legal remedies and the danger of failure of justice without such writ that usually determines the propriety of certiorari (Philippine National Bank v. Puno, 170 SCRA 229 19891 citing Jaca v. Davao Lumber Co., 113 SCRA 107 [1982]).

Undoubtedly; Certiorari is a more speedy and efficacious remedy to have the judgment by default be set aside as a nullity where a party has been illegally declared in default. It will be noted that the trial court had already issued' a writ of execution even before respondents received a copy of the order denying their petition for relief from judgment (Rolle, p. 20). Clearly therefore even if appeal was available to private respondents, it was no longer speedy and adequate. Petitioners contend that respondent Court of Appeals, in dismissing the complaint (Civil Case No. 5210) against private respondents on the basis solely of the releases of claims, had denied them their right to procedural due process. They claim that the settlements contained in the releases of claims were not true; that patent irregularities attended their execution as petitioners executed them because private respondents led them to believe that what they were receiving were partial settlements only; and that the said documents were more of a receipt rather than any document Rollo, p. 12). Conversely, private respondents contend that the releases of claims executed and signed petitioners show that full settlements were received by the latter from private respondents and their insurer, F.E. Zuellig, Inc.; that when petitioners executed these documents, they were assisted by their very own counsel, Atty. Jaime C. Bueza; that the same was duly notarized and that petitioners cannot now impugn the veracity of the documents upon the self-serving argument that they were misled by their own counsel into believing that the settlements were but partial. It should be borne in mind that the petitioners do not deny at all their having executed the releases of claims which are in the nature of quit claims. Their allegation that the execution thereof was attended by false pretenses is self-serving. Contrary thereto, petitioners, in executing these releases of claims, were in fact assisted by their counsel, Atty. Bueza, and the document was even notarized. A notarized instrument is admissible in evidence without farther proof of its due execution and is conclusive as to the truthfulness of its contents, although not absolute but rebuttable by clear and convincing evidence to the contrary (Baranda v. Baranda, 150 SCRA 59 [19871, citing Antillon v. Barcelon, 37 Phil. 148 [19171 and Mendezona v. Phil. Sugar Estate Development Corporation, 41 Phil. 475 [19211). A public document executed and attested through the intervention of the notary public is evidence of the facts in clear, unequivocal manner therein expressed. It has in its favor the presumption of regularity. To contradict all these, there must be evidence that is clear and convincing more than merely preponderant (Collantes v. Capuno, 123 SCRA 652 (1983]). Petitioners can not now question the validity and/or veracity of the releases of claims on the allegation that the same were executed on their belief that what they received were only partial settlements and that they could not have released them "forever from all actions arising from such vehicular accident." If they did not release their claims against respondents forever, why did they cause the dismissal of the criminal case against Enrique Pimentel? In essence, petitioners are varying the terms embodied in the releases of claims, which is proscribed by Section 7 of Rule 130 of the Rules of Court. It is a well-settled principle of law that proof of verbal agreements is inadmissible under the Parol Evidence Rule (Continental Airlines Inc. v. Santiago, 172 SCRA 490 [1989]), and while Parol Evidence is admissible in a variety of ways to explain the meaning of written contracts, it cannot serve the purpose of incorporating into the contract additional contemporaneous conditions which are not mentioned at all in the writing, unless there has been fraud or mistake (Tupue v. Urgel, 161 SCRA 417 [1988] citing Yu Tek & Co. v. Gonzalez, 29 Phil. 384 [19151). It is easy to see that the exceptions to the rule do not apply in the instant case. The wordings of the "releases of claims" are clear, simple and unambiguous and there is no showing of any fraud, mistake or failure to express the true agreement of the. parties. The second paragraph of the releases of claims executed by petitioners provides: "the undersigned agrees that the foregoing sum is voluntarily accepted as full and final compromise, adjustments and settlement Of all claims with respect to both civil and/or criminal actions that may have been filed in connection with the above accident; x x x". (Rollo, Annexes "I" to "I-C", pp. 79-82, italics supplied) When petitioners executed the releases of claims on April 23, 1986, Civil Case No. 5210 for damages had already been filed on January 11, 1985 by petitioners as plaintiffs against private respondents as defendants. With the subsequent execution of the releases of claims by petitioners, all claims and demands of petitioners as plaintiffs in Civil Case No. 5210 which "had been filed in connection with the above (vehicular) accident," were fully and finally compromised, settled and forever released as stipulated in the releases of claims and agreed upon by petitioners. There could have been no fraud or mistake in the execution of the "releases of claims" because the petitioners were assisted by their counsel in the execution thereof, who affixed his signature on each and every document as witness thereto, which documents ("releases of claims") were acknowledged before a notary public. While strictly speaking, a remand of the case to the trial court to enable petitioners to present their evidence would be the normal course to follow before a decision is rendered, it has been held that such time-consuming procedure may be, properly dispensed with for being unnecessary where the Supreme Court could resolve the dispute on the basis of the records before it (Quisumbing v. CA, SCRA 703 [1983]; Board of Liquidators v. Zulueta, 115 SCRA 549 [1982]). The only defense of the private respondent, is the "releases of claims" executed by the petitioners, the existence of which is beyond dispute and is sufficient basis for rendering a decision on the merits, i.e., the dismissal of petitioners' complaint on the ground that the claim or demand of petitioners as plaintiffs had been paid or released. WHEREFORE, the petition is hereby DISMISSED and the decision of the Court of Appeals dismissing the complaint for damages against private respondents is hereby AFFIRMED. SO ORDERED. Davide, Jr. and Melo, JJ., concur. Gutierrez, Jr., (J., Chairman), On leave. Romero, J., Please see my separate concurring and dissenting opinion. SEPARATE OPINION ROMERO, J.: Concurring and Dissenting. I concur in the ruling that the private respondents were not in default before the trial court but vote to remand the case to the Regional Trial Court of Balanga, Bataan (Branch 1). At the outset, I would like to state that 1, too, adhere to the well-entrenched doctrine that the Rules of Court are to be given a liberal interpretation. Procedural rules must not be interpreted to sacrifice the substantive rights of the litigants in the complex sanctuary of technicalities with impairment of the sacred principles of justice. The adversarial nature of oar legal system has often encouraged those involved in the prop administration of justice to channel their creative energies into manipulating and abusing technical rules to serve their own interests rather than striving to attain and preserve justice. But members of the Bench and Bar are reminded that "[l]awsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities."1 In the case at bar, petitioners filed on January 11, 1985 with the Regional Trial Court of Bataan a civil case for damages against private respondents arising out of a vehicular accident which occurred on July 9, 1984. However, on April 23, 1965, private respondents paid petitioners certain amounts of money as a result of which each of the latter signed a Release of Claim.

Nevertheless, private respondents were served with summons in connection with the civil complaint on July 30, 1985. Fourteen days later, on August 14, 1985, private respondent Enrique Pimentel wrote a letter to the Clerk of Court of the RTC of Bataan informing the court that the parties have amicably settled their case. On August 21, 1985, the Presiding Judge of Branch 1 of the RTC of Bataan issued an order observing that private respondents have not yet riled their Answer and ordering petitioners to file a Motion to declare private respondents in default. Upon motion by petitioners, private respondents were de. clared in default. Subsequently, the trial court rendered a judgment by default sentencing private respondents to pay jointly and severally the following. 1. "To Cesar dela Fuente, actual damages in the amount of P55,771.05; 2. To Marcelo Golding, actual damages in the amount of P30,101.55; 3. To Maria Vergara, actual damages in the amount of P21,142.00; 4. To Teresita Gerales, compensatory damages in the amount of P50,000.00; 5. No further award is due Perlito Trigero as he had been fully compensated; 6. To all plaintiffs, attorney's fees in the total amount of P5,000.00 plus costs of the suit.'2 Private respondents elevated the case to the Court of Appeals (CA) by way of a petition for certiorari. The CA, applying the ruling in Ledesma v. Avelino,3 held that the letter which private respondent Enrique Pimentel sent to the trial court can be considered as private respondents' Answer and since it was filed fourteen (14) days after private respondents were served with summons, they could not yet be declared in default. The ponencia affirmed the CA decision on this point. I am more inclined to adopt the view propounded by Justice Barredo in his concurring opinion 4 in Ledesma v. Avelino that the letter should be treated as a Motion for Judgment on Compromise, which if approved by the court will serve as a judgment on the merits and will have the effect of res judicata among the parties as to the subject matter of the complaint. If treated as such Motion, a hearing on the same is necessary and for which reason I am of the view that the case should be remanded to the trial court. The hearing is all the more necessary in this case because petitioners claim misrepresentation and misappreciation with respect to the Releases of Claim. Even if the letter were treated as an Answer, as is being held in the ponencia and which I could, on equitable grounds, concede to be acceptable, I nevertheless believe that the case should be remanded to the trial court for the latter to proceed with the trial, where petitioners will have the opportunity to present their evidence to prove their allegations of misappreciation and misrepresentation as regards the Releases of Clams. It is true that in Ledesma V. Avelino, the Court after holding that the letter filed with the trial court can be considered asthe Answer, decided not to remand the case but instead rendered aing: Cesar dela Fuente ..................P15,016.79 Marcela Golding - 10,171.75 Maria Vergara ....7,674.96 Teresita Gerales ..................15,000.00 Perlito Trigero - .. 2,136.50 judgment based on the compromise agreement which the letter referred to. However, I would caution the wholesale application of Ledesma v. Avelino in this case. Ledesma v. Avelino was decided not only on the doctrine of liberality in the interpretation of procedural rules but also, and more fundamentally, on the principle of procedural due process. Had the Court in that case not considered the letter as the Answer, the defendant would have been deprived of its day in court. And since the genuineness and validity of the compromise agreement in that case was not disputed, the Court went on to render a judgment so the amicable settlement. In the instant case, however, the Releases of Claim are being quest, ned by petitioners. Would not petitioners be deprived of their right to procedural due process if they were not allowed to present evidence before the trial court to dispute the Releases of Claim? My nsistence on remanding the case to the trial court is based on my reservations regarding the validity of the Releases of Claim. Their form and content compel me to wonder whether petitioners voluntarily entered into and fully understood them. The Releases of Claim, which are in printed form, provide: "RELEASE OF CLAIM FOR THE SOLE CONSIDERATION of _______________________________(P____), the receipt whereof is hereby acknowledged, (I), (We)_____________________for ___________, self,______________heirs, representatives, successors and assigns do hereby forever release, discharge and absolve__________________________________________________________________________of and from all actions, claims and demands whatsoever that now exist or may hereafter develop and particularly on account of all known, unknown and unanticipated injuries and damages arising out of and in consequence of the accident/illness occurring on or about_____________, 19_________at_______________________________________________________________________The undersigned furthermore agrees that the foregoing sum is voluntarily accepted as full and final compromise, adjustment and settlement of all claims with respect to both civil and/or criminal actions that may have been filed in connection with the above accident; that the payment of said amount shall never be construed as an admission of liability by the party/parties hereby released. The undersigned furthermore agrees to indemnify the above-released party/parties from any and all claims of whatever nature that may be brought now and hereafter by my/our heirs, legal representatives, successors and assigns. IN WITNESS THEREOF_______________________have hereunto set ____________hand this_____ day of_______________, 19________. READ CAREFULLY BEFORE SIGNING ___________________________ Res. Cart. No._________________ Issued at_____________________ Issued on_____________________ IN THE PRESENCE OF:____________________ ____________________" The Releases of Claim in this case are contracts of adhesion because there is already a printed form containing the stipulation of the agreement and one party merely "takes it or leaves it." In contracts such as these, "it is difficult to say that there is a common intention. Rather, it is more accurate to say that there is an imposition by one party upon another who accepts the terms of a contract already prepared by the former, by reason of necessity which curtails his bargaining power."5 Justice J.B.L. Reyes, in Qua Chee Gan v. La Union and Rock Insurance Co. Ltd.,6 discussed the nature of contracts of adhesion 7 and the obligation of courts when examining them, thus: "The courts cannot ignore that nowadays monopolies, cartels and concentrations of capital,endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may not change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labeled since Raymond Baloilles 'contracts by adherence' (contracts d'adhesion), in contrast to those entered into by parties bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are prime examples) obviously call for greater strictness and

vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition, and pi event their becoming traps for the unwary (New Civil Code, Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942)."8 Because the parties to a contract of adhesion are not on equal footing in case an ambiguity arises from the agreement, the doubt is to be resolved against the party which prepared the contract and in favor of the one that merely adhered to it.9 Similarly. where the party who merely signed the contract of adhesion alleges vitiation of consent, I believe that it is the duty of thecourt to make a thorough examination of such allegation. The Civil Code imposes a duty on the courts to exercise vigilance in adjudicating cases involving parties at a disadvantage, thus: "In all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection.10 Petitioners are not only disadvantaged by virtue of the nature of the agreement they entered into but they also claim to be "simple and poor provincial folks, almost unlettered, and definitely unused to the legal terminology used in the forms they signed."11 Finally, the all-encompassing nature of the provisions of the Releases of Claims raises doubts as to their validity. I quote the relevant part, thus: "(I), (We)__________________________________for_________ self,______________heirs, representatives, successors and assigns do hereby forever release, discharge and absolve________________________________________________________of and from all actions, claims and demands whatsoever that now exist or may hereafter develop and particularly on account of all known, unknown and unanticipated injuries and damages arising out of and in consequence of the accident. . ." (Italics supplied) There is no public policy against waiving actions arising from quasi-delict. However, the terms of the waiver or quit-claim must at all times be reasonable and the consent of the parties untainted. The following guidelines made by the Court in Periquet v. NLRC are instructive: "Not all waivers and quitclaims are invalid as against public policy. If the agreement was voluntarily entered into and represents a reasonable settlement, it is binding on the parties and may not later be disowned simply because of a change of mind. It is only where there is clear proof that the waiver was wangled from an unsuspecting or gullible person, or the terms of settlement are unconscionable on its face, that the law will step in to annul the questionable transaction."12 I believe that the case should be remanded to the trial court, not only to give private respondents the opportunity to present evidence regarding their allegations of misappreciation and misrepresentation as regards the Releases of Claim but also to enable the trial court to determine whether the terms of the waivers are reasonable, taking into account the injuries and other possible damages suffered by petitioners, the amount paid under the Releases of Claim and other relevant circumstances. WHEREFORE, I vote to MODIFY the decision of the Court of Appeals by ordering the remand of the case to the trial court. 1. Alonzo v. Villamor, 16 Phil. 315, 322 (1910). 2. Under the Releases of Claim, petitioners were paid the follow 3. G.R. No. L-47698,April 28,1978, 82 SCRA 396. 4. Ledesma v. Avelino, supra, at 405-406. 5. 4 A. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES 568 (1985). 6. 98 Phil. 85 (1955). 7. The subject matter of the case was an insurance policy which is an example of a conract of adhesion. 8. Supra, note 6 at 95. 9. Fieldmen's Insurance Co., Inc. v. Vda. de Songco, G.R. No. L-24833, September 23, 1968, ~ 25 SCRA 70. 10. Civil Code, Art. 24. 11. Reply to Comment, p. 2, Rollo, p. 67. 12 G.R. No. 91298, June 22, 1990, 186 SCRA 724, 730-731 quoted in Cruz v. NLRC, G.R. No. 98273, October 28, 1991, 203 SCRA 286, 291.

Tantuico, Jr. vs. Republic December 2,1991 [GRN No. 89114 December 2,1991] FRANCISCO S. TANTUICO, JR., petitioner, vs. REPUBLIC OF THE PHILIPPINES, PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, MATEO A. T. CAPARAS, AND THE SANDIGANBAYAN, respondents. EN BANC PETITION for certiorari, mandamus and prohibition to review the resolution of the Sandiganbayan. The facts are stated in the opinion of the Court. Kenny H. Tantuico for petitioner. PADILLA, J.: In this petition for certiorari, mandamus and prohibition with a prayer for the issuance of a writ of preliminary injunction and/or restraining order, the petitioner seeks to annul and set aside the resolution of the Sandiganbayan, dated 21 April 1989, denying his motion for a bill of particulars as well as its resolution, dated 29 May 1989, which denied his motion for reconsideration; to compel the respondent PCGG to prepare and file a bill of particulars, or that said respondent be ordered to exclude petitioner as defendant in Civil Case No. 0035 should they fail to submit the said bill of particulars; and to enjoin the respondent Sandiganbayan from further proceeding against petitioner until the bill of particulars is submitted, claiming that the respondent Sandiganbayan acted with grave abuse of discretion amounting to lack of jurisdiction in promulgating the aforesaid resolutions and that there is no appeal, nor any plain, speedy and adequate remedy for him in the ordinary course of law other than the present petition. As prayed for, this Court issued on 1 August 1989 a temporary restraining order "effective immediately and continuing until further orders from this Court, ordering the respondent Sandiganbayan to CEASE and DESIST from further proceeding in Civil Case No. 0035 (PCGG' 35), entitleld "Republic of the Philippines vs. Benjamin (Kokoy) Romualdez, et al." pending before it.1 The antecedents are as follows: On 31 July 1987, the Republic of the Philippines, represented by the PCGG, and assisted by the Office of the Solicitor General, filed with the Sandiganbayan Civil Case No. 0035, entitled "Republic of the Philippines vs. Benjamin (Kokoy) Romualdez, et al." for reconveyance, reversion, accounting, restitution and damages.2 The principal defendants in the said Civil Case No. 0035 are Benjamin (Kokoy) Romualdez, Ferdinand E. Marcos and Imelda R. Marcos.

Petitioner Francisco S. Tantuico, Jr. was included as defendant in Civil Case No. 0035 on the theory that: (1) he acted in unlawful concert with the principal defendants in the misappropriation and theft of public funds, plunder of the nation's wealth, extortion, blackmail, bribery, embezzlement and other acts of corruption, betrayal of public trust and brazen abuse of power;3 (2) he acted as dummy, nominee or agent, by allowing himself to be incorporator, director, board member and/or stock holder of corporations beneficially held and/or controlled by the principal defendants;4 (3) he acted singly or collectively, and/or in unlawful concert with one another, in flagrant breach of public trust and of their fiduciary obligations as public officers, with gross and scandalous abuse of right and power and in brazen violation of the Constitution and laws of the Philippines, embarked upon a systematic plan to accumulate illgotten wealth;5 (4) he (petitioner) taking undue advantage of his position as Chairman of the Commission on Audit and with grave failure to perform his constitutional duties as such Chairman, acting in concert with defendants Ferdinand E. Marcos and Imelda R. Marcos, facilitated and made possible the withdrawals, disbursements and questionable use of government funds;6 and (5) he acted as dummy, nominee and/or agent by allowing himself to be used as instrument in accumulating ill-gotten wealth through government concessions, orders and/or policies prejudicial to plaintiff, or to be incorporator, director, or member of corporations beneficially held and/or controlled by defendants Ferdinand E. Marcos, Imelda R. Marcos, Benjamin (Kokoy) Romualdez and Juliette Gomez Romualdez in order to conceal and prevent recovery of assets illegally obtained.7 On 11 April 1988, after his motion for production and inspection of documents8 was denied by respondent court in its resolution9 dated 9 March 1988, petitioner filed a Motion for a Bill of Particulars,10 alleging inter alia that he is sued for acts allegedly committed by him as (a) a public officer-Chairman of the Commission on Audit, was a private individual, and (c) in both capacities, in a complaint couched in too general terms and shorn of particulars that would inform him of the factual and legal basis thereof, and that to enable him to understand and know with certainty the particular acts allegedly committed by him and which he is now charged with culpability, it is necessary that plaintiff furnish him the particulars sought therein relative to the averments in paragraphs 2, 9(a), 15, 7 and 17 of the Second Amended Complaint so that he can intelligently prepare his responsive pleading and prepare for trial. The particulars sought for in the said motion are as follows: "a. Relative to the averments in paragraphs 2, 9(a) and 15 of the Second Amended Complaint: i) What are the dates of the resolutions (if on appeal) or the acts (if otherwise) issued or performed by herein defendant which allowed the facilitation of, and made possible the, withdrawals, disbursements and questionable use of government funds; ii) What ministries or Departments, offices or agencies of the government were involved in these questionable use of government funds; iii) What are the names of the auditors who had the original audit jurisdiction over the said withdrawals, disbursements and questionable use of government funds; iv) How much government funds were involved in these questionabledisbursements, individually and in totally? v) Were the disbursements brought to herein defendant for action on pre-audit, postaudit or otherwise or where they initiated and/or allowed release by herein defendant alone, without them undergoing usual governmental audit procedures, or in violation thereof.? vi) What were herein defendant's other acts or omission or participation in the matter of allowing such disbursements and questionable use of government funds, if any? b. Relative to paragraphs 7 and 17 of the Second Amended Complaint: i) In what particular contract, dealing, transaction and/or relationship of any nature of Ferdinand E. Marcos, Imelda R. Marcos, Juliette Gomez Romualdez or Benjamin T. Romualdez did herein defendant act as dummy, nominee or agent? Please specify the dealings, the dates, the corporations or entities involved, the government offices involved and the private and public documents, if any, showing herein defendant's complicity, since he is not aware of any such instance. More basically, please specify whether the defendant is a dummy or nominee or agent and of which corporation or transaction? ii) What particular government concession, order and/or policy obtained by Ferdinand E. Marcos, or Imelda R. Marcos, or Juliette Gomez Romualdez and/or Benjamin T, Romualdez allowed them either singly or jointly to accumulate illgotten wealth by using herein defendant as instrument for their accomplishment. Likewise please identify the nature of the transactions, the dates and the document showing complicity on the part of herein defendant; he is not aware of any such instance. iii) Please specify the name or denominate the particular government concession, order and/or policy prejudicial to the interest of the government which was obtained by either of the above-named four defendants through the participation of herein defendant as a dummy, nominee or agent of herein defendant. Please likewise identify the government office involved, the dates and other particulars, likewise defendant is not aware of any such instance. iv) Please name and specify the corporation whether, stock or non-stock, whether government or private, beneficially, held and/or controlled by either of the four above defendants, where herein defendant is an incorporator, director or member and where his inclusion as such incorporator, director or member of the corporation was made in order to conceal and prevent recovery of assets illegally obtained by the aforementioned four defendants, how many shares are involved and what are their values, how and when have they been acquired." The Solicitor General, for and in behalf of respondents (except the respondent Sandiganbayan), opposed the motion." After the petitioner had filed his reply" thereto, the respondent Sandiganbayan promulgated on 21 April 1990 a resolution" denying the petitioner's motion for a bill of particulars on the ground that the particulars sought by petitioner are evidentiary in nature, the pertinent part of which resolution reads, as follows: "We are of the considered opinion that the allegations in the Expanded Complaint are quite clear and sufficient enough for defendantmovant to know the nature and scope of the causes of action upon which plaintiff seeks relief. They provide the factual scenario which, coupled with other allegations set forth in the 'Common Averments' and further specified in the 'Specific Averments'of herein defendantmovant and his co-defendants' illegal acts which are within defendantmovant's peculiar and intimate knowledge as a government official and corporate executive, will enable him to make the proper admission, denials or qualifications, set out affirmative and/or special defenses and thereafter prepare for trial Evidentiary facts or matters are not essential in the pleading of the cause of action, nor to details or probative value or particulars of evidence by which these material evidence are to be established (Remitere vs. Yulu, 6 SCRA 251). The matters which he seeks are evidentiary in nature and, being within his intimate or personal knowledge, may be denied or admitted by him or if deemed necessary, be the subject of other forms of discovery."14 Petitioner moved for reconsideration15 but was denied by respondent Sandiganbayan in its resolution16 dated 29 May 1990. Hence, petitioner filed the present petition.

The principal issue to be resolved in the case at bar is whether or not the respondent Sandiganbayan acted with grave abuse of discretion in issuing the disputed resolutions. Petitioner argues that the allegations of the Second Amended Complaint in Civil Case No. 0035 (PCGG 35) pertaining to him state only conclusions of fact and law, inferences of facts from facts not pleaded and mere presumptions, not ultimate facts as required by the Rules of Court. On the other hand, the respondent Sandiganbayan, by and through the Solicitor General, contends that the essential elements of an action for recovery of ill-gotten wealth are: (1) an accumulation of assets, properties and other possessions; (2) of former President Ferdinand E. Marcos, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees; and (3) whose value is out of proportion to their known lawful income, and that the ultimate facts establishing these three (3) essential elements of an action for recovery of illgotten wealth are sufficiently alleged in the complaint. Hence, petitioner is not entitled to a bill of particulars. A complaint is defined as a concise statement of the ultimate facts constituting the plaintiffs cause or causes of action.17 Like all other pleadings allowed by the Rules of Court,18 the complaint shall contain in a methodical and logical form a plain, concise and direct statement of the ultimate facts on which the plaintiff relies for his claim, omitting the statement of mere evidentiary facts.19 Its office, purpose or function is to inform the defendant clearly and definitely of the claims made against him so that he may be prepared to meet the issues at the trial. The complaint should inform the defendant of all the material facts on which the plaintiff relies to support his demand; it should state the theory of a cause of action which forms the bases of the plaintiff a claim of liability.20 The rules on pleading speak of two (2) kinds of facts: the first, the "ultimate facts, and the second, the "evidentiary facts." In Remitere vs. Vda. de Yulo,21 the term "ultimate facts" was defined and explained as follows: "The term 'ultimate facts' as used in Sec. 3, Rule 3 of the Rules of Court, means the essential facts constituting the plaintiffs cause of action. A fact is essential if it cannot be stricken out ithout leaving the statement of the cause of action insufficient. x x x" (Moran, Rules of Court, Vol. 1, 1963 ed., p. 213). "Ultimate facts are important and substantial facts which either directly form the basis of the primary right and duty, or which directly make up the wrongful acts or omissions of the defendant. The term does not refer to the details of probative matter or particulars of evidence by which these material elements are to be established. It refers to principal, determinate, constitutive facts, upon the existence of which, the entire cause of action rests." while the term "evidentiary fact" has been defined in the following tenor: "Those facts which are necessary for determination of the ultimate facts; they are the premises upon which conclusions of ultimate facts are based. Womack v. Industrial Comm., 168 Colo. 364,451 P.2d 761, 764. Facts which furnish evidence of existence of some other fact.'"22 Where the complaint states ultimate facts that constitute the three (3) essential elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant in violation of said legal right, the complaint states a cause of action, otherwise, the complaint must succumb to a motion to dismiss on that ground of failure to state a cause of action .23 However,where the allegations of the complaint are vague, indefinite, or in the form of conclusions, the proper recourse would be, not a motion to dismiss, but a motion for a bill of particulars.24 Thus, Section 1, Rule 12 of the Rules of Court provides: "Before responding to a pleading or, if no responsive pleading is permitted by these rules, within ten (10) days after service of the pleading upon him, a party may move for a more definite statement or for a bill of particulars of any matter which is not averred with sufficient definiteness or particularity to enable him properly to prepare his responsive pleading or to prepare for trial. Such motion shall point out the defects complained of and the details desired." In this connection, the following allegations have been held as MERE CONCLUSIONS OF LAW, INFERENCES FROM FACTS NOT ALLEGED OR OPINION OF THE PLEADER: (a) the allegations that defendantsappellees were "actuated by ulterior motives, contrary to law and morals, with abuse of their advantageous position as employers, in gross and evident bad faith and without giving plaintiff ... his due, wilfully, maliciously, unlawfully, and in summary and arbitrary manner", are conclusions of law, inferences from facts not alleged and expressions of opinion unsupported by factual premises;25 (b) an allegation of duty in terms unaccompanied by a statement of facts showing the existence of the duty, is a mere conclusion of law, unless there is a relation set forth from which the law raises the duty;26 (c) an averment . . . that an act was "unlawful" or "wrongful" is a mere legal conclusion or opinion of the pleader;27 (d) the allegation that there was a violation of trust was plainly a conclusion of law, for mere allegation that it was the duty of a party to do this or that, or that he was guilty of a breach of duty, is a statement of a conclusion, not of a fact";28 (e) an allegation that a contract is valid or void, is a mere conclusion of law;29 (f) the averment in the complaint that "defendant usurped the office of Senator of the Philippines" is a conclusion of law-not a statement of fact-inasmuch as the particular facts on which the alleged usurpation is predicated are not set forth therein;30 and (g) the averment that "with intent of circumventing the constitutional prohibition that' no officer or employee in the civil service shall be removed or suspended except for cause as provided` by law', respondents maliciously and illegally for the purpose of political persecution and political vengeance, reverted the fund of the salary item x x x and furthermore eliminated or abolished the said position effective 1 July 1960" is a mere conclusion of law unsupported by factual premises.31 Bearing in mind the foregoing rules on pleading and case law, let us now examine the allegations of the Second Amended Complaint against the petitioner to determine whether or not they were averred with sufficient definiteness or particularity to enable him properly to prepare his responsive pleading or to prepare for trial. If the allegations of the said complaint are vague, indefinite or in the form of conclusions, then petitioner is entitled to a bill of particulars. The allegations in the complaint pertaining to the alleged culpable and unlawful acts of herein petitioner are quoted hereunder as follows: "GENERAL AVERMENTS OF DEFENDANTS' ILLEGAL ACTS "9. (a) From the early years of his presidency, Defendant Ferdinand E. Marcos took undue advantage of his powers as President. All throughout the period from September 21,1972 to February 25, 1986, he gravely abused his powers under martial law and ruled as Dictator under the 1973 Marcospromulgated Constitution. Defendant Ferdinand E. Marcos, together with other Defendants, acting

singly or collectively, and/or in unlawful concert with one another, in flagrant breach of public trust and of their fiduciary obligations as public officers, with gross and scandalous abuse of right and power and in brazen violation of the Constitution and laws of the Philippines, embarked upon a systematic plan to accumulate ill-gotten wealth; (b) Upon his unfettered discretion, and sole authority, for the purpose of implementing the plan referred to above, Defendant Ferdinand E. Marcos ordered and caused, among others: (b-i) the massive and unlawful withdrawal of funds, securities, reserves, and other assets and property from the National Treasury, the Central Bank, the other financial institutions and depositories of Plaintiff; (b-ii) the transfer of such funds, securities, reserves and other assets and property to payees or transferees of his choice and whether and in what manner such transactions should be recorded in the books and records of these institutions and other depositories of Plaintiff. 10. Among others, in furtherance of the plan and acting in the in manner referred to above, in unlawful concerted with one another and with gross abuse of power and authority, Defendants Ferdinand E. Marcos and Imelda R. Marcos; x x x x x x b. Converted government-owned and controlled corporations into private enterprises and appropriated them and/or their assets for their own benefit and enrichment; c. Awarded contracts with the Government to their relatives, business associates, dummies, nominees, agents or persons who were beholden to said Defendants, under terms and conditions grossly and manifestly disadvantageous to the Government; d. Misappropriated, embezzled and/or converted to their own use funds of Government financial institutions, particularly those allocated to the Office of the President and other ministries and agencies of the Government including, those conveniently denominated as intelligence or counter-insurgency funds, as well as funds provided to Plaintiff by foreign countries, multinationals, public and private financial institutions; e. Raided Government financial and banking institutions of billions of pesos in loans, guarantees and othcr types of financial accommodations to finance dubious and/or overpriced projects of favored corporations or individuals and misused and/or converted to their own use and benefit deposits found therein to the financial min of Plaintiff and the Filipino people; xxxxXX h. Sold, conveyed and/or transferred Government property, real and/or personal, to corporations beneficially held and/ or controlled by them or through third persons, under such terms and conditions grossly and manifestly disadvantageous to the Government; i. Engaged in other illegal and improper acts and practices designed to defraud Plaintiff and the Filipino people, or otherwise misappropriated and converted to their own use, benefit and enrichment the lawful patrimony and revenues of Plaintiff and the Filipino people, 11. Among the assets acquired by Defendants in the manner above-described and discovered by the Commission in the exercise of its official responsibilities are funds and other property listed in Annex 'A' hereof and made an integral part of this Complaint. 12. Defendants, acting singly or collectively, and/or in unlawful concert with one another, for the purpose of preventing disclosure and avoiding discovery of their unmitigated plunder of the National Treasury and of their other illegal acts, and employing the services of prominent lawyers, accountants, financial experts, businessmen and other persons, deposited, kept and invested funds, securities and other assets estimated at billions of US dollars in various banks, financial institutions, trust or investment companies and with persons here and abroad. V SPECIFIC AVERMENTS OF DEFENDANTS' ILLEGAL ACTS xxxxxx 14. Defendants Benjamin (Kokoy) Romualdez and Juliette Gomez Romualdez, acting by themselves and/or in unlawful concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, and taking undue advantage of their relationship, influence and connection with the latter Defendant spouses, engaged in devices and strategems to unjustly enrich themselves at the expense Plaintiff and the Filipino people, among others: (a) obtained, with the active collaboration of Defendants Senen J. Gabaldon, Mario D. Camacho, Mamerto Nepomuceno, Carlos J. Valdes, Delia Tantuico, Jovencio F. Cinco, Cesar C. Zalamea and Francisco Tantuico, control of some of the biggest business enterprises in the Philippines, such as, the Manila Electric Company (MERALCO), Benguet Consolidated Mining Corporation (BENGUET) and the Pilipinas Shell Corporation, by employing devious financial schemes and techniques calculated to require the massive infusion and hemmorrhage of government funds with minimum or negligible 'cashout' from Defendant Benjamin Romualdez. The following are the general features of a classic take-over bid by Defendant Benjamin Romualdez: xxx xxx (ii) The shares were held in the name of corporations which were organized soldely (sic) for the purpose of holding title to them. These corporations did not have any operating history nor any financial track record. Projected cash flow consisted almost solely of future and contingent dividends on the shares held. In spite of these limitations, these companies enjoyed excellent credit lines from banks and other financial institutions, as evidenced by the millions of pesos in loan and guarantees outstanding in their books; (iii) The' seed money' used to wrest control came from government and taxpayers' money in the form of millions of pesos in loans, guarantees and standby L/C's from government financial institutions, notably the DBP and PNB, which were in turn rediscounted with the Central Bank; (iv) Additional funding was provided from the related interests; and (v) This instricate (sic) skein of inter-corporate dealings was controlled and administered by an exclusive and closely knit group of interlocking directorate and officership. xxxxxx (g) Secured, in a veiled attempt to justify MERALCO's anomalous acquisition of the electric cooperatives, with the active collaborations of Defendants Cesar E.A. Virata, Juanita R. Remulla, Isidro Rodriguez, Jose C. Hernandez, Pedro Dumol, Ricardo C. Galing, Francisco C. Gatmaitan, Mario D. Camacho and the rest of the Defendants, the approval by Defendant Ferdinand E. Marcos and his cabinet of the so-called 'Three-Year Program for the Extension of MERALCO's Services to Areas Within The 60-Kilometer Radius of Manila', which required government capital investment amounting to millions of pesos; xxxxxx (1) Caused the National Investment and Development Corporation (NIDC) to dispose of its interest in the oil plants located in Tanauan, Leyte, which were owned and operated by its subsidiary, the NIDC Oil Mills, Inc., in favor of the SOLOIL, Inc., a corporation beneficially held and controlled by Defendant Benjamin Romualdez, with the active collaboration of Defendants Jose Sandejas, Francisco Tantuico and Dominador G. Ingco, under terms and conditions grossly disadvantageous to NIDC, to the grave and irreparable damage of Plaintiff and the Filipino people. 15. Defendant Francisco Tantuico, taking undue advantage of his position as Chairman of the Commission on Audit and with grave failure to perform his constitutional duties as such Chairman, acting in concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, facilitated and made possible the withdrawals, disbursements and questionable use of government funds as stated in the foregoing paragraphs to the grave and irreparable damage and injury of Plaintiff and the entire Filipino people. xxx xxx 17. The following Defendants acted as dummies, nominees and/or agents by allowing themselves (i) to be used as instruments in accumulating ill-gotten wealth through government concessions, orders and/or policies prejudicial to Plaintiff, or (if) to be incorporators, directors, or members of corporations held and/or controlled by Defendants Ferdinand E. Marcos, Imelda. R. Marcos, Benjamin (Kokoy) Romualdez, and Juliette Gomez Romualdez in order conceal (sic) and prevent recovery of assets illegally obtained: Francisco Tantuico x x x.

17.a. THE NAMES OF SOME OF THE CORPORATIONS BENEFICALLY HELD AND/OR CONTROLLED BY THE DEFENDANTS BENJAMIN (KOKOY) ROMUALDEZ, FERDINAND E. MARCOS AND IMELDA R. MARCOS WHERE THE POSITIONS/PARTICIPATIONS AND/OR INVOLVEMENTS OF SOME OF THE DEFENDANTS AS DUMMIES, NOMINEES AND/OR AGENTS ARE INDICATED ARE LISTED IN ANNEX 'B' HEREOF AND MADE AN INTEGRAL PART OF THIS COMPLAINT. xxxxxx 18. The acts of Defendants, singly or collectively, and/or in unlawful concert with one another, constitute gross abuse of official Position and authority, flagrant breach of public trust and fiduciary obligations, acquisition of unexplained wealth, brazen abuse of official position and authority, flagrant breach of public trust and fiduciary obligations, acquisition of unexplained wealth, brazen abuse of right and power, unjust enrichment, violation of the Constitution and laws of the Republic of the Philippines, to the grave and irreparable damage of Plaintiff and the Filipino people. (Italics supplied) Let us now analyze and discuss the allegations of the complaint in relation to which the petitioner pleads for a bill of particulars. As quoted above, paragraph 9(a) of the complaint alleges that "Defendant Ferdinand E. Marcos, together with other Defendants, acting singly or collectively, and/or in unlawful concert with one another, in flagrant breach of public trust and of their fiduciary obligations as public officers, with gross and scandalous abuse of right and power and in brazen violation of this Constitution and laws of the Philippines, embarked upon a systematic plan to accumulate ill-gotten wealth." In the light of the rules on pleading and case law cited above, the allegations that defendant Ferdinand E. Marcos, together with the other defendants "embarked upon a systematic plan to accumulated ill-gotten wealth" and that said defendants acted "in flagrant breach of public trust and of their fiduciary obligations as public officers, with gross and scandalous abuse of right and in brazer violation of the Constitution and laws of the Philippines", are conclusions of law unsupported by factual premises. Nothing is said in the complaint about the petitioner's acts in execution of the alleged "systematic plan to accumulate illgotten wealth", or which are supposed to constitute "flagrant breach of public trust", "gross and scandalous abuse of right and power", and "violations of the Constitution and laws of the Philippines". The complaint does not even allege what duties the petitioner failed to perform, or the particular rights he abused. Likewise, paragraph 15 avers that "defendant Francisco Tartuico, taking undue advantage of his position as Chairman of the Commission on Audit and with grave failure to perform his constitutional duties as such Chairman, acting in concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos facilatated and made possible the withdrawals, disbursements an questionable use of government funds as stated in the foregoing paragraphs to the grave and irreparable, damage and injury of Plaintiff and the entire Filipino people." In like manner, the allegation that petitioner "took undue advantage of his position as Chairman of the Commission on Audit," that he "failed to perform his constitutional duties as such Chairman," and acting in concert with Ferdinand E. Marcos and Imelda R. Marcos, "facilitated and made possible the withdrawals, disbursements, and questionable use of government funds as stated in the foregoing paragraphs, to the grave and irreparable damage and injury of plaintiff and the entire Filipino people", are mere conclusions of law. Nowhere in the complaint is there any allegation as to how such duty came about, or what petitioner's duties were, with respect to the alleged withdrawals and disbursements or how petitioner facilitated the alleged withdrawals, disbursements, or conversion of public funds and properties, nor an allegation from where the withdrawals and disbursements came from, except for a general allegation that they came from the national treasury. On top of that, the complaint does not even contain any factual allegation which would show that whatever withdrawals, disbursements, or conversions were made, were indeed subject to audit by the COA. In this connection, it may well be stated that the Commission on Audit (COA) is an independent, constitutional commission, which has no power or authority to withdraw, disburse, or use funds and property pertaining to other government offices or agencies. This is done by the agency or office itself, the chief or head of which is primarily and directly responsible for the funds and property pertaining to such office or agency.32 The COA is merely authorized to audit, examine and settle accounts of the various government offices or agencies, and this task is performed not by the Chairman of the COA but by the COA auditors assigned to the government office or agency subject to COA audit, Thus, in each agency of the government, there is an auditing unit headed by an auditor, whose duty is to audit and settle the accounts, funds, financial transactions, and resources of the agency under her audit, jurisdiction.33 The decision of the auditor for is appealable to the Regional Director,34 whose decision, is in turn, appealable to the COA Manager.35 Any party dissatisfied with the decision of the COA Manager may bring the matter on appeal to the Commission proper, a collegiate body exercising quasi-judicial functions, composed of three (3) COA Commissioners, with the COA Chairman as presiding officer.36 It is only at this stage that the COA Chairman would come to know of the matter and be called upon to act on the same, and only if an aggrieved party brings the matter on appeal. In other words, the Chairman of the COA does not participate in or personally audit all disbursements and withdrawals of government funds, as well as transactions involving govenment property. The averments in the particular paragraph of the complaint merely assume that petitioner participated in or personally audited all disbursements and withdrawals of government funds, and all transactions involving government property. Hence, the alleged withdrawals, disbursements and questionable use of government funds could not have been, as held by respondent Sandiganbayan, "within the peculiar and intimate knowledge of petitioner as Chairman of the COA." The complaint further avers in paragraph 17 that "(t)he following Defendants acted as dummies, nominees and/or age its by allowing themselves (i) to be instruments in accumulating ill-gotten wealth through government concessions, order and/ or policies prejudicial to Plaintiff, or (ii) to be incorporators, directors, or members of corporations beneficially held and/or controlled by Defendant Ferdinand E. Marcos, Imelda R. Marcos, Benjamin (Kokoy) T. Romualdez and Juliette Gomez Romualdez in order to conceal and prevent recovery of assets illegally obtained: Francisco Tantuico x xx."37 Again, the allegation that petitioner acted as dummy, nomincal or agent by allowing himself "to be used as instrumnet in accumulating ill-gotten wealth through government concessions, orders and/or policies prejudicial to Plaintiff' or to be (an) incorporator, director, or member of corporations beneficially held and/or controlled" by the Marcoses and Romualdezes, is a conclusion of law without factual basis. The complaint does not contain any allegation as to how petitioner became, or why he is perceived to be, a dummy, nominee or agent. Besides, there is no averment in the complaint how petitioner allowed himself to be used as instrument in the accumulation of ill-gotten wealth, what the concessions, orders and/or policies prejudicial to plaintiff are, why they are prejudicial, and what petitioner had to do with the granting, issuance, and or formulation of such concessions, orders, and/or policies. Moreover, Annex "A" of the complaint lists down sixty-one (61) corporations which are supposed to be beneficially owned or controlled by the Marcoses and Romualdezes. However, the complaint does not state which corporations petitioner is supposed to be a stockholder, director, member, dummy, nominee and/or agent. More significantly, the petitioner's name does not even appear in Annex "B" of the complaint, which is a listing of the alleged "Positions and Participations of Some Defendants". The allegations in the complaint, above-referred to, pertaining to petitioner are, therefore, deficient in that they merely articulate conclusions of law and presumptions unsupported by factual premises. Hence, without the particulars prayed for in petitioner's motion for a bill of particulars, it can be said the petitioner can not intelligently prepare his responsive pleading and for trial.

Furthermore, the particulars prayed for, such as, names of persons, names of corporations, dates, amounts involved, a specification of property for identification purposes, the particular transactions involving withdrawals and disbursements, and a statement of other material facts as would support the conclusions and inferences in the complaint, are not evidentiary in nature. On the contrary, those particulars are material facts that should be clearly and definitely averred in the cornplaint in order that the defendant may, in fairness, be informed of the claims made against him to the end that he may be prepared to nice the issues at the trial. Thus, it has been held that the purpose or object of a bill of particulars is "x x x to amplify or limit a pleading, specify more minutely and particularly a claim or defense set up and pleaded in general terms, give information, not contained in the pleading, to the opposite party and the court as to the precise nature, character, scope, and extent of the cause of action or defense relied on by the pleader, and apprise the opposite party of the case which he has to meet, to the end that the proof at the trial may be limited to the matters specified, and in order that surprise at, and needless preparation for, the trial may be avoided, and that the opposite party may be aided in framing his answering pleading and preparing for trial. It has also been stated that it is the function or purpose of a bill of particulars to define, clarify, particularize, and limit or circumscribe the issues in the case, to expedite the trial, and assist the court. A general function or purpose of a bill of particulars is to prevent injustice or do justice in the case when that cannot be accomplished without the and iof such a bill ."38 Anent the contention of the Solicitor General that the petitioner is not entitled to a bill of particulars because the ultimate facts constituting the three (3) essential elements of a cause of action for recovery of ill-gotten wealth have been sufficiently alleged in the complaint, it would suffice to state that in a motion for a bill of particulars, the only question to be resolved is whether or not the allegations of the complaint are averred with sufficient definiteness or particularity to enable the movant properly to prepare his responsive pleading and to prepare for trial. As already discussed, the allegations of the complaint pertaining to the herein petitioner are deficient because the averments therein are mere conclusions of law or presumptions, unsupported by factual premises. In the light of the foregoing, the respondent Sandiganbayan acted with grave abuse of discretion amounting to lack or excess of jurisdiction in promulgating the questioned resolutions. WHEREFORE, the petition is GRANTED and the resolutions dated 21 April 1989 and 29 May 1989 are hereby ANNULLED and SET ASIDE. The respondents are hereby ordered to PREPARE and FILE a Bill of Particulars containing the facts prayed for by petitioner within TWENTY (20) DAYS from notice, and should they fail to submit the said Bill of Particulars, respondent Sandiganbayan is ordered TO EXCLUDE the herein petitioner as defendant in Civil Case No. 0035, SO ORDERED. Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Bidin, Grio-Aquino, Medialdea, Regalado and Davide, Jr., JJ, concur. Fernan (C.J.), On leave. Romero, J., No part. Related to a PCGG Commissioner. Petition granted. Resolutions annulled and set aside. 1. Rollo, pp. 219-220. 2. Ibid., p. 57. 3. Second Amended Complaint, par. 2. 4. Ibid., par. 7. 5. Ibid., par. 9 (a). 6. Ibid., par. 15. 7. Ibid., par. 17. 8. Ibid., p. 116. 9. Ibid., P. 144. 10. Ibid., p. 162. 11. Rollo, p. 180. 12. Ibid., p. 191. 13. lbid., p. 198. 14. lbid., pp. 201-202. 15. Ibid., p. 204. 16. Ibid., p. 217. 17. Rules of Court, Rule 6, Sec. 3. 18. Id., Rule 6, Sec. 2. 19. Id., 'Rule 8, Sec. I. 20. Martin, Notes & Comments, Rules of Court, Vol. 1, 1986 ed., p. 279, citing 71 c.d.s., See. 63(b), p. 19. 21. G.R. No. L-19751, 28 February 1966,16 SCRA 251. 22. Black's Law Dictionary, 5th ed., p. 500. 23. Mathay, et al. vs. The Consolidated Bank & Trust Co., et al., G.R. No. 1,23136,28 August 1974,58 SCRA 559. 24. Abe, et al. vs. Foster Wheeler Corporation and Caltex, 100 Phil. 198,206, 25. De Dios vs. Bristol Laboratories (Phils.) Inc., G.R. No. L-26530, 29 January 1974, 55 SCRA 349, 356. 26. Mathay vs. Consolidated Bank & Trust Co., supra, 27. Ibid. 28. Ibid. 29. Remitere vs. Vda. de Yulo, supra. 30. Rodriguez vs. Tan, 91 Phil. 724. 31. Llanto vs. Ali Dimaporo, et al., G.R. No. L-21905, 31 March 1966. ,16 SCRA 599, 605. 32. PD No. 1445, otherwise known as the "Government Auditing Code of the Philippines", Sections 2 and 201(l). 33. Id., Sections 20 and 43. 34. Id., Section 19. 35. Id., Section 17. 36. Id., Sections 6 and 48. 37. Paragraph 7 of the Complaint also alleges that petitioner "acted as dummy, nominee or agent, by allowing himself to be incorporation director, board member and or stockholder of corporations beneficially held and/or controlled by Defendants Benjamin (Kokoy) Romualdez Ferdinand E. Marcos and Imelda R. Marcos." 38. Tan, et al. vs. Sandiganbayan, et al., G.R. No. 84195, 11 December 1989, 1 180 SCRA 34, 42-43.

Metropolitan Bank & Trust Co. vs. Quilts & All, Inc.

May 24, 1993.

[GRN 91436 May 24, 1993.] METROPOLITAN BANK & TRUST COMPANY, petitioner, vs. QUILTS & ALL, IN SEPARATE OPINION, respondent. PETITION for review of the decision of the Court of Appeals. The facts are stated in the opinion of the Court. Bulane, Barican, Cruz, Alampay Law Office for petitioner. Ronal L. Trinidad for private respondent. MELO, J.: The petition for review before us was filed under Rule 45 of the Revised Rules of Court and seeks to set aside the decision of the Court of Appeals in CAG.R. SP No. 18666 (Annex "L", pp. 98-104, Rollo) dated November 27, 1989, which disposed: WHEREFORE, judgment is hereby rendered giving due course to the petition and declaring that the Honorable respondent court is without jurisdiction to pass upon the issue against defendants Senen B. Dizon and Relita P. de los Santos anent the authority of Semen B. Dizon to enter into the mortgage contract as this falls within the original and exclusive jurisdiction of the Securities and Exchange Commission, and ordering the suspension of further proceedings in Civil Case No. 5570 until said issue shall have been resolved by the Securities and Exchange Commission. Without pronouncement as to costa. (p. 103, Rollo) On April 7, 1987, Relita P. de los Santos (de los Santos) then Corporate Secretary issued a Secretary's Certificate (Annex "A" p. 3 1, Rollo) which certified that in a special meeting of the Board of Directors of Quilts and All, Inc. (Quilts) its President, Mr. Senen B. Dizon (Dizon) was authorized and empowered to mortgage in favor of Metrobank, a property belonging to Quilts. On the basis of this Secretary's Certificate, Metrobank restructured Dizon's existing personal loan in the amount of P700,000.00 (Comment, p. 121, Rollo), secured by his house and lot at Angeles City and the property owned by Quilts covered by Transfer Certificate of Title No. 74172 (Annex "B", p. 32, Rollo). Aside from the mortgage lien, the Secretary's Certificate was likewise annotated on TCT No. 74172 on April 10, 1977. On July 7, 1988, more than a year later, Metrobank received a letter from Atty. Cesar Villanueva, Quilt's counsel (Annex "D", p. 35 Rollo) offering the amount of P200,000,00 for the cancellation of the mortgage on the property owned by Quilts because, allegedly, "Mr. & Mrs. Senen Dizon had left the Philippines, leaving several creditors." Metrobank refused the offer Pines the an tint offered did not approximate the appraised value of the mortgaged property. (Petition, p. 10, Rollo) On October 4, 1988, Atty. Ranel L. Trinidad, Quilt's new counsel wrote Metrobank. (Annex "C", p. 33, Rollo), reiterating the mortgage cancellation. In addition, counsel claimed that the alleged April 7, 1987 special meeting could not have taken place for lack of the requisite number of directors present to constitute a quorum since the Chairman and 2 other members of the Board of Directors were abroad on that date. On October 20, 1988, Quilts filed a complaint against Metrobank, Dizon and de los Santos for annulment and cancellation of mortgage (CC 5570, RTC-Br. 58, Angeles City) (Annex "E", p. 37, Rollo). On December 12, 1988, Metrobank moved to dismiss the complaint based on 1) lack of jurisdiction and 2) failure to state a cause of action. Judge Reynaldo B. Dewey, granted the motion on February 9, 1989. (Annex "G'", p. 51, Rollo). However, on August 4, 1989, upon Quilt's motion, Judge Daway issued an Order (Annex "J", p. 73, Rollo) reconsidering and setting aside the dismissal order because the grounds relied upon by Metrobank "did not appear to be indubitable", and deferred the determination of the motion until the trial. Metrobank filed an original petition for certiorari, prohibition or mandamus, contesting the reinstatement of the complaint and in the process reiterating as grounds lack of jurisdiction on the part of the trial court and failure of Quilt's complaint to state a cause of action. The Court of Appeals upheld the jurisdiction of the lower Court only with respect to Metrobank. It dismissed the case against Dizon and de los Santos, since the issue of whether or not these two persons had committed ultra vires acts is an intra-corporate matter which falls within the original and exclusive jurisdiction of the Securities and Exchange Commission (SEC) pursuant to Section 5 of Presidential Decree 902A, as amended. Pending the outcome of the case that would be filed in the SEC, however, the Court of Appeals directed the suspension of the proceedings against Metrobank. The appellate court also stated that paragraph 10 of Quilt's complaint was sufficient ba sis for Quilt's case against Metrobank. Hence, the instant petition in which the central and key issue is whether or not Quilt's complaint sufficiently states a cause of action against Metrobank. Pertinent allegations of Quilts complaint are quoted below: 4. That sometime on 7 April 1987, defendant Relita P. Delos Santos issued and signed a secretary's certificate certifying that she was the incumbent corporate secretary of plaintiff corporation and that a special meeting of the Board of Directors thereof was held on the same date at its principal office and that a resolution was passed and approved authorizing and empowering Senen B. Dizon, the then president of plaintiff corporation as the latter's attorney-in-fact, to Mortgage in favor of defendant Metropolitan Bank & Trust Company-Dau Branch the plaintiff corporation's real property located at the Riverside Subd., Angeles City, covered by Transfer Certificate of Title No. 74172, Registry of Deeds of Angeles City, containing an area of 823 square meters, as security for the loan of SEVEN HUNDRED THOUSAND (P700,000,00) Philippine Pesos obtained by Mr. Senen B. Dizon in his personal capacity from the said bank, with full power and authority for Mr. Senen B. Dizon to sign, execute, acknowledge and deliver, for and in behalf of the plaintiff corporation relating to the said loan. A machine copy of the said secretary's certificate is hereto attached as Annex "B" hereof; 5. That verification made later by the stockholders and some members of the Board of Directors of the plaintiff corporation with the Registry of Deeds of Angeles City revealed that the parcel of land owned by the plaintiff corporation covered by TCT No. 74172 was mortgaged in favor of the defendant Metropolitan Bank & Trust Company to guaranty the personal obligation of defendant Senen B.Dizon in the principal amount of P700,000.00 (me Annex "A-2" hereof); 6. That on 7 April 1987, plaintiff corporation had for its Board of Directors five (5) members namely: Romeo V. Roses, Arcadio R. Sarmiento, Jr., Romeo N. Pangilinan, Senen B. Dizon, and Relita P. Delos Santos, and for a quorum to be had, for purposes of holding a valid meeting of the Board of Directors, at least three (3) members thereof should be present thereat; 7. That on 7 April 1987, Mr. Romeo V. Hosea was in the United States of America while Mr. Arcadio R. Sarmiento, Jr. was then in New Zealand. Mr. Romeo N. Pangilinan, although in, the country an the said date, was never informed and never attended, meeting of the plaintiff corporation's Board of Directors. With the absence of three (3) of plaintiff corporation's five (5) members Board of Directors, no valid meet ing could have been held; 8. That a perusal of the Amended Articles of Incorporation of the plaintiff corporation particularly under the primary and secondary purposes for which it was created, will reveal that the corporation can not hypothecate any of its properties to secure the personal

obligations of any of its shareholdres, directors or officers. A machine copy of the plaintiff corporation's Amended Articles of Incorporation is hereto attached as Annexes "C" to "C-8" for pages 1 to 9, respectively, hereof; 9. That a letter demanding for the immediate cancelation of the real estate mortgage constituted upon TCT No. 74172 in favor of defendant Metropolitan Bank & Trust Company have been sent to the latter through its Dau Branch Manager and Legal Department but the said bank failed and refused to comply with the valid demand of the plaintiff corporation. A copy of the said letter is hereto attached as Annexes "D" and "D-1" for pages 1 and 2, respectively, hereof; 10. That plaintiff corporation suffered and continue to suffer actual damages as a result of the illegal acts of defendants for which the former should be compensated in an amount to be proved during the trial of the instant cases. (pp. 38-40, Rollo) An examination of the complaint shows that the allegations therein pertain mostly to the alleged ultra vires acts of Dizon and de Ina Santos. Paragraph 10 of the complaint, upon which both the trial court and the Court of Appeals premised a case against Metrobank, merely expresses legal conclusions, and is not an averment or allegation of ultimate facts. In the case of Alzua and Armalot vs. Johnson, (21 Phil. 308 [1912]), we stated: ... neither legal conclusions, nor conclusions or inferences of facts from facts not stated, nor incorrect inferences or conclusions from facts stated, being admitted by a demurrer to a complaint, conclusions of this nature in no wise aid the pleading. The ultimate facts upon which such conclusions rest must be alleged, though merely probative or evidential facts may be and should be omitted. (at p. 381). We agree with Metrobank that the complaint does not contain allegations that Metrobank had prior knowledge of, or could have known with the exercise of due diligence, that the recitals in the Secretary's Certificate were false. The complaint does not even allege specific overt acts which show that Metrobank acted in conspiracy with its co-defendants to defraud Quilts. In the case of Pacolod-Murcia Milling Co Inc. vs. First Farmers Milling Co., Inc. [ 103 SCRA . 436 (19981)] was stated: Granting, for the sake of argument, that, indeed, assistance in the 'illegal' act was rendered, the same, however, is not supported by wellpleaded had notice, information or knowledge of any flaw, much less any illegality, in their co-defendants' actuations, assuming that there was such a flaw or illegality. This absence is fatal and buoys up instead the PNB-NIDC's position a of lack of cause of action . . . (at pp. 441-442.) Although it is averred that the defendants' acts were done in bad faith, the Complaint does not come in any averment of facts showing that the acts were done in the manner alleged. Such a bare statement neither establishes any right or cause of action on the part of the plaintiff-appellant. It is a mere conclusion of law not sustained by declarations of facts, much less admitted by defendantsappellees. It does not, therefore, aid in any wise the complaint in setting forth a cause of action . . . (pp. 441 -442.) On the other hand, Metrobank cannot be faulted for relying on the Secretary's Certificate. It did so in good faith, unaware of any flaw and on the presumption that the ordinary course of business had been followed (Sec. 5-q Rule 131, Revised Rules of Court) and that the Corporate Secretary had regularly performed her duties. WHEREFORE, premises considered, the herein petition is GRANTED. The Resolution of the Court of Appeals in CA-G.R. SP No. 18666, dated November 27, 1989 is MODIFIED in that the Civil Case No. 5570 against Metrobank is hereby DISMISSED. No special pronouncement is made as to costs. SO ORDERED, Bidin and Romero, JJ., concur. Feliciano, J., (Chairman) I join Davide, Jr., J. in his dissenting opinion. Davide, Jr., J., Please see separate opinion. DAVIDE, JR., J.: I vote to DENY the Petition. No reversible error was committed by the Court of Appeals in denying the petitioner's plea to set aside the order of Branch 58 of the Regional Trial Court at Angeles City denying the petitioner's motion to dismiss, on the ground of lack of a cause of action, in Civil Case No. 5570. I respectfully submit that paragraphs 4 to 10, inclusive, of the complaint in the said case, which are reproduced at pages 4 to 6 of the ponencia, adequately state a valid cause of action against the petitioner [It is clear therefrom that the petitioner acted with undue haste in accepting the real estate mortgage of the private respondent's property to secure a personal loan of the latter's President solely on the basis of an alleged certification of the Corporate Secretary to the effect that at a special meeting of the Board of Directors of the private respondent, its President was authorized and empowered to mortgage in favor of the petitioner a property belonging to the corporation. There is no showing that a copy of the Board Resolution is attached to the certification, It is likewise obvious that no special power of attorney was subsequently executed after the President was allegedly authorized to mortgage the private respondent's property to secure the personal loan of the President. A special power of attorney is necessary to create or convey real rights over immovable property; furthermore, the special power of attorney must appear in a public document (paragraph 12, Article 1878, in relation to paragraph 1, Article 1358, Civil Code). In the absence of such a public instrument, a person dealing with an agent would not know the limits or extent of the latter's authority. "It is HornBook law that a person dealing with an agent is put upon inquiry as to the power and authority of the agent" (Deen vs. Pacific Commercial Co., 42 Phil. 738, 747 [1922]). In the absence of a special power of attorney in favor of the President of the private respondent, no valid mortgage could have been executed in favor of the petitioner Thus, on the face of the allegations in the complaint, the truth of which is hypothetically admitted for purposes of the motion to dismiss, a viable cause of action exists in favor of the private respondent; at the least, the ground for such a motion does not appear to be indubitable. The trial court did not then commit any grave abuse of discretion in denying the petitioner's motion to dismiss. For lack merit, the instant petiti on should be denied. Petition granted. Resolution modified.

Donato v. CA, 217 SCRA 196 (1993) [1993V24] SPOUSES VILLAMOR DONATO and LUZONIA O. DONATO, petitioners, vs. THE COURT OF APPEALS and HEIRS OF ROSARIO FONTANILLA, represented by RODOLFO RARANG, respondents.1993 Jan 182nd DivisionG.R. No. 102603D E C I S I O N CAMPOS, JR., J p:

This is a Petition to review the decision * of the Court of Appeals in CA-G.R. CV No. 19644, entitled "Heirs of Rosario Fontanilla, represented by Rodolfo F. Rarang, Plaintiffs-Appellees, versus Spouses Villamor and Luzonia O. Donato, Defendants-Appellants" which affirmed in toto the decision ** of the Regional Trial Court in Alaminos, Pangasinan, Branch 54, the dispositive portion of which is reproduced as follows: "WHEREFORE, judgment is hereby rendered in favor of plaintiffs: 1. ORDERING defendants to vacate lot 5145. CAD. 325-D of the Alaminos Cadastre and to deliver possession thereof to the plaintiffs; 2. ORDERING defendants to pay to plaintiffs the sum of TEN THOUSAND PESOS (P10,000.00) as and for attorney's fees, and to pay the cost of suit. Defendants' counterclaim is hereby DISMISSED for lack of merit. SO ORDERED." 1 The antecedent facts, as can be gathered from the findings of the trial court are as quoted: "Based on the evidence adduced by the parties as well as their admissions, there is no dispute as to the following facts: As described in par. 2 of the Complaint, the land in dispute is Lot 5145. CAD. 325-D of the Alaminos Cadastre, located at Brgy. Inerangan, Alaminos, Pangasinan. The said land is an unregistered riceland with an area of 4,280 square meters and used to be owned by Rosario Fontanilla, deceased mother of the plaintiffs, as her paraphernal property . . . Said Rosario Fontanilla died in 1971 in Davao City . . . and is survived by her five (5) children, to wit: Rodolfo, Plotarco, Ernesto, Edgardo, and Lolita, all surnamed Rarang . . . as her heirs. All of the said children . . . were born in Inerangan, Alaminos, Pangasinan; however, between 1957 and 1967, Rosario Fontanilla and her children migrated separately to Davao City . . There is likewise no dispute that defendants are the registered owners of a parcel of land, denominated as Lot No. 5303, CAD. 325-D of Alaminos Cadastre, which is covered by Transfer Certificate of Title No. 5535 and located near the land in question at Brgy. Inerangan, Alaminos, Pangasinan . . . Sometime in 1982, defendants purchased the aforesaid land from the Rural Bank of Urbiztondo, Inc. after the said bank foreclosed the mortgage constituted thereon by one Carolina Abrigo . . . Believing that the land which they purchased from the Rural Bank of Urbiztondo is Lot 5145, CAD. 325-A of Alaminos Cadastre, defendants occupied the said land in 1982 and are still in possession of the same up to this date . . ." 2 In the complaint, private respondents claim ownership over the parcel of land in dispute allegedly inherited by them from their late mother, Rosario. They contend that petitioners herein own a parcel of land covered by Transfer Certificate of Title No. 5535 and denominated as Lot No. 5303, CAD. 325-D, as appearing in the Registry of Deeds of Pangasinan, which is not the same nor is it identical with the land in dispute. In their answer, however, petitioners maintain that Lot No. 5303 as evidenced by Transfer Certificate of Title No. 5535 was originally applied for titling by one Carolina Abrigo on the strength of a Deed of Sale executed by Jose Ochave as vendor and Carolina Abrigo as vendee. As an affirmative defense, they allege that the parcel subject of this controversy is the very same Lot No. 5303 over which petitioners hold the title of ownership. It was a matter of oversight, they assert, on the part of the Bureau of Lands, that the identity of these two parcels was not reflected in their title. According to the petitioners, Jose Ochave's ownership over the same parcel finds support in the Deed of Sale executed by Basilio Rarang, who allegedly derives his authority as Rosario's agent from a Special Power of Attorney duly executed in his favor. During the trial on the merits, private respondents, through Rodolfo Rarang who is the lone witness, disputed the validity of the Special Power of Attorney. The rest of their evidence consisted of documents. Petitioners countered and presented the Notary Public who notarized the Deed of Sale between Basilio Rarang and Jose Ochave. Among the documents presented by the petitioners were the controverted Deed of Sale and the Special Power of Attorney said to have been executed by Rosario Fontanilla-Rarang in favor of Basilio Rarang. In finding for the private respondents, the trial court held: "The Court finds defendants' claim of ownership of Lot 5145 to be devoid of merit for several reasons: In the first place, the land which defendants bought from the Rural Bank of Urbiztondo, Inc. is Lot 5303, CAD. 325-D of Alaminos Cadastre, which land is covered by TCT No. 5535 in the name of defendants (pp. 26-27, TSN, Oct. 2, 1987). Having knowingly bought a registered land, the identity and metes and bounds of which are clearly set forth in detail in its certificate of title, defendants are plainly estopped from claiming that they acquired thereby a parcel of land (Lot 5145) which is entirely distinct and different from the parcel of land (Lot 5303) described and identified in the certificate of title; otherwise, the very purpose and essence of a certificate of title under the Torrens System would thereby be impaired, if not totally negated. Verily, the infirmity of defendants' claim that it was not Lot 5303 which they purchased from the Rural Bank of Urbiztondo is further underscored by their own admission that they have successively mortgaged the said land to the China Banking Corporation and thereafter to the Pangasinan Development Bank (par. 3 of Amended Answer in relation to par. 4 of Complaint). Accordingly, defendants' contention that "the title (TCT No. 5535) is not a true and faithful reproduction of what was actually applied for" and contains discrepancies due to the fault of the Bureau of Lands (pars. 10 and 14, Amended Answer) is beside the point and of no help to defendants' position. Suffice it to state that defendants are deemed to know the identity of the registered land which they were buying when they contracted with the Rural Bank of Urbiztondo. In the second place, the Court is not convinced as to the validity of the sale of the land in question in 1967 by Basilio Rarang in favor of Jose Ochave (Exhibit 6). Article 1874 of the Civil Code provides that: "When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void." . . . Defendants point to the Power of Attorney dated September 27, 1966 as sufficient authority, . . . the said Power of Attorney shows on its face that it was not signed by the supposed notary public Anastacio D. Deluao of Davao City, although his name is stamped thereon. The person who appeared, signed, and acknowledged the said Power of Attorney before the notary public was Basilio Rarang

(the agent) and not Rosario Rarang (the principal), . . . The said Power of Attorney was purportedly acknowledged by Basilio Rarang, the supposed attorney-in-fact, on September 22, 1966 or five days before the said Power of Attorney was allegedly signed by Rosario Rarang, the supposed principal. Further, the Court takes note of the fact that the first page of the Power of Attorney, which contains all the material allegations thereof, does not bear any signature at all. Compounding the aforesaid discrepancies of the said Power of Attorney, defendants also failed to present any evidence to prove the genuineness and due execution of said instrument, particularly the supposed signature of Rosario Rarang on the second page thereof. Accordingly, the Court must give credence to the testimony of Rodolfo Rarang (pp. 22-28, TSN, July 13, 1987) and concludes that the signature above the typewritten name Rosario Rarang on the second page of the Power of Attorney (Exh. 7-A) is not the true signature of plaintiffs' mother Rosario Fontanilla Rarang. The contention of defendants that they have been in peaceful possession of the land in question since 1982 (par. 15, Amended Answer) and have introduced improvements thereon (pars. 16 and 17, Amended Answer), albeit upon their mistaken belief that it is the land which they purchased from the Rural Bank of Urbiztondo, does not detract anything from the fact that defendants are illegally occupying plaintiffs' property without any just or legal ground. Neither can defendants be heard to plead good faith as a defense since, by their own admission, they negligently bought a registered land without first examining the title and true identity of the land (pp. 23-25, TSN, Oct. 2, 1987). Be that as it may, Article 22 of the Civil Code mandates that "Every person who through an act of performance by another or by other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him." 3 This decision was affirmed by the Respondent Court in toto. Hence, this appeal. A review of the appellate court's decision is anchored on the following, as stated by the petitioners: A. THE RESPONDENT COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE LOWER COURT IN DECLARING THE SPECIAL POWER OF ATTORNEY EXECUTED BY THE LATE MOTHER OF PRIVATE RESPONDENTS AS NULL AND VOID AND RELYING SOLELY ON THE UNCORROBORATED TESTIMONY OF RODOLFO RARANG, WHO IS THE LONE WITNESS IN COURT DESPITE THE FACT THAT THE TWO MATERIAL WITNESSES TO THE EXECUTION OF THE SPECIAL POWER OF ATTORNEY WERE STILL VERY MUCH ALIVE AND ARE IN THEMSELVES CO-PRIVATE RESPONDENTS OF RODOLFO RARANG, AND WERE NEVER PRESENTED IN COURT TO DISPUTE THE VERACITY OF SAID DOCUMENT. B. THE HONORABLE COURT OF APPEALS ALSO FAILED TO TAKE INTO CONSIDERATION THE LONG AND CONTINUOUS POSSESSION OF THE PETITIONERS AND THEIR PREDECESSORS-IN-INTEREST IN THE CONCEPT OF OWNERS UNTIL IT WAS TRANSFERRED TO THE PETITIONERS. C. THE HONORABLE COURT OF APPEALS ERRED IN NOT POINTING OUT CATEGORICALLY THE BASIS OF OWNERSHIP OF THE LOT IN DISPUTE WHEN THE RECORDS OF THE CASE DOES NOT BEAR ANY PROOF AS TO THEIR RIGHT OF OWNERSHIP EXCEPT THE TESTIMONY OF PRIVATE RESPONDENT RODOLFO RARANG ON THE STAND THAT THEY INHERITED THE SAME FROM THEIR LATE MOTHER. D. THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT PRIVATE RESPONDENTS WERE NOT PARTIES TO THE SPECIAL POWER OF ATTORNEY, HENCE, FAILURE TO DENY SAID ACTIONABLE DOCUMENT UNDER OATH IS NOT DEEMED AN ADMISSION OF ITS GENUINENESS AND DUE EXECUTION. E. THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING THAT PRIVATE RESPONDENTS EITHER WAIVED THEIR RIGHT AND/OR THEIR RIGHTS HAVE ALREADY PRESCRIBED DUE TO INACTION. F. THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING THAT THE TRIAL COURT'S DECISION SHOULD NEVER BE TARNISHED WITH ANY PERCEPTION OF IMPROPRIETY. G. THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING THAT PETITIONERS ARE GUILTY OF EVIDENT BAD FAITH WAS UNJUSTIFIED. H. THE HONORABLE COURT OF APPEALS' DECISION MUST BE REVERSED FOR IT IS CONTRARY TO LAW AND JURISPRUDENCE ON THE MATTER. The disposition of the first assignment of error involves the appreciation of facts surrounding the execution of the controverted Special Power of Attorney, a task which has been delegated to the trial court. In this jurisdiction, it is a fundamental and settled rule that conclusions and findings of fact by 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 to observe the demeanor of the witnesses while testifying in the case. After a careful study of the records, there appears to be no cogent reason to fault the findings of the trial court that the Special Power of Attorney is null and void. This being the case, all subsequent transactions involving Lot 5145 and springing from the Special Power of Attorney are also null and void. Consequently, on this alone, petitioners' claim of ownership should be rejected outright. Petitioners assert that the appellate court failed to consider their long and continuous possession over the disputed lot as equivalent to possession in the concept of owners. This is preposterous. How can they be considered possessors in the concept of owners when the land over which they hold title is not the same as that which they possess? Possession, to constitute the foundation of a prescriptive right, must be possession under a claim of title or it must be adverse. 4 Petitioners herein cannot be said to be in possession of the land under a claim of title, since it has been established that petitioners' title covers a different parcel of land; more so, can it be considered that petitioners are in adverse possession thereof. At this juncture, it would be appropriate to rule on the seventh assignment of error. We agree that petitioners are guilty of bad faith. Having been issued a certificate of title, which states the exact metes and bounds of the real property covered, they are thus aware of the extent of their domain. Hence, they are estopped from claiming a piece of land that is entirely distinct from that which is covered by their title. This Court cannot simply support the argument set forth by petitioners based merely on their honest belief that their title pertained to the disputed land.

Anent petitioners' fourth assignment of error, We hold that the appellate court did not commit a mistake. While it is true that Section 8, Rule 8 of the Revised Rules of Court provides for the rule on implied admission of the genuineness and due execution of a document subject of an action or defense, the same is not without exception. One such exception is when the adverse party does not appear to be a party to the instrument. 5 Private respondents Lolita and Ernesto were mere witnesses to the Special Power of Attorney in question and as such, they cannot be considered as parties to the instrument. Moreover, the same document should not be afforded a presumption of genuineness and due execution. In view of the various discrepancies found by the trial court, 6 it lacks the veracity to entitle it to any degree of credibility. Neither can prescription be appreciated in favor of herein petitioners. As properly held by the appellate court, petitioners are guilty of evident bad faith. Therefore, for prescription to apply, the period that is material for Our consideration is thirty years. Since only twenty years have lapsed from the alleged first transaction concerning the land until the institution of the case at bar, petitioners cannot lay claim as owners by acquisitive prescription. 7 Moreover, private respondents cannot be penalized for having allegedly slept on their rights. Laches is not concerned with mere lapse of time. The mere fact of delay is insufficient to constitute laches. It is required that (1) complainant must have knowledge of the conduct of the defendant or of one under whom he claims, and (2) he must have been afforded an opportunity to institute suit. 8 In the instant case, the first requisite is absent. Even assuming arguendo that the petitioners have been in possession through their predecessors, private respondents were not aware of said possession until Rodolfo Rarang came home in 1985, after which they lost no time in instituting this case. Moreover, there is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances. In the case of Jimenez vs. Fernandez, 9 the court declared that the question of laches is an equitable doctrine and its application is controlled by equitable considerations. The Court further stated that latches cannot be worked to defeat justice or to perpetuate fraud or injustice. It would be rank injustice and patently inequitable to deprive the lawful heirs of their rightful inheritance. Finding no truth to the petitioners' claim of validity of the instrument from which their title emanates and their argument of title by prescription, We consider it unnecessary to discuss at length or to determine the other issues presented, they being immaterial to the resolution of this appeal. For reasons indicated, the petition for review is hereby DISMISSED. The decision of the respondent Court is AFFIRMED. With costs. SO ORDERED. Narvasa, (C.J., Chairman), Feliciano, Regalado and Nocon, JJ., concur. Footnotes * Penned by Associate Justice Regina G. Ordoez-Benitez, concurred in by Associate Justices Jose A.R. Melo and Emeterio C. Cui. ** Civil Case No. A-1677, Judge Artemio R. Corpus, ponente. 1. Rollo, p. 55. 2. RTC Decision, p. 4; Rollo, p. 52. 3. Ibid., pp. 53-55. 4. Ordoez vs. Court of Appeals, 188 SCRA 109 (1990). 5. Gaw vs. Court of Appeals, 191 SCRA 77 (1990); Lim-Chingco vs. Terariray, et al., 5 Phil. 120 (1905) cited in 1 Paras, RULES OF COURT ANNOTATED 258-259 (2nd ed., 1989). 6. Decision, p. 6; Rollo, p. 54. 7. New Civil Code, Article 1137. 8. Gabriel vs. Court of Appeals, 159 SCRA 461 (1988). 9. 184 SCRA 190 (1990).

Philippine American General Insurance Co., Inc. vs. August 5,1992. (the syllabus said its in 1993. Im not sure if this is the case) [GRN 87434 August 5,1992.] PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and TAGUM PLASTICS, INC., petitioners, us. SWEET LINES, INC., DAVAO VETERANS ARRASTRE AND PORT SERVICES, INC. and HON. COURT OF APPEALS, respondents. PETITION for certiorari to review the judgment of the Court of Appeals The facts are stated in the opinion of the Court. De Lara, De Lunas & Rosales for petitioners. Carlo L. Aquino for Sweet Lines, Inc. REGALADO, J.: A maritime suit 1 was commenced on May 12, 1978 by herein petitioner Philippine American General Insurance Co., Inc. (Philaragen) and Tagum Plastics, Inc. (TPI) against private respondents Sweet Lines, Inc. (SLI) and Davao Veterans Arrastre and Port Services, Inc. (DVAPSI), along with S.C.I. Line (The Shipping Corporation of India Limited) and FE, Zuellig, Inc., as codefendants in the court a quo, seeking recovery of the cost of lost or damaged shipment plus exemplary damages, attorney's fees and costs allegedly due to

defendants' negligence, with the following factual backdrop yielded by the findings of the court below and adopted by respondent court: "It would appear that in or about March 1977, the vessel SS "VISHVA YASH" belonging to or operated by the foreign common carrier, took on board at Baton Rouge, LA, two (2) consignments of cargoes for shipment to Manila and later for transhipment to Davao City, consisting of 600 bags Low Density Polyethylene 631 and another 6,400 bags Low Density Polyethylene 647, both consigned to the order of Far East Bank and Trust Company of Manila, with arrival notice to Tagum Plastics, Inc., Madaum, Tagum, Davao City. Said cargoes were covered, respectively, by Bills of Lading Nos. 6 and 7 issued by the foreign common carrier (Exhs. E and F). The necessary packing or Weight List (Exhs. A and B), as well as the Commercial Invoices (Exhs. C and D) accompanied the shipment. The cargoes were likewise insured by the Tagum Plastics Inc. with plaintiff Philippine American General Insurance Co., Inc., (Exh. G). "In the course of time, the said vessel arrived at Manila and discharged its cargoes in the Port of Manila for transhipment to Davao City. For this purpose, the foreign carrier awaited and made use of the services of the vessel called M/V 'Sweet Love' owned and operated by defendant interisland carrier. "Subject cargoes were loaded in Holds Nos. 2 and 3 of the interisland carrier. These were commingled with similar cargoes belonging to Evergreen Plantation and also Standfilco. 'On May 15, 1977, the shipment(s) were discharged from the interisland carrier into the custody of the consignee. A later survey conducted on July 8, 1977, upon the instance of the plaintiff shows the following: "Of the cargo covered by Bill of Lading No. 25 or (2)6, supposed to contain 6,400 bags of Low Density Polyethylene 647 originally inside 160 pallets, there were delivered to the consignee 5,413 bags in good order condition. The survey shows shortages, damages and losses to be as follows: Undelivered/Damaged bags as tallied during discharge from vessel-173 bags; undelivered and damaged as noted and observed whilst stored at the pier-699 bags; and shortlanded. 110 bags (Exhs. P and P-1). "Of the 600 bags of Low Density Polyethylene 631, the survey conducted on the same day shows an actual delivery to the consignee of only 507 bags in good order condition. Likewise noted were the following losses, damages and shortages, to wit: Undelivered/damaged bags and tally sheets during dis charge from vessel-17 bags. Undelivered and damaged as noted and observed whilst stored at the pier-66 bags; Shortlanded-10 bags. Therefore, of said shipment totalling 7,000 bags, originally contained in 175 pallets, only a total of 5,820 bags were delivered to the consignee in good order condition, leaving a balance of 1,080 bags. Such loss from this particular shipment is what any or all defendants may be answerable to (sic). "As already stated, some bags were either shortlanded or were missing, and some of the 1,080 bags were torn, the contents thereof partly spilled or were fully/partially emptied, but, worse, the contents thereof contaminated with foreign matters and therefore could no longer serve their intended purpose. The position taken by the consignee was that even those bags which still had some contents were considered a, total losses as the remaining contents were contaminated with foreign matters and therefore did not (sic) longer serve the intended purpose of the material. Each bag was valued, taking into account the customs duties and other taxes paid as well as charges and the conversion value then of a dollar to the peso, at P110.28 per bag (see Exhs. L and L-1 and M and O)."2 Before trial, a compromise agreement was entered into between petitioners, as plaintiffs, and defendants S.C.I. Line and F.E. Zuellig, upon the latter's payment of P532.65 in settlement of the claim against them. Whereupon, the trial court in its order of August 12, 19813 granted plaintiffs' motion to dismiss grounded on said amicable settlement and the case as to S.C.I. Line and F.E. Zuellig was consequently "dismissed with prejudice and without pronouncement as to costs." The trial court thereafter rendered judgment in favor of herein petitioners on this dispositive portion: "WHEREFORE, judgment is hereby rendered in favor of the plaintiff Philippine General American Insurance Company Inc. and against the remaining defendants, Sweet Lines Inc. and Davao Veterans Arrastre Inc. as follows: Defendant Sweet Lines, Inc, is ordered to pay said plaintiff the sum of P34,902.00, with legal interest thereon from date of extrajudicial demand on April 28, 1978 (Exh. M) until fully paid; Defendant Sweet Lines Inc. and Davao Veterans Arrastre and (Port) Services Inc. are directed to pay jointly and severally, the plaintiff the sum of P49,747.55, with legal interest thereon from April 28, 1978 until fully paid; Each of said defendants are ordered to pay the plaintiffs the additional sum of P5,000 as reimbursable attorney's fees and other litigation expenses; Each of said defendants shall pay one-fourth (1/4) costs."4 Due to the reversal on appeal by respondent court of the trial court's decision on the ground of prescription, 5 in effect dismissing the complaint of herein petitioners, and the denial of their motion for reconsideration, 6 petitioners filed the instant petition for review on certiorari, faulting respondent appellate court with the following errors: (1) in upholding, without proof, the existence of the so-called prescriptive period; (2) granting arguendo that the said prescriptive period does exist, in not finding the same to be null and void; and (3) assuming arguendo that the said prescriptive period is valid and legal, in failing to conclude that petitioners substantially complied therewith. 7 Parenthetically, we observe that herein petitioners are jointly pursuing this case, considering their common interest in the shipment subject of the present controversy, to obviate any question as to who the real party in interest is and to protect their respective rights as insurer and insured. In any case, there is no impediment to the legal standing of petitioner Philamgen, even if it alone were to sue herein private respondents in its own capacity as insurer, it having been subrogated to all rights of recovery for loss of or damage to the shipment insured under its Marine Risk Note No. 438734 dated March 31, 1977 8 in view of the full settlement of the claim thereunder as evidenced by the subrogation receipt 9 issued in its favor by Far East Bank and Trust Co., Davao Branch, for the account of petitioner TPI. Upon payment of the loss covered by the policy, the insurer's entitlement to subrogation pro tanto, being of the highest equity, equips it with a cause of action against a third party in case of contractual breach. 10 Further, the insurer's subrogatory right to sue for recovery under the bill of lading in case of loss of or damage to the cargo is jurisprudentially upheld. 11 However, if an insurer, in the exercise of its subrogatory right, may proceed against the erring carrier and for all intents and purposes stands in the place and in substitution of the consignee, a fortiori such insurer is presumed to know and is just as bound by the contractual terms under the bill of lading as the insured. On the first issue, petitioners contend that it was error for the Court of Appeals to reverse the appealed decision on the supposed ground of prescription when SLI failed to adduce any evidence in support thereof and that the bills of lading said to contain the shortened periods for filing a claim and for instituting a court action against the carrier were never offered in evidence. Considering that the existence and tenor of this stipulation on the aforesaid periods have allegedly not been established, petitioners maintain that it is inconceivable how they can possibly comply therewith. 12 In refutation, SLI avers that it is standard practice in its operations to issue bills of lading for shipments entrusted to it for carriage and that it in fact issued bills of lading numbered MD-25 and MD-26

therefor with proof of their existence manifest in the records of the case. 13 For its part, DVAPSI insists on the propriety of the dismissal of the complaint as to it due to petitioners' failure to prove its direct responsibility for the loss of and/or damage to the cargo. 14 On this point, in denying petitioner's motion for reconsideration, the Court of Appeals resolved that although the bills of lading were not offered in evidence, the litigation obviously revolves on such bills of lading which are practically the documents or contracts sued upon, hence, they are inevitably involved and their provisions cannot be disregarded in the determination of the relative rights of the parties thereto. 15 Respondent court correctly passed upon the matter of prescription, since that defense was so considered and controverted by the parties. This issue may accordingly be taken cognizance of by the court even if not inceptively raised as a defense so long as its existence is plainly apparent on the face of relevant pleadings. 16 In the case at bar, prescription as an affirmative defense was seasonably raised by SLI in its answer, 17 except that the bills of lading embodying the same were not formally offered in evidence, thus reducing the bone of contention to whether or not prescription can be maintained as such defense and, as in this case, consequently upheld on the strength of mere references thereto. As petitioners are suing upon SLI's contractual obligation under the contract of carriage as contained in the bills of lading, such bills of lading can be categorized as actionable documents which under the Rules must be properly pleaded either as causes of action or defenses, 18 and the genuineness and due execution of which are deemed admitted unless specifically denied under oath by the adverse party. 19 The rules on actionable documents cover and apply to both a cause of action or defense based on said documents. 20 In the present case and under the aforestated assumption that the time limit involved is a prescriptive period, respondent carrier duly raised prescription as an affirmative defense in its answer setting forth paragraph 5 of the pertinent bills of lading which comprised the stipulation thereon by parties, to wit: "5. Claims for shortage, damage, must be made at the time of delivery to consignee or agent, if container shows exterior signs of damage or shortage. Claims for non-delivery, misdelivery, loss or damage must be filed within 30 days from accrual. Suits arising from shortage, damage or loss, non-delivery or misdelivery shall be instituted within 60 days from date of accrual of right of action. Failure to file claims or institute judicial proceedings as herein provided constitutes waiver of claim or right of action. In no case shall carrier be liable for any delay, non-delivery, misdelivery, loss of damage to cargo while cargo is not in actual custody of carrier." 21 In their reply thereto, herein petitioners, by their own assertions that "2. In connection with Pars. 14 and 15 of defendant Sweet Lines, Inc.'s Answer, plaintiffs state that such agreements are what the Supreme Court considers as contracts of adhesion (see Sweet Lines, Inc. vs. Hon. Bernardo Teves, et al., G.R. No. L-37750, May 19, 1978) and, consequently, the provisions therein which are contrary to law and public policy cannot be availed of by answering defendant as valid defenses." 22 thereby failed to controvert the existence of the bills of lading and the aforequoted provisions therein, hence they impliedly admitted the same when they merely assailed the validity of subject stipulations. Petitioners' failure to specifically deny the existence, much less the genuineness and due execution, of the instruments in question amounts to an admission. Judicial admissions, verbal or written, made by the parties in the pleadings or in the course of the trial or other proceedings in the same case are conclusive, no evidence being required to prove the same, and cannot be contradicted unless shown to have been made through palpable mistake or that no such admission was made. 23 Moreover, when the due execution and genuineness of an instrument are deemed admitted because of the adverse party's failure to make a specific verified denial thereof, the instrument need not be presented formally in evidence for it may be considered an admitted fact. 24 Even granting that petitioners' averment in their reply amounts to a denial, it has the procedural earmarks of what in the law on pleadings is called a negative pregnant, that is, a denial pregnant with the admission of the substantial facts in the pleading responded to which are not squarely denied. It is in effect an admission of the averment it is directed to. 25 Thus, while petitioners objected to the validity of such agreement for being contrary to public policy, the existence of the bills of lading and said stipulations were nevertheless impliedly admitted by them. We find merit in respondent court's comments that petitioners failed to touch on the matter of the non-presentation of the bills of lading in their brief and earlier on in the appellate proceedings in this case, hence it is too late in the day to now allow the litigation to be overturned on that score, for to do so would mean an over-indulgence in technicalities. Hence, for the reasons already advanced, the non-inclusion of the controverted bills of lading in the formal offer of evidence cannot, under the facts of this particular case, be considered a fatal procedural lapse as would bar respondent carrier from raising the defense of prescription. Petitioners' feigned ignorance of the provisions of the bills of lading, particularly on the time limitations for filing a claim and for commencing a suit in court, as their excuse for non-compliance therewith does not deserve serious attention. It is to be noted that the carriage of the cargo involved was effected pursuant to an "Application for Delivery of Cargoes without Original Bill of Lading" issued on May 20, 1977 in Davao City 26 with the notation therein that said application corresponds to and is subject to the terms of bills of lading MD-25 and MD-26. It would be a safe assessment to interpret this to mean that, sight unseen, petitioners acknowledged the existence of said bills of lading. By having the cargo shipped on respondent carrier's vessel and later making a claim for loss on the basis of the bills of lading, petitioners for all intents and purposes accepted said bills. Having done so they are bound by all stipulations contained therein. 27 Verily, as petitioners are suing for recovery on the contract, and in fact even went as far as assailing its validity by categorizing it as a contract of adhesion, then they necessarily admit that there is such a contract, their knowledge of the existence of which with its attendant stipulations they cannot now be allowed to deny. On the issue of the validity of the controverted paragraph 5 of the bills of lading above quoted which unequivocally prescribes a time frame of thirty (30) days for filing a claim with the carrier in case of loss of or damage to the cargo and sixty (60) days from accrual of the right of action for instituting an action in court, which periods must concur, petitioners posit that the alleged shorter prescriptive period which is in the nature of a limitation on petitioners' right of recovery is unreasonable and that SLI has the burden of proving otherwise, citing the earlier case of Southern Lines, Inc. vs. Court of Appeals, et al., 28 They postulate this on the theory that the bills

of lading containing the same constitute contracts of adhesion and are, therefore, void for being contrary to public policy, supposedly pursuant to the dictum in Sweet Lines, Inc. vs. Teves, et al. 29 Furthermore, they contend, since the liability of private respondents has been clearly established, to bar petitioners' right of recovery on a mere technicality will pave the way for unjust enrichment. 30 Contrarily, SLI asserts and defends the reasonableness of the time limitation within which claims should be filed with the carrier; the necessity for the same, as this condition for the carrier's liability is uniformly adopted by nearly all shipping companies if they are to survive the concomitant rigors and risks of the shipping industry; and the countervailing balance afforded by such stipulation to the legal presumption of negligence under which the carrier labors in the event of loss of or damage to the cargo. 31 It has long been held that Article 366 of the Code of Commerce applies not only to overland and river transportation but also to maritime transportation. 32 Moreover, we agree that in this jurisdiction, as viewed from another angle, it is more accurate to state that the filing of a claim with the carrier within the time limitation therefor under Article 366 actually constitutes a condition precedent to the accrual of a right of action against a carrier for damages caused to the merchandise. The shipper or the consignee must allege and prove the fulfillment of the condition and if he omits such allegations and proof, no right of action against the carrier can accrue in his favor. As the requirements in Article 366, restated with a slight modification in the assailed paragraph 5 of the bills of lading, are reasonable conditions precedent, they are not limitations of action. 33 Being conditions precedent, their performance must precede a suit for enforcement 34 and the vesting of the right to file suit does not take place until the happening of these conditions. 35 Now, before an action can properly be commenced all the essential elements of the cause of action must be in existence, that is, the cause of action must be complete. All valid conditions precedent to the institution of the particular action, whether prescribed by statute, fixed by agreement of the parties or implied by law must be performed or complied with before commencing the action, unless the conduct of the adverse party has been such as to prevent or waive performance or excuse non-performance of the condition. 36 It bears restating that a right of action is the right to presently enforce a cause of action, while a cause of action consists of the operative facts which give rise to such right of action. The right of action does not arise until the performance of all conditions precedent to the action and may be taken away by the running of the statute of limitations, through estoppel, or by other circumstances which do not affect the cause of action. 37 Performance or fulfillment of all conditions precedent upon which a right of action depends must be sufficiently alleged, 38 considering that the burden of proof to show that a party has a right of action is upon the person initiating the suit. 39 More particularly, where the contract of shipment contains a reasonable requirement of giving notice of loss of or injury to the goods, the giving of such notice is a condition precedent to the action for loss or injury or the right to enforce the carrier's liability. Such requirement is not an empty formalism. The fundamental reason or purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the shipment has been damaged and that it is charged with liability therefor, and to give it an opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims. 40 Stipulations in bills of lading or other contracts of shipment which require notice of claim for loss of or damage to goods shipped in order to impose liability on the carrier operate to prevent the enforcement of the contract when not complied with, that is, notice is a condition precedent and the carrier is not liable if notice is not given in accordance with the stipulation, 41 as the failure to comply with such a stipulation in a contract of carriage with respect to notice of loss or claim for damage bars recovery for the loss or damage suffered. 42 On the other hand, the validity of a contractual limitation of time for filing the suit itself against a carrier shorter than the statutory period therefor has generally been upheld as such stipulation merely affects the shipper's remedy and does not affect the liability of the carrier. In the absence of any statutory limitation and subject only to the requirement on the reasonableness of the stipulated limitation period, the parties to a contract of carriage may fix by agreement a shorter time for the bringing of suit on a claim for the loss of or damage to the shipment than that provided by the statute of limitations. Such limitation is not contrary to public policy for it does not in any way defeat the complete vestiture of the right to recover, but merely requires the assertion of that right by action at an earlier period than would be necessary to defeat it through the operation of the ordinary statute of limitations. 43 In the case at bar, there is neither any showing of compliance by petitioners with the requirement for the filing of a notice of claim within the prescribed period nor any allegation to that effect. It may then be said that while petitioners may possibly have a cause of action, for failure to comply with the above condition precedent they lost whatever right of action they may have in their favor or, taken in another sense, that remedial right or right to relief had prescribed. 44 The shipment in question was discharged into the custody of the consignee on May 15, 1977, and it was from this date that petitioners' cause of action accrued, with thirty (30) days therefrom within which to file a claim with the carrier for any loss or damage which may have been suffered by the cargo and thereby perfect their right of action. The findings of respondent court as supported by petitioners' formal offer of evidence in the court below show that the claim was filed with SLI only on April 28, 1978, way beyond the period provided in the bills of lading 45 and violative of the contractual provision. the inevitable consequence of which is the loss of petitioners' remedy or right to sue. Even the filing of the complaint on May 12, 1978 is of no remedial or practical consequence, since the time limits for the filing thereof, whether viewed as a condition precedent or as a prescriptive period, would in this case be productive of the same result, that is, that petitioners had no right of action to begin with or, at any rate, their claim was time-barred. What the court finds rather odd is the fact that petitioner TPI filed a provisional claim with DVAPSI as early as June 14, 1977 46 and, as found by the trial court, a survey fixing the extent of loss of and/or damage to the cargo was conducted on July 8, 1977 at the instance of petitioners. 47 If petitioners had the opportunity and awareness to file such provisional claim and to cause a survey to be conducted soon after the discharge of the cargo, then they could very easily have filed the necessary formal, or even a provisional, claim with SLI itself 48 within the stipulated period therefor, instead of doing so only on April 28, 1978 despite the vessel's arrival at the port of destination on May 15, 1977. Their failure to timely act brings us to no inference other than the fact that petitioners slept on their rights and they must now face the consequences of such inaction.

The ratiocination of the Court of Appeals on this aspect is worth reproducing: xxx xxx xxx

"It must be noted, at this juncture, that the aforestated time limitation in the presentation of claim for loss or damage, is but a restatement of the rule prescribed under Art. 366 of the Code of Commerce which reads as follows: 'Art. 366. Within the twenty-four hours following the receipt of the merchandise, the claim against the carrier for damage or average which may be found therein upon opening the packages, may be made, provided that the indications of the damage or average which gives rise to the claim cannot be ascertained from the outside part of the packages, in which case the claims shall be admitted only at the time of the receipt. 'After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against the carrier with regard to the condition in which the goods transported were delivered.' Gleanable therefrom is the fact that subject stipulation even lengthened the period for presentation of claims thereunder. Such modification has been sanctioned by the Supreme Court. In the case of Ong Yet (M)ua Hardware Co., Inc. vs. Mitsui Steamship Co., Ltd., et al., 59 O.G. No. 17, p. 2764, it ruled that Art. 366 of the Code of Commerce can be modified by a bill of lading prescribing the period of 90 days after arrival of the ship, for filing of written claim with the carrier or agent, instead of the 24-hour time limit after delivery provided in the aforecited legal provision. "Tested, too, under paragraph 5 of said Bill of Lading, it is crystal clear that the commencement of the instant suit on May 12, 1978 was indeed fatally late. In view of the express provision that 'suits arising from . . . damage or loss shall be instituted within 60 days from date of accrual of right of action,' the present action necessarily fails on ground of prescription. 'In the absence of constitutional or statutory prohibition, it is usually held or recognized that it is competent for the parties to a contract of shipment to agree on a limitation of time shorter than the statutory period, within which action for breach of the contract shall be brought, and such limitation will be enforced if reasonable. . . ' (13 C.J.S. 496-497) A perusal of the pertinent provisions of law on the matter would disclose that there is no constitutional or statutory prohibition informing paragraph 5 of subject Bill of Lading. The stipulated period of 60 days is reasonable enough for appellees to ascertain the facts and thereafter to sue, if need be, and the 60-day period agreed upon by the parties which shortened the statutory period within which to bring action for breach of contract is valid and binding. . . . ." (Emphasis in the original text.) 49 As explained above, the shortened period for filing suit is not unreasonable and has in fact been generally recognized to be a valid business practice in the shipping industry. Petitioners' advertence to the Court's holding in the Southern Lines case, supra, is futile as what was involved was a claim for refund of excess payment. We ruled therein that non-compliance with the requirement of filing a notice of claim under Article 366 of the Code of Commerce does not affect the consignee's right of action against the carrier because said requirement applies only to cases for recovery of damages on account of loss of or damage to cargo, not to an action for refund of overpayment, and on the further consideration that neither the Code of Commerce nor the bills of lading therein provided any time limitation for suing for refund of money paid in excess, except only that it be filed within a reasonable time. The ruling in Sweet Lines categorizing the stipulated limitation on venue of action provided in the subject bill of lading as a contract of adhesion and, under the circumstances therein, void for being contrary to public policy is evidently likewise unavailing in view of the discrete environmental facts involved and the fact that the restriction therein was unreasonable. In any case, Ong Yiu vs. Court of Appeals, et al., 50 instructs us that "contracts of adhesion wherein one party imposes a ready-made form of contract on the other . . . are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres he gives his consent." In the present case, not-even an allegation of ignorance of a party excuses non-compliance with the contractual stipulations since the responsibility for ensuring full comprehension of the provisions of a contract of carriage devolves not on the carrier but on the owner, shipper, or consignee as the case may be. While it is true that substantial compliance with provisions on filing of claim for loss of or damage to cargo may sometimes suffice, the invocation of such an assumption must be viewed vis-a-vis the object or purpose which such a provision seeks to attain and that is to afford the carrier a reasonable opportunity to determine the merits and validity of the claim and to protect itself against unfounded impositions. 51 Petitioners' would nevertheless adopt an adamant posture hinged on the issuance by SLI of a "Report on Losses and Damages," dated May 15, 1977, 52 from which petitioners theorize that this charges private respondents with actual knowledge of the loss and damage involved in the present case as would obviate the need for or render superfluous the filing of a claim within the stipulated period. Withal, it has merely to be pointed out that the aforementioned report bears this notation at the lower part thereof: "Damaged by Mla. labor upon unloading; B/L noted at port of origin," as an explanation for the cause of loss of and/or damage to the cargo, together with an iterative note stating that "(t)his copy should be submitted together with your claim invoice or receipt within 30 days from date of issue otherwise your claim will not be honored." Moreover, knowledge on the part of the carrier of the loss of or damage to the goods deducible from the issuance of said report is not equivalent to nor does it approximate the legal purpose served by the filing of the requisite claim, that is, to promptly apprise the carrier about a consignee's intention to file a claim and thus cause the prompt investigation of the veracity and merit thereof for its protection. It would be an unfair imposition to require the carrier, upon discovery in the process of preparing the report on losses or damages of any and all such loss or damage, to presume the existence of a claim against it when at that time the carrier is expectedly concerned merely with accounting for each and every shipment and assessing its condition. Unless and until a notice of claim is therewith timely filed, the carrier cannot be expected to presume that for every loss or damage tallied, a corresponding claim therefor has been filed or is already in existence as would alert it to the urgency for an immediate investigation of the soundness of the claim. The report on losses and damages is not the claim referred to and required by the bills of lading for it does not fix responsibility for the loss or damage, but merely states the condition of the goods shipped. The claim contemplated herein, in whatever form, must be something more than a notice that the goods have been lost or damaged; it must contain a claim for compensation or indicate an intent to claim. 53

Thus, to put the legal effect of respondent carrier's report on losses or damages, the preparation of which is standard procedure upon unloading of cargo at the port of destination, on the same level as that of a notice of claim by imploring substantial compliance is definitely far-fetched. Besides, the cited notation on the carrier's report itself makes it clear that the filing of a notice of claim in any case is imperative if carrier is to be held liable at all for the loss of or damage to cargo. Turning now to respondent DVAPSI and considering that whatever right of action petitioners may have against respondent carrier was lost due to their failure to seasonably file the requisite claim, it would be awkward, to say the least, that by some convenient process of elimination DVAPSI should proverbially be left holding the bag, and it would be pure speculation to assume that DVAPSI is probably responsible for the loss of or damage to cargo. Unlike a common carrier, an arrastre operator does not labor under a presumption of negligence in case of loss, destruction, or deterioration of goods discharged into its custody. In other words, to hold an arrastre operator liable for loss of and/or damage to goods entrusted to it there must be preponderant evidence that it did not exercise due diligence in the handling and care of the goods. Petitioners failed to pinpoint liability on any of the original defendants and in this seemingly wild goose-chase, they cannot quite put their finger down on when, where, how and under whose responsibility the loss or damage probably occurred, or as stated in paragraph 8 of their basic complaint filed in the court below, whether "(u)pon discharge of the cargoes from the original carrying vessel, the SS 'VISHVA YASH," and/or upon discharge of the cargoes from the interisland vessel the MV 'SWEET LOVE,' in Davao City and later while in the custody of defendant arrastre operator." 54 The testimony of petitioners' own witness, Roberto Cabato, Jr., Marine and Aviation Claims Manager of petitioner Philamgen, was definitely inconclusive and the responsibility for the loss or damage could still not be ascertained therefrom: "Q In other words, Mr. Cabato, you only computed the loss on the basis of the figures submitted to you and based on the documents like the survey certificate and the certificate of the arrastre? A Yes, sir. Q Therefore, Mr. Cabato, You have no idea how or where these losses were incurred? A No, sir. xxx xxx xxx

Q Mr. Witness, you said that you processed and investigated the claim involving the shipment in question. Is it not a fact that in your processing and investigation you considered how the shipment was transported? Where the losses could have occurred and what is the extent of the respective responsibilities of the bailees and/or carriers involved? xxx xxx xxx

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

Q Mr. Witness, from the documents, namely, the survey of Manila Adjusters and Surveyors Company, the survey of Davao Arrastre contractor and the bills of lading issued by the defendant Sweet Lines, will you be able to tell the respective liabilities of the bailees and/or carriers concerned? A No, sir." (Italics ours.) 55 Neither did nor could the trial court, much less the Court of Appeals, precisely establish the stage in the course of the shipment when the goods were lost, destroyed or damaged. What can only be inferred from the factual findings of the trial court is that by the time the cargo was discharged to DVAPSI, loss or damage had already occurred and that the same could not have possibly occurred while the same was in the custody of DVAPSI, as demonstrated by the observations of the trial court quoted at the start of this opinion. ACCORDINGLY, on the foregoing premises, the instant petition is DENIED and the dismissal of the complaint in the court a quo as decreed by respondent Court of Appeals in its challenged judgment is hereby AFFIRMED. SO ORDERED. Narvasa, C.J., Chairman, Padilla and Nocon, JJ., concur. 1. Civil Case No. 115376, Regional Trial Court of Manila, Branch 2. Annex F, Petition; Rollo, 47-49. 3. Original Record, 88. 4. Annex E, Petition; Rollo, 40; Judge Rosalio A. De Leon, presiding. 5. C.A.-G.R. CV No. 04620; Per Justice Fidel P. Puisima, with Justices Segundino Chun and Nicolas P. Lapea, Jr., concurring; Annex E, Petition; Rollo, 41-55. 6 Annex 1, Petition; Rollo, 66-70. Rollo, 10, 8 Exhibit G; Original Record, 176. Exhibit R; ibid., 197. 9 Fireman's Fund Insurance Company, Inc., et al., vs. Jamila & Company, Inc., et al., 70 SCRA 323 (1976). 11 National Development Company vs. Court of Appeals, et al., 164 SCRA 593 (1988).F##E 12 Rollo, 11. 13 Comment of SLI; Rollo, 4-5.

14 Comment of DVAPSI; ibid., 148-149. 15 Amex 1, Petition; Rollo, 68.F 16 Vda. de Portugal, et al. vs. Intermediate Appellate Court, et al., 159 SCRA 178 (1988). 17 Original Record, 31; Annex B, Petition; Rollo, 23. 18 Sec. 7, Rule 8, Rules of Court. 19 Sec. 8, id., ibid. 20 Toribio, et al. vs. Bidin, at al., 134 SCRA 162 (1985).F##E 21 Original Record, 31; Annex B, Petition; Rollo, 26. 22 Ibid., 44; Annex C, id.; ibid., 29. 23 See Sec. 4, Rule 129, Rules of Court; Ste. Ana vs. Maliwat, at al., 24 SCRA 1018 (1968); Solivio vs. Court of Appeals, et al., 182 SCRA 119 (1990). 24 Asia Banking Corporation v. Olsen, 48 Phil. 529 (1925). 25 61A Am. Jur. 2d, Pleadings 172-173; Galofa vs. Nee Bon Sing, 22 SCRA 48 (1968); Tamayo vs. Callejo, et al., 46 SCRA 27 (1972). 26 Exhibits H and I; Original Record, 177-178. 27 Sea-Land Service, Inc. vs. Intermediate Appellate Court, et al., 153 SCRA 552 (1987). 28 4 SCRA 258 (1962). 29 83 SCRA 361 (1978). 30 Rollo, 11-13. 31 Comment SLI; Rollo, 102-103. 32 Government of the Philippine Islands vs. Inchausti & Co., 24 Phil. 315 (1913), citing Cordoba vs. Warner, Barnes & Co., 1 Phil. 7 (1901). 33 Id., Triton Insurance Company, Ltd. vs. Jose, 33 Phil. 194 1916), 34 Dikowski vs. Metropolitan Life Ins., Co., 24 A. 2d 173, 175, 128 N.J.L. 124. 35 Newark Gas & Fuel Co. vs. City of Newark, 8 Ohio Dec. 418, 421. 7 Ohio N.P. 76. 36 1 Am. Jur. 2d, Actions 608. 37 Ibid., id., 541. 38 61A Am. Jur. 2d, Pleading 89. 39 13 C.J.S., Carriers 537. 40 Ibid., 463, 508; 14 Am. Jur. 2d, Carriers 97; Cf. Roldan vs. Lim Ponzo & Co., 37 Phil. 285 (1917); Consunji vs. Manila Port Service, et al., 110 Phil. 231 (1960). 42 14 Am. Jur. 2d, Carriers 104-105, 43 Ibid., id., 98,117; Ang, et at. vs. Fulton Fire Insurance Co., et al, 2 SCRA 945 (1961) 44 There can be no right of action without a cause of action being first established (see Espaol vs. The Chairman, etc. of the Philippine Veterans Administration, (137 SCRA 314 [1985]). On the other hand, the cause of action is distinct from the remedy (Tonn vs. Inner Shoe Tire Co., Tex. Civ. App., 260 S.W. 1078, 1080) and the cause of action may exist though the remedy does not (Chandler vs. Horne, 23 Ohio App.1, 154 N.P. 748. 750.) 45 Annex F, Petition; Rollo, 52; Exhibit M, Original Record, 184. 46 Exhibit N; Original Record, 186. 47 Annex F, Petition, Rollo, 48. 48 See Esso Standard Eastern, Inc. vs. Manila Railroad Co., 93 SCRA 307 (1979). 49 Rollo, 52-54. 50 91 SCRA 223 (1979). 51 Am. Jur. 2d, Carriers 104-105. 52 Exhibit J; Original Record, 180. 53 14 Am. Jur. 2d, Carriers 106. 54 Annex A, Petition; Rollo, 18-19. 55 TSN, June 26, 1981, 16-19, 22.

Director of Lands vs. CA, et al. July 31, 1981 [GRN L-47847 July 31, 1981] DIRECTOR OF LANDS, petitioner, vs. COURT OF APPEALS and MANUELA PASTOR, respondents. DECISION EN BANC SYNOPSIS In 1974, Manuela Pastor filed an application for confirmation of her imperfect title over 7 lots which she allegedly inherited from her father who died in 1938 and over 6 lots which she allegedly inherited from an aunt who died in 1950. Manuela testified and presented evidence showing that she has remained the owner and possessor of the lots in question; that her possession has been peaceful, public, continuous, adverse and in the concept of an owner; and that she has paid the taxes thereon. Manuela also presented 2 certifications from the Land Registration Commissioner, one stating that 2 of the lots were declared public land in a cadastral case, and another to the effect that the other lots were the subject of a decision in another cadastral case although no decree of registration has yet been issued. The Court of First Instance, acting as a land registration court, decreed the registration of the lots in favor of Manuela. On appeal to the Court of Appeals, the lone oppositor, the Director of Lands, interposed for the first time the defense that the decisions in the earlier cadastral cases constituted res adjudicata and that the 30year prior possession required by law has not been sufficiently shown. The Court of Appeals, however, affirmed the decision in toto. Hence, this petition. The Supreme Court held that the defense of res adjudicata cannot be pleaded for the first time on appeal; that a judicial declaration that a parcel of land is public land does not preclude even the same applicant from subsequently seeking judicial confirmation of his title to the same land under certain conditions; and that the evidence presented by the applicant in this case are unmistakable indicia that she has performed and complied with all the conditions essential to entitle her to a confirmation of her imperfect title. Decision of the Court of Appeals affirmed. SYLLABUS 1. REMEDIAL LAW; PLEADING AND PRACTICE; DEFENSE OF RES ADJUDICATA MAY NOT BE PLEADED FOR THE FIRST TIME ON APPEAL; CASE AT BAR.- It is clear from the evidence on record that in the proceedings had before the Court of First Instance of Batangas,

acting as a land registration court, the oppositor Director of Lands, petitioner herein, did not interpose any objection nor set up the defense of res adjudicata with respect to the lots in question. Such failure on the part of oppositor Director of Lands, to Our mind, is a procedural infirmity which cannot be cured on appeal. All defenses not interposed in a motion to dismiss or in an answer are deemed waived. 2. CIVIL LAW; LAND TITLES AND DEEDS; PUBLIC LAND LAW; CADASTRAL PROCEEDINGS; JUDICIAL DECLARATION THAT LAND IS PUBLIC LAND, NOT A BAR TO SUBSEQUENT APPLICATION FOR JUDICIAL CONFIRMATION OF IMPERFECT TITLE OVER SAME LAND.- The decision in Cadastral Case No. 41 does not constitute a bar to the application of respondent Manuela Pastor; because a decision in a cadastral proceeding declaring a lot public land is not the final decree contemplated in Sections 38 and 40 of the Land Registration Act. A judicial declaration that a parcel of land is public, does not preclude even the same applicant from subsequently seeking a judicial confirmation of his title to the same land, provided he thereafter complies with the provisions of Section 48 of Commonwealth Act No. 141, as amended, and as long as said public land remains alienable and disposable (now sections 3 and 4, P.D. No. 1073). 3. ID.; ID.; ID.; CONFIRMATION OF IMPERFECT TITLE; CONDITIONS THEREFOR.- The uncontradicted testimony of private respondent Manuela Pastor, which was further corroborated by the testimony of Antonio Pastor, conclusively established beyond doubt that the respondent, together with her predecessors-in-interest since the year 1913 and up to the present, had been in open, continuous, exclusive, and notorious possession and occupation of the lots in question under a bonafide claim of ownership. Moreover, the documentary evidence submitted by private respondent also show that the lots have been declared for taxation purposes in the name of respondent Manuela Pastor (Exhibit 'I'), and the taxes thereon have been paid by said respondent herein (Exhibits 'J', 'J-1 to 'J-5', 'K', 'K-1' and 'K-2'). And finally, Geodetic Engineer Quirino Clemeneo, who conducted the survey of some of the lots and verified the survey conducted by the Bureau of Lands, testified that the thirteen (13) lots in question did not encroach upon public or private lands. All these are unmistakable indicia that respondent Manuela Pastor has performed and complied with all the conditions essential to entitle her to a confirmation of her imperfect title over the thirteen (13) lots subject of her application. APPEARANCES OF COUNSEL The Solicitor General for petitioner. Jesus Montalbo for respondents. MAKASIAR, J.: By this petition for review on certiorari, the Director of Lands seeks to set aside the decision of the Court of Appeals in C.A.G.R. No. 59853-R affirming the decision of the Court of First Instance of Batangas in LRC Case No. N-893 granting the application for registration under R.A. 496 of thirteen (13) parcels of land in the name of herein private respondent Manuela Pastor. It appears that on May 8, 1974, respondent Manuela Pastor filed with the Court of First Instance of Batangas LRC Case No. N-893, an application for confirmation of imperfect title over thirteen (13) lots situated in Gulod and Pallocan, Batangas City. The application shows that seven (7) of the lots, specifically Lots Nos. 9186-A, 9186-B, 9186-D, 9330-A, 9330-C, 9402-A and 9402-D were allegedly inherited by respondent Manuela Pastor from her parents Rafael Pastor and Natalia Quinio who died on July 1, 1938 and July 12, 1908, respectively. The other six (6) lots, namely Lots Nos. 9402-B, 9402-E, 9397B, 9397-D, 9367 and 9360 were allegedly inherited by respondent from her aunt Rosario Pastor who died on January 13, 1950 without any surviving heir except respondent herein. In her application, the respondent claims that she and her predecessors-in-interest had been in continuous, uninterrupted, open, public, adverse and notorious possession of the lots under claim of ownership for more than thirty (30) years. On June 24, 1974 the application was amended to correct the description of two lots. The Director of Lands filed an opposition to the application on the ground that applicant Manuela Pastor and her predecessors-ininterest neither had title in fee simple nor imperfect title under Section 48 of the Public Land Law, as amended, over the lots in question. No other persons filed opposition to the application. Accordingly, the Court of First Instance of Batangas, acting as a land registration court, issued an order of general default with the exception of the Director of Lands, and then proceeded to hear the applicant, her witnesses, and oppositor Director of Lands. During the hearings, the applicant presented as her witnesses her nephew Antonio M. Pastor, and Geodetic Engineer Quirino P. Clemeneo. Applicant Manuela Pastor testified on her behalf that she has remained the owner and possessor of the lots in question; that her possession has been peaceful, public, open, continuous, adverse against the whole world and in the concept of owner; that she had paid the taxes thereon; and that the said lots were planted to sugar cane. Witness Antonio M. Pastor corroborated in all material respects the testimony of his aunt Manuela Pastor. The Geodetic Engineer, Quirino P. Clemeneo, testified that he conducted the survey of some of the lots and verified the survey conducted by the Bureau of Lands on the others. He found that the lots did not encroach upon private and public lands. As part of her documentary evidence, applicant Manuela Pastor presented the certifications of the Treasurer of Batangas City showing payments of the real estate tax on the lots from 1965 to 1974 (Exhibits J, J-1, J-2, J-3, J-4 and J-5) and official receipts of payments of real estate tax on the same lots for 1975 (Exhibits K, K-1 and K-2). Apart from the foregoing, applicant presented, however, a certification from the Land Registration Commission (Exhibit L) stating that Lot No. 9330 of the Cadastral Survey of Batangas, Province of Batangas, was declared public land in Cadastral Case No. 41, LRC Cad. Record No. 1706. She likewise submitted another certification from the Land Registration Commission (Exhibit L-1) to the effect that Lots Nos. 9186, 9360, 9367, 9397 and 9402 of the Cadastral Survey of Batangas, Province of Batangas, were the subject of a decision in Cad. Case No. 43, LRC Cad. Record No. 1712, although no decree of registration has as yet been issued. On August 6, 1975 the Court of First Instance of Batangas rendered a decision pertinent portions of which read as follows: "From the evidence presented, it has been established that as early as in the year 1913, the original owners of the seven (7) parcels of land located in the barrio of Gulod, Batangas City, designated as Lots Nos. 9330-A, 9330-C, 9186-A, 9186-B, 9186-D, 9402-A and 9402-D, as reflected in the plan Csd-12122 Sheet 1 (Exhibit V), were spouses Rafael Pastor and Natalia Quinio. Natalia Quinio died on July 12, 1908. Since then, Rafael Pastor possessed the said lots peacefully, openly, continuously, adversely against the whole world and in the concept of owner up to his death in 1938. Aftci the death of Rafael Pastor on July 1, 1938, Manuela Pastor, the applicant herein, being the only child and sole heiress, came into possession and ownership thereof by way of inheritance. From 1938 when the applicant inherited the said lots from her deceased parents and up to the present, she has remained the owner and possessor thereof; that her possession over the said lots has been peaceful, public, open, continuous, adverse against the whole world and in the concept of owner up to the present; that the applicant had paid the estate and inheritance taxes thereon before the Japanese Occupation; that the said lots were planted with sugar cane, and since the year 1964 there were no tenants but paid workers were provided with huts for their use therein; that there were no buildings, houses or other improvements thereon. The other six (6) lots located in the barrio of pallocan, Batangas City, designated as Lots Nos. 9397-B, 9397-D, 9367, 93609 9402-B and 9402-E, as reflected in the plans marked as Exhibits 'E', 'G' 'H', ' H-1, 'H-1-a' and 'H-2', were originally owned by the applicant's aunt, Dra. Rosario Pastor; that the latter possessed the said lots peacefully, openly, continuously, adversely against the whole world and in the concept of owner up to her death in 1950; that after the death of Dra. Rosario Pastor on January 13, 1950, the applicant, Manuela Pastor, being the only niece and sole heiress, came into possession and ownership thereof by way of inheritance. From 1950 when the said applicant inherited the said lots from her deceased aunt and up to the present, she has remained the owner and possessor thereof; that her possession over the said lots has been peaceful, public, open, continuous, adverse against the whole world and in the concept of owner up to the present; that the applicant had paid the estate and inheritance taxes thereon; that the said lots were

planted with sugar cane, and since the year 1964 there were no tenants but paid workers were provided with huts for their use therein; that there were no buildings, houses or other improvements thereon. "Evidence further shows that the late Rafael Pastor and Dra. Rosario Pastor, are brother and sister. Dra. Pastor died single and without issue; that applicant, Manuela Pastor, together with her predecessors-in-interest since the year 1913 and up to the present have been in open, public, peaceful, continuous, adverse and uninterrupted possession over the said thirteen (13) lots in question; that said lots were covered by tax declarations in the name of herein applicant, as shown in the Assessment Certificate issued by the City Assessor of Batangas (Exhibit '1'), and the taxes thereon have been paid by the applicant (Exhibits T, 'J1' 'J-5','K', 'K-1' and 'K-2'); that there were no lien or incumbrance affecting said lots. Futhermore, applicant testified that she did not claim any portion of the road which bounded the lots in question, nor the portion of the creeks or river; that any of the said lots were not within any reservation of any kind. "As required by this Court, the applicant submitted the following: "(a) a certification of the Land Registration Commission that Lot No. 9330 of the Cadastral Survey of Batangas Record No. 1706 was declared 'public land' in the decision rendered thereon. It is further certified that copy of said decision relative to the aforementioned lot is not available in this Commission (Exhibit 'L'); (b) a certification of the Land Registration Commission, that no decrees of registration have as yet been issued to lots Nos. 9186, 9360, 9367 and 9397 and 9402 of the Cadastral Survey of Batangas (Exh. 'Ll'); and (c) a certification issued by officer-in-charge Records Division of the Bureau of Lands to the effect that the thirteen (13) lots situated in Barrios Gulod and Pallocan, Batangas City, are not covered by any kind of public land, application or patent (Exh. 'M'). "All the documentary exhibits of applicant were submitted in evidence as offered, there being no objection on the part of the oppositor. Oppositor Director of Lands through City Fiscal of Batangas did not offer any contradictory evidence. "Indisputably and by highly credible evidence, the applicant gave more than ample proof of her rights to the grant of title ever the properties in question. By herself and through her predecessors-in-interest, the applicant has been in open, public, peaceful, continuous, uninterrupted and adverse possession of the thirteen (13) parcels of land up to the present-all for the requisite period of time and under a bona fide claim of ownership which entitle her to confirmation of title over the properties subject of this application. "x x x finding the application for confirmation and grant to title under Act 496 as amended, to be well-founded and fully substantiated by evidence sufficient and requisite under the law, the Court hereby decrees the registration of: "xxx xxx xxx "in favor of applicant, MANUELA PASTOR x x x" (pp. 49-60, Record on Appeal, p. 45, rec.). Not satisfied with the decision of the Court of First Instance, petitioner Director of Lands appealed the same to the Court of Appeals assigning the following errors: First Assignment of Error 'THE LOWER COURT ERRED IN GRANTING THE APPLICATION OF MANUELA PASTOR FOR CONFIRMATION OF HER ALLEGED IMPERFECT TITLE TO LOTS NO. 9330-A AND 9330-C DESPITE EVIDENCE ADDUCED BY APPLICANT HERSELF THAT SAID LOTS WERE DECLARED PUBLIC LAND IN A PREVIOUS CADASTRAL PROCEEDING.' 'Second Assignment of Error 'THE LOWER COURT ERRED IN GRANTING THE APPLICATION OF MANUELA PASTOR FOR CONFIRMATION OF HER ALLEGED IMPERFECT TITLE TO LOTS NO. 9186-A, 9186-B, 9186-D, 9402-A, 9402-B, 9402-D, 9402-E, 9397-B, 9397-D, 9367 and 9360 DESPITE EVIDENCE SUBMITTED BY APPLICANT HERSELF THAT A DECISION RESPECTING SAID LOTS HAD BEEN RENDERED IN A PREVIOUS CADASTRAL PROCEEDING.' Third Assignment of Error 'THE LOWER COURT ERRED IN HOLDING THAT THERE IS ADEQUATE EVIDENCE OF THE ALLEGED IMPERFECT TITLE OF MANUELA PASTOR TO THE THIRTEEN (13) LOTS SUBJECT OF THE APPLICATION' (pp. 11-12, rec.). On February 9, 1978 the Court of Appeals rendered judgment affirming in toto the decision of the Court of First Instance of Batangas. Hence, this petition. Substantially, the same issues, as raised by petitioner in the Court of Appeals, are brought before US. Petitioner asserts that the decision rendered in Cadastral Case No. 41 (Exhibit L) declaring Lot No. 9330-from which Lots Nos. 9330-A and 9330C were derived constitutes res adjudicata as to the nature of the lots in question and therefore, a bar to appellee's application. Additionally, petitioner also argued that: "Lots Nos. 9186-A, 9186-B and 9186-D of the Cadastral Survey of Batangas, were derived from Lot No. 9186. Lots Nos. 9402-A, 9402B, 9402-D and 9402-E were derived from Lot No. 9402. Lots Nos. 9397-B and 9397-D were &rived from Lot No. 9397. "As shown by applicant's Exhibit L-1, Lots Nos. 9186, 9360, 9367, 9397 and 9402 were the subject of a decision rendered in Cad. Case No. 43, LRC Cad. Record No. 1712, although no decree of registration has as yet been issued therein. "The certificate, Exhibit L-1, is dated June 4, 1975. The decision of the lower court was rendered more than two months later, on August 6, 1975. Thus, on the basis of Exhibit L, the decision of the cadastral court might already be final when the appealed decision was rendered. If such be the case, the decision of the cadastral court constitutes res adjudicata and it is a bar to the present land registration proceeding under Act No. 496 (Lopez v. Director of Lands, 48 Phil. 589; Section 1, paragraph (f), Rule 16, Rules of Court). "Assuming that the decision of the cadastral court was not yet final when the appealed decision was rendered, it was nevertheless, litis pendentia which, under Section 1, paragraph (e), Rule 16 of the Rules of Court, is likewise a bar to the present proceeding for land registration case under Act No. 496. "Either way, whether the decision of the cadastral court in Cad. Case No. 43 had become final or not, the present proceeding for land registration under Act No. 496 cannot prosper because of the principles of res adjudicata and litis pendentia - (pp. 15-16, rec.). We find no legal basis to uphold the foregoing contentions of petitioner. It is clear from the evidence on record that in the proceedings had before the Court of First Instance of Batangas, acting as a land registration court, the oppositor Director of Lands, petitioner herein, did not interpose any objection nor set up the defense of res adjudicata with respect to the lots in question. Such failure on the part of oppositor Director of Lands, to OUR mind, is a procedural infirmity which cannot be cured on appeal. Section 2, Rule 9, Revised Rules of Court of 1964, in no uncertain language, provides that: " SEC. 2. Defenses and objections not pleaded deemed waived.- Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived; x x x." All defenses therefore not interposed in a motion to dismiss or in an answer are deemed waived (Santiago, et al. vs. Ramirez, et al., L15237, May 31, 1963, 8 SCRA 157, 162; Torreda vs. Boncaros, L-39832, January 30, 1976, 69 SCRA 247, 253). Thus, the defense of res adjudicata when not set up either in a motion to dismiss or in an answer, is deemed waived. It cannot be pleadect for the first time at the trial or on appeal (Phil. Coal Miner's Union vs. CEPOC, et al., L-19007, April 30, 1964, 10 SCRA 784, 789). But granting for a moment, that the defenses, of res adjudicata was properly raised by petitioner herein, WE still hold that, factually, there is no prior final judgment at all to speak of. The decision in Cadastral Case No. 41 does not constitute a bar to the application of respondent Manuela Pastor; because a decision in a cadastral proceeding declaring a lot public land is not the final decree contemplated in Sections 38 and 40 of the Land Registration Act.

A judicial declaration that a parcel of land is public, does not preclude even the same applicant from subsequently seeking a judicial confirmation of his title to the same land, provided he thereafter complies with the provisions of Section 48 of Commonwealth Act No. 141, as amended, and as long as said public land remains alienable and disposable (now sections 3 and 4, P.D. No. 1073). With respect to Cadastral Case No. 43, the evidence on record is too scanty to sustain the view of the petitioner that the decision rendered therein constitutes res adjudicata, or in the absence of finality thereof, litis pendentia. On the contrary, private respondent has amply shown that no final decree whatsoever was issued in connection with said cadastral case, even as it is not known in whose favor said decision was rendered. As found by the Court of Appeals: "Again, we sustain the appellee. There is an ambiguity as to what was adjudicated in Case No. 43. If the lots in question were in that case awarded to a third party, the latter should have intervened in this case. But no private party has challenged the application for registration" (p. 30, rec.). II Finally, petitioner argues for the first time on appeal that "there is no substantial evidence to show that she (private respondent Manuela Pastor) and her predecessors-in-interest have been in possession of the lots sought to be titled for a period of at least thirty (30) years and in the manner provided in Section 48, as amended, of the Public Land Law." WE find no merit in the foregoing argument of petitioner. The uncontradicted testimony of private respondent Manuela Pastor, which was further corroborated by the testimony of Antonio Pastor, conclusively established beyond doubt that the respondent, together with her predecessors-in-interest since the year 1913 and up to the present, had been in open, continuous, exclusive, and notorious possession and occupation of the lots in question under a bona fide claim of ownership. Moreover, the documentary evidence submitted by private respondent also show that the lots have been declared for taxation purposes in the name of respondent Manuela Pastor (Exhibit 'I'), and the taxes thereon have been paid by said respondent herein (Exhibits 'J', 'J-1' to 'J-5', 'K', 'K-l' and 'K2'). And finally, Geodetic Engineer Quirino Clemeneo, who conducted the survey of some of the lots and verified the survey conducted by the Bureau of Lands, testified that the thirteen (13) lots in question did not encroach upon public or private lands. All these are unmistakable indicia that respondent Manuela Pastor has performed and complied with all the conditions essential to entitle her to a confirmation of her imperfect title over the thirteen (13) lots subject of her application. WHEREFORE, the decision of the Court of Appeals is affirmed, and the petition is hereby dismissed. No costs. SO ORDERED. Teehankee (Chairman), Fernandez, Guerrero and Melencio-Herrera, JJ., concur.

BA Finance v. CO, 224 SCRA 163 (1993) [1993V563EC] [1/3] BA FINANCE CORPORATION, petitioner, vs. RUFINO CO, HIGHLINE MERCANTILE, INC., LUCITA VELOSO YAP, CLOVERLEAF SUPERMARKET, INC., SAN ANDRES COMMERCIAL and COURT OF APPEALS, respondents.1993 Jun 30En BancG.R. No. 105751D E C I S I O N BELLOSILLO, J.: Does the dismissal of the complaint for nonappearance of plaintiff at the pre-trial, upon motion of defendants, carry with it the dismissal of their compulsory counterclaim? Petitioner BA Finance Corporation brought this action as plaintiff in the court below to recover a sum of money arising from a credit accommodation in the form of a discounting line which it granted to defendant Rufino Co, and from certain suretyship agreements executed in its favor by his co-defendants Highline Mercantile, Inc., Lucita Veloso Yap, Cloverleaf Supermarket, Inc., and San Andres Commercial. After defendants' Amended Answer to Complaint with Compulsory Counterclaim was admitted, the case was set for Pre-Trial Conference. For various reasons, however, the conference was repeatedly reset. On 19 December 1989, counsel for plaintiff, petitioner herein, failed to attend the Pre-Trial Conference. Consequently, defendants moved for dismissal of the case without prejudice. The motion was granted thus -"The plaintiff's representative and counsel having failed to appear for today's setting, Atty. Luis Vera Cruz, Jr., for the defendants moved that the above-entitled case be dismissed, without prejudice. Finding merit in said motion, the same is hereby granted." On 22 January 1990, private respondents moved to set the reception of their evidence in support of their counterclaim. Petitioner opposed the motion. On 2 April 1990, the trial court denied the motion of private respondents, prompting them to elevate the order of denial to the Court of Appeals which, on 18 December 1991, reversed the questioned order and directed the trial court to set the reception of their evidence on their counterclaim. Its motion for reconsideration having on 2 June 1992 been denied, petitioner instituted the instant petition. Petitioner contends that the dismissal of the complaint carries with it the dismissal of the counterclaim. Private respondents, on the other hand, claim that their compulsory counterclaim should not have been included in the dismissal. There is merit in the petition. The counterclaim of private respondents is not merely permissive but compulsory in nature: it arises out of, or is necessarily connected with, the transaction or occurrence that is the subject matter of the opposing party's claim; it does not require the presence of third parties of whom the court cannot acquire jurisdiction; and, the trial court has jurisdiction to entertain the claim. 1 The counterclaim of private respondents is denominated "compulsory" and consists of claims for alleged overpayments and damages. They assert that they are no longer indebted to petitioner and are in fact entitled to reimbursement for overpayments. They ask for damages for expenses incurred and inconveniences suffered by them as a result of the filing of the present action. 2

Clearly, the same evidence needed to sustain the counterclaim of private respondents would also refute the cause of action in petitioner's complaint. For, if private respondents could successfully show that they actually made overpayments on the credit accommodations extended by petitioner, then the complaint must fail. The counterclaim is therefore compulsory. The rule is that a compulsory counterclaim cannot "remain pending for independent adjudication by the court." 3 This is because a compulsory counterclaim is auxiliary to the proceeding in the original suit and merely derives its jurisdictional support therefrom. 4 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. 5 Indeed, as Justice Vicente Abad Santos succinctly puts it -". . . The petitioner does not object to the dismissal of the civil case but nonetheless wants her counterclaim therein to subsist. Impossible. A person cannot eat his cake and have it at the same time. If the civil case is dismissed, so also is the counterclaim filed therein." 6 More recently, this Court ruled that the dismissal of the complaint on defendant's own motion operated likewise to dismiss the counterclaim questioning the complaint. 7 The Rules of Court provides a remedy to recover on defendant's counterclaim if plaintiff moves to dismiss the case. Under Sec. 2, Rule 17, defendant may raise objection to the dismissal of the complaint; in such case, the trial court may not dismiss the main action. In the instant petition, private respondents themselves moved for the dismissal of the complaint. They could have simply asked the trial court to declare petitioners to be "non-suited" on their complaint, and "as in default" on their compulsory counterclaim, for their failure to appear at the pre-trial despite due notice. But private respondents did not. Neither did they reserve their right to maintain their counterclaim. Consequently, the dismissal of the complaint carried with it the dismissal of the compulsory counterclaim. It may also be stressed that private respondents moved to set for hearing the reception of evidence to support their counterclaim more than a month after the case was dismissed, i.e., they filed their motion after the lapse of thirty-three (33) days. By then, the order of dismissal had already become final. Thereafter, it was error for the appellate court to set it aside, there being no ground to warrant it. Only error of judgment, not error of jurisdiction, was involved. However, we are not unaware of the seeming unfairness, if not harshness, of the application of the Rule herein enunciated -- that dismissal of the complaint for failure to prosecute automatically carries with it dismissal of the compulsory counterclaim -- to a defendant who may be compelled to hire counsel to protect him in a frivolous complaint. Equity and justice dictate that he be accorded adequate relief under the circumstances. Henceforth, for the guidance of Bench and Bar, if any of the grounds to dismiss under Sec. 3, Rule 17, of the Rules of Court arises, 8 the proper recourse for a defendant who desires to pursue his compulsory counterclaim in the same proceeding is not to move for the dismissal of the complaint; instead, he should only move to have plaintiff declared non-suited on the complaint so that the latter can no longer present his evidence thereon, and simultaneously move that he be declared as in default on the compulsory counterclaim, and reserve the right to present evidence ex parte on his counterclaim. This will enable defendant who was unjustly haled to court to prove his compulsory counterclaim, which is intertwined with the complaint, because the trial court retains jurisdiction over the complaint and of the whole case. The non-dismissal of the complaint, the non-suit notwithstanding, provides the basis for the compulsory counterclaim to remain active and subsisting. But the procedure above stated, unfortunately, was not adopted by private respondents herein in the court below, hence, we reverse the Court of Appeals and sustain the trial court. WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals of 18 December 1991 in CA-G.R. No. CV-28420 is REVERSED and SET ASIDE. The Order of the Regional Trial Court of Manila, Branch 40, of 19 December 1989 dismissing Civil Case No. 84-26040 is REINSTATED and REITERATED. SO ORDERED. Cruz, Bidin, Grio-Aquino, Romero, Nocon and Melo, JJ., concur. Feliciano and Davide, Jr., JJ., In the result. Padilla, J., On official leave. Quiason, J., No part. REGALADO, J., concurring: I concur in the result, whereby the ponencia sustains the order of the trial court dismissing herein petitioner's complaint and consequently barring private respondents from introducing evidence on their compulsory counterclaim by reason of such dismissal, but only for this reason stated therein, to wit: "It may also be stressed that private respondents moved to set for hearing the reception of evidence to support their counterclaim more than a month after the case was dismissed, i.e., they filed their motion after the lapse of thirty-three (33) days. By then the order of dismissal had already become final. Thereafter, it was error for the appellate court to set it aside, there being no ground to warrant it. Only error of judgment, not error of jurisdiction was involved." I take exception, however, to so much of the ratiocinations therein, although supportive of the same disposition, insofar as they are at variance with the observations in this separate opinion which I hope may yield some clarifications applicable to the present controversy.

Involved in this case are the issues on the propriety and effects of the application of Sections 2 and 3, Rule 17 of the Rules of Court to Section 2, Rule 20 which provides that "(a) party who fails to appear at a pre-trial conference may be non-suited or considered as in default." We have heretofore held that the provisions of Section 3 of Rule 17, whereby a plaintiff may be nonsuited and the dismissal of the complaint has the effect of an adjudication upon the merits unless otherwise provided by the trial court, shall have the same equivalent effect on a plaintiff who fails to appear at a pre-trial conference. 1 We have perforce to now resolve whether Section 2 of Rule 17 is likewise applicable to that plaintiff who is nonsuited for non-appearance at such pre-trial conference. For referential facility, the aforesaid provisions of Rule 17 are hereunder reproduced, with pertinent mphases supplied: "Sec. 2. Dismissal by order of the court. -- Except as provided in the preceding section, an action shall not be dismissed at the plaintiff's instance save upon order of the court and upon such terms and conditions as the court deems proper. If a counterclaim has been pleaded by a defendant prior to the service upon him of the plaintiff's motion to dismiss, the action shall not be dismissed against the defendant's objection unless the counterclaim can remain pending for independent adjudication by the court. Unless otherwise specified in the order, a dismissal under this paragraph shall be without prejudice." "Sec. 3. Failure to prosecute. -- If plaintiff fails to appear at the time of the trial, or to prosecute his action for an unreasonable length of time, or to comply with these rules or any order of the court, the action may be dismissed upon motion of the defendant or upon the court's own motion. This dismissal shall have the effect of an adjudication upon the merits, unless otherwise provided by the court." Also, the concept of nonsuit which we have adopted from American procedural law 2 is that it is a term broadly applied to a variety of terminations of an action which do not adjudicate issues on the merits. 3 More specifically, it is the name of a judgment given against plaintiff when he is unable to prove a case, or when he refuses or neglects to proceed to trial and leaves the issue undetermined. 4 In our jurisdiction, a declaration of nonsuit necessarily involves the rendition of a final order or judgment which terminates plaintiff's cause of action or right of recovery under his complaint which is thereby dismissed. Turning back to Rule 17, it is readily apparent that Sections 2 and 3 thereof envisage different factual and adjective situations. The dismissal of the complaint under Section 2 is at the instance of plaintiff, for whatever reason he is minded to move for such dismissal, and, as a matter of procedure, is without prejudice unless otherwise stated in the order of the court or, for that matter, in plaintiff's motion to dismiss his own complaint. 5 By reason thereof, to curb any dubious or frivolous strategy of plaintiff for his benefit or to obviate possible prejudice to defendant, the former may not dismiss his complaint over the defendant's objection if the latter has a compulsory counterclaim since said counterclaim would necessarily be divested of juridical basis and defendant would be deprived of possible recovery thereon in that same judicial proceeding. Section 3, on the other hand, contemplates a dismissal not procured by plaintiff, albeit justified by causes imputable to him and which, in the present case, was petitioner's failure to appear at the pre-trial. This situation is also covered by Section 3, as extended by judicial interpretation, and is ordered upon motion of defendant or motu proprio by the court. Here, the issue of whether defendant has a pending counterclaim, permissive of compulsory, is not of determinative significance. The dismissal of plaintiff's complaint is evidently a confirmation of the failure of evidence to prove his cause of action outlined therein, hence the dismissal is considered, as a matter of evidence, an adjudication on the merits. The does not, however, mean that there is likewise such absence of evidence to prove defendant's counterclaim although the same arises out of the subject matter of the complaint which was merely terminated for lack of proof. To hold otherwise would not only work injustice to defendant but would be reading a further provision into Section 3 and wresting a meaning therefrom although neither exists even by mere implication. Thus understood, the complaint can accordingly be dismissed, but relief can nevertheless be granted as a matter of course to defendant on his counterclaim as alleged and proved, with or without any reservation therefor on his part, unless from his conduct, express or implied, he has virtually consented to the concomitant dismissal of his counterclaim. Thus, in Sta. Maria, Jr., et al., vs. Court of Appeals, et al., 6 plaintiff having been declared nonsuited for his failure to appear at the pre-trial, his complaint was dismissed without prejudice and the deputy clerk of court was commissioned to receive defendant's evidence on their compulsory counterclaim. This action of the trial court was later reconsidered and the case was reset for hearing but since neither plaintiffs nor their counsel appeared despite due notice, they were again nonsuited, the case was dismissed without prejudice, and plaintiffs were declared in default on the counterclaim. Defendants adopted the evidence they had earlier presented and the trial court rendered judgment on their counterclaim. Plaintiffs therein raised virtually the same objections and arguments as those which herein petitioner now relies upon to impugn the order of the trial court. That case eventually reached this Court which, speaking through Justice J.B.L. Reyes, disposed of plaintiffs' contentions in this wise: "Also pointed out as error is the hearing of the counterclaim after the plaintiffs were non-suited, the argument being that the issues in the counterclaim are so inseparable with those in the complaint that the former may not be heard unless the latter is also heard. Petitioners misapply the doctrine; first, because in the instant case, the adjudication of the counterclaim does not depend upon the adjudication of the claims made in the complaint, since they were virtually abandoned by the non-appearance of the plaintiffs themselves; and second, the doctrine invoked is not available to plaintiffs like the petitioners, who prevent or delay the hearing of their own claims and allegations. "The doctrine that the complaint may not be dismissed if the counterclaim cannot be independently adjudicated is not available to, and was not intended for the benefit of, a plaintiff who prevents or delays the prosecution or hearing of his own complaint. Otherwise, the trial of counterclaims would be made to depend upon the maneuvers of the plaintiff, and the rule would offer a premium to vexing or delaying tactics to the prejudice of the counter claimants. It is in the same spirit that we have ruled that a complaint may not be withdrawn over the opposition of the defendant where the counterclaim is one that arises from, or is necessarily connected with, the plaintiff's action and cannot remain pending for independent adjudication [Ynotorio vs. Lira, L-16677, 27 November 1964]." (Emphasis mine.) The cases of Dalman vs. The City Court of Dipolog, etc., et al. 7 and International Container Terminal Services, Inc. vs. Court of Appeals, et al., 8 relied upon in the main opinion, both involved the application of the rule in Section 2, not Section 3, of Rule 17. In Dalman, the dismissal of the complaint was at the instance of therein plaintiff, which dismissal was ordered by the trial court despite

defendant's compulsory counterclaim therein since, as noted by this Court on appeal, defendant did not object to such dismissal hence her counterclaim was also dismissed. In International Container Terminal Services, Inc., the complaint of private respondent Sharp, Inc. in the court a quo was dismissed and petitioner itself, as defendant therein, joined in moving for such dismissal which likewise resulted in the dismissal of its compulsory counterclaim. In effect, petitioner consented to or, at least, did not object to the dismissal of its counterclaim for, as stated by the Court, "(i)f it wanted the counterclaim to subsist, it should have objected to the dismissal of the complaint or at least reserved its right to prosecute it, . . ." which it could have done by invoking the provisions of Section 2, Rule 17. As earlier explained, a different procedure obtains under Section 3 of said Rule which is the provision applicable to the case at bar. All told, my concurrence in the dispositive portion of the judgment in this case is founded only upon the fact that the assailed order of the trial court was already final and executory, hence petitioner's present recourse is indisputably time-barred. However, it is my respectful submission that in determining whether or not the dismissal of a complaint ipso jure results in the dismissal likewise of a compulsory counterclaim thereto, the distinctions between the situations contemplated in and provided for by Sections 2 and 3 of Rule 17 should be observed, with the difference in effects as explained in the foregoing disquisition. Otherwise, we may be indulging in judicial legislation although, ironically, it is within the power of the Court itself to change or revise the aforesaid provisions should the same be considered inadequate to meet its normative perceptions of what the rules should be. Narvasa, C.J., concur. Footnotes 1. Javier v. Intermediate Appellate Court, G.R. No. 75379, 31 March 1989, 171 SCRA 605. 2. Rollo, p. 27. 3. Lim Tanhu v. Ramolete, No. L-40098, 29 August 1975, 66 SCRA 425, citing Sec. 2, Rule 17, Rules of Court. 4. Metals Engineering Resources Corporation v. Court of Appeals, G.R. No. 95631, 28 October 1991, 203 SCRA 273. 5. Ibid., citing I Moran, Comments on the Rules of Court, 1979 Ed., p. 354. 6. Citing Dalman v. City Court of Dipolog City, Branch II, Nos. L-63194-96, 21 January 1985, 134 SCRA 242. 7. International Container Terminal Services, Inc. v. Court of Appeals, G.R. No. 90530, 7 October 1992. 8. Sec. 3. Failure to prosecute. -- If plaintiff fails to appear at the time of the trial, or to prosecute his action for an unreasonable length of time, or to comply with these rules or any order of the court, the action may be dismissed upon motion of the defendant or upon the court's own motion. This dismissal shall have the effect of an adjudication upon the merits, unless otherwise provided by the court. 1. 2. 3. 4. 5. 6. 7. 8. Arcuino, et al. vs. Aparis, et al., 22 SCRA 407 (1968); Geralde, et al. vs. Sabido, etc., et al., 115 SCRA 839 (1982). See Black's Law Dictionary, 4th Edition (1951), 1208. McColgan vs. Jones, Hubbard & Donnel, 11 Cal. 2d 243, 78 P. 2d 1010, 1011. Carolina Transportation & Distributing Co. vs. American Alliance Ins. Co., 214 N.C. 596, 200 S.E. 411, 413. See Vergara, et al. vs. Ocumen, et al., 114 SCRA 446 (1982). 45 SCRA 596 (1972). 134 SCRA 243 (1985). G.R. No. 90530. October 7, 1992.

Reyes, et al. vs. CA, et al. March 27, 1971 EN BANC [G.R. No. L-28466. March 27, 1971] ALBERTO T. REYES, SATURNINO LIWANAG and LORENZO HERNANDEZ, petitioners, vs. THE COURT OF APPEALS and TEODORO KALAW, JR., respondents. Quijano & Arroyo for petitioners. J.A. Perello & Associates and Cacnio, Pablo & Associates for respondent Teodoro Kalaw, Jr. SYLLABUS 1. The issue of whether respondent took the law in his own hands is clearly factual. It invites calibration of the whole evidence, considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstances, their relation to each other and to the whole, and the probabilities of the situation. Being a question of fact, it is for the Court of Appeals to decide, and its findings will not be disturbed by this Court unless clearly baseless or irrational. The exceptions do not obtain in this case. Under the foregoing circumstances, it can hardly be believed that respondent forcibly entered the leased premises and took the law in his own hands. The given assurance of vacating on or before 15 January 1963 was clearly proved. Respondent's belief in good faith that tenant petitioners would leave voluntarily as scheduled was well-founded, not only because of the uncontested reminders to vacate but also because of petitioners' passive attitude when, finally, the demolition started. The fct, therefore, that petitioners reneged on their promise and chose to continue staying in the premises at the time the scheduled demolition took place should not be taken against respondent. In view hereof, there is no reason to disturb the Court of Appeals' finding that "the defendant's act of ordering the fencing of the premises could not be considered done in bad faith . . . . (or) that he took the law in his own hands." A pronouncement of good faith cannot be reviewed on appeal by certiorari, especially since We find no conflict in the Court of Appeals' findings in this regard. 2. Section 33 of the Judiciary Act of 1948 partly provides that "every decision of the Court of Appeals shall contain complete findings of fact on all issues properly raised before it." This provision has been reproduced in Section 4, Rule 51, of the Revised Rules of Court. In the case of Ramos, et al. vs. Ramos, et al., (No. L-23007, 30 March 1967) it has been held that the law does not impose on the Court of Appeals the duty of stating complete findings of facts on all errors assigned but merely on all issues properly raised before it. 3. It is well-settled in this jurisdiction that, in a trial de novo on appeal, the Court of First Instance will not affirm, reverse, or modify the judgment appealed from inferior courts, for the simple reason that there is no judgment to affirm or modify, because all the proceedings had in the Municipal Court, including the judgment, do not in contemplation of law exist, having been vacated upon perfection of the appeal; and the only instance when said judgment appealed from is revived is when the appeal is withdrawn or dismissed. For under Section 9, Rule 10, of the Rules of Court, a "perfected appeal" from the city court to the court of first instance

shall operate to vacate the judgment" of the city court, and "the action when duly docketed in the court of first instance shall stand for trial de novo upon its merits, in accordance with the regular procedure in that court, as though the same had never been tried before and was originally there commenced." 4. Since all the proceedings in the city court including the judgment become, as it were, inexistent in case of appeal to the Court of First Instance, and since trial de novo must be held in the latter court, the execution of the aforesaid decision of the City Court (requiring the lessor to restore the roofing and remove the fence and/or pay P25.00 compensatory damages daily to each of the plaintiffs-appellants until the premises are restored to their former condition) was not yet proper and warranted. Moreover, if a case is to be tried de novo, there is always the possibility that the trial court may make different findings that will support a judgment contrary to that of the inferior court. As such, the rights of the parties are changed. If the inferior court's decision were to be executed after appeal therefrom, the Court of First Instance would have to undo what it had previously ordered to be done; hence, justice would hardly be served if it were mandatory for the Court of First Instance to order the execuion of the City Court's decision. As it turned out, the original judgment was superseded by that of the Court of First Instance in this case. The City Court's decision upon rendition of the Court of First Instance judgment "becomes a thing of the past, without life, purpose or effect." It is the decision of the Court of First Instance that prevails. Finally, the city court decision having been superseded, the issue raised now has become moot and academic and, therefore, cannot be properly raised. 5. On the last issue of whether temperate damages may be awarded in favor of respondent landlord, it has been held that while damages may be adjudged in forcible entry and detainer cases, these "damages" mean "rents" or "the reason compensation for the use and occupation of the premises, " or "fair rental value of the property." Profits which the plaintiff might have received were it not for the forcible entry or detainer do not represent a fair rental value. Former Chief Justice Moran makes the following comment as to the nature of damages that may be recovered in an action for forcible entry and detainer; . . . Since the only issue in actions for forcible entry and detainer is physical possession, the damages which plaintiff is entitled to are such as he may have sustained as a mere possessor. Material possession involves only the enjoyment of the thing possessed, its uses and the collection of its fruits, and these are the only benefits which the possessor is deprived of in losing his possession. In other wrds, plaintiff is entitled only to those damages which are caused by his loss of the use and occupation of the property, and not to such damages as are caused to the land or building during the unlawful possession, which he may recover only if he were the owner of the property, and he cannot be declared as such in an action for forcible entry and detainer. Damages to property may be recovered only by the owner in an ordinary action." Since temperate damages are neither "rents" nor" reasonable compensation for the use and occupation of the premises," nor "fair rental value" as above-stated, and since the agreed rental itself was adjudged in favor of respondent, We are constrained to deny the temperate damages awarded by the Court of Appeals. 6. In view of the plaintiffs-appellants' repeated reneging on their promises to vacate, and their resorting to litigation to unreasonably prolong their holding unto the appellee's property for eight years, the appellee is entitled to recover in these proceedings attorneys' fees under Article 2208 of the New Civil Code (Ramirez vs. Sy Chit, No.L-22022, 26 Dec. 1967, 21 SCRA 1364), fees that we fix at P2,500. 7. The decision does not preclude respondent from filing in the competent court a separate suit for damages consisting of other losses allegedly sustained by him as a result of the wrongful withholding of possession by petitioners-appellants, especially since this question had been raised in the city court but were beyond its jurisdiction to award. While said damages arose out of, or are necessarily connected with, the same transaction or occurrence which was the wrongful withholding of possession, they are not a compulsory counterclaim because they exceed the jurisdiction of the inferior court. In Calo vs. Ajax International, Inc., (No. L-22485, 13 March 1968, 22 SCRA 996, and cases cited; See also Vivar vs. Vivar, No. L- 18667,31 August 1963, 8 SCRA 847). We held that the rule that a compulsory counterclaim is barred if, not set up, when applied to municipal courts presupposes that the amount involved is within the said court's jurisdiction. The reason for the rule relating to counterclaims is to avoid multipicity of suits and to dispose of the whole matter in controversy in one action, and adjustment of defendant's demand by counterclaim rather than by independent suit. This reason, however, does not obtain where the amount exceeds the jurisdiction of the inferior court, for, as aptly stated in Calo vs. Ajax International, Inc., supra - "... even if the counterclaim in excess of the amount cognizable by the inferior court is set up, the defendant cannot obtain positive relief. The Rules allow this only for the defendant to prevent plaintiff from recovering from him (Rule 5, Section 5, Rules of Court). This means that should the court find both plaintiff's complaint and defendant's counterclaim (for the amount exceeding said court's jurisdiction) meritorious, it will simply dismiss the complaint on the ground that defendant has a bigger credit. Since defendant still has to institute a separate action for the remaining balance of his counterclaim, the previous litigation did not really settle all related controveries." DECISION REYES, J.B.L., J : Appeal by petitioner-plaintiffs from the decision of the Court of Appeals (in CA-G.R. No. 36043-R) affirming the decision of the Court of First Instance of Manila (Civil Case No. 54369), with the sole modification that plaintiffs are ordered to pay defendant (respondent herein) the sum of P50,000.00 as temperate damages. The pertinent facts are herein stated. Plaintiffs-appellants are lessees of defendant's premises located at Nos. 686, 688 and 690 Rizal Avenue, Manila, where they also conduct their respective businesses. The lease was oral and on a month-to-month basis. Plaintiffs have been occupying the premises for a period of from 10 to 15 years as of the filing of the complaint. On 8 May 1962, defendant started sending out to each of said plaintiffs notices to vacate the premises to give way for the demolition of the old building occupied by them and the eventual construction of a new one. The notices were received by plaintiffs on their respective dates, namely, 8 May 1962, 21 September 1962, 10 October 1962 and 15 January 1963. Each of the said notices gave plaintiffs a period of time within which to move out. The last notice gave said plaintiffs 24 hours within which to vacate the premises. On 16 January 1963, as previously scheduled, defendant started the demolition of the roofing and upper sidings of the building and also the fencing thereof, although the demolition of the back portion actually started on 7 January 1963. On 17 January 1963, plaintiffs filed a complaint for forcible entry with the City Court against defendant, praying, among others, for a writ of preliminary injunction (which was granted) and damages. The defendant counterclaimed for ejectment and damages for alleged less of the use and occupation of his premises in the form of (a) fixed losses in the amount of P177,869.06, (b) monthly losses in the amount of P27,295.00 from 15 January 1963; and (c) P1,000.00 daily losses, also from 15 January 1963, until possession is restored. On 23 February 1963, the City Court rendered its decision in favor of plaintiffs, later amended on 24 May 1963 because of the intervening Compromise Agreement between plaintiff Go Ban and defendant, the dispositive portion of which reads: "WHEREFORE, the COMPROMISE AGREEMENT between Go Ban and the defendant is hereby approved and judgment is hereby rendered in conformity therewith, the lease agreement between Alberto T. Reyes, Lorenzo Hernandez and Saturnino Liwanag, on one hand and the defendant on the other hereby extended to one (1) year from 23 February 1963 at the same rate (P800.00 a month); declaring the preliminary injunction heretofore issued enjoining the defendant from further performing acts of demolition of the premises hereby declared permanent during the period of the intended lease, are ordering the defendant Teodoro Kalaw, Jr., to restore the premises to the same condition as they were before demolition started, particularly restoring the roofing of the premises

and removing the fence thereon constructed within three (3) days from receipt hereof; ordering the defendant to pay unto each of plaintiffs, except Go Ban, compensatory damages for the impairment caused on their business establishment at the rate of TWENTYFIVE PESOS (25.00) a day from 16 January 1963 until the premises shall have been restored to its former condition; to pay the sum of TWO HUNDRED PESOS (P200.00) as attorney's fees, plus the costs of the suit." "Defendant's counterclaim for want of merit is hereby dismissed." Defendant appealed the aforesaid decision to the Court of First Instance. In a decision dated 11 January 1965, later amended on 11 February 1965, the said Court dismissed the complaint and all claims and counterclaims, among others. The dispositive part of the decision follows: "WHEREFORE, the Court hereby renders judgment, dismissing the complaint and all claims and counterclaims; ordering plaintiff Alberto Reyes to pay the P800.00 monthly rentals for and beginning with November, 1962, until he vacated the premises; ordering each of plaintiffs Saturnino Liwanag and Lorenzo Hernandez to pay defendant the P800.00 monthly rentals from 15 January 1963 until they vacate the premises; ordering the plaintiffs to vacate the premises designated as Nos. 686, 688 and 690 Rizal Avenue, Manila, immediately from and after the date this judgment becomes final and executory. "The preliminary injunction is hereby ordered dissolved. No costs." Both parties appealed to the Court of Appeals which, in turn, rendered its decision on 21 November 1967, affirming the decision of the Court of First Instance, with the sole modification that plaintiffs should also pay to defendant Kalaw the sum of P50,000.00 as temperate damages. The dispositive portion of the decision is quoted below: "WHEREFORE, with the sole modification that plaintiffs are ordered to pay defendant the sum of P50,000.00 as temperate damages, the decision appealed from is AFFIRMED in all other respects. Costs in this instance against the plaintiffs in favor of defendant." Hence, the appeal by plaintiffs to this Court. The following errors are assigned in their brief: The Court of Appeals erred in 1. Concluding that defendant did not take the law in his own hands, contrary to its own finding that the plaintiffs were in possession of the premises as of the time of demolition; 2. Refusing to decide the issue raised in the plaintiffs' second and third assignments of error, contrary to Section 33 of the Judiciary Act and Section 4, Rule 51, of the Revised Rules of Court; and in 3. Awarding P50,000.00 temperate damages aside from the usual monthly rental of P800.00 in favor of the defendant. The issue of whether respondent took the law in his own hands is clearly factual. It invites calibration of the whole evidence, considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstances, their relation to each other and to the whole, and the probabilities of the situation. Being a question of fact, it is for the Court of Appeals to decide, 1 and its findings will not be disturbed by this Court unless clearly baseless or irrational. 2 The exception do not obtain in this case. It has been clearly established in the foregoing that respondent was assured of petitioners' vacating the premises after the Christmas season, specifically on or before 15 January 1963. Respondent was putting up a P1,700,000, 9-story, building in lieu of the old one occupied by petitioners, among other tenants. As early as 8 May 1962, petitioners had been already notified "to vacate within 60 days" from said date. Petitioners requested for an extension until after the Christmas season for the reason that the 60-day period was insufficient for petitioners to move their respective businesses to new places. In the meantime, respondent completed solution of the technical problems of the proposed building. The services of architect Juan Nakpil were contracted; the loan applications for the project were followed up; municipal licenses were secured and paid for so that the construction could be started; and a number of guards were even hired to secure the site of the new building. From 8 May 1962, three more notices were sent to petitioners, dated 21 September 1962, 10 October 1962 and 15 January 1963, that construction would commence after the Christmas season. These notices were not questioned. On the contrary, and as found by the Court of Appeals, petitioners led respondent to believe that the promises would be voluntarily vacated on or before 15 January 1963. Moreover, when the respondent started demolishing the back part of the building on 7 January 1963, which fact was known to petitioners, nothing was done to protest the demolition or ask for another extension. On 16 January 1963, when the demolition of the old building reached the portion tenanted by petitioners, petitioners saw respondent merely to get a written assurance of priority in leasing out spaces in the new building but not for another extension. Under the foregoing circumstances, it can hardly be believed that respondent forcibly entered the leased premises and took the law in his own hands. The given assurance of vacating on or before 15 January 1963 was clearly proved. Respondent's belief in good faith that tenant petitioners would leave voluntarily as scheduled was well-founded, not only because of the uncontested reminders to vacate but also because of petitioners' passive attitude when, finally, the demolition started. The fact, therefore, that petitioners reneged on their promise and chose to continue staying in the premises at the time the scheduled demolition took place should not be taken against respondent. In view hereof, there is no reason to disturb the Court of Appeals' finding that "the defendant's act of ordering the fencing of the premises could not be considered done in bad faith . . . (or) that he took the law in his own hands." 3 A pronouncement of good faith cannot be reviewed on appeal by certiorari, 4 especially since We find n conflict in the Court of Appeals' findings in this regard. The second issue was raised in Appellants' Brief but not in the main petition for certiorari. It is alleged that the Court of Appeals refused to decide the second and third assignments of error presented by plaintiffs in their appeal to the said Court, which are: (a) the Court of First Instance erred in not granting plaintiffs-appellants' motion for the execution of the mandatory injunctive relief granted in the City Court decision for failure of the defendant-appellant to restore the roofings and remove the fence constructed thereon within three days from receipt of the decision and/or to pay the sum of P25.00 compensatory damages daily to each of the plaintiffs-appellants until the premises are restored to their former condition; and (b) in ordering each of the plaintiffs-appellants to pay P800.00 monthly rental in the premises under its present condition, devoid of roofings and with fencing on their frontage for at least one year subsequent to the filing of this action. Section 33 of the Judiciary Act of 1948 5 partly provides that "every decision of the Court of Appeals shall contain complete findings of fact on all issues properly raised before it." This provision has been reproduced in Section 4, Rule 51, of the Revised Rules of Court. In the case of Ramos, et al. vs. Ramos, et al., 6 it has been held that the law does not impose on the Court of Appeals the duty of stating complete findings of facts on all errors assigned but merely on all issues properly raised before it. It is well-settled in this jurisdiction that, in a trial de novo on appeal, the Court of First Instance will not affirm, reverse, or modify the judgment appealed from inferior courts, for the simple reason that there is no judgment to affirm or modify, because all the proceedings had in the Municipal Court, including the judgment., do not in contemplation of law exist, having been vacated upon perfection of the appeal, and the only instance when said judgment appealed from is revived is when the appeal is withdrawn or dismissed. 7 For under Section 9, Rule 40, of the Rules of Court, 8 a "perfected appeal" from the city court to the court of first instance "shall operate to vacate the judgment" of the city court, and "the action when duly docketed in the court of first instance shall stand for trial de novo upon its merits, in accordance with the regular procedure in that, court, as though the same had never been tried before and was originally there commenced." 9 Since all the proceedings in the city court inluding the judgment become, as it were, inexistent in case of appeal to the Court of First Instance, and since trial de novo must be held in the latter court, the execution of the aforesaid decision of the City Court (requiring the lessor to restore the roofing and remove the fence and/or pay P25.00 compensatory damages daily to each of the plaintiffs-appellants until the premises are restored to their former condition) was

not yet proper and warranted. Moreover, if a case is to be tried de novo, there in always the possibility that the trial court may make different findings that will support a judgment contrary to that of the inferior court. As such, the rights of the parties are changed. If the inferior courts decision were to be executed after appeal therefrom, the Court of First Instance would have to undo what it had previously ordered to be done; hence, justice would hardly be served if it were mandatory for the Court of First Instance to order the execution of the City Court's decision. As it turned ot, the original judgment was superseded by that the Court of First Instance in this case. The City Court's decision upon rendition of the Court of First Instance judgment "becomes a thing of the past, without life, purpose or effect." It is the decision of the Court of First Instance that prevails. 10 Finally, the city court decision having been superseded, the issue raised now has become moot and academic and, therefore, cannot be properly raised. The same reasons hold true as regards the other error assigned in the Court of Appeals. Besides, the records reveal that in spite of the fencing and removal of the part of the roof, plaintiffs were able to continue their respective businesses. The Court of Appeals in fact found as not substantiated by competent evidence the claim of plaintiffs-appellants that their respective gross sales suffered a reduction. The books of plaintiff Hernandez showed an increase in his 1963 gross sales as compared to those of 1962. 11 On the last issue of whether temperate damages may be awarded in favor of respondent landlord, it has been held that while damages may be adjudged in forcible entry and detainer cases, these "damages" mean "rents" or "the reasonable compensation for the use and occupation of the premises," 12 or "fair rental value of the property." 13 Profits which the plaintiff might have received were it not for the forcible entry or detainer do not represent a fair rental value. 14 Former Chief Justice Moran makes the following comment as to the nature of damages that may be recovered in an action for forcible entry and detainer: "But what is the character of these damages? Since the only issue in actions for forcible entry and detainer is physical possession, the damages which plaintiff is entitled to are such as he may have sustained as a mere possessor. Material possession involves only the enjoyment of the thing possessed, its uses and the collection of its fruits, and these are the only benefits which the possessor is deprived of in losing his possession. In other words, plaintiff is entitled only to those damages which are caused by his loss of the use and occupation of the property, and not to such damages as are caused to the land or building during the unlawful possession, which he may recover only if he were the owner of the property, and he cannot be declared as such in an action for forcible entry and detainer. Damages to property may be recovered only by the owner in an ordinary action." 15 This Court had further occasion to explain the meaning of "damages" in ejectment cases when it said in Mitschiener vs. Barrios, supra, that "Undoubtedly, these pronouncements of the Supreme Court were taken into consideration by the authors of the Rules of Court when, although in section 1 of Rule 72, 16 plaintiff is authorized to sue for the restitution of possession together with damages, 'in drafting section 6 of Rule 72, 17 as to judgment to be pronounced, the word 'damages' was eliminated, placing, in lieu thereof, the words 'reasonable compensation for the use and occupation of the premises.' SEC. 6. Judgment. - If upon trial the court finds that the complaint is not true, it shall render judgment in favor of the defendant for the restitution of the premises, for the sum justly due as arrears of rent or as reasonable compensation for the use and occupation of the premises, and for costs. If a counterclaim is established, the court shall render judgment for the sum found in arrears from either party, and award costs as justice requires.' "That is, in an ejectment case, plaintiff may recover either rents or the reasonable compensation for the use and occupation of the premises; loosely designated in sections 1 18 and 8 19 of Rule 72, as 'damages,' which may be designated also as 'fair rental value of the property.' When rents are adjudged no reasonable compensation for the use and occupation of the property can be adjudicated, while, inversely, when reasonable compensation is adjudged, it is because no rents are adjudicated." In the more recent case of Ramirez vs. Sy Chit, 20 the aforesaid ruling on the meaning of damages was reiterated when this Court held that damages recoverable by plaintiff under Section 1, Rule 70 (formerly Rule 72), are those which correspond to the reasonable value of the use and occupation of the property, which in this case is the agreed monthly rental of P230.00 for the land leased. It thus considered the award of P25.00 as damages for every day of delay in addition to the agreed monthly rental as an error and without basis in law. The pertinent portion of the decision is quoted below: "The trial court held defendant liable 'to pay plaintiff the sum of P25.00 a day for every day of delay as damages until he finally vacates the premises, in addition to the agreed current rental that may accrue.' This is an error. The damages recoverable by the plaintiff under Section 1, Rule 70 (formerly Rule 72) are those which correspond to the reasonable value of the use and occupation of the property, which in this case is the agreed monthly rental of P230.00. The award, therefore, of P25.00 as damages for every day of delay in addition to the agreed monthly rentals is without basis in law." 21 Since temperate damages are neither "rents" nor "reasonable compensation for the use and occupation of the premises," nor "fair rental value" as above-stated, and since the agreed rental itself was adjudged in favor of respondent, 22 We are constrained to deny the temperate damages awarded by the Court of Appeals. However, in view of the plaintiffs-appellants' repeated reneging on their promises to vacate, and their resorting to litigation to unreasonably prolong their holding unto the appellee's property for eight years, the appellee is also entitled to recover in these proceedings attorneys' fees under Article 2208 of the New Civil Code (Ramirez vs. Sy Chit, ante), fees that we fix at P2,500. Moreover. this decision does not preclude respondent from filing in the competent court a separate suit for damages consisting of other losses allegedly sustained by him as a result of the wrongful withholding of possession by petitioners-appellants, especially since this question had been raised in the city court but were beyond its jurisdiction to award. In Zambales Chromite Mining Co. vs. Robles, 23 it was ruled by this Court that ". . . The Rules expressly provide that upon appeal from the judgment of a justice of the peace to the court of first instance, the case shall stand for trial de novo (Section 9, Rule 40). This provision has been interpreted to mean that parties are prevented from raising issues in the court of first instance which were not raised in the justice of the peace court. xxx xxx xxx "We must call attention to the fact that the rules, which have the force of law, provide the manner and occasion when issues are to be raised for adjudication. If the rules were to be ignored and We permit litigants to raise issues without order and regulation, confusion would arise. This would certainly happen were we to allow the issues the defendant raised in his answer in the Court of First Instance. The defendant-appellant is not precluded from raising his counterclaim in a separate action if he decides to do so. But in view of the fact that the trial in the Court of First Instance in an appeal is merely a trial de novo, We are constrained to dismiss the counterclaims in pursuance of the dictates and mandate of the rules." (Emphasis supplied) While said damages arose out of, or are necessarily connected with, the same transaction or occurrence which was the wrongful withholding of possession, they are not a compulsory counterclaim because they exceed the jurisdiction of the inferior court. In Calo vs. Ajax International, Inc., 24 We held that the rule that a compulsory counterclaim is barred if not set up, when applied to municipal courts presupposes that the amount involved is within the said court's jurisdiction. The reason for the rule relating to counterclaims is to avoid multiplicity of suits and to dispose of the whole matter in controversy in one action, and adjustment of defendants demand by counterclaim rather than by independent suit. 25 This reason, however, does not obtain where the amount exceeds the jurisdiction of the inferior court, for, as aptly stated in Calo vs. Ajax International, Inc., supra -

". . . even if the counterclaim in excess of the amount cognizable by the inferior court is set up, the defendant cannot obtain positive relief. The Rules allow this only for the defendant to prevent plaintiff from recovering from him (Rule 5, Section 5, Rules of Court). This means that should the court find both plaintiff's complaint and defendant's counterclaim (for the amount exceeding said court's jurisdiction) meritorious, it will simply dismiss the complaint on the ground that defendant has a bigger credit. Since defendant still has to institute a separate action for the remaining balance of his counterclaim, the previous litigation did not really settle all related controversies." FOR THE FOREGOING REASONS, the decision appealed from is modified by deleting therefrom the award of temperate damages, but sentencing plaintiffs-appellants to pay respondent Teodoro Kalaw, Jr., P2,500, attorney's fees, without prejudice to said respondent's right to file a separate suit with the competent court for the recovery of the other damages claimed by him in the inferior courts. Thus modified, the decision of the Court of Appeals is affirmed in all other respects. No special pronouncement as to costs. Concepcion, C.J., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur. Dizon, J., did not take part. 1. Vda. de Arroyo vs. El Beaterio del Santissimo Rosario de Molo, No. L-22005, 3 May 1968, 23 SCRA 525; Fortus vs. Novero, No. L-22378, 29 June 1968, 23 SCRA 1330. 2. Fortus vs. Novero, supra. 3. Page 8, Court of Appeals decision. 4. Indias vs. Phil. Iron Mines, L-9987, 29 April 1967; Dee C. Chuan & Sons, Inc. vs. Nahag, 95 Phil. 887; NLU vs. Zip Venetian Blind, et al., L-15827-28, 31 May 1961, 2 SCRA 509, cited in Nevans vs. Court of Industrial Relations, No. L-21510, 29 June 1968, 28 SCRA 1321. 5. Republic Act No. 296, as amended by Republic Act No. 1605, effective 23 August 1956. 6. No. L-23007, 30 March 1967. 7. Co Tiamco vs. Diaz, 75 Phil. 672; Lichauco vs. Guash, 76 Phil. 5. 8. "SECTION 9. Effect of appeals. - A perfected appeal shall operate to vacate the judgment of the justice of the peace or the municipal court, and the action when duly docketed in the Court of First Instance shall stand for trial de novo upon its merits in accordance with the regular procedure in that court, as though the same had never been tried before and had been originally there commenced. If the appeal is withdrawn, or dismissed for failure to prosecute, the judgment shall be deemed revived and shall forthwith be remanded to the justice of the peace or municipal court for execution." 9. Lizo vs. Carandang, 73 Phil. 649, cited in Cue vs. Dolla, supra. 10. De la Fuente vs. Jugo, 76 Phil. 262; Zarcal, et al. vs. Herrero, et al., No. L-2423, 26 May 1949. 88 Phil. 711. 11. Page 14, Court of Appeals decision. 12. Mitschiener vs. Barrios, 76 Phil. 65, cited in Garcia vs. Pea, 77 Phil. 1011. 13. Sparrevohn vs. Fisher, 2 Phil. 676; Mitschiener vs. Barrios, supra; Castueras vs. Bayona, 106 Phil. 340. 14. Sparrevohn vs. Fisher, 2 Phil. 676, supra; Igama vs. Soria, 42 Phil. 11. 15. 2 Moran, Comments on the Rules of Court, 1957 ed., page 301, italics supplied, cited in Dy vs. Kuizon, No. L-16664, 30 November 1961, 3 SCRA 1961. 16. Now Section 1, Rule 70, Revised Rules of Court. 17. Now Section 6, Rule 70, Revised Rules of Court, which reads: "SEC. 6. Judgment. - If upon trial the court finds that the allegations of the complaint are not true, it shall render judgment for the defendant to recover his costs. If it finds them to be true, it shall render judgment in favor of the plaintiff for the restitution of the premises, for the sum justly due as arrears of rent or as reasonable compensation for the use and occupation of the premises, and for costs. If a counterclaim is established, the court shall render judgment for the sum found in arrears from either party, and award costs as justice requires." (Italics supplied.) 18. Supra. 19. Now Section 8, Rule 70, Revised Rules of Court. 20. No. L-22022, 26 December 1967, 21 SCRA 1364. 21. Italics supplied. 22. Dispositive portion of the Court of First Instance decision affirmed by the Court of Appeals, page 4, supra. 23. No. 16182, 29 August 1961, 2 SCRA 1051. 24. No. L-22485, 13 March 1968, 22 SCRA 996, and case cited; See also Vivar vs. Vivar, No. L-18667, 31 August 1963, 8 SCRA 847. 25. See Ledesma vs. Morales, G.R. No. L-3251, 24 August 1950, 47 O.G. 12 Supp. December, 1951, page 382.

Maceda vs. CA, et al. August 11, 1989 [GRN 83544 August 11, 1989.*] FIRST DIVISION ADELFO MACEDA, petitioner, vs. HON. COURT OF APPEALS AND CEMENT CENTER, INC., respondents. DECISION Charles S. Anastacio for petitioner. F.M. Carpio & Associates for private respondent. GRIO-AQUINO, J : The issue raised in this case is the jurisdiction of the metropolitan trail court, in an ejectment case, over the lessee's counterclaim for the value of improvements exceeding the court's jurisdictional limit of P20,000. The Court of Appeals dismissed the counterclaim for lack of jurisdiction, hence, this petition for review by the lessee, Adelfo Maceda. The leased property originally belonged to the spouses Arturo Victoria and Maxima Monserrat, a maternal aunt of the petitioner. After the spouses emigrated to the U.S. in 1970, they leased their house and lot in San Juan, Metro Manila, to the petitioner for P200 per month in 1970. As the house was old and run down, petitioner proposed to have it repaired and renovated subject to reimbursement of his expenses. The lessors allowed him to do so (Exh. 3) and requested him to send them pictures of the work accomplished (Exh. 3-a). He made extensive repairs, tearing down rotten parts of the house re-building and extending it up to the garage which he converted into a dining room. He also moved the bathroom around. The remodeling job cost P40,000. His aunt and uncle were pleased with the pictures of the remodelled house and made plans to reimburse him for his expenditures. But Maceda did not spot there. In what appears to be an orgy of building, he introduced more improvements. He constructed a new driveway, a baskeball court and raised the ground level near the creek, elevated the fence, remodelled the gate, and landscaped the lawn. In 1972, Arturo Victoria passed away in the United States. In 1973, his aunt's attorney-in-fact, Atty. Rustico Zapata, Sr., promised to sell the property to him for P125,00 after the title should have been transferred to his widowed aunt. On February 12, 1974, Atty.

Zapata and a Mr. Gomez visited the place and informed him that his aunt had sold the property to Mrs. Gomez so he should vacate it. He refused to leave. As a result, Atty. Zapata filed an ejectment case against him on April 4, 1974, in the Municipal Court of San Juan, Rizal (Civil Case No. 3773). It was dismissed on the plaintiff's own motion. In November 1974, Atty. Zapata informed the petitioner that the property had been sold to Pablo Zubiri for P145,000. He was asked to vacate it. Again, he refused, Zubiri filed an ejectment case against him (Civil Case No. 37781) in the Municipal Court of San Juan, Rizal. Petitioner insisted that he was entitled to retain possession of the premises until his expenses were duly reimbursed to him. The complaint was dismissed for failure to prosecute. In 1978 Maxima Monserrat died in the United States. On December 4, 1981, the property was sold by Zubiri to Cement Center, Inc. which obtained TCT Nos. 30844 to 30845 for the property. The president of the company inspected the premises. Maceda was asked to vacate the property because the company would build a housing project on it for its employees. Maceda insisted on being reimbursed for his improvements as the original owners had promised to do. Formal demands to vacate for payment of P4,000 monthly rental from April 15, 1982 were sent to him by the company. On January 17, 1984, another ejectment suit was filed against him in the Metropolitan Trail Court of San Juan, Metro Manila. In this answer to the complaint, Maceda set up a counterclaim, for 240,000, the alleged value of his improvements. In its decision, the Metropolitan Trail Court ordered him to vacate the premises and pay premises and pay the plaintiff P2,000 per month as reasonable compensation for his use of the premises until he actually vacates, and P5,000 as attorney's fees. It ordered plaintiff to pay the defendant P158,000 as the value of his improvements and repairs, less his accrued rentals of P64,000 as a December 1985 and the sum of P12,000 which he had earlier received as partial reimbursement. Both parties appealed to the Regional Trail Court. The Regional Trail Court set aside the inferior court's decision. On May 19, 1987, it dismissed the ejectment complaint, and ordered Cement Center to pay Maceda P182,000 for his necessary and useful improvements (pp. 31-49, Rollo of CA-G.R. No. 12536). Cement Center filed a petition for review in the Court of Appeals (Ca-G.R. SP No. 12536). On February 17, 1988, the Court of Appeals rendered a decision, modifying the appealed decision, the dispositive part of which reads thus: "PREMISES CONSIDERED, the decision appealed from is hereby AFFIRMED insofar as it dismissed the complaint for ejectment filed by petitioner against private respondent. However, the portions of the decision declaring petitioner(plaintiff) under obligation to pay private respondent the sum of P182,200.00 corresponding to the value of the supposed necessary and useful improvements, as well as the pronouncement therein regarding private respondent's right of retention, are hereby SET ASIDE. With costs against petitioner." (p. 35, Rollo.) The reason for the Court of Appeals' denial of Maceda's claim for reimbursement of the cost of his improvements was that the MTC lacked jurisdiction over the claim which exceeds P20,000. The Court of Appeals said: "The Regional Trial Court, however, erred in declaring that petitioner is under obligation to pay private respondents the sum of P182,200.00 supposedly corresponding to the value of the necessary and useful improvements he had introduced on the leased premises, with the right of retention until he shall have been fully reimbursed therefor. The claim for reimbursement in the total amount of P240,000.00 was alleged by private respondent by way of counterclaim in his answer (pp. 40-41, Records). It is clear that the amount of counterclaim, is beyond the jurisdiction of the Metropolitan Trail Court. Under Section 33, B.P. Blg. 129, the Metropolitan Trail Court shall have exclusive original jurisdiction over civil actions where the amount of the demand does not exceed P20,000.00 exclusive of interest and costs but inclusive of damages of whatever kind. It goes without saying that the Regional Trail Court has no authority to entertain the counterclaim because it took cognizance of the case by virtue of its appellat jurisdiction. "Considering that the Metropolitan Trail Court did not have jurisdiction to adjudicate the counterclaim, the decision of the Regional Trail Court on appeal giving private respondent the right of retention's is without legal basis. Besides, the right of retention applies only to a possessor in good faith under Article 546 of the Civil Code. In lease, the lessee knows that his occupancy of the premises continues only during the lifetime of the lease contract. If he introduces improvements thereon, he does so at his own risk (Imperial Insurance vs. Simon, 14 SCRA 855). The rights of a lessee in good faith, which do not include the right of retention, are defined in Article 1678, . . ." (pp. 34-35, Rollo.) In his petition for review of that decision in this Court, Maceda assails the setting aside of the money judgment or award for his improvements in the sum of P182,200, and the premises. Maceda's petition for review (G.R. No. 834545) has no merit. The court of Appeals correctly ruled that the municipal trail court did not have original jurisdiction over his counterclaim as it exceeds P20,00. Correspondingly, the regional trail court did not have appellate jurisdiction over the claim. The decision of the Municipal Trail Court of San Juan awarding him P158,000 on his counterclaim, and that of the Regional Trail Court raising the award to P182,200, were invalid for lack of jurisdiction. The jurisdiction of the Metropolitan Trail Court in a civil action for sum of money (Maceda's counterclaim for the value of his improvements in one such action) is limited to a demand that "does not exceed twenty thousand pesos exclusive of interest and costs but inclusive of damages of whatever kind." (Sec. 33, subpart. 1, B.P. Blg. 129.) A counterclaim limit may be pleaded only by way of defense to waken the plaintiff's claim, but not to obtain affirmative relief. (Agustin vs. Bacalan, 135 SCRA 340). Maceda was not possessor in good faith, i.e., one who possesses in concept of an owner, hence, he had no right to retain possession of the leased premises pending reimbursement of his improvements thereon. No more lessee can claim to be a possessor in good faith. (Art. 546, Civil Code; Eusebio vs. IAC, 144 SCRA 154; Laureano vs. Adil, 72 SCRA 148.) The promise of the now deceased spouses Arturo Victoria and Maxima Monserrat, to reimburse Maceda for his improvements was limited only to the initial remodelling job which cost P40,000, pictures of which he sent to the Victorias and which they approved and premised to reimburse. No similar promise to pay may be implied with regard to the additional improvements which he made without their approval and which were evidently intended to improve them out of their property. In any event, since the undertaking of the Victorias to reimburse Maceda for the P40,000 worth of improvements which he introduced on their property was not recorded on their title, that promise not encumber the property nor bind the purchaser thereof or the successor-in-interest of the Victorias (Mun. of Victorias vs. Ca, 149 SCRA 32). While it is true under B.P. Blg. 877 a lessee may not be ejected on account of the sale or mortgage of the leased premises, the new owner's need of the premises for the construction of dwellings for its employees, coupled with the lessee's failure to pay the rentals since December 1981, are, to our mind, a legitimate ground for the judicial ejectment of the lessee. Maceda's original rental of P200 per month could be increased by the new owner, Cement Center, when it acquired the property on December 5, 1981 until B.P. Blg. 25 allowed a cumulative and compounded 10% yearly increase effective April 15, 1982, and a 20% increase effective April 15, 1985, pursuant to B.P. Blg. 867 and 887 and R.A. 6643. Based on those guidelines, the rentals due from Maceda from December 4, 1981 were as follows: Per Month Total December 4, 1981 to April 14, 1982 P200.00 P900.00 +10%- April 15, 1982 to April 14, 1983 220.00 2,640.00 April 15, 1983 to April 14, 1984 242.00 2,904.00 Per Month Total

April 15, 1984 to April 14, 1985 P266.20 P3,194.40 +20% April 15, 1985 to April 14, 1986 319.44 3,833.28 April 15, 1986 to April 14, 1987 383,32 4,599.84 April 15, 1987 to April 14, 1988 459.98 5,519.75 April 15, 1988 to April 14, 1989 551.97 6,623.64 April 15, 1989 to August 14, 1989 662.36 2,649.44 --P32,864.36 WHEREFORE, the petition for review is granted with respect to the computation of the rentals due from the petitioner. He is ordered to pay the unpaid rentals of P32,846.36 for his occupancy of the private respondent's property from December 1981 to August 14, 1989 plus P662.36 monthly thereafter until he vacates the premises. The dismissal of his counterclaim for the value of his improvements is affirmed. No pronouncement as to costs. SO ORDERED. Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

Shafer vs. Judge, RTC of Olongapo City,Br. 75 November 14, 1988. [GRN L-78848 November 14, 1988.*] SHERMAN SHAFER, petitioner, vs. HON. JUDGE, REGIONAL TRIAL COURT OF OLONGAPO CITY, BRANCH 75, AND MAKATI INSURANCE COMPANY, INC., respondents. PETITION for certiorari to review the order of the Regional Trial Court of Olongapo City, Br. 75. The facts are stated in the opinion of the Court. R.M. Blanco for petitioner. Camacho and Associates for respondents. PADILLA, J.: This is a petition for review on certiorari of the Order" of the Regional Trial Court, Olongapo City, Branch 75, dated 24 April 1986 dismissing petitioner's third party complaint filed in Criminal Case No. 381-85, a prosecution for reckless imprudence resulting in damage to property and serious physical injuries.1 On 2 January 1985, petitioner Sherman Shafer obtained a private car policy, GA No. 0889,2 over his Ford Laser car with Plate No. CFN361 from Makati Insurance Company, Inc., for third party liability (TPL). During the effectivity of the policy, an information3 or reckless imprudence resulting in damage to property and serious physical injuries was filed against petitioner. The information reads as follows: "That on or about the seventeeth (17th) day of May 1985, in the City of Olongapo, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, being then the driver and in actual physical control of a Ford Laser car bearing Plate No. CFN-361, did then and there wilfully, unlawfully and criminally drive, operate and manage the said Ford Laser car in a careless, reckless and imprudent manner without exercising reasonable caution, diligence and due care to avoid accident to persons and damage to property and in disregard of existing traffic rules and regulations, causing by such carelessness, recklessness and imprudence the said Ford Laser car to hit and bump a Volkswagen car bearing Plate No. NJE-338 owned and driven by Felino Ilano y Legaspi, thereby causing damage in the total amount of P12,345.00 Pesos, Philippine Currency, and as a result thereof one Jovencio Poblete, Sr. who was on board of the said Volkswagen car sustained physical injuries, to wit: '1. 2 cm. laceration of left side of tongue. 2. 6 cm. laceration with partial transaction of muscle (almost full thickness) left side of face. '3. Full thickness laceration of lower lip and adjacent skin. which injuries causing [sic] deformity on the face." 4 The owner of the damaged Volkswagen car filed a separate civil action against petitioner for damages, while Jovencio Poblete, Sr., who was a passenger in the Volkswagen car when allegedly hit and bumped by the car driven by petitioner, did not reserve his right to file a separate civil action for damages. Instead, in the course of the trial in the criminal case, Poblete, Sr. testified on his claim for damages for the serious physical injuries which he claimed to have sustained as a result of the accident. Upon motion, petitioner was granted leave by the former presiding judge of the trial court to file a third party complaint against the herein private respondent, Makati Insurance Company, Inc. Said insurance company, however, moved to vacate the order granting leave to petitioner to file a third party complaint against it and/or to dismiss the same. 5 On 24 April 1987, the court a quo issued an order dismissing the third party complaint on the ground that it was premature, based on the premise that unless the accused (herein petitioner) is found guilty and sentenced to pay the offended party. (Poblete, Sr.) indemnity or damages, the third party complaint is without cause of action. The court further stated that the better procedure is for the accused (petitioner) to wait for the outcome of the criminal aspect of the case to determine whether or not the accused, also the third party plaintiff, has a cause of action against the third party defendant for the enforcement of its third party liability (TPL) under the insurance contract.6 Petitioner moved for reconsideration of said order, but the motion was denied;7 hence, this petition. It is the contention of herein petitioner that the dismissal of the third party complaint amounts to a denial or curtailment of his right to defend himself in the civil aspect of the case. Petitioner further raises the legal question of whether the accused in a criminal action for reckless imprudence, where the civil action is jointly prosecuted, can legally implead the insurance company as third party defendant under its private car insurance policy, as one of his modes of defense in the civil aspect of said proceedings. On the other hand, the insurance company submits that a third party complaint is, under the rules, available only if the defendant has a right to demand contribution, indemnity, subrogation or any other relief in respect of plaintiffs claim, to minimize the number of lawsuits and avoid the necessity of bringing two (2) or more suits involving the same subject matter. The insurance company further contends that the contract of motor vehicle insurance, the damages and attorney's fees claimed by accused/third party plaintiff are matters entirely different from his criminal liability in the reckless imprudence case, and that petitioner has no cause of action against the insurer until petitioner's liability shall have been determined by final judgment, as stipulated in the contract of insurance.8 Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of a negligent operation and use of motor vehicles.9 The victims and/or their defendants are assured of immediate financial assistance, regardless of the financial capacity of motor vehicle owners.

The liability of the insurance company under the Compulsory Motor Vehicle Liability Insurance is for loss or damage. Where an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured.10 The injured for whom the contract of insurance is intended can sue directly the insurer. The general purpose of statutes enabling an injured person to proceed directly against the insurer is to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy, and statutes are to be liberally construed so that their intended purpose may be accomplished. It has even been held that such a provision creates a contractual relation which inures to the benefit of any and every person who may be negligently injured by the named insured as if such injured person were specifically named in the policy.11 In the event that the injured fails or refuses to include the insurer as party defendant in his claim for indemnity against the insured, the latter is not prevented by law to avail of the procedural rules intended to avoid multiplicity of suits. Not even a "no action" clause under the policy which requires that a final judgment be first abtained against the against the insured and that only thereafter can the person insured recover on the policy can prevail over the Rules of Court provisions aimed at avoiding multiplicity of suits.12 In the instant case, the court a quo erred in dismissing petitioner's third party complaint on the ground that petitioner had no cause of action yet against the insurance company (third party defendant). There is no need on the part of the insured to wait for the decision of the trial court finding him guilty of reckless imprudence. The occurrence of the injury to the third party immediately gave rise to the liability of the insurer under its policy. A third party complaint is a device allowed by the rules of procedure by which the defendant can bring into the original suit a party against whom he will have a claim for indemnity or remuneration as a result of a liability established against him in the original suit.13 Third party complaints are allowed to minimize the number of lawsuits and avoid the necessity of bringing two (2) or more actions involving the same subject matter. They are predicated on the need for expediency and the avoidance of unnecessary lawsuits. If it appears probable that a second action will result if the plaintiff prevails, and that this result can be avoided by allowing the third party complaint to remain, then the motion to dismiss the third party complaint should be denied.14 Respondent insurance company's contention that the third party complaint involves extraneous matter which will only clutter, complicate and delay the criminal case is without merit. An offense causes two (2) classes of injuries-the first is the social injury produced by the criminal act which is sought to be repaired thru the imposition of the corresponding penalty, and the second is the personal injury caused to the victim of the crime, which injury is sought to be compensated thru indemnity, which is civil in nature.15 In the instant case, the civil aspect of the offense charged, i.e., serious physical injuries allegedly suffered by Jovencio Poblete, Sr., was impliedly instituted with the criminal case. Petitioner may thus raise all defenses available to him insofar as the criminal and civil aspects of the case are concerned. The claim of petitioner for payment of indemnity to the injured third party, under the insurance policy, for the alleged bodily injuries caused to said third peaty, arose from the offense charged in the criminal case, from which the injured (Jovencio poblete, Sr.) has sought to recover civil damages. Hence, such claim of petitioner against the insurance company cannot be regarded as not related to the criminal action. WHEREFORE, the instant petition is GRANTED. The questioned order dated 24 April 1987 is SET ASIDE and a new one entered admitting petitioner's third party complaint against the private respondent Makati Insurance Company, Inc. SO ORDERED. Melencio-Herrera, (Chairperson), Paras, Sarmiento and Regalado, JJ., concur. Petition granted. Order set aside. 1. Rollo, pp. 33-34. 2. Rollo, pp. 17-20. 3. Ibid, p. 21-22. 4. Ibid. 5. Ibid, p. 25. 6. Ibid, pp. 33-34. 7. Ibid, p. 38. 8. Memorandum for Respondents, Rollo, pp. 86-93. 9. Sec. 374, Chapter VI, Compulsory Motor Vehicle Liability Insurance, Insurance Code of the Philippines. 10. S 930, 45 CJS, 1050-1051. 11. S 449 7 Am. Jur., 2d, op. 118-119. 12. Guigon v. Del Monte, 20 SCRA 1043, G.R. No. L-22042, 17 August 1967. 13. Revised Rules of Court by Vicente J. Francisco, Vol. 1, p. 506, 2nd ed. 14. Republic vs. Ramos, G.R. No. L-18911, April 27, 1967, 19 SCRA 825. 15. Ramos v. Gonong, G.R. No. L-42010, August 31, 1976, 72 SCRA 559.

Javier vs. Intermediate Appellate Court March 31, 1989 [GRN 75379 March 31, 1989.] FIRST DIVISION Spouses REYNALDO and ESTELITA JAVIER, petitioners, vs. INTERMEDIATE APPELLATE COURT and LEON S. GUTIERREZ, JR., respondents. DECISION Antonio E. Rodriguez for petitioners. Sisenando Manuel, Jr. for respondents. CRUZ, J : It is not disputed that the private respondent issued to the petitioners a check that was subsequently dishonored and not made good despite the required notice of dishonor. For this he has been charged with estafa under B.P. Blg. 22 in the Regional Trial Court of Makati. His reason for issuing the check is not before us now. The question we are asked to resolve is whether or not he can raise that reason in another court, in a separate civil action for damages filed by him against the petitioners. The information against Leon S. Gutierrez, Jr. was filed on April 1, 1985, and docketed as Criminal Case No. 15581 in the Regional Trial Court of Makati. 1 The civil case was not reserved. On September 5, 1985, Gutierrez filed a complaint for damages against the petitioners in the Regional Trial Court of Catarman, Northern Samar. This was docketed as Civil Case No. C-355. In this complaint, the defendants were charged with having inveigled Gutierrez into signing the very check subject of the criminal case in the Makati court. 2 The complaint in effect explains why he issued the check for which he is now facing prosecution.

On September 17, 1985, the petitioners filed a motion to dismiss Civil Case No. C-355 on the grounds of lack of a cause of action and litis pendentia. 3 The motion was denied on September 24, 1985. On the other hand, the private respondent moved to suspend proceedings in Criminal Case No. 15581 pending the resolution of what was claimed to be the prejudicial question raised in the civil case. The petitioners filed an opposition. The motion was also to be denied later. Petitioners not having submitted their answer in the civil case, the private respondent moved to declare them in default and that he be allowed to present his evidence ex parte.4 Pending resolution of this motion, the petitioners moved for reconsideration of the order denying their motion to dismiss. 5 This was denied on November 27, 1985. 6 On January 3, 1986, the petitioners filed a second motion for reconsideration based on the original two grounds and alleging the additional ground of improper venue. 7 The record does not show if this second motion for reconsideration was acted upon, but on January 17, 1986, the respondent judged declared the petitioners in default and set the civil case for trial. 8 Three days later, the motion to suspend proceedings in the Regional Trial Court of Makati was denied and the criminal case was set for hearing on the merits. 9 The petitioners went to the Intermediate Appellate Court to question the orders of Judge Cesar R. Cinco of the Regional Trial Court of Catarman, Northern Samar, denying their motion to dismiss and their motion for reconsideration of the denial. Failing to obtain relief there, 10 they are now before us in this petition for review on certiorari under Rule 45 of the Rules of Court. Challenged are the decision of the respondent court dated May 29, 1986, and its resolution dated July 16, 1986, denying reconsideration. 11 We shall reverse. The respondent court erred in sustaining the trial judge. As the civil action was not reserved by the petitioners, it was deemed impliedly instituted with the criminal case in the Regional Trial Court of Makati. The applicable provision is Rule 111, Section 1, of the Rules of Court, reading in full as follows: Section 1. Institution of criminal and civil actions. - When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged is impliedly instituted with the criminal action, unless the offended party expressly waives the civil action or reserves his right to institute it separately. However, after the criminal action has been commenced, the civil action cannot be instituted until final judgment has been rendered in the criminal action. When the offended party seeks to enforce civil liability against the accused by way of actual, moral, nominal, temperate or exemplary damages, the filing fees for such civil action as provided in these Rules shall first be paid to the Clerk of Court of the court where the criminal case is filed. In all other cases, the filing fees corresponding to the civil liability awarded by the court shall constitute a first lien on the judgment award and no payment by execution or otherwise may be made to the offended party without his first paying the amount of such filing fees to the Clerk of Court. It was before the Makati court that the private respondent, as defendant in the criminal charge of violation of B.P. Blg. 22, could explain why he had issued the bouncing check. As the civil action based on the same act was also deemed filed there, it was also before that same court that he could offer evidence to refute the claim for damages made by the petitioners. This he should have done in the form of a counterclaim for damages for his alleged deception by the petitioners. In fact, the counterclaim was compulsory and should have been filed by the private respondent upon the implied institution of the civil action for damages in the criminal action. A counterclaim is compulsory and is considered barred if not set up where the following circumstances are present: (1) that it arises out of, or is necessarily connected with the transaction or occurrence that is the subject matter of the opposing party's claim; (2) that it does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction, and (3) that the court has jurisdiction to entertain the claim. 12 All these circumstances are present in the case before the Regional Trial Court of Makati. This being so, it was improper for the private respondent to file his civil complaint in the Regional Trial Court of Northern Samar alleging the very defense he should be making in the Regional Trial Court of Makati. It is, of course, not possible for him now to invoke a different defense there because he would be contradicting his own verified complaint in the Regional Trial Court in Northern Samar. In effect, therefore, he is arguing that both courts have jurisdiction to consider the same claim of deception he is making in connection with the same transaction and involving the same parties. The Court suspects that not having set it up against the civil claim for damages in the Regional Trial Court of Makati, the private respondent is now seeking to make amends by filing a separate civil action based on the same matter in the Regional Trial Court of Northern Samar. That is bad enough. But what could be worse is that he may have filed the civil complaint in the second court for the more censurable purpose of deliberately delaying the trial of the criminal case, which has been deferred long enough as it is. That should not be permitted. The principal reason of the respondent court in sustaining the trial judge is that Civil Case No. C-355 is not barred because it was filed not by the petitioners but by the private respondent. That reasoning is hardly worthy of the Court of Appeals. If such logic were accepted, every accused could file his own civil complaint against the offended party based on the same transaction involved in the prosecution, but in another court. The effect would not only be multiplicity of suits but delay and frustration of the criminal case. What the Court finds especially questionable here is the choice of the venue for the civil action. Although both parties appear to be residents and running their affairs in Metro Manila, the private respondent filed his complaint in Catarman, Northern Samar in an obvious attempt to inconvenience the petitioners. The lower courts should have taken this matter into consideration if only for reasons of equity. Legally, of course, the lack of proper venue was deemed waived by the petitioners when they failed to invoke it in their original motion to dismiss. 13 Even so, the motivation of the private respondent should have been taken into account by both the trial judge and the respondent court in arriving at their decisions. As Chief Justice Concepcion said in Aytona v. Castillo: 14 Good faith, morality and propriety form the basic foundation of claims to equitable reliefs . . . Needless to say, there are instances wherein not only strict, legality, but also fairness, justice and righteousness should be taken into account. Courts should not allow themselves to be used as instruments for harassment and the circumvention of the law through cunning manipulations of the procedural rules by counsel who may be too clever for their own good. Rules of procedure are intended to expedite rather than complicate, and much less to obstruct, the administration of justice. There is no excuse why the bench and the bar should not know this principle by now. WHEREFORE, the decision of the respondent court dated May 29, 1986, and its resolution dated July 16, 1986, are SET ASIDE and Civil Case No. C-355 in the Regional Trial Court of Catarman, Northern Samar is DISMISSED, with costs against the private respondent. It is so ordered. Narvasa, Gancayco, Grio-Aquino and Medialdea, JJ., concur. 1. Rollo, p. 21. 2. Original Records, pp. 96-97. 3. Ibid., pp. 9-12. 4. Id., pp. 18-20. 5. Id., pp. 14-16. 6. Id., p. 17. 7. Id., pp. 21-25. 8. Id., p. 37.

9. 10. 11. 12. 13. 14.

Id., p. 33. Id., pp. 59-64. Rollo, pp. 2-8. Sec. 4, Rule 9, Revised Rules of Court. Sec. 4, Rule 4, Revised Rules of Court. 4 SCRA 1.

Meliton vs. Court of Appeal December 11, 1992. [GRN 101883 December 11, 1992.] SPOUSES LYDIA and VIRGILIO MELITON,** petitioners, vs. COURT OF APPEALS and NELIA A. ZIGA, represented by her Attorney-in-Fact RAMON A. AREJOLA,*** respondents. Adan Marcelo B. Botor for petitioner. DECISION REGALADO, J : In its judgment in CA-G.R. No. 25091 1 Promulgated on August 9, 1991, respondent Court of Appeals annulled and set aside the orders dated February 22, 1991 and March 18, 1991 of the Regional Trial Court of Naga City, Branch 27, in Civil Case No. RTC 891942 thereof and ordered the dismissal of petitioner's complaint filed therein, hence this appeal by certiorari. On June 22, 1988, private respondent Nelia Ziga, in her own behalf and as attorney-in-fact of Alex A. Ziga and Emma A. Ziga-Siy, filed a complaint, docketed as Civil Case No. RTC 88-1480 of the Regional Trial Court, Branch 27, Naga City, 2 against herein petitioner Lydia Meliton for rescission of a contract of lease over a parcel of land situated at Elias Angeles Street, Naga City. Alleged as grounds therefor were said petitioner's failure, as lessee, to deposit the one month rental and to pay the monthly rentals due; her construction of a concrete wall and roof on the site of a demolished house on the leased premises without the lessor's written consent; and her unauthorized sublease of the leased property to a third party. On July 29,1988, petitioner Lydia Meliton filed an answer to the complaint denying the material averments thereof and setting up three counterclaims for recovery of the value of her kitchenette constructed on the leased parcel of land and which was demolished by private respondent, in the amount of P34,000.00; the value of the improvements introduced in the kitchenette to beautify it, in the amount of P10,000.00, plus the value of the furniture and fixtures purchased for use in the kitchenette in the amount of P23,000.00; and moral damages in the amount of P20,000.00 aside from attorney's fees of P5,000.00 and P250.00 per court appearance, with litigation expenses in the amount of P1,000.00.3 On May 29, 1989, the trial court, on motion of private respondent contending that her cause of action had already become moot and academic by the expiration of the lease contract on February 7, 1989, dismissed the complaint. The counterclaims of petitioner Lydia Meliton were also dismissed for non-payment of the docket fees, ergo the trial court's holding that thereby it had not acquired jurisdiction over the same.4 On December 6,1989, petitioners Lydia Meliton and Virgilio Meliton filed a complaint against private respondent for recovery of the same amounts involved and alleged in their counterclaims in Civil Case No. RTC 88-1480, which complaint was docketed as Civil Case No. RTC 8919425 and likewise assigned to Branch 27 of the same trial court. On February 15, 1991, private respondent filed a motion to dismiss the complaint on the ground that the cause of action therein was barred by prior judgment in Civil Case No. RTC 88-1480, the order of dismissal wherein was rendered on May 29, 1989.6 On February 22, 1991, the court below denied private respondent's motion to dismiss the complaint in Civil Case No. RTC 891942 on the ground that the dismissal of the petitioner's counterclaims in Civil Case No. RTC 88-1480 is not an adjudication on the merits as the court did not acquire jurisdiction over the counterclaims for failure of petitioner Lydia Meliton to pay the docket fees, hence the said dismissal does not constitute a bar to the filing of the later complaint.7 Private respondent's motion for reconsideration of the foregoing order was denied by the lower court for lack of merit in its order of March 18, 1991.8 Dissatisfied therewith, private respondent filed a petition for certiorari with this Court. In our resolution dated April 29, 1991, we referred this case to the Court of Appeals for proper determination and disposition pursuant to Section 9, paragraph 1, of B.P. Blg. 129,9 where it was docketed as CA-G.R. SP No. 25093. In a decision promulgated on August 9, 1991, the Court of Appeals granted the petition, the pertinent part of which reads: xxx "The respondents' counterclaim against the petitioner in Civil Case No, RTC 88-1480 (Annex E, petition) is a compulsory counterclaim, it having (arisen) out of or being necessarily connected with the transaction or occurrence subject matter of the petitioner's complaint. The failure of the respondents to seek a reconsideration of the dismissal of their counterclaim or to take an appeal therefrom rendered the dismissal final. Such dismissal barred the prosecution of their counterclaim by another action (Section 4, Rule 9, Revised Rules of Court; Javier vs. IAC, 171 SCRA 605). "The respondent Court, therefore, in issuing the orders complained of (Annexes G and I, petition), gravely abused its discretion amounting to lack of jurisdiction. "WHEREFORE, the petition for certiorari is GRANTED. Accordingly, the orders complained of (Annexes G and I, petition) are annulled and set aside and the respondents' complaint in Civil Case No. RTC 89-1942 before the respondent Court, DISMISSED. Costs against the respondents, except the respondent Court."10 Petitioners are now before us, assailing the said judgment of the Court of Appeals and praying for the annulment thereof. The present petition requires the resolution of two principal issues, to wit: (1) whether or not the counterclaims of petitioners are compulsory in nature; and (2) whether or not petitioners, having failed to seek reconsideration of or to take an appeal from the order of dismissal of their counterclaims, are already barred from asserting the as a in another action.

1. Considering Section 4 of Rule 9 of the Rules of Court, a counterclaim is compulsory if (a) it arises out of, or is necessarily connected with, the transaction or occurrence which is the subject matter of the opposing partys claim; (b) it does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction; and (c) the court has jurisdiction to entertain the claim. It has been postulated that while a number of criteria have been advanced for the determination of whether the counterclaim is compulsory or permissive, the "one compelling test of compulsoriness" is the logical relationship between the claim alleged in the complaint and that in the counterclaim, that is, where conducting separate trials of the respective claims of the parties would entail a substantial duplication of effort and time, as where they involve many of the same factual and/or legal issues. The phrase "logical relationship" is given meaning by the purpose of the rule which it was disputed to implement. Thus, a counterclaim is logically related to the opposing party's claim where, as already stated, separate trials of each of their respective claims would involve a substantial duplication of effort and time by the parties and the courts. Where multiple claims involve many of the same factual issues, or where they are offshoots of the same basic controversy between the parties, fairness and considerations of convenience and of economy require that the counterclaimant be permitted to maintain his cause of action.11 In the aforesaid Civil Case No. 88-1480, all the requisites of a compulsory counterclaim are present. The counterclaims, as this term is now broadly defined, are logically related to the complaint. Private respondent's complaint was for rescission of the contract of lease due to petitioner Lydia Meliton's breach of her obligations under the said contract. On the other hand, petitioner's counterclaims were for damages for unlawful demolition of the improvements she introduced pursuant to her leasehold occupancy of the premises, as well as for the filing of that civil suit which is contended to be clearly unfounded. Both the claims therein of petitioners and private respondent arose from the same contract of lease. The rights and obligations of the parties, as well as their potential liability for damages, emanated from the same contractual relation. Petitioners' right to claim damages for the unlawful demolition of the improvements they introduced on the land was based on their right of possession under the contract of lease which is precisely the very same contract sought to be rescinded ',y private respondent in her complaint. The two actions are but the consequences of the reciprocal obligations imposed by law upon and assumed by the parties under their aforesaid lease contract. That contract of lease pleaded by private respondent constitutes the foundation and basis relied on by both parties for recovery of their respective claims. The relationship between petitioners' counterclaims and private respondent's complaint is substantially the same as that which exists between a complaint for recovery of land by the owner and the claim for improvements introduced therein by the possessor. As we have ruled, in actions for ejectment or for recovery of possession of real property, it is well settled that the defendant's claims for the value of the improvements on the property or necessary expenses for its preservation are required to be interposed in the same action as compulsory counter. claims. In such cases, it is the refusal of the defendant to vacate or surrender possession of the premises that serves as the vital link in the chain of facts and events, and which constitutes the transaction upon which the plaintiff bases his cause of action. It is likewise an "important part of the transaction constituting the subject matter of the counterclaim" of defendant for the value of the improvements or the necessary expenses incurred for the preservation of the property. They are offshoots of the same basic controversy between the parties, that is, the right of either to the possession of the property.12 On the foregoing considerations, respondent Court of Appeals correctly held that the counterclaims of petitioners are compulsory in nature. 2. Petitioners having alleged compulsory counterclaims, the next point of inquiry is whether or not petitioners are already barred from asserting said claims in a separate suit, the same having been dismissed in the preceding one. The answer is in the negative. It is indeed the rule, embodied in Section 4, Rule 9 of the Rules of Court, that a counterclaim not set up shall be barred if it arises out of or is necessarily connected with the transaction or occurrence that is 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. However, said rule is not applicable to the case at bar. Contrary to the claim of private respondent, it cannot be said that herein petitioners failed to duly interpose their causes of action as counterclaims in the previous action. Petitioners' claims were duly set up as counterclaims in the prior case but the same were dismissed by reason of non-payment of docket fees. The ruling of respondent Court of Appeals to the effect that the failure of petitioners to appeal or to move for reconsideration of the said order of dismissal bars them from asserting their claims in another action cannot be upheld. Firstly, where a compulsory counterclaim is made the subject of a separate suit, it may be abated upon a plea of auter action pendant or litia pendentia and/or dismissed on the ground of res judicata,13depending on the stage or status of the other suit. Both defenses are unavailing to private respondents. The present action cannot be dismissed either on the ground of litis pendentia since there no other pending action between the same parties and for the same cause, nor on the ground of res judicata. In order that a prior judgment will constitute a bar to a subsequent case, the following requisites must concur: (1) the judgment must be final; (2) the judgment must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) the judgment must be on the merits; and (4) there must be between the first and second actions, identity of parties, of subject matter, and of causes of action.14 The first case, Civil Case No. RTC 88-1480, was, dismissed upon motion of private respondent, plaintiff therein, under Section 2 of Rule 17. Dismissal thereunder is without prejudicial except when otherwise stated in the motion to dismiss or when stated to be with prejudice in the order of the court.15 The order of dismissal of the first case was unqualified, hence without prejudice and, therefore, does not have the effect of an adjudication on the merits. On a parity of rationale, the same rule should apply to a counterclaim duly interposed therein and which is likewise dismissed but not on the merits thereof. Moreover, in the same order of dismissal of the complaint, the counterclaims of herein petitioners were dismissed by rea. son of the fact that the court a quo had not acquired jurisdiction over the same for non-payment of the docket fees. On that score, the said dismissal was also without prejudice, since a dismissal on the ground of lack of jurisdiction does not constitute res judicata,16 there having been no consideration and adjudication of the case on the merits.

The dismissal of the case without prejudice indicates the absence of a decision on the merits and leaves the parties free to litigate the matter in a subsequent action though the dismissal action had not been commenced.17 The discontinuance of a case not on the merits does not bar another action on the same subject matter.18 Evidently, therefore, the prior dismissal of herein petitioners' counterclaims is not res judicata and will not bar the filing of another action based on the same causes of action. Secondly, a reading of the order of dismissal will show that the trial court, in dismissing the complaint of private respondent, did not intend to prejudice the claims of petitioners by barring the subsequent judicial enforcement thereof. As stated therein, "(t)he court in dismissing the counterclaim(s) has taken into acount the fact that a counterclaim partakes of the nature of coomplaint and/or a cause of action against the plaintiffs."19 This is a clear indication, deducible by necessary implications that the lower court was aware of the fact that petitioners could avail of the causes of action in said counterclaims in a subsequent independent suit based thereon and that there was no legal obstacle thereto. That this was the import and intendment of that statement in its order dismissing petitioners' counterclaims in Civil Case No. RTC 88-1480 was categorically confirmed by the very same court, wherein Civil Case No. RTC 89-1942 was also subsequently filed, in its assailed orders denying private respondent's motion to dismiss the latter case on the ground of res judicata. This is also concordant with the rule governing dismissal of actions by the plaintiff after the answer has been served as laid down in Rule 17 of the Rules of Court, which is summarized as follows: An action shall not be dismissed at the request of the plaintiff after the service of the answer, except by order of the court and upon such terms and conditions as the court deems proper. The trial court has the judicial discretion in ruling on a motion to dismiss at the instance of the plaintiff. It has to decide whether the dismissal of the case should be allowed, and if so, on what terms and conditions.20 In dismissing private respondent's complaint, the trial court could not but have reserved to petitioners as a condition for such dismissal, the right to maintain a separate action for damages. Petitioners' claims for damages in the three counterclaims interposed in said case, although in the nature of compulsory counterclaims but in light of the aforesaid reservation in the dismissal order, are consequently independent causes of action which can be the subject of a separate action against private respondent. An action for damages specifically applicable in a lessorlessee relationship is authorized in Article 1659 of the Civil Code which provides that: "Art 1689. If the lessor or the lessee should not comply with the obligations set forth in articles 1664 and 1657, the aggrieved party may ask for the rescission of the contract and indemnification for damages, or only the latter, allowing the contract to remain in force." Paragraph 3 of Article 1654 of the same Code requires that the lessor must "maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract."21 The aggrieved party has the alternative remedies, in case of contractual breach, of rescission with damages, or for damages only, "allowing the contract to remain in force." The act of private respondent in demolishing the structures introduced by petitioners on the property leased and the improvements therein during the existence of the lease contract is a dear violation by her, as lessor, of her obligation mandated by paragraph 3, Article 1654 of the Civil Code. The said violation gave rise to a cause of action for damages in favor of herein petitioners. Lastly, even assuming arguendo that the bar under the rule on compulsory counterclaims may be invoked, the peculiar circumstances of this case irresistibly and justifiedly warrant the relaxation of such rule. The court a quo dismissed petitioners' counterclaims for non-payment of docket fees pursuant to our then ruling in Manchester Development Corporation, et al. vs. Court of Appeals, et al.,22 before its modification. The failure of petitioners to seek reconsideration of or to take an appeal from the order of dismissal of the counterclaim should not prejudice their right to file their claims in a separate action because they were thereby made to understand and believe that their counterclaims were merely permissive and could be the subject of a separate and independent action. Under the Rules, there is no need to pay docket fee for a compulsory counterclaim.23 The ruling in Manchester applies specifically to permissive counterclaims only, thereby excluding compulsory counterclaims from its purview,24 and that was the ruling of the court below to which the litigants therein submitted. Had the trial court correctly specified that petitioners' counterclaims were compulsory, petitioners could have objected to the dismissal sought by private respondent on the ground that said counterclaims could not remain pending for independent adjudication.25 Furthermore, under the Manchester doctrine, the defect cannot be cured by an amendment of the complaint or similar pleadings, much less the payment of the docket fee. Hence, the only remedy left for the petitioners was to file a separate action for their claims and to pay the prescribed docket fees therein within the applicable and reglementary period, which is what they did in the case at bar in obedience and deference to the judicial mandate laid down in their case. At any rate, the ambivalent positions adopted by the lower court can be considered cured by what we have construed as effectively a reservation in its order of dismissal for the filing of a complaint based on the causes of action in the dismissed counterclaims. This, then, is one case where it is necessary to heed the injunction that the rules of procedure are not to be applied in a rigid and technical sense. After all, rules of procedure are used only to help secure substantial justice. They cannot be applied to prevent the achievement of that goal. Form cannot and should not prevail over substance.26 Absent a specific requirement for stringent application, the Rules of Court are to be liberally construed to the end that no party shall be deprived of his day in court on technicalities. The courts in our jurisdiction are tribunals both of law and equity. Hence, under the antecedents of this case, we are persuaded that even if only to approximate that desirable measure of justice we are sworn to dispense, this controversy should be resolved on the merits. WHEREFORE, the questioned judgment of respondent Court of Appeals is hereby REVERSED and SET ASIDE. Civil Case No. RTC 891942 is hereby REINSTATED and the Regional Trial Court of Naga City, Branch 27, or wherever the case has been assigned, is directed to proceed with deliberate dispatch in the adjudication thereof. SO ORDERED. Narvasa (C.J., Chairman), Feliciano, Nocon and Campos, Jr., JJ., concur. Judgment reversed and set asid e. 1. Penned by Justice Pedro A. Ramirez, with the concurrence of Justices Fernando A. Santiago and Fermin A. Martin, Jr. 2. Rollo, 11-15. 3. Ibid., 16-21. 4. Rollo, 22. 5. Ibid., 23-27. 6. Ibid., 12-15. 7. Ibid., 33; per Judge Antonio N. Gerona.

8. Ibid., 30. 9. Rollo, CA-G.R. SP No. 25093,32. 10. Ibid.,id., 41. 11. National Marketing Corporation vs. Federation of United Namarco Distributors, Inc., 43 SCRA 238, 264 (1973). 12. Id., citing Berses vs. Villanueva, 25 Phil. 473 (1913); Carpena, et al. vs. Manalo, et al., 1 SCRA 1060 (1961); Castro vs. Montes, et al., 107 Phil. 63S (1960) and other cases. 13. Visayan Packing Corporation vs. Reparations Commission, et al., 155-542. (1987). 14. Filipinas Investment and Finance Corporation vs. Intermediate Appellate Court, et al., 179 SCRA 728 (1989); Sta. Monica Industrial and Development Corporation vs. Court of Appeals, at al., 189 SCRA 792 (1990); Suarez vs. Court of Appeals, at al., 193 SCRA 183 (1991). 15. Vergara, at al. vs. Ocumen, et al., 114 SCRA 446 (1982). 16. Tuballa vs. De la Cruz, et al., 1 SCRA 742 (1961); Montinola, et al. vs. Barrido, at al., 114 Phil. 561 (1962). 17. 46 Am. Jur., Judgment 646; Alona vs. Wing Sing Wo Co., 45 Hawaii 427, 368 P2d, 879. 18. Hays vs. Sturgill, 302 Ky 31, 19 SWD 2d 648, 164 ALR 868. 19. Rollo, 22. 20. Suarez vs. Court of Appeals, at al., supra. 21. See also CMS Investment and Management Corporation, et al. vs. Intermediate Appellate Court, et al., 139 SCRA 75 (1985). 22. 149 SCRA 562 (1987). 23. Sec. 6, Rule 141, Rules of Court. 24. Metals Engineering Resources Corporation vs. Court of Appeals, et al., 203 SCRA 273 (1991). 25. Sec. 2, Rule 17, Rules of Court; Lim Tanhu, et al. vs. Ramolete, et al., 66 SCRA 426 (1975). 26. Alonso vs. Villamor, 16 Phil. 315; (1910); Gotico vs. Leyte Chinese Chamber of Commerce, 136 SCRA 218 (1985); Visayan Packing Corporation vs. Reparations Commission, supra.

Lim Tanhu vs. Ramolete August 29, 1975 [GRN L-40098 August 29, 1975 *] ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO OYO, petitioners, vs. HON. JOSE R. RAMOLETE, as Presiding Judge, Branch III, CFI, Cebu and TAN PUT, respondents. PETITION for certiorari from an order of the Court of First Instance of Cebu. Ramolete, J. The facts are stated in the opinion of the Court. Zosa, Zosa, Castillo, Alcudia & Koh for petitioners. Fidel Manalo and Florido & Associates for respondents. BARREDO, J.: Petition for (1) certiorari to annul and set aside certain actuations of respondent Court of First Instance of Cebu Branch III in its Civil Case No. 12328, an action for accounting of properties and money totalling allegedly about P15 million pesos filed with a common cause of action against six defendants, in which after declaring four of the said defendants herein petitioners, in default and while the trial as against the two defendants not declared in default was in progress, said court granted plaintiffs motion to dismiss the case in so far as the non-defaulted defendants were concerned and thereafter proceeded to hear ex-parte the rest of the plaintiff's evidence and subsequently rendered judgment by default against the defaulted defendants, with the particularities that notice of the motion to dismiss was not duly served on any of the defendants, who had alleged a compulsory counterclaim against plaintiff in their joint answer, and the judgment so rendered granted reliefs not prayed for in the complaint, and (2) prohibition to enjoin further proceedings relative to the motion for immediate execution of the said judgment. Originally, this litigation was a complaint filed on February 9, 1971 by respondent Tan Put only against the spousespetitioners Antonio Lim Tanhu and Dy Ochay. Subsequently, in an amended complaint dated September 26, 1972 their son Lim Teck Chuan and the other spouses-petitioners Alfonso Leonardo Ng Sua and Co Oyo, and their son Eng Chong Leonardo were included as defendants. In said amended complaint, respondent Tan alleged that she "is the widow of Tee Hoon Lim Po Chuan, who was a partner in the commercial partnership, Glory Commercial Company . . . . . with Antonio Lim Tanhu and Alfonso Ng Sua"; that "defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo, through fraud and machination, took actual and active management of the partnership and although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Company, defendants managed to use the funds of the partnership to purchase lands and buildings in the cities of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla, some of which were hidden, but the description of those already discovered were as follows: (list of properties) x x x;" and that: "13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants, without liquidation, continued the business of Glory Commercial Company, by purpotedly organizing a corporation known as the Glory Commercial Company, Incorporated, with paid up capital in the sum of P125,000.00, which money and other assets of the said Glory Commercial Company, Incorporated am actually the assets of. the defunct Glory Commercial Company partnership, of which the plaintiff has a share equivalent to one third (1/3) thereof; 14. (P)laintiff, on several occasions after the death of her husband, has asked defendants of the above-mentioned properties and for the liquidation of the business of the defunct partnership, including investments on real estate in Hong Kong, but defendants kept on promising to liquidate said properties and just told plaintiff to 15. (S)ometime in the month of November, 1967, defendants, particularly Antonio Lim Tanhu, by means of fraud deceit and misrepresentations did then and there, induce and convince the plaintiff to execute a quitclaim of all her rights and interests, in the assets of the partnership of Glory Commercial Company, which quitclaim is null and void executed through fraud and without any legal effect. The original of said quitclaim is in the possession of the adverse party, defendant Antonio Lim Tanhu; "16. (A)s a matter of fact, after the execution of said quitclaim, defendant Antonio Lim Tanhu, offered to pay the plaintiff the amount of P65,000.00 within a period of one (1) month, for which plaintiff was made to sign a receipt for the amount of P65,000.00 although no such amount was given, and plaintiff was not even given a copy of said document; 17. (T)hereafter, in the year 1968-69, the defendants who had earlier promised to liquidate the aforesaid properties and assets in favor, among others of plaintiff and until the middle of the year 1970 when the plaintiff formally demanded from the defendants the

accounting of real and personal properties of the Glory Commercial Company, defendants refused and stated that they would not give the share of the plaintiff." (Pp. 36-37, Record.) She prayed as follows: "WHEREFORE, it is most respectfully prayed that judgment be rendered: a) Ordering the defendants to render an accounting of the real and personal properties of the Glory Commercial Company including those registered in the names of the defendants and other persons, which properties are located in the Philippines and in Hong Kong; b) Ordering the defendants to deliver to the plaintiff after accounting, one third (1/3) of the total value of all the properties which is approximately P5,000,000.00 representing the just share of the plaintiff; c) Ordering the defendants to pay the attorney of the plaintiff the sum of Two Hundred Fifty Thousand Pesos (P250,000.00) by way of attorney's fees and damages in the sum of One Million Pesos (P1,000,000.00). "This Honorable Court is prayed for other remedies and reliefs consistent with law and equity and order the defendants to pay the costs." (Page 38, Record.) The admission of said amended complaint was opposed by defendants upon the ground that there were material modifications of the causes of action previously alleged, but respondent judge nevertheless allowed the amendment reasoning that:. "The present action is for accounting of real and personal properties as well as for the recovery of the same with damages. An objective consideration of pars. 13 and 15 of the amended complaint pointed out by the defendants to sustain their opposition will show that the allegations of facts therein are merely to amplify material averments constituting the cause of action in the original complaint. It likewise includes necessary and indispensable defendants without whom no final determination can be had in the action and in order that complete relief is to be accorded an between those already parties. Considering that the amendments sought to be introduced do not change the main causes of action in the original complaint and the reliefs demanded and to allow amendments is the rule, and to refuse them the exception and in order that the real question between the parties may be properly and justly threshed out in a single proceeding to avoid multiplicity of actions." (Page 40, Record.) In a single answer with counterclaim, over the signature of their common counsel, defendants denied specifically not only the allegation that respondent Tan is the widow of Tee Hoon because, according to them, his legitimate wife was Ang Sick Tin, still living and with whom he had four (4) legitimate children, a twin born in 1942, and two others born in 1949 and 1965, all presently residing in Hongkong, but also all the allegations of fraud and conversion quoted above, the truth being, according to them, that proper liquidation had been regularly made of the business of the partnership and Tee Hoon used to receive his just share until his death, as a result of which the partnership was dissolved and what corresponded to him were all given to his wife and children. To quote the pertinent portions of said answer: "AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES, defendants hereby incorporate all facts averred and alleged in the answer, and further most respectfully declare; 1. That in the event that plaintiff is filing the present complaint as an heir of Tee Hoon Lim Po Chuan, then, she has no legal capacity to sue as such, considering that the legitimate wife, namely: Ang Siok Tin, together with their children are still alive. Under Sec. 1, (d), Rule 16 of the Revised Rules of Court, lack of legal capacity to sue is one of .the grounds for a motion to dismiss and so defendants prays that a preliminary, hearing he conducted as provided for in Sec. 5, of the same rule; 2. That in the alternative ease or event that plaintiff is riling the present case under Art. 144 of the Civil Code, then, her claim or demand has been paid, waived abandoned or otherwise extinguished as evidenced by the 'quitclaim' Annex 'A' hereof, the ground cited is another ground for a motion to dismiss (Sec. 1, (b), Rule 16) and hence defendants pray that a preliminary hearing be made in connection therewith pursuant to Section 5 of the aforementioned rule; 3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and were blessed with the following children, to wit: Ching Siong Lim and Ching Hing Lim (twins) born on February 16, 1942 Lim Shing Ping born on March 3, 1949 and Lim Eng Lu born on June 25, 1965 and presently residing in Hongkong; 4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was no longer his common law wife and even though she was not entitled to anything left by Tee Hoon Lim Po Chuan, yet, out of the kindness and generosity on the part of the defendants, particularly Antonio Lim Tanhu, who, was inspiring to be monk and in fact he is now a monk, plaintiff was given a substantial amount evidenced by the 'quitclaim' (Annex 'A'); 5. That the defendants have acquired properties out of their own personal fund and certainly not from the funds belonging to the partnership, just as Tee Hoon Lim Po Chuan had acquired properties out of his personal fund and which are now in the possession of the widow and neither the defendants nor the partnership have anything to do about said properties; 6. That it would have been impossible to buy properties from funds belonging to the partnership without the other Partners knowing about it considering that the amount taken allegedly is quite big and with such big amount withdrawn the partnership would have been insolvent; 7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with children who would have been lawfully entitled to succeed to the properties left by the latter together with the widow and legitimate children; 8. That despite the fact that plaintiff knew that she was no longer entitled to anything of the shares of the late Tee Hoon Lim Po Chuan, yet, this suit was filed against the defendant who have to interpose the following: A. That the defendants hereby reproduced, by way of reference, all the allegations and foregoing averments as part of this counterclaim; B. That plaintiff knew and was aware she was merely the common-law wife of Tee Hoon Lim Po Chuan and that the lawful and legal is still living, together with the legitimate children, and yet she deliberately suppressed this fact, thus showing her bad faith and is therefore liable for exemplary damages in an amount which the Honorable Court may determine in the exercise of its sound judicial discretion. In the event that plaintiff is married to Tee Hoon Lim Po Chuan, then, her marriage is bigamous and should suffer the consequences thereof. "C. That plaintiff was aware and had knowledge about the 'quitclaim', even though she was not entitled to it, and yet she falsely claimed that defendants refused even to see her and for filing this unfounded, baseless, futile and puerile complaint, defendants suffered mental anguish and torture conservatively estimated to be not less than P3,000.00; D. That in order to defend their rights in court, defendants were constrained to engage the services of the undersigned counsel, obligating themselves to pay P500,000.00 as attorney's fees; E. That by way of litigation expenses during the time that this case will be before this Honorable Court and until the same will be finally terminated and adjudicated. defendants will have to spend at least P5,000.00." (Pp. 4447. Record.)

After unsuccessfully trying to show that this counterclaim is merely permissive and should be dismissed for non-payment of the corresponding filing fee, and after being overruled by the court, in due time, plaintiff answered the same, denying its material allegations. On February 3, 1973, however, the date set for the pre-trial, both of the two defendants-spouses, the Lim Tanhus and Ng Suas, did not appear, for which reason, upon motion of plaintiff dated February 16, 1973, in an order of March 12, 1973, they were all "declared in DEFAULT as of February 3, 1913 when they failed to appear at the pre-trial." They sought to have this order lifted thru a motion for reconsideration, but the effort failed when the court denied it. Thereafter, the trial started, but at the stage thereof where the first witness of the plaintiff by the name of Antonio Nunez, who testified that he is her adopted son, was up for re-crossexamination, said plaintiff unexpectedly filed on October 19, 1974 the following simple and unreasoned. "MOTION TO DROP DEFENDANTS LIM TECK CHUAN AND ENG CHONG LEONARDO "COMES now plaintiff, through her undersigned counsel, unto the Honorable Court most respectfully moves to drop from the complaint the defendants Lim Teck Chuan and Eng Chong Leonardo and to consider the case dismissed insofar as said defendants Lim Teck Chuan and Eng Chong Leonardo are concerned. WHEREFORE, it is most respectfully prayed of the Honorable Court to drop from the complaint the defendants Lim Teck Chuan and Eng Chong Leonardo and to dismiss the case against them without pronouncement as to costs." (Page 50, Record.) which she set for hearing on December 21, 1974. According to petitioners, none of the defendants declared in default were notified of said motion, in violation of Section 9 of Rule 13, since they had asked for the lifting of the order of default, albeit unsuccessfully, and as regards the defendants not declared in default, the setting of the hearing of said motion on October 21, 1974 infringed the three-day requirement of Section 4 of Rule 15, inasmuch as Atty. Adelino Sitoy of Lim Teck Chuan was served with a copy of the motion personally only on October 19, 1974, while Atty. Benjamin Alcudia of Eng Chong Leonardo was served by registered mail sent only on the same date. Evidently without even verifying the notices of service, just as simply as plaintiff had couched her motion, and also without any legal grounds stated, respondent court granted the prayer of the above motion thus: ORDER Acting on the motion of the plaintiff praying for the dismissal of the complaint as against defendants Lim Teck Chuan and Eng Chong Leonardo. The same is hereby GRANTED. The complaint as against defendant Lim Teck Chuan and Eng Chong Leonardo is hereby ordered DISMISSED without pronouncement as to costs." Simultaneously, the following order was also issued: "Considering that defendants Antonio Lim Tanhu and his spouse Dy Ochay as well as defendants Alfonso Ng Sua and his spouse Co Oyo have been declared in default for failure to appear during the pre-trial and as to the other defendants the complaint had already been ordered dismissed as against them; Let the hearing of the plaintiff's evidence ex-parte be set on November 20, 1974, at 8:30 A.M. before the Branch Clerk of Court who is deputized for the purpose, to swear in witnesses and to submit her report within ten (10) days thereafter. Notify the plaintiff. SO ORDERED. Cebu City, Philippines, October 21, 1974." (Page 52. Record.) But, in connection with this last order, the scheduled ex-parte reception of evidence did not take place on November 20, 1974, for on October 28, 1974, upon verbal motion of plaintiff, the court issued the following selfexplanatory order: "Acting favorably on the motion of the plaintiff dated October 18, 1974, the Court deputized the Branch Clerk of Court to receive the evidence of the plaintiff ex-parte to be made on November, 20, 1974. However, on October 28, 1974, the plaintiff, together with her witnesses, appeared in court and asked, thru counsel, that she be allowed to present her evidence. Considering the time and expenses incurred by the plaintiff in bringing her witnesses to the court, the Branch Clerk of Court is hereby authorized to receive immediately the evidence of the plaintiff ex-parte. SO ORDERED. Cebu City, Philippines, October 28, 1974." (Page 53. Record.) Upon learning of these orders, on October 28, 1973, the defendant Lim Teck Cheng, thru counsel, Atty. Sitoy, filed a motion for reconsideration thereof, and on November 1, 1974, defendant Eng Chong Leonardo, thru counsel Atty. Alcudia, filed also his own motion for reconsideration and clarification of the same orders. These motions were denied in an order dated December 6, 1974 but received by the movants only on December 23, 1974. Meanwhile, respondent court rendered the impugned decision on December 20, 1974. It does not appear when the parties were served copies of this decision. Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a motion to quash the order of October 28, 1974. Without waiting however for the resolution thereof, on January 13, 1974, Lim Teck Chuan and Eng Chong Leonardo went to the Court of Appeals with a petition for certiorari seeking the annulment of the above-mentioned orders of October 21, 1974 and October 28, 1974 and decision of December 20, 1974. By resolution of January 24, 1975, the Court of Appeals dismissed said petition, holding that its filing was premature, considering that the motion to quash the order of October 28, 1974 was still unresolved by the trial court. This holding was reiterated in the subsequent resolution of February 5, 1975 denying the motion for reconsideration of the previous dismissal. On the other hand, on January 20, 1975, the other defendants, petitioners herein, filed their notice of appeal, appeal bond and motion for extension to file their record on appeal which was granted, the extension to expire after fifteen (15) days from January 26 and 27, 1975, for defendants Lim Tanhu and Ng Suas, respectively. But on February 7, 1975, before the perfection of their appeal, petitioners riled the present petition with this Court. And with the evident intent to make their procedural position clear, counsel for defendants, Atty. Manuel Zosa, filed with respondent court a manifestation dated February 14, 1975 stating that "when the nondefaulted defendants Eng Chong Leonardo and Lim Teck Chuan filed their petition in the Court of Appeals, they in effect abandoned their motion to quash the order of October 28, 1974," and that: similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo, filed their petition for certiorari and prohibition . . . in the Supreme Court, they likewise abandoned their motion to quash." This manifestation was acted upon by respondent court together with plaintiff's motion for execution pending appeal in its order of the same date February 14, 1975 thiswise: "ORDER When these incidents, the motion to quash the order of October 28, 1974 and the motion for execution pending appeal were called for hearing today, counsel for the defendants-movants submitted their manifestation inviting the attention of this Court that by their

filing for certiorari and prohibition with preliminary injunction in the Court of Appeals which was dismissed and later the defaulted defendants filed with the Supreme Court certiorari with prohibition they in effect abandoned their motion to quash. IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The resolution of the motion for execution pending appeal shall be resolved after the petition for certiorari and prohibition shall have been resolved by the Supreme Court. SO ORDERED. Cebu City, Philippines, February 14, 1975." (Page 216, Record.) Upon these premises, it is the position of petitioners that respondent court acted illegally, in violation of the rules or with grave abuse of discretion in acting on respondent's motion to dismiss of October 18, 1974 without previously ascertaining whether or not due notice thereof had been served on the adverse parties, as, in fact, no such notice was timely served on the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo and no notice at all was ever sent to the other defendants, herein petitioners, and more so, in actually ordering the dismissal of the case by its order of October 21, 1974 and at the same time setting the case for further hearing as against the defaulted defendants, herein petitioners, actually hearing the same ex-parte and thereafter rendering the decision of December 20, 1974 granting respondent Tan even reliefs not prayed for in the complaint. According to the petitioners, to begin with, there was compulsory counterclaim in the common answer of the defendants the nature of which is such that it cannot be decided in an independent action and as to which the attention of respondent court was duly called in the motions for reconsideration. Besides, and more importantly, under Section 4 of Rule 18, respondent court had no authority to divide the case before it by dismissing the same as against the non-defaulted defendants and thereafter proceeding to hear it exparte and subsequently rendering judgment against the defaulted defendants, considering that in their view, under the said provision of the rules, when a common cause of action is alleged against several defendants, the default of any of them is a mere formality by which those defaulted are not allowed to take part in the proceedings, but otherwise, all the defendants, defaulted and not defaulted, are supposed to have but a common fate, win or lose. In other words, petitioners posit that in such a situation, there can only be one common judgment for or against all the defendants, the non-defaulted and the defaulted. Thus, petitioners contend that the order of dismissal of October 21, 1974 should be considered also as the final judgment insofar as they are concerned, or, in the alternative, it should be set aside together with all the proceedings and decision held and rendered subsequent thereto, and that the trial be resumed as of said date, with the defendants Lim Teck Chuan and Eng Chong Leonardo being allowed to defend the case for all the defendants. On the other hand, private respondent maintains the contrary view that inasmuch as petitioners had been properly declared in default, they have no personality nor interest to question the dismissal of the ease as against their non-defaulted codefendants and should suffer the consequences of their own default. Respondent further contends, and this is the only position discussed in the memorandum submitted by her counsel, that since petitioners have already made or at least started to make their appeal, as they are in fact entitled to appeal, this special civil action has no reason for being. Additionally, she invokes the point of prematurity upheld by the Court of Appeals in regard to the abovementioned petition therein of the non-defaulted defendants Lim Tack Chuan and Eng Chong Leonardo. Finally, she argues that in any event, the errors attributed to respondent court are errors of judgment and may be reviewed only in an appeal. 8888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 888888888888888888888888888888888888888888 After careful scrutiny of all the above-related proceedings in the court below and mature deliberation, the Court has arrived at the conclusion that petitioners should be granted relief, if only to stress emphatically once more that the rules of procedure may not be misused and abused as instruments for the denial of substantial justice. A review of the record of this case immediately discloses that here is another demonstrative instance of how some members of the bar, availing of their proficiency in invoking the letter of the rules without regard to their real spirit and intent, succeed in inducing courts to act contrary to the dictates of justice and equity, and, in some instances, to wittingly or unwittingly abet unfair advantage by ironically camouflaging their actuations as earnest efforts to satisfy the public clamor for speedy disposition of litigations, forgetting all the while that the plain injunction of Section 2 of Rule 1 is that the "rules shall be liberally construed in order to promote their object and to assist the parties in obtaining" not only 'speedy' but more imperatively, "just ... and inexpensive determination of every action and proceeding." We cannot simply pass over the impression that the procedural maneuvers and tactics revealed in the records of the case at bar were deliberately planned with the calculated end in view of depriving petitioners and their co-defendants below of every opportunity to properly defend themselves against a claim of more than substantial character, considering the millions of pesos worth of properties involved as found by respondent judge himself in the impugned decision, a claim that appears, in the light of the allegations of the answer and the documents already brought to the attention of the court at the pre-trial, to be rather dubious. What is most regrettable is that apparently, all of these alarming circumstances have escaped respondent judge who did not seem to have hesitated in acting favorably on the motions of the plaintiff conducive to the deplorable objective just mentioned, and which motions, at the very least, appeared to be of highly controversial merit, considering that their obvious tendency and immediate result would be to convert the proceedings into a onesided affair, a situation that should be readily condemnable and intolerable to any court of justice. Indeed, a seeming disposition on the part of respondent court to lean more on the contentions of private respondent may be discerned from the manner it resolved the attempts of defendants Dy Ochay and Antonio Lim Tanhu to have the earlier order of default against them lifted. Notwithstanding that Dy Ochay's motion of October 8, 1971, co-signed by her with their counsel, Atty. Jovencio Enjambre, (Annex 2 of respondent answer herein) was over the jurat of the notary public before whom she took her oath, in the order of November 2, 1971, (Annex 3 id.) it was held that "the oath appearing at the bottom of the motion is not the one contemplated by the above- quoted pertinent provision (Sec. 3, Rule 18) of the rules. It is not even a verification. (Sec. 6, Rule 7.) What the rule requires as interpreted by the Supreme Court is that the motion must have to be accompanied by an affidavit of merits that the defendant A has a meritorious defense, thereby ignoring the very simple legal point that the ruling of the Supreme Court in Ong Peng vs. Custodio, 1 SCRA 781, relied upon by His Honor, under which a separate affidavit of merit is required refers obviously to instances where the motion is not over oath of the party concerned, considering that what the cited provision literally requires is no more than a 'motion under oath." Stated otherwise, when a motion to lift an order of default contains the reasons for the failure to answer as well as the facts constituting the prospective defense of the defendant and it is sworn to by said defendant, neither a formal verification nor a separate affidavit of merit is necessary. What is worse, the same order further held that the motion to lift the order of default "is an admission that there was a valid service of summons" and that said motion could not amount to a challenge against the jurisdiction of the court over the person of the defendant. Such a rationalization is patently specious and reveals an evident failure to grasp the import of the legal concepts involved. A motion to lift an order of default on the ground that service of summons has not been made in accordance with the

rules is in order and is in essence verily an attack against the jurisdiction of the court over the person of the defendant, no less than if it were worded in a manner specifically embodying such a direct challenge. And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the order of default as against defendant Lim Tanhu, His Honor posited that said defendant "has a defense (quitclaim) which renders the claim of the plaintiff contentious." We have read defendants' motion for reconsideration of November 25, 1971 (Annex 5, id.), but We cannot find in it any reference to a "quitclaim". Rather, the allegation of a quitclaim is in the amended complaint (Pars. 15-16, Annex B of the petition herein) in which plaintiff maintains that her signature thereto was secured through fraud and deceit. In truth, the motion for reconsideration just mentioned, Annex 5, merely reiterated the allegation in Dy Ochay's earlier motion of October 8, 1971, Annex 2, to set aside the order of default, that plaintiff Tan could be but the common law wife only of Tee Hoon, since his legitimate wife was still alive, which allegation, His Honor held in the order of November 2, 1971, Annex 3, to be "not good and meritorious defense". To top it all, whereas, as already stated, the order of February 19, 1972, Annex 6, lifted the default against Lim Tanhu because of the additional consideration that "he has a defense (quitclaim) which renders the claim of the plaintiff contentious", the default of Dy Ochay was maintained notwithstanding that exactly the same "contentious" defense as that of her husband was invoked by her. Such tenuous, if not altogether erroneous reasonings and manifest inconsistency in the legal postures in the orders in question can hardly convince Us that the matters here in issue were accorded due and proper consideration by respondent court. In fact, under the circumstances herein obtaining, it seems appropriate to stress that, having in view the rather substantial value of the subject matter involved together with the obviously contentious character of plaintiffs claim, which is discernible even on the face of the complaint itself, utmost care should have been taken to avoid the slightest suspicion of improper motivations on the part of anyone concerned. Upon the considerations hereunder to follow, the Court expresses its grave concern that much has to be done to dispel the impression that herein petitioners and their co-defendants are being railroaded out of their rights and properties without due process of law, on the strength of procedural technicalities adroitly planned by counsel and seemingly unnoticed and undetected by respondent court, whose orders, gauged by their tenor and the citations of supposedly pertinent provisions and jurisprudence made therein, cannot be said to have proceeded from utter lack of juridical knowledgeability and competence. The first thing that has struck the Court upon reviewing the record is the seeming alacrity with which the motion to dismiss the case against non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo was disposed of, which definitely ought not to have been the case. The trial was proceeding with the testimony of the first witness of plaintiff and he was still under re-cross-examination. Undoubtedly, the motion to dismiss at that stage and in the light of the declaration of default against the rest of the defendants was a well calculated surprise move, obviously designed to secure utmost advantage of the situation, regardless of its apparent unfairness. To say that it must have been entirely unexpected by all the defendants, defaulted and non-defaulted, is merely to rightly assume that the parties in a judicial proceeding can never be the victims of any procedural waylaying, as long as lawyers and judges are imbued with the requisite sense of equity and justice. But the situation here was aggravated by the indisputable fact that the adverse parties who were entitled to be notified of such unanticipated dismissal motion did not get due notice thereof. Certainly, the nondefaulted defendants had the right to the three-day prior notice required by Section 4 of Rule 15. How could they have had such indispensable notice when the motion was set for hearing on Monday, October 21, 1974, whereas the counsel for Lim Teck Chuan, Atty. Sitoy.. was personally served with the notice only on Saturday, October 19, 1974 and the counsel for Eng Chong Leonardo, Atty. Alcudia, was notified by registered mail which was posted only that same Saturday, October 19, 1974? According to Chief Justice Moran, "three days at least must intervene between the date of service of notice and the date set for the hearing, otherwise the court may not validly act on the motion." (Comments on the Rules of Court by Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct construction of Section 4 of Rule 15. And in the instant case, there can be no question that the notices to the nondefaulted defendants were short of the requirement of said provision. We can understand the over-anxiety of counsel for plaintiff, but what is incomprehensible is the seeming inattention of respondent judge to the explicit mandate of the pertinent rule, not to speak of the imperatives of fairness, considering he should have realized the farreaching implications, specially from the point of view he subsequently adopted, albeit erroneously, of his favorably acting on it. Actually, he was aware of said consequences, for simultaneously with his order of dismissal, he immediately set the case for the ex-parte hearing of the evidence against the defaulted defendants, which, incidentally, from the tenor of his order which We have quoted above, appears to have been done by him motu propio. As a matter of fact, plaintiff's motion also quoted above did not pray for it. Withal, respondent court's twin actions of October 21, 1974 further ignores or is inconsistent with a number of known juridical principles concerning defaults, which We will here take occasion to reiterate and further elucidate on, if only to avoid a repetition of the unfortunate errors committed in this case. Perhaps some of these principles have not been amply projected and elaborated before, and such paucity of elucidation could be the reason why respondent judge must have acted as he did. Still, the Court cannot but express its vehement condemnation of any judicial actuation that unduly deprives any party of the right to be heard without clear and specific warrant under the terms of existing rules or binding jurisprudence. Extreme care must be the instant reaction of every judge when confronted with a situation involving risks that the proceedings may not be fair and square to all the parties concerned. Indeed, a keen sense of fairness, equity and justice that constantly looks for consistency between the letter of the adjective rules and these basic principles must be possessed by every judge, If substance is to prevail, as it must, over form in our courts. Literal observance of the rules, when it is conducive to unfair and undue advantage on the part of any litigant before it, is unworthy of any court of justice and equity. Withal, only those rules and procedure informed with and founded on public policy deserve obedience in accord with their unequivocal language or words. Before proceeding to the discussion of the default aspects of this case, however, it should not be amiss to advert first to the patent incorrectness, apparent on the face of the record, of the aforementioned order of dismissal of October 21, 1974 of the case below as regards non-defaulted defendants Lim and Leonardo. While it is true that said defendants are not petitioners herein, the Court deems it necessary for a full view of the outrageous procedural strategy conceived by respondent's counsel and sanctioned by respondent court to also make reference to the very evident fact that in ordering said dismissal respondent court

disregarded completely the existence of defendant's counterclaim which it had itself earlier held, if indirectly, to be compulsory in nature when it refused to dismiss the

same on the ground alleged by respondent Tan that the docketing fees for the filing thereof had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no extended elaboration. As may he noted in the allegations thereof aforequoted, it arose out of or is necessarily connected with the occurrence that is the subject matter of the plaintiff's claim, (Section 4, Rule 9) namely, plaintiffs allegedly being the widow of the deceased Tee Hoon entitled, as such, to demand accounting of and to receive the share of her alleged late husband as partner of defendants Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in Glory Commercial Company, the truth of which allegations all the defendants have denied. Defendants maintain in their counterclaim that plaintiff knew of the falsity of said allegations even before she filed her complaint, for she had in fact admitted her common-law relationship with said deceased in a document she had jointly executed with him by way of agreement to terminate their illegitimate relationship, for which she received P40,000 from the deceased, and with respect to her pretended share in the capital and profits in the partnership, it is also defendants' posture that she had already quitclaimed, with the assistance of able counsel, whatever rights if any she had thereto in November 1967, for the sum of P25,000 duly receipted by her, which quitclaim was, however, executed, according to respondent herself in her amended complaint, through fraud. And having filed her complaint knowing, according to defendants, as she ought to have known, that the material allegations thereof are false and baseless, she has caused them to suffer damages. Undoubtedly, with such allegations, defendants' counterclaim is compulsory, not only because the same evidence to sustain it will also refute the cause or causes of action alleged in plaintiffs complaint, (Moran, supra p. 352) but also because from its very nature, it is obvious that the same cannot "remain pending for independent adjudication by the court." (Section 2, Rule 17.)

"(i)f a counterclaim has been pleaded by a defendant prior to the service upon him of the plaintiff's motion to dismiss, the action shall not be dismissed against the defendant's objection unless the counterclaim can remain pending for independent adjudication by the court." Defendants Lim and Leonardo had no opportunity to object
The provision of the rules just cited specifically enjoins that to the motion to dismiss before the order granting the same was issued, for the simple reason that they were not opportunely notified of the motion therefor, but the record shows clearly that at least defendant Lim immediately brought the matter of their compulsory counterclaim to the attention of the trial court in his motion for reconsideration of October 23, 1974, even as the counsel for the other defendant, Leonardo, predicated his motion on other grounds. In its order of December 6, 1974, however, respondent court not only upheld the plaintiff's supposed absolute right to choose her adversaries but also held that the counterclaim is not compulsory, thereby virtually making unexplained and inexplicable 180-degree turnabout in that respect. There is another equally fundamental consideration why the motion to dismiss should not have been granted. As the plaintiff's complaint has been framed, all the six defendants are charged with having actually taken part in a conspiracy to misappropriate, conceal and convert to their own benefit the profits, properties and all other assets of the partnership Glory Commercial Company, to the extent that they have allegedly organized a corporation, Glory Commercial Company, Inc. with what they had illegally gotten

no judgment finding the existence of the alleged conspiracy or holding the capital of the corporation to be the money of the partnership is legally possible without the presence of all the defendants. The non-defaulted defendants are alleged to be stockholders of the corporation and any decision depriving the same of all its assets cannot but prejudice the interests of said defendants. Accordingly, upon these premises, and even prescinding from the other reasons to be discussed anon. it is clear that all the six defendants below, defaulted and non-defaulted, are indispensable parties. Respondents could do no less than grant that they are so on page 23 of their answer. Such
from the partnership. Upon such allegations,

being the case, the questioned. order of dismissal is exactly the opposite of what ought to have been done. Whenever it appears to the court in the course of a proceeding that an indispensable party has not been joined, it is the duty of the court to stop the trial and to order the inclusion of such party. (The Revised Rules of Court, Annotated & Commented by Senator Vicente J. Francisco, Vol. I, p. 271, 1973 ed.; See also Cortez vs. Avila, 101 Phil. 705.) Such an order is unavoidable, for the "general rule with reference to the making of parties in a civil action requires the joinder of all necessary parties wherever possible, and the joinder of all indispensable parties under any and all conditions, the presence of those latter being a sine qua non of the exercise of judicial power." (Borlasa vs. Polistico, 47 Phil. .345, at p. 347.) It is precisely "when an indispensable party is not before the court (that) the action should be dismissed." (People v. Rodriguez, 106 Phil. 325, at p. 327.) The absence of an indispensable party renders all subsequent actuations of the court null and void, for want of authority to act, not, only as to the absent parties but even as to those present. In short, what respondent court did here was exactly the reverse of what the law ordains - it eliminated those who by law should precisely be joined. As may be noted from the order of respondent court quoted earlier, which resolved the motions for reconsideration of the dismissal order filed by the non-defaulted defendants, His Honor rationalized his position thus: "It is the rule that it is the absolute prerogative of the plaintiff to choose, the theory upon which he predicates his right of action, or the parties he desires to sue, without dictation or imposition by the court or the adverse party. If he makes a mistake in the choice of his right of action, or in that of the parties against whom he seeks to enforce it, that is his own concern as he alone suffers therefrom. The plaintiff cannot be compelled to choose his defendants. He may not, at his own expense, be forced to implead anyone who, under the adverse party's theory, is to answer for defendant's liability. Neither may the Court compel him to furnish the means by which defendant may avoid or mitigate their liability. (Vano vs. Alo, 95 Phil. 495-496.) This being the rule this court cannot compel the plaintiff to continue prosecuting her cause of action against the defendants-movants if in the course of the trial she believes she can enforce it against the remaining defendants subject only to the limitation provided in Section 2, Rule 17 of the Rules of Court. x x x" (Pages 62-63. Record.) Noticeably, His Honor has employed the same equivocal terminology as in plaintiff's motion of October 18, 1974 by referring to the action he had taken as being "dismissal of the complaint against them or their being dropped therefrom", without perceiving that the reason for the evidently intentional ambiguity is transparent. The apparent idea is to rely on the theory that under Section 11 of Rule 3, parties may be dropped by the court upon motion of any party at any stage of the action, hence "it is the absolute right prerogative of the plaintiff to choose-the parties he desires to sue, without dictation or imposition by the court or the adverse party." In other words, the ambivalent pose is suggested that plaintiff's motion of October 18, 1974 was not predicated on Section 2 of

Rule 17 but more on Section 11 of Rule 3. But the truth is that nothing can be more incorrect. To start with, the latter rule does not comprehend whimsical and irrational dropping or adding of parties in a complaint. What it really contemplates is erroneous or mistaken non-joinder and misjoinder of parties. No one is free to join anybody in a complaint in court only to drop him unceremoniously later at the pleasure of the plaintiff. The rule presupposes that the original inclusion had been made in the honest conviction that it was proper and the subsequent dropping is requested because it has turned out that such inclusion was a mistake. And this is the reason why the rule ordains that the dropping be "on such terms as are just" - just to all the other parties. In the case at bar, there is nothing in the record to legally justify the dropping of the non-defaulted defendants, Lim and Leonardo. The motion of October 18, 1974 cites none. From all appearances, plaintiff just decided to ask for it, without any relevant explanation at all. Usually, the court in granting such a motion inquires for the reasons and in the appropriate instances directs the granting of some form of compensation for the trouble undergone by the defendant in answering the complaint, preparing for or proceeding partially to trial, hiring counsel and making corresponding expenses in the premises. Nothing of these, appears in the order in question. Most importantly, His Honor ought to have considered that the outright dropping of the non-defaulted defendants Lim and Leonardo, over their objection at that, would certainly be unjust not only to the petitioners, their own parents, who would in consequence be entirely defenseless, but also to Lim and Leonardo themselves who would naturally correspondingly suffer from the eventual judgment against their parents. Respondent court paid no heed at all to the mandate that such dropping must be "on such terms as are just" - meaning to all concerned with its legal and factual effects. Thus, it is quite plain that respondent court erred in issuing its order of dismissal of October 21, 1974 as well as its order of December 6, 1974 denying reconsideration of such dismissal. As We make this ruling, We are not oblivious of the circumstance that defendants Lim and Leonardo are not parties herein. But such consideration is inconsequential. The fate of the case of petitioners is inseparably tied up with said order of dismissal, if only because the order of ex-parte hearing of October 21, 1974 which directly affects and prejudices said petitioners is predicated thereon. Necessarily, therefore, We have to pass on the legality of said order, if We are to decide the case of herein petitioners properly and fairly. The attitude of the non-defaulted defendants of no longer pursuing further their questioning of the dismissal is from another point of view understandable. On the one hand, why should they insist on being defendants when plaintiff herself has already release from her claims? On the other hand, as far as their respective parents-co-defendants are concerned, they must have realized that they (their parents) could even be benefited by such dismissal because they could question whether or not plaintiff can still prosecute her case against them after she had secured the order of dismissal in question. And it is in connection with this last point that the true and correct concept of default becomes relevant. At this juncture, it may also be stated that the decision of the Court of Appeals of January 24, 1975 in G. R. No. SP-03066 dismissing the petition for certiorari of non-defaulted defendants Lim and Leonardo impugning the order of dismissal of October 21, 1974, has no bearing at all in this case, not only because that dismissal was premised by the appellate court on its holding that the said petition was premature inasmuch as the trial court had not yet resolved the motion of the defendants of October 28, 1974 praying that said disputed order be quashed, but principally because herein petitioners were not parties in that proceeding and cannot, therefore, be bound by its result. In particular, We deem it warranted to draw the attention of private respondent's counsel to his allegations in paragraphs XI to XIV of his answer, which relate to said decision of the Court of Appeals and which have the clear tendency to make it appear to the Court that the appeals court had upheld the legality and validity of the actuations of the trial court being questioned, when as a matter of indisputable fact, the dismissal of the petition was based solely and exclusively on its being premature without in any manner delving into its merits. The Court must and does admonish counsel that such manner of pleading, being deceptive and lacking in candor, has no place in any court, much less in the Supreme Court, and if We are adopting a passive attitude in the premises, it is due only to the fact that this is counsel's first offense. But similar conduct on his part in the future will definitely be dealt with more severely. Parties and counsel would be well advised to avoid such attempts to befuddle the issues as invariably they will be exposed for what they are, certainly unethical and degrading to the dignity of the law profession. Moreover, almost always they only betray the inherent weakness of the cause of the party resorting to them. Coming now to the matter itself of default, it is quite apparent that the impugned orders must have proceeded from inadequate apprehension of the fundamental precepts governing such procedure under the Rules of Court. It is time indeed that the concept of this procedural device were fully understood by the bench and bar, instead of being merely taken for granted as being that of a simple expedient of not allowing the offending party to take part in the proceedings, so that after his adversary shall have presented his evidence, judgment may be rendered in favor of such opponent, with hardly any chance of said judgment being reversed or modified. The Rules of Court contain a separate rule on the subject of default, Rule 18. But said rule is concerned solely with default resulting from failure of the defendant or defendants to answer within the reglementary period. Referring to the simplest form of default, that is, where there is only one defendant in the action and he fails to answer on time, Section 1 of the rule provides that upon "proof of such failure, (the court shall) declare the defendant in default. Thereupon the court shall proceed to receive the plaintiffs evidence and render judgment granting him such relief as the complaint and the facts proven may warrant." This last clause is clarified by Section 5 which says that "a judgment entered against a party in default shall not exceed the amount or be different in kind from that prayed for." Unequivocal, in the literal sense, as these provisions are, they do not readily convey the full import of what they contemplate, To begin with, contrary to the immediate notion that can be drawn from their language, these provisions are not to be understood as meaning that default or the failure of the defendant to answer should be "interpreted as an admission by the said defendant that the plaintiff's cause of action find support in the law or that plaintiff is entitled to the relief prayed for." (Moran, supra, p. 535 citing Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v. McFadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 III. 328; Ken v. Leopold, 21 III. A. 163; Chicago, etc. Electric R. Co. v. Krempel, 116 III. A. 253.) Being declared in default does not constitute a waiver of rights except that of being heard and of presenting evidence in the trial court. According to Section 2, "except as provided in Section 9 of Rule 13, a party declared in default shall not be entitled to notice of subsequent proceedings, nor to take part in the trial." That provision referred to reads: "No service of papers other than substantially amended pleadings and final orders or judgments shall be necessary on a party in default unless he files a motion to set aside the order of default, in which event he shall be entitled to notice of all further proceedings regardless of whether the order of default is set aside or not." And pursuant to Section 2 of Rule 41, "a party who has been declared in default may likewise

appeal from the judgment rendered against him as contrary to the evidence or to the law, even if no petition for relief to set aside the order of default has been presented by him in accordance with Rule 38." In other words, a defaulted defendant is not actually thrown out of court. While in a sense it may be said that by defaulting he leaves himself at the mercy of the court, the rules see to it that any judgment against him must be in accordance with law, The evidence to support the plaintiff's cause is, of course, presented in his absence, but the court is not supposed to admit that which is basically incompetent. Although the defendant would not be in a position to object, elementary justice requires that only legal evidence should be considered against him. If the evidence presented should not be sufficient to justify a judgment for the plaintiff, the complaint must be dismissed. And if an unfavorable judgment should be justifiable, it cannot exceed in amount or be different in kind from what is prayed for in the complaint. Incidentally, these considerations argue against the present widespread practice of trial judges, as was done by His Honor in this case, of delegating to their clerks of court the reception of the plaintiff's evidence when the defendant is in default. Such a practice is wrong in principle and orientation. It has no basis in any rule. When a defendant allows himself to be declared in default, he relies on the faith that the court would take care that his rights are not unduly prejudiced. He has a right to presume that the law and the rules will still be observed. The proceedings are held in his forced absence, and it is but fair that the plaintiff should not be allowed to take advantage of the situation to win by foul or illegal means or with inherently incompetent evidence. Thus, in such instances, there is need for more attention from the court, which only the judge himself can provide. The clerk of court. would not be in a position much less have the authority to act in the premises in the manner demanded by the rules of fair play and as contemplated in the law, considering his comparably limited area of discretion and his presumably inferior preparation for the functions of a judge. Besides, the default of the defendant is no excuse for the court to renounce the opportunity to closely observe the demeanor and conduct of the witnesses of the plaintiff, the better to appreciate their truthfulness and credibility. We therefore declare as a matter of judicial policy that there being no imperative reason for judges to do otherwise, the practice should be discontinued. Another matter of practice worthy of mention at this point is that it is preferable to leave enough opportunity open for possible lifting of the order of default before proceeding with the reception of the plaintiff's evidence and the rendition of the decision. "A judgment by default may amount to a positive and considerable injustice to the defendant; and the possibility of such serious consequences necessitates a careful and liberal examination of the grounds upon which the defendant may seek to set it aside." (Moran, supra p. 534, citing Coombs vs. Santos, 24 Phil. 446; 449-450.) The expression, therefore, in Section 1 of Rule 18 aforequoted which says that "thereupon the court shall proceed to receive the plaintiff's evidence etc." is not to be taken literally. The gain in time and dispatch should the court immediately try the case on the very day of or shortly after the declaration of default is far outweighed by the inconvenience and complications involved in having to undo everything already done in the event the defendant should justify his omission to answer on time. The foregoing observations, as may be noted, refer to instances where the only defendant or all the defendants, there being several, are declared in default. There are additonal rules embodying more considerations of justice and equity in cases where there are several defendants against whom a common cause of action is averred and not all of them answer opportunely or are in default, particularly in reference to the power of the court to render judgment in such situations. Thus, in addition to the limitation of Section 5 that the judgment by default should not be more in amount nor different in kind from the reliefs specifically sought by plaintiff in his complaint, Section 4 restricts the authority of the court in rendering judgment in the situations just mentioned as follows:
"Sec. 4. Judgement when some defendants answer, and others make default.-When a complaint states a common cause of action against several defindants, some of whom answer, and the others fail to do so, the court shall try the case against all upon the answers thusfiled and render judgment upon the evidence presented. The same procedure, applies when a common cause of action is pleaded in a counterclaim, cross-claim and third-party claim."

Very aptly does Chief Justice Moran elucidate on this provision and the controlling jurisprudence explanatory thereof this wise: "Where a complaint states a common cause of action against several defendants and some appear to defend the case on the merits while others make default, the defense interposed by those who appear to litigate the case inures to the benefit of those who fall to appear, and if the court finds that a good defense has been made, all of the defendants must be absolved. In other words, the answer filed by one or some of the defendants inures to the benefit of all the others, even those who have not seasonably filed their answer. (Bueno v. Ortiz, L-22978, June 27, 1968, 23 SCRA 1151.) The proper mode of proceeding where a complaint states a common cause of action against several defendants, and one of them makes default, is simply to enter a formal default order against him, and proceed with the cause upon the answers of the others. The defaulting defendant merely loses his standing in court, he not being entitled to the service of notice in the cause, nor to appear in the suit in any way. He cannot adduce evidence; nor can he be heard at the final hearing, (Lim Toco v. Go Fay, 80 Phil. 166.) although he may appeal the judgment rendered against him on the merits. (Rule 41, see. 2.) If the case is finally decided in the plaintiff's favor, a final decree is then entered against all the defendants; but if the suit should he decided against the plaintiff, the action will be dismissed as to all the defendants alike. (Velez v. Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15 Wal. 552, 21 L. Ed. 60.) In other words the judgment will affect the defaulting defendants either favorably or adversely. (Castro v. Pena, 80 Phil. 488.) Defaulting defendant may ask execution if judgment is in his favor. (Castro v. Pena, supra.)" (Moran, Rules of Court, Vol. 1, pp. 538539.) In Castro vs. Pena, 80 Phil. 488, one of the numerous cases cited by Moran. this Court elaborated on the construction of the same rule when it sanctioned the execution, upon motion and for the benefit of the defendant in default, of a judgment which was adverse to the plaintiff. The Court held: "As above stated, Emilia Matanguihan, by her counsel, also was a movant in the petition for execution Annex 1. Did she have a right to he such, having been declared in default? In Frow vs. De la Vega, supra. cited as authority in Velez vs. Ramas, supra, the Supreme Court of the United States adopted as ground for its own decision the following ruling of the New York Court of Errors in Clasen vs. Morris, 10 Jons., 524: 'It would be unreasonable to hold that because one defendant had made default, the plaintiff should have a decree even against him, where the court is satisfied from the proofs offered by the other, that in fact the plaintiff is not entitled to a decree.' (21 Law, ed., 61.) The reason is simple: justice has to be consistent. The complaint stating a common cause of action against several defendants, the complainant's rights - or lack of them - in the controversy have to be the same, and not different, as against all the defendant's

although one or some make default and the other or others appear, join issue, and enter into trial. For instance, in the cam of Clason vs. Morris above cited. the New York Court of Errors in effect held that in such a case if the plaintiff is not entitled to a decree, he will not be entitled to it. not only as against the defendant appearing and resisting his action but also as against the one who made default. In the case at bar, the cause of action in the plaintiff's complaint was common against the Mayor of Manila, Emilia Matanguihan, and the other defendants in Civil Case No. 1318 of the lower court. The Court of First Instance in its judgment found and held upon the evidence adduced by the plaintiff and the defendant mayor that as between said plaintiff and defendant Matanguihan the latter was the one legally entitled to occupy the stalls; and it decreed, among other things, that said plaintiff immediately vacate them. Paraphrasing the New York Court of Errors. it would be unreasonable to hold now that because Matanguihan had made default the said plaintiff should be declared, as against her, legally entitled to the occupancy of the stalls, or to remain therein. although the Court of First Instance was so firmly satisfied, from the proofs offered by the other defendant, that the same plaintiff was not entitled to such occupancy that it peremptorily ordered her to vacate the stalls. If in the cases of Clason vs. Morris, supra, Frow, vs. De la Vega, supra, and Velez vs. Ramas, supra, the decrees entered inured to the benefit of the defaulting defendants, there is no reason why that entered in said cam No. 1318 should not be held also to have inured to the benefit of the defaulting defendant Matanguihan. Indeed, the doctrine in said three cases plainly implies that there is nothing in the law governing default which would prohibit the court from rendering judgment favorable to the defaulting defendant in such cases. If it inured to her benefit it stands to reason that she had a right to claim that benefit, for it would not be a benefit if the supposed beneficiary were barred from claiming it; and if the benefit necessitated the execution of the decree, she must be possessed of the right to ask for the execution thereof as she did when she, by counsel, participated in the petition for execution Annex 1. Section 7 of Rule 35 would seem to afford a solid support to the above considerations. It provides that when a complaint states a common cause of action against several defendants, some of whom answer, and the others make default, 'the court shall try the case against all upon the answer thus filed and render judgment upon the evidence presented by the parties in court'. It is obvious that under this provision the ease is tried jointly not only against the defendants answering but also against those defaulting, and the trial is held upon the answer filed by the former; and the judgment, if adverse, will prejudice the defaulting defendants no less than those who answer. In other words, the defaulting defendants are held bound by the answer filed by their codefendants and by the judgment which the court may render against all of them. By the same token, and by all rules of equity and fair play, if the judgment should happen to be favorable, totally or partially, to the answering defendants, it must correspondingly benefit the defaulting ones, for it would not be just to let the judgment produce effects as to the defaulting defendants only when adverse to them and not when favorable." In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under discussion in the following words: "In answer to the charge that respondent Judge had committed a grave abuse of discretion in rendering a default judgment against the PC, respondents allege that, not having filed its answer within the reglementary period, the PC was in default, so that it was proper for Patanao, to forthwith present his evidence and for respondent Judge to Tender said judgment. It should be noted, however, that in entering the area in question and seeking to prevent Patanao from continuing his logging operations therein, the PC was merely executing an order of the Director of Forestry and acting as his agent. Patanao's cause of action against the other respondents in Case No. 190, namely, the Director of Forestry, the District Forester of Agusan, the Forest Officer of Bayugan, Agusan, and the Secretary of Agriculture and Natural Resources. Pursuant to Rule 18, Section 4, of the Rules of Court, 'when a complaint states a common cause of action against several defendants some of whom answer and the others fail to do so, the court shall try the case against all upon the answer thus filed (by some) and render judgment upon the evidence presented.' In other words, the answer filed by one or some of the defendants inures to the benefit of all the others, even those who have not seasonably filed their answer. "Indeed, since the petition in Case No. 190 sets forth a common cause of action against all of the respondents therein, a decision in favor of one of them would necessarily favor the others. In fact, the main issue, in said case, is whether Patanao has a timber license to undertake logging operations in the disputed area. It is not possible to decide such issue in the negative, insofar as the Director of Forestry, and to settle it otherwise, as regards the PC, which is merely acting as agent of the Director of Forestry, and is, therefore, his alter ego, with respect to the disputed forest area." Stated differently, in all instances where a common cause of action is alleged against several defendants, some of whom answer and the others do not, the latter or those in default acquire a vested right not only to own the defense interposed in the answer of their co-defendant or co-defendants not in default but also to expect a result of the litigation totally common with them in kind and in amount whether favorable or unfavorable. The substantive unity of the plaintiffs cause against all the defendants is carried through to its adjective phase as ineluctably demanded by the homogeneity and indivisibility of justice itself. Indeed, since the singleness of the cause of action also inevitably implies that all the defendants are indispensable parties, the court's power to act is integral and cannot be split such that it cannot relieve any of them and at the same time render judgment against the rest. Considering the tenor of the section in question, it is to be assumed that when any defendant allows himself to be declared in default knowing that his codefendant has already answered, he does so trusting in the assurance implicit in the rule that his default is in essence a mere formality that deprives him of no more than the right to take part in the trial and that the court would deem anything done by or for the answering defendant as done by or for him. The presumption is that otherwise he would not have seen to it that he would not be in default. Of course, he has to suffer the consequences of whatever the answering defendant may do or fail to do, regardless of possible adverse consequences, but if the complaint has to be dismissed in so far as the answering defendant is concerned, it becomes his inalienable right that the same be dismissed also as to him. It does not matter that the dismissal is upon the evidence presented by the plaintiff or upon the latter's mere desistance, for in both contingencies, the lack of sufficient legal basis must be the cause. The integrity of the common cause of action against all the defendants and the indispensability of all of them in the proceedings do not permit any possibility of waiver of the plaintiff's right only as to one or some of them, without including all of them, and so, as a rule, withdrawal must be deemed to be a confession of weakness as to all. This is not only elementary justice; it also precludes the concomitant hazard that plaintiff might resort to the kind of procedural strategem practiced by private respondent herein that resulted in totally depriving petitioners of every opportunity to defend themselves against her claims which, after all, as will be seen later in this opinion, the record does not show to be invulnerable, both in their factual and legal aspects, taking into consideration the tenor of the pleadings and the probative value of the competent evidence which were before the trial court when it rendered its assailed decision. Where all the defendants are indispensable parties, for which reason the absence of any of them in the case would result in the court losing its competency to act validly, any compromise that the plaintiff might wish to make with any of them must, as a matter of correct procedure, have to await until after the rendition of the judgment, at which stage the plaintiff may then treat the matter of its execution and the satisfaction of his claim as variably as he might please. Accordingly, in the case now before Us together with the dismissal of the complaint against the non-defaulted defendants, the court should have ordered also the dismissal thereof as to petitioners. Indeed, there is more reason to apply here the principle of unity and indivisibility of the action just discussed because all the defendants here have already joined genuine issues with plaintiff. Their default was only at the pre-trial. And as to such absence of

petitioners at the pre-trial, the same could be attributed to the fact that they might not have considered it necessary anymore to be present, since their respective children Lim and Leonardo, with whom they have common defenses, could take care of their defenses as well. Anything that might have had to be done by them at such pre-trial could have been done for them by their children, at least initially, specially because in the light of the pleadings before the court, the prospects of a compromise must have appeared to be rather remote. Such attitude of petitioners is neither uncommon nor totally unjustified. Under the circumstances, to declare them immediately and irrevocably in default was not an absolute necessity. Practical considerations and reasons of equity should have moved respondent court to be more understanding in dealing with the situation. After all, declaring them in default as respondent court did did not impair their right to a common fate with their children. Another issue to be resolved in this case is the question of whether or not herein petitioners were entitled to notice of plaintiffs motion to drop their co-defendants Lim and Leonardo, considering that petitioners had been previously declared in default. In this connection, the decisive consideration is that according to the applicable rule, Section 9, Rule 13, already quoted above, (1) even after a defendant has been declared in default, provided he "files a motion to set aside the order of default, - he shall be entitled to notice of all further proceedings regardless of whether the order of default is set aside or not" and (2) a party in default who has not filed such a motion to set aside must still be served with all "substantially amended or supplemented pleadings." In the instant case, it cannot be denied that petitioners had all filed their motion for reconsideration of the order declaring them in default. Respondents' own answer to the petition therein makes reference to the order of April 3, 1973, Annex 8 of said answer, which denied said motion for reconsideration. On page 3 of petitioners' memorandum herein this motion is referred to as "a motion to set aside the order of default." But as We have not been favored by the parties with a copy of the said motion, We do not even know the excuse given for petitioners' failure to appear at the pre-trial, and We cannot, therefore, determine whether or not the motion complied with the requirements of Section 3 of Rule 18 which We have held to be controlling in cases of default for failure to answer on time. (The PhilippineBritish Co. Inc. etc. et al. vs. The Hon. Walfrido de los Angeles etc. et al., 63 SCRA 50.) We do not, however, have here, as earlier noted, a case of default for failure to answer but one for failure to appear at the pre-trial. We reiterate, in the situation now before Us, issues have already been joined. In fact, evidence had been partially offered already at the pre-trial and more of it at the actual trial which had already begun with the first witness of the plaintiff undergoing re-crossexamination. With these facts in mind and considering that issues had already been joined even as regards the defaulted defendants, it would be requiring the obvious to pretend that there was still need for an oath or a verification as to the merits of the defense of the defaulted defendants in their motion to reconsider their default. Inasmuch as none of the parties had asked for a summary judgment there can be no question that the issues joined were genuine, and consequently, the reason for requiring such oath or verification no longer holds. Besides, it may also be reiterated that being the parents of the non-defaulted defendants, petitioners must have assumed that their presence was superfluous, particularly because the cause of action against them as well as their own defenses are common. Under these circumstances, the form of the motion by which the default was sought to be lifted is secondary and the requirements of Section 3 of Rule 18 need not be strictly complied with, unlike in cases of default for failure to answer. We can thus hold as We do hold for the purposes of the revival of their right to notice under Section 9 of Rule 13, that petitioners' motion for reconsideration was in substance legally adequate, regardless of whether or not it was under oath. In any event, the dropping of the defendants Lim and Leonardo from plaintiff's amended complaint was virtually a second amendment of plaintiff's complaint. And there can be no doubt that such amendment was substantial, for with the elimination thereby of two defendants allegedly solidarily liable with their co-defendants, herein petitioners, it had the effect of increasing proportionally what each of the remaining defendants, the said petitioners, would have to answer for jointly and severally. Accordingly, notice to petitioners of the plaintiff's motion of October 18, 1974 was legally indispensable under the rule abovequoted. Consequently, respondent court had no authority to act on the motion, to dismiss, pursuant to Section 6 of Rule 15, for according to Senator Francisco, "(t)he Rules of Court clearly provide that no motion shall be acted upon by the Court without the proof of service of notice thereof, together with a copy of the motion and other papers accompanying it, to all parties concerned at least three days before the hearing thereof, stating the time and place for the hearing of the motion. (Rule 26, section 4, 5 and 6, Rules of Court (now Sec. 15, new Rules). When the motion does not comply with this requirement, it is not a motion. It presents no question which the court could decide. And the Court acquires no jurisdiction to consider it. (Roman Catholic Bishop of Lips vs. Municipality of Unisan, 44 Phil., 866, Manakil vs. Revilla, 42 Phil., 81.) (Laserna vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing Roman Catholic Bishop of Lips vs. Municipality of Unisan, 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The Revised Rules of Court in the Philippines, pp. 861-862.) Thus, We see again, from a different angle, why respondent court's order of dismissal of October 21, 1974 is fatally ineffective. The foregoing considerations notwithstanding, it is respondents' position that certiorari is not the proper remedy of petitioners. It is contended that inasmuch as said petitioners have in fact made their appeal already by filing the required notice of appeal and appeal bond and a motion for extension to file their record on appeal, which motion was granted by respondent court, their only recourse is to prosecute that appeal. Additionally, it is also maintained that since petitioners have expressly withdrawn their motion to quash of January 4, 1975 impugning the order of October 28, 1974, they have lost their right to small by certiorari the actuations of respondent court now being questioned, respondent court not having been given the opportunity to correct any possible error it might have committed. We do not agree. As already shown in the foregoing discussion, the proceedings in the court below have gone so far out of hand that prompt action is needed to restore order in the entangled situation created by the series of plainly illegal orders it had issued. The essential purpose of certiorari is to keep the proceedings in lower judicial courts and tribunals within legal bounds, so that due process and the rule of law may prevail at all times and arbitrariness, whimsicality and unfairness which justice abhors may immediately be stamped out before graver injury, juridical and otherwise, ensues. While generally these objectives may well be attained in an ordinary appeal, it is undoubtedly the better rule to allow the special remedy of certiorari at the option of the party adversely affected, when the irregularity committed by the trial court is so grave and so far reaching in its consequences that the long and cumbersome procedure of appeal will only further aggravate the situation of the aggrieved party because other untoward actuations are likely to materialize as natural consequences of those already perpetrated. If the law were otherwise, certiorari would have no reason at all for being. No elaborate discussion is needed to show the urgent need for corrective measures in the case at bar. Verily, this is one case that calls for the exercise of the Supreme Court's inherent power of supervision over all kinds of judicial actions of lower courts. Private respondent's procedural technique designed to disable petitioners to defend themselves against her claim which appears on the face of the record itself to be at least highly controversial seems to have so fascinated respondent court that none would be surprised should her pending motion for immediate execution of the impugned judgment receive similar ready sanction as her previous

motions which turned the proceedings into a one-sided affair. The stakes here are high. Not only is the subject matter considerably substantial; there is the more important aspect that not only the spirit and intent of the rules but even the basic rudiments of fair play have been disregarded. For the Court to leave unrestrained the obvious tendency of the proceedings below would be nothing short of wittingly condoning inequity and injustice resulting from erroneous construction and unwarranted application of procedural rules. The sum and total of all the foregoing disquisitions is that the decision here in question is legally anomalous. It is predicated on two fatal malactuations of respondent court, namely (1) the dismissal of the complaint against the non-defaulted defendants Lim and Leonardo and (2) the ex-parte reception of the evidence of the plaintiff by the clerk of court, the subsequent using of the same as basis for its judgment and the rendition of such judgment. For at least three reasons which We have already fully discussed above, the order of dismissal of October 21, 1974 is unworthy of Our sanction: (1) there was no timely notice of the motion therefor to the non-defaulted defendants, aside from there being no notice at all to herein petitioners; (2) the common answer of the defendants, including the non-defaulted, contained a compulsory counterclaim incapable of being determined in an independent action; and (3) the immediate effect of such dismissal was the removal of the two non-defaulted defendants as parties, and inasmuch as they are both indispensable parties in the case, the court consequently lost the "sine qua non of the exercise of judicial power", per Borlasa vs. Polistico, supra. This is not to mention anymore the irregular delegation to the clerk of court of the function of receiving plaintiff's evidence. And as regards the ex-parte reception of plaintiff's evidence and subsequent rendition of the judgment by default based thereon, We have seen that it was violative of the right of the petitioners, under the applicable rules and principles on default, to a common and single fate with their non-defaulted codefendants. And We are not yet referring, as We shall do this anon, to the numerous reversible errors in the decision itself. It is to be noted, however, that the above-indicated two fundamental flaws in respondent court's actuations do not call for a common corrective remedy. We cannot simply rule that all the impugned proceedings are null and void and should be set aside, without being faced with the insurmountable obstacle that by so doing We would be reviewing the ease as against the two nondefaulted defendants who are not before Us not being parties hereto. Upon the other hand, for Us to hold that the order of dismissal should be allowed to stand, as contended by respondents themselves who insist that the same is already final, not only because the period for its finality has long passed but also because allegedly, albeit not very accurately, said non-defaulted defendants unsuccessfully tried to have it set aside by the Court of Appeals whose decision on their petition is also already final, We would have to disregard whatever evidence had been presented by the plaintiff against them and, of course, the findings of respondent court based thereon which, as the assailed decision shows, are adverse to them. In other words, whichever of the two apparent remedies the Court chooses, it would necessarily entail some kind of possible juridical imperfection. Speaking of their respective practical or pragmatic effects, to annul the dismissal would inevitably prejudice the rights of the non-defaulted defendants whom We have not heard and who even respondents would not wish to have anything anymore to do with the case. On the other hand, to include petitioners in the dismissal would naturally set It naught every effort private respondent has made to establish or prove her case thru means sanctioned by respondent court. In short, We are confronted with a legal para-dilemma. But one thing is certain this difficult situations has been brought about by none other than private respondent who has quite cynically resorted to procedural maneuvers without realizing that the technicalities of the adjective law, even when apparently accurate from the literal point of view, cannot prevail over the imperatives of the substantive law and of equity that always underlie them and which have to be inevitably considered in the construction of the pertinent procedural rules. All things considered, after careful and mature deliberation, the Court has arrived at the conclusion that as between the two possible alternatives just stated, it would only be fair, equitable and proper to uphold the position of petitioners. In other words, We rule that the order of dismissal of October 21, 1974 is in law a dismissal of the whole case of the plaintiff, including as to petitioners herein. Consequently, all proceedings held by respondent court subsequent thereto including and principally its decision of December 20, 1974 are illegal and should be set aside. This conclusion is fully justified by the following considerations of equity: 1. It is very clear to Us that the procedural maneuver resorted to by private respondent in securing the decision in her favor was illconceived. It was characterized by that which every principle of law and equity disdains - taking unfair advantage of the rules of procedure in order to unduly deprive the other party of full opportunity to defend his cause. The idea of "dropping" the nondefaulted defendants with the end in view of completely incapacitating their codefendants from making any defense, without considering that all of them are indispensable parties to a common cause of action to which they have countered with a common defense readily connotes an intent to secure a onesided decision, even improperly. And when, in this connection, the obvious weakness of plaintiffs evidence is taken into account, one easily understands why such tactics had to be availed of. We cannot directly or indirectly give Our assent to the commission of unfairness and inequity in the application of the rules of procedure, particularly when the propriety of reliance thereon is not beyond controversy. 2. The theories of remedial law pursued by private respondents, although approved by His Honor run counter to such basic principles in the rules on default and such elementary rules on dismissal of actions and notice of motions that no trial court should be unaware of or should be mistaken in applying. We are at a loss as to why His Honor failed to see through counsel's inequitous strategy, when the provisions (1) on the three-day rule on notice of motions, Section 4 of Rule 15, (2) against dismissal of actions on motion of plaintiff when there is a compulsory counterclaim, Section 2, Rule 17, (3) against permitting the absence of indispensable parties, Section 7, Rule 3, (4) on service of papers upon defendants in default when there are substantial amendments to pleadings, Section 9, Rule 13, and (5) on the unity and integrity of the fate of defendants in default with those not in default where the cause of action against them and their own defenses are common, Section 4, Rule 18, are so plain and the jurisprudence declaratory of their intent and proper construction are so readily comprehensible that any error as to their application would be unusual in any competent trial court. 3. After all, all the malactuations of respondent court are traceable to the initiative of private respondent and/or her counsel. She cannot, therefore, complain that she is being made to unjustifiably suffer the consequences of what We have found to be erroneous orders of respondent court. It is only fair that she should not be allowed to benefit from her own frustrated objective of securing a one-sided decision. 4. More importantly, We do not hesitate to hold that on the basis of its own recitals, the decision in question cannot stand close terutiny. What is more, the very considerations contained therein reveal convincingly the inherent weakness of the cause of the plaintiff. To be sure, We have been giving serious thought to the idea of merely returning this case for a resumption of trial by setting aside the order of dismissal of October 21, 1974, with all its attendant difficulties on account of its adverse effects on parties who have not been heard, but upon closer study of the pleadings and the decision and other circumstances extant in the record before Us, We are now persuaded that such a course of action would only lead to more legal complications incident to attempts on the part of

the parties concerned to desperately squeeze themselves out of a bad situation. Anyway, We feel confident that by and large, there is enough basis here and now for Us to rule out the claim of the plaintiff. Even a mere superficial reading of the decision would immediately reveal that it is littered on its face with deficiencies and imperfections which would have had no reason for being were there less haste and more circumspection in rendering the same. Recklessness in jumping to unwarranted conclusions, both factual and legal, is at once evident in its findings relative precisely to the main bases themselves of the reliefs granted. It is apparent therein that no effort has been made to avoid glaring inconsistencies. Where references are made to codal provisions and jurisprudence, inaccuracy and inapplicability are at once manifest. It hardly commends itself as a deliberate and consciencious adjudication of a litigation which, considering the substantial value of the subject matter it involves and the unprecedented procedure that was followed by respondent's counsel, calls for greater attention and skill than the general run of cases would. Inter alia, the following features of the decision make it highly improbable that if We took another course of action, private respondent would still be able to make out any case against petitioners, not to speak of their co-defendants who have already been exonerated by respondent herself thru her motion to dismiss: 1. According to His Honor's own statement of plaintiffs case, "she is the widow of the late Tee Hoon Po Chuan (Po Chuan, for short) who was then one of the partners in the commercial partnership, Glory Commercial Co.... with defendants Antonio Lim Tanhu (Lim Tanhu, for short) and Alfonso Leonardo Ng Sua (Ng Sua, for short) as co-partners; that after the death of her husband on March 11, 1966 she is entitled to share not only in the capital and profits of the partnership but also in the other assets, both real and personal, acquired by the partnership with funds of the latter during its lifetime." Relatedly, in the latter part of the decision, the findings are to the following effect: "That the herein plaintiff Tan Put and her late husband Po Chuan were married at the Philippine Independent Church of Cebu City on December 20, 1949; that Po Chuan died on March 11, 1966; that the plaintiff and the late Po Chuan were childless but the former has a foster son Antonio Nuez whom she has reared since his birth with whom she lives up to the present; that prior to the marriage of the plaintiff to Po Chuan the latter was already managing the partnership Glory Commercial Co. then engaged in a little business in hardware at Manalili St., Cebu City; that prior to and just after the marriage of the plaintiff to Po Chuan she was engaged in the drugstore business; that not long after her marriage, upon the suggestion of Po Chuan, the plaintiff sold her drugstore for P125,000.00 which amount she gave to her husband in the presence of defendant Lim Tanhu and was invested in the partnership Glory Commercial Co. sometime in 1950; that after the investment of the above-stated amount in the partnership its business flourished and it embarked in the import business and also engaged in the wholesale and retail trade of cement and GI sheets and under huge profits; "x x x x x x 'That the late Po Chuan was the one who actively managed the business of the partnership Glory Commercial Co.; he was the one who made the final decisions and approved the appointments of new personnel who were taken in by the partnership; that the late Po Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter two (2) being the elder brothers of the former; that defendants Lim Tanhu and Ng Sua are both naturalized Filipino citizens whereas the late Po Chuan until the time of his death was a Chinese citizen; that the three (3) brothers were partners in the Glory Commercial Co. but Po Chuan was practically the owner of the partnership having the controlling interest; that defendants Lim Tanhu and Ng Sua were partners in name but they were mere employees of Po Chuan; x x x." (Pp. 89-91, Record.) Record.) How did His Honor arrive at these conclusions? To start with, it is not clear in the decision whether or not in making its findings of fact the court took into account the allegations in the pleadings of the parties and whatever might have transpired at the pre-trial. All that We can gather in this respect is that references are made therein to pre-trial exhibits and to Annex A of the answer of the defendants to plaintiffs amended complaint. Indeed, it was incumbent upon the court to consider not only the evidence formally offered at the trial but also the admissions, expressed or implied, in the pleadings, as well as whatever might have been placed before it or brought to its attention during the pre-trial. In this connection, it is to be regretted that none of the parties has thought it proper to give Us an idea of what took place at the pretrial of the present case and what are contained in the pre-trial order, if any was issued pursuant to Section 4 of Rule 20. The fundamental purpose of pre-trial, aside from affording the parties every opportunity to compromise or settle their differences, is for the court to be apprised of the unsettled issues between the parties and of their respective evidence relative thereto, to the end that it may take corresponding measures that would abbreviate the trial as much as possible and the judge may be able to ascertain the facts with the least observance of technical rules. In other words, whatever is said or done by the parties or their counsel at the pre-trial serves to put the judge on notice of their respective basic positions, in order that in appropriate cases he may, if necessary in the interest of justice and a more accurate determination of the facts, make inquiries about or require clarifications of matters taken up at the pre-trial, before finally resolving any issue of fact or of law. In brief, the pre-trial constitutes part and parcel of the proceedings, and hence, matters dealt with therein may not be disregarded in the process of decision making. Otherwise, the real essence of compulsory pre-trial would be insignificant and worthless. Now, applying these postulates to the findings of respondent court just quoted, it will be observed that the court's conclusion about the supposed marriage of plaintiff to the deceased Tee Hoon Lim Po Chuan is contrary to the weight of the evidence brought before it during the trial and the pre-trial. Under Article 55 of the Civil Code, the declaration of the contracting parties that they take each other as husband and wife "shall be set forth in an instrument" signed by the parties as well as by their witnesses and the person solemnizing the marriage. Accordingly, the primary evidence of a marriage must be an authentic copy of the marriage contract. While a marriage may also be proved by other competent evidence, the absence of the contract must first be satisfactorily explained. Surely, the certification of the person who allegedly solemnized a marriage is not admissible evidence of such marriage unless proof of loss of the contract or of any other satisfactory reason for its non-production is first presented to the court. In the case at bar, the purported certification issued by a Mons. Jose M. Recoleto, Bishop, Philippine Independent Church, Cebu City, is not, therefore, competent evidence, there being absolutely no showing as to unavailability of the marriage contract and, indeed, as to the authenticity of the signature of said certifier, the jurat allegedly signed by a second assistant provincial fiscal not being authorized by law, since it is not part of the functions of his office. Besides, inasmuch as the bishop did not testify, the same is hearsay.

As regards the testimony of plaintiff herself on the same point and that of her witness Antonio Nuez, there can be no question that they are both self-serving and of very little evidentiary value, it having been disclosed at the trial that plaintiff has already assigned all her rights in this case to said Nuez, thereby making him the real party in interest here and, therefore, naturally as biased as herself. Besides, in the portion of the testimony of Nuez copied in Annex C of petitioner's memorandum, it appears admitted that he was born only on March 25, 1942, which means that he was less than eight years old at the supposed time of the alleged marriage. If for this reason alone, it is extremely doubtful if he could have been sufficiently aware of such event as to be competent to testify about it. Incidentally, another Annex C of the same memorandum purports to be the certificate of birth of one Antonio T. Uy supposed to have been born on March 23, 1937 at Centro Misamis, Misamis Occidental, the son of one Uy Bien, father, and Tan Put, mother. Significantly, respondents have not made any adverse comment on this document. It is more likely, therefore, that the witness is really the son of plaintiff by her husband Uy Kim Beng. But she testified she was childless. So which is which? In any event, if on the strength of this document, Nuez is actually the legitimate son of Tan Put and not her adopted son, he would have been but 13 years old in 1949, the year of her alleged marriage to Po Chuan, and even then, considering such age, his testimony in regard thereto would still be suspect. Now, as against such flimsy evidence of plaintiff, the court had before it, two documents of great weight belying the pretended marriage. We refer to (1) Exhibit LL, the income tax return of the deceased Tee Hoon Lim Po Chuan indicating that the name of his wife was Ang Siok Tin and (2) the quitclaim, Annex A of the answer, wherein plaintiff Tan Put stated that she had been living with the deceased without benefit of marriage and that she was his "common-law wife". Surely, these two documents are far more reliable than all the evidence of the plaintiff put together. Of course. Exhibit LL is what might be termed as pre-trial evidence. But it is evidence offered to the judge himself, not to the clerk of court, and should have at least moved him to ask plaintiff to explain if not rebut it before jumping to the conclusion regarding her alleged marriage to the deceased, Po Chuan. And in regard to the quitclaim containing the admission of a common-law relationship only, it is to be observed that His Honor found that "defendants Lim Tanhu and Ng Sua had the plaintiff execute a quitclaim on November 29, 1967 (Annex "A", Answer) where they gave plaintiff the amount of P25,000 as her share in the capital and profits of the business of Glory Commercial Co. which was engaged in the hardware business", without making mention of any evidence of fraud and misrepresentation in its execution, thereby indicating either that no evidence to prove that allegation of the plaintiff had been presented by her or that whatever evidence was actually offered did not produce persuasion upon the court. Stated differently, since the existence of the quitclaim has been duly established without any circumstance to detract from its legal import, the court should have held that plaintiff was bound by her admission therein that she was the common-law wife only of Po Chuan and what is more, that she had already renounced for valuable consideration whatever claim she might have relative to the partnership Glory Commercial Co. And when it is borne in mind that in addition to all these considerations, there are mentioned and discussed in the memorandum of petitioners (1) the certification of the Local Civil Registrar of Cebu City and (2) a similar certification of the Apostolic Prefect of the Philippine Independent Church, Parish of Sto. Nino, Cebit City, that their respective official records corresponding to December 1949 to December 1950 do not show any marriage between Tee Hoon Lim Po Chuan and Tan Put, neither of which certifications have been impugned by respondent until now, it stands to reason that plaintiff's claim of marriage is really unfounded. Withal, there is still another document, also mentioned and discussed in the same memorandum and unimpugned by respondents, a written agreement executed in Chinese, but purportedly translated into English by the Chinese Consul of Cebu, between Tan Put and Tee Hoon Lim Po Chuan to the following effect: "CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines TRANSLATION This is to certify that I. Miss Tan Ki Eng Alias Tan Put, have lived with Mr. Lim Po Chuan alias Tee Hoon since 1949 but it recently occurs that we are incompatible with each other and are not in the position to keep living together permanently. With the mutual concurrence, we decided to terminate the existing relationship of common law-marriage and promised not to interfere each other's affairs from now on. The Forty Thousand Pesos (P40,000.00) has been given to me by Mr. Lim Po Chuan for my subsistence. Witnesses: Mr. Lim Beng Guan Mr. Huang Sing Se Signed on the 10 day of the 7th month of the 54th year of the Republic of China (corresponding to the year 1965). (SGD) TAN KI ENG Verified from the records. JORGE TABAR" (PP. 293-294, Record.) Indeed, not only does this document prove that plaintiffs relation to the deceased was that of a common-law wife but that they had settled their property interests with the payment to her of P40,000. In the light of all these circumstances, We find no alternative but to hold that plaintiff Tan Put's allegation that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily established and that, on the contrary, the evidence on record convincingly shows that her relation with said deceased was that of a common-law wife and furthermore, that all her claims against the company and its surviving partners as well as those against the estate of the deceased have already been settled and paid. We take judicial notice of the fact that the respective counsel who assisted the parties in the quitclaim, Attys. H. Hermosisima and Natalia Castillo, are members in good standing of the Philippine Bar, with the particularity that the latter has been a member of the Cabinet and of the House of Representatives of the Philippines, hence, absent any credible proof that they had allowed themselves to be parties to a fraudulent document His Honor did right in recognizing its existence, albeit erring in not giving due legal significance to its contents. 2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po Chuan is not only unconvincing but has been actually overcome by the more competent and weighty evidence in favor of the defendants, her attempt to substantiate her main cause of action that defendants Lim Tanhu and Ng Sua have defrauded the partnership Glory Commercial Co. and converted its properties to themselves is even more dismal. From the very evidence summarized by His Honor in the decision in question, it is clear that not an iota of reliable proof exists of such alleged misdeeds. Of course, the existence of the partnership has not been denied, it is actually admitted impliedly in defendants' affirmative defense that Po Chuan's share had already been duly settled with and paid to both the plaintiff and his legitimate family. But the evidence as

to the actual participation of the defendants Lim Tanhu and Ng Sua in the operation of the business that could have enabled them to make the extractions of funds alleged by plaintiff is at best confusing and at certain points manifestly inconsistent. In her amended complaint, plaintiff repeatedly alleged that as widow of Po Chuan she is entitled to 1/3 share of the assets and properties of the partnership. In fact, her prayer in said complaint is, among others, for the delivery to her of such 1/3 share. His Honor's statement of the case as well as his findings and judgment are all to that same effect. But what did she actually try to prove at the exparte hearing? According to the decision, plaintiff had shown that she had money of her own when she "married" Po Chuan and "that prior to and just after the marriage of the plaintiff to Po Chuan, she was engaged in the drugstore business; that not long after her marriage, upon the suggestion of Po Chuan, the plaintiff sold her drugstore for P125,000 which amount she gave to her husband in the presence of Tanhu and was invested in the partnership Glory Commercial Co. sometime in 1950; that after the investment of the above-stated amount in the partnership, its business flourished and it embarked in the import business and also engaged in the wholesale and retail trade of cement and GI sheets and under (sic) huge profits." (pp. 25-26, Annex L, petition.) To begin with, this theory of her having contributed of P125,000 to the capital of the partnership by reason of which the business flourished and amassed all the millions referred to in the decision has not been alleged in the complaint, and inasmuch as what was being rendered was a judgment by default, such theory should not have been allowed to be the subject of any evidence. But inasmuch as it was the clerk of court who received the evidence, it is understandable that he failed to observe the rule. Then, on the other hand, if it was her capital that made the partnership flourish, why would she claim to be entitled to only to 1/3 of its assets and profits? Under her theory found proven by respondent court, she was actually the owner of everything, particularly because His Honor also found "that defendants Lim Tanhu and Ng Sua were partners in the name but they were employees of Po Chuan; that defendants Lim Tanhu and Ng Sua had no means of livelihood at the time of their employment with the Glory Commercial Co. under the management of the late Po Chuan except their salaries therefrom; . . " (p. 27, id.) Why then does she claim only 1/3 share? Is this an indication of her generosity towards defendants or of a concocted cause of action existing only in her confused imagination engendered by the death of her common-law husband with whom she had settled her common-law claim for recompense of her services as commonlaw wife for less than what she must have known would go to his legitimate wife and children? Actually, as may be noted from the decision itself, the trial court was confused as to the participation of defendants Lim Tanhu and Ng Sua in Glory Commercial Co. At one point, they were deemed partners, at another point mere employees and then elsewhere as partners-employees, a newly found concept, to be sure, in the law on partnership. And the confusion is worse comfounded in the judgment which allows these "partners in name" and "partners-employees" or employees who had no means of livelihood and who must not have contributed any capital in the business, "as Po Chuan was practically the owner of the partnership having the controlling interest", 1/3 each of the huge assets and profits of the partnership. Incidentally, it may be observed at this juncture that the decision has made Po Chuan play the inconsistent role of being "practically the owner" but at the same time getting his capital from the P125,000 given to him by plaintiff and from which capital the business allegedly "flourished." Anent the allegation of plaintiff that the properties shown by her exhibits to be in the names of defendants Lim Tanhu and Ng Sua were bought by them with partnership funds, His Honor confirmed the same by finding and holding that "it is likewise clear that real properties together with the improvements in the names of defendants Lim Tanhu and Ng Sua were acquired with partnership funds as these defendants were only partnersemployees of deceased Po Chuan in the Glory Commercial Co. until the time of his death on March 11, 1966." (p. 30, id.) It is Our considered view, however, that this conclusion of His Honor is based on nothing but pure unwarranted conjecture. Nowhere is it shown in the decision how said defendants could have extracted money from the partnership in the fraudulent and illegal manner pretended by plaintiff. Neither in the testimony of Nuez nor in that of plaintiff, as these are summarized in the decision, can there be found any single act of extraction of partnership funds committed by any of said defendants. That the partnership might have grown into a multi-million enterprise and that the properties described in the exhibits enumerated in the decision are not in the names of Po Chuan, who was Chinese, but of the defendants who are Filipinos, do not necessarily prove that Po Chuan had not gotten his share of the profits of the business or that the properties in the names of the defendants were bought with money of the partnership. In this connection, it is decisively important to consider that on the basis of the concordant and mutually cumulative testimonies of plaintiff and Nunez, respondent court found very explicitly that, and We reiterate: "x x x x x x x; "That the late Po Chuan was the one who actively managed the business of the partnership Glory Commercial Co.; he was the one who made the final decisions and approved the appointments of new personnel who were taken in by the partnership; that the late Po Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter two (2) being the elder brothers of the former, that defendants Lim Tanhu and Ng Sua are both naturalized Filipino citizens whereas the late Po Chuan until the time of his death was a Chinese citizen; that the three (3) brothers were partners in the Glory Commercial Co. but Po Chuan was practically the owner of the partnership having the controlling interest; that defendants Lim Tanhu and Ng Sua were partners in name but they were mere employees of Po Chuan; x x xx." (Pp. 90-91, Record.) If Po Chuan was in control of the affairs and the running of the partnership, how could the defendants have defrauded him of such huge amounts as plaintiff had made bis Honor believe? Upon the other hand, since Po Chuan was in control of the affairs of the partnership, the more logical inference is that if defendants had obtained any portion of the funds of the partnership for themselves, it must have been with the knowledge and consent of Po Chuan, for which reason no accounting could be demanded from them therefor, considering that Article 1807 of the Civil Code refers only to what is taken by a partner without the consent of the other partner or partners. Incidentally again, this theory about Po Chuan having been actively managing the partnership up to his death is a substantial deviation from the allegation in the amended complaint to the effect that "defendants Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng Chong Leonardo, through fraud and machination, took actual and active management of the partnership and although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Co., defendants managed to use the funds of the partnership to purchase lands and buildings etc. (Par. 4, p. 2 of amended complaint, Annex B of petition) and should not have been permitted to be proven by the hearing officer, who naturally did not know any better. Moreover, it is very significant that according to the very tax declarations and land titles listed in the decision, most if not all of the properties supposed to have been acquired by the defendants Lim Tanhu and Ng Sua with funds of the partnership appear to have been transferred to their names only in 1969 or later, that is, long after the partnership had been automatically dissolved as a result of the death of Po Chuan. Accordingly, defendants have no obligation to account to anyone for such acquisitions in the absence of clear proof that they had violated the trust of Po Chuan during the existence of the partnership. (See Hanlon vs. Hansserman and. Beam, 40 Phil. 796.) There are other particulars which should have caused His Honor to readily disbelieve plaintiffs' pretensions. Nunez testified that "for about 18 years he was in charge of the GI sheets and sometimes attended to the imported items of the business of Glory Commercial Co." Counting 18 years back from 1965 or 1966 would take Us to 1947 or 1948. Since according to Exhibit LL, the baptismal certificate produced by the same witness as his birth certificate, shows he was born in March, 1942, how could he have started managing Glory Commercial Co. in 1949 when he must have been barely six or seven years old? It should not have escaped His Honor's attention that the photographs showing the premises of Philippine Metal Industries after its organization "a year or two after

the establishment of Cebu Can Factory in 1957 or 1958" must have been taken after 1959. How could Nunez have been only 13 years old then as claimed by him to have been his age In those photographs when according to his "birth certificate", he was born in 1942? His Honor should not have overlooked that according to the same witness, defendant Ng Sua was living in Bantayan until he was directed to return to Cebu after the fishing business thereat floundered, whereas all that the witness knew about defendant Lim Teck Chuan's arrival from Hongkong and the expenditure of partnership money for him were only told to him allegedly by Po Chuan, which testimonies are veritably exculpatory as to Ng Sua and hearsay as to Lim Teck Chuan. Neither should His Honor have failed to note that according to plaintiff herself, "Lim Tanhu was employed by her husband although he did not go there always being a mere employee of Glory Commercial Co." (p. 22, Annex L, the decision.) The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known income except their salaries. Actually, it is not stated, however, from what evidence such conclusion was derived in so far as Ng Sua is concerned. On the other hand, with respect to Lim Tanhu, the decision itself states that according to Exhibit NN-Pretrial, in the supposed income tax return of Lim Tanhu for 1964, he had an income of P4,800 as salary from Philippine Metal Industries alone and had a total assessable net income of P23,920.77 that year for which he paid a tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit GG-Pretrial, in the year, he had a net income of P32,000 for which he paid a tax of P3,512.40. (id.) As early as 1964 "his fishing business in Madridejos, Cebu was making money, and he reported "a net gain from operation (in) the amount of P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his Honor gather the conclusion that all the properties registered in his name have come from funds malversed from the partnership? It is rather unusual that His Honor delved into financial statements and books of Glory Commercial Co. without the aid of any accountant or without the same being explained by any witness who had prepared them or who has knowledge of the entries therein. This must be the reason why there are apparent inconsistencies and inaccuracies in the conclusions His Honor made out of them. In Exhibit SS-Pre-trial, the reported total assets of the company amounted to P2,328,460.27 as of December, 1965, and yet, Exhibit TTPre-trial, according to His Honor, showed that the total value of goods available as of the same date was P11,166,327.62. On the other hand, per Exhibit XX-Pre-trial, the supposed balance sheet of the company for 1966, "the value of inventoried merchandise, both local and imported", as found by His Honor, was P584,034.38. Again, as of December 31, 1966, the value of the company's goods available for sale was P5,524,050.87, per Exhibit YY and YY-1-Pre-trial. Then, per Exhibit II-3-Pretrial, the supposed Book of Account, whatever that is, of the company showed its "cash anlysis" was P12,223,182.55. We do not hesitate to make the observation that His Honor, unless he is a certified public accountant, was hardly qualified to read such exhibits and draw any definite conclusions therefrom, without risk of erring and committing an injustice. In any event, there is no comprehensible explanation in the decision of the conclusion of His Honor that there were P12,223,182.55 cash money defendants have to account for, particularly when it can be very clearly seen in Exhibits II-4, II-4-A, 11-5 and II-6-Pre-trial, Glory Commercial Co. had accounts payable as of December 31, 1965 in the amount of P4,801,321.17. (p. 15, id.) Under the circumstances, We are not prepared to permit anyone to predicate any claim or right from respondent court's unaided exercise of accounting knowledge. Additionally, We note that the decision has not made any finding regarding the allegation in the amended complaint that a corporation denominated Glory Commercial Co., Inc. was organized after the death of Po Chuan with capital from the funds of the partnership. We note also that there is absolutely no finding made as to how the defendants Dy Ochay and Co Oyo could in any way be accountable to plaintiff, just because they happen to be the wives of Lim Tanhu and Ng Sua, respectively. We further note that while His Honor has ordered defendants to deliver or pay jointly and severally to the plaintiff P4,074,394.18 or 1/3 of the P12,223,182.55, the supposed cash belonging to the partnership as of December 31, 1965, in the same breath, they have also been sentenced to partition and give 1/3 share of the properties enumerated in the dispositive portion of the decision, which seemingly are the very properties allegedly purchased from the funds of the partnership which would naturally include the P12,223,182.55 defendants have to account for. Besides, assuming there has not yet been any liquidation of the partnership, contrary to the allegation of the defendants, then Glory Commercial Co. would have the status of a partnership in liquidation and the only right plaintiff could have would be to what might result after such liquidation to belong to the deceased partner, and before this is finished, it is impossible to determine, what rights or interests, if any, the deceased had (Bearneza vs. Dequilla, 43 Phil. 237). In other words, no specific amounts or properties may be adjudicated to the heir or legal representative of the deceased partner without the liquidation being first terminated. Indeed, only time and the fear that this decision would be much more extended than it is already prevent us from further pointing out the inexplicable deficiencies and imperfections of the decision in question. After all, what have been discussed should be more than sufficient to support Our conclusion that not only must said decision be set aside but also that the action of the plaintiff must be totally dismissed, and, were it not seemingly futile and productive of other legal complications, that plaintiff is liable on defendants' counterclaims. Resolution of the other issues raised by the parties albeit important and perhaps pivotal has likewise become superfluous. IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in respondent court in its Civil Case No. 12328 subsequent to the order of dismissal of October 21, 1974 are hereby annulled and set aside, particularly the ex-parte proceedings against petitioners and the decision of December 20, 1974. Respondent court is hereby ordered to enter an order extending the effects of its order of dismissal of the action dated October 21, 1974 to herein petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And respondent court is hereby permanently enjoined from taking any further action in said civil caw save and except as herein indicated. Costs against private respondent. Makalintal, C.J., Fernando, Aquino and Concepcion Jr., JJ., concur. Petition granted.

Visayan Packing Corp. vs. Reparations Commission November 12,1987 [GRN L-29673 November 12,1987.*] THE VISAYAN PACKING CORPORATION, petitioner, vs. THE REPARATIONS COMMISSION and THE COURT OF APPEALS, respondents. PETITION to review the decision of the Court of Appeals. The facts are stated in the opinion of the Court. NARVASA, J.: The proceedings at bar had their origin in an agreement denominated "Contract of Conditional Purchase and Sale of Reparation Goods" entered into between petitioner Visayan Packing Corporation (hereafter, simply VISPAC) and the Reparations Commission (hereafter, simply REPACOM). Subject of the contract were a cannery plant, a tin manufacturing plant. and three (3) fishing boats sold to VISPAC, for which it bound itself to pay the total price of P1,135,712.47 in ten (10) equal yearly installments with interest.2

Prior to the due date of the first installment, REPACOM sent VISPAC a written reminder thereof. VISPAC's response was to file in the Court of First Instance of Manila two (2 special civil actions for declaratory relief,3 alleging ambiguity in the contract between it and REPACOM consisting in the agreement's failure to clearly state the precise time when the obligation to pay the first installment of the price would arise.4 On the other hand, when VISPAC subsequently failed, despite several demands, to pay the first installment of the price (P135,712.47) on what REPACOM deemed to be the due date, the latter instituted an ordinary civil action for collection thereof.5 VISPAC moved to dismiss this collection suit on the ground of the pendency of the declaratory relief actions, arguing that until and unless the latter were resolved, no cause of action could be deemed to exist in favor of REPACOM for collection of said first installment. The motion to dismiss was denied; and after trial, the Court of First Instance rendered judgment dated March 27, 1963 ordering VISPAC to pay REPACOM the sum claimed, P135,712.47, with interest at the legal rate from date of filing of the complaint until fully paid. VISPAC appealed to the Court of Appeals claiming error on the part of the Trial Court in not holding that the collection suit was barred by the pendency of the declaratory relief cases earlier instituted. But the declaratory relief actions had been earlier dismissed by Order of the Court of First Instance dated October 9, 1962, the Court holding that the issues raised would be necessarily threshed out in the collection suit. VISPAC appealed to this Court6 but was rebuffed. By decision rendered on May 31, 1965, this Court affirmed the dismissal of the declaratory relief suits, holding that the clarity of the terms of the contract eliminated all occasion for interpretation thereof. VISPAC also received an unfavorable verdict in its appeal to the Court of Appeals from the decision of the Trial Court in the collection action against it. That Appellate Court, on October 2, 1968, promulgated judgment affirming that of the Court of First Instance. It is this affirmance of the Court of Appeals that is subject of the instant appeal taken to this Court by VISPAC. VISPAC's contention is that it was error on the Appellate Court's part to have affirmed the Trial Court's decision for the collection of the first installment of the price due from it under its contract with REPACOM, because that money claim should have been set up as a compulsory counterclaim in the declaratory relief action, and since REPACOM had not done this, but had instead set it up in a separate suit, the claim had thereby become barred. It is indeed the rule, embodied in Section 4, Rule 9 of the Rules of Court, that a counterclaim not set up shall be barred if it arises out of or is necessarily connected with the transaction or occurrence that is 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. In other words, a compulsory counterclaim cannot be made the subject of a separate action but should be asserted in the same suit involving the same transaction or occurrence giving rise to it. The omission is not however irremediable or irreversibly fatal. The Rules provide that when a pleader fails to set up a counterclaim through oversight, inadvertence, or excusable negligence, or when justice requires, he may, by leave of court, set up the counterclaim or crossclaim by amendment before judgment.7 Where the counterclaim is made the subject of a separate suit, it may be abated upon a plea of auter action pendant or litis pendentia,8 and(or dismissed on the ground of res adjudicata.9 Res acUudicata may be pleaded as a ground for dismissal if the opposing party's claim, involving the same transaction or occurrence as the counterclaim, has already been adjudicated on the merits by a court of competent jurisdiction, and the judgment has become final; this, on the theory that what is barred by prior judgment are not only the matters squarely raised and litigated, but all such other matters as could have been raised but were not. 10 Now, there is nothing in the nature of a special civil action for declaratory relief that proscribes the filing of a counterclaim based on the same transaction, deed or contract subject of the complaint. A special civil action is after all not essentially different from an ordinary civil action, which is generally governed by Rules 1 to 56 of the Rules of Court, except that the former deals with a special subject matter which makes necessary some special regulation.11 But the identity between their fundamental nature is such that the same rules governing ordinary civil suits may and do apply to special civil actions if not inconsistent with or if they may serve to supplement the provisions of the peculiar rules governing special civil actions.12 Ideally, in the case at bar, the separate action for collection should have been dismissed and set up as a compulsory counterclaim in the declaratory relief suits, by way of an amended answer. This was not done. The actions proceeded separately and were decided on the merits. The final verdict was that the declaratory relief suits instituted by VISPAC were unmeritorious, quite without foundation and, in the light of all the relevant facts, appear to have been initiated by VISPAC merely to obstruct and delay the payment of the installments clearly due from it, payment of which was decreed in the collection suit. Under the circumstances, and taking account of the not inconsiderable length of time that the case at bar has been pending, it would be to do violence to substantial justice to pronounce the proceedings fatally defective for breach of the rule on compulsory counterclaims. Rules of procedure am after all laid down in order to attain justice. They cannot be applied to prevent the achievement of that goal. Form cannot prevail over substance.13 WHEREFORE, the petition is dismissed for lack of merit, with costs against the petitioner. Teehankee (C.J.), Cruz, ** Paras and Gancayco, JJ., concur. Petition dismissed 1. The contract was awarded by the REPACOM to VISPAC in virtue of Resolution No. 240. 2. The contract was dated November 16, 1960. 3. Docketed as Civil Cases No. 49913 and 50517. 4. According to it, the contract set out two (2) discrepant dates: April 5, 1962 and April 5, 1963, and two (2) different amounts. 5. Docketed as Civil Case No. 51713. 6. The appeal was docketed as G.R. No. L-20577. 7. Sec. 3, Rule 9. 8. Sec. 1 (e), Rule 16, Rules of Court. 9. Sec. 1 (f), Rule 16. 10. Sec. 4 9 (b), Rule 39. . 11. Ledesma v. Morales, 87 Phil. 19; Chan v. Galang, 18 SCRA 344. 12. Rule 62, Rules of Court. 13. Alonso v. Villamor, 16 Phil. 321; Palma v. Oreta, 34 SCRA 739; Pangasi v. CA, 71 SCRA 614; Tan v. Director of Forestry, 125 SCRA 302; Toribio v. Bidin, 134 SCRA 162; Gotico v. Leyte Chinese Chamber of Commerce, 136 SCRA 218. ** Designated a Special Member of the First Division.

GO v. CA boohoo I cant find it on the net, nor in the old lex libris, nor in the sc decisions =(

Pascual vs. Bautista, et al, May 29, 1970 [GRN L-21644 May 29, 1970] WENCESLAO PASCUAL, plaintiff, vs. PILAR BAUTISTA, et al., defendants. PILAR BAUTISTA, Third Party plaintiff-appellee, vs. MARIANO R. FLORES, Third Party defendant-appellant. DECISION APPEARANCES OF COUNSEL Sarte & Espinosa for plaintiff-appellee. Zosimo Rivas for third-party defendant-appellant. DIZON, J.: This is an appeal taken by Mariano R. Flores front the decision of the Court of First instance of Manila in Civil Case No. 48819 entitled "Pilar Bautista vs. Mariano R. Flores," the dispositive part of which reads as follows: "It appearing that this motion to revive the said decision, Exhibit A, was filed on November 21, 1961, or before the expiration of the ten-year period provided by law, judgment is hereby rendered and, under Article 1144, in connection with Article 1152 of the Civil Case, this Court hereby declares that the decision of the Supreme Court in G.R. No. L-6569 and G.R. No. L-6576 is hereby REVIVED. "SO ORDERED. "Manila, Philippines, March 12, 1963." It appears that in Civil Case No. 5203 of the Court of First Instance of Manila entitled "Wenceslao Pascual vs. Pilar Bautista, Primitivo Lovina, Nelly Montilla de Lovina and Leon Yambao", the first (appellee herein) filed, with leave of court, a third-party complaint against Mariano R. Flores (appellant herein). Having failed to answer the third-party complaint, Flores was declared in default (Rec. on appeal pp. 19-20, 40-41) and, after due trial of the whole case, the court, on March 7, 1951, rendered judgment as follows: "WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Pilar Bautista, ordering the latter to return to the plaintiff the sum of P2,000.00 representing part of the rent advanced by him for the second year of the lease; to pay to the plaintiff the sum of P13,181.86 representing one-half of the cost of the improvements and repairs made by the plaintiff on the fishpond; and against Pilar Bautista and the spouses Primitivo Lovina and Nelly Montilla de Lovina, ordering them to pay jointly and severally to the plaintiff the sum of Twenty thousand two hundred fifty pesos (P20,250.00) representing the value of the fish at the time the plaintiff was dispossessed of the fishpond, and the costs. Likewise judgment is hereby rendered in favor of the defendant Pilar Bautista as thirdparty plaintiff and against Mariano R. Flores, as third-party defendant, for the sums of Five hundred thousand pesos (P500,000.00) as liquidated damages and Fifty thousand pesos (P50,000.00) for attorney's fees in accordance with her contract with him embodied in the aforesaid 'Memorandum of Agreements,' with costs against said Mariano R. Flores. Plaintiff's claim for exemplary damages and attorney's fees, Pilar Bautista's counterclaim and cross-claim and the spouses Lovina's counter cross-claim are hereby dismissed. Defendant Leon S. Yambao is absolved from all liability under the complaint and cross-claim." All the parties above-mentioned, except the third-party defendant Flores, appealed from the above decision to the Court of Appeals (CA-G.R. 7878-R), appellee Pilar Bautista, from the portions thereof adverse to her and in favor of the plaintiff. In its decision of February 16, 1953, the Court of Appeals modified the appealed decision "by eliminating from it the award of damages in favor of Wenceslao Pascual against Pilar Bautista and Primitivo Lovina and Nelly Montilla de Lovina, as solidary debtors; and substituting, in its stead, an award in favor of' Wenceslao Pascual in the total sum of P15,181.86, to be paid by Pilar Bautista alone. In all other respects the judgment of the Court below is affirmed, without pronouncement as to costs''. (See page 61 of the Record on Appeal). Not satisfied with the result, Pilar Bautista and Wenceslao Pascual appealed to Us (G.R. Nos. L-6569 and L-6576), but on April 18, 1956, We affirmed the decision of the Court of Appeals. On June 6, 1957, our decision was entered by the Clerk of Court of the Court of First Instance of Manila in the entry book of his office. On June 3, 1957 Pilar Bautista secured the corresponding writ to execute the decision rendered in her favor in Civil Case No. 5203 as third-party plaintiff therein against third-party defendant Flores, but the writ was later returned unsatisfied. Thereafter site obtained several alias writs of execution against the same party, the latest having been issued on April 17, 1961, but they were likewise returned unsatisfied. On May 4, 1961, she filed a petition for the examination under oath of her judgment debtor (Flores) alleging that the latter had fraudulently disposed of his properties, and, on May 18 of the same year, the court ordered said judgment debtor to appear before it for examination tinder oath on June 5, 1961. Upon petition of Flores, however, the court, on June 24, 1961, set aside its order for his examination as well as the writ of execution then outstanding, on the ground that ''more than ten years had already elapsed since the judgment against third-party defendant Mariano R. Flores and in favor of third party plaintiff was entered, so that no writ of execution of said judgment can now be issued (Sec. 6, Rule 39 of' the Rules of Court)." On August 29, 1961 appellee Bautista filed a petition for relief from said order of June 24, 1961, but the same was denied by the court, and although oil November 15, 1961 she filed a notice of appeal from said order of denial, no appeal therefrom appears to have been actually perfected. On November 21, 1961, appellee Pilar Bautista filed an action in the Court of First Instance of Manila (Civil Case No. 48819) for the revival of the final judgment heretofore mentioned rendered in Civil Case No. 5203 against appellant Flores. In his answer to the complaint, the latter alleged that said judgment had already prescribed pursuant to Sec. 6, Rule 39, Rules of Court, and Article 1144(3) of the New Civil Code. After trial, the lower court rendered the appealed judgment. In his brief appellant submits for our consideration ten errors allegedly committed by the trial Court, but brushing aside all nonessential issues, We believe that the fate of' tire present appeal depends upon the following question: Which judgment, that of the Court of First Instance of Manila rendered in Civil Case No. 5203 on March 7, 1951, or that of this Court in G.R. Nos. L-6569 and L6576 rendered on April 18, 1956 (affirming tire decision of the Court of Appeals in CA-G.R. L-7878 which, in turn, modified the aforementioned decision of the Court of First Instance of Manila) could be revived as against appellant Flores'? If it is the former, it is clear that the action to revive it (Civil Case No. 48859) filed with the same Court came too late on November 21, 1961, bearing in mind that the decision sought to be revived - a judgment by default as far as the third party defendant Flores was concerned - was

rendered on March 7, 1951. On the other hand, if it was our decision in G. R. Nos. L-6569 and L-6576 promulgated on April 18, 1956, the action for revival was timely filed, as held by the lower court. In connection with the above question, two undisputed facts must be borne in mind. The first is that from the decision of' the Court of First Instance of Manila in Civil Case No. 5203 rendered on March 7, 1951, all the parties thereto, except the third-party defendant therein, Flores, appealed to the Court of Appeals. 'Fire latter, therefore, was not affected at all neither by the decision rendered by the Court of Appeals nor by the one subsequently rendered by this Court. The second is that tire decision of the Court of First Instance of Manila in Civil Case No. 5203 was, as far as Flores was concerned, a judgment by default which, tinder the law then in force, was not appealable and was deemed to be immediately executory. (Lim Toco vs. Go Fay, 80 Phil. 166; Rodrigo vs. Cabrera, G.R. L-6074, September 16, 1954, construing the effects of a judgment by default tinder Rule 35, Section 7 of the original Rules of Court). Therefore, even if Flores had attempted to appeal therefrom, his appeal would have been out of order. It has been argued that, as the judgment by default against Flores was in favor of Pilar Bautista upon tier third party complaint, the same may not be considered final or enforceable Until the final determination of the main case - which took place only upon the finality of our decision in G.R. L-6569 and G.R. L-6576 promulgated on April 18, 1956 - and that, this being so, the action for revival in question was filed on time. This argument might apply if the cause of action alleged in Pilar Bautista's third party complaint against Mariano R. Flores was dependent upon the Success or failure of the claim subject matter of the main action instituted by Wenceslao Pascual against Pilar Bautista, plaintiff and defendant therein, respectively. Stich, however, is not the case before Us, where it is clear that Bautista's cause of action as third party plaintiff against third party defendant Flores was based on paragraph 5 of their agreement of January 6, 1945 which reads as follows: "(5) The VENDOR shall, in the event that for any reason whatsoever Nelly Montilla the Lovina shall refuse or fail to execute in favor of the VENDOR a deed of sale covering the said fishpond, pay unto the VENDEE the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) legal tender at the time, as liquidated damages, plus all expenses that the VENDEE shall have incurred for the improvement of the fishpond; and in case of non-payment of the liquidated damages and the other expenses above stated the VENDEE shall have the right to foreclose and levy upon the guarantee hereinabove described, the VENDOR hereby expressly waiving all his rights under the provisions of Rule 39, Section 12 of the Rules of Court"; The above stipulation makes it crystal clear that the vendee (Pilar Bautista) would be entitled to recover from the vendor (Mariano Flores) the liquidated damages and expenses agreed upon "in the event that for any reason whatsoever Nelly Montilla de Lovina shall refuse or fail to execute in favor of die vendor a deed of sale covering the said fishpond" (Italics supplied). Because Mrs, Lovina refused and/or failed to execute the contemplated deed of sale the trial court rendered the judgment by default against Mariano Flores. That the cause of action or claim of Pilar Bautista, as third party plaintiff, against Mariano Flores, as third party defendant, did not depend upon the outcome of the principal action (Pascual vs. Bautista and the Lovinas) is evident from the nature of the claims involved therein described in our decision in G.R. L-6569 and G. R. L-5676 as follows: "In his complaint against Filar Bautista, the Lovinas, and the latter's man Yambao, Pascual alleged his lease, dispossession and losses and sought: (a) the rescission of the lease with Pilar Bautista; (b) the return of the P10,000 he paid; and (c) payment of P27,556.00, representing the value of the fish he had in the fishpond; P20,814.72 worth of repairs thereto and P3,000.00 attorney's fees. "Bautista answered pleading the acquisition of the rights of Mariano Flores; that she offered to place the fishpond in plaintiff's possession but that the latter refused to resume possession; and counterclaimed for the balance of The second year's rent, amounting to P6,000. "The Lovinas filed answer denying privity of contract with Pascual: and pleaded the expiration of Flores' option without its exercised, and that they had repossessed the fishpond because it was abandoned. "Subsequently, Pilar, Bautista filed a third-party complaint against Mariano R. Flores alleging breach of the contract Exh. 6-Bautista, and consequent losses; and prayed for judgment in the sum of P500,000 as liquidated damages and attorney's fees, and that the mortgage in her favor be foreclosed. "Flores was declared in default and his properties were attached." Whether or not the filing of the third party complaint was proper can not now be raised by, nor be invoked in favor of Filar Bautista, because it was she precisely who filed it. Moreover, it is clear from the provisions of the Rules of Court that for a claim to be properly raised in a pending action by way of third party complaint, it is not necessary that it be one arising from or entirely dependent upon the main action; it is enough that it be "in respect"of the claim of third party plaintiff's opponent (Rule 6, Section 12, Rules of Court), or that it be "connected with plaintiff's claim" (Capayas vs. Court of First Instance of Albay, 43 O.G. 2071,2074; U.S. Commercial Company vs. Macario Guevara et al., 48 O.G. pp. 612-613). The foregoing makes unnecessary the consideration of other issues raised by appellant in his brief. WHEREFORE, judgment is hereby rendered setting aside the appealed decision, without costs. Concepcion, C.J., Reyes, J.B.L., Fernando and- Villamor, JJ., concur. Barredo, J., concurs in separate, opinion. Makalintal, Zaldivar, and Teehankee, JJ., took no part. Ruiz Castro, J., is on official leave. BARREDO, J., concurring. I concur in the result. I find myself unable, however, to agree with the proposition impliedly, if not directly, upheld in the main opinion that even if the claim of plaintiff-appellee Pilar Bautista is considered as a proper third-party complaint, the judgment in her favor and against Flores would still have been enforceable even before the decision of this Court in G. R. Nos. L-6569 and 6576 became final and executory, which, to be sure, is unnecessary and, therefore, obiter dictum. To start with, if it is true that the allegation of defendantappellant Mariano Flores under his contract with appellee Bautista was really entirely independent of any liability of the latter to Wenceslao Pascual who had sued her, I cannot see how a third-party complaint could have been filed by appellee. To say that the basis of Bautista's claim against Flores is completely independent of Pascual's cause of action against her and, in the same breath, hold that such claim of Bautista against Flores is "in respect of" Pascual's claim strikes me as lacking in consistency. Even if this point, as the main opinion holds, can no longer be raised now, it is my considered view that it is better that the true nature of the remedy in question be determined, thereby clearing any doubt as to the rights of the parties before Us. I maintain, therefore, that the pleading filed by appellee Bautista against appellant Flores was not a third-party complaint but an ordinary complaint, mistakenly pleaded within the pending action between Pascual and appellee. Nonetheless, since

judgment by default was actually tendered thereon by the court, apparently without anybody being the wiser and because there was no objection front anyone, the said judgment must be treated as an ordinary one, as contradistinguished from a judgment upon a third-party complaint. Accordingly, I concur in the result of the main opinion. lf, on the other hand, the pleading in question were to be considered as a genuine third-party complaint, the dispositive portion of this decision would not be, in my opinion, correct. I regret I have to disagree with the excessively broad concept of a third-party complaint defined by the main opinion. I do not believe that the phrase "in respect of his opponent's claim" used in Section 12 of Rule 6 of the Rules of Court concerning third-party complaints, can be equated with or has the same connotation as that of being merely "connected with the plaintiff's claim," as the main opinion holds. I realized that this quotation is from Capayas vs. Court of First Instance of Albay, 77 Phil. 18 1, 183, but I am afraid it can be out of context, for, precisely in that very decision, this Court held: "Petitioner's claim for indemnity against Lladoc and others does neither arise out of the same transaction or the alleged petitioner's tortuous act on which plaintiff's action is based, nor is it based on a different transaction but connected with the plaintiff's claim. Plaintiff's claim against petitioner and his co-defendants is, according to the allegations in the complaint, (a) to recover from them damages for the palay which have been illegally harvested from certain lands belonging to the plaintiff, and (b) to enjoin them front entering said lands and disturbing and molesting the plaintiff's fight of ownership and possession thereof Whereas the petitioner's claim against Isidora Lladoc and others is to recover front the latter the value of the three parcels of land and their fruits amounting to P3,200 plus legal interest, for having said Isidora, as administratrix of the intestate estate of Ceferino Guatizon, sold said lands in 1927 without authority of the court to Domingo Imperial, from whom said lands were acquired by the plaintiff. And in the present case, it is clear that if the so-called third-party complaint be allowed, Isidora Lladoc and others named (herein as third-party defendants could not assert any defense which the petitioner has or may have to the plaintiff's claim." Indeed, the true nature and concept of a third-party complaint was more comprehensively stated in that Capayas case thus: "Secondly. Because the respondent court would have committed an error if it had admitted the so-called third-party complaint riled by the petitioner against Isidora Lladoc, Fulgencio Lindoc and Gregorio Navera, since the facts alleged therein do not show that the petitioner is entitled to indemnify against them 'in respect to plaintiffs claim.' The test to determine whether the claim for indemnity in a third-party complaint, 'in respect to plaintiff's claim* is, whether it irises out of the same transaction oil which the plaintiff's claim is based, or the third-parly's claim, although arising out of another or different contract or transaction, is connected with the plaintiff's claim. "According to the decision in the case of Crim. is. Lumberman's Mutual Casualty Co. (26 Fed. Suppl. 715 [1 Fed. Rules Service, 14 all, Case No. 1]), the test to determine when a third-party defendant may be impleaded is whether he could be impleaded is whether he could have been joined originally as a defendant by the plaintiff. But this could be applied only if there could be asserted against the defendant as file third-party defendant, jointly and severally or in the alternatives, any right to relief arising out of the same transaction. For example in an action against the surety on a bond, the surety way bring in as a third-party defendant, the principal who had agreed to indemnify the surety, because the stately's claim arises out of the same transaction. (United States vs, United Slates Fidelity & Guaranty Co. vs. Kolling, U. S. Dist. Ct., D. Minn. February 1, 1940, 2 Fed. Rules Service 14a222, Case No. 1). The above test does not cover all cases in which impleading a third-party may be and have been allowed. which are also covered by the test we have laid down in the previous paragraph. Under Rule 14 of Federal Rules of Civil Procedure, which corresponds to our Rule 12, the bringing in of a third-party defendant is proper if the would be liable to the plaintiff or to the defendant for all or part of the plaintiff's claim against the original defendant, although the third-party defendant's liability arises out of another transaction, So in the case of Carbola Chemical Co., Inc. vs. Trundle Engineering Co. (U.S. Dist. Cf. S.D.N.Y., December 26, 1942), it was held that in an action for breach of contract to render engineering services and to survey a plant. the defendant was allowed to bring as a third-party defendant, the manufacturer which sold defendant's equipment to the plaintiff (7 Fed. Rules Service, 14 all, Case No. 1). And in a negligence action by the purchaser of a confection in which it is alleged that the confection contained a foreign object, the defendant may bring in the person who supplied him with the constituent containing the foreign object, as a third-party defendant (Saunders vs. Southern Dairies, Inc. U.S. Dist. Ct., District of Columbia, November 6, 1939 [2 Fed. Rules Service, l4a.226, Case No. 3]). "Another test, provided for by Section 4, Rule 12, of our Rules of Court, is whether the third-party defendant may assert any defenses which the third-party plaintiff has or may have to the plaintiff's claim. If he may properly assert such defenses, then he is a proper third-party defendant; otherwise: he is not and the claim against him can riot be considered as a third-party complaint." The way I understand the above-quoted dissertation, it does not lay down one single test that can be utilized or applied separately from the others. To determine whether a third-party complaint is proper or not, all the tests mentioned must have to be satisfied. There is no question that the purpose of a third-party complaint is to avoid multiplicity of suits, but this principle cannot be so extensive as to authorize the impleading of a party whose controversy with the impleader relates to a claim with which those already in the action have nothing to do, even if the transactions involved in the controversy already in court may have some connection, as when it is part of the same series, with that to be involved in the third-party complaint. What justifies a unity of proceedings is community of interest and issues, except as between parties already contending with each other, in which all kinds of claims are permissible to be pleaded against each other. I maintain there is a distinction between related transact ions and related claims, and the latter, not the former, are the ones that can be the subject of the third-party complaints. In other words, the claims must be related to the same transaction and not to merely related transactions. In defining a compulsory counter-claim, Section 4 of Rule 9 uses the phrase "necessarily connected with. " Of course, the reference here is to transaction or occurence and to claim. My point, however, is that were it (he intention of Section 12, Rule 6 to refer to merely "connected" claims, it would have used that word instead of the phrase "in respect of" as in Section 4, Rule 9. and thereby avoid confusion. If it is bad to give to the same word used in the various parts of a single body of rules or laws different meanings, since it must be presumed that the authors thereof must have intended a uniform meaning for it throughout, conversely, it is just is bad to attribute the same meaning to two different, if quite synonymous words therein, for it is obvious that the use of a different word, with a known somewhat different connotation, indicates that the meaning intended to be conveyed is also different. It appears quite clear tome that in ordinary parlance, to say that one thing is "connected with" another does not convey the same import as saying that it is "in respect of" it. "Connected with" comprehends a much broader idea than "in respect of." I am sure that, at least, these two phrases are not always interchangeable. According to Senator Vicente Francisco, a distinguished authority in procedural law, "The rule on third-party complaint requires that the claim of the defendant be 'in respect of the plaintiff's claim.' Unlike permissive counter-claim, the third-party complaint must be founded on the claims it? the original action. - (The Revised Rules of Court in the Philippines, Annotated and Commented by Vicente Francisco, Vol. 1, p. 35 1. Italics supplied,) In this connection, he cites United Slates vs. Jollimore vs. Holland Furnace Co., 5 Federal Rules Service 205, thus: "A third-party defendant may not be impleaded if the effect would be to introduce a new and separate controversy into the action. The test to determine whether a third-party may be impleaded is whether he could have been joined originally as a defendant by the plaintiff or whether he is liable as a guarantor, surely, insurer, or indemnifier of the principal defendant." Further, the same author opines: "2. Purpose of third-party complaint.-The purpose of third-party complaint is to avoid two actions which should be tried together to save time and cost of reduplication of evidence, to obtain consistent results from identical or similar evidence, and to do away with

the serious handicap to a defendant of a time difference between a judgment against him, and a judgment in his favor against the third-party defendant. (Moore's Federal Practice, 740; Tullgreen vs. Jasper, 1939, 27 F. Supp. 413.) "The purpose of the rule is to avoid delay and circuity of actions and to enable the controversy to be disposed of in one suit, that is, to permit the determination in a single suit of not only the original claim, but the added party's liability therefor. (67 C.J.S., 1934; The purpose of thirdparty procedure is to avoid circuity of action and permits the determination in a single action of the rights and liabilities of parties growing out of facts that relate to the same transactions.- Carbola Chemical Co., Inc., Trundle Engineering Co., 7 Federal Rules Service, 269; The primary object of the civil procedure rule permitting a defendant to bring in a third-party defendant is to avoid circuity of action and to dispose, in one litigation, of an entire subject matter arising from a particular set of facts.- Tullgreen vs. Jasper, (1939) 27 F. Supp. 413.) "3. Nature of third-party complaint.- Third-party complaint is merely a device by which the defendant can bring into the original suit a party against whom be will have a claim for indemnity or remuneration as a result of a liability established against him in the original suit. It is a species of joinder of actions where the second action accrues only as a result of the first action. All liabilities are determined in the one action and the use of third-party complaint is discretionary with the court. (Univ. of Cincinnati Rev. Vol. 13, No. 1, pp. 92-93)." I submit that a fourth-party complaint is nothing more nothing less than a third-party complaint, except that it is only in respect of the claim of the third-party plaintiff against the third-party defendant. Now, Section 13 of Rule 6 defines a fourth-party complaint as follows: "SEC. 13. Fourth, etc., parties- A third-party defendant may proceed under this rule against any person not a party to the action who is or may be liable to him or to the third-party plaintiff for all or part of the claim made in the action against the third-party defendant." I am convinced that these simple words applied mutatis mutandis to the definition of a third-party complaint convey the true concept of such pleading. I simply cannot see why a plaintiff can be made to saddle the time, inconvenience and expenses of attending to a third-party complaint wherein the fate of his own claim against the defendant is absolutely independent of the claim of the defendant against the third-party defendant just because the transaction involved in the third-party complaint happens to be related somehow to the transaction subject of his complaint, specially if the plaintiff has not taken part nor is he mentioned or referred to in such transaction. My fear is that such an amplication of the concept of third-party complaints which the main opinion seems to sanctions will not serve the purpose of "assisting the parties in obtaining just, speedy and inexpensive determination of every action or proceeding" as envisioned in Section 2 of Rule 1. On the contrary, it is bound to create confusion, unnecessary delay and expense for the plaintiff without any corresponding benefit to the interests of justice. Applying these views to this case. I reiterate that if the claim of Bautista were areal third-party complaint, the effect would be that the judgment, even by the default, against Flores did not become executory until after the claim against Bautista had been finally determined, for in my concept, as explained above, of areal thirdparty complaint, the third-party defendant is never liable to the defendant unless the latter is liable to the plaintiff.

Balbastro vs. CA November 29, 1972 [GRN L-33255 November 29, 1972] ARTURO BALBASTRO, JOSE PEREZ, EDGARDO DE LA CRUZ, LEONARDO VILLANUEVA and CONSORCIA HALILI, petitioners, vs. COURT OF APPEALS, HON. WALFRIDO DELOS ANGELES, in his capacity as Judge of the Court of First Instance of Rizal, Quezon City, Branch IV, and FRANCISCO E. FERNANDEZ, respondents. DECISION SYLLABUS 1. REMEDIAL LAW; PLEADINGS AND PRACTICE; THIRDPARTY COMPLAINT; PROPER PROCEDURE WHEN RIGHT TO RELIEF EXISTS.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 in 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 sonic substantive basis under applicable law. 2. ID.; ID.; ID.; REQUIREMENT.- Apart from the requirement that the thirdparty complaint 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 (thirdparty 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." 3. ID.; ID.; PARTIES; JOINDER OF PARTIES; NO ABUSE OF DISCRETION IN INSTANT CASE.- Where both the plaintiffs and the thirdparty defendants (petitioners in this case) are the common lessees of the 10door apartment the ownership of which is being litigated between defendant and third-party plaintiff, the action of the trial court in allowing the joinder of petitioners to settle in the most convenient manner the question as to whom the tenants should pay the rentals, in one single proceeding, could not be considered as a grave abuse of discretion. The inclusion of petitioners not as third-party defendants but as proper parties in the action because "there is a question of law or fact common to the right or duty in which" they are "interested and another right sought to be enforced in the action" is sanctioned by Section 6 of Rule 3 of the Revised Rules of Court. 4. ID.; ID.; ID.; ID.; BASIS.- Section 6 of Rule 3 of the Revised Rules of Court which is taken from Rule 20(a) and (b) of the Federal Rules of Civil Procedure, "is based on trial convenience and is designed to permit joinder of plaintiffs or defendants whenever there is a common question of law or fact." APPEARANCES OF COUNSEL Flores, Macapagal, Ocampo & Balbastro for petitioners. T.J. Sumawang & Associates for respondent Francisco E. Fernandez. ANTONIO, J.:

Appeal by Certiorari from the decision dated January 20, 197 1, of the Court of Appeals, sustaining the orders of November 17, 1969 and May 18, 1970 of the Court of First Instance of Rizal, Quezon City Branch IV, in Civil Case No. Q- 13297, an action for interpleader against Francisco E. Fernandez and Angela M. Butte, and also from the resolution dated February 16, 1971, of the Special Divison of the Court of Appeals denying petitioners' motion for reconsideration. 'Me only issue raised in this Petition is whether or not the respondent Judge has committed a grave abuse of discretion in allowing the inclusion of petitioners as parties in the aforecited interpleader case on the basis of a pleading designated as "thirdparty complaint" of respondent Francisco E. Fernandez. The facts are undisputed. As correctly found by the Court of Appeals, on July 17, 1969, Chiu Keng long, Lim Bun Kong, and Rajindar Singh, lessees of three doors of a 10-door apartment situated at E. Rodriguez St., Quezon City, filed a complaint for interpleader and consignation with the respondent Court of First Instance of Rizal, Quezon City, Branch IV, which was docketed as Civil Case No. Q13297 against private respondents Francisco E. Fernandez and Angela M. Butte, each of whom was claiming ownership over the aforementioned 10-door apartment and of the night to collect the rents therefrom. In their complaint, plaintiffs alleged that they have no means of knowing definitely to whom they should pay rentals whether to defendant Angela M. Butte or defendant Francisco E. Fernandez. In answer to plaintiffs' complaint defendant Francisco E. Fernandez alleged among others that pending determination of the conflicting claims involved in the case he was granted an ad interim authority to collect and deposit with the court the rentals due on the subject property which authority was allegedly upheld by the Court of Appeals in its decision of July 17, 1970 in CA-GR, NO. 44341-R entitled Angela M. Butte vs. Francisco E. Fernandez. On the other hand defendant Angela M. Butte claims that being the owner of the 10-door apartment in question, she has every right to collect the rents of the property. On October 29, 1969, private respondent Francisco R. Fernandez filed a Third-Party Complaint against the third-party defendants (petitioners herein) who are the lessees of the remaining doors of the 10-door apartment because of their refusal to recognize the authority of private respondent Francisco E. Fernandez to collect the rents on the doors leased by them. The third-party defendants who are now the petitioners herein filed with the respondent court a "Motion to Strike Out And/Or To Dismiss The Third-Party Complaint" filed by Francisco E. Fernandez on the ground that the filing of said Third-Party Complaint against them is in violation of the express provisions of Section 12, Rule 6 of the Revised Rules of Court and not in accord with established jurisprudence on the matter and on the further ground that said ThirdParty Complaint does not state any cause of action. On November 14, 1969 private respondent Francisco E. Fernandez filed his opposition to petitioners' Motion to Strike And/ Or To Dismiss The Third-Party Complaint. The motion of petitioners To Strike Out And/Or To Dismiss the third-party complaint, was denied by the Court a quo on November 17, 1969, and upon receipt of the order of denial petitioners filed a Motion for Reconsideration of the same. This motion for reconsideration was likewise denied on May 18, 1970. In due time petitioners appealed to the Court of Appeals and sought (1) to annul and set aside the Order of the respondent Judge dated November 17, 1969 denying their Motion to Strike Out and/or Dismiss the Third-Party Complaint and its Order of May 18, 1970 denying their motion for reconsideration; (2) the dismissal of the Third-Party Complaint of October 28, 1969; and (3) to prohibit and restrain the respondent Judge from proceeding with the hearing of the said Third-Party Complaint and/or said Civil Case No. Q-13297. On January 20, 197 1, the respondent Court of Appeals rendered its decision dismissing the petition and dissolved the writ of preliminary injunction previously issued. A motion for reconsideration filed by petitioners was denied on February 16, 1971 by respondent Appellate Court. Hence this petition for certiorari. In ruling for the private respondents, the Court of Appeals stated: "The focal issue in this petition is whether or not the respondent Judge has committed a grave abuse of discretion in allowing the defendant Francisco E. Fernandez in Civil Case No. Q-13297 (now respondent herein) to file a third-party complaint against the third party defendants. It is well-settled in our jurisdiction that the admission of third-party complaint is discretionary with the court. The exercise of this discretion should of course be guided by wellestablished doctrines promulgated by our courts. In the same case cited by the petitioners this Court held that: 'Leave to bring in a third-party should be granted only if it will result in simplifying procedure, expediting the litigation and reducing expenses. (J.M. Tuason & Co., Inc. vs. Puno, CA-G.R. No. 25474-R, May 31, 1966).' Also in another case we held that: 'Rule 6, Sec. 12, allows third-party complaint in order to minimize the number of lawsuits and avoid the necessity of bringing two or more actions involving the same subject matter. (Republic of the Philippines vs. Cleofe Ramos, et al., G.R. No. L-18911, April 27, 1967).' Will the filing of the third-party complaint against the third-party defendants result in simplifyg procedure, expediting the litigation, and reducing expenses of the parties in the present controversy? If it will, then definitely the respondent court has not abused its discretion in denying the motion of petitioners to strike out and or dismiss the third-party complaint filed against them. It is admitted that both the plaintiffs and the third-party (who are petitioners herein) are the common lessees of the 10door apartment the ownership of which is being litigated between defendant Angela M. Butte and the third-party plaintiff Francisco E. Fernandez. As such lessees they have the same problem of determining the right person to whom they should pay the corresponding rents of the particular doors they are occupying. Because of the raging conflict between the defendant Angela M. Butte and third-party plaintiff ultimately they would resort to an action for interpleader against the conflicting claimants of the subject property. To require each of the petitioners to file an action for interpleader against the conflicting claimants of the subject property will undoubtedly go against the rule on multiplicity of suits. On the other hand by allowing the filing of the thirdparty complaint against the petitioners, the latter will not only be spared of the trouble of filing an action for interpleader. It will likewise save the third-party plaintiff from filing the necessary action for the collection of rents in case the respondent court finally decides that said party-plaintiff is the one entitled to collect the rents on the subject property. In our assessment of the facts and circumstances, we are convinced that the respondent court did what it considered was necessary to shorten the litigation between the parties by allowing the settlement of related or similar problems confronting them in one single proceeding and avoiding multiplicity of actions. Certainly, this actuation cannot be challenged as an abuse of discretion, much less a grave one." Petitioners contending that the Appellate Court misapplied the applicable rule, and insisting that the "Third Party Complaint" in Civil Case No. Q13297, does not fall within the context of Section 12 of Rule 6 of the Revised Rules of Court and that the court a quo in admitting the aforesaid "third-party complaint" gravely abused its discretion, now raises those questions to Us for review.

I Section 12 of Rule 6 of the Revised Rules of Court1 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, subrogative, 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.2 This rule is merely a procedural mechanism, and cannot be utilized unless there is some substantive basis under applicable law.3 Apart from the requirement that the third-party complainant should assert a derivative or secondary claim for relief from the thirdparty 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 original defendant must be based upon plaintiffs 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"4 In Capayas vs. Court of First Instance5 this Court enunciated the same principle, when the court ruled: " * * *when the law says that a third-party complaint may be filed with leave of court, it refers to a complaint that alleges facts which prima facie show that the defendant is entitled against the third-party defendant to contribution, etc., etc. Otherwise the court can not legally grant leave to a defendant to file it because it would not be a third-party complaint. * * *. The test to determine whether the claim for indemnity in a third-party complaint, 'in respect to plaintiffs claim' is, whether it arises out of the same transaction on which the plaintiffs claim is based, or the third-party's claim, although arising out of another or different contract or transaction, is connected with the plaintiffs claim." The requirement that for a third-party complaint to be available the third-party defendant must be liable secondarily to the original defendant in the event that the latter is held liable to the plaintiff was reiterated in Commercial Bank & Trust Company of the Philippines v. Republic Armored Car Service Corp.6 where this Court thru Justice Labrador ruled that '"a third-party complaint is, under the Rules, available only if the defendant has a right to demand contribution, indemnity, subrogation or any other relief from the supposed third-party defendants in respect to the plaintiffs claim." Absent therefore in the case at bar the nexus between petitioners as thirdparty defendants and Francisco E. Fernandez, the thirdparty plaintiff, showing the existence of a secondary or derivative liability of the former in favor of the latter "in respect of his opponent's claim" the third-party action would not be proper. On the issue therefore, as to whether or not Section 12 of Rule 6 of the Rules authorizes a. defendant to bring into the case any person not a party to the action, who is not secondarily liable to said defendant for contribution, indemnity, subrogation or any other relief in respect to the claim of the plaintiff against the defendant, the answer appears plain. In the context of the aforecited rule and applicable jurisprudence the answer must be in the negative. II Countervailing policy considerations however in view of the factual environment such as the equity rule against multiplicity of suits precludes Us from reversing the challenged decision, As aptly stressed by the Appellate Tribunal, "it is admitted that both the plaintiffs and the third-party defendants * * * are the common lessees of the 10-door apartment the ownership of which is being litigated between defendant Angela M. Butte and thirdparty plaintiff Francisco E. Fernandez. As such lessees they have the same problem of determining the right person to whom they should pay the corresponding rents of the particular doors they are occupying. Because of the raging conflict between the defendant Angela M. Butte and third-party plaintiff ultimately they would resort to an action for interpleader against the conflicting claimants of the subject property. To require each of the petitioner to file an action for interpleader against the conflicting claimants of the subject property will undoubtedly go against the rule on multiplicity of suits. * * * In our assessment of the facts and circumstances, We are convinced that the respondent court did what it considered was necessary to shorten the litigation between the parties by allowing them in one single proceeding, and avoiding multiplicity of actions ." The correctness of this factual observation cannot be seriously disputed. Of course petitioners suggest that the question as who should be entitled to collect the rentals of the apartment must be ventilated in the case for rescission and damages between Angela M. Butte and Francisco E. Fernandez., pending before another court, but such a suggestion does not solve the problem. It cannot be denied that Civil Case No. Q-13292, subject of this appeal by certiorari, presents only one question, and that is- who of the defendants therein are entitled to collect the rentals? Undoubtedly, it would be to the interests of all concerned, if all of the tenants of the 10-door apartment were included in the suit. The findings of the Appellate Court that petitioners are all common lessees of the apartment is conclusive upon Us. The inclusion of the other tenants would necessarily do away and avoid the filing of independent actions, with inevitable trouble, expense and loss of time it would entail. The leading principle in our system of procedure is the avoidance of multiplicity of suits and whenever possible, to permit and sometimes require the parties to thresh out in one litigation all claims which arise out of the same transaction. Faithful adherence to the aforecited principle compels Us to view the inclusion of petitioners not as third-party defendants but as proper parties in the action because 'there is a question of law or fact common to the right or duty in which" they are "interested and another right sought to be enforced in the action."7 The act of the court a quo in permitting, their joinder is sanctioned by Section 6 of Rule 3 of the Revised Rules of Court. Section 6, which is taken from Rule 20 (a) and (b) of the Federal Rules of Civil Procedure. "is based on trial convenience and is designed to permit joinder of plaintiffs or defendants whenever there is a common question of law or fact."8 Since rules on joinder of parties must be allowed considerable flexibility to meet the requirements of justice and convenience and considering the broad discretion of the Courts in determining who are properly to be joined, the action of the trial court in the case at bar allowing the joinder of petitioners, to settle in the most convenient manner the question as to whom the tenants should pay the rentals, in one single proceedings could not therefore be considered as a grave abuse of discretion. WHEREFORE, finding no error in the decision of the Court of Appeals now under review, the petition is hereby dismissed. Without costs. Concepcion, C.J., Makalintal, Zaldivar, Ruiz Castro, Fernando, Teehankee, Barredo, and Esguerra, JJ., concur. Makasiar, J., I reserve my vote.

1. This rule is from Section I of Rule 12 of the old Rules, which in turn was taken from Section I of Art 13, of the Rules of Civil Procedure by the American Judicature Society in combination with Rule 14 (a) of the Federal Rules of Civil Procedure. (Cf. I Moran. Rules of Court, 1958 Ed., p. 184.) 2. General Dynamics Corp. vs. Adams, CA. 5th, 1965, 340 F. 2d 271. Travelers Ins. Co. vs. Busy Elec. Co., CA. 5th, 1961,294 F. 2d 139. Godlawr, Inc. vs. Shubert, CA. 3d, 1960, 276 F. 2d 614. Brown v. Cranston, CA. 2d, 1942, 132 F.2d 631, 148 A.L.R. 1178, certiorari denied 63 S. Ct. 1028, 319 U.S. 741, 87 L. Ed. 1698 Behar v. Savard, D.C.N.Y. 1958,21 F.R.D. 367, 369. 3. Kantlehner v. U.S., D.C.N.Y. 1967,279 F. SUPP. 122. 4. Wright & Miller, Federal Practice and Procedure: Civil, Vol. 6, p. 257, citing: U.S. Fidelity & Guar Co. v. American State Bank, C.A. 10th, 1967, 372 F. 2d 449. U.S. V. Mullins, D.C. Va. 1964, 228 F. Supp. 748. Non-Ferrous Metals, Inc. vs. Saramar Aluminum Co., D.C. Ohio 1960,25 F.R.D. 102. 5. 77 Phil. 181. 6. 8 SCRA 425 7. "In general it can be said that a proper party is one who may join as plaintiff or be joined as defendant because there is a question of law or fact common to the right or duty in which he is interested and another right. sought to be enforced in the action. Here the joinder is permissive and is governed by Rule 20 * * * ." (2 Moore's Federal Practice, p. 2135.)

Rep. of the Phil. vs. Central Surety & Ins. Co., et al. October 26, 1968 [GRN L-27802 October 26, 1968] REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. CENTRAL SURETY & INSURANCE COMPANY, ET AL., defendants and appellants. CENTRAL SURETY & INSURANCE COMPANY, Third-party plaintiff-appellant vs. PO KEE KAM, ET AL., third-party defendantsappellees. 1. ADMINISTRATIVE LAW; IMMIGRATION; SURETY BOND; FORFEITURE THEREOF FOR FAILURE TO PRODUCE BONDED PERSON.it is argued that the Surety is not liable on its bond it executed in favor of the Deportation Board for the temporary release of Po Kee Kam, a Chinese citizen and respondent in deportation proceeding No. 730, because two conditions thereofthat there must be notice to it by the Republic to produce the person bonded, and that the latter fails to appear as required in the noticedid not come to pass. This pretense is palpably without merit. Exhibit B unequivocally shows that the Surety received notice to produce the person of Po Kee Kam; in point of fact the Surety even orally moved "for the postponement of the production of respondent Po Kee Kam," which motion was denied in the order of December 14, 1962 of the Deportation Board. It would have been pointless to ask for postponement to produce the person of Po Kee Kam, if the Surety did not receive notice to that effect, At all events, the trial court found that the Surety and Mangoba "were duly notified to produce the said Po Kee Kam before the Deportation Board on December 14, 1962, but the said Po Kee Kam failed to appear." This finding of the trial court is entitled to respect, being fully supported by the evidence of record. 2. REMEDIAL LAW; COURT OF FIRST INSTANCE; JURISDICTION ONCE ACQUIRED OVER A CASE CONTINUES; AMENDATORY LAW DOES NOT AFFECT A SUIT FILED BEFORE ITS EFFECTIVITY.- It is insisted that the trial court had no jurisdiction over the subject-matter of the action because the total amount involved is only P6,000 (P5,000 under the bond and P1,000 as attorney's fees), a court of first instance being vested with jurisdiction only over cases in which the demand, exclusive of interest, or the value of the property in controversy, exceeds P10,000, pursuant to Section 44 of Republic Act 296, as amended by Republic Act 3828 which took effect on June 22, 1963. Although the present action was filed on June 20, 1963, two days before the effectivity of Republic Act 3828 which broadened the jurisdiction of municipal and city courts to include cases in which the demand, exclusive of interest, or the value of the controversy, does not exceed P10,000, it is nonetheless argued that the court's jurisdiction over the case was lost on June 22, 1963, when Republic Act 3828 took effect, and therefore the case should have been remanded to the municipal court. We disagree, It is not disputed that the trial court acquired jurisdiction over the subjectmatter on June 20, 1963 when the complaint was filed with it. It is of no moment that summons was served and that the case was heard and decided after the effectivity of Republic Act 3828, because the rule is firmly entrenched in our law that jurisdiction once acquired continues until the case is finally terminated. 3. ID.; ID.; JURISDICTION OVER MAIN CASE CARRIES WITH IT JURISDICTION OVER THIRD-PARTY COMPLAINT.- The Surety takes the position that if the trial court acquired jurisdiction over the main case, "it follows that it could also take cognizance of the third-party complaint which derives its life from the complaint." The Surety has a point here. It is true that the third-party complaint was filed after the effectivity date of Republic Act 3828. It is likewise true that the demand therein made does not exceed P10,000, and therefore, is not within the jurisdiction of the Court of First Instance if it were an independent action. But the third-party complaint is an ancillary suit which depends on the jurisdiction of the court over the main action. Since the trial court had acquired jurisdiction over the complaint, it necessarily follows that it likewise had jurisdiction over the third-party complaint which is but an incident thereof. This must be so because jurisdiction over the main case embraces all incidental matters arising therefrom and connected therewith. A contrary rule would result in "split jurisdiction" which is not favored, and in multiplicity of suits, a situation obnoxious to the orderly administration of justice. The court acquired jurisdiction over the main case, for the reason that the third-party complaint is but a continuation thereof, its purpose being to seek "contribution, indemnity, subrogation or any other relief, in respect to his opponent's claim." 4. ID.; ID.; ID.; REMAND OF THIRD-PARTY COMPLAINT TO LOWER COURT FOR TRIAL UNNECESSARY; CASE DECIDED ON ITS MERITS.The Surety prays for the remand of the thirdparty complaint to the trial court for further proceedings. It is our view that under the environmental circumstances, there is no need to do so. The third-party defendants did not specifically deny the execution of the indemnity agreement. They merely expressed insufficient knowledge and information to form a belief as to the veracity thereof, without setting forth "the substance of the matters" upon which they rely to support their denial as required by the Rules. To obviate further litigation between the Surety and the third-party defendants, this Court now decides the third-party complaint on the merits, and orders the third-party defendants to reimburse the Surety the amount of the judgment against it. The pleadings on record fully support this adjudication. APPEAL from a judgment of the Court of First Instance of Manila. Geronimo, J. The facts are stated in the opinion of the Court. Managan and Casimiro M. Mangoba for appellant. Solicitor General Arturro A. Alafriz, Assistant Solicitor General Isidro C. Borromeo and Solicitor Teodulo R. Dio for appellee Rep. of the Phil. Percival M. Lopez for appellee Po Kee Kam. CASTRO, J.:

On October 23, 1959 the Republic of the Philippines (hereinafter referred to as the Republic) filed suit against the Central Surety & Insurance Company (hereinafter referred to as the Surety) and the latter's manager of the bond department, Casimiro Mangoba. The complaint recites (1) that the Surety executed in favor of the Deportation Board a bond in the amount of ?5,0()0 for the temporary release of Po Kee Kam, a Chinese citizen and respondent in deportation proceeding No. 730, subject to certain conditions, principal among which are that the Surety undertakes to have Po Kee Kam available at all times to the Deportation Board within 24 hours from notice, that Po Kee Kam shall be personally present before the Deportation Board at all hearings in the case, and that upon his failure to comply with any of the above conditions, the bond shall be automatically confiscated and forfeited in favor of the Government; (2) that because Po Kee Kam failed to appear at the hearing scheduled for December 14, 1962 despite due notice to the Surety, the Deportation Board on the same date issued an order for his arrest, which same order declared the bond confiscated in favor of the Government; (3) that by letter of December 27, 1962, the Commissioner of Immigration informed the Surety of the forfeiture of the bond and demanded the remittance to the Bureau of Immigration of the amount of P5,000 on or before January 2, 1963; (4) that notwithstanding repeated demands the Surety has failed to remit the said amount without justifiable cause. Prayer is made that judgment be rendered sentencing the Surety and Mangoba to pay, jointly and severally, to the Republic the amount of P5,000, with interest at the legal rate from the filing of the complaint until full payment, and the sum of P1,000 as attorney's fees and litigation expenses, plus costs. On July 5, 1963 the Surety filed its answer, interposing inter alia, the defenses (1) that its bond cannot be made liable beyond the amount of P5,000; (2) that it is not liable for attorney's fees in the absence of any stipulation to that effect; (3) that the court has no jurisdiction over the case as the amount involved is only P5,000; and (4) that the Republic has no cause of action. Mangoba's answer, filed on July 11, 1963, makes substantially the same averments and interposes the same defenses as those Rep. of the Phil. vs. Central Surety & Ins. Co., et al. contained in the Surety's answer. In addition, he disclaims personal liability under the bond. On July 30, 1963 the Surety filed a third-party complaint, with leave of court, against Po Kee Kam and Tony Go (hereinafter referred to as the third-party defendants), alleging that the Republic filed a complaint against it on the basis of a surety bond in the amount of P5,000 issued in behalf of Po Kee Kam in favor of the Deportation Board; that for and in consideration of the issuance of the said bond, the third-party defendants, jointly and severally, executed an indemnity agreement in favor of the Surety to indemnify it for damage, loss, costs, payments, advances and expenses of whatever kind and nature which it might at any time incur as a consequence of having executed the said bond. Prayer is made that in the event judgment is rendered against it, the thirdparty defendants be ordered, jointly and severally, to reimburse it whatever amount it may be adjudged to pay to the Republic, plus interest at the rate of 12% per annum, compounded quarterly, from the Filing of the complaint until the whole obligation is fully paid, 15% of the total amount due as attorney's fees, and costs. On September 7, 1963 the third-party defendants filed their answer, admitting some material allegations of the third-party complaint, denying others, and interposing the defense that the case is premature as the main case has not yet been terminated. On December 2, 1963 upon verbal motion of the third-party defendants, the trial court dismissed the third-party complaint for lack of jurisdiction, in the following words: "It appearing from the records that the third-party complaint was filed after the passage of the new law conferring original jurisdiction on the Municipal Court in civil cases involving not more than P10,000, and it likewise appearing that the third-party complaint refers to a claim of only P6,000.00, the oral motion to dismiss riled by the counsel for the third-party defendants is in order. Therefore, the court hereby orders that the thirdparty complaint be, as it is hereby, dismissed, without prejudice to the right of the third-party plaintiff to file a separate case in the municipal court." On the following day, December 3, 1963, the trial court rendered judgment, ordering the Surety to pay to the Republic the sum of P5,000, with interest thereon at the legal rate from the date of the filing of the complaint until the whole amount shall have been paid, plus costs, and absolving Mangoba from the complaint. The Surety forthwith interposed its appeal to the Court of Appeals from the order of December 2, 1963 dismissing its thirdparty complaint, and from the decision of December 3, 1963 ordering it to pay the Republic the amount of P5,000, contending that the trial court erred in (1) holding the Surety liable on the bond despite the fact that it has not violated any condition thereof, (2) not declaring itself without jurisdiction over the subject-matter of the action, and (3) dismissing the third-party complaint. The Court of Appeals certified the case to this Court on May 10, 1967, pursuant to section 2, Article VITT of the Constitution, and Section 17(3) of Republic Act 296, on the ground that the jurisdiction of the trial court is squarely in issue. By formulation of the Surety, the issues tendered for resolution in this appeal are: (1) Is the Surety liable on its bond? (2) Did the trial court have jurisdiction over the subject-matter of the main action? (3) Did the trial court have jurisdiction over the third-party complaint? 1. Upon the first issue, it is argued that the Surety is not liable on its bond because the two conditions thereof-that there must be notice to it by the Republic to produce the person bonded, and that the latter fails to appear as required in the notice-did not come to pass. Hence, the forfeiture of the bond is unwarranted, This pretense of the Surety is palpably without merit. Exhibit E1 unequivocally shows that the Surety received notice to produce the person of Po Kee Kam; in point of fact the Surety even orally moved "for the postponement of the production of respondent Po Kee Kam," which motion was denied in the order of December 14, 1962 of the Deportation Board. It would have been pointless to ask for postponement to produce the person of Po Kee Kam, if the Surety did not receive notice to that effect. At all events, the trial court found that the Surety and Mangoba "were duly notified to produce the said Po Kee Kam before the Deportation Board on December 14, 1962, but the said Po Kee Kam failed to appear." This finding of the trial court is entitled to respect, being fully supported by the evidence of record. 2 The trial court therefore did not err in ordering the Surety to pay to the Republic the sum of P5,000, with interest thereon at the legal rate from the date of the filing of the complaint until full payment thereof, plus costs. 2. Upon the second issue, it is insisted that the trial court had no jurisdiction over the subject-matter of the action because the total amount involved is only P6,000 (P5,000 under the bond and P 1,000 as attorney's fees), a court of first instance being vested with jurisdiction only over cases in which the demand, exclusive of interest, or the value of the property in controversy, exceeds P10,000,

pursuant to Section 44 of Republic Act 296, as amended by Republic Act 3828 which took effect on June 22, 1963. Although the present action was filed on June 20, 1963, two days before the effectivity of Republic Act 3828 which broadened the jurisdiction of municipal and city courts to include cases in which the demand, exclusive of interest, or the value of the property in controversy, does not exceed P10,000,3 it is nonetheless argued that the court's jurisdiction over the case was lost on June 22, 1963, when Republic Act 3828 took effect, and therefore the case should have been remanded to the municipal court. 4 We disagree. It is not disputed that the trial court acquired jurisdiction over the subject-matter on June 20, 1963 when the complaint was filed with it. It is of no moment that summons was served and that the case was heard and decided after the effectivity of Republic Act 3828, because the rule is firmly entrenched in our law that jurisdiction once acquired continues until the case is finally terminated.5 3. Upon the third issue, the Surety takes the position that if the trial court acquired jurisdiction over the main case, "it follows that it could take cognizance of the third-party complaint which derives its life from the complaint." The Surety has a point here. It is true that the third-party complaint was filed after the effectivity date of Republic Act 3828. It is likewise true that the demand therein made does not exceed P10,000, and, therefore, Is not within the jurisdiction of the court of First Instance if it were an independent action. But the thirdparty complaint is an ancillary suit which depends on the jurisdiction of the court over the main action. Since the trial court had acquired jurisdiction over the complaint, it necessarily follows that it likewise had jurisdiction over the third-party complaint which is but an incident thereof. This must be so because jurisdiction over the main case embraces all incidental matters arising therefrom and connected therewith.6 A contrary rule would result in "split jurisdiction" which is not favored,7 and in multiplicity of suits, a situation obnoxious to the orderly administration of justice. 8 The court acquired jurisdiction over the third-party complaint, provided it had jurisdiction over the main case, for the reason that the third-party complaint is but a continuation thereof, its purpose being to seek "contribution, indemnity, subrogation or any other relief, in respect to his opponent's claim." 9 Thus, in Talisay-Silay Milling Co., et al. vs. CIR, et al., 10 this Court elaborated with incisiveness: "The third-party complaint is but a continuation of the main action, its purpose being merely to seek 'contribution, indemnity, subrogation or any other relief, in respect of his opponent's claim.' (Rule 6, Sec. 12.) The aim is to avoid the actions which should be tried together to save the time and cost of a re-duplication of evidence, to obtain consistent results from identical or similar evidence, and to do away with the serious handicap to a defendant of a time difference between a judgment against him and a judgment in his favor against the third-party defendant. "Thus it has been held that 'where a court has jurisdiction of a claim and the parties in the principal action, 'it generally has jurisdiction also of a suit or proceeding which is a continuation of or incidental and ancillary to the principal action, even though it might not have jurisdiction of the ancillary proceeding if it were an independent and original action or proceeding. The jurisdiction of the ancillary suit or proceeding is referrable to or dependent upon the jurisdiction of the court over the principal suit or proceeding.' "Petitioners urge that a rule similar to the rule on counterclaims be adopted. But a third-party complaint cannot be likened to a counterclaim which must be within the jurisdiction of the court trying the main case, because unlike a third-party complaint, a counterclaim 'need not diminish or defeat the recovery sought by the opposing party, but may claim itself exceeding in amount or different in kind from that sought in the opposing party's claim.' (Rule 6, Sec. 6). A third-party complaint may likewise be likened to a cross claim under the Rule 9, Section 5.... The principle is at once apparent, namely, that where an action is ancillary to a main action over which a court has jurisdiction, no independent jurisdiction is needed to enable the court to take cognizance of the ancillary action." There can therefore be no doubt that in dismissing the Surety's third-party complaint the trial court committed a reversible error. 4. The Surety prays for the remand of the third-party complaint to the trial court for further proceedings. It is our view that under the environmental circumstances, there is no need to do so. The third-party defendants did not specifically deny the execution of the indemnity agreement. They merely expressed insufficient knowledge and information to form a belief as to the veracity thereof, without setting forth "the substance of the matters" upon which they rely to support their denial as required by the Rules. 'I To obviate further litigation between the Surety and the third-party defendants, this Court now decides the third-party complaint on the merits, and orders the third-party defendants to reimburse the Surety the amount of the judgment against it. The pleadings on record fully support,this adjudication. 11 ACCORDINGLY, the order dated December 2,1963 dismissing the third-party complaint is set aside; the decision dated December 3, 1963 is modified in the sense that the third-party defendants are hereby ordered to pay to the Surety whatever sums the latter will pay to the Republic by virtue of the judgment appealed from. Costs are assessed against the Surety in favor of the Republic, and against the third-party defendants in favor of the Surety. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles, Fernando and Capistrano, JJ., concur. Order set aside,- decision modified. 1. p. 2, folder of Exhibits. 2. The rule is that the findings made by the trial court must be accepted, unless it is shown that they are unfounded or were arbitrarily arrived at, or that said court had failed to consider important evidence to the contrary. (Lapina vs. Court of Agrarian Relations and Calinisan, L-20706, Sept. 25, 1967, 1967C PHILD 745, 21 SCRA 194) 3. See. 88, Rep. Act 296, as amended by Republic Act 3828, effective June 22, 1963. 4. The Surety's syllogism runs as follows: .The demand of plaintiff-appelle 6. ,000.00, and therefore, within the jurisdiction total in 3828. . The complaint was filed on June 20, 1963, 25. , 1963, the case was tried on December 2, 1963 and decision was rendered on December 3, 1963. By virtue of Republic Act 3828, the court lost jurisdiction over the case on June 22, 1963 when the said act took effect. At the time therefore, when the defenchantappellant was served with summons and when the case was tried and decided, the court has no more jurisdiction over the subjectmatter. The me should have been remanded to the Municipal Court. The trial court therefore, erred in taking cognizance of the me even after it has lost jurisdiction over it." 5. Pamintuan vs. Tigalo, 53 Phil. 1; Philippine Land-Air-Sea Labor Union (PLASLU), Inc. vs. CIR, 93, Phil. 747; Tuvera vs. de Guzman, L20547, April 30, 1965; Rizal Surety, Inc. vs. Manila Railroad Company, L-20875, April 30, 1966; Insurance Co. of North America vs. U.S. Lines Co., et al., L-21021, May 27, 1966; and People vs. Paderna, L-28518, Jan. 29, 1968, 1968A PHILD 261 , 22 SCRA 273. 6. Philippine Products Co., et al. vs. Court of Appeals, et al., L-20308, Nov. 15, 1967, 1967D PHILD 368, 21 SCRA 870. 7. Bay View Hotel, Inc. vs. Manita Hotel Workers' Union-PGTWO, L-21803, Dec. 17, 1966. 8. Association of Labor Unions vs. Gomez, et al., L-25999, Feb. 9, 1967, 1967A PHILD 240, 19 SCRA 304. 9. Section 12, Rule 6 of the Revised Rules of Court specifically provides: "Thirdpany complaint-Athird-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." 10. L-21582, November 29, 1966.

11. Sec. 10, Rule 8, Revised Rules of Court.

De Dios vs. Balagot, et al. August 10, 1967 [GRN L-24103 August 10, 1967] BEATRIZ G. VDA. DE DIOS. plaintiff and appellee, vs LEANDRO BALAGOT, petitioner and appellant, vs. J. M. TUASON & CO., INC., and PEDRO DEUDOR, oppositors and appellees. APPEAL from an order of the Court of First Instance of Rizal (Quezon City). San Diego, J. 1. . PLEADING AND PRACTICE; THIRD-PARTY COMPLAINT; ADMISSION NECESSARY IF IT SEEKS ENFORCEMENT OF WARRANTY AGAINST EVICTION.- As a rule the admission of a thirdparty complaint is left to the discretion of the trial court. However, if the third-party complaint seeks to enforce a vendor's warranty in case of eviction, the same is required by law to be resorted to instead of being left to be filed as a separate action. If not raised in the action for eviction, the same will not prosper and the vendor will be released from his aforesaid warranty, It should, therefore, be admitted. 2. . ID.; ID.; ID.; TIME OF FILING THIRD PARTY COMPLAINT- A thirdparty complaint filed after the answer but before trial is not late; the time limit of Article 1559 of the Civil Code does not apply thereto. And Sec. 2 of Rule 12 of the Old Rules of Court, then applicable, provided that after service of his answer, defendant may, with notice to plaintiff, move for leave as third-party plaintiff to file a complaint against a third-party defendant. 3. . ID.; ID.; ID.; ORDER DISALLOWING THE THIRD-PARTY COMPLAINT APPEALABLE- An order disallowing a third-party complaint which seeks to enforce a vendor's warranty against eviction leaves nothing further to be done in the court a quo as 30. , 1963. Lastly, the decedent had no motive to assault him. For, contrary to Hilarion's claim, no benefit dance was held in Barrio Santor in the month of June, 1963, as established by Police Chief Damaso Dumlao who keeps a record of all the permits therefor, and Barrio Lieutenant de la Cruz. The supposed altercation between Hilarion and the decedent thus appears to be a mere fabrication. The facts are stated in the opinion of the Court. Atinidoro E. Sison and Anatolio B. Cabacungan for appellant. Araneta, Mendoza & Papa for appellee. BENGZON, J.P., J. An action for recovery of possession of land was filed on January 24, 1963 by Beatriz G. Vda. de Dios against Leandro Balagot, in the Court of First Instance of Rizal, Quezon City branch. Plaintiff alleged in her complaint that she is the registered owner of 1,296 square meters of land situated in Quezon City covered by Transfer Certificate of Title No. 52577 of the Registry of Deeds of said city, issued in her name on September 6, 1960; that she had purchased the same from J.M. Tuason & Co., then the registered owner of the land under Transfer Certificate of Title No. 49235; that "prior to September 6, 1960 up to the present" defendant has been in possession of a portion of about 600 square meters of said parcel of land, without the knowledge and tolerance of J. M. Tuason & Co., and that in spite of demands on him by plaintiff and her predecessor-in-interest, defendant has failed and refused to vacate the land and remove his house and other construction thereon. The defendant, on February 12, 1963, filed an answer with a counterclaim. Alleged therein were that the portion of land occupied by defendant, an area of 700 square meters, was part of the 50 quiones of land first owned by Telesforo Deudor in 1873; that from Pedro Deudor, successor-in-interest of Telesforo, he bought the portion of land in question for P4,900.00 on August 30, 1950; that right after the sale, he took possession of the land, subsequently constructing thereon a house worth P40,000.00; that pursuant to an agreement between J. M. Tuason & Co., and the Deudor heirs dated March 16, 1953, defendant's right to the land has preference over the sale in favor of plaintiff; that, therefore, plaintiff should reconvey the portion of the land involved herein to defendant or pay him P4,900.00 for the land, P40,000.00 for his house, and P5,000.00 for attorney's fees and damages. Plaintiff, on February 19, 1963, answered defendant's counterclaim. On March 14, 1963 the court set the case for hearing on May 17, 1963. Prior to this scheduled date, however, on April 1, 1963, defendant filed a motion for leave to file a third-party complaint, attaching the same to the motion, against J. M. Tuason & Co. and Pedro Deudor, for payment of the value of the house and lot in case of eviction. Plaintiff, served with notice of the motion, opposed it on April 6, 1963, stating that a third-party complaint to enforce the warranty of eviction should have been filed before the time for filing the answer, citing Article 1559, Civil Code; and that the Tuason-Deudor agreement defendant mentioned has been declared rescinded, citing this Court's ruling in J. M. Tuason & Co. vs. Sanvictores, L16836, January 30, 1962. Said defendant's motion was denied on June 11, 1963, "for lack of merit". From the order denying his motion for leave to file a thirdparty complaint defendant appealed to the Court of Appeals. The appeal was certified to Us since the Court of Appeals found it to involve questions purely of law, namely: (1) Is the third-party complaint admissible or not? (2) May the order denying the admission of the thirdparty complaint be appealed from at this stage of the proceedings? As a rule the admission of a third-party complaint is left to the discretion of the trial court. The present case, however, involves a third-party complaint seeking to enforce a vendor's warranty in case of eviction. And pursuant to express provision of Article 1558 of the Civil Code, a defendant-vendee in a suit for eviction must summon in said suit his vendor, otherwise the latter shall not be obliged to make good his aforesaid warranty: "Art. 1558. The vendor shall not be obliged to make good the proper warranty, unless lie is summoned in the suit for eviction at the instance of the vendee. As stated, appellee's contention is that this summoning of the vendor should take place before the answer is filed, under Art. 1559 of the Civil Code: "Art. 1559. The defendant vendor shall ask, within the time fixed in the Rules of Court for answering the complaint, that the vendor be made a codenfendant."

The act of summoning the vendor can be accomplished either under Article 1559 of the Civil Code, by asking that said vendor be made a codefendant, in which case the request should be made within the time for answering the complaint; or thru the filing of a third-party complaint against said vendor, under Sec. 1, Rule 12, now Sec. 12 of Rule 6 of the Rules of Court, which provides; "SEC. 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." In the first case, the vendor is summoned by being made a co-defendant; in the second, by being made a third-party defendant. From this it can be seen that a third-party complaint filed after the answer but before trial is not late; Article 1559's time-limit does not apply thereto. And Sec. 2 of Rule 12 of the old Rules of Court, then applicable, provided that after service of his answer, defendant may, with notice to plaintiff, move for leave as third-party plaintiff to file a complaint against a third-party defendant. As adverted to above, in this case, the third-party complaint, as against Pedro Deudor, seeks enforcement of the warranty against eviction. The same is thus required by law to be resorted to instead of being left to be filed as a separate action. If not raised in the action for eviction, the same will not prosper and the vendor will be released from his warranty. Not only does the admission of the third-party complaint against Pedro Deudor, avoid multiplicity of suits, it is necessary for defendant to enforce said warranty against his vendor. As regards J. M. Tuason & Co., and defendant, however, no relationship of vendor and vendee obtains and the thirdparty complaint does not partake of the nature of an enforcement of a warranty against eviction; rather, it seeks to enforce the Tuason-Deudor agreement. As such, the trial court properly disallowed the same. Article 1558 of the Civil Code requires defendant in eviction to summon to the suit his vendor, in this case Pedro Deudor', non-parties to the sale, Such as J. M. Tuason & Co., do not have to be summoned therein: hence, there being no necessity for inclusion of J. M. Tuason & Co., the disallowance of the third-party complaint against it was not erroneous. As to the appealability of the order disallowing the thirdparty complaint against Pedro Deudor, suffice it to reiterate that the same would finally dispose of defendant's right to enforce his warranty against eviction, since a separate action for the same, without having thus summoned to the suit the vendor, would not prosper (Art. 1558, Civil Code, supra). After said disallowance, nothing further was left to be done in the court a quo, as regards defendant's right to enforce against Deudor the warranty of eviction. Said denial was therefore appealable. Wherefore, the order appealed from is modified, so as to allow the filing of the third-party complaint as against Pedro Deudor but not against J. M. Tuason & Co. Case remanded to the court a quo for further proceedings. No costs. So ordered. Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Ruiz Castro, Angeles and Fernando, JJ., concur. Order modified