rule 3: parties to civil actions

Outline: Rule 3 - Parties to Civil Actions CIVIL PROCEDURE

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Lesson for August 5, 2014

Tuesday

Parties to Civil Actions

- MR Holdings v. Sheriff Bajar, G.R. No. 138104, April 11, 2002

Real parties in interest

- Carlos v. Sandoval, G.R. No. 179922, December 16, 2008

Indispensable parties

- De Castro v. CA, G.R. No. 115838, July 18, 2002

Necessary parties

- Carandang v. Heirs of De Guzman, G.R. No. 160347, November 29, 2006

Indigent parties

- Sps. Algura v. Naga City, G.R. No. 150135, October 30, 2006 - Tokio Marine Malayan Insurance Co. Inc. v. Valdez, G.R. No. 150107, January 28, 2008

Representatives as parties

- Brioso v. Rili-Mariano, G.R. No. 132765, January 31, 2003 - State Investment House v. CA, G.R. No. 106795, November 16, 1999

Alternative defendants

- Perpetual Savings Bank v. Fajardo, G.R. No. 79760, June 28,1993

Compulsory and permissive joinder of parties

- Puentevella v. Far Eastern Air Transport, G.R. No. L-4958, March 30, 1954 - Relucio v. Lopez, G.R. No. 138497, January 16, 2002 - De Galicia v. Mercado, G.R. No. 146744, March 6, 2006 - Flores v. Hon. Mallare-Phillipps, G.R. No. L-66620, September 24, 1986 - Plasabas v. CA, G.R. No. 166519, March 31, 2009

Misjoinder and non-joinder of parties

- Nufable v. Nufable, G.R. No. 126950, July 2, 1999 - Republic v. Herbieto, G.R. No. 156117, May 26, 2005

Class suit

- Mathay v. The Consolidated Bank & Trust Co., G.R. No. L-23136, Augsut 26, 1974 - Juana Complex I Homeowners Association v. Fil-Estate Land Inc., G.R. No. 152272, March 5, 2012

Suits against entities without juridical personality

- Lapanday v. Estita, G.R. No. 162109, January 21, 2005

Effect of death of party-litigant

- Laviña v. CA, G.R. No. 78295, April 10, 1989 - Lawas v. CA, G.R. No. L-45809, December 12, 1986

Case Digest: Rule 3 - Parties to Civil Actions CIVIL PROCEDURE

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Parties to Civil Actions

MR HOLDINGS vs SHERIFF BAJAR

G.R. No. 138104, April 11, 2002

Facts:

Under a "Principal Loan Agreement" and "Complementary

Loan Agreement," Asian Development Bank (ADB), a multilateral

development finance institution, agreed to extend to Marcopper

Mining Corporation (Marcopper) a loan to finance the latter’s

mining project, Marinduque.

ADB and Placer Dome, Inc., (Placer Dome), a foreign

corporation which owns 40% of Marcopper, executed a "Support

and Standby Credit Agreement" whereby the latter agreed to

provide Marcopper with cash flow support for the payment of its

obligations to ADB.

To secure the loan, Marcopper executed in favor of ADB a

"Deed of Real Estate and Chattel Mortgage", covering substantially

all of its (Marcopper’s) properties and assets in Marinduque. It was

registered with the Register of Deeds. When Marcopper defaulted in

the payment of its loan obligation, Placer Dome, presumably to

preserve its international credit standing, agreed to have its

subsidiary corporation, petitioner MR Holding, Ltd., assumed

Marcopper’s obligation to ADB in the amount of US$ 18,453,450.02.

Consequently, in an "Assignment Agreement", ADB

assigned to petitioner all its rights, interests and obligations under

the principal and complementary loan agreements, ("Deed of Real

Estate and Chattel Mortgage," and "Support and Standby Credit

Agreement"). Marcopper likewise executed a "Deed of Assignment"

in favor of petitioner. Under its provisions, Marcopper assigns,

transfers, cedes and conveys to petitioner, its assigns and/or

successors-in-interest all of its (Marcopper’s) properties, mining

equipment and facilities.

Meanwhile, it appeared that Solidbank Corporation

(Solidbank) obtained a Partial Judgment against Marcopper from the

RTC. RTC of Manila issued a writ of execution pending appeal

directing Carlos P. Bajar, respondent sheriff, to require Marcopper

"to pay the sums of money to satisfy the Partial Judgment."

Thereafter, respondent Bajar issued two notices of levy on

Marcopper’s personal and real properties, and over all its stocks of

scrap iron and unserviceable mining equipment, and issued two

notices setting the public auction sale of the levied properties at the

Marcopper mine site.

Having learned of the scheduled auction sale, petitioner

served an "Affidavit of Third-Party Claim" upon respondent sheriffs,

asserting its ownership over all Marcopper’s mining properties,

equipment and facilities by virtue of the "Deed of Assignment."

Upon the denial of its "Affidavit of Third–Party Claim" by

the RTC of Manila, petitioner commenced with the RTC of

Marinduque, a complaint for reivindication of properties, etc., with

prayer for preliminary injunction and temporary restraining order

against respondents Solidbank, Marcopper, and sheriffs Bajar and

Jandusay.

Judge Ansaldo denied petitioner’s application for a writ of

preliminary injunction on the ground that a) petitioner has no legal

capacity to sue, it being a foreign corporation doing business in the

Philippines without license; b) an injunction will amount "to staying

the execution of a final judgment by a court of co-equal and

concurrent jurisdiction;" and c) the validity of the "Assignment

Agreement" and the "Deed of Assignment" has been "put into

serious question by the timing of their execution and registration."

Petitioner elevated the matter to the Court of Appeals on

a Petition for Certiorari, Prohibition and Mandamus. CA rendered a

Decision holding that Judge Ansaldo did not commit grave abuse of

discretion in denying petitioner’s prayer for a writ of preliminary

injunction.

Petitioner: it has the legal capacity to sue and seek redress

from Philippine courts as it is a non-resident foreign corporation not

doing business in the Philippines and suing on isolated transactions.

CA: agreed that the finding of the respondent court that

petitioner petitioner has no legal capacity to sue in the 8hilippine

courts because it is a foreign corporation doing business here

6ithout license. The Deeds of Assignment executed by Marcopper,

through its President, Atty. Teodulo C. Gabor, Jr., were clearly made

in bad faith and in fraud of creditors, particularly private respondent

Solidbank. The first Assignment Agreement purportedly executed

was entered into after Solidbank had filed a case against Marcopper

for collection of sum of money before Regional Trial Court. The

second Deed of Assignment was entered into by President Gabor

after Solidbank had filed its Motion for Partial Summary Judgment,

after the rendition by Regional Trial Court of Manila of a Partial

Summary Judgment and after the said trial court had issued a writ of

execution, and which judgment was later affirmed by the Court of

Appeals. While the assignments (which were not registered with the

Registry of Property as required by Article 1625 of the new Civil

Code) may be valid between the parties thereof, it produces no

effect as against third parties. The purported execution of the Deeds

of Assignment in favor of petitioner was in violation of Article 1387

of the New Civil Code.

Hence, the present Petition for Review on Certiorari by MR

Holdings, Ltd. Petitioner alleged that it is not doing business in the

8hilippines and characterized its participation in the assignment

contracts (whereby Marcopper’s assets were transferred to it) as

mere isolated acts that cannot foreclose its right to sue in local

courts.

Issue:

Whether or not petitioner has no legal capacity to sue in

the Philippine courts because it is a foreign corporation doing

business here without license.

Held:

No.

The Supreme Court emphasized the following rules when

it comes to foreign corporations doing business here in the

Philippines:

1. if a foreign corporation does business in the

Philippines without a license, it cannot sue before the Philippine

courts;

2. if a foreign corporation is not doing business in the

Philippines, it needs no license to sue before Philippine courts

on an isolated transaction or on a cause of action entirely

independent of any business transaction;


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3. if a foreign corporation does business in the Philippines

with the required license, it can sue before Philippine courts on

any transaction.

Apparently, it is not the absence of the prescribed license

but the "doing (of) business" in the Philippines without such license

which debars the foreign corporation from access to our courts.

The question whether or not a foreign corporation is doing

business is dependent principally upon the facts and circumstances

of each particular case, considered in the light of the purposes and

language of the pertinent statute or statutes involved and of the

general principles governing the jurisdictional authority of the state

over such corporations.

The phrase ‘doing business’ shall include soliciting orders,

service contracts, opening offices, whether called ‘liaison’ offices or

branches; appointing representatives or distributors domiciled in the

Philippines or who in any calendar year stay in the country for a

period or periods totalling one hundred eight(y) (180) days or more;

participating in the management, supervision or control of any

domestic business, firm, entity, or corporation in the Philippines;

and any other act or acts that imply a continuity of commercial

dealings or arrangements, and contemplate to that extent the

performance of acts or works; or the exercise of some of the

functions normally incident to, and in progressive prosecution of,

commercial gain or of the purpose and object of the business

organization; Provided, however, That the phrase ‘doing business’

shall not be deemed to include mere investment as a shareholder by

a foreign entity in domestic corporations duly registered to do

business, and/or the exercise of rights as such investor, nor having a

nominee director or officer to represent its interests in such

corporation, nor appointing a representative or distributor

domiciled in the Philippines which transacts business in its own

name and for its own account. (RA 7042, Foreign Investment Act of

1991)

Court of Appeals categorized as "doing business"

petitioner’s participation under the "Assignment Agreement" and

the "Deed of Assignment." This is simply untenable. The expression

"doing business" should not be given such a strict and literal

construction as to make it apply to any corporate dealing whatever.

Court of Appeals’ holding that petitioner was determined

to be "doing business" in the Philippines is based mainly on

conjectures and speculation. In concluding that the "unmistakable

intention" of petitioner is to continue Marcopper’s business, the

Court of Appeals hangs on the wobbly premise that "there is no

other way for petitioner to recover its huge financial investments

which it poured into Marcopper’s rehabilitation without it

(petitioner) continuing Marcopper’s business in the country." This is

a mere presumption. Absent overt acts of petitioner from which we

may directly infer its intention to continue Marcopper’s business, we

cannot give our concurrence. Significantly, a view subscribed upon

by many authorities is that the mere ownership by a foreign

corporation of a property in a certain state, unaccompanied by its

active use in furtherance of the business for which it was formed, is

insufficient in itself to constitute doing business. Even if a foreign

corporation purchased and took conveyances of a mining claim, did

some assessment work thereon, and endeavored to sell it, its acts

will not constitute the doing of business so as to subject the

corporation to the statutory requirements for the transacting of

business

Petitioner was engaged only in isolated acts or

transactions. Single or isolated acts, contracts, or transactions of

foreign corporations are not regarded as a doing or carrying on of

business. Typical examples of these are the making of a single

contract, sale, sale with the taking of a note and mortgage in the

state to secure payment therefor, purchase, or note, or the mere

commission of a tort. In these instances, there is no purpose to do

any other business within the country.

Real parties in interest

CARLOS vs SANDOVAL

G.R. No. 179922, December 16, 2008

Definitions:

Confession of judgment- refers to a type of contract (or a clause with

such a provision) in which a party agrees to let the other

party enter a judgment against her or him.

Summary judgment – a procedural device used during civil litigation

to promptly and expeditiously dispose of a case without

trial. It is used when there is no dispute as to the material

facts of the case and a party is entitled to judgment as a

matter of law.

Judgment of the pleadings – a judgment rendered by the court prior

to a verdict because no material issue of fact exists and

one party or other is entitled to a judgment as a matter of

law.

Facts:

Only a spouse can initiate an action to sever the marital

bond for marriages solemnized during the effectivity of the Family

Code, except cases commenced prior to March 15, 2003. The nullity

and annulment of a marriage cannot be declared in a judgment on

the pleadings, summary judgment, or confession of judgment.

Sps Felix Carlos and Felipa Elemia died intestate. They left

six parcels of land to their compulsory heirs, Teofilo Carlos and

petitioner Juan De Dios Carlos. During the lifetime of Felix Carlos, he

agreed to transfer his estate to Teofilo. The agreement was made in

order to avoid the payment of inheritance taxes. Teofilo, in turn,

undertook to deliver and turn over the share of the other legal heir,

petitioner Juan De Dios Carlos.

(3) parcels of land were transferred and registered in the

name of Teofilo. Parcel No. 4 was registered in the name of

petitioner. Teofilo died intestate. He was survived by respondents

Felicidad and their son, Teofilo Carlos II (Teofilo II). Upon Teofilo's

death, Parcel Nos. 5 & 6 were registered in the name of respondent

Felicidad and co-respondent, Teofilo II.

Petitioner instituted a suit against respondents before the

RTC. In the said case, the parties submitted and caused the approval


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of a partial compromise agreement. Under the compromise, the

parties acknowledged their respective shares in the proceeds from

the sale of a portion of the first parcel of land. This includes the

remaining 6,691-square-meter portion of said land.

The parties executed a deed of extrajudicial partition,

dividing the remaining land of the first parcel between them.

Petitioner and respondents entered into two more contracts

wherein the parties equally divided between them the third and

fourth parcels of land.

Petitioner commenced an action against respondents before the

court a quo with the following causes of action: (a) declaration of

nullity of marriage; (b) status of a child; (c) recovery of property; (d)

reconveyance; and (e) sum of money and damages. The complaint

was raffled to Branch 256 of the RTC in Muntinlupa.

Petitioner asserted that the marriage between his late

brother Teofilo and respondent Felicidad was a nullity in view of the

absence of the required marriage license. He likewise maintained

that his deceased brother was neither the natural nor the adoptive

father of respondent Teofilo Carlos II.

Petitioner likewise sought the avoidance of the contracts

he entered into with respondent Felicidad with respect to the

subject real properties. He also prayed for the cancellation of the

certificates of title issued in the name of respondents. He argued

that the properties covered by such certificates of title, including the

sums received by respondents as proceeds, should be reconveyed to

him. Finally, petitioner claimed indemnification as and by way of

moral and exemplary damages, attorney's fees, litigation expenses,

and costs of suit.

Respondents contended that the dearth of details

regarding the requisite marriage license did not invalidate Felicidad's

marriage to Teofilo. Respondents declared that Teofilo II was the

illegitimate child of the deceased Teofilo Carlos with another

woman. On the grounds of lack of cause of action and lack of

jurisdiction over the subject matter, respondents prayed for the

dismissal of the case before the trial court. They also asked that their

counterclaims for moral and exemplary damages, as well as

attorney's fees, be granted.

But before the parties could even proceed to pre-trial,

respondents moved for summary judgment. Attached to the motion

was the affidavit of the justice of the peace who solemnized the

marriage. Respondents also submitted the Certificate of Live Birth of

respondent Teofilo II. In the certificate, the late Teofilo Carlos and

respondent Felicidad were designated as parents.

Petitioner opposed the motion for summary judgment on

the ground of irregularity of the contract evidencing the marriage. In

the same breath, petitioner lodged his own motion for summary

judgment. Petitioner presented a certification from the Local Civil

Registrar of Calumpit, Bulacan, certifying that there is no record of

birth of respondent Teofilo II.

Petitioner also incorporated in the counter-motion for

summary judgment the testimony of respondent Felicidad in

another case.

RTC: In favor of the petitioner. Summary of judgment of

the petitioner, granted.

CA: Respondents argued that the trial court acted without

or in excess of jurisdiction in rendering summary judgment annulling

the marriage of Teofilo, Sr. and Felicidad and in declaring Teofilo II as

not an illegitimate child of Teofilo, Sr. CA reversed and set aside the

RTC ruling. Petitioner moved for reconsideration and for the

inhibition of the ponente, Justice Rebecca De Guia-Salvador. The CA

denied the twin motions.

Issue:

Whether or not the petitioner is a real party in interest.

Held:

The case must be remanded to determine whether or not

petitioner is a real-party-in-interest to seek the declaration of

nullity of the marriage in controversy.

The records reveal that Teofilo was predeceased by his

parents. He had no other siblings but petitioner. Thus, if Teofilo II is

finally found and proven to be not a legitimate, illegitimate, or

adopted son of Teofilo, petitioner succeeds to the other half of the

estate of his brother, the first half being allotted to the widow

pursuant to Article 1001 of the New Civil Code. This makes

petitioner a real-party-interest to seek the declaration of absolute

nullity of marriage of his deceased brother with respondent

Felicidad. If the subject marriage is found to be void ab initio,

petitioner succeeds to the entire estate.

It bears stressing, however, that the legal personality of

petitioner to bring the nullity of marriage case is contingent upon

the final declaration that Teofilo II is not a legitimate, adopted, or

illegitimate son of Teofilo.

Records reveal that when Teofilo died intestate in 1992,

his only surviving compulsory heirs are respondent Felicidad and

their son, Teofilo II. Under the law on succession, successional rights

are transmitted from the moment of death of the decedent and the

compulsory heirs are called to succeed by operation of law.

Upon Teofilo's death in 1992, all his property, rights and

obligations to the extent of the value of the inheritance are

transmitted to his compulsory heirs. These heirs were respondents

Felicidad and Teofilo II, as the surviving spouse and child,

respectively.

Under Article 887 of the Civil, a brother is not among those

considered as compulsory heirs. But although a collateral relative,

such as a brother, does not fall within the ambit of a compulsory

heir, he still has a right to succeed to the estate.

Under Articles 1001 and 1003 of the New Civil Code, only

the presence of descendants, ascendants or illegitimate children

excludes collateral relatives from succeeding to the estate of the

decedent. The presence of legitimate, illegitimate, or adopted child

or children of the deceased precludes succession by collateral

relatives. Conversely, if there are no descendants, ascendants,

illegitimate children, or a surviving spouse, the collateral relatives

shall succeed to the entire estate of the decedent.

If respondent Teofilo II is declared and finally proven not

to be the legitimate, illegitimate, or adopted son of Teofilo,

petitioner would then have a personality to seek the nullity of

marriage of his deceased brother with respondent Felicidad. This is

so, considering that collateral relatives, like a brother and sister,


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acquire successional right over the estate if the decedent dies

without issue and without ascendants in the direct line.

If Teofilo II is proven to be a legitimate, illegitimate, or

legally adopted son of Teofilo, then petitioner has no legal

personality to ask for the nullity of marriage of his deceased brother

and respondent Felicidad. This is based on the ground that he has no

successional right to be protected, hence, does not have proper

interest. For although the marriage in controversy may be found to

be void from the beginning, still, petitioner would not inherit. This is

because the presence of descendant, illegitimate, or even an

adopted child excludes the collateral relatives from inheriting from

the decedent.

Thus, the Court finds that a remand of the case for trial on

the merits to determine the validity or nullity of the subject

marriage is called for. But the RTC is strictly instructed to dismiss

the nullity of marriage case for lack of cause of action if it is proven

by evidence that Teofilo II is a legitimate, illegitimate, or legally

adopted son of Teofilo Carlos, the deceased brother of petitioner.

Indispensable parties

DE CASTRO vs CA

G.R. No. 115838, July 18, 2002

Facts:

Appellants

were co-owners of 4 lots. In a letter, appellee was

authorized by appellants to act as real estate broker in the sale of

these properties, five percent (5%) of which will be given to the

agent as commission. It was appellee who first found Times Transit

Corporation who bought (2) lots only. Appellee apparently felt

short changed because according to him, his total commission

should be P352,500.00 which is five percent (5%) of the agreed price

of P7,050,000.00 paid by Times Transit Corporation to and that it

was he who introduced the buyer to appellants and unceasingly

facilitated the negotiation which ultimately led to the

consummation of the sale.

Private respondent Francisco Artigo ("Artigo" for brevity)

sued petitioners Constante A. De Castro ("Constante" for brevity)

and Corazon A. De Castro ("Corazon" for brevity) to collect the

unpaid balance of his broker's commission from the De Castros

before the CA.

Appellants argued that although appellants readily

concede that it was appellee who first introduced Times Transit

Corp. to them, appellee was not designated by them as their

exclusive real estate agent but that in fact there were more or less

eighteen (18) others whose collective efforts in the long run dwarfed

those of appellee's, considering that the first negotiation for the sale

where appellee took active participation failed and it was these

other agents who successfully brokered in the second negotiation.

Furthermore, the purchase price for the two lots was only P3.6

million as appearing in the deed of sale and not P7.05 million as

alleged by appellee. Thus, even assuming that appellee is entitled to

the entire commission, he would only be getting 5% of the P3.6

million, or P180,000.00."

The De Castros argued that Artigo's complaint should have

been dismissed for failure to implead all the co-owners of the two

lots. The De Castros claim that Artigo always knew that the two lots

were co-owned by Constante and Corazon with their other siblings

Jose and Carmela whom Constante merely represented. The De

Castros contend that failure to implead such indispensable parties is

fatal to the complaint since Artigo, as agent of all the four co-

owners, would be paid with funds co-owned by the four co-owners.

CA: Artigo is entitled to the 5% commission on the

purchase price as provided in the contract of agency. Artigo's

complaint is not dismissible for failure to implead as indispensable

parties the other co-owners of the two lots. The Court of Appeals

explained that it is not necessary to implead the other co-owners

since the action is exclusively based on a contract of agency

between Artigo and Constante. Trial court did not err in admitting

parol evidence to prove the true amount paid by Times Transit to

the De Castros for the two lots. The Court of Appeals ruled that

evidence aliunde could be presented to prove that the actual

purchase price was P7.05 million and not P3.6 million as appearing

in the deed of sale. Evidence aliunde is admissible considering that

Artigo is not a party, but a mere witness in the deed of sale between

the De Castros and Times Transit. The Court of Appeals explained

that, "the rule that oral evidence is inadmissible to vary the terms of

written instruments is generally applied only in suits between

parties to the instrument and strangers to the contract are not

bound by it." Besides, Artigo was not suing under the deed of sale,

but solely under the contract of agency. Thus, the Court of Appeals

upheld the trial court's finding that the purchase price was P7.05

million and not P3.6 million.

Issue:

Whether or not the complaint merits dismissal for failure

to implead other co-owners as indispensable parties. (De Castro’s

contention)

Held:

No. The De Castros' contentions are devoid of legal basis.

An indispensable party is one whose interest will be

affected by the court's action in the litigation, and without whom no

final determination of the case can be had. The joinder of

indispensable parties is mandatory and courts cannot proceed

without their presence. 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 order the

inclusion of such party. However, the rule on mandatory joinder of

indispensable parties is not applicable to the instant case.

Constante signed the note as owner and as representative

of the other co-owners. Under this note, a contract of agency was

clearly constituted between Constante and Artigo. Whether

Constante appointed Artigo as agent, in Constante's individual or

representative capacity, or both, the De Castros cannot seek the

dismissal of the case for failure to implead the other co-owners as

indispensable parties. The De Castros admit that the other co-

owners are solidarily liable under the contract of agency.


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The solidary liability of the four co-owners, however,

militates against the De Castros' theory that the other co-owners

should be impleaded as indispensable parties.

The rule in this article applies even when the

appointments were made by the principals in separate acts,

provided that they are for the same transaction. The solidarity arises

from the common interest of the principals, and not from the act of

constituting the agency. By virtue of this solidarity, the agent can

recover from any principal the whole compensation and indemnity

owing to him by the others. The parties, however, may, by express

agreement, negate this solidary responsibility. The solidarity does

not disappear by the mere partition effected by the principals after

the accomplishment of the agency.

If the undertaking is one in which several are interested,

but only some create the agency, only the latter are solidarily liable,

without prejudice to the effects of negotiorum gestio with respect to

the others. And if the power granted includes various transactions

some of which are common and others are not, only those

interested in each transaction shall be liable for it.

Necessary parties

CARANDANG vs HEIRS OF DE GUZMAN

G.R. No. 160347, November 29, 2006

Definitions:

Real party in interest – the party who stands to be

benefited or injured by the judgment of the suit, or the party

entitled to the avails of the suit.

Indispensable party – a party in interest without whom no

final determination can be had of an action

Necessary party – one who is not indispensable but who

ought to be joined as a party if complete relief is to be accorded as

to those already parties, or for a complete determination or

settlement of the claim subject of the action

Pro-forma parties – those who are required to be joined as

co-parties in suits by or against another party as may be provided by

the applicable substantive law or procedural rule.

Nature of the case:

This case reached the Supreme Court as an appeal to the

decision of the CA ruling against the spouses Carandang and denying

their motion for reconsideration. The CA affirmed the RTC’s decision

that Milagros de Guzman, the decedent’s wife, is not an

indispensable party in the complaint, hence, her non-inclusion in the

case does not warrant a dismissal of the complaint.

Facts:

Sps Carandang and the decedent Quirino de Guzman were

stockholders and corporate officers of Mabuhay Broadcasting

System (MBS). The Carandangs have equities at 54 % while Quirino

has 46%.

When the capital stock of MBS was increased, the

Carandangs subscribed P345,000 from it, P293,250 from the said

amount was loaned by Quirino to the Carandangs. In the subsequent

increase in MBS’ capital stock, the Carandangs subscribed again to

the increase in the amount of P93,750. But, P43,125 out of the

mentioned amount was again loaned by Quirino.

When Quirino sent a demand letter to the Carandangs for

the payment of the loan, the Carandangs refused to pay. They

contend that a pre-incorporation agreement was executed between

Arcadio Carandang and Quirino, whereby Quirino promised to pay

for the stock subscriptions of the Arcadio without cost, in

consideration for Arcadio’s technical expertise, his newly purchased

equipment, and his skill in repairing and upgrading

radio/communication equipment therefore, there is no

indebtedness on the part of the Carandangs.

Thereafter, Quirino filed a complaint seeking to recover

the P336,375 total amount of the loan together with damages.

The RTC ruled in favor of Quirino De Guzman and ordered

the Carandangs to pay the loan plus interest, attorney’s fees, and

costs of suit.

The Carandangs appealed the trial court’s decision to the

CA, but the CA affirmed the same.

The subsequent Motion for Reconsideration filed by the

Carandangs were also denied. Carandang then filed before this

Court the instant Petition for Review on Certiorari before the SC.

Issue:

1. Whether or not the RTC should have dismissed the case

for failure to state a cause of action, considering that Milagros de

Guzman, allegedly an indispensable party, was not included as a

party-plaintiff. No

2. Whether or not the RTC Decision is void for failing to

comply with Section 16, Rule 3 of the Rules of Court. No

Held:

1. Carandang: Since three of the four checks used to pay

their stock subscriptions were issued in the name of Milagros de

Guzman, the latter should be considered an indispensable party.

Being such, the spouses Carandang claim, the failure to join Mrs. de

Guzman as a party-plaintiff should cause the dismissal of the action

because "(i)f a suit is not brought in the name of or against the real

party in interest, a motion to dismiss may be filed on the ground

that the complaint states no cause of action."

CA: The joint account of spouses Quirino A de Guzman and

Milagros de Guzman from which the four (4) checks were drawn is

part of their conjugal property and under both the Civil Code and

the Family Code the husband alone may institute an action for the

recovery or protection of the spouses’ conjugal property.

The Court of Appeals is correct. Petitioners erroneously

interchange the terms "real party in interest" and "indispensable

party." A real party in interest is the party who stands to be

benefited or injured by the judgment of the suit, or the party

entitled to the avails of the suit. On the other hand, an indispensable

party is a party in interest without whom no final determination can

be had of an action, in contrast to a necessary party, which is one


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who is not indispensable but who ought to be joined as a party if

complete relief is to be accorded as to those already parties, or for a

complete determination or settlement of the claim subject of the

action.

The spouses Carandang are indeed correct that "(i)f a suit

is not brought in the name of or against the real party in interest, a

motion to dismiss may be filed on the ground that the complaint

states no cause of action."However, what dismissal on this ground

entails is an examination of whether the parties presently pleaded

are interested in the outcome of the litigation, and not whether all

persons interested in such outcome are actually pleaded. The

latter query is relevant in discussions concerning indispensable and

necessary parties, but not in discussions concerning real parties in

interest. Both indispensable and necessary parties are considered

as real parties in interest, since both classes of parties stand to be

benefited or injured by the judgment of the suit.

Quirino and Milagros de Guzman were married before the

effectivity of the Family Code on 3 August 1988. As they did not

execute any marriage settlement, the regime of conjugal

partnership of gains govern their property relations. All property

acquired during the marriage, whether the acquisition appears to

have been made, contracted or registered in the name of one or

both spouses, is presumed to be conjugal unless the contrary is

proved. Credits are personal properties, acquired during the time

the loan or other credit transaction was executed. Therefore, credits

loaned during the time of the marriage are presumed to be conjugal

property.

Consequently, assuming that the four checks created a

debt for which the spouses Carandang are liable, such credits are

presumed to be conjugal property. There being no evidence to the

contrary, such presumption subsists. As such, Quirino de Guzman,

being a co-owner of specific partnership property, is certainly a real

party in interest. Dismissal on the ground of failure to state a cause

of action, by reason that the suit was allegedly not brought by a real

party in interest, is therefore unwarranted.

When an indispensable party is not before the court, the

action should likewise be dismissed. The absence of an

indispensable party renders all subsequent actuations of the court

void, for want of authority to act, not only as to the absent parties

but even as to those present.On the other hand, the non-joinder of

necessary parties do not result in the dismissal of the case. Instead,

Section 9, Rule 3 of the Rules of Court provides for the

consequences of such non-joinder:

Sec. 9. Non-joinder of necessary parties to be

pleaded. – Whenever in any pleading in which a claim is

asserted a necessary party is not joined, the pleader shall

set forth his name, if known, and shall state why he is

omitted. Should the court find the reason for the omission

unmeritorious, it may order the inclusion of the omitted

necessary party if jurisdiction over his person may be

obtained.

The failure to comply with the order for his

inclusion, without justifiable cause, shall be deemed a

waiver of the claim against such party.

The non-inclusion of a necessary party does not

prevent the court from proceeding in the action, and the

judgment rendered therein shall be without prejudice to

the rights of such necessary party.

Non-compliance with the order for the inclusion of a

necessary party would not warrant the dismissal of the complaint.

This is an exception to Section 3, Rule 17 which allows the dismissal

of the complaint for failure to comply with an order of the court, as

Section 9, Rule 3 specifically provides for the effect of such non-

inclusion: it shall not prevent the court from proceeding in the

action, and the judgment rendered therein shall be without

prejudice to the rights of such necessary party. Section 11, Rule 3

likewise provides that the non-joinder of parties is not a ground for

the dismissal of the action.

Other than the indispensable and necessary parties, there

is a third set of parties: the pro-forma parties, which are those who

are required to be joined as co-parties in suits by or against another

party as may be provided by the applicable substantive law or

procedural rule. An example is provided by Section 4, Rule 3 of the

Rules of Court:

Sec. 4. Spouses as parties. – Husband and wife

shall sue or be sued jointly, except as provided by law.

Pro-forma parties can either be indispensable, necessary

or neither indispensable nor necessary. The third case occurs if, for

example, a husband files an action to recover a property which he

claims to be part of his exclusive property. The wife may have no

legal interest in such property, but the rules nevertheless require

that she be joined as a party.

In cases of pro-forma parties who are neither

indispensable nor necessary, the general rule under Section 11, Rule

3 must be followed: such non-joinder is not a ground for dismissal.

Hence, in a case concerning an action to recover a sum of money,

we held that the failure to join the spouse in that case was not a

jurisdictional defect. The non-joinder of a spouse does not warrant

dismissal as it is merely a formal requirement which may be cured

by amendment.

Conversely, in the instances that the pro-forma parties are

also indispensable or necessary parties, the rules concerning

indispensable or necessary parties, as the case may be, should be

applied. Thus, dismissal is warranted only if the pro-forma party not

joined in the complaint is an indispensable party.

Milagros de Guzman, being presumed to be a co-owner of

the credits allegedly extended to the spouses Carandang, seems to

be either an indispensable or a necessary party. If she is an

indispensable party, dismissal would be proper. If she is merely a

necessary party, dismissal is not warranted, whether or not there

was an order for her inclusion in the complaint pursuant to Section

9, Rule 3.

In sum, in suits to recover properties, all co-owners are

real parties in interest. However, pursuant to Article 487 of the

Civil Code and relevant jurisprudence, any one of them may bring

an action, any kind of action, for the recovery of co-owned

properties. Therefore, only one of the co-owners, namely the co-

owner who filed the suit for the recovery of the co-owned


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property, is an indispensable party thereto. The other co-owners

are not indispensable parties. They are not even necessary parties,

for a complete relief can be accorded in the suit even without their

participation, since the suit is presumed to have been filed for the

benefit of all co-owners.

Milagros de Guzman is not an indispensable party in the

action for the recovery of the allegedly loaned money to the

spouses Carandang. As such, she need not have been impleaded in

said suit, and dismissal of the suit is not warranted by her not

being a party thereto.

2. RTC Decision is valid despite the failure to comply with

Section 16, Rule 3 of the Rules of Court, because of the express

waiver of the heirs to the jurisdiction over their persons, and

because there had been, before the promulgation of the RTC

Decision, no further proceedings requiring the appearance of de

Guzman’s counsel.

Carandang: Decision of the RTC, having been rendered

after the death of Quirino de Guzman, is void for failing to comply

with Section 16, Rule 3 of the Rules of Court, which provides:

SEC. 16. Death of party; duty of counsel. –

Whenever a party to a pending action dies, and

the claim is not thereby extinguished, it shall be

the duty of his counsel to inform the court

within thirty (30) days after such death of the

fact thereof, and to give the name and address

of his legal representative or representatives.

Failure of counsel to comply with this duty shall

be a ground for disciplinary action.

The heirs of the deceased may be

allowed to be substituted for the deceased,

without requiring the appointment of an

executor or administrator and the court may

appoint a guardian ad litem for the minor heirs.

The court shall forthwith order the

legal representative or representatives to appear

and be substituted within a period of thirty (30)

days from notice.

If no legal representative is named by

the counsel for the deceased party, or if the one

so named shall fail to appear within the specified

period, the court may order the opposing party,

within a specified time, to procure the

appointment of an executor or administrator for

the estate of the deceased and the latter shall

immediately appear for and on behalf of the

deceased. The court charges in procuring such

appointment, if defrayed by the opposing party,

may be recovered as costs.

The spouses Carandang posits that such failure to comply

with the above rule renders void the decision of the RTC, Thus, it has

been held that when a party dies in an action that survives and no

order is issued by the court for the appearance of the legal

representative or of the heirs of the deceased in substitution of the

deceased, and as a matter of fact no substitution has ever been

effected, the trial held by the court without such legal

representatives or heirs and the judgment rendered after such trial

are null and void because the court acquired no jurisdiction over the

persons of the legal representatives or of the heirs upon whom the

trial and judgment would be binding.

In the present case, there had been no court order for the

legal representative of the deceased to appear, nor had any such

legal representative appeared in court to be substituted for the

deceased; neither had the complainant ever procured the

appointment of such legal representative of the deceased, including

appellant, ever asked to be substituted for the deceased.

As a result, no valid substitution was effected,

consequently, the court never acquired jurisdiction over appellant

for the purpose of making her a party to the case and making the

decision binding upon her, either personally or as a representative

of the estate of her deceased mother.

However, unlike jurisdiction over the subject matter which

is conferred by law and is not subject to the discretion of the parties,

jurisdiction over the person of the parties to the case may be waived

either expressly or impliedly. Implied waiver comes in the form of

either voluntary appearance or a failure to object.

In the cases cited by the spouses Carandang, we held that

there had been no valid substitution by the heirs of the deceased

party, and therefore the judgment cannot be made binding upon

them.

In the case at bar, not only do the heirs of de Guzman

interpose no objection to the jurisdiction of the court over their

persons; they are actually claiming and embracing such jurisdiction.

In doing so, their waiver is not even merely implied (by their

participation in the appeal of said Decision), but express (by their

explicit espousal of such view in both the Court of Appeals and in

this Court). The heirs of de Guzman had no objection to being bound

by the Decision of the RTC.

Thus, lack of jurisdiction over the person, being subject to

waiver, is a personal defense which can only be asserted by the

party who can thereby waive it by silence.

The underlying principle therefor is not really because

substitution of heirs is a jurisdictional requirement, but because

non-compliance therewith results in the undeniable violation of the

right to due process of those who, though not duly notified of the

proceedings, are substantially affected by the decision rendered

therein. Such violation of due process can only be asserted by the

persons whose rights are claimed to have been violated, namely the

heirs to whom the adverse judgment is sought to be enforced.


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Indigent parties

SPS. ALGURA vs NAGA CITY

G.R. No. 150135, October 30, 2006

Anyone who has ever struggled with poverty

knows how extremely expensive it is to be poor.

–– James Baldwin

Facts:

Sps Antonio and Lorencita S.J. Algura filed a Verified Complaint

for damages against the Naga City Government and its officers,

arising from the alleged illegal demolition of their residence and

boarding house and for payment of lost income derived from fees

paid by their boarders amounting to PhP 7,000.00 monthly.

Petitioners filed an Ex-Parte Motion to Litigate as Indigent

Litigants, to which petitioner Antonio Algura's Pay Slip No. 2457360

was appended, showing a gross monthly income of (PhP 10,474.00)

and a net pay of (PhP 3,616.99) for the month July 1999. Also

attached as Annex "B" to the motion was a Certification issued by

the Office of the City Assessor of Naga City, which stated that

petitioners had no property declared in their name for taxation

purposes.

Finding that petitioners' motion to litigate as indigent litigants

was meritorious, Executive Judge Atienza of the Naga City RTC

granted petitioners' plea for exemption from filing fees.

Respondents filed an Answer with Counterclaim arguing that

the defenses of the petitioners in the complaint had no cause of

action, the spouses' boarding house blocked the road right of way,

and said structure was a nuisance per se.

Praying that the counterclaim of defendants (respondents) be

dismissed, petitioners then filed their Reply with Ex-Parte Request

for a Pre-Trial Setting before the Naga City RTC. A pre-trial was held

wherein respondents asked for five (5) days within which to file a

Motion to Disqualify Petitioners as Indigent Litigants.

Respondents filed a Motion to Disqualify the Plaintiffs for

Non-Payment of Filing Fees. They asserted that in addition to the

more than PhP 3,000.00 net income of petitioner Algura, who is a

member of the Philippine National Police, spouse Lorencita Algura

also had a mini-store and a computer shop on the ground floor of

their residence. Also, respondents claimed that petitioners' second

floor was used as their residence and as a boarding house, from

which they earned more than PhP 3,000.00 a month. In addition, it

was claimed that petitioners derived additional income from their

computer shop patronized by students and from several boarders

who paid rentals to them. Hence, respondents concluded that

petitioners were not indigent litigants.

Petitioners subsequently interposed their Opposition to

the Motion to respondents' motion to disqualify them for non-

payment of filing fees.

RTC issued an Order disqualifying petitioners as indigent

litigants on the ground that they failed to substantiate their claim for

exemption from payment of legal fees and to comply with the third

paragraph of Rule 141, Section 18 of the Revised Rules of Court—

directing them to pay the requisite filing fees.

Petitioners filed a Motion for Reconsideration.

Respondents then filed their Comment/Objections to petitioner's

Motion for Reconsideration.

Trial court issued an Order giving petitioners the

opportunity to comply with the requisites laid down in Section 18,

Rule 141, for them to qualify as indigent litigants.

Petitioners submitted their Compliance attaching their

affidavits to comply with the requirements of then Rule 141, Section

18 of the Rules of Court and in support of their claim to be declared

as indigent litigants which they claimed that the demolition of their

small dwelling deprived her of a monthly income amounting to PhP

7,000.00. She, her husband, and their six (6) minor children had to

rely mainly on her husband's salary as a policeman which provided

them a monthly amount of PhP 3,500.00, more or less. Also, they did

not own any real property as certified by the assessor's office of

Naga City. More so, according to her, the meager net income from

her small sari-sari store and the rentals of some boarders, plus the

salary of her husband, were not enough to pay the family's basic

necessities.

petitioners also submitted the affidavit of Erlinda Bangate,

who attested under oath, that she personally knew spouses Antonio

Algura and Lorencita Algura, who were her neighbors.

RTC Acting Presiding Judge Andres B. Barsaga, Jr. issued

Order denying the petitioners' Motion for Reconsideration.

Judge Barsaga ratiocinated that the pay slip of Antonio F.

Algura showed that the "GROSS INCOME or TOTAL EARNINGS of

plaintiff Algura [was] ₧10,474.00 which amount [was] over and

above the amount mentioned in the first paragraph of Rule 141,

Section 18 for pauper litigants residing outside Metro Manila." Said

rule provides that the gross income of the litigant should not exceed

PhP 3,000.00 a month and shall not own real estate with an

assessed value of PhP 50,000.00. The trial court found that, in

Lorencita S.J. Algura's May 13, 2000 Affidavit, nowhere was it stated

that she and her immediate family did not earn a gross income of

PhP 3,000.00.

Issue:

Whether or not the petitioners should be considered as

indigent litigants who qualify for exemption from paying filing fees.

Held:

No. There was no hearing on the matter hence the case

was remanded back to the lower court. In this case, the Supreme

Court reconciled the provisions of Sec. 21, Rule 3 and Sec. 19, Rule

141 (then Sec. 16, Rule 141).

Sec. 21, Rule 3, merely provides a general statement that

indigent litigants may not be required to pay the filing fees. On the

other hand, Sec. 19, Rule 141 provides the specific standards that a

party must meet before he can be qualified as an indigent party and

thus be exempt from paying the required fees.

If Sec. 19, Rule 141 (in this case, then Sec. 16, Rule 141) is

strictly applied, then the spouses could not qualify because their

income exceeds P1.5k, which was the threshold prior to 2000. But if

Sec. 21, Rule 3 is to be applied, the applicant (the Spouses) should

be given a chance in a hearing to satisfy the court that

notwithstanding the evidence presented by the opposing party


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(Naga), they have no money or property sufficient and available for

food, shelter and other basic necessities for their family, and are

thus, qualified as indigent litigants under said Rule. Therefore, the

court should have conducted a trial in order to let the spouses

satisfy the court that indeed the income they’re having, even though

above the P1.5k limit, was not sufficient to cover food, shelter, and

their other basic needs.

____________________________________________

Discussion of the SC

RTC incorrectly applied Rule 141, Section 18 on Legal

Fees when the applicable rules at that time were Rule 3, Section 21

on Indigent Party which took effect on July 1, 1997 and Rule 141,

Section 16 on Pauper Litigants which became effective on July 19,

1984 up to February 28, 2000.

The old Section 16, Rule 141 requires applicants to file an

ex-parte motion to litigate as a pauper litigant by submitting an

affidavit which contains the two requirements: a) income

requirement—the applicants should not have a gross monthly

income of more than PhP 1,500.00, and b) property requirement––

they should not own property with an assessed value of not more

than PhP 18,000.00.

The position of petitioners on the need to use Rule 3,

Section 21 on their application to litigate as indigent litigants

brings to the fore the issue on whether a trial court has to apply

both Rule 141, Section 16 and Rule 3, Section 21 on such

applications or should the court apply only Rule 141, Section 16

and discard Rule 3, Section 21 as having been superseded by Rule

141, Section 16 on Legal Fees.

The Court ruled that Rule 3, Section 21 and Rule 141,

Section 16 (later amended as Rule 141, Section 18 on March 1, 2000

and subsequently amended by Rule 141, Section 19 on August 16,

2003, which is now the present rule) are still valid and enforceable

rules on indigent litigants.

The fact that Section 22 which became Rule 3, Section 21

on indigent litigant was retained in the rules of procedure, even

elaborating on the meaning of an indigent party, and was also

strengthened by the addition of a third paragraph on the right to

contest the grant of authority to litigate only goes to show that

there was no intent at all to consider said rule as expunged from the

1997 Rules of Civil Procedure.

Furthermore, Rule 141 on indigent litigants was amended

twice: first on March 1, 2000 and the second on August 16, 2004;

and yet, despite these two amendments, there was no attempt to

delete Section 21 from said Rule 3. This clearly evinces the desire of

the Court to maintain the two (2) rules on indigent litigants to cover

applications to litigate as an indigent litigant.

Instead of declaring that Rule 3, Section 21 has been

superseded and impliedly amended by Section 18 and later Section

19 of Rule 141, the Court finds that the two rules can and should be

harmonized. The two (2) rules can stand together and are

compatible with each other. When an application to litigate as an

indigent litigant is filed, the court shall scrutinize the affidavits and

supporting documents submitted by the applicant to determine if

the applicant complies with the income and property standards

prescribed in the present Section 19 of Rule 141—that is, the

applicant's gross income and that of the applicant's immediate

family do not exceed an amount double the monthly minimum wage

of an employee; and the applicant does not own real property with a

fair market value of more than Three Hundred Thousand Pesos (PhP

300,000.00). If the trial court finds that the applicant meets the

income and property requirements, the authority to litigate as

indigent litigant is automatically granted and the grant is a matter of

right.

However, if the trial court finds that one or both

requirements have not been met, then it would set a hearing to

enable the applicant to prove that the applicant has "no money or

property sufficient and available for food, shelter and basic

necessities for himself and his family." In that hearing, the adverse

party may adduce countervailing evidence to disprove the evidence

presented by the applicant; after which the trial court will rule on

the application depending on the evidence adduced. In addition,

Section 21 of Rule 3 also provides that the adverse party may later

still contest the grant of such authority at any time before judgment

is rendered by the trial court, possibly based on newly discovered

evidence not obtained at the time the application was heard. If the

court determines after hearing, that the party declared as an

indigent is in fact a person with sufficient income or property, the

proper docket and other lawful fees shall be assessed and collected

by the clerk of court. If payment is not made within the time fixed by

the court, execution shall issue or the payment of prescribed fees

shall be made, without prejudice to such other sanctions as the

court may impose.

The trial court should have applied Rule 3, Section 21 to

the application of the Alguras after their affidavits and supporting

documents showed that petitioners did not satisfy the twin

requirements on gross monthly income and ownership of real

property under Rule 141. Instead of disqualifying the Alguras as

indigent litigants, the trial court should have called a hearing as

required by Rule 3, Section 21 to enable the petitioners to adduce

evidence to show that they didn't have property and money

sufficient and available for food, shelter, and basic necessities for

them and their family. In that hearing, the respondents would have

had the right to also present evidence to refute the allegations and

evidence in support of the application of the petitioners to litigate as

indigent litigants. Since this Court is not a trier of facts, it will have to

remand the case to the trial court to determine whether petitioners

can be considered as indigent litigants using the standards set in

Rule 3, Section 21.

Recapitulating the rules on indigent litigants, therefore, if

the applicant for exemption meets the salary and property

requirements under Section 19 of Rule 141, then the grant of the

application is mandatory. On the other hand, when the application

does not satisfy one or both requirements, then the application

should not be denied outright; instead, the court should apply the

"indigency test" under Section 21 of Rule 3 and use its sound

discretion in determining the merits of the prayer for exemption.


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______________________________________________

History of suits in forma pauperis (pauper litigant)

When the Rules of Court took effect on January 1, 1964,

the rule on pauper litigants was found in Rule 3, Section 22 which

provided that:

Section 22. Pauper litigant.—Any court may authorize a

litigant to prosecute his action or defense as a pauper

upon a proper showing that he has no means to that effect

by affidavits, certificate of the corresponding provincial,

city or municipal treasurer, or otherwise. Such authority[,]

once given[,] shall include an exemption from payment of

legal fees and from filing appeal bond, printed record and

printed brief. The legal fees shall be a lien to any judgment

rendered in the case [favorable] to the pauper, unless the

court otherwise provides.

From the same Rules of Court, Rule 141 on Legal Fees, on

the other hand, did not contain any provision on pauper litigants.

On July 19, 1984, the Court, in Administrative Matter No.

83-6-389-0 (formerly G.R. No. 64274), approved the

recommendation of the Committee on the Revision of Rates and

Charges of Court Fees, through its Chairman, then Justice Felix V.

Makasiar, to revise the fees in Rule 141 of the Rules of Court to

generate funds to effectively cover administrative costs for services

rendered by the courts. A provision on pauper litigants was inserted

which reads:

Section 16. Pauper-litigants exempt from payment of court

fees.—Pauper-litigants include wage earners whose gross

income do not exceed P2,000.00 a month or P24,000.00 a

year for those residing in Metro Manila, and P1,500.00 a

month or P18,000.00 a year for those residing outside

Metro Manila, or those who do not own real property with

an assessed value of not more than P24,000.00, or not

more than P18,000.00 as the case may be.

Such exemption shall include exemption from

payment of fees for filing appeal bond, printed record and

printed brief.

The legal fees shall be a lien on the monetary or

property judgment rendered in favor of the pauper-

litigant.

To be entitled to the exemption herein provided,

the pauper-litigant shall execute an affidavit that he does

not earn the gross income abovementioned, nor own any

real property with the assessed value afore-mentioned

[sic], supported by a certification to that effect by the

provincial, city or town assessor or treasurer.

When the Rules of Court on Civil Procedure were amended

by the 1997 Rules of Civil Procedure (inclusive of Rules 1 to 71) in

Supreme Court Resolution in Bar Matter No. 803 dated April 8, 1997,

which became effective on July 1, 1997, Rule 3, Section 22 of the

Revised Rules of Court was superseded by Rule 3, Section 21 of said

1997 Rules of Civil Procedure, as follows:

Section 21. Indigent party.—A party may be authorized to

litigate his action, claim or defense as an indigent if the

court, upon an ex parte application and hearing, is

satisfied that the party is one who has no money or

property sufficient and available for food, shelter and basic

necessities for himself and his family.

Such authority shall include an exemption from

payment of docket and other lawful fees, and of

transcripts of stenographic notes which the court may

order to be furnished him. The amount of the docket and

other lawful fees which the indigent was exempted from

paying shall be a lien on any judgment rendered in the

case favorable to the indigent, unless the court otherwise

provides.

Any adverse party may contest the grant of such

authority at any time before judgment is rendered by the

trial court. If the court should determine after hearing that

the party declared as an indigent is in fact a person with

sufficient income or property, the proper docket and other

lawful fees shall be assessed and collected by the clerk of

court. If payment is not made within the time fixed by the

court, execution shall issue for the payment thereof,

without prejudice to such other sanctions as the court may

impose.

At the time the Rules on Civil Procedure were amended

by the Court in Bar Matter No. 803, however, there was no

amendment made on Rule 141, Section 16 on pauper litigants.

On March 1, 2000, Rule 141 on Legal Fees was amended

by the Court in A.M. No. 00-2-01-SC, whereby certain fees were

increased or adjusted. In this Resolution, the Court amended Section

16 of Rule 141, making it Section 18, which now reads:

Section 18. Pauper-litigants exempt from payment of legal

fees.—Pauper litigants (a) whose gross income and that of

their immediate family do not exceed four thousand

(P4,000.00) pesos a month if residing in Metro Manila, and

three thousand (P3,000.00) pesos a month if residing

outside Metro Manila, and (b) who do not own real

property with an assessed value of more than fifty

thousand (P50,000.00) pesos shall be exempt from the

payment of legal fees.

The legal fees shall be a lien on any judgment

rendered in the case favorably to the pauper litigant,

unless the court otherwise provides.

To be entitled to the exemption herein provided,

the litigant shall execute an affidavit that he and his

immediate family do not earn the gross income

abovementioned, nor do they own any real property with

the assessed value aforementioned, supported by an

affidavit of a disinterested person attesting to the truth of

the litigant's affidavit.


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Any falsity in the affidavit of a litigant or

disinterested person shall be sufficient cause to strike out

the pleading of that party, without prejudice to whatever

criminal liability may have been incurred.

It can be readily seen that the rule on pauper litigants was

inserted in Rule 141 without revoking or amending Section 21 of

Rule 3, which provides for the exemption of pauper litigants from

payment of filing fees. Thus, on March 1, 2000, there were two

existing rules on pauper litigants; namely, Rule 3, Section 21 and

Rule 141, Section 18.

On August 16, 2004, Section 18 of Rule 141 was further

amended in Administrative Matter No. 04-2-04-SC, which became

effective on the same date. It then became Section 19 of Rule 141,

to wit:

Sec. 19. Indigent litigants exempt from payment of legal

fees.– INDIGENT LITIGANTS (A) WHOSE GROSS INCOME

AND THAT OF THEIR IMMEDIATE FAMILY DO NOT EXCEED

AN AMOUNT DOUBLE THE MONTHLY MINIMUM WAGE

OF AN EMPLOYEE AND (B) WHO DO NOT OWN REAL

PROPERTY WITH A FAIR MARKET VALUE AS STATED IN THE

CURRENT TAX DECLARATION OF MORE THAN THREE

HUNDRED THOUSAND (P300,000.00) PESOS SHALL BE

EXEMPT FROM PAYMENT OF LEGAL FEES.

The legal fees shall be a lien on any judgment

rendered in the case favorable to the indigent litigant

unless the court otherwise provides.

To be entitled to the exemption herein

provided, the litigant shall execute an affidavit that he

and his immediate family do not earn a gross income

abovementioned, and they do not own any real property

with the fair value aforementioned, supported by an

affidavit of a disinterested person attesting to the truth

of the litigant's affidavit. The current tax declaration, if

any, shall be attached to the litigant's affidavit.

Any falsity in the affidavit of litigant or

disinterested person shall be sufficient cause to dismiss

the complaint or action or to strike out the pleading of

that party, without prejudice to whatever criminal liability

may have been incurred. (Emphasis supplied.)

Amendments to Rule 141 (including the amendment to

Rule 141, Section 18) were made to implement RA 9227 which

brought about new increases in filing fees. Specifically, in the August

16, 2004 amendment, the ceiling for the gross income of litigants

applying for exemption and that of their immediate family was

increased from PhP 4,000.00 a month in Metro Manila and PhP

3,000.00 a month outside Metro Manila, to double the monthly

minimum wage of an employee; and the maximum value of the

property owned by the applicant was increased from an assessed

value of PhP 50,000.00 to a maximum market value of PhP

300,000.00, to be able to accommodate more indigent litigants and

promote easier access to justice by the poor and the marginalized in

the wake of these new increases in filing fees.

Even if there was an amendment to Rule 141 on August

16, 2004, there was still no amendment or recall of Rule 3, Section

21 on indigent litigants.

Indigent parties

TOKIO MARINE MALAYAN INSURANCE CO. INC. vs VALDEZ

G.R. No. 150107, January 28, 2008

Facts:

Tokio Marine Malayan Insurance Company Incorporated

(Tokio Marine), petitioner in these cases, is a domestic corporation

engaged in the insurance business. The individual petitioners are its

corporate officers, except Antonio B. Lapid, one of Tokio Marine's

consultants.

Jorge Valdez, respondent in these cases, was a former unit

manager of Tokio Marine pursuant to a Unit Management Contract

entered into between them.

Respondent filed with the Regional Trial Court a complaint

for damages against petitioners. He alleged therein that petitioners

violated the terms of the Unit Management Contract by refusing to

pay him his "commissions," and bonuses. Respondent prayed for the

reliefs.

Respondent filed with the trial court an "Urgent Ex Parte

Motion For Authority To Litigate As Indigent Plaintiff."

The trial court issued an order which allows the plaintiff to

litigate as pauper there being sufficient showing that he is an

indigent. He does not own any real property in the City of Manila or

elsewhere.

The trial court directs the Clerk of Court to accept the

complaint for filing without payment of filing fees, however, shall

constitute a lien upon any judgment to be rendered in favor of the

plaintiff.

Petitioners filed their separate motions to dismiss the

complaint.

The trial court denied petitioners' motions to dismiss and

petitioners’ motions for reconsideration.

Petitioners filed a petition for certiorari with prayer for a

temporary restraining order and preliminary injunction with the

Court of Appeals assailing the order of the trial court denying their

motions to dismiss.

The Court of Appeals issued a resolution directing the

issuance of a writ of preliminary injunction restraining the trial court

from conducting further proceedings.

Respondent filed with the Court of Appeals an "Urgent

Notice of Taking of Deposition Upon Oral Examination of Private

Respondent Jorge Valdez For Purposes of the Above-Captioned

Pending Case And For Such Other Legal Purposes As May Be

Warranted By Existing Law and Jurisprudence." It appears that

respondent was already 75 years old and sickly.


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Petitioners filed with the Court of Appeals a petition to

cite respondent in contempt of court. Petitioners alleged that in

filing with the appellate court an urgent notice of taking his

deposition, respondent violated the preliminary injunction issued by

the said court.

The deposition of respondent was taken by Atty. Alberto

A. Aguja, a Notary Public for Manila. On the same date, he filed with

the Court of Appeals respondent's deposition.

The Court of Appeals rendered its decision dismissing the

petitions and lifting and dissolving the writ of preliminary injunction

previously issued for lack of merit.

Hence, the instant consolidated petitions.

Issue:

Whether or not that the Court of Appeals erred in denying

their motion to dismiss respondent's complaint in civil case for

nonpayment of docket fees.

Held:

No. It is hornbook law that courts acquire jurisdiction

over any case only upon payment of the prescribed docket fee. As

we held in Magaspi v. Ramolete, the correct docket fees must be

paid before courts can act on a petition or complaint. The exception

to the rule on payment of docket fees is provided in Section 21, Rule

3 of the 1997 Rules of Civil Procedure, as amended, thus:

SEC. 21. Indigent party. - A party may be authorized

to litigate his action, claim or defense as an indigent if the

court, upon an ex parte application and hearing, is satisfied that

the party is one who has no money or property sufficient and

available for food, shelter and basic necessities for himself and

his family.

Such authority shall include an exemption from

payment of docket and other lawful fees and of transcripts of

stenographic notes which the court may order to be furnished

him. The amount of the docket and other lawful fees which the

indigent was exempted from paying shall be a lien on any

judgment rendered in the case favorable to the indigent, unless

the court otherwise provides.

Any adverse party may contest the grant of such

authority at any time before judgment is rendered by the trial

court. If the court should determine after hearing that the party

declared as an indigent is in fact a person with sufficient

income or property, the proper docket and other lawful fees

shall be assessed and collected by the clerk of court. If payment

is not made within the time fixed by the court, execution shall

issue or the payment thereof, without prejudice to such other

sanctions as the court may impose.

The guidelines for determining whether a party

qualifies as an indigent litigant are provided for in Section 19, Rule

141, of the Revised Rules of Court, which reads:

SEC. 19. Indigent litigants exempt from payment of legal

fees. - INDIGENT LITIGANT (A) WHOSE GROSS INCOME AND

THAT OF THEIR IMMEDIATE FAMILY DO NOT EXCEED AN

AMOUNT DOUBLE THE MONTHLY MINIMUM WAGE OF AN

EMPLOYEE AND (B) WHO DO NOT OWN REAL PROPERTY WITH

A FAIR MARKET VALUE AS STATED IN THE CURRENT TAX

DECLARATION OF MORE THAN THREE HUNDRED THOUSAND

PESOS (P300,000.00) SHALL BE EXEMPT FROM THE PAYMENT

OF LEGAL FEES.

The legal fees shall be a lien on any judgment rendered in

the case favorable to the indigent unless the court otherwise

provides.

To be entitled to the exemption herein provided, the

litigant shall execute an affidavit that he and his immediate

family do not earn a gross income abovementioned nor they

own any real property with the fair value aforementioned,

supported by an affidavit of a disinterested person attesting to

the truth of the litigant's affidavit. The current tax declaration,

if any, shall be attached to the litigant's affidavit.

Any falsity in the affidavit of the litigant or disinterested

person shall be sufficient cause to dismiss the complaint or

action or to strike out the pleading of that party, without

prejudice to whatever criminal liability may have been incurred.

For purposes of a suit in forma pauperis, an indigent

litigant is not really a pauper, but is properly a person who is an

indigent although not a public charge, meaning that he has no

property or income sufficient for his support aside from his labor,

even if he is self-supporting when able to work and in employment.

The term "immediate family" includes those members of the same

household who are bound together by ties of relationship but does

not include those who are living apart from the particular household

of which the individual is a member.

In the instant cases, petitioners maintain that

respondent's ex parte motion to litigate as an indigent is defective

since it was not accompanied or supported by the affidavits of his

children, the immediate members of his family. The argument lacks

merit. Section 19 clearly states that it is the litigant alone who shall

execute the affidavit. The Rule does not require that all members of

the litigant's immediate family must likewise execute sworn

statements in support of the petition. Expressio unius est exclusio

alterius.

Petitioners next argue that respondent's ex parte

motion is not supported by sufficient evidence to show his indigent

status. Suffice it to state that the Supreme Court is, first and

foremost, a court of law. It is not its function to analyze and weigh

all over again the evidence or premises supportive of factual

determination. Thus, petitioners cannot now ask the Supreme Court

to review the evidence anew.

The Supreme Court denied the petitions. The challenged

decision of the Court of Appeals is affirmed.


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BRIOSO vs RILI-MARIANO

G.R. No. 132765, January 31, 2003

Facts:

The Spouses Mariano, through the Land Bank of the

Philippines (Land Bank), repurchased the property that they

previously sold to Glicerio Brioso (Glicerio) within the period

specified in the parties' pacto de retro sale. Despite repeated

demands, Glicerio refused to deliver the entire property. The

Spouses Mariano filed a complaint for recovery of possession of real

property. The Spouses Mariano sought to repossess six (6) lots

(properties).

Defendants, through their counsels, Atty. Pardalis and

Salvador, asserted that the Spouses Mariano had no cause of action

against Glicerio because the latter had already lost all interest in the

land. Defendants claimed that Glicerio installed his son Ernesto, his

daughter Concepcion and his employee Eusebio as tenants of the

property before the repurchase, therefore, they were bona fide

cultivators-possessors of the land. Also, the titles to the properties

had already been transferred to the Land Bank. The complaint was

defective as it failed to implead Land Bank and Concepcion's

husband as indispensable parties.

Spouses Mariano amended their complaint to implead

Land Bank and Concepcion spouse, Marcos Nolasco (Marcos).

During the pre-trial, upon the Spouses Mariano's motion,

the complaint was dismissed against Land Bank, Ernesto and

Eusebio. Thereafter, trial against the remaining defendants, namely,

Glicerio, Concepcion, Marcos and Salvador, ensued.

Glicerio died. Defendants, through Atty. Pardalis, filed a

Notice of Death of Glicerio Brioso. Spouses Mariano's counsel filed a

Motion for Substitution of Deceased Defendant which Atty. Pardalis

received. The trial court issued an order admitting the motion of

Atty. Grageda to substitute the deceased defendant Glicerio Brioso.

Trial continued. Defendants adduced their evidence. The

trial court rendered a decision finding and holding that the

preponderance of evidence is in favor of the plaintiffs. Judgment is

rendered in favor of the plaintiffs and against the defendants

Concepcion Brioso-Nolasco and her husband, Salvador Brioso and

the substitute defendants for deceased defendant Glicerio Brioso

who are ordered to pay, jointly and severally, the plaintiffs. The

defendants are also directed to immediately turn over the physical

and material possession of 3 lots to the plaintiffs.

Dissatisfied, Marcos and Glicerio's heirs, namely, Felicidad

Z. Brioso (Felicidad), Bener Z. Brioso (Bener), Julito Z. Brioso (Julito),

Glicerio Z. Brioso, Jr. (Glicerio, Jr.), Ernesto, Concepcion and Salvador

filed an appeal with the Court of Appeals.

In the Court of Appeals, petitioners maintained that the

substitution of Glicerio was invalid as the trial court failed to comply

with the Rules of Court on the substitution of a deceased party.

Considering that the substitution was null and void, petitioners

alleged that the trial court did not acquire jurisdiction over their

persons. Hence, the entire proceedings in the trial court and the

judgment rendered by the trial court were void.

The Court of Appeals sustained the decision of the trial

court. In ruling that there was a valid substitution of the deceased

party, the Court of Appeals quoted Section 17, Rule 3 of the old

Rules of Court. The Court of Appeals held that the trial court

acquired jurisdiction over the persons of the petitioners. Thus, the

decision of the trial court is valid and binding upon all of the

petitioners. The Court of Appeals anchored its ruling on the fact that

the records show that on Atty. Augusto Pardales, counsel for

defendants, filed a notice of death informing the court that

defendant Glicerio R. Brioso died. Counsel for the plaintiffs

accordingly filed a Motion for Substitution of Deceased Defendant.

Heirs of Glicerio Brioso, namely: Mrs. Felicidad Z. Brioso,

Benet Z. Brioso, Julito Z. Brioso, Glicerio Z. Brioso, Jr., Ernesto Z.

Brioso, Concepcion Brioso-Nolasco, and Salvador Z. Brioso, were

made substitute defendants in the case. Their counsels were

definitely aware of such substitution. In fact, one of them, Atty.

Salvador Z. Brioso, was one of the counsels of the defendants. It was

the duty of said counsels to inform the heirs of the substitution after

the court had issued the order granting the motion of the plaintiffs.

Moreover, Ernesto Brioso cannot deny the fact that he

knew of the pendency of the action and the substitution of the heirs

because he participated as a witness for the defendants even after

the case against him was earlier dismissed. The court had acquired

jurisdiction over the persons of the heirs and the judgment is

thereby binding upon all of them.

Court of Appeals denied petitioners’ Motion for

Reconsideration. Hence, this petition.

Issue:

Whether there was a valid substitution of deceased

Glicerio.

Held:

The petition is partly meritorious.

Petitioners assert that the trial court failed to comply with

the clear language of Section 17, Rule 3 of the old Rules of Court

which provides as follows:

"Death of a party. After a party dies and the claim is not

thereby extinguished, the court shall order, upon proper notice,

the legal representative of the deceased, within a period of

thirty (30) days, or within such time as may be granted. If the

legal representative fails to appear within said time, the court

may order the opposing party to procure the appointment of a

legal representative of the deceased within a time to be

specified by the court, and the representative shall immediately

appear for and on behalf of the interest of the deceased. The

court charges involved in procuring such appointment, if

defrayed by the opposing party, may be recovered as costs. The

heirs of the deceased may be allowed to be substituted for the

deceased, without requiring the appointment of an executor or

administrator and the court may appoint guardian ad litem for

the minor heirs."

Petitioners allege that, as there was no appointed

administrator for the estate of the deceased defendant, the trial

court should have ordered the heirs to appear personally before it

and manifest whether they were willing to substitute Glicerio.


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Petitioners further aver that if none of the heirs appeared or

manifested to act as substitutes, the trial court should have ordered

the adverse party to procure the appointment of a legal

representative of the deceased who should appear for and on behalf

of the deceased's interest.

Petitioners also harp on their failure to receive a copy of

the Spouses Mariano's motion for substitution of Glicerio as well as

the order of the trial court admitting the motion. Petitioners argue

that, even if they received a copy of the order, the same did not

grant the Spouses Mariano's motion for substitution. Since they

were not aware of the purported substitution because of the lack of

service on them of the motion and the order, petitioners insist that

the entire proceedings in the trial court were void for lack of

jurisdiction over their persons.

It must be pointed out that, contrary to the Spouses

Mariano's view, their complaint for recovery of possession of real

property is an action which survives the death of a party. Such being

the case, the rule on substitution of a deceased party is clearly

applicable.

Under the express terms of Section 17 of the old Rules, in

case of the death of a party and due notice is given to the trial court,

it is the duty of the court to order the deceased's legal

representative or heir to appear for the deceased. Otherwise, "the

trial held by the court without appearance of the deceased's legal

representative or substitution of heirs and the judgment rendered

after trial, are null and void."

Non-compliance with the rule on substitution of a

deceased party renders the proceedings and judgment of the trial

court infirm because the court acquired no jurisdiction over the

persons of the legal representatives or of the heirs on whom the

trial and the judgment would be binding. In other words, a party's

right to due process is at stake, as we enunciated in Vda. de Salazar

v. Court of Appeals, thus —

"We should not lose sight of the principle underlying the

general rule that formal substitution of heirs must be

effectuated for them to be bound by a subsequent judgment.

Such had been the general rule established not because the

rule on substitution of heirs and that on appointment of a legal

representative are jurisdictional requirements per se but

because non-compliance therewith results in the undeniable

violation of the right to due process of those who, though not

duly notified of the proceedings, are substantially affected by

the decision rendered therein."

In the instant case, it is true that the trial court, after

receiving a notice of Glicerio's death, failed to order the appearance

of his legal representative or heirs. Instead, the trial court issued an

order merely admitting respondents' motion for substitution. There

was no court order for Glicerio's legal representative to appear, nor

did any such legal representative ever appear in court to be

substituted for Glicerio. Neither did the respondents ever procure

the appointment of such legal representative, nor did Glicerio's heirs

ever ask to be substituted for Glicerio. Clearly, the trial court failed

to observe the proper procedure in substituting Glicerio. As a result,

contrary to the Court of Appeals' decision, no valid substitution

transpired in the present case.

Thus, we rule that the proceedings and judgment of the

trial court are void as to Felicidad, Glicerio, Jr., Bener and Julito.

There is no iota of proof that they were apprised of the litigation

against Glicerio. There is no indication that they authorized Atty.

Pardalis to represent them or any showing that they appeared in the

proceedings. Given these facts, the trial court clearly did not acquire

jurisdiction over their persons. Such being the case, these heirs

cannot be bound by the judgment of the trial court.

Despite the trial court's failure to adhere to the rule on

substitution of a deceased party, its judgment remains valid and

binding on the following heirs, namely, Salvador, Concepcion and

Ernesto. Formal substitution of heirs is not necessary when the heirs

themselves voluntarily appeared, shared in the case and presented

evidence in defense of deceased defendant. This is precisely

because, despite the court's non-compliance with the rule on

substitution, the heirs' right to due process was obviously not

impaired. In other words, the purpose of the rule on substitution of

a deceased party was already achieved. The following facts indicate

plainly that there was active participation of these heirs in the

defense of Glicerio after his death.

First, Salvador and Concepcion were among the original

defendants in the case. Needless to state, the trial court, even

before Glicerio's death, already acquired jurisdiction over the

persons of these heirs. Hence, the rule on substitution of a deceased

party is no longer required as to Salvador and Concepcion because

they were already impleaded as defendants. In fact, Salvador, a

lawyer son of Glicerio, was also one of the counsels for defendants.

Second, the lengthy testimonies of Salvador,

Concepcion and Ernesto show that they defended their deceased

father. Both Concepcion and Salvador testified in defense not only of

themselves but also of their deceased father. As to Ernesto, while he

was dropped as a defendant, he testified and admitted that he was

one of the substitutes of Glicerio. Ernesto understood that he was a

substitute defendant in the case.

Third, Atty. Pardalis continued to represent Glicerio

even after the latter's demise. Acting on Glicerio's behalf, Atty.

Pardalis presented the testimonies of Salvador, Concepcion and

Ernesto, to prove, among others, that Glicerio no longer had any

interest in the Properties. These pieces of evidence clearly negate

petitioners' contention that Atty. Pardalis ceased to be Glicerio's

counsel upon the latter's death.

Assuming that Atty. Pardalis no longer represented

Glicerio after his death, he remained as counsel for Salvador,

Concepcion and Marcos. He should have questioned immediately

the validity of the proceedings absent any formal substitution of

Glicerio. Yet, despite the court's alleged lack of jurisdiction over the

persons of his clients, Atty. Pardalis never bothered to challenge the

same, not until after the trial court rendered its adverse decision.

Lastly, Atty. Pardalis received a copy of respondents'

motion for substitution and the trial court's order admitting the

motion. Upon receipt of the motion and the order, Atty. Pardalis

should have immediately opposed the same for failure to comply

with the rule on substitution. However, Atty. Pardalis did not

question the motion and the order, not until after the trial court


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rendered its decision. His long silence, which certainly binds his

clients, can be construed as defendants' submission to the court's

jurisdiction. The acquiescence of defendants and their counsel on

the trial court's jurisdiction effectively precluded them from

questioning the proceedings in the trial court.

In Ferreria et al. v. Vda. de Gonzales, et al., Manolita

Gonzales (one of the heirs of deceased defendant) was not served

notice and, more importantly, never appeared in court, unlike

Salvador, Concepcion and Ernesto who appeared and even testified

regarding their father's interest in the Properties. In sum, with the

active participation of Salvador, Concepcion and Ernesto, the trial

court acquired jurisdiction over their persons. Accordingly, the

proceedings and the decision of the trial court are valid with respect

to these heirs.

The instant petition is partly granted. The decision of

the Court of Appeals is MODIFIED. As to Bener Brioso, Julito Brioso

and Glicerio Brioso, Jr., the decision of the Regional Trial Court is

void for lack of jurisdiction. As to Felicidad Brioso, Concepcion B.

Nolasco, Marcos Nolasco, Salvador Brioso and Ernesto Brioso, the

decision of the Regional Trial Court is valid.


STATE INVESTMENT HOUSE vs CA

G.R. No. 106795, November 16, 1999

Facts:

Defendant Cheng Ban Yek Co., Inc. (CBY) is a domestic

corporation engaged in the business of manufacturing edible oil

bearing the brand "Baguio Oil", and in the conduct of its business, it

has incurred millions of pesos of obligations with plaintiff-petitioner

State Investment House, Inc. (SIHI) and many other creditors,

including defendant Allied Banking Corporation (Allied).

Defendant CBY, plaintiff SIHI, and other creditors of CBY

entered into an Agreement for the restructuring of CBY's existing

obligations to its creditors, but excluding defendant Allied and other

creditors who did not sign said Agreement.

To secure the prompt and full payment of all amounts

owed by CBY to its creditors who participated in said Agreement and

as required thereunder, the parties thereto executed a Mortgage

Indenture with CBY and FOUR SEAS as Mortgagors and SIHI and 15

other creditors of CBY as mortgagees involving 23 parcels of

registered lands and the improvements therein, which Mortgage

Indenture was subsequently modified several times. As additional

security to said Agreement, the parties also agreed that the Existing

Comprehensive Surety Agreement previously executed by defendant

Alfredo Ching would continue to subsist and that he would remain

jointly and severally liable with CBY for the payment of the amounts

owed by the latter to the creditors who were parties to the

aforesaid Agreement.

CBY defaulted in the payment of its obligations. In a letter,

the CBY Creditors' Committee declared all of CBY's obligations due

and payable. This letter was followed by a letter of plaintiff SIHI

likewise declaring all of CBY's particular obligations to it immediately

due and payable. SIHI notified the Creditors' Committee of CBY that

it would institute proceedings for the enforcement of the remedies

granted under the Mortgage Indenture and in a resolution said

Creditors' Committee authorized SIHI to institute the appropriate

foreclosure proceedings provided that the proceeds of the

foreclosure sale would be distributed and applied to all of CBY's

obligations under the terms of the Agreement.

Plaintiff SIHI filed with the trial court against CBY, FOUR

SEAS and Alfredo Ching, and impleading twenty-two (22) other

creditors of CBY including herein petitioner Allied, allegedly because

they hold inferior or subordinate mortgage rights to the properties

sought to be foreclosed.

Defendant Allied filed its Answer to the complaint, denying

that its interests in the mortgaged properties in question are

subordinate in right to that of plaintiff SIHI; alleging that it was not a

party to the Agreement attached to the complaint and, therefore,

not bound by its provisions; likewise denying that it was a party to

the Fourth Amendatory Agreement also attached to the complaint

which it claimed "was never valid, binding and effective for lack of

consent on the part of the other creditors as shown by the fact that

they did not sign the same"; claiming that defendant CBY owes it the

principal amount P10 million, exclusive of interest, service charges,

penalties, and attorney’s fees; alleging that as defendant CBY's

biggest, single, creditor, plaintiff SIHI "was able to work its way and

secure for its representatives/nominees/designees key positions in

defendant CBY, including but not limited to seats with full voting

rights in defendant CBY's Board of Directors, Executive Committee,

and Creditors' Committee, and that in taking control and

management of CBY's operations, it "committed irregularities,

abuses excesses, and other acts inimical to defendant CBY draining

its resources and driving the latter to the financial quagmire it now

faces, to the prejudice of herein defendant creditors", as a

consequence of which acts, CBY allegedly suffered losses of not less

than P50 million or such amount as may be proved at the trial, which

losses it claims represent assets of CBY answerable to its creditors

other than plaintiff SIHI; and that plaintiff should be held liable for

such losses, as well as for defendant Allied's moral damages and

attorney's fees. Defendant Allied prayed for the dismissal of the

complaint or, in the alternative, for plaintiff to be ordered to pay

CBY's creditors including Allied the amount of P50 million to be

deducted from the proceeds of the foreclosure sale of the

mortgaged properties in question to be distributed among CBY's

creditors, and that plaintiff be also ordered to pay Allied moral

damages and attorney's fees.

Plaintiff SIHI, for the consideration of P33 million, entered

into a Deed of Assignment with FIL-NIPPON transferring to the latter

all its rights, interests, claims, and causes of action arising out of the

Agreement and certain promissory notes and mortgages contracts

upon which said civil case was brought, and in which Deed of

Assignment FIL-NIPPON also agreed to assume all the obligations of

SIHI as party-plaintiff in said civil case.

FIL-NIPPON filed a "Motion for Substitution of Party

Plaintiff" in lieu of plaintiff SIHI, which motion was opposed by

defendant Allied on the grounds that it has a counterclaim against

SIHI arising from irregularities, excesses, abuses and inimical acts


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committed by it in managing defendant CBY; that as long as said

counterclaim has not been finally resolved, the substitution of

plaintiff SIHI would be improper; and that if at all, FIL-NIPPON can

intervene and be a co-plaintiff.

The trial court granted the motion for substitution and

denied Allied’s motion for reconsideration.

Allied filed a petition for certiorari in the Court of Appeals

(CA). The CA granted the petition and ordered SIHI to continue as

plaintiff with the other private respondent FIL-NIPPON ordered

impleaded therein as co-plaintiff.

CA ruled that even without substitution, Fil-Nippon, as

assignee of all of SIHI's rights, interests claims and causes of action

arising out of the Agreement, would be bound by any judgment for

or against SIHI. SIHI had no choice but to actively participate in the

civil case in order to defend its assignee Fil-Nippon against Allied's

permissive counterclaim. Fil-Nippon cannot be substituted as debtor

under said counterclaim without its consent in view of Art. 1293 of

the Civil Code which provides that novation which consists in

substituting a new debtor in the place of the original one cannot be

made without the consent of the creditor.

Issue:

Whether or not CA erred in ruling that the substitution of

SIHI by its assignee Fil-Nippon is improper.

Held:

No. Supreme Court (SC) found no merit in the petition.

The rule on substitution of parties in case of transfer of

interest is found in Section 19, Rule 3, which states:

Sec. 19. Transfer of Interest — In case of any transfer of

interest, the action may be continued by or against the original

party, unless the court upon motion directs the person to

whom the interest is transferred to be substituted in the action

or joined with the original party.

It has been held that a transferee pendente lite does not

have to be included or impleaded by name in order to be bound by

the judgment because the action or suit may be continued for or

against the original party or the transferor and still be binding on the

transferee.

SC has ruled that a transferee pendente lite is a proper

party in the case but it is not an indispensable party.

CA did not err in ruling that SIHI should continue to be the

plaintiff, and Fil-Nippon should be impleaded as co-plaintiff. The

order of the trial court authorizing the substitution of parties failed

to take into account the fact that there is a counterclaim for

damages contained in Allied Bank's Answer arising from the alleged

inimical acts committed by SIHI in manipulating the operations of

CBY that drained the latter's resources to the prejudice of its

creditors. The counterclaim for damages is severable and

independent of SIHI's cause of action under the Agreement entered

into by SIHI, CBY and other creditors of CBY for the restructuring of

CBY's existing obligations. As aptly ruled by the CA, the alleged acts

of SIHI that gave rise to the complaint (counterclaim) for damages

do not arise out of the foreclosure of mortgage which is the subject

of civil case.

Although Fil-Nippon became an assignee of all of SIHI's

rights, interests, claims, and causes of action arising out of the

Agreement, the counterclaim for actual and moral damages and

attorney's fees filed by Allied Bank was in no way contemplated in

the assignment. It was accordingly error to discharge SIHI as original

plaintiff from the case.

The CA also correctly pointed out that Fil-Nippon could not

be substituted as debtor of Allied with respect to the counterclaim

for damages without the latter's consent.

Art. 1293 of the Civil Code of the Philippines

Novation which consists in substituting a new debtor in the

place of the original one, may be made even without the

knowledge or against the will of the latter but not without the

consent of the creditor. . . ."

Private respondent SIHI anwered that the above-quoted

article finds no application to this case because Sec. 17.7 of the

Agreement which it and its creditors had executed expressly allows

the assignment which it had made in favor of FIL-NIPPON. But Allied

was not a party to the Agreement in question as shown by the fact

that it never signed the same; hence, it is not bound by said

Agreement including the provision therein allowing the parties to

assign their respective rights thereunder.

No reversible error in the decision and resolution appealed

from, the instant petition is denied.

Alternative defendants

PERPETUAL SAVINGS BANK vs FAJARDO

G.R. No. 79760, June 28,1993

Facts:

J.J. Mining and Exploration Corporation (J.J. Mining)

executed and delivered to petitioner Perpetual Savings Bank (Bank)

a promissory note in the amount of ₱ 750,000.00 payable in one

lump sum upon maturity with interest at 23% per annum. The note

also contained, inter alia, a clause providing for penalty interest at

the rate of 3% per month on the amount due, compounded

monthly. The promissory note was executed for J.J. Mining by

respondents Fajardo and Del Mundo who are said to be officers of

J.J. Mining; respondent Del Mundo was also counsel for J.J. Mining.

Upon maturity of the promissory note, neither J.J. Mining

nor anyone else paid the amount of the indebtedness,

notwithstanding petitioner's repeated written demands for

payment.

Petitioner Bank filed a complaint with the Regional Trial

Court (RTC) against J.J. Mining, Jose Emmanuel Jalandoni and

respondents Fajardo and Del Mundo, for collection of the amounts


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due under the promissory note. In its complaint petitioner Bank

alleged, among other things, the following:

Defendants Fajardo and Del Mundo are impleaded herein as

agents/or representatives of Defendant Corporation who were

signatories in the Promissory Note or alternatively, in their

personal capacities if it be shown that they contracted the loan

fully knowing that the Defendant Corporation would be unable

to pay the same upon maturity and/or that they used the

proceeds of the loan for their own personal benefit;

Defendant Jose Jalandoni is impleaded herein in his

personal capacity also as alternative Defendant, as the owner

of 94% of the subscribed capital stock Defendant Corporation if

it be shown that the corporate privilege of Defendant

Corporation was used by Defendant Jalandoni to secure the

loan and the proceeds thereof for his own personal benefit fully

knowing that the Defendant Corporation was with inadequate

capital to meet its debts and thereby evade the obligation

under the Promissory Note.

Defendant Corporation for value received thru

Defendants Fajardo and Del Mundo, executed and delivered to

Plaintiff a Promissory Note in the sum of ₱ 750,000.00 payable

in lumpsum upon maturity with interest at 23% per annum.

Upon maturity of the Promissory Note, Defendants

defaulted and failed to satisfy the entire amount of

indebtedness.

Per the records of the Securities & Exchange

Commission, the paid-up capital of Defendant Corporation

amounts to only ₱ 100,000.00.

Pursuant to such records, Defendant Jalandoni and

his spouse Maria Theresa Jalandoni own 94 % of the total

shares of stock of Defendant Corporation giving them total

control of the corporation.

Despite the fact that the paid up capital of Defendant

Corporation was only ₱ 100,000.00 it managed to borrow ₱

750,000.00 from Plaintiff Bank secured only by shares of stocks

of Pamana Mining Corp. also owned by Defendant Jalandoni.

Respondents Fajardo and Del Mundo filed a Motion to

Dismiss on the ground that the complaint had failed to state a cause

of action against them. Petitioner Bank filed an Opposition to the

Motion to Dismiss, citing paragraph 1.6 of its complaint and

invoking, among other things, Section 13, Rule 3 of the Rules of

Court, provides that:

Alternative defendants.— Where the plaintiff is uncertain

against which of several persons he is entitled to relief, he may

join any or all of them as defendants in the alternative,

although aright to relief against one may be inconsistent with a

right to relief against the other.

The RTC denied respondents' Motion to Dismiss and

denied respondents’ motion for reconsideration.

Respondents went directly to the Supreme Court (SC) on

Petition for Certiorari. SC referred the case to the Court of Appeals

(CA). CA granted respondents' petition and reversed and set aside

trial court's orders and dismissed Bank's complaint.

Bank brought Petition for Review on Certiorari.

Issue:

Whether or not the rule on alternative defendants set out

in Section 13, Rule 3 of the Rules of Court applicable to the case at

bar.

Held:

Paragraph 1.6 of petitioner Bank's complaint:

Defendants Fajardo and Del Mundo are impleaded herein as

agents/or representatives of Defendant Corporation who were

signatories in the Promissory Note or alternatively, in their

personal capacities if it be shown that they contracted the loan

fully knowing that the Defendant Corporation would be unable

to pay the same upon maturity, and/or that they used the

proceeds of the loan for their own personal benefit.

Examination of paragraph 1.6 shows that petitioner Bank

there seeks to distinguish between (a) respondents Fajardo and Del

Mundo in their capacity as "agents and/or representative of" J.J.

Mining; and (b) respondents Fajardo and Del Mundo in their

individual and personal capacities. As noted earlier, the text of the

promissory note shows that respondents Fajardo and Del Mundo

had signed for and in behalf of J.J. Mining.

Respondents Fajardo and Del Mundo were, in the same

complaint, and in the alternative, sued in their personal and

individual capacities.

Analysis of the allegations of the petitioner Bank's

complaint thus shows that the defendants who are being sued in the

alternative are the following:

(a) the borrowing corporation, J.J. Mining; and

(b) respondents Fajardo and Del Mundo in their personal and

individual capacities,

SC observes that the CA found that Section 13, Rule 3 of

the Rules of Court not applicable to the present case. The Court of

Appeals said on this point:

Bank also invokes the rule on alternative defendants found in

Section 13, Rule 3 of the Revised Rules of Court.

Private respondent was never "uncertain" against which of

several persons it is entitled to relief. As shown in the

complaint which were previously cited, it was dead sure, as

night follows day, that the "defendant corporation for value

received thru" petitioners, "executed and delivered to plaintiff

a promissory note" for the amount P750,000.00.

SC believes that the CA was in error. Firstly, the state of

mind of petitioner Bank — whether it was "uncertain" or whether it

was "dead sure as night follows day" against which of several

defendants it is entitled to relief — is, of course, immaterial, except


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to the extent that such state of minds is externalized by the

allegations of the complaint. Petitioner Bank in its complaint, had

pleaded, with sufficient clarity, its claimed rights against alternative

defendants: the borrower corporation and respondents Fajardo and

Del Mundo. That the rights pleaded against the borrower

corporation are prima facie inconsistent with the rights pleaded

against respondents Fajardo and Del Mundo, is also clear: either the

borrower corporation alone is liable; or respondents Fajardo and Del

Mundo are alone liable in lieu of J.J. Mining; or respondents Fajardo

and Del Mundo are solidarily liable with J.J. Mining.

The essential thing is that petitioner Bank must be given

an opportunity to prove its allegations in all necessary detail at the

trial on the merits. There the respondents will have the opportunity

to controvert and refute petitioner's detailed assertions.

Court of Appeals’ decision is reversed and set aside. The

trial court’s orders are reinstated. This case is remanded to the trial

court for further proceedings not inconsistent with this Decision.


PUENTEVELLA vs FAR EASTERN AIR TRANSPORT

G.R. No. L-4958, March 30, 1954

Facts:

This action was instituted in the Court of First Instance by

the plaintiffs, who are owners of certain lands adjacent to the City of

Bacolod which the U.S. Army converted into an airfield, known as

the Bacolod City Airstrip No. 2, to recover from the defendants the

value of the use and occupation of said airfield by them.

The lands in question were occupied by the U.S. Army. It

constructed thereon, with or without the consent of the owners,

permanent improvements in the form of runways for the landing

and taking-off of planes, parking places — therefor, and approaches

thereto. It afterwards entered into a contract of lease with the

owners, by virtue of which the United States Government was given

authority to use and occupy the lands in question for the period

from April 1, 1945, to October 15, 1945, at a monthly rental.

In November 1945, the defendant Far Eastern Air

Transport, Inc. (FEATI) began to use the said airstrip. Formal

authority for its use was extended by the U.S. Army on November

23, 1945. When the FEATI began to use the airstrip, the owner of the

lands occupied by the airstrip objected to the Army authorities, and

also appealed to the American High Commissioner in the Philippines,

as well as the manager of the FEATI, for a clarification of the status

of the airstrip, but nothing was done in this respect. One of the

owners later learned that the U.S. Army continued occupying the

airstrip, and while no objection thereto was made, he did object to

the use of the airstrip by the Commonwealth Government. As early

as April 20, 1946, the Commonwealth Government, through the

Director of the Bureau of Aeronautics, had offered to lease the lands

covered by the airstrip, and it advised the plaintiffs that the

Commonwealth Government was under the obligation of furnishing

airway facilities and airports to all transportation companies and

that it was willing to deal with the owners for a lease of their

properties. In spite of the absence of any action on the offer of

lease, the Bureau of Aeronautics maintained and operated the

airstrip for the purpose of commercial operations from April 1946

and had sufficient funds to pay for the lease of the lands included in

the airfield. The owners expressly stated to the Bureau of

Aeronautics that while "they are willing to give the fullest

cooperation to the Republic insofar as the use by the Government of

their properties, . . . , they reserve to themselves the right of full

enjoyment of ownership and the fruits thereof, in their particular

dealing with the private air lines engaged in commercial aviation."

This status of the occupation of the airstrip appears to be

in a nebulous state, although it can be clearly inferred from the

various documents presented at the trial that even after the

termination of the period of the lease signed by the U.S. Army,

which lease was originally to end in October, 1945, the U.S. Army

continued occupying the airstrip. On April 22, 1947, it was formally

transferred from the Foreign Liquidation Commission to the Surplus

Property Commission at the procurement cost of $116,760. The

Surplus Property Commission adopted the policy of retaining the

Bacolod Airstrip No. 2, as the Bureau of Aeronautics had requested it

for the furtherance of civil aviation. In this connection, it may be

well to note that since July 31, 1946, the Bureau of Aeronautics had

advised the defendant Philippine Air Lines that the Bacolod Airstrip

had already been released by the U.S. Army, and that the said

Bureau was assuming the responsibility of paying rentals for said

strip. On August 29, 1946, it certified that all landing fields and

airports in the Philippines, including that of the City of Bacolod, are

maintained and operated by it and are available to all aircraft of

Philippine registry, free of landing charges, in line with the policy of

the Government to promote civil aviation.

The FEATI, Philippine Air Lines and the Commercial Air

Lines began using the airstrip in question.

Plaintiffs sought to make the defendants directly

responsible to them for the use of the airstrip, irrespective of and

notwithstanding the fact that the U.S. Army and subsequently the

Bureau of Aeronautics of the Commonwealth Government, actually

occupied, maintained, and operated the airways for the benefit of

commercial aviation.

FEATI alleged as special defense that the Bacolod Airstrip

has become an airport and landing field open and available to all

commercial aircraft by virtue of the provisions of law and in

accordance with the regulations issued by the Bureau of

Aeronautics. The Philippine Air Lines alleged as special defense that

the airstrip is maintained by the Government of the Republic of the

Philippines, under the control and administration of the Director of

the Bureau of Aeronautics, and that the responsibility for the

payment of rentals to the owners rested on the Bureau of

Aeronautics.

The lower court held that the defendants did not properly

derive the authority to use the airstrip from the United States Army

of Liberation; that the obligations of the Bureau of Aeronautics to

provide landing fields for companies engaged in commercial aviation

refers only to airstrip legally acquired by the government and that

since the Bureau of Aeronautics recognized the plaintiffs as entitled


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to rentals, it is estopped from alleging that it can dispose of these

properties without the consent of the owners; and that as the acts

of the defendants are not justified in law, they are directly

responsible to the plaintiffs for the value of the use and enjoyment

of the properties in question.

Issue:

Whether or not the trial court erred in not ordering the

inclusion of the Philippine Government (or the Bureau of

Aeronautics) as an indispensable party in the final determination of

the issues raised by the defendants.

Held:

Yes. A careful consideration of the circumstances

surrounding the use of the airfield by the defendants clearly reveals

that any responsibility that they may have for their use of the

airfield can not be distinguished or dissociated from that of the

Bureau of Aeronautics. In the first place, the U.S. Army gave the

defendants the authority to use the airfield. After the turn-over of

the airfield to the Philippine Government was made, the Bureau of

Aeronautics occupied the airfield, maintained and operated it, and,

pursuant to the policy that the Philippine Government had adopted

of furnishing airport facilities in the interest of commercial aviation

(Commonwealth Act No. 168, section 6 (c)), it assured the

defendants that it would itself obtain the lease of the land from the

owners. Certainly, no separate or distinct responsibility for the use

of the airstrip on the part of the defendants may arise

independently of that of the Bureau of Aeronautics, not only

because the latter and the defendants jointly occupied the airstrip,

but mainly because the said Bureau permitted and encouraged the

defendants to use the airstrip, assuring them that it had the

necessary funds to pay for the use and occupation of the lands. The

defendants can not be held liable without making the Bureau of

Aeronautics partly or wholly responsible for said liability. The

decision appealed from itself discloses the necessity of a finding as

to the Bureau of Aeronautics also. It declared that the Bureau of

Aeronautics is estopped from alleging that it can dispose of the

properties without the consent of the plaintiffs, as it recognizes that

the latter are entitled to rentals. The Bureau of Aeronautics has so

much interest in the controversy, and its responsibility for the relief

sought so bound up with the defendants, that its presence as a party

to the action is an absolute necessity, without which the lower court

should not have proceeded. Furthermore, it has been held that it is

enough that the absence of a party may leave the controversy in

such a situation that the final determination may be inconsistent

with equity and good conscience. To hold the defendants liable

without determining the corresponding liability of the Bureau of

Aeronautics, which permitted and encouraged the defendants to

use the airstrip, would be clearly iniquitous.

It would be noted that the provisions of the code

procedure on parties were taken from the rules of equity and not

from the rule of common law, and, therefore, a great amount of

latitude is allowed in the inclusion of the parties to a case. The

evident aim and intent of the rules regarding the joinder of

indispensable and necessary parties is the complete determination

of all possible issues, not only between parties themselves but also

as regards to other persons who may be affected by the judgment.

Pursuant to this intent, we hold that the Bureau of Aeronautics is an

indispensable party in so far as the determination of the liability of

the defendants for the use of the airstrip is concerned.

The principle involved has been briefly stated as follows:

Where the result of the suit is dependent upon the validity of

the right or title of an absent person, as suit for an injunction

against one who is acting under the charter of another, or a suit

between lessees of different persons for the same property,

the absent party is indispensable.

The judgment is set aside and the case ordered remanded

to the court a quo, with the instruction that the Bureau of

Aeronautics be made a party defendant, and that thereafter the

action proceed in accordance with the rules.


RELUCIO vs LOPEZ

G.R. No. 138497, January 16, 2002

Facts:

Respondent filed before the RTC-Makati, a Petition for

Appointment as Sole Administratrix of Conjugal Partnership of

Properties, Forfeiture, etc.” against her husband, Alberto Lopez, and

the herein petitioner.

She alleged that sometime in 1968, her husband

abandoned her and their 4 legitimate children and maintained an

illicit relationship and cohabited with petitioner Relucio; that his

husband arrogated unto himself the full and exclusive control and

administration of the conjugal properties, spending and using the

same for his sole gain and benefit to the exclusion of their family;

that during his cohabitation with the petitioner since 1976, they

have amassed a fortune (commercial and residential lots, cars,

buildings, stockholdings, etc.), which were registered under their

names (Alberto and Imelda) singly or jointly; that their conjugal

properties has been sold, disposed of, or alienated, and either spent

the proceeds thereof by Alberto for his sole benefit and that of the

petitioner and their 2 illegitimate children or permanently and

fraudulently placed them beyond the reach of the respondent and

their children.

Petitioner then filed a Motion to Dismiss contending that

the respondent has no cause of action against her.

The trial court denied her motion holding that she is

impleaded as a necessary or indispensable party because some of

the subject properties are registered in her name and Alberto, or

solely in her name. Her motion for reconsideration was likewise

denied. She appealed with the CA via petition for certiorari, but it

was also denied as well as her motion for reconsideration. Hence,

the present petition for review.


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Issue:

Whether or not the petitioner’s inclusion as party

defendant is essential in the proceedings for a complete

adjudication of the controversy.

Held:

NO. A real party in interest is one who stands "to be

benefited or injured by the judgment of the suit." In this case,

petitioner would not be affected by any judgment in special

proceedings case filed by the respondent.

If petitioner is not a real party in interest, she cannot be an

indispensable party. An indispensable party is one without whom

there can be no final determination of an action. Petitioner's

participation in the case is not indispensable. Certainly, the trial

court can issue a judgment ordering Alberto J. Lopez to make an

accounting of his conjugal partnership with respondent, and give

support to respondent and their children, and dissolve Alberto J.

Lopez' conjugal partnership with respondent, and forfeit Alberto J.

Lopez' share in property co-owned by him and petitioner. Such

judgment would be perfectly valid and enforceable against Alberto J.

Lopez.

Nor can petitioner be a necessary party in the case. A

necessary party as one who is not indispensable, but who ought to

be joined as party if complete relief is to be accorded those already

parties, or for a complete determination or settlement of the claim

subject of the action. In the context of her petition in the lower

court, respondent would be accorded complete relief if Alberto J.

Lopez were ordered to account for his alleged conjugal partnership

property with respondent, give support to respondent and her

children, turn over his share in the co-ownership with petitioner and

dissolve his conjugal partnership or absolute community property

with respondent.

Judgment: WHEREFORE, the Court GRANTS the petition

and REVERSES the decision of the Court of Appeals. The Court

DISMISSES Special Proceedings M-3630 of the Regional Trial Court,

Makati, Branch 141 as against petitioner.

NOTE: The Supreme Court also ruled that the respondent

has no cause of action against the petitioner because nowhere in

the allegations does it appear that relief is sought against the

petitioner, it is all against her husband, and that the petitioner has

nothing to do will all the relief prayed for by the respondent.


DE GALICIA vs MERCADO

G.R. No. 146744, March 6, 2006

Background of the case:

Petitioner was a business partner of Carmen Arciaga in RCL

Enterprises. He was asked by Arciaga to co-sign with her a Philbank

check for P50,000.00 payable to cash. Allegedly, without his

knowledge and consent, Arciaga rediscounted the check with

respondent Mercado at 8% interest. Later, respondent presented

the check for payment but it was dishonored for insufficiency of

funds. Mercado then filed a complaint for estafa and for violation of

BP Bldg. 22 against petitioner and Arciaga.

Petitioner countered by filing before the RTC-Manila, a

case for the declaration of nullity of the agreement to pay interest

between respondent and his partner, Arciaga, praying that the

agreement, together with the rediscounted check, be declared void

for being contrary to public policy.

After trial, the RTC ruled to dismiss the case for lack of

jurisdiction and the corresponding MR thereto was denied, holding

that the complaint is one for recovery of a sum of money; Arciaga, as

one of the parties in the rediscounting agreement was not a party to

the case; and that the amount of P50,000.00 is below the

jurisdictional amount vested in the RTC. Hence, the filing of this

petition under Rule 45, on a pure questions of law.

Issue:

Whether or not Arciaga, as one of the parties in the

rediscounting agreement, should be impleaded as defendant

Held:

YES, notwithstanding the RTC’s jurisdiction on the subject

case, the SC sustains the dismissal of the subject complaint for its

failure to implead an indispensable party.

Under Rule 3, Section 7 of the 1997 Rules of Civil

Procedure, an indispensable party is a party-in-interest without

whom there can be no final determination of an action. The

interests of such indispensable party in the subject matter of the suit

and the relief are so bound with those of the other parties that his

legal presence as a party to the proceeding is an absolute necessity.

As a rule, an indispensable party’s interest in the subject

matter is such that a complete and efficient determination of the

equities and rights of the parties is not possible if he is not joined.

Here, we hold that Arciaga was an indispensable party to

the suit filed by petitioner against respondent. Her interest in the

suit was intertwined with the rights and interest of both petitioner

and respondent. She was as involved in the suit as petitioner and

respondent, being a co-signatory of the re-discounted check and

being privy to the assailed agreement. Had the subject complaint

been resolved on the merits, any judgment made by the trial court

was going to affect not only respondent but Arciaga as well.

Unfortunately, due to the failure of petitioner to implead her in the

complaint, any judgment therein could not bind her. It was as if the

complaint had not been filed at all.

Citing Aracelona v. Court of Appeals, the Court held that

the joinder of all indispensable parties must be made under any and

all conditions, their presence being a sine qua non (meaning:

“without this essential ingredient, nothing would occur or there is

nothing”) for the exercise of the judicial power.

There, we ruled that when an indispensable party is not

before the court, the action should be dismissed. It is interesting to

note that petitioner filed the subject complaint after respondent

initiated a complaint for estafa and violation of BP 22. The filing of

the complaint for declaration of nullity of the agreement to pay

interest and the nullity of the check appeared to be an afterthought

and an attempt to affect the outcome of the criminal complaint

against him. WHEREFORE, the petition is hereby DENIED.


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FLORES vs HON. MALLARE-PHILLIPPS

G.R. No. L-66620, September 24, 1986

Background of the case:

Appeal by certiorari from the Order of the respondent

Judge, without attaching a copy of his complaint in the erroneous

belief that the entire original record of the case shall be transmitted

to SC.

Facts:

As can be gleaned from the Order appealed from,

petitioner Flores filed a complaint before the RTC against Binongcal

and Calion. The first cause of action was against Binongcal for

alleged refusal to pay the cost of truck tires which he purchased on

credit from the petitioner on various occasions from August to

October 1981 in the amount of P11,643.00; and the second cause of

action was against Calion for allegedly refusing to pay the cost of

truck tires which he also purchased on credit on several occasions

from March 1981 to January 1982 in the amount of P10,212.00.

The counsel of Binongcal filed a Motion to Dismiss for lack

of jurisdiction since the amount of the demand against him was only

P11,643.00 which is outside the jurisdiction of RTC; he also alleged

that although the totality of the complaint amounts to more than

P20,000.00, his obligation was separate and distinct from that of the

other respondent (Calion). During the hearing of the said motion,

the counsel for Calion joined in moving for the dismissal of the

complaint. The RTC dismissed the complaint for lack of jurisdiction

over the opposition of the petitioner. Hence, the present appeal by

certiorari.

Issue:

Whether or not the totality rule is applicable in the

present case.

Held:

NO, the SC ruled that the application of the totality rule

under Sec. 33(l) of BP 129 and Sec. 11 of the Interim Rules is subject

to the requirements for permissive joinder of parties under Sec. 6 of

Rule 3 which provides as follows:

Permissive joinder of parties.- All persons in whom or

against whom any right to relief in respect to or arising out of the

same transaction or series of transactions is alleged to exist,

whether jointly, severally, or in the alternative, may, except as

otherwise provided in these rules, join as plaintiffs or be joined as

defendants in one complaint, where any question of law or fact

common to all such plaintiffs or to all such defendants may arise in

the action; but the court may make such orders as may be just to

prevent any plaintiff or defendant from being embarrassed or put to

expense in connection with any proceedings in which he may have

no interest.

There is no difference between the former and present

rules in cases where a plaintiff sues a defendant on two or more

separate causes of action. In such cases, the amount of the demand

shall be the totality of the claims in all the causes of action

irrespective of whether the causes of action arose out of the same

or different transactions. If the total demand exceeds twenty

thousand pesos, then the regional trial court has jurisdiction.

Needless to state, if the causes of action are separate and

independent, their joinder in one complaint is permissive and not

mandatory, and any cause of action where the amount of the

demand is twenty thousand pesos or less may be the subject of a

separate complaint filed with a metropolitan or municipal trial court.

Under the present law, the totality rule is applied also to

cases where two or more plaintiffs having separate causes of action

against a defendant join in a single complaint, as well as to cases

where a plaintiff has separate causes of action against two or more

defendants joined in a single complaint. However, the causes of

action in favor of the two or more plaintiffs or against the two or

more defendants should arise out of the same transaction or series

of transactions and there should be a common question of law or

fact, as provided in Section 6 of Rule 3.

In other words, in cases of permissive joinder of parties,

whether as plaintiffs or as defendants, under Section 6 of Rule 3, the

total of all the claims shall now furnish the jurisdictional test.

Needless to state also, if instead of joining or being joined in one

complaint, separate actions are filed by or against the parties, the

amount demanded in each complaint shall furnish the jurisdictional

test. In the case at bar, the lower court correctly held that the

jurisdictional test is subject to the rules on joinder of parties

pursuant to Section 5 of Rule 2 and Section 6 of Rule 3 of the Rules

of Court and that, after a careful scrutiny of the complaint, it

appears that there is a misjoinder of parties for the reason that the

claims against respondents Binongcal and Calion are separate and

distinct and neither of which falls within its jurisdiction.

WHEREFORE, the order appealed from is affirmed, without

pronouncement as to costs.

NOTES: Sec. 33(l) of BP 129:

… Provided, that where there are several claims or causes

of action between the same or different parties, embodied in the

same complaint, the amount of the demand shall be the totality of

the claims in all the causes of action, irrespective of whether the

causes of action arose out of the same or different transactions….

Section 11 of Interim Rules:

Application of the totality rule.- In actions where the

jurisdiction of the court is dependent on the amount involved, the

test of jurisdiction shall be the aggregate sum of all the money

demands, exclusive only of interest and costs, irrespective of

whether or not the separate claims are owned by or due to different

parties. If any demand is for damages in a civil action, the amount

thereof must be specifically alleged.

Section 88 of the Judiciary Act of 1948 as amended which

reads as follows:

... Where there are several claims or causes of action

between the same parties embodied in the same complaint, the

amount of the demand shall be the totality of the demand in all the

causes of action, irrespective of whether the causes of action arose

out of the same or different transactions; but where the claims or

causes of action joined in a single complaint are separately owned


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by or due to different parties, each separate claim shall furnish the

jurisdictional test. ...

Case doctrines:

Vda. de Rosario vs. Justice of the Peace, 99 Phil. 693: ,

"where the claims or causes of action joined in a single complaint

are separately owned by or due to different parties, each separate

claim shall furnish the jurisdictional test" (Section 88 of the Judiciary

Act of 1948 as amended, supra).

As worded, the former rule applied only to cases of

permissive joinder of parties plaintiff. However, it was also

applicable to cases of permissive joinder of parties defendant

Brillo vs. Buklatan, thus: Furthermore, the first cause of

action is composed of separate claims against several defendants of

different amounts each of which is not more than P2,000 and falls

under the jurisdiction of the justice of the peace court under section

88 of Republic Act No, 296. The several claims do not seem to arise

from the same transaction or series of transactions and there seem

to be no questions of law or of fact common to all the defendants as

may warrant their joinder under Rule 3, section 6. Therefore, if new

complaints are to be filed in the name of the real party in interest

they should be filed in the justice of the peace court. (87 Phil. 519,

520, reiterated in Gacula vs. Martinez, 88 Phil. 142, 146)

• The difference between the former and present rules in

cases of permissive joinder of parties may be illustrated by the two

cases which were cited in the case of Vda. de Rosario vs. Justice of

the Peace (supra) as exceptions to the totality rule.

Soriano y Cia vs. Jose (86 Phil. 523): where twenty-nine

dismissed employees joined in a complaint against the defendant to

collect their respective claims, each of which was within the

jurisdiction of the municipal court although the total exceeded the

jurisdictional amount, this Court held that under the law then the

municipal court had jurisdiction. In said case, although the plaintiffs'

demands were separate, distinct and independent of one another,

their joint suit was authorized under Section 6 of Rule 3 and each

separate claim furnished the jurisdictional test.

International Colleges, Inc. vs. Argonza (90 Phil. 470):

where twenty-five dismissed teachers jointly sued the defendant for

unpaid salaries, this Court also held that the municipal court had

jurisdiction because the amount of each claim was within, although

the total exceeded, its jurisdiction and it was a case of permissive

joinder of parties plaintiff under Section 6 of Rule 3.

• Under the present law, the two cases above cited

(assuming they do not fall under the Labor Code) would be under

the jurisdiction of the regional trial court. Similarly, in the abovecited

cases of Brillo vs. Buklatan and Gacula vs. Martinez (supra), if the

separate claims against the several defendants arose out of the

same transaction or series of transactions and there is a common

question of law or fact, they would now be under the jurisdiction of

the regional trial court.


PLASABAS vs CA

G.R. No. 166519, March 31, 2009

Facts:

Petitioners filed before the CFI (now RTC) a complaint for

recovery of title to property with damages against the respondents

over a parcel of coconut land declared under a tax declaration in the

name of Nieves, praying that judgment be rendered confirming their

rights and legal title to the subject property and ordering the

defendants to vacate the occupied portion and to pay damages.

Respondents denied the allegation of ownership

contending that the subject property was inherited by all the parties

from their common ancestor, Francisco Plasabas.

In the course of the trial, it was revealed that Nieves was

not the sole and absolute owner of the property, but also her

siblings, Jose, Victor and Victoria.

After resting their case, respondents raised in their

memorandum the argument that the case should have been

terminated at inception for petitioner’s failure to implead

indispensable parties – the co-owners (Jose, Victor and Victoria).

The trial court dismissed without prejudice the case

without ruling on the merits, holding that some important

indispensable consideration is conspicuously wanting or missing, as

observed by the defendants and based its ruling under Section 7,

Rule 3 of the Rules of Court which provides:

“x x x Compulsory joinder of indispensable parties. –

Parties in interest without whom no final determination can be had

of an action shall be joined either as plaintiffs or defendants.

It also held that the petitioners have no complete legal

personality to sue by themselves alone without joining her siblings

who are as indispensable as Nieves in the final determination of the

case. Not impleading them, any judgment would have no

effectiveness. They are that indispensable that a final decree would

necessarily affect their rights, so that the lower court cannot

proceed without their presence.

Aggrieved, petitioners elevated the case to the CA which

affirmed the ruling of the lower court, and further declared that the

non-joinder of the indispensable parties would violate the principle

of due process. With the denial of their motion for reconsideration,

petitioners filed the instant petition.

Issue:

Whether or not petitioner’s siblings (Jose, Victor and

Victoria) are indispensable parties

Held:

NO. Petitioners, in their complaint, do not have to implead

their co-owners as parties. The only exception to this rule is when

the action is for the benefit of the plaintiff alone who claims to be

the sole owner and is, thus, entitled to the possession thereof. In

such a case, the action will not prosper unless the plaintiff impleads

the other co-owners who are indispensable parties.

Here, the allegation of petitioners in their complaint that

they are the sole owners of the property in litigation is immaterial,

considering that they acknowledged during the trial that the


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property is co-owned by Nieves and her siblings, and that petitioners

have been authorized by the co-owners to pursue the case on the

latter’s behalf. Impleading the other co-owners is, therefore, not

mandatory, because, as mentioned earlier, the suit is deemed to be

instituted for the benefit of all.

In any event, the trial and appellate courts committed

reversible error when they summarily dismissed the case, after both

parties had rested their cases following a protracted trial

commencing in 1974, on the sole ground of failure to implead

indispensable parties.

The rule is settled that the non-joinder of indispensable

parties is not a ground for the dismissal of an action. The remedy is

to implead the non-party claimed to be indispensable. Parties may

be added by order of the court on motion of the party or on its own

initiative at any stage of the action and/or at such times as are just.

If petitioner refuses to implead an indispensable party despite the

order of the court, the latter may dismiss the complaint/petition for

the plaintiff’s/petitioner's failure to comply therewith.

WHEREFORE, premises considered, the instant petition is

GRANTED, and the case is REMANDED to the trial court for

appropriate proceedings. The trial court is further DIRECTED to

decide on the merits of the civil case WITH DISPATCH.

NOTE: • An indispensable party is a party who has such an

interest in the controversy or subject matter that a final adjudication

cannot be made, in his absence, without inquiring or affecting such

interest; a party who has not only an interest of such a nature that a

final decree cannot be made without affecting his interest or leaving

the controversy in such a condition that its final determination may

be wholly inconsistent with equity and good conscience.

• Article 487 of the Civil Code provides that any one of the co-

owners may bring an action for ejectment. The article covers all

kinds of actions for the recovery of possession, including an accion

publiciana and a reivindicatory action. A co-owner may file suit

without necessarily joining all the other co-owners as co-plaintiffs

because the suit is deemed to be instituted for the benefit of all. Any

judgment of the court in favor of the plaintiff will benefit the other

co-owners, but if the judgment is adverse, the same cannot

prejudice the rights of the unimpleaded co-owners.


NUFABLE vs NUFABLE

G.R. No. 126950, July 2, 1999

REMEDIAL LAW; CIVIL PROCEDURE; PLEADINGS; OBJECTIONS NOT

PLEADED IN THE ANSWER ARE DEEMED WAIVED. — Petitioners

contend that DBP was never impleaded as party defendant when it

was the duty of private respondents to implead the bank and ask for

the annulment of documents evidencing the bank’s ownership of

the disputed land. Private respondents, however, alleged that the

non-inclusion of DBP as a “necessary party” was not questioned by

petitioners from the time the Complaint was filed until the case was

“finished.” It was only after the adverse decision by the respondent

Court of Appeals that petitioners raised the issue. As petitioners

never raised this issue in their Answer, pursuant to Section 2, Rule 9

of the Rules of Court, defenses and objections not pleaded either in

a motion or in the answer are deemed waived.

ID.; ID.; PARTIES; INDISPENSABLE AND NECESSARY PARTIES;

ELUCIDATED. — The rule is that indispensable parties, i.e., parties in

interest without whom no final determination can be had of an

action, shall be joined either as plaintiffs or defendants; the

inclusion as a party being compulsory. On the other hand, in case of

proper or necessary parties, i.e., persons who are not indispensable

but ought to be parties if complete relief is to be accorded as

between those already parties, the court may, in its discretion,

proceed in the action without making such persons parties, and the

judgment rendered therein shall be without prejudice to the rights

of such persons. Proper parties, therefore, have been described as

parties whose presence is necessary in order to adjudicate the

whole controversy, but whose interests are so far separable that a

final decree can be made in their absence without affecting them.

Any claim against a party may be severed and proceeded with

separately.

ID.; ID.; ID.; NECESSARY PARTY IN CASE AT BAR NEED NOT BE

IMPLEADED. — Private respondents do not question the legality of

the foreclosure of the mortgaged property and the subsequent sale

of the same to DBP. The subject property was already purchased by

petitioner Nelson from DBP and the latter, by such sale, transferred

its rights and obligations to the former. Clearly, petitioners’ interest

in the controversy is distinct and separable from the interest of DBP

and a final determination can be had of the action despite the non-

inclusion of DBP as party-defendant. Hence, DBP, not being an

indispensable party, did not have to be impleaded in this case.

Facts:

Edras Nufable owned a parcel of an untitled land. He died

in August 1965 and was survived by his children, namely: Angel

Custodio, Generosa, Vilflor and Marcelo. A petition for probate of

will was filed by the heirs before the CFI and was admitted in an

Order issued by the CFI. In June 1996, the settlement of estate of the

late Esdras was approved by the same court, and, as therein stated,

the heirs have agreed that the untitled parcel of land remains

undivided for community ownership. However, two months earlier

(March 1966) from said approval, Angel and wife mortgaged the

entire parcel of land to DBP until it was foreclosed in 1973. Later, in

1980, Nelson, the son of Angel, purchased the same lot from DBP.

Generosa, Vilflor and Marcelo then filed an action to annul

fraudulent transactions, to quiet title and to recover damages

against the herein petitioners (without impleading DBP). The Court

of Appeals reversed the appealed decision and set aside, and ruled

that the plaintiffs are the rightful co-owners of the subject property

and entitled to possession of 3/4 southern portion thereof and

Nelson to 1/4 portion. Nelson filed a motion for reconsideration but

it was denied for lack of merit. Hence, the present petition.


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Issue:

Whether or not the DBP is an indispensable party in this

case

Held:

NO. Private respondents do not question the legality of

the foreclosure of the mortgaged property and the subsequent sale

of the same to DBP. The subject property was already purchased by

petitioner Nelson from DBP and the latter, by such sale, transferred

its rights and obligations to the former. Clearly, petitioners’ interest

in the controversy is distinct and separable from the interest of DBP

and a final determination can be had of the action despite the non-

inclusion of DBP as party-defendant. Hence, DBP, not being an

indispensable party, did not have to be impleaded in this case.

WHEREFORE, there being no reversible error in the

decision appealed from, the petition for review on certiorari is

hereby DENIED.

NOTE: It should be stated that petitioners never raised this

issue in their Answer and pursuant to Section 2, Rule 9 of the Rules

of Court, defenses and objections not pleaded either in a motion to

dismiss or in the answer are deemed waived.

Nonetheless, the rule is that indispensable parties, i.e.,

parties in interest without whom no final determination can be had

of an action, shall be joined either as plaintiffs or defendants; the

inclusion as a party being compulsory. On the other hand, in case of

proper or necessary parties, i.e., persons who are not indispensable

but ought to be parties if complete relief is to be accorded as

between those already parties, the court may, in its discretion,

proceed in the action without making such persons parties, and the

judgment rendered therein shall be without prejudice to the rights

of such persons. Proper parties, therefore, have been described as

parties whose presence is necessary in order to adjudicate the

whole controversy, but whose interests are so far separable that a

final decree can be made in their absence without affecting them.

Any claim against a party may be severed and proceeded with

separately.

Another issue:

When Esdras died in 1965, his heirs acquired successional

rights over the property. Hence, Angel and wife had no rights to

morttgage the entire property. The fact that DBP succeeded in

consolidating ownership over the same in its name does not

terminate the existing co-ownership. It merely held that ¾ portion

thereof in trust for the private respondents. And when Nelson

purchased the said property, he merely stepped into the shoes of

DBP and acquired whatever rights and obligations appertaining

thereto.


REPUBLIC vs HERBIETO

G.R. No. 156117, May 26, 2005

Facts:

Jeremias and David Herbieto filed with the MTC a single

application for registration of two parcels of land, Lots No. 8422 and

8423 (Subject Lots), located in Cabangahan, Consolacion,

Cebu. They claimed that they purchased from their parents the

subject lots. They submitted set of documents including

Certifications by the Community Environment and Natural

Resources Office (CENRO) of the DENR on its finding that the Subject

Lots are alienable and disposable, by virtue of Forestry

Administrative Order.

Republic’s argument: Petitioner Republic filed an

Opposition to the respondents’ application. (1) Respondents failed

to comply with the period of adverse possession of the Subject Lots

required by law; (2) Respondents’ muniments of title were not

genuine; (3) The Subject Lots were part of the public domain.

All owners of the land adjoining the Subject Lots were sent

copies of the Notice of Initial Hearing. It was posted in a conspicuous

place on the Subject Lots, as well as on the bulletin board of the

municipal building where the Subject Lots were located. The Notice

was also published in the Official Gazette and The Freeman Banat

News.

MTC – (1) Ordering the registration and confirmation of

the title of the subject lots; (2) MTC Order declaring its judgment as

final and executor; (3) Directing the Administrator of the Land

Registration Authority (LRA) to issue a decree of registration for the

Subject Lots.

CA affirmed the ruling of the MTC.

Hence, this petition.

Issues:

1. Whether or not MTC had jurisdiction over the case.

2. Whether or not the Subject Lots were part of the public domain

belonging to the Republic and were not subject to private

appropriation.

Held:

Issue #1: Whether or not MTC has jurisdiction over the

case.

The Court held that the MTC had no jurisdiction to

proceed with and hear the application for registration but for

reasons different from those presented by petitioner Republic. The

misjoinder of causes of action and parties does not affect the

jurisdiction of the MTC to hear and proceed with respondents’

application for registration.

Petitioner’s argument: Respondents filed a single

application for registration of the Subject Lots even though they

were not co-owners. Respondents were actually seeking the

individual and separate registration of Lots No. 8422 and 8423.

Republic believes that the procedural irregularity committed by the

respondents was fatal to their case, depriving the MTC of jurisdiction

to proceed with and hear their application for registration of the

Subject Lots. – Incorrect


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This procedural lapse committed by the respondents

should not affect the jurisdiction of the MTC to proceed with and

hear their application for registration of the Subject Lots.

The Property Registration Decree recognizes and expressly

allows the following situations: (1) the filing of a single application

by several applicants for as long as they are co-owners of the parcel

of land sought to be registered; and (2) the filing of a single

application for registration of several parcels of land provided that

the same are located within the same province.

The Property Registration Decree is silent, however, as to

the present situation wherein two applicants filed a single

application for two parcels of land, but are seeking the separate and

individual registration of the parcels of land in their respective

names. Since the Property Registration Decree failed to provide for

such a situation, then this Court refers to the Rules of Court to

determine the proper course of action.

Considering every application for land registration filed in

strict accordance with the Property Registration Decree as a single

cause of action, then the defect in the joint application for

registration filed by the respondents with the MTC constitutes a

misjoinder of causes of action and parties. Instead of a single or

joint application for registration, respondents should have filed

separate applications for registration.

Misjoinder of causes of action and parties do not involve a

question of jurisdiction of the court to hear and proceed with the

case. They are not even accepted grounds for dismissal thereof.

Instead, under the Rules of Court, the misjoinder of causes of action

and parties involve an implied admission of the court’s

jurisdiction. It acknowledges the power of the court, acting upon

the motion of a party to the case or on its own initiative, to order

the severance of the misjoined cause of action, to be proceeded

with separately (in case of misjoinder of causes of action); and/or

the dropping of a party and the severance of any claim against said

misjoined party, also to be proceeded with separately (in case of

misjoinder of parties).

The misjoinder of causes of action and parties in the

present Petition may have been corrected by the MTC motu

propio or on motion of the petitioner Republic. It is regrettable,

however, that the MTC failed to detect the misjoinder when the

application for registration was still pending before it; and more

regrettable that the petitioner Republic did not call the attention of

the MTC to the fact by filing a motion for severance of the causes of

action and parties, raising the issue of misjoinder only before this

Court.

Respondents, however, failed to comply with the

publication requirements mandated by the Property Registration

Decree, thus, the MTC was not invested with jurisdiction as a land

registration court.

A land registration case is a proceeding in rem, and

jurisdiction in rem cannot be acquired unless there be constructive

seizure of the land through publication and service of notice. Section

23 of the Property Registration Decree requires that the public be

given Notice of the Initial Hearing of the application for land

registration by means of (1) publication; (2) mailing; and (3) posting.

In the case at bar, the initial hearing was set by the MTC

on Sept. 3, 1999. The Notice was printed in the issue of the Official

Gazette on Aug. 2, 1999, and officially released on Aug. 10, 1999. It

was published in The Freeman Banat News, a daily newspaper

printed in Cebu City and circulated in Cebu and in the rest of Visayas

and Mindanao, only on Dec. 19, 1999.

The late publication is tantamount to no publication at all.

MTC failed to constructively seize the Subject Lots and to acquire

jurisdiction over the application for registration. The MTC Judgment

ordering the registration and confirmation of the title, as well as the

MTC Order declaring its judgment final and executory, and directing

the LRA Administrator to issue a decree of registration for the

Subject Lots, are both null and void for having been issued by the

MTC without jurisdiction.

Issue #2: Whether or not the Subject Lots were part of

the public domain belonging to the Republic and were not subject

to private appropriation.

Respondents failed to comply with the required period of

possession of the Subject Lots for the judicial confirmation or

legalization of imperfect or incomplete title. Their application filed

with the MTC did not state the statutory basis for their title to the

Subject Lots. They only alleged that they obtained title to the

Subject Lots by purchase from their parents on 25 June 1976. No

public land can be acquired by private persons without any grant,

express or implied, from the government; and it is indispensable

that the person claiming title to public land should show that his title

was acquired from the State or any other mode of acquisition

recognized by law.

Respondents’ application for registration of the Subject

Lots must have complied with the substantial requirements under

Section 48(b) of the Public Land Act and the procedural

requirements under the Property Registration Decree.

Petition, granted.

Class suit

MATHAY vs THE CONSOLIDATED BANK & TRUST CO.

G.R. No. L-23136, Augsut 26, 1974

The complaint in this case as a class suit contained six

causes of action.

First cause of action:

Plaintiffs-appellants claim that they were stockholders in

the Consolidated Mines, Inc. (CMI). The stockholders of the CMI,

including the plaintiffs-appellants, passed a Resolution.

“xxx (c) that all stockholders of the CMI would be entitled to

subscribe to the capital stock of the proposed Bank; (d) That the

Board of Directors of the CMI be authorized to declare a "special

dividend" in an amount it would fix, which the subscribing

stockholders might authorize to be paid directly to the treasurer of

the proposed Bank in payment of the subscriptions. xxx”

Plaintiffs-appellants claim that the President and members

of the Board of Directors of the CMI, who are the individuals-


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defendants-appellees in the instant case, constituted themselves as

the Interim Board of Organizers. The Board sent out to the CMI

stockholders circular letters with "Pre-Incorporation Agreement to

Subscribe" forms that provided that the payment of the subscription

should be made in cash from time to time or by the application of

the special dividend declared by the CMI, otherwise such

subscription right shall be deemed to have been waived and

released in favor of the Board of Organizers of the Defendant Bank

and their assignees.

The Board of Organizers caused the execution of the

Articles or Incorporation of the proposed Bank indicating an original

subscription of 50,000 shares worth P5,000,000 subscribed and paid

only by six of the individuals-defendants-appellees thereby

excluding the plaintiffs-appellants and the other CMI subscribing

stockholders who had already subscribed. The execution of said

Articles of Incorporation was in violation of law and in breach of

trust and contractual agreement as a means to gain control of

Defendant Bank by Defendant Individuals and persons or entities

chosen by them and for their personal profit or gain in disregard of

the rights of Plaintiffs and other CMI Subscribing Stockholders.

The individuals-defendants-appellees and the persons

chosen by them had unlawfully acquired stockholdings in the

defendant-appellee Bank in excess of what they were lawfully

entitled and held such shares "in trust" for the plaintiffs-appellants

and the other CMI stockholders.

As relief on the first cause of action, plaintiffs-appellants

prayed that the subscriptions and share holdings acquired by the

individuals-defendants- appellees and the persons chosen by them,

to the extent that plaintiffs-appellants and the other CMI

stockholders had been deprived of their right to subscribe, be

annulled and transferred to plaintiffs-appellants and other CMI

subscribing stockholders.

Second cause of action: Plaintiffs-appellants claim that the

defendants-appellees A. Madrigal, J. Madrigal, Caram, Jr., and

Tecson "falsely certified to the calling of a special stockholders'

meeting allegedly pursuant to due notice and call of Defendant

Bank" although plaintiffs-appellants and other CMI stockholders

were not notified, and amended the Articles of Incorporation

increasing the number of Directors from 6 to 7, and had the illegally

created Position of Director filled up by defendant-appellee

Olondriz, who was not competent or qualified to hold such position.

Third cause of action: Plaintiffs-appellants claimed actual damages

in an amount equivalent to the difference between the par value of

the shares they were entitled, but failed, to acquire and the higher

market value of the same shares.

Fourth, fifth and sixth causes of action: Moral and exemplary

damages, and attorney's fees respectively.

Sevilla, one of the original plaintiffs, withdrew. Azada,

Pertierra, de Stevens (who later withdrew as intervenors-appellants)

and de Amoyo, filed a motion to intervene, and to join the plaintiffs-

appellants on record.

Defendants-appellees, except Caram, Jr., filed a motion to

dismiss because plaintiffs-appellants had no legal standing or

capacity to institute the alleged class suit.

Appellants, plaintiffs and intervenors, filed a verified

petition for a writ of preliminary injunction to enjoin defendants-

appellees from considering or ratifying by resolution, at the meeting

of the stockholders of defendant-appellee Bank to be held, the

unlawful apportionment of the shares of the defendant-appellee

Bank and the illegal amendment to its Articles of Incorporation

increasing the number of Directors. The Court, after hearing,

granted the writ, but subsequently set it aside upon the appellees'

filing a counter bond.

Defendants-appellees, except Caram, Jr., filed a motion to

dismiss. The stockholders, except Caram, Jr., who abstained, had

unanimously, at their regular annual meeting held, ratified and

confirmed all the actuations of the organizers-directors in the

incorporation, organization and establishment of the Bank.

RTC granted the motion to dismiss. The class suit could not

be maintained because of the absence of a showing in the complaint

that the plaintiffs-appellants were sufficiently numerous and

representative, and that the complaint failed to state a cause of

action.

CA affirmed the ruling of the RTC. Hence, this appeal.

Appellants’ argument: The propriety of a class suit should

be determined by the common interest in the subject matter of the

controversy. A common interest in this case consisted not only in

the recovery of the shares of which the appellants were unlawfully

deprived, but also in divesting the individuals-defendants-appellees

and the person or entities chosen by them of control of the appellee

Bank. The court should have treated the suit as an action under Rule

3, section 6, of the Rules of Court which permits a joinder of parties.

Defendants-appellees’ argument:

The plaintiffs-appellants did not sue in their individual capacities for

the protection of their individual interests. That the plaintiffs

appellants of record could not be considered numerous and

representative, as said plaintiffs-appellants were only four out of

1,500 stockholders, and owned only 8 shares out of the 80,000

shares of stock of the appellee Bank.

Issues:

(1) Whether the instant action could be maintained as a class suit.

(2) Whether the complaint stated a cause of action.

Held:

Issue #1: Whether the instant action could be maintained

as a class suit.

Section 12 of Rule 3 of the Rules of Court provides that:

Sec. 12. Class suit — When the subject matter of the controversy is

one of common or general interest to many persons, and the parties

are so numerous that it is impracticable to bring them all before the

court, one or more may sue or defend for the benefit of -ill. But in

such case the court shall make sure that the parties actually before it

are sufficiently numerous and representative so that all interests


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concerned are fully protected. Any party in interest shall have a right

to intervene in protection of his individual interest.

Elements for the maintenance of a class suit:

(1) That the subject matter of the controversy be one of common or

general interest to many persons, and

(2) That such persons be so numerous as to make it impracticable to

bring them all to the court.

An action does not become a class suit merely because it is

designated as such in the pleadings. Whether the suit is or is not a

class quit depends upon the attending facts, and the complaint, or

other pleading initiating the class action should allege the existence

of the necessary facts, to wit, the existence of a subject matter of

common interest, and the existence of a class and the number of

persons in the alleged class, in order that the court might be enabled

to determine whether the members of the class are so numerous as

to make it impracticable to bring them all before the court, to

contrast the number appearing on the record with the number in

the class and to determine whether claimants on record adequately

represent the class and the subject matter of general or common

interest.

The complaint in the instant case explicitly declared that

the plaintiffs-appellants instituted the "present class suit under

Section 12, Rule 3, of the Rules of Court in behalf of CMI subscribing

stockholders" but did not state the number of said CMI subscribing

stockholders so that the trial court could not infer, much less make

sure as explicitly required by the sufficiently numerous and

representative in order that all statutory provision, that the parties

actually before it were interests concerned might be fully protected,

and that it was impracticable to bring such a large number of parties

before the court.

The statute also requires, as a prerequisite to a class suit,

that the subject-matter of the controversy be of common or general

interest to numerous persons. By the phrase "subject matter of the

action" is meant "the physical facts, the things real or personal, the

money, lands, chattels, and the like, in relation to which the suit is

prosecuted, and not the delict or wrong committed by the

defendant."

The interest that appellants, plaintiffs and intervenors, and

the CMI stockholders had in the subject matter of this suit — the

portion of stocks offering of the Bank left unsubscribed by CMI

stockholders who failed to exercise their right to subscribe — was

several, not common or general in the sense required by the statute.

Each one of the appellants and the CMI stockholders had

determinable interest; each one had a right, if any, only to his

respective portion of the stocks. No one of them had any right to, or

any interest in, the stock to which another was entitled.

Issue #2: Whether the complaint stated a cause of action.

Section 3 of Rule 6 of the Rules of Court provides that the

complaint must state the ultimate facts constituting the plaintiff's

cause of action. Hence, where the complaint states ultimate facts

that constitute the three essential elements of a cause of action, the

complaint states a cause of action; otherwise, the complaint must

succumb to a motion to dismiss on that ground.

Pursuant to the first cause of action: The facts did not

show that appellants were entitled to subscribe to the capital stock

of the proposed Bank, for said right depended on a condition

precedent, which was, that they were qualified under the law to

become stockholders of the Bank, and there was no direct averment

in the complaint of the facts that qualified them to become

stockholders of the Bank. The allegation of the fact that they

subscribed to the stock did not, by necessary implication, show that

they were possessed of the necessary qualifications to become

stockholders of the proposed Bank. Pursuant to the second cause of

action: The calling of a special meeting was "falsely certified", that

the seventh position of Director was "illegally created" and that

defendant Olondriz was "not competent or qualified" to be a

director are mere conclusions of law, the same not being necessarily

inferable from the ultimate facts stated in the first and second

causes of action. The third, fourth, fifth and sixth causes of action

depended on the first cause of action did not state ultimate facts

sufficient to constitute a cause of action. Said causes of action would

also be fatally defective.

The complaint failed to state ultimate facts to constitute a

cause of action, it becomes unnecessary to discuss the other

assignments of errors.

Petition, dismissed.

Class suit

JUANA COMPLEX I HOMEOWNERS ASSOCIATION vs FIL-ESTATE

LAND INC.

G.R. No. 152272, March 5, 2012

Facts:

Juana Complex I Homeowners Association, Inc. (JCHA),

together with individual residents of Juana Complex I and other

neighboring subdivisions instituted a complaint for damages, in its

own behalf and as a class suit representing the regular commuters

and motorists of Juana Complex I and neighboring subdivisions who

were deprived of the use of La Paz Road, against Fil-Estate Land,

Inc. (Fil-Estate), Fil-estate Ecocentrum Corporation (FEEC), La Paz

Housing & Development Corporation (La Paz), and Warbird Security

Agency and their respective officers (collectively referred as Fil-

Estate, et al.).

JCHA, et al. were regular commuters and motorists who

constantly travelled towards the direction of Manila and Calamba.

They used the entry and exit toll gates of South Luzon

Expressway (SLEX) by passing through right-of-way public road

known as La Paz Road. They had been using La Paz Road for more

than 10 years. In August 1998, Fil-estate excavated the La Paz Road

which led to SLEX so JCHA, et al. would not be able to pass through

the said road. The La Paz Road was restored by the residents to

make it passable but Fil-estate excavated the road again. JCHA

reported the matter to the Municipal Government and the Office of

the Municipal Engineer but the latter failed to repair the road to

make it passable and safe to motorists and pedestrians. The act of

Fil-estate in excavating La Paz Road caused inconvenience to the


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commuters and motorists because traffic was re-routed to narrow

streets that caused terrible traffic congestion and hazard. Its

permanent closure would not only prejudice their right to free and

unhampered use of the property but would also cause great damage

and irreparable injury.

JCHA, et al. prayed for the immediate issuance of a TRO or

a writ of preliminary injunction (WPI) to enjoin Fil-Estate, et al. from

stopping and intimidating them in their use of La Paz Road.

RTC – A TRO was issued ordering Fil-Estate, et al, to stop

preventing or harassing the commuters and motorists from using

the La Paz Road. RTC issued an Order granting the WPI and required

JCHA, et al. to post a bond. In its MR, Fil-Estate, et al. claims that

JCHA, et al. failed to satisfy the requirements for the issuance of a

WPI. RTC, in its Omnibus Order, denied both the motion to dismiss

and the motion for reconsideration filed by Fil-Estate, et al. Fil-

Estate, et al. filed a petition for certiorari and prohibition before the

CA to annul (1) the Order and (2) the Omnibus Order.

Fil-Estate’s argument:

(1) Complaint failed to state a cause of action and that it was

improperly filed as a class suit.

(2) JCHA, et al. failed to show that they had a clear and unmistakable

right to the use of La Paz Road; and

(3) La Paz Road was a torrens registered private road and there was

neither a voluntary nor legal easement constituted over it.

CA – The CA ruled that the complaint sufficiently stated a

cause of action. It sustained the RTC ruling that the complaint was

properly filed as a class suit.

Hence, these petitions (G.R. No. 152272 and G.R. No.

152397) for review.

Issues:

(1) Whether or not the complaint states a cause of action;

(2) Whether the complaint has been properly filed as a class suit;

and

(3) Whether or not a WPI is warranted.

Held:

Issue 1: Whether or not the complaint states a cause of

action --- The Court finds the allegations in the complaint sufficient

to establish a cause of action.

JCHA, et al.’s averments in the complaint show a

demandable right over La Paz Road. These are: (1) their right to use

the road on the basis of their allegation that they had been using the

road for more than 10 years; and (2) an easement of a right of way

has been constituted over the said roads. There is no other road as

wide as La Paz Road existing in the vicinity and it is the shortest,

convenient and safe route towards SLEX Halang that the commuters

and motorists may use.

There is an alleged violation of such right committed by Fil-

Estate, et al. when they excavated the road and prevented the

commuters and motorists from using the same. JCHA, et al.

consequently suffered injury and that a valid judgment could have

been rendered in accordance with the relief sought therein.

Issue 2: Whether the complaint has been properly filed as

a class suit --- The Court finds the opposition without merit.

Section 12, Rule 3 of the Rules of Court defines a class suit,

as follows:

Sec. 12. Class suit. – When the subject matter of the

controversy is one of common or general interest to many

persons so numerous that it is impracticable to join all as

parties, a number of them which the court finds to be

sufficiently numerous and representative as to fully

protect the interests of all concerned may sue or defend

for the benefit of all. Any party in interest shall have the

right to intervene to protect his individual interest.

The necessary elements for the maintenance of a class suit

are:

1) the subject matter of controversy is one of common or general

interest to many persons;

2) the parties affected are so numerous that it is impracticable to

bring them all to court; and

3) the parties bringing the class suit are sufficiently numerous or

representative of the class and can fully protect the interests of all

concerned.

In this case, the suit is clearly one that benefits all

commuters and motorists who use La Paz Road.

As correctly ruled by the CA, the closure and excavation of

the La Paz Road, is initially shown to be of common or general

interest to many persons. The records reveal that numerous

individuals have filed manifestations with the lower court, conveying

their intention to join private respondents in the suit and claiming

that they are similarly situated with private respondents for they

were also prejudiced by the acts of petitioners in closing and

excavating the La Paz Road. Moreover, the individuals sought to be

represented by private respondents in the suit are so numerous that

it is impracticable to join them all as parties and be named

individually as plaintiffs in the complaint. These individuals claim to

be residents of various barangays in Biñan, Laguna and other

barangays in San Pedro, Laguna.

Issue 3: Whether or not a WPI is warranted.

A writ of preliminary injunction is available to prevent a

threatened or continuous irremediable injury to parties before their

claims can be thoroughly studied and adjudicated. The requisites for

its issuance are: (1) The existence of a clear and unmistakable right

that must be protected; and (2) An urgent and paramount necessity

for the writ to prevent serious damage.

JCHA, et al. failed to establish a prima facie proof of

violation of their right to justify the issuance of a WPI. Their right to

the use of La Paz Road is disputable since they have no clear legal

right therein. The case should be further heard by the RTC so that

the parties can fully prove their respective positions on the issues.

Petitions, denied.


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Suits against entities without juridical personality

LAPANDAY vs ESTITA

G.R. No. 162109, January 21, 2005

Facts:

The instant petition involves a vast tract of an agricultural

land located at Malalag, Davao del Sur. The land was leased by the

Government to Orval Hughes for a period of 25 years under Lease

Application No. 815 (E-172). The lease expired, it having been

extended for 3 years. Hughes died and was survived by his 5 heirs

who then filed their Sales Application with the Bureau of

Lands. Teodulo Tocao, et al., filed a protest against the sales

application.

The Office of the President (OP) gave due course to the

applications to cover only 317 but awarded 399 hectares to 133

protesters [led by Teodulo Tocao] at 3 hectares each. The Ministry of

Natural Resources issued an Order implementing said decision.

However, the 133 petitioners listed in the said Order were not in

possession of the land allotted to them. So, they formed the

Malalag Land Petitioners Association, Inc. (The Association) headed

by one Cecilio R. Mangubat Sr.

On the other hand, those in possession of the land sought

the assistance of the Malalag Ventures Plantation Inc., in its

development into a viable banana production project to which the

corporation acceded.

The SC in Minister of Natural Resources vs. Heirs of Orval

Hughes sustained the OP decision and it became final and

executory.

The association, through its president Mr. Mangubat, sent

a letter to the management of petitioner Lapanday Group of

Companies, Inc. manifesting that they were no longer interested in

the government grant under the Order of the Ministry of Natural

Resources and offered to transfer and waive whatever interest they

have over the subject land for a monetary consideration.

Mr. Mangubat was the first to relinquish his right for

P54,000.00. The individual respondents allegedly followed suit. He

facilitated the relinquishment in the Office of the Commission on the

Settlement of Land Problems (COSLAP).

The individual respondents filed [against Lapanday and/or

L.S. Ventures, Inc., the Heirs of Orval Hughes, the DENR/COSLAP and

Cecilio Mangubat, Sr.] the following cases: forcible entry,

reinstatement, nullification of affidavits of quitclaims,

relinquishment, waiver and any other documents on disposition of

lands before the Provincial Agrarian Reform Adjudication Board

(PARAD). They alleged that since 1947, they had been the share

tenants-tillers, openly and continuously, of the late Orval Hughes

and his heirs and they remained as such on the 317 hectares land.

They further averred against Lapanday and/or L.S.

Ventures, Hughes’ heirs and Cecilio Mangubat Sr., conspiring

together, misled them to receive P54,000.00 each as rentals on their

respective landholdings and deceived to sign receipts in English

which turned out to be affidavits of quitclaims in favor of the

petitioner.

Lapanday Agricultural & Development Corporation

opposed said actions for being factually and legally baseless, there

being no entity by the name of Lapanday and L.S. Ventures Inc.

which has agricultural operation in Davao del Sur. The fact is that

said company had already merged with Lapanday Agricultural and

Development Corporation.

DAR Provincial Agrarian Reform Adjudicator rendered

judgment in favor of the Malalag Ventures Plantation, Inc. and

declared the property as covered by the Comprehensive Agrarian

Reform Program or CARP. The heirs of Orval Hughes were ordered

to reinstate the Malalag Land Petitioners Association. Leasehold

tenancy shall be observed collectively.

Upon MR, Provincial Agrarian Reform Adjudicator

modified his decision by directing “Lapanday and/or L.S. Ventures,

Inc.” to turn over the area involved for CARP coverage, and ordering

the Hughes heirs to reinstate the members of the Davao del Sur

Farmer’s Association (DASUFRA) as leasehold tenants of the subject

land.

The “Lapanday and/or L.S. Ventures, Inc.” appealed to the

Department of Agrarian Reform Adjudication Board (DARAB). The

DARAB held that the Provincial Agrarian Reform Adjudicator had no

jurisdiction to declare the entire 716-hectare landholding as covered

by the CARP and that the only issue within his competence is to find

out whether sufficient grounds exist to warrant respondents’

dispossession from the 317-hectare portion thereof which was

earlier awarded to the heirs of Orval Hughes.

The Provincial Adjudicator’s resolution was therefore

modified, 1. Ordering heirs of Orval Hughes to vacate the premises

of the 133 hectares which were awarded to 133 awardees;

2. Ordering respondents Lapanday and/or L.S. Ventures and Hughes’

heirs to restore petitioners Maximo Estita, et al., to their respective

farmlots within the 317 hectares owned by the Hughes’ Heirs; and

3. Declaring the nullity of the quitclaims allegedly executed by

petitioners.

“Lapanday and/or L.S. Ventures, Inc.”, this time under the

name Lapanday Agricultural & Development Corporation elevated

the case to the CA.

CA upheld the validity of the DARAB decision. The

individual respondents who received the amount of P54,000.00

were ordered to return the same to the petitioner.


Issues:

(1) Whether or not the Department of Agrarian Reform thru its

Provincial Agrarian Reform Adjudicator, the DARAB and the Court of

Appeals all erred in assuming jurisdiction over an issue covering a

public land. – No

(2) Whether or not the above-mentioned bodies erred in rendering

judgment against Lapanday and/or L.S. Ventures, Inc. even as it is

not a real party-in-interest in the case. – No

Held:

Issue #1: Whether or not the Department of Agrarian

Reform thru its Provincial Agrarian Reform Adjudicator, the DARAB

and the Court of Appeals all erred in assuming jurisdiction over an

issue covering a public land. – No

The land in question has ceased to be public, as in fact it is

already titled. As found by both the DARAB and the CA, the 317-


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hectare land awarded to the Hughes Heirs is covered by an original

certificate of title No. P-4712, and its existence was never refuted by

the petitioner. CARP covers all public and private agricultural lands,

with the DAR vested with primary jurisdiction to determine and

adjudicate, through its adjudication boards, agrarian reform

matters, and exclusive jurisdiction over all matters involving the

implementation of the agrarian reform program,[13]

we rule and so

hold, contrary to petitioner’s assertion, that the DAR, thru its

Provincial Agrarian Reform Adjudicator at Digos, Davao del Sur

correctly took cognizance of the case in the first instance.

Issue #2: Whether or not the above-mentioned

government bodies erred in rendering judgment against Lapanday

and/or L.S. Ventures, Inc. even as it is not a real party-in-interest in

the case. – No

Petitioner’s argument: The DARAB decision, as affirmed by

the CA, ordering “Lapanday and/or L.S. Ventures Inc. to restore

Maximo Estita et al. to their respective farm lots within the 317

hectares owned by the Hughes Heirs”, has no valid force and effect

against petitioner because it is not a real party-in-interest, pointing

out that “Lapanday and/or L.S. Ventures, Inc.,” are separate and

distinct from petitioner’s corporate personality. Petitioner asserts

that “Lapanday” has no juridical personality, while the corporate life

of “L.S. Ventures Inc.” has ceased when said entity merged with

petitioner in 1996. – Incorrect

It is basic in the law of procedure that misjoinder of parties

is not a ground for the dismissal of an action, as parties may be

dropped or added by order of the court on motion of any party or on

its own initiative at any stage of the proceedings and on such terms

as are just. Also, there is the rule that objections to defects in parties

should be made at the earliest opportunity, that is, at the moment

such defect becomes apparent, by a motion to strike the names of

the parties wrongly impleaded. For, objections to misjoinder cannot

be raised for the first time on appeal.

In the case at bar, petitioner did not file a motion to strike

its name in all the proceedings below. As correctly found by the CA,

petitioner corporation filed an Answer thereby submitting to the

jurisdiction of the Board. The same answer bears the name

“LAPANDAY AND/OR L.S. VENTURES, INC.”, signed by its

representative amd assisted by its counsel. This alone negates the

petitioner’s stance that there is no entity by the name of Lapanday

and that L.S. Ventures, Inc. is seperate and distinct from any

company. Such admission made by the petitioner in the course of

the proceedings in this case, does not require proof. Petitioner’s

filing of an Answer has thereby cured whatever jurisdictional defect

it now raises.

Assuming that “Lapanday” does not have a juridical

personality, it may nonetheless be sued under such a name

considering that respondents commonly know petitioner by the

name “Lapanday Group of Companies.” Under Section 15, Rule 3, of

the 1997 Rules of Civil Procedure,

“SEC. 15. Entity without juridical personality as defendant.

– When two or more persons not organized as an entity

with juridical personality enter into a transaction, they

may be sued under the name by which they are generally

or commonly known”

Petitioner’s argument: Respondents are not real parties-

in-interest and are bereft of any legal personality to file and initiate

the complaint for forcible entry, etc. before the office of the

Provincial Agrarian Reform Adjudicator because they are not tenant-

tillers of the land in dispute. Therefore, respondents are not entitled

to be restored thereto. – Incorrect

The Provincial Agrarian Reform Adjudicator, the DARAB

and the Court of Appeals were one in upholding the tenancy status

of the respondents. The evidence adduced by the respondents

clearly indicate that they were tenant-tillers of the 317-hectare land

owned by the heirs of Orval Hughes. The heirs of Orval Hughes as

former landlords of the respondents, never denied the tenancy

status of the latter, as in fact they did not even bother to answer

respondents’ complaint for forcible entry, etc. As tenant-tillers of

the 317-hectare land owned by the heirs of Orval Hughes,

respondents are undeniably parties-in-interest to this controversy.

As such, they have the legal personality to institute the action in the

office of the Provincial Agrarian Reform Adjudicator.

Petitioner’s argument: The respondents’ interests over the

subject land have already been waived when quitclaims to that

effect were allegedly executed and signed by them. – Incorrect

Waivers of rights and/or interests over landholdings awarded by the

government are invalid for being violative of the agrarian reform

laws. Petition, denied.


LAVIÑA vs CA

G.R. No. 78295, April 10, 1989

Two petitions were filed before the SC:

(1) GR No. 78295 – contempt resolution of the CA, and

(2) GR No. 79917 – its decision in a special civil action of certiorari

G.R. No. 78295

Facts:

Maria Carmen Gabriel, single, 72y/o, executed a

donation mortis causa in favor of her widowed sister-in-law, Josefina

C. Gabriel, 75y/o, over a parcel of land in Sampaloc, Manila. The

donation was thumbmarked by Carmen and notarized. It was

accepted by the donee. Carmen executed a Last Will And Testament.

She bequeathed the Sampaloc property to her cousin and

companion, Remedios Muyot, and willed a small lot in Antipolo,

Rizal to Josefina. She named Concepcion De Garcia, as executrix of

her will. Carmen executed a General Power of Attorney appointing

Muyot, as her attomey-in-fact. Josefina registered an adverse claim

on the title of the Sampaloc property based on the donation made

by Carmen in her favor. Muyot hired the services of Atty. Celso D.

Laviña.

Carmen thumbmarked an "AFFIDAVIT OF DENIAL"

repudiating the donation of the Sampaloc property to Josefina

because it was allegedly procured through fraud and trickery. She

http://sc.judiciary.gov.ph/jurisprudence/2005/jan2005/162109.htm#_ftn13


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had no intention of donating the property to Josefina who had not

done her any favor and in fact abandoned her during her illness. She

also thumbmarked a "REVOCATION OF DONATION" and thereafter

notarized.

Muyot sold the Sampaloc property to Virgilio D. Cebrero.

Eight days after, Carmen passed away. Josefina filed a complaint

before the RTC against Carmen's estate and the Register of Deeds to

annul the Deed of Revocation of Donation. She alleged that the deed

of revocation was false and fictitious. She asked the court to appoint

an administrator ad litem for the estate of Carmen. Upon filing the

complaint, she caused to be recorded a Notice of Lis Pendens on the

title of the property.

Without appointing a special administrator for Carmen's

estate, the court caused summons to be served on the estate. The

summons was received by Muyot. The Cebreros registered the sale

of the Sampaloc property to them and obtained a TCT in their

names.

Josefina's complaint was amended:

(1) To implead Muyot and the Cebrero spouses as additional

defendants;

(2) To nullify Muyot's General Power of Attorney and the sale of the

Sampaloc property to the Cebrero spouses.

Atty. Laviña filed an Amended Answer with Compulsory

Counter-claim for the Estate and Muyot. Josefina filed a motion to

disqualify him on the ground that his authority as counsel for

Carmen was extinguished upon her death. She also assailed the

service of summons to the decedent's Estate through Muyot and

reiterated her motion for the appointment of a special administrator

for the Estate.

RTC Judge Vicencio denied Josefina's motion to disqualify

Atty. Laviña. He also denied the motion to appoint a special

administrator for the Estate since the deceased left a Will naming an

executrix. He sustained his court's jurisdiction over the Estate based

on the service of summons upon Muyot.

Cebrero filed a motion to cancel the notice of lis

pendens on the Sampaloc property. Before Judge Vicencio could act

on it, Josefina filed a petition for certiorari in the CA assailing Judge

Vicencio's order and praying for a writ of preliminary injunction to

stop him from further proceeding in the case.

CA issued a restraining order ordering the lower court to

desist from proceeding with the case until further orders. In spite of

this, Judge Vicencio issued an order cancelling the notice of lis

pendens because he believed the CA’s restraining order has expired.

CA set aside Judge Vicencio's order and required him, his

branch clerk of court and Attorney Laviña to show cause why they

should not be punished for contempt of court. The CA held that the

20-day limitation on the life of a restraining order did not apply to it

but only to lower court "judges" as provided under Section 5 of BP

Blg. 224.

While the CA was aware that Section 8 of the Interim Rules

uses the word "court" instead of "judges," it opined that the Interim

Rules was not meant to effect, modify or alter BP 224 since BP 224

governs the exclusive subject of restraining orders, whereas the

Interim Rules treats of the broad Judiciary Reorganization Act of

1981. BP 224 is a legislative act laying down a substantive policy

regulating the issuance and effectivity of restraining orders issued by

'judges,' specifically decreeing a limitation of 20 days to such orders

of 'judges'.

CA further observed that the application of BP Blg. 224 to

"judges" only "springs from practical considerations evident from

the Rule itself." Rule 58, as amended by BP 224 requires-upon

issuance of a restraining order and within 20 days from said

issuance-that 'the judge must cause an order to be served on the

defendant, requiring him to show cause, at a specified time and

place, why the injunction should not be granted, and determine

within the same period whether or not the preliminary injunction

shall be granted. Certainly, while these pressing time and procedural

constraints may reasonably be brought to bear upon the RTC whose

injunctive writs may be enforced only within the narrow confines of

their respective regions (Sec. 3[a], Interim Rules and Guidelines),

they cannot sensibly be imposed upon the CA and SC whose

territorial jurisdiction stretches to the many ends of the country’s

broad archipelago.

Laviña, Muyot, and Cebrero filed before the SC a petition

for certiorari and prohibition (G.R. No. 78295) assailing that

resolution. They prayed that the CA be enjoined from further

proceeding in CA-G.R. SP No. 11260. SC ordered the respondents to

comment.

SC rendered a divided opinion in another case

(Delbros case) defining the scope of BP Blg. 224. It states that “The

applicability of Sec. 5, B.P. Blg. 224 to the then IAC, now the Court of

Appeals, can hardly be doubted. The Interim Rules and Guidelines

were promulgated to implement the Judiciary Reorganization Act of

1981 (B.P. Blg. 129) which include the IAC among the courts

organized thereunder. This is emphasized in the preamble of the

Interim Rules which states that the same shall apply to all inferior

courts according to the Constitution. The term 'inferior courts' as

used therein refers to all courts except the Supreme Court, the

Sandiganbayan and the Court of Tax Appeals.”

Issue #1: Whether petitioners' disobedience of the CA’s

restraining order was contemptuous. – Yes

Held:

SC sustains Judge Vicencio's interpretation of BP Blg. 224.

However, this circumstance does not excuse his defiance of the CA’s

restraining order.

Before the promulgation of the Delbros decision, there

existed no jurisprudence interpreting "judges" as used in BP Blg.

224, to include the justices of the CA also. Out of respect for the

second highest court of the land, he should have obeyed its explicit

mandate for him to desist from proceeding "until further orders."

His disobedience of that lawful order of the Court was

contemptuous.

G.R. No. 79917

During the pendency of G.R. No. 78295, CA granted Josefina's

petition:

(1) Annulling the assailed order;


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(2) Declaring that the lower court did not acquire jurisdiction over

the person of the estate of Carmen;

(3) Ordering Atty. Celso Laviña to refrain from representing the

estate of the deceased Carmen; and

(4) Declaring that all pleadings, motions and papers filed by Atty.

Laviña are sham and ordered expunged from the records of said

case.

SC granted a 30 days extension. Attorney Laviña, Muyot, and the

Cebrero spouses appealed by certiorari to the SC.

Ruling of the CA

(1) Attorney Laviña may not appear as counsel for the estate of

Carmen because his authority as her counsel was extinguished upon

Carmen's death (Art. 1919, Civil Code).

(2) Remedios Muyot was not capacitated to receive summons for

the estate because the general power of attorney constituting her as

agent of the deceased became inoperative upon the death of the

principal. The service of summons upon her was void.

(3) A special administrator need not be appointed for the estate as

the last will and testament of Carmen had been allowed probate in a

Special Proceeeding and letters testamentary had been issued to the

duly designated executrix, Concepcion M. De Garcia to represent the

Estate.

Issue #2: Whether or not Atty. Laviña's authority as

counsel for Carmen P. Gabriel was extinguished upon her death. –

Yes

Held:

Petitioner's argument:

(1) That the service of the summons on Remedios Muyot was valid

and sufficient to vest jurisdiction in the Court over the Estate of

Carmen P. Gabriel, because Remedios Muyot was Carmen P.

Gabriel’s attorney-in-fact.

(2) That the agency was "constituted in the common interest of the

principal and the agent" and that hence it was not extinguished by

the death of the principal is refuted by the instrument itself which

explicitly provided that the powers conferred on the agent were to

be exercised for the "sole benefit" of the principal, Carmen P.

Gabriel.

The estate of a dead person may only be summoned

through the executor or administrator of his estate for it is

the executor or administrator who may sue or be sued (Sec. 3, Rule

3, Rules of Court) and who may bring or defend actions for the

recovery or protection of the property or rights of the deceased

(Sec. 2, Rule 87, Rules of Court).

The general power of attorney appointing Remedios as

Carmen's agent or attorney-in- fact was extinguished upon Carmen's

demise. Thereafter, Remedios was bereft of authority to represent

Carmen.

Carmen's death likewise divested Attorney Laviña of

authority to represent her as counsel. A dead client has no

personality and cannot be represented by an attorney.

Petition, dismissed.


LAWAS vs CA

G.R. No. L-45809, December 12, 1986

Facts:

Private respondent Pacifico Pelaez filed a Complaint

against petitioner's father, Pedro Sepulveda, for ownership and

partition of certain parcels of land. Defendant Pedro Sepulveda filed

his Answer resisting the claim and raising the special defenses of

laches, prescription and failure to ventilate in a previous special

proceeding. During the presentation of evidence for the plaintiff, the

defendant died. The counsels for the deceased defendant filed a

notice of death wherein were enumerated the thirteen children and

surviving spouse of the deceased.

Then, Petitioner filed a petition for letters of

administration and she was appointed judicial administratrix of the

estate of her late father. At the hearing of the case, Attys. Domingo

Antigua and Serafin Branzuela, former counsels for the deceased

defendant, manifested in open court that with the death of their

client, their contract with him was also terminated and none of the

thirteen children nor the surviving spouse had renewed the

contract, but instead they had engaged the services of other lawyers

in the intestate proceedings.

On January 13, 1976, the respondent trial judge issued

three orders. The first order substituted the heirs of the deceased

defendant, namely, his thirteen children and surviving spouse, as

defendants; the second order authorized Atty. Teodoro Almase,

counsel for the plaintiff, to present his evidence in the absence of

Attys. Antigua and Branzuela and the third order treated the case

submitted for decision, after the plaintiff had presented his evidence

and rested his case, and directed that said counsels and the fourteen

heirs of the deceased defendant be furnished copies thereof.

The respondent trial judge rendered a decision against the

heirs of the deceased defendant. Thereafter, ten of the children of

the deceased defendant, who apparently did not know that a

decision had already been rendered, filed an Answer in-substitution

of the deceased defendant through their counsel Atty. Jesus Yray,

which was denied by the trial court.

Then, the widow and two other children of the deceased

defendant filed a motion for substitution and for reconsideration of

the decision of trial court. The respondent trial judge issued an order

setting aside his decision and setting the case in the calendar for

cross-examination of the plaintiff, Pacifico Pelaez, with a proviso

that said order was applicable only to the three heirs who had filed

the motion. Thereafter, the respondent trial judge lifted the order

setting aside his decision, despite the verbal petition for

postponement of the hearing made by one of the three heirs on the

ground of the absence of their counsel.

Petitioner, who had been appointed judicial administratrix

of the estate of the deceased defendant and who was one of the

heirs who had filed an Answer on February 19, 1976, filed a motion

to intervene and/or substitute the deceased defendant. The

respondent trial judge denied the motion for the reason that the

decision had already become final.

Petitioner then filed a special civil action of certiorari with

the Court of Appeals to annul the proceedings in the respondent


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trial court. However, the Court of Appeals dismissed the petition for

certiorari. Hence, the present appeal.

Issues:

Whether or not the proceedings conducted by the trial

court after the death of the defendant are valid

Held:

No. The Court held that proceedings conducted by the

respondent trial judge after the death of the deceased defendant

are null and void.

The former counsels for the deceased defendant, Pedro

Sepulveda, complied with this rule by filing a notice of death on May

21, 1975. They also correctly manifested in open court at the

hearing of the case on November 27, 1975, that with the death of

their client their contract with him was also terminated and none of

the heirs of the deceased had renewed the contract, and the heirs

had instead engaged the services of other lawyers in the intestate

proceedings.

Both the respondent trial judge and the Court of Appeals

erred in considering the former counsels of the deceased defendant

as counsels for the heirs of the deceased. The statement in the

decision of the Court of Appeals that "the appearance of the lawyers

of their deceased father in court on January 13, 1976 (Annex K)

carries the presumption that they were authorized by the heirs of

the deceased defendant" is erroneous. As this Court held in People

vs. Florendo, "the attorneys for the offended party ceased to be the

attorneys for the deceased upon the death of the latter, the

principal. "

In the order of the respondent trial judge dated November

10, 1976, mention was made of the delayed arrival of Attys. Antigua

and Branzuela at the hearing on January 13, 1976 and of their being

allowed to cross-examine the plaintiff himself.

The refusal of said former counsels of the deceased

defendant to cross-examine the plaintiff was justified —

... in view of the intervening event of appellant's death and

the interposition of the equally established principle that the

relationship of attorney and client is terminated by the death of the

client, as acknowledged by respondent court itself as well as

respondents. In the absence of a retainer from the heirs or

authorized representatives of his deceased defendant the attorney

would have no further power or authority to appear or take any

further action in the case, save to inform the court of the client's

death and take the necessary steps to safeguard the decedent's

rights in the case.

Moreover, as above stated, petitioner had as early as May

5, 1975 filed a petition for letters of administration, and the same

was granted.

Under the Rules of Court, priority is given to the legal

representative of the deceased, that is, the executor or

administrator of his estate. It is only in cases of unreasonable delay

in the appointment of an executor or administrator, or in cases

where the heirs resort to an extrajudicial settlement of the estate,

that the court may adopt the alternative of allowing the heirs of the

deceased to be substituted for the deceased.

In the case at bar, in view of the pendency of Special

Proceeding No. 37-SF Intestate Estate of Pedro Sepulveda, and the

pending application of petitioner to be appointed judicial

administratrix of the estate, the respondent trial judge should have

awaited the appointment of petitioner and granted her motion to

substitute the deceased defendant.

While the lower courts correctly held that the death of

Pedro Sepulveda did not obliterate his verified Answer to the

Complaint filed by private respondent and that the Answer filed by

the ten heirs and the Answer filed by the Administratrix were both

unnecessary, the said heirs or the administratrix could, with leave of

court, file an Amended Answer.

Full Text Cases: Rule 3 - Parties to Civil Actions CIVIL PROCEDURE

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G.R. No. 138104 April 11, 2002

MR HOLDINGS, LTD., petitioner, vs. SHERIFF CARLOS P. BAJAR, SHERIFF FERDINAND M. JANDUSAY, SOLIDBANK CORPORATION, AND MARCOPPER MINING CORPORATION, respondents.

SANDOVAL-GUTIERREZ, J.:

In the present Petition for Review on Certiorari, petitioner MR Holdings, Ltd. assails the a) Decision

1 dated January 8, 1999 of the

Court of Appeals in CA-G.R. SP No. 49226 finding no grave abuse of discretion on the part of Judge Leonardo P. Ansaldo of the Regional Trial Court (RTC), Branch 94, Boac, Marinduque, in denying petitioner’s application for a writ of preliminary injunction;

2 and b)

Resolution3 dated March 29, 1999 denying petitioner’s motion for

reconsideration.

The facts of the case are as follows:

Under a "Principal Loan Agreement"4 and "Complementary Loan

Agreement,"5 both dated November 4, 1992, Asian Development

Bank (ADB), a multilateral development finance institution, agreed to extend to Marcopper Mining Corporation (Marcopper) a loan in the aggregate amount of US$40,000,000.00 to finance the latter’s mining project at Sta. Cruz, Marinduque. The principal loan of US$ 15,000,000.00 was sourced from ADB’s ordinary capital resources, while the complementary loan of US$ 25,000,000.00 was funded by the Bank of Nova Scotia, a participating finance institution.

On even date, ADB and Placer Dome, Inc., (Placer Dome), a foreign corporation which owns 40% of Marcopper, executed a "Support and Standby Credit Agreement" whereby the latter agreed to provide Marcopper with cash flow support for the payment of its obligations to ADB.

To secure the loan, Marcopper executed in favor of ADB a "Deed of Real Estate and Chattel Mortgage"

6 dated November 11, 1992,

covering substantially all of its (Marcopper’s) properties and assets in Marinduque. It was registered with the Register of Deeds on November 12, 1992.

When Marcopper defaulted in the payment of its loan obligation, Placer Dome, in fulfillment of its undertaking under the "Support and Standby Credit Agreement," and presumably to preserve its international credit standing, agreed to have its subsidiary corporation, petitioner MR Holding, Ltd., assumed Marcopper’s obligation to ADB in the amount of US$ 18,453,450.02. Consequently, in an "Assignment Agreement"

7 dated March 20,

1997, ADB assigned to petitioner all its rights, interests and obligations under the principal and complementary loan agreements, ("Deed of Real Estate and Chattel Mortgage," and "Support and Standby Credit Agreement"). On December 8, 1997, Marcopper likewise executed a "Deed of Assignment"

8 in favor of

petitioner. Under its provisions, Marcopper assigns, transfers, cedes and conveys to petitioner, its assigns and/or successors-in-interest all of its (Marcopper’s) properties, mining equipment and facilities, to wit:

Land and Mining Rights

Building and Other Structures

Other Land Improvements

Machineries & Equipment, and Warehouse Inventory

Mine/Mobile Equipment

Transportation Equipment and Furniture & Fixtures

Meanwhile, it appeared that on May 7, 1997, Solidbank Corporation (Solidbank) obtained a Partial Judgment

9against Marcopper from the

RTC, Branch 26, Manila, in Civil Case No. 96-80083 entitled "Solidbank Corporation vs. Marcopper Mining Corporation, John E. Loney, Jose E. Reyes and Teodulo C. Gabor, Jr.," the decretal portion of which reads:

"WHEREFORE, PREMISES CONSIDERED, partial judgment is hereby rendered ordering defendant Marcopper Mining Corporation, as follows:

1. To pay plaintiff Solidbank the sum of Fifty Two Million Nine Hundred Seventy Thousand Pesos Seven Hundred Fifty Six and 89/100 only (PHP 52,970,756.89), plus interest and charges until fully paid;

2. To pay an amount equivalent to Ten Percent (10%) of above-stated amount as attorney’s fees; and

3. To pay the costs of suit.

"SO ORDERED."

Upon Solidbank’s motion, the RTC of Manila issued a writ of execution pending appeal directing Carlos P. Bajar, respondent sheriff, to require Marcopper "to pay the sums of money to satisfy the Partial Judgment."

10 Thereafter, respondent Bajar issued two

notices of levy on Marcopper’s personal and real properties, and over all its stocks of scrap iron and unserviceable mining equipment.

11 Together with sheriff Ferdinand M. Jandusay (also a

respondent) of the RTC, Branch 94, Boac, Marinduque, respondent Bajar issued two notices setting the public auction sale of the levied properties on August 27, 1998 at the Marcopper mine site.

12

Having learned of the scheduled auction sale, petitioner served an "Affidavit of Third-Party Claim"

13 upon respondent sheriffs on

August 26, 1998, asserting its ownership over all Marcopper’s mining properties, equipment and facilities by virtue of the "Deed of Assignment."

Upon the denial of its "Affidavit of Third–Party Claim" by the RTC of Manila,

14 petitioner commenced with the RTC of Boac, Marinduque,

presided by Judge Leonardo P. Ansaldo, a complaint for reivindication of properties, etc., with prayer for preliminary injunction and temporary restraining order against respondents Solidbank, Marcopper, and sheriffs Bajar and Jandusay.

15 The case

was docketed as Civil Case No. 98-13.

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In an Order16

dated October 6, 1998, Judge Ansaldo denied petitioner’s application for a writ of preliminary injunction on the ground that a) petitioner has no legal capacity to sue, it being a foreign corporation doing business in the Philippines without license; b) an injunction will amount "to staying the execution of a final judgment by a court of co-equal and concurrent jurisdiction;" and c) the validity of the "Assignment Agreement" and the "Deed of Assignment" has been "put into serious question by the timing of their execution and registration."

Unsatisfied, petitioner elevated the matter to the Court of Appeals on a Petition for Certiorari, Prohibition and Mandamus, docketed therein as CA-G.R. SP No. 49226. On January 8, 1999, the Court of Appeals rendered a Decision holding that Judge Ansaldo did not commit grave abuse of discretion in denying petitioner’s prayer for a writ of preliminary injunction, ratiocinating as follows:

"Petitioner contends that it has the legal capacity to sue and seek redress from Philippine courts as it is a non-resident foreign corporation not doing business in the Philippines and suing on isolated transactions.

x x x x x x

"We agree with the finding of the respondent court that petitioner is not suing on an isolated transaction as it claims to be, as it is very obvious from the deed of assignment and its relationships with Marcopper and Placer Dome, Inc. that its unmistakable intention is to continue the operations of Marcopper and shield its properties/assets from the reach of legitimate creditors, even those holding valid and executory court judgments against it. There is no other way for petitioner to recover its huge financial investments which it poured into Marcopper’s rehabilitation and the local situs where the Deeds of Assignment were executed, without petitioner continuing to do business in the country.

x x x x x x

"While petitioner may just be an assignee to the Deeds of Assignment, it may still fall within the meaning of "doing business" in light of the Supreme Court ruling in the case of Far East International Import and Export Corporation vs. Nankai Kogyo Co., 6 SCRA 725, that:

‘Where a single act or transaction however is not merely incidental or casual but indicates the foreign corporation’s intention to do other business in the Philippines, said single act or transaction constitutes doing or engaging in or transacting business in the Philippines.’

"Furthermore, the court went further by declaring that even a single act may constitute doing business if it is intended to be the beginning of a series of transactions. (Far East International Import and Export Corporation vs. Nankai Kogyo Co. supra).

"On the issue of whether petitioner is the bona fide owner of all the mining facilities and equipment of Marcopper,

petitioner relies heavily on the Assignment Agreement allegedly executed on March 20, 1997 wherein all the rights and interest of Asian Development Bank (ADB) in a purported Loan Agreement were ceded and transferred in favor of the petitioner as assignee, in addition to a subsequent Deed of Assignment dated December 28, 1997 conveying absolutely all the properties, mining equipment and facilities of Marcopper in favor of petitioner.

"The Deeds of Assignment executed in favor of petitioner cannot be binding on the judgment creditor, private respondent Solidbank, under the general legal principle that contracts can only bind the parties who had entered into it, and it cannot favor or prejudice a third person (Quano vs. Court of Appeals, 211 SCRA 40). Moreover, by express stipulation, the said deeds shall be governed, interpreted and construed in accordance with laws of New York.1âwphi1.nêt

"The Deeds of Assignment executed by Marcopper, through its President, Atty. Teodulo C. Gabor, Jr., were clearly made in bad faith and in fraud of creditors, particularly private respondent Solidbank. The first Assignment Agreement purportedly executed on March 20, 1997 was entered into after Solidbank had filed on September 19, 1996 a case against Marcopper for collection of sum of money before Branch 26 of the Regional Trial Court docketed as Civil Case No. 96-80083. The second Deed of Assignment purportedly executed on December 28, 1997 was entered into by President Gabor after Solidbank had filed its Motion for Partial Summary Judgment, after the rendition by Branch 26 of the Regional Trial Court of Manila of a Partial Summary Judgment and after the said trial court had issued a writ of execution, and which judgment was later affirmed by the Court of Appeals. While the assignments (which were not registered with the Registry of Property as required by Article 1625 of the new Civil Code) may be valid between the parties thereof, it produces no effect as against third parties. The purported execution of the Deeds of Assignment in favor of petitioner was in violation of Article 1387 of the New Civil Code x x x." (Emphasis Supplied)

Hence, the present Petition for Review on Certiorari by MR Holdings, Ltd. moored on the following grounds:

"A. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN COMPLETELY DISREGARDING AS A MATERIAL FACT OF THE CASE THE EXISTENCE OF THE PRIOR, REGISTERED 1992 DEED OF REAL ESTATE AND CHATTEL MORTGAGE CREATING A LIEN OVER THE LEVIED PROPERTIES, SUBJECT OF THE ASSIGNMENT AGREEMENT DATED MARCH 20, 1997, THUS, MATERIALLY CONTRIBUTING TO THE SAID COURT’S MISPERCEPTION AND MISAPPRECIATION OF THE MERITS OF PETITIONER’S CASE.

B. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN MAKING A FACTUAL FINDING THAT THE SAID ASSIGNMENT AGREEMENT IS NOT REGISTERED, THE SAME BEING CONTRARY TO THE FACTS ON RECORD, THUS, MATERIALLY CONTRIBUTING TO THE



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SAID COURT’S MISPERCEPTION AND MISAPPRECIATION OF THE MERITS OF PETITIONER’S CASE.

C. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN MAKING A FACTUAL FINDING ON THE EXISTENCE OF AN ATTACHMENT ON THE PROPERTIES SUBJECT OF INSTANT CASE, THE SAME BEING CONTRARY TO THE FACTS ON RECORD, THUS, MATERIALLY CONTRIBUTING TO THE SAID COURT’S MISPERCEPTION AND MISAPPRECIATION OF THE MERITS OF PETITIONER’S CASE.

D. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN HOLDING THAT THE SAID ASSIGNMENT AGREEMENT AND THE DEED OF ASSIGNMENT ARE NOT BINDING ON RESPONDENT SOLIDBANK WHO IS NOT A PARTY THERETO, THE SAME BEING CONTRARY TO LAW AND ESTABLISHED JURISPRUDENCE ON PRIOR REGISTERED MORTGAGE LIENS AND ON PREFERENCE OF CREDITS.

E. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN FINDING THAT THE AFOREMENTIONED ASSIGNMENT AGREEMENT AND DEED OF ASSIGNMENT ARE SHAM, SIMULATED, OF DUBIOUS CHARACTER, AND WERE MADE IN BAD FAITH AND IN FRAUD OF CREDITORS, PARTICULARLY RESPONDENT SOLIDBANK, THE SAME BEING IN COMPLETE DISREGARD OF, VIZ: (1) THE LAW AND ESTABLISHED JURISPRUDENCE ON PRIOR, REGISTERED MORTGAGE LIENS AND ON PREFERENCE OF CREDITS, BY REASON OF WHICH THERE EXISTS NO CAUSAL CONNECTION BETWEEN THE SAID CONTRACTS AND THE PROCEEDINGS IN CIVIL CASE NO. 96-80083; (2) THAT THE ASIAN DEVELOPMENT BANK WILL NOT OR COULD NOT HAVE AGREED TO A SHAM; SIMULATED, DUBIOUS AND FRAUDULENT TRANSACTION; AND (3) THAT RESPONDENT SOLIDBANK’S BIGGEST STOCKHOLDER, THE BANK OF NOVA SCOTIA, WAS A MAJOR BENEFICIARY OF THE ASSIGNMENT AGREEMENT IN QUESTION.

F. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN HOLDING THAT PETITIONER IS WITHOUT LEGAL CAPACITY TO SUE AND SEEK REDRESS FROM PHILIPPINE COURTS, IT BEING THE CASE THAT SECTION 133 OF THE CORPORATION CODE IS WITHOUT APPLICATION TO PETITIONER, AND IT BEING THE CASE THAT THE SAID COURT MERELY RELIED ON SURMISES AND CONJECTURES IN OPINING THAT PETITIONER INTENDS TO DO BUSINESS IN THE PHILIPPINES.

G. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN HOLDING THAT RESPONDENT MARCOPPER, PLACER DOME, INC., AND PETITIONER ARE ONE AND THE SAME ENTITY, THE SAME BEING WITHOUT FACTUAL OR LEGAL BASIS.

H. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN HOLDING PETITIONER GUILTY OF FORUM SHOPPING, IT BEING CLEAR THAT NEITHER LITIS PENDENTIA NOR RES JUDICATA MAY BAR THE INSTANT REIVINDICATORY ACTION, AND IT BEING CLEAR THAT AS

THIRD-PARTY CLAIMANT, THE LAW AFFORDS PETITIONER THE RIGHT TO FILE SUCH REIVINDICATORY ACTION.

I. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN RENDERING A DECISION WHICH IN EFFECT SERVES AS JUDGMENT ON THE MERITS OF THE CASE.

J. THE SHERIFF’S LEVY AND SALE, THE SHERIFF’S CERTIFICATE OF SALE DATED OCTOBER 12, 1998, THE RTC-MANILA ORDER DATED FEBRUARY 12, 1999, AND THE RTC-BOAC ORDER DATED NOVEMBER 25, 1998 ARE NULL AND VOID.

K. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN AFFIRMING THE DENIAL BY THE RTC-BOAC OF PETITIONER’S APPLICATION FOR PRELIMINARY INJUNCTION, THE SAME BEING IN TOTAL DISREGARD OF PETITIONER’S RIGHT AS ASSIGNEE OF A PRIOR, REGISTERED MORTGAGE LIEN, AND IN DISREGARD OF THE LAW AND JURISPRUDENCE ON PREFERENCE OF CREDIT."

In its petition, petitioner alleges that it is not "doing business" in the Philippines and characterizes its participation in the assignment contracts (whereby Marcopper’s assets where transferred to it) as mere isolated acts that cannot foreclose its right to sue in local courts. Petitioner likewise maintains that the two assignment contracts, although executed during the pendency of Civil Case No. 96-80083 in the RTC of Manila, are not fraudulent conveyances as they were supported by valuable considerations. Moreover, they were executed in connection with prior transactions that took place as early as 1992 which involved ADB, a reputable financial institution. Petitioner further claims that when it paid Marcopper’s obligation to ADB, it stepped into the latter’s shoes and acquired its (ADB’S) rights, titles, and interests under the "Deed of Real Estate and Chattel Mortgage." Lastly, petitioner asserts its existence as a corporation, separate and distinct from Placer Dome and Marcopper.

In its comment, Solidbank avers that: a) petitioner is "doing business" in the Philippines and this is evidenced by the "huge investment" it poured into the assignment contracts; b) granting that petitioner is not doing business in the Philippines, the nature of its transaction reveals an "intention to do business" or "to begin a series of transaction" in the country; c) petitioner, Marcopper and Placer Dome are one and the same entity, petitioner being then a wholly-owned subsidiary of Placer Dome, which, in turn, owns 40% of Marcopper; d) the timing under which the assignments contracts were executed shows that petitioner’s purpose was to defeat any judgment favorable to it (Solidbank); and e) petitioner violated the rule on forum shopping since the object of Civil Case No. 98-13 (at RTC, Boac, Marinduque) is similar to the other cases filed by Marcopper in order to forestall the sale of the levied properties.

Marcopper, in a separate comment, states that it is merely a nominal party to the present case and that its principal concerns are being ventilated in another case.

The petition is impressed with merit.


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Crucial to the outcome of this case is our resolution of the following issues: 1) Does petitioner have the legal capacity to sue? 2) Was the Deed of Assignment between Marcopper and petitioner executed in fraud of creditors? 3) Are petitioner MR Holdings, Ltd., Placer Dome, and Marcopper one and the same entity? and 4) Is petitioner guilty of forum shopping?

We shall resolve the issues in seriatim.

I

The Court of Appeals ruled that petitioner has no legal capacity to sue in the Philippine courts because it is a foreign corporation doing business here without license. A review of this ruling does not pose much complexity as the principles governing a foreign corporation’s right to sue in local courts have long been settled by our Corporation Law.

17 These principles may be condensed in three statements, to

wit: a) if a foreign corporation does business in the Philippines without a license, it cannot sue before the Philippine courts;

18 b) if a

foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction

19 or on a cause of action entirely independent of any

business transaction;20

and c) if a foreign corporation does business in the Philippines with the required license, it can sue before Philippine courts on any transaction. Apparently, it is not the absence of the prescribed license but the "doing (of) business" in the Philippines without such license which debars the foreign corporation from access to our courts.

21

The task at hand requires us to weigh the facts vis-à-vis the established principles. The question whether or not a foreign corporation is doing business is dependent principally upon the facts and circumstances of each particular case, considered in the light of the purposes and language of the pertinent statute or statutes involved and of the general principles governing the jurisdictional authority of the state over such corporations.

22

Batas Pambansa Blg. 68, otherwise known as "The Corporation Code of the Philippines," is silent as to what constitutes doing" or "transacting" business in the Philippines. Fortunately, jurisprudence has supplied the deficiency and has held that the term "implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object for which the corporation was organized."

23 In Mentholatum Co. Inc., vs.

Mangaliman,24

this Court laid down the test to determine whether a foreign company is "doing business," thus:

" x x x The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. (Traction Cos. vs. Collectors of Int. Revenue [C.C.A., Ohio], 223 F. 984,987.) x x x."

The traditional case law definition has metamorphosed into a statutory definition, having been adopted with some qualifications in various pieces of legislation in our jurisdiction. For instance, Republic Act No. 7042, otherwise known as the "Foreign Investment Act of 1991," defines "doing business" as follows:

"d) The phrase ‘doing business’ shall include soliciting orders, service contracts, opening offices, whether called ‘liaison’ offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eight(y) (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity, or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works; or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization; Provided, however, That the phrase ‘doing business’ shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor, nor having a nominee director or officer to represent its interests in such corporation, nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account." (Emphasis supplied)

25

Likewise, Section 1 of Republic Act No. 5455,26

provides that:

"SECTION. 1. Definition and scope of this Act. - (1) x x x the phrase ‘doing business’ shall include soliciting orders, purchases, service contracts, opening offices, whether called ‘liaison’ offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totaling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization."

There are other statutes27

defining the term "doing business" in the same tenor as those above-quoted, and as may be observed, one common denominator among them all is the concept of "continuity."

In the case at bar, the Court of Appeals categorized as "doing business" petitioner’s participation under the "Assignment Agreement" and the "Deed of Assignment." This is simply untenable. The expression "doing business" should not be given such a strict and literal construction as to make it apply to any corporate dealing whatever.

28 At this early stage and with petitioner’s acts or

transactions limited to the assignment contracts, it cannot be said that it had performed acts intended to continue the business for which it was organized. It may not be amiss to point out that the purpose or business for which petitioner was organized is not discernible in the records. No effort was exerted by the Court of Appeals to establish the nexus between petitioner’s business and the acts supposed to constitute "doing business." Thus, whether the assignment contracts were incidental to petitioner’s business














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or were continuation thereof is beyond determination. We cannot apply the case cited by the Court of Appeals, Far East Int’l Import and Export Corp. vs. Nankai Kogyo Co., Ltd.,

29 which held that a

single act may still constitute "doing business" if "it is not merely incidental or casual, but is of such character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the state." In said case, there was an express admission from an official of the foreign corporation that he was sent to the Philippines to look into the operation of mines, thereby revealing the foreign corporation’s desire to continue engaging in business here. But in the case at bar, there is no evidence of similar desire or intent. Unarguably, petitioner may, as the Court of Appeals suggested, decide to operate Marcopper’s mining business, but, of course, at this stage, that is a mere speculation. Or it may decide to sell the credit secured by the mining properties to an offshore investor, in which case the acts will still be isolated transactions. To see through the present facts an intention on the part of petitioner to start a series of business transaction is to rest on assumptions or probabilities falling short of actual proof. Courts should never base its judgments on a state of facts so inadequately developed that it cannot be determined where inference ends and conjecture begins.

Indeed, the Court of Appeals’ holding that petitioner was determined to be "doing business" in the Philippines is based mainly on conjectures and speculation. In concluding that the "unmistakable intention" of petitioner is to continue Marcopper’s business, the Court of Appeals hangs on the wobbly premise that "there is no other way for petitioner to recover its huge financial investments which it poured into Marcopper’s rehabilitation without it (petitioner) continuing Marcopper’s business in the country."

30

This is a mere presumption. Absent overt acts of petitioner from which we may directly infer its intention to continue Marcopper’s business, we cannot give our concurrence. Significantly, a view subscribed upon by many authorities is that the mere ownership by a foreign corporation of a property in a certain state, unaccompanied by its active use in furtherance of the business for which it was formed, is insufficient in itself to constitute doing business.

31 In Chittim vs. Belle Fourche Bentonite Products Co.,

32 it

was held that even if a foreign corporation purchased and took conveyances of a mining claim, did some assessment work thereon, and endeavored to sell it, its acts will not constitute the doing of business so as to subject the corporation to the statutory requirements for the transacting of business. On the same vein, petitioner, a foreign corporation, which becomes the assignee of mining properties, facilities and equipment cannot be automatically considered as doing business, nor presumed to have the intention of engaging in mining business.

One important point. Long before petitioner assumed Marcopper’s debt to ADB and became their assignee under the two assignment contracts, there already existed a "Support and Standby Credit Agreement" between ADB and Placer Dome whereby the latter bound itself to provide cash flow support for Marcopper’s payment of its obligations to ADB. Plainly, petitioner’s payment of US$ 18,453,450.12 to ADB was more of a fulfillment of an obligation under the "Support and Standby Credit Agreement" rather than an investment. That petitioner had to step into the shoes of ADB as Marcopper’s creditor was just a necessary legal consequence of the transactions that transpired. Also, we must hasten to add that the "Support and Standby Credit Agreement" was executed four (4) years prior to Marcopper’s insovency, hence, the alleged "intention of petitioner to continue Marcopper’s business" could have no basis for at that time, Marcopper’s fate cannot yet be determined.

In the final analysis, we are convinced that petitioner was engaged only in isolated acts or transactions. Single or isolated acts, contracts, or transactions of foreign corporations are not regarded as a doing or carrying on of business. Typical examples of these are the making of a single contract, sale, sale with the taking of a note and mortgage in the state to secure payment therefor, purchase, or note, or the mere commission of a tort.

33 In these instances, there is

no purpose to do any other business within the country.

II

Solidbank contends that from the chronology and timing of events, it is evident that there existed a pre-set pattern of response on the part of Marcopper to defeat whatever court ruling that may be rendered in favor of Solidbank.

We are not convinced.

While it may appear, at initial glance, that the assignment contracts are in the nature of fraudulent conveyances, however, a closer look at the events that transpired prior to the execution of those contracts gives rise to a different conclusion. The obvious flaw in the Court of Appeals’ Decision lies in its constricted view of the facts obtaining in the case. In its factual narration, the Court of Appeals definitely left out some events. We shall see later the significance of those events.

Article 1387 of the Civil Code of the Philippines provides:

"Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation.

Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking rescission.

In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by law and of evidence.

This article presumes the existence of fraud made by a debtor. Thus, in the absence of satisfactory evidence to the contrary, an alienation of a property will be held fraudulent if it is made after a judgment has been rendered against the debtor making the alienation.

34 This

presumption of fraud is not conclusive and may be rebutted by satisfactory and convincing evidence. All that is necessary is to establish affirmatively that the conveyance is made in good faith and for a sufficient and valuable consideration.

35

The "Assignment Agreement" and the "Deed of Assignment" were executed for valuable considerations. Patent from the "Assignment Agreement" is the fact that petitioner assumed the payment of US$ 18,453,450.12 to ADB in satisfaction of Marcopper’s remaining debt as of March 20, 1997.

36 Solidbank cannot deny this fact considering

that a substantial portion of the said payment, in the sum of US$










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13,886,791.06, was remitted in favor of the Bank of Nova Scotia, its major stockholder.

37

The facts of the case so far show that the assignment contracts were executed in good faith. The execution of the "Assignment Agreement" on March 20, 1997 and the "Deed of Assignment" on December 8,1997 is not the alpha of this case. While the execution of these assignment contracts almost coincided with the rendition on May 7, 1997 of the Partial Judgment in Civil Case No. 96-80083 by the Manila RTC, however, there was no intention on the part of petitioner to defeat Solidbank’s claim. It bears reiterating that as early as November 4, 1992, Placer Dome had already bound itself under a "Support and Standby Credit Agreement" to provide Marcopper with cash flow support for the payment to ADB of its obligations. When Marcopper ceased operations on account of disastrous mine tailings spill into the Boac River and ADB pressed for payment of the loan, Placer Dome agreed to have its subsidiary, herein petitioner, paid ADB the amount of US $18,453,450.12. Thereupon, ADB and Marcopper executed, respectively, in favor of petitioner an "Assignment Agreement" and a "Deed of Assignment." Obviously, the assignment contracts were connected with transactions that happened long before the rendition in 1997 of the Partial Judgment in Civil Case No. 96-80083 by the Manila RTC. Those contracts cannot be viewed in isolation. If we may add, it is highly inconceivable that ADB, a reputable international financial organization, will connive with Marcopper to feign or simulate a contract in 1992 just to defraud Solidbank for its claim four years thereafter. And it is equally incredible for petitioner to be paying the huge sum of US $ 18,453,450.12 to ADB only for the purpose of defrauding Solidbank of the sum of P52,970,756.89.

It is said that the test as to whether or not a conveyance is fraudulent is -- does it prejudice the rights of creditors?

38 We cannot

see how Solidbank’s right was prejudiced by the assignment contracts considering that substantially all of Marcopper’s properties were already covered by the registered "Deed of Real Estate and Chattel Mortgage" executed by Marcopper in favor of ADB as early as November 11, 1992. As such, Solidbank cannot assert a better right than ADB, the latter being a preferred creditor. It is basic that mortgaged properties answer primarily for the mortgaged credit, not for the judgment credit of the mortgagor’s unsecured creditor. Considering that petitioner assumed Marcopper’s debt to ADB, it follows that Solidbank’s right as judgment creditor over the subject properties must give way to that of the former.1âwphi1.nêt

III

The record is lacking in circumstances that would suggest that petitioner corporation, Placer Dome and Marcopper are one and the same entity. While admittedly, petitioner is a wholly-owned subsidiary of Placer Dome, which in turn, which, in turn, was then a minority stockholder of Marcopper, however, the mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary’s separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business.

39

The recent case of Philippine National Bank vs. Ritratto Group Inc.,40

outlines the circumstances which are useful in the determination of

whether a subsidiary is but a mere instrumentality of the parent-corporation, to wit:

(a) The parent corporation owns all or most of the capital stock of the subsidiary.

(b) The parent and subsidiary corporations have common directors or officers.

(c) The parent corporation finances the subsidiary.

(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.

(e) The subsidiary has grossly inadequate capital.

(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.

(g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation.

(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation’s own.

(i) The parent corporation uses the property of the subsidiary as its own.

(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary, but take their orders from the parent corporation.

(k) The formal legal requirements of the subsidiary are not observed.

In this catena of circumstances, what is only extant in the records is the matter of stock ownership. There are no other factors indicative that petitioner is a mere instrumentality of Marcopper or Placer Dome. The mere fact that Placer Dome agreed, under the terms of the "Support and Standby Credit Agreement" to provide Marcopper with cash flow support in paying its obligations to ADB, does not mean that its personality has merged with that of Marcopper. This singular undertaking, performed by Placer Dome with its own stockholders in Canada and elsewhere, is not a sufficient ground to merge its corporate personality with Marcopper which has its own set of shareholders, dominated mostly by Filipino citizens. The same view applies to petitioner’s payment of Marcopper’s remaining debt to ADB.

With the foregoing considerations and the absence of fraud in the transaction of the three foreign corporations, we find it improper to pierce the veil of corporate fiction – that equitable doctrine developed to address situations where the corporate personality of a corporation is abused or used for wrongful purposes.

IV






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On the issue of forum shopping, there could have been a violation of the rules thereon if petitioner and Marcopper were indeed one and the same entity. But since petitioner has a separate personality, it has the right to pursue its third-party claim by filing the independent reivindicatory action with the RTC of Boac, Marinduque, pursuant to Rule 39, Section 16 of the 1997 Rules of Civil Procedures. This remedy has been recognized in a long line of cases decided by this Court.

41 In Rodriguez vs. Court of Appeals,

42 we held:

". . . It has long been settled in this jurisdiction that the claim of ownership of a third party over properties levied for execution of a judgment presents no issue for determination by the court issuing the writ of execution.

. . .Thus, when a property levied upon by the sheriff pursuant to a writ of execution is claimed by third person in a sworn statement of ownership thereof, as prescribed by the rules, an entirely different matter calling for a new adjudication arises. And dealing as it does with the all important question of title, it is reasonable to require the filing of proper pleadings and the holding of a trial on the matter in view of the requirements of due process.

. . . In other words, construing Section 17 of Rule 39 of the Revised Rules of Court (now Section 16 of the 1997 Rules of Civil Procedure), the rights of third-party claimants over certain properties levied upon by the sheriff to satisfy the judgment may not be taken up in the case where such claims are presented but in a separate and independent action instituted by the claimants." (Emphasis supplied)

This "reivindicatory action" has for its object the recovery of ownership or possession of the property seized by the sheriff, despite the third party claim, as well as damages resulting therefrom, and it may be brought against the sheriff and such other parties as may be alleged to have connived with him in the supposedly wrongful execution proceedings, such as the judgment creditor himself. Such action is an entirely separate and distinct action from that in which execution has been issued. Thus, there being no identity of parties and cause of action between Civil Case No. 98-13 (RTC, Boac) and those cases filed by Marcopper, including Civil Case No. 96-80083 (RTC, Manila) as to give rise to res judicata or litis pendentia, Solidbank’s allegation of forum-shopping cannot prosper.

43

All considered, we find petitioner to be entitled to the issuance of a writ of preliminary injunction. Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides:

"SEC. 3 Grounds for issuance of preliminary injunction. – A preliminary injunction may be granted when it is established:

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

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

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

Petitioner’s right to stop the further execution of the properties covered by the assignment contracts is clear under the facts so far established. An execution can be issued only against a party and not against one who did not have his day in court.

44 The duty of the

sheriff is to levy the property of the judgment debtor not that of a third person. For, as the saying goes, one man’s goods shall not be sold for another man's debts.

45 To allow the execution of

petitioner’s properties would surely work injustice to it and render the judgment on the reivindicatory action, should it be favorable, ineffectual. In Arabay, Inc., vs. Salvador,

46 this Court held that an

injunction is a proper remedy to prevent a sheriff from selling the property of one person for the purpose of paying the debts of another; and that while the general rule is that no court has authority to interfere by injunction with the judgments or decrees of another court of equal or concurrent or coordinate jurisdiction, however, it is not so when a third-party claimant is involved. We quote the instructive words of Justice Querube C. Makalintal in Abiera vs. Court of Appeals,

47 thus:

"The rationale of the decision in the Herald Publishing Company case

48 is peculiarly applicable to the one before

Us, and removes it from the general doctrine enunciated in the decisions cited by the respondents and quoted earlier herein.

1. Under Section 17 of Rule 39 a third person who claims property levied upon on execution may vindicate such claim by action. Obviously a judgment rendered in his favor, that is, declaring him to be the owner of the property, would not constitute interference with the powers or processes of the court which rendered the judgment to enforce which the execution was levied. If that be so – and it is so because the property, being that of a stranger, is not subject to levy – then an interlocutory order such as injunction, upon a claim and prima facie showing of ownership by the claimant, cannot be considered as such interference either."

WHEREFORE, the petition is GRANTED. The assailed Decision dated January 8, 1999 and the Resolution dated March 29, 1999 of the Court of Appeals in CA G.R. No. 49226 are set aside. Upon filing of a bond of P1,000,000.00, respondent sheriffs are restrained from further implementing the writ of execution issued in Civil Case No. 96-80083 by the RTC, Branch 26, Manila, until further orders from this Court. The RTC, Branch 94, Boac, Marinduque, is directed to dispose of Civil Case No. 98-13 with dispatch.

SO ORDERED.










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G.R. No. 179922 December 16, 2008

JUAN DE DIOS CARLOS, petitioner, vs. FELICIDAD SANDOVAL, also known as FELICIDAD S. VDA. DE CARLOS or FELICIDAD SANDOVAL CARLOS or FELICIDAD SANDOVAL VDA. DE CARLOS, and TEOFILO CARLOS II, respondents.

D E C I S I O N

REYES, R.T., J.:

ONLY a spouse can initiate an action to sever the marital bond for marriages solemnized during the effectivity of the Family Code, except cases commenced prior to March 15, 2003. The nullity and annulment of a marriage cannot be declared in a judgment on the pleadings, summary judgment, or confession of judgment.

We pronounce these principles as We review on certiorari the Decision

1 of the Court of Appeals (CA) which reversed and set aside

the summary judgment2 of the Regional Trial Court (RTC) in an

action for declaration of nullity of marriage, status of a child, recovery of property, reconveyance, sum of money, and damages.

The Facts

The events that led to the institution of the instant suitare unveiled as follows:

Spouses Felix B. Carlos and Felipa Elemia died intestate. They left six parcels of land to their compulsory heirs, Teofilo Carlos and petitioner Juan De Dios Carlos. The lots are particularly described as follows:

Parcel No. 1

Lot No. 162 of the MUNTINLUPA ESTATE SUBDIVISION, Case No. 6137 of the Court of Land Registration.

Exemption from the provisions of Article 567 of the Civil Code is specifically reserved.

Area: 1 hectare, 06 ares, 07 centares.

Parcel No. 2

A parcel of land (Lot No. 159-B), being a portion of Lot 159, situated in the Bo. of Alabang, Municipality of Muntinlupa, Province of Rizal, x x x containing an area of Thirteen Thousand Four Hundred Forty One (13,441) square meters.

Parcel No. 3

A parcel of land (Lot 159-B-2 of the subd. plan [LRC] Psd-325903, approved as a non-subd. project), being a portion of Lot 159-B [LRC] Psd- Alabang, Mun. of Muntinlupa, Metro Manila, Island of Luzon. Bounded on the NE, points 2 to 4 by Lot 155, Muntinlupa Estate; on the SE, point 4 to 5 by Lot 159-B-5; on the S, points 5 to 1 by Lot 159-B-3; on

the W, points 1 to 2 by Lot 159-B-1 (Road widening) all of the subd. plan, containing an area of ONE HUNDRED THIRTY (130) SQ. METERS, more or less.

PARCEL No. 4

A parcel of land (Lot 28-C of the subd. plan Psd-13-007090, being a portion of Lot 28, Muntinlupa Estate, L.R.C. Rec. No. 6137), situated in the Bo. of Alabang, Mun. of Muntinlupa, Metro Manila. Bounded on the NE, along lines 1-2 by Lot 27, Muntinlupa Estate; on the East & SE, along lines 2 to 6 by Mangangata River; and on the West., along line 6-1, by Lot 28-B of the subd. plan x x x containing an area of ONE THUSAND AND SEVENTY-SIX (1,076) SQUARE METERS.

PARCEL No. 5

PARCELA DE TERRENO No. 50, Manzana No. 18, de la subd. de Solocan. Linda por el NW, con la parcela 49; por el NE, con la parcela 36; por el SE, con la parcela 51; y por el SW, con la calle Dos Castillas. Partiendo de un punto marcado 1 en el plano, el cual se halla a S. gds. 01'W, 72.50 mts. Desde el punto 1 de esta manzana, que es un mojon de concreto de la Ciudad de Manila, situado on el esquina E. que forman las Calles Laong Laan y Dos. Castillas, continiendo un extension superficial de CIENTO CINCUENTA (150) METROS CUADRADOS.

PARCEL No. 6

PARCELA DE TERRENO No. 51, Manzana No. 18, de la subd. De Solocon. Linda por el NW, con la parcela 50; por el NE, con la parcela 37; por el SE, con la parcela 52; por el SW, con la Calle Dos Castillas. Partiendo de un punto Marcado 1 en el plano, el cual se halla at S. 43 gds. 01'E, 82.50 mts. Desde el punto 1 de esta manzana, que es un mojon de concreto de la Ciudad de Manila, situado on el esquina E. que forman las Calles Laong Laan y Dos. Castillas, continiendo una extension superficial de CIENTO CINCUENTA (150) METROS CUADRADOS.

3

During the lifetime of Felix Carlos, he agreed to transfer his estate to Teofilo. The agreement was made in order to avoid the payment of inheritance taxes. Teofilo, in turn, undertook to deliver and turn over the share of the other legal heir, petitioner Juan De Dios Carlos.

Eventually, the first three (3) parcels of land were transferred and registered in the name of Teofilo. These three (3) lots are now covered by Transfer Certificate of Title (TCT) No. 234824 issued by the Registry of Deeds of Makati City; TCT No. 139061 issued by the Registry of Deeds of Makati City; and TCT No. 139058 issued by the Registry of Deeds of Makati City.

Parcel No. 4 was registered in the name of petitioner. The lot is now covered by TCT No. 160401 issued by the Registry of Deeds of Makati City.

On May 13, 1992, Teofilo died intestate. He was survived by respondents Felicidad and their son, Teofilo Carlos II (Teofilo II). Upon Teofilo's death, Parcel Nos. 5 & 6 were registered in the name of respondent Felicidad and co-respondent, Teofilo II. The said two

http://www.lawphil.net/judjuris/juri2008/dec2008/gr_179922_2008.html#fnt1




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(2) parcels of land are covered by TCT Nos. 219877 and 210878, respectively, issued by the Registry of Deeds of Manila.

In 1994, petitioner instituted a suit against respondents before the RTC in Muntinlupa City, docketed as Civil Case No. 94-1964. In the said case, the parties submitted and caused the approval of a partial compromise agreement. Under the compromise, the parties acknowledged their respective shares in the proceeds from the sale of a portion of the first parcel of land. This includes the remaining 6,691-square-meter portion of said land.

On September 17, 1994, the parties executed a deed of extrajudicial partition, dividing the remaining land of the first parcel between them.

Meanwhile, in a separate case entitled Rillo v. Carlos,4 2,331 square

meters of the second parcel of land were adjudicated in favor of plaintiffs Rillo. The remaining 10,000-square meter portion was later divided between petitioner and respondents.

The division was incorporated in a supplemental compromise agreement executed on August 17, 1994, with respect to Civil Case No. 94-1964. The parties submitted the supplemental compromise agreement, which was approved accordingly.

Petitioner and respondents entered into two more contracts in August 1994. Under the contracts, the parties equally divided between them the third and fourth parcels of land.

In August 1995, petitioner commenced an action, docketed as Civil Case No. 95-135, against respondents before the court a quo with the following causes of action: (a) declaration of nullity of marriage; (b) status of a child; (c) recovery of property; (d) reconveyance; and (e) sum of money and damages. The complaint was raffled to Branch 256 of the RTC in Muntinlupa.

In his complaint, petitioner asserted that the marriage between his late brother Teofilo and respondent Felicidad was a nullity in view of the absence of the required marriage license. He likewise maintained that his deceased brother was neither the natural nor the adoptive father of respondent Teofilo Carlos II.

Petitioner likewise sought the avoidance of the contracts he entered into with respondent Felicidad with respect to the subject real properties. He also prayed for the cancellation of the certificates of title issued in the name of respondents. He argued that the properties covered by such certificates of title, including the sums received by respondents as proceeds, should be reconveyed to him.

Finally, petitioner claimed indemnification as and by way of moral and exemplary damages, attorney's fees, litigation expenses, and costs of suit.

On October 16, 1995, respondents submitted their answer. They denied the material averments of petitioner's complaint. Respondents contended that the dearth of details regarding the requisite marriage license did not invalidate Felicidad's marriage to Teofilo. Respondents declared that Teofilo II was the illegitimate child of the deceased Teofilo Carlos with another woman.

On the grounds of lack of cause of action and lack of jurisdiction over the subject matter, respondents prayed for the dismissal of the case before the trial court. They also asked that their counterclaims for moral and exemplary damages, as well as attorney's fees, be granted.

But before the parties could even proceed to pre-trial, respondents moved for summary judgment. Attached to the motion was the affidavit of the justice of the peace who solemnized the marriage. Respondents also submitted the Certificate of Live Birth of respondent Teofilo II. In the certificate, the late Teofilo Carlos and respondent Felicidad were designated as parents.

On January 5, 1996, petitioner opposed the motion for summary judgment on the ground of irregularity of the contract evidencing the marriage. In the same breath, petitioner lodged his own motion for summary judgment. Petitioner presented a certification from the Local Civil Registrar of Calumpit, Bulacan, certifying that there is no record of birth of respondent Teofilo II.

Petitioner also incorporated in the counter-motion for summary judgment the testimony of respondent Felicidad in another case. Said testimony was made in Civil Case No. 89-2384, entitled Carlos v. Gorospe, before the RTC Branch 255, Las Piñas. In her testimony, respondent Felicidad narrated that co-respondent Teofilo II is her child with Teofilo.

5

Subsequently, the Office of the City Prosecutor of Muntinlupa submitted to the trial court its report and manifestation, discounting the possibility of collusion between the parties.

RTC and CA Dispositions

On April 8, 1996, the RTC rendered judgment, disposing as follows:

WHEREFORE, premises considered, defendant's (respondent's) Motion for Summary Judgment is hereby denied. Plaintiff's (petitioner's) Counter-Motion for Summary Judgment is hereby granted and summary judgment is hereby rendered in favor of plaintiff as follows:

1. Declaring the marriage between defendant Felicidad Sandoval and Teofilo Carlos solemnized at Silang, Cavite on May 14, 1962, evidenced by the Marriage Certificate submitted in this case, null and void ab initio for lack of the requisite marriage license;

2. Declaring that the defendant minor, Teofilo S. Carlos II, is not the natural, illegitimate, or legally adopted child of the late Teofilo E. Carlos;

3. Ordering defendant Sandoval to pay and restitute to plaintiff the sum of P18,924,800.00 together with the interest thereon at the legal rate from date of filing of the instant complaint until fully paid;

4. Declaring plaintiff as the sole and exclusive owner of the parcel of land, less the portion adjudicated to plaintiffs in Civil Case No. 11975, covered by TCT No. 139061 of the Register of Deeds of Makati City, and ordering said Register of Deeds to cancel said title and to issue another title in the sole name of plaintiff herein;




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5. Declaring the Contract, Annex "K" of complaint, between plaintiff and defendant Sandoval null and void, and ordering the Register of Deeds of Makati City to cancel TCT No. 139058 in the name of Teofilo Carlos, and to issue another title in the sole name of plaintiff herein;

6. Declaring the Contract, Annex M of the complaint, between plaintiff and defendant Sandoval null and void;

7. Ordering the cancellation of TCT No. 210877 in the names of defendant Sandoval and defendant minor Teofilo S. Carlos II and ordering the Register of Deeds of Manila to issue another title in the exclusive name of plaintiff herein;

8. Ordering the cancellation of TCT No. 210878 in the name of defendant Sandoval and defendant Minor Teofilo S. Carlos II and ordering the Register of Deeds of Manila to issue another title in the sole name of plaintiff herein.

Let this case be set for hearing for the reception of plaintiff's evidence on his claim for moral damages, exemplary damages, attorney's fees, appearance fees, and litigation expenses on June 7, 1996 at 1:30 o'clock in the afternoon.

SO ORDERED.6

Dissatisfied, respondents appealed to the CA. In the appeal, respondents argued, inter alia, that the trial court acted without or in excess of jurisdiction in rendering summary judgment annulling the marriage of Teofilo, Sr. and Felicidad and in declaring Teofilo II as not an illegitimate child of Teofilo, Sr.

On October 15, 2002, the CA reversed and set aside the RTC ruling, disposing as follows:

WHEREFORE, the summary judgment appealed from is REVERSED and SET ASIDE and in lieu thereof, a new one is entered REMANDING the case to the court of origin for further proceedings.

SO ORDERED.7

The CA opined:

We find the rendition of the herein appealed summary judgment by the court a quo contrary to law and public policy as ensconced in the aforesaid safeguards. The fact that it was appellants who first sought summary judgment from the trial court, did not justify the grant thereof in favor of appellee. Not being an action "to recover upon a claim" or "to obtain a declaratory relief," the rule on summary judgment apply (sic) to an action to annul a marriage. The mere fact that no genuine issue was presented and the desire to expedite the disposition of the case cannot justify a misinterpretation of the rule. The first paragraph of Article 88 and 101 of the Civil Code expressly prohibit the rendition of decree of annulment of a marriage upon a stipulation of facts or a confession of judgment. Yet, the affidavits annexed to the petition for summary judgment practically amount to these methods explicitly proscribed by the law.

We are not unmindful of appellee's argument that the foregoing safeguards have traditionally been applied to

prevent collusion of spouses in the matter of dissolution of marriages and that the death of Teofilo Carlos on May 13, 1992 had effectively dissolved the marriage herein impugned. The fact, however, that appellee's own brother and appellant Felicidad Sandoval lived together as husband and wife for thirty years and that the annulment of their marriage is the very means by which the latter is sought to be deprived of her participation in the estate left by the former call for a closer and more thorough inquiry into the circumstances surrounding the case. Rather that the summary nature by which the court a quo resolved the issues in the case, the rule is to the effect that the material facts alleged in the complaint for annulment of marriage should always be proved. Section 1, Rule 19 of the Revised Rules of Court provides:

"Section 1. Judgment on the pleadings. - Where an answer fails to tender an issue, or otherwise admits the material allegations of the adverse party's pleading, the court may, on motion of that party, direct judgment on such pleading. But in actions for annulment of marriage or for legal separation, the material facts alleged in the complaint shall always be proved." (Underscoring supplied)

Moreover, even if We were to sustain the applicability of the rules on summary judgment to the case at bench, Our perusal of the record shows that the finding of the court a quo for appellee would still not be warranted. While it may be readily conceded that a valid marriage license is among the formal requisites of marriage, the absence of which renders the marriage void ab initio pursuant to Article 80(3) in relation to Article 58 of the Civil Code the failure to reflect the serial number of the marriage license on the marriage contract evidencing the marriage between Teofilo Carlos and appellant Felicidad Sandoval, although irregular, is not as fatal as appellee represents it to be. Aside from the dearth of evidence to the contrary, appellant Felicidad Sandoval's affirmation of the existence of said marriage license is corroborated by the following statement in the affidavit executed by Godofredo Fojas, then Justice of the Peace who officiated the impugned marriage, to wit:

"That as far as I could remember, there was a marriage license issued at Silang, Cavite on May 14, 1962 as basis of the said marriage contract executed by Teofilo Carlos and Felicidad Sandoval, but the number of said marriage license was inadvertently not placed in the marriage contract for the reason that it was the Office Clerk who filled up the blanks in the Marriage Contract who in turn, may have overlooked the same."

Rather than the inferences merely drawn by the trial court, We are of the considered view that the veracity and credibility of the foregoing statement as well as the motivations underlying the same should be properly threshed out in a trial of the case on the merits.

If the non-presentation of the marriage contract - the primary evidence of marriage - is not proof that a marriage did not take place, neither should appellants' non-presentation of the subject marriage license be taken as proof that the same was not procured. The burden of proof to show the nullity of the marriage, it must be




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emphasized, rests upon the plaintiff and any doubt should be resolved in favor of the validity of the marriage.

Considering that the burden of proof also rests on the party who disputes the legitimacy of a particular party, the same may be said of the trial court's rejection of the relationship between appellant Teofilo Carlos II and his putative father on the basis of the inconsistencies in appellant Felicidad Sandoval's statements. Although it had effectively disavowed appellant's prior claims regarding the legitimacy of appellant Teofilo Carlos II, the averment in the answer that he is the illegitimate son of appellee's brother, to Our mind, did not altogether foreclose the possibility of the said appellant's illegitimate filiation, his right to prove the same or, for that matter, his entitlement to inheritance rights as such.

Without trial on the merits having been conducted in the case, We find appellee's bare allegation that appellant Teofilo Carlos II was merely purchased from an indigent couple by appellant Felicidad Sandoval, on the whole, insufficient to support what could well be a minor's total forfeiture of the rights arising from his putative filiation. Inconsistent though it may be to her previous statements, appellant Felicidad Sandoval's declaration regarding the illegitimate filiation of Teofilo Carlos II is more credible when considered in the light of the fact that, during the last eight years of his life, Teofilo Carlos allowed said appellant the use of his name and the shelter of his household. The least that the trial court could have done in the premises was to conduct a trial on the merits in order to be able to thoroughly resolve the issues pertaining to the filiation of appellant Teofilo Carlos II.

8

On November 22, 2006, petitioner moved for reconsideration and for the inhibition of the ponente, Justice Rebecca De Guia-Salvador. The CA denied the twin motions.

Issues

In this petition under Rule 45, petitioner hoists the following issues:

1. That, in reversing and setting aside the Summary Judgment under the Decision, Annex A hereof, and in denying petitioner's Motion for reconsideration under the Resolution, Annex F hereof, with respect to the nullity of the impugned marriage, petitioner respectfully submits that the Court of Appeals committed a grave reversible error in applying Articles 88 and 101 of the Civil Code, despite the fact that the circumstances of this case are different from that contemplated and intended by law, or has otherwise decided a question of substance not theretofore decided by the Supreme Court, or has decided it in a manner probably not in accord with law or with the applicable decisions of this Honorable Court;

2. That in setting aside and reversing the Summary Judgment and, in lieu thereof, entering another remanding the case to the court of origin for further proceedings, petitioner most respectfully submits that the Court of Appeals committed a serious reversible error in applying Section 1, Rule 19 (now Section 1, Rule 34) of the Rules of

Court providing for judgment on the pleadings, instead of Rule 35 governing Summary Judgments;

3. That in reversing and setting aside the Summary Judgment and, in lieu thereof, entering another remanding the case to the court of origin for further proceedings, petitioner most respectfully submits that the Court of Appeals committed grave abuse of discretion, disregarded judicial admissions, made findings on ground of speculations, surmises, and conjectures, or otherwise committed misapplications of the laws and misapprehension of the facts.

9 (Underscoring supplied)

Essentially, the Court is tasked to resolve whether a marriage may be declared void ab initio through a judgment on the pleadings or a summary judgment and without the benefit of a trial. But there are other procedural issues, including the capacity of one who is not a spouse in bringing the action for nullity of marriage.

Our Ruling

I. The grounds for declaration of absolute nullity of marriage must be proved. Neither judgment on the pleadings nor summary judgment is allowed. So is confession of judgment disallowed.

Petitioner faults the CA in applying Section 1, Rule 1910

of the Revised Rules of Court, which provides:

SECTION 1. Judgment on the pleadings. - Where an answer fails to tender an issue, or otherwise admits the material allegations of the adverse party's pleading, the court may, on motion of that party, direct judgment on such pleading. But in actions for annulment of marriage or for legal separation, the material facts alleged in the complaint shall always be proved.

He argues that the CA should have applied Rule 35 of the Rules of Court governing summary judgment, instead of the rule on judgment on the pleadings.

Petitioner is misguided. The CA did not limit its finding solely within the provisions of the Rule on judgment on the pleadings. In disagreeing with the trial court, the CA likewise considered the provisions on summary judgments, to wit:

Moreover, even if We are to sustain the applicability of the rules on summary judgment to the case at bench, Our perusal of the record shows that the finding of the court a quo for appellee would still not be warranted. x x x

11

But whether it is based on judgment on the pleadings or summary judgment, the CA was correct in reversing the summary judgment rendered by the trial court. Both the rules on judgment on the pleadings and summary judgments have no place in cases of declaration of absolute nullity of marriage and even in annulment of marriage.

With the advent of A.M. No. 02-11-10-SC, known as "Rule on Declaration of Absolute Nullity of Void Marriages and Annulment of Voidable Marriages," the question on the application of summary judgments or even judgment on the pleadings in cases of nullity or






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annulment of marriage has been stamped with clarity. The significant principle laid down by the said Rule, which took effect on March 15, 2003

12 is found in Section 17, viz.:

SEC. 17. Trial. - (1) The presiding judge shall personally conduct the trial of the case. No delegation of evidence to a commissioner shall be allowed except as to matters involving property relations of the spouses.

(2) The grounds for declaration of absolute nullity or annulment of marriage must be proved. No judgment on the pleadings, summary judgment, or confession of judgment shall be allowed. (Underscoring supplied)

Likewise instructive is the Court's pronouncement in Republic v. Sandiganbayan.

13 In that case, We excluded actions for nullity or

annulment of marriage from the application of summary judgments.

Prescinding from the foregoing discussion, save for annulment of marriage or declaration of its nullity or for legal separation, summary judgment is applicable to all kinds of actions.


By issuing said summary judgment, the trial court has divested the State of its lawful right and duty to intervene in the case. The participation of the State is not terminated by the declaration of the public prosecutor that no collusion exists between the parties. The State should have been given the opportunity to present controverting evidence before the judgment was rendered.

15

Both the Civil Code and the Family Code ordain that the court should order the prosecuting attorney to appear and intervene for the State. It is at this stage when the public prosecutor sees to it that there is no suppression of evidence. Concomitantly, even if there is no suppression of evidence, the public prosecutor has to make sure that the evidence to be presented or laid down before the court is not fabricated.

To further bolster its role towards the preservation of marriage, the Rule on Declaration of Absolute Nullity of Void Marriages reiterates the duty of the public prosecutor, viz.:

SEC. 13. Effect of failure to appear at the pre-trial. - (a) x x x

(b) x x x If there is no collusion, the court shall require the public prosecutor to intervene for the State during the trial on the merits to prevent suppression or fabrication of evidence. (Underscoring supplied)

Truly, only the active participation of the public prosecutor or the Solicitor General will ensure that the interest of the State is represented and protected in proceedings for declaration of nullity of marriages by preventing the fabrication or suppression of evidence.

16

II. A petition for declaration of absolute nullity of void marriage may be filed solely by the husband or wife. Exceptions: (1) Nullity of marriage cases commenced before the effectivity of A.M. No. 02-11-10-SC; and (2) Marriages celebrated during the effectivity of the Civil Code.

Under the Rule on Declaration of Absolute Nullity of Void Marriages and Annulment of Voidable Marriages, the petition for declaration of absolute nullity of marriage may not be filed by any party outside of the marriage. The Rule made it exclusively a right of the spouses by stating:

SEC. 2. Petition for declaration of absolute nullity of void marriages. -

(a) Who may file. - A petition for declaration of absolute nullity of void marriage may be filed solely by the husband or the wife. (Underscoring supplied)

Section 2(a) of the Rule makes it the sole right of the husband or the wife to file a petition for declaration of absolute nullity of void marriage. The rationale of the Rule is enlightening, viz.:

Only an aggrieved or injured spouse may file a petition for annulment of voidable marriages or declaration of absolute nullity of void marriages. Such petition cannot be filed by compulsory or intestate heirs of the spouses or by the State. The Committee is of the belief that they do not have a legal right to file the petition. Compulsory or intestate heirs have only inchoate rights prior to the death of their predecessor, and, hence, can only question the validity of the marriage of the spouses upon the death of a spouse in a proceeding for the settlement of the estate of the deceased spouse filed in the regular courts. On the other hand, the concern of the State is to preserve marriage and not to seek its dissolution.

17 (Underscoring

supplied)

The new Rule recognizes that the husband and the wife are the sole architects of a healthy, loving, peaceful marriage. They are the only ones who can decide when and how to build the foundations of marriage. The spouses alone are the engineers of their marital life. They are simultaneously the directors and actors of their matrimonial true-to-life play. Hence, they alone can and should decide when to take a cut, but only in accordance with the grounds allowed by law.

The innovation incorporated in A.M. No. 02-11-10-SC sets forth a demarcation line between marriages covered by the Family Code and those solemnized under the Civil Code. The Rule extends only to marriages entered into during the effectivity of the Family Code which took effect on August 3, 1988.

18

The advent of the Rule on Declaration of Absolute Nullity of Void Marriages marks the beginning of the end of the right of the heirs of the deceased spouse to bring a nullity of marriage case against the surviving spouse. But the Rule never intended to deprive the compulsory or intestate heirs of their successional rights.

While A.M. No. 02-11-10-SC declares that a petition for declaration of absolute nullity of marriage may be filed solely by the husband or the wife, it does not mean that the compulsory or intestate heirs are without any recourse under the law. They can still protect their successional right, for, as stated in the Rationale of the Rules on Annulment of Voidable Marriages and Declaration of Absolute Nullity of Void Marriages, compulsory or intestate heirs can still question the validity of the marriage of the spouses, not in a proceeding for declaration of nullity but upon the death of a spouse









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in a proceeding for the settlement of the estate of the deceased spouse filed in the regular courts.

19

It is emphasized, however, that the Rule does not apply to cases already commenced before March 15, 2003 although the marriage involved is within the coverage of the Family Code. This is so, as the new Rule which became effective on March 15, 2003

20 is prospective

in its application. Thus, the Court held in Enrico v. Heirs of Sps. Medinaceli,

21 viz.:

As has been emphasized, A.M. No. 02-11-10-SC covers marriages under the Family Code of the Philippines, and is prospective in its application.


Petitioner commenced the nullity of marriage case against respondent Felicidad in 1995. The marriage in controversy was celebrated on May 14, 1962. Which law would govern depends upon when the marriage took place.

23

The marriage having been solemnized prior to the effectivity of the Family Code, the applicable law is the Civil Code which was the law in effect at the time of its celebration.

24 But the Civil Code is silent as

to who may bring an action to declare the marriage void. Does this mean that any person can bring an action for the declaration of nullity of marriage?

We respond in the negative. The absence of a provision in the Civil Code cannot be construed as a license for any person to institute a nullity of marriage case. Such person must appear to be the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit.

25 Elsewise stated, plaintiff

must be the real party-in-interest. For it is basic in procedural law that every action must be prosecuted and defended in the name of the real party-in-interest.

26

Interest within the meaning of the rule means material interest or an interest in issue to be affected by the decree or judgment of the case, as distinguished from mere curiosity about the question involved or a mere incidental interest. One having no material interest to protect cannot invoke the jurisdiction of the court as plaintiff in an action. When plaintiff is not the real party-in-interest, the case is dismissible on the ground of lack of cause of action.

27

Illuminating on this point is Amor-Catalan v. Court of Appeals,28

where the Court held:

True, under the New Civil Code which is the law in force at the time the respondents were married, or even in the Family Code, there is no specific provision as to who can file a petition to declare the nullity of marriage; however, only a party who can demonstrate "proper interest" can file the same. A petition to declare the nullity of marriage, like any other actions, must be prosecuted or defended in the name of the real party-in-interest and must be based on a cause of action. Thus, in Niñal v. Badayog, the Court held that the children have the personality to file the petition to declare the nullity of marriage of their deceased father to their stepmother as it affects their successional rights.

x x x x

In fine, petitioner's personality to file the petition to declare the nullity of marriage cannot be ascertained because of the absence of the divorce decree and the foreign law allowing it. Hence, a remand of the case to the trial court for reception of additional evidence is necessary to determine whether respondent Orlando was granted a divorce decree and whether the foreign law which granted the same allows or restricts remarriage. If it is proved that a valid divorce decree was obtained and the same did not allow respondent Orlando's remarriage, then the trial court should declare respondent's marriage as bigamous and void ab initio but reduced the amount of moral damages from P300,000.00 to P50,000.00 and exemplary damages from P200,000.00 to P25,000.00. On the contrary, if it is proved that a valid divorce decree was obtained which allowed Orlando to remarry, then the trial court must dismiss the instant petition to declare nullity of marriage on the ground that petitioner Felicitas Amor-Catalan lacks legal personality to file the same.


III. The case must be remanded to determine whether or not petitioner is a real-party-in-interest to seek the declaration of nullity of the marriage in controversy.

In the case at bench, the records reveal that when Teofilo died intestate in 1992, his only surviving compulsory heirs are respondent Felicidad and their son, Teofilo II. Under the law on succession, successional rights are transmitted from the moment of death of the decedent and the compulsory heirs are called to succeed by operation of law.

30

Upon Teofilo's death in 1992, all his property, rights and obligations to the extent of the value of the inheritance are transmitted to his compulsory heirs. These heirs were respondents Felicidad and Teofilo II, as the surviving spouse and child, respectively.

Article 887 of the Civil Code outlined who are compulsory heirs, to wit:

(1) Legitimate children and descendants, with respect to their legitimate parents and ascendants;

(2) In default of the foregoing, legitimate parents and ascendants, with respect to their legitimate children and descendants;

(3) The widow or widower;

(4) Acknowledged natural children, and natural children by legal fiction;

(5) Other illegitimate children referred to in Article 287 of the Civil Code.

31

Clearly, a brother is not among those considered as compulsory heirs. But although a collateral relative, such as a brother, does not fall within the ambit of a compulsory heir, he still has a right to succeed to the estate. Articles 1001 and 1003 of the New Civil Code provide:

ART. 1001. Should brothers and sisters or their children survive with the widow or widower, the latter shall be entitled to one-half of the inheritance and the brothers and sisters or their children to the other half.















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ART. 1003. If there are no descendants, ascendants, illegitimate children, or a surviving spouse, the collateral relatives shall succeed to the entire estate of the deceased in accordance with the following articles. (Underscoring supplied)

Indeed, only the presence of descendants, ascendants or illegitimate children excludes collateral relatives from succeeding to the estate of the decedent. The presence of legitimate, illegitimate, or adopted child or children of the deceased precludes succession by collateral relatives.

32 Conversely, if there are no descendants, ascendants,

illegitimate children, or a surviving spouse, the collateral relatives shall succeed to the entire estate of the decedent.

33

If respondent Teofilo II is declared and finally proven not to be the legitimate, illegitimate, or adopted son of Teofilo, petitioner would then have a personality to seek the nullity of marriage of his deceased brother with respondent Felicidad. This is so, considering that collateral relatives, like a brother and sister, acquire successional right over the estate if the decedent dies without issue and without ascendants in the direct line.

The records reveal that Teofilo was predeceased by his parents. He had no other siblings but petitioner. Thus, if Teofilo II is finally found and proven to be not a legitimate, illegitimate, or adopted son of Teofilo, petitioner succeeds to the other half of the estate of his brother, the first half being allotted to the widow pursuant to Article 1001 of the New Civil Code. This makes petitioner a real-party-interest to seek the declaration of absolute nullity of marriage of his deceased brother with respondent Felicidad. If the subject marriage is found to be void ab initio, petitioner succeeds to the entire estate.

It bears stressing, however, that the legal personality of petitioner to bring the nullity of marriage case is contingent upon the final declaration that Teofilo II is not a legitimate, adopted, or illegitimate son of Teofilo.

If Teofilo II is proven to be a legitimate, illegitimate, or legally adopted son of Teofilo, then petitioner has no legal personality to ask for the nullity of marriage of his deceased brother and respondent Felicidad. This is based on the ground that he has no successional right to be protected, hence, does not have proper interest. For although the marriage in controversy may be found to be void from the beginning, still, petitioner would not inherit. This is because the presence of descendant, illegitimate,

34 or even an

adopted child35

excludes the collateral relatives from inheriting from the decedent.

Thus, the Court finds that a remand of the case for trial on the merits to determine the validity or nullity of the subject marriage is called for. But the RTC is strictly instructed to dismiss the nullity of marriage case for lack of cause of action if it is proven by evidence that Teofilo II is a legitimate, illegitimate, or legally adopted son of Teofilo Carlos, the deceased brother of petitioner.

IV. Remand of the case regarding the question of filiation of respondent Teofilo II is proper and in order. There is a need to vacate the disposition of the trial court as to the other causes of action before it.

Petitioner did not assign as error or interpose as issue the ruling of the CA on the remand of the case concerning the filiation of

respondent Teofilo II. This notwithstanding, We should not leave the matter hanging in limbo.

This Court has the authority to review matters not specifically raised or assigned as error by the parties, if their consideration is necessary in arriving at a just resolution of the case.

36

We agree with the CA that without trial on the merits having been conducted in the case, petitioner's bare allegation that respondent Teofilo II was adopted from an indigent couple is insufficient to support a total forfeiture of rights arising from his putative filiation. However, We are not inclined to support its pronouncement that the declaration of respondent Felicidad as to the illegitimate filiation of respondent Teofilo II is more credible. For the guidance of the appellate court, such declaration of respondent Felicidad should not be afforded credence. We remind the CA of the guaranty provided by Article 167 of the Family Code to protect the status of legitimacy of a child, to wit:

ARTICLE 167. The child shall be considered legitimate although the mother may have declared against its legitimacy or may have been sentenced as an adulteress. (Underscoring supplied)

It is stressed that Felicidad's declaration against the legitimate status of Teofilo II is the very act that is proscribed by Article 167 of the Family Code. The language of the law is unmistakable. An assertion by the mother against the legitimacy of her child cannot affect the legitimacy of a child born or conceived within a valid marriage.

37

Finally, the disposition of the trial court in favor of petitioner for causes of action concerning reconveyance, recovery of property, and sum of money must be vacated. This has to be so, as said disposition was made on the basis of its finding that the marriage in controversy was null and void ab initio.

WHEREFORE, the appealed Decision is MODIFIED as follows:

1. The case is REMANDED to the Regional Trial Court in regard to the action on the status and filiation of respondent Teofilo Carlos II and the validity or nullity of marriage between respondent Felicidad Sandoval and the late Teofilo Carlos;

2. If Teofilo Carlos II is proven to be the legitimate, or illegitimate, or legally adopted son of the late Teofilo Carlos, the RTC is strictly INSTRUCTED to DISMISS the action for nullity of marriage for lack of cause of action;

3. The disposition of the RTC in Nos. 1 to 8 of the fallo of its decision is VACATED AND SET ASIDE.

The Regional Trial Court is ORDERED to conduct trial on the merits with dispatch and to give this case priority in its calendar. No costs. SO ORDERED.








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G.R. No. 115838 July 18, 2002

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners, vs. COURT OF APPEALS and FRANCISCO ARTIGO, respondents.

CARPIO, J.:

The Case

Before us is a Petition for Review on Certiorari1 seeking to annul the

Decision of the Court of Appeals2 dated May 4, 1994 in CA-G.R. CV

No. 37996, which affirmed in toto the decision3 of the Regional Trial

Court of Quezon City, Branch 80, in Civil Case No. Q-89-2631. The trial court disposed as follows:

"WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly and solidarily liable to plaintiff the sum of:

a) P303,606.24 representing unpaid commission;

b) P25,000.00 for and by way of moral damages;

c) P45,000.00 for and by way of attorney's fees;

d) To pay the cost of this suit.

Quezon City, Metro Manila, December 20, 1991."

The Antecedent Facts

On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued petitioners Constante A. De Castro ("Constante" for brevity) and Corazon A. De Castro ("Corazon" for brevity) to collect the unpaid balance of his broker's commission from the De Castros.

4

The Court of Appeals summarized the facts in this wise:

"x x x. Appellants5 were co-owners of four (4) lots located

at EDSA corner New York and Denver Streets in Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit "A-1, p. 144, Records), appellee

6 was authorized by appellants

to act as real estate broker in the sale of these properties for the amount of P23,000,000.00, five percent (5%) of which will be given to the agent as commission. It was appellee who first found Times Transit Corporation, represented by its president Mr. Rondaris, as prospective buyer which desired to buy two (2) lots only, specifically lots 14 and 15. Eventually, sometime in May of 1985, the sale of lots 14 and 15 was consummated. Appellee received from appellants P48,893.76 as commission.

It was then that the rift between the contending parties soon emerged. Appellee apparently felt short changed because according to him, his total commission should be P352,500.00 which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2) lots, and that it was he who introduced the buyer to appellants and unceasingly facilitated the negotiation which ultimately led to the

consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after having received P48,893.76 in advance.1âwphi1.nêt

On the other hand, appellants completely traverse appellee's claims and essentially argue that appellee is selfishly asking for more than what he truly deserved as commission to the prejudice of other agents who were more instrumental in the consummation of the sale. Although appellants readily concede that it was appellee who first introduced Times Transit Corp. to them, appellee was not designated by them as their exclusive real estate agent but that in fact there were more or less eighteen (18) others whose collective efforts in the long run dwarfed those of appellee's, considering that the first negotiation for the sale where appellee took active participation failed and it was these other agents who successfully brokered in the second negotiation. But despite this and out of appellants' "pure liberality, beneficence and magnanimity", appellee nevertheless was given the largest cut in the commission (P48,893.76), although on the principle of quantum meruit he would have certainly been entitled to less. So appellee should not have been heard to complain of getting only a pittance when he actually got the lion's share of the commission and worse, he should not have been allowed to get the entire commission. Furthermore, the purchase price for the two lots was only P3.6 million as appearing in the deed of sale and not P7.05 million as alleged by appellee. Thus, even assuming that appellee is entitled to the entire commission, he would only be getting 5% of the P3.6 million, or P180,000.00."

Ruling of the Court of Appeals

The Court of Appeals affirmed in toto the decision of the trial court.

First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two lots in Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly established a contract of agency between Constante and Artigo. Thus, Artigo sought prospective buyers and found Times Transit Corporation ("Times Transit" for brevity). Artigo facilitated the negotiations which eventually led to the sale of the two lots. Therefore, the Court of Appeals decided that Artigo is entitled to the 5% commission on the purchase price as provided in the contract of agency.

Second. The Court of Appeals ruled that Artigo's complaint is not dismissible for failure to implead as indispensable parties the other co-owners of the two lots. The Court of Appeals explained that it is not necessary to implead the other co-owners since the action is exclusively based on a contract of agency between Artigo and Constante.

Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol evidence to prove the true amount paid by Times Transit to the De Castros for the two lots. The Court of Appeals ruled that evidence aliunde could be presented to prove that the actual purchase price was P7.05 million and not P3.6 million as appearing in the deed of sale. Evidence aliunde is admissible considering that Artigo is not a party, but a mere witness in the deed of sale between the De Castros and Times Transit. The Court of


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Appeals explained that, "the rule that oral evidence is inadmissible to vary the terms of written instruments is generally applied only in suits between parties to the instrument and strangers to the contract are not bound by it." Besides, Artigo was not suing under the deed of sale, but solely under the contract of agency. Thus, the Court of Appeals upheld the trial court's finding that the purchase price was P7.05 million and not P3.6 million.

Hence, the instant petition.

The Issues

According to petitioners, the Court of Appeals erred in -

I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD INDISPENSABLE PARTIES-IN-INTEREST;

II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT ARTIGO'S CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR ABANDONMENT;

III. CONSIDERING INCOMPETENT EVIDENCE;

IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;

V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES;

VI. NOT AWARDING THE DE CASTRO'S MORAL AND EXEMPLARY DAMAGES, AND ATTORNEY'S FEES.

The Court's Ruling

The petition is bereft of merit.

First Issue: whether the complaint merits dismissal for failure to implead other co-owners as indispensable parties

The De Castros argue that Artigo's complaint should have been dismissed for failure to implead all the co-owners of the two lots. The De Castros claim that Artigo always knew that the two lots were co-owned by Constante and Corazon with their other siblings Jose and Carmela whom Constante merely represented. The De Castros contend that failure to implead such indispensable parties is fatal to the complaint since Artigo, as agent of all the four co-owners, would be paid with funds co-owned by the four co-owners.

The De Castros' contentions are devoid of legal basis.

An indispensable party is one whose interest will be affected by the court's action in the litigation, and without whom no final determination of the case can be had.

7 The joinder of indispensable

parties is mandatory and courts cannot proceed without their presence.

8 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 order the inclusion of such party.

9

However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case.

There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to sell the properties of the De Castros for P23 million at a 5 percent commission. The authority was on a first come, first serve basis. The authority reads in full:

"24 Jan. 84

To Whom It May Concern:

This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection with the sale of our property located at Edsa Corner New York & Denver, Cubao, Quezon City.

Asking price P 23,000,000.00 with 5% commission as agent's fee.

C.C. de Castro owner & representing co-owners

This authority is on a first-come

First serve basis –CAC"

Constante signed the note as owner and as representative of the other co-owners. Under this note, a contract of agency was clearly constituted between Constante and Artigo. Whether Constante appointed Artigo as agent, in Constante's individual or representative capacity, or both, the De Castros cannot seek the dismissal of the case for failure to implead the other co-owners as indispensable parties. The De Castros admit that the other co-owners are solidarily liable under the contract of agency,

10 citing

Article 1915 of the Civil Code, which reads:

Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency.

The solidary liability of the four co-owners, however, militates against the De Castros' theory that the other co-owners should be impleaded as indispensable parties. A noted commentator explained Article 1915 thus –

"The rule in this article applies even when the appointments were made by the principals in separate acts, provided that they are for the same transaction. The solidarity arises from the common interest of the principals, and not from the act of constituting the agency. By virtue of this solidarity, the agent can recover from any principal the whole compensation and indemnity owing to him by the others. The parties, however, may, by express agreement, negate this solidary responsibility. The solidarity does not disappear by the


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mere partition effected by the principals after the accomplishment of the agency.

If the undertaking is one in which several are interested, but only some create the agency, only the latter are solidarily liable, without prejudice to the effects of negotiorum gestio with respect to the others. And if the power granted includes various transactions some of which are common and others are not, only those interested in each transaction shall be liable for it."

11

When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a contract of agency, each obligor may be compelled to pay the entire obligation.

12 The agent may

recover the whole compensation from any one of the co-principals, as in this case.

Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors. This article reads:

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.

Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.

13 that –

"x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the creditor. Article 1216 of the Civil Code says that the creditor `may proceed against anyone of the solidary debtors or some or all of them simultaneously'." (Emphasis supplied)

Second Issue: whether Artigo's claim has been extinguished by full payment, waiver or abandonment

The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given "his proportionate share and no longer entitled to any balance." According to them, Artigo was just one of the agents involved in the sale and entitled to a "proportionate share" in the commission. They assert that Artigo did absolutely nothing during the second negotiation but to sign as a witness in the deed of sale. He did not even prepare the documents for the transaction as an active real estate broker usually does.

The De Castros' arguments are flimsy.

A contract of agency which is not contrary to law, public order, public policy, morals or good custom is a valid contract, and constitutes the law between the parties.

14 The contract of agency

entered into by Constante with Artigo is the law between them and both are bound to comply with its terms and conditions in good faith.

The mere fact that "other agents" intervened in the consummation of the sale and were paid their respective commissions cannot vary the terms of the contract of agency granting Artigo a 5 percent commission based on the selling price. These "other agents" turned

out to be employees of Times Transit, the buyer Artigo introduced to the De Castros. This prompted the trial court to observe:

"The alleged `second group' of agents came into the picture only during the so-called `second negotiation' and it is amusing to note that these (sic) second group, prominent among whom are Atty. Del Castillo and Ms. Prudencio, happened to be employees of Times Transit, the buyer of the properties. And their efforts were limited to convincing Constante to 'part away' with the properties because the redemption period of the foreclosed properties is around the corner, so to speak. (tsn. June 6, 1991).

x x x

To accept Constante's version of the story is to open the floodgates of fraud and deceit. A seller could always pretend rejection of the offer and wait for sometime for others to renew it who are much willing to accept a commission far less than the original broker. The immorality in the instant case easily presents itself if one has to consider that the alleged `second group' are the employees of the buyer, Times Transit and they have not bettered the offer secured by Mr. Artigo for P7 million.

It is to be noted also that while Constante was too particular about the unrenewed real estate broker's license of Mr. Artigo, he did not bother at all to inquire as to the licenses of Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-40)."

15 (Emphasis supplied)

In any event, we find that the 5 percent real estate broker's commission is reasonable and within the standard practice in the real estate industry for transactions of this nature.

The De Castros also contend that Artigo's inaction as well as failure to protest estops him from recovering more than what was actually paid him. The De Castros cite Article 1235 of the Civil Code which reads:

Art. 1235. When the obligee accepts the performance, knowing its incompleteness and irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.

The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's acceptance of partial payment of his commission neither amounts to a waiver of the balance nor puts him in estoppel. This is the import of Article 1235 which was explained in this wise:

"The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or sufficient, or agree to an incomplete or irregular performance. Hence, the mere receipt of a partial payment is not equivalent to the required acceptance of performance as would extinguish the whole obligation."


There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that Artigo merely received the partial payment without waiving the balance. Thus, there is no estoppel to speak of.


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The De Castros further argue that laches should apply because Artigo did not file his complaint in court until May 29, 1989, or almost four years later. Hence, Artigo's claim for the balance of his commission is barred by laches.

Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.

17

Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on January 24, 1984. The two lots were finally sold in June 1985. As found by the trial court, Artigo demanded in April and July of 1985 the payment of his commission by Constante on the basis of the selling price of P7.05 million but there was no response from Constante.

18 After it became clear that

his demands for payment have fallen on deaf ears, Artigo decided to sue on May 29, 1989.

Actions upon a written contract, such as a contract of agency, must be brought within ten years from the time the right of action accrues.

19 The right of action accrues from the moment the breach

of right or duty occurs. From this moment, the creditor can institute the action even as the ten-year prescriptive period begins to run.

20

The De Castros admit that Artigo's claim was filed within the ten-year prescriptive period. The De Castros, however, still maintain that Artigo's cause of action is barred by laches. Laches does not apply because only four years had lapsed from the time of the sale in June 1985. Artigo made a demand in July 1985 and filed the action in court on May 29, 1989, well within the ten-year prescriptive period. This does not constitute an unreasonable delay in asserting one's right. The Court has ruled, "a delay within the prescriptive period is sanctioned by law and is not considered to be a delay that would bar relief."

21 In explaining that laches applies only in the absence of

a statutory prescriptive period, the Court has stated -

"Laches is recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law. Thus, laches, cannot, as a rule, be used to abate a collection suit filed within the prescriptive period mandated by the Civil Code."

22

Clearly, the De Castros' defense of laches finds no support in law, equity or jurisprudence.

Third issue: whether the determination of the purchase price was made in violation of the Rules on Evidence

The De Castros want the Court to re-examine the probative value of the evidence adduced in the trial court to determine whether the actual selling price of the two lots was P7.05 million and not P3.6 million. The De Castros contend that it is erroneous to base the 5 percent commission on a purchase price of P7.05 million as ordered by the trial court and the appellate court. The De Castros insist that the purchase price is P3.6 million as expressly stated in the deed of sale, the due execution and authenticity of which was admitted during the trial.

The De Castros believe that the trial and appellate courts committed a mistake in considering incompetent evidence and disregarding the best evidence and parole evidence rules. They claim that the Court of Appeals erroneously affirmed sub silentio the trial court's reliance on the various correspondences between Constante and Times Transit which were mere photocopies that do not satisfy the best evidence rule. Further, these letters covered only the first negotiations between Constante and Times Transit which failed; hence, these are immaterial in determining the final purchase price.

The De Castros further argue that if there was an undervaluation, Artigo who signed as witness benefited therefrom, and being equally guilty, should be left where he presently stands. They likewise claim that the Court of Appeals erred in relying on evidence which were not offered for the purpose considered by the trial court. Specifically, Exhibits "B", "C", "D" and "E" were not offered to prove that the purchase price was P7.05 Million. Finally, they argue that the courts a quo erred in giving credence to the perjured testimony of Artigo. They want the entire testimony of Artigo rejected as a falsehood because he was lying when he claimed at the outset that he was a licensed real estate broker when he was not.

Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question of fact and not of law. Inevitably, this calls for an inquiry into the facts and evidence on record. This we can not do.

It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or weigh the evidence again.

23

This Court is not the proper venue to consider a factual issue as it is not a trier of facts. In petitions for review on certiorari as a mode of appeal under Rule 45, a petitioner can only raise questions of law. Our pronouncement in the case of Cormero vs. Court of Appeals

24

bears reiteration:

"At the outset, it is evident from the errors assigned that the petition is anchored on a plea to review the factual conclusion reached by the respondent court. Such task however is foreclosed by the rule that in petitions for certiorari as a mode of appeal, like this one, only questions of law distinctly set forth may be raised. These questions have been defined as those that do not call for any examination of the probative value of the evidence presented by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA 751 [1991] citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of Appeals, 149 SCRA 67). And when this court is asked to go over the proof presented by the parties, and analyze, assess and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of evidence and eventually, to the totality of the evidence of one party or the other, the court cannot and will not do the same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in the absence of any showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties. (Morales vs. Court of Appeals, 197 SCRA 391


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[1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966])."

We find no reason to depart from this principle. The trial and appellate courts are in a much better position to evaluate properly the evidence. Hence, we find no other recourse but to affirm their finding on the actual purchase price.1âwphi1.nêt

Fourth Issue: whether award of moral damages and attorney's fees is proper

The De Castros claim that Artigo failed to prove that he is entitled to moral damages and attorney's fees. The De Castros, however, cite no concrete reason except to say that they are the ones entitled to damages since the case was filed to harass and extort money from them.

Law and jurisprudence support the award of moral damages and attorney's fees in favor of Artigo. The award of damages and attorney's fees is left to the sound discretion of the court, and if such discretion is well exercised, as in this case, it will not be disturbed on appeal.

25 Moral damages may be awarded when in a

breach of contract the defendant acted in bad faith, or in wanton disregard of his contractual obligation.

26 On the other hand,

attorney's fees are awarded in instances where "the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim."

27 There is no

reason to disturb the trial court's finding that "the defendants' lack of good faith and unkind treatment of the plaintiff in refusing to give his due commission deserve censure." This warrants the award of P25,000.00 in moral damages and P 45,000.00 in attorney's fees. The amounts are, in our view, fair and reasonable. Having found a buyer for the two lots, Artigo had already performed his part of the bargain under the contract of agency. The De Castros should have exercised fairness and good judgment in dealing with Artigo by fulfilling their own part of the bargain - paying Artigo his 5 percent broker's commission based on the actual purchase price of the two lots.

WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto.

SO ORDERED.


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G.R. No. 160347 November 29, 2006

ARCADIO and MARIA LUISA CARANDANG, Petitioners, vs. HEIRS OF QUIRINO A. DE GUZMAN, namely: MILAGROS DE GUZMAN, VICTOR DE GUZMAN, REYNALDO DE GUZMAN, CYNTHIA G. RAGASA and QUIRINO DE GUZMAN, JR., Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari assailing the Court of Appeals Decision

1 and Resolution affirming the Regional Trial Court

(RTC) Decision rendering herein petitioners Arcadio and Luisa Carandang [hereinafter referred to as spouses Carandang] jointly and severally liable for their loan to Quirino A. de Guzman.

The Court of Appeals summarized the facts as follows:

[Quirino de Guzman] and [the Spouses Carandang] are stockholders as well as corporate officers of Mabuhay Broadcasting System (MBS for brevity), with equities at fifty four percent (54%) and forty six percent (46%) respectively.

On November 26, 1983, the capital stock of MBS was increased, from P500,000 to P1.5 million and P345,000 of this increase was subscribed by [the spouses Carandang]. Thereafter, on March 3, 1989, MBS again increased its capital stock, from P1.5 million to P3 million, [the spouses Carandang] yet again subscribed to the increase. They subscribed to P93,750 worth of newly issued capital stock.

[De Guzman] claims that, part of the payment for these subscriptions were paid by him, P293,250 for the November 26, 1983 capital stock increase and P43,125 for the March 3, 1989 Capital Stock increase or a total of P336,375. Thus, on March 31, 1992, [de Guzman] sent a demand letter to [the spouses Carandang] for the payment of said total amount.

[The spouses Carandang] refused to pay the amount, contending that a pre-incorporation agreement was executed between [Arcadio Carandang] and [de Guzman], whereby the latter promised to pay for the stock subscriptions of the former without cost, in consideration for [Arcadio Carandang’s] technical expertise, his newly purchased equipment, and his skill in repairing and upgrading radio/communication equipment therefore, there is no indebtedness on their part [sic].

On June 5, 1992, [de Guzman] filed his complaint, seeking to recover the P336,375 together with damages. After trial on the merits, the trial court disposed of the case in this wise:

"WHEREFORE, premises considered, judgment is hereby rendered in favor of [de Guzman]. Accordingly, [the spouses Carandang] are ordered to jointly and severally pay [de Guzman], to wit:

(1) P336,375.00 representing [the spouses Carandang’s] loan to de Guzman;

(2) interest on the preceding amount at the rate of twelve percent (12%) per annum from June 5, 1992 when this complaint was filed until the principal amount shall have been fully paid;

(3) P20,000.00 as attorney’s fees;

(4) Costs of suit.

The spouses Carandang appealed the RTC Decision to the Court of Appeals, which affirmed the same in the 22 April 2003 assailed Decision:

WHEREFORE, in view of all the foregoing the assailed Decision is hereby AFFIRMED. No costs.

2

The Motion for Reconsideration filed by the spouses Carandang was similarly denied by the Court of Appeals in the 6 October 2003 assailed Resolution:

WHEREFORE, in view thereof, the motion for reconsideration is hereby DENIED and our Decision of April 22, 2003, which is based on applicable law and jurisprudence on the matter is hereby AFFIRMED and REITERATED.

3

The spouses Carandang then filed before this Court the instant Petition for Review on Certiorari, bringing forth the following issues:

I.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED MANIFEST ERROR IN FAILING TO STRICTLY COMPLY WITH SECTION 16, RULE 3 OF THE 1997 RULES OF CIVIL PROCEDURE.

II.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING THAT THERE IS AN ALLEGED LOAN FOR WHICH PETITIONERS ARE LIABLE, CONTRARY TO EXPRESS PROVISIONS OF BOOK IV, TITLE XI, OF THE NEW CIVIL CODE PERTAINING TO LOANS.

III.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT THE RESPONDENTS WERE ABLE TO DISCHARGE THEIR BURDEN OF PROOF, IN COMPLETE DISREGARD OF THE REVISED RULES ON EVIDENCE.

IV.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT FAILED TO APPLY SECTIONS 2 AND 7, RULE 3 OF THE 1997 RULES OF CIVIL PROCEDURE.

V.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT THE PURPORTED LIABILITY OF PETITIONERS

http://www.lawphil.net/judjuris/juri2006/nov2006/gr_160347_2006.html#fnt1




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ARE JOINT AND SOLIDARY, IN VIOLATION OF ARTICLE 1207 OF THE NEW CIVIL CODE.

4

Whether or not the RTC Decision is void for failing to comply with Section 16, Rule 3 of the Rules of Court

The spouses Carandang claims that the Decision of the RTC, having been rendered after the death of Quirino de Guzman, is void for failing to comply with Section 16, Rule 3 of the Rules of Court, which provides:

SEC. 16. Death of party; duty of counsel. – Whenever a party to a pending action dies, and the claim is not thereby extinguished, it shall be the duty of his counsel to inform the court within thirty (30) days after such death of the fact thereof, and to give the name and address of his legal representative or representatives. Failure of counsel to comply with this duty shall be a ground for disciplinary action.

The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the appointment of an executor or administrator and the court may appoint a guardian ad litem for the minor heirs.

The court shall forthwith order the legal representative or representatives to appear and be substituted within a period of thirty (30) days from notice.

If no legal representative is named by the counsel for the deceased party, or if the one so named shall fail to appear within the specified period, the court may order the opposing party, within a specified time, to procure the appointment of an executor or administrator for the estate of the deceased and the latter shall immediately appear for and on behalf of the deceased. The court charges in procuring such appointment, if defrayed by the opposing party, may be recovered as costs.

The spouses Carandang posits that such failure to comply with the above rule renders void the decision of the RTC, in adherence to the following pronouncements in Vda. de Haberer v. Court of Appeals

5

and Ferreria v. Vda. de Gonzales6 :

Thus, it has been held that when a party dies in an action that survives and no order is issued by the court for the appearance of the legal representative or of the heirs of the deceased in substitution of the deceased, and as a matter of fact no substitution has ever been effected, the trial held by the court without such legal representatives or heirs and the judgment rendered after such trial are null and void because the court acquired no jurisdiction over the persons of the legal representatives or of the heirs upon whom the trial and judgment would be binding.

7

In the present case, there had been no court order for the legal representative of the deceased to appear, nor had any such legal representative appeared in court to be substituted for the deceased; neither had the complainant ever procured the appointment of such legal representative of the deceased, including appellant, ever asked to be substituted for the deceased. As a result, no valid substitution was effected, consequently, the court never acquired jurisdiction over appellant for the purpose of making her a party to the case and making the decision binding upon her, either personally or as a representative of the estate of her deceased mother.

8

However, unlike jurisdiction over the subject matter which is conferred by law and is not subject to the discretion of the parties,

9

jurisdiction over the person of the parties to the case may be waived either expressly or impliedly.

10 Implied waiver comes in the form of

either voluntary appearance or a failure to object.11

In the cases cited by the spouses Carandang, we held that there had been no valid substitution by the heirs of the deceased party, and therefore the judgment cannot be made binding upon them. In the case at bar, not only do the heirs of de Guzman interpose no objection to the jurisdiction of the court over their persons; they are actually claiming and embracing such jurisdiction. In doing so, their waiver is not even merely implied (by their participation in the appeal of said Decision), but express (by their explicit espousal of such view in both the Court of Appeals and in this Court). The heirs of de Guzman had no objection to being bound by the Decision of the RTC.

Thus, lack of jurisdiction over the person, being subject to waiver, is a personal defense which can only be asserted by the party who can thereby waive it by silence.

It also pays to look into the spirit behind the general rule requiring a formal substitution of heirs. The underlying principle therefor is not really because substitution of heirs is a jurisdictional requirement, but because non-compliance therewith results in the undeniable violation of the right to due process of those who, though not duly notified of the proceedings, are substantially affected by the decision rendered therein.

12 Such violation of due process can only

be asserted by the persons whose rights are claimed to have been violated, namely the heirs to whom the adverse judgment is sought to be enforced.

Care should, however, be taken in applying the foregoing conclusions. In People v. Florendo,

13 where we likewise held that the

proceedings that took place after the death of the party are void, we gave another reason for such nullity: "the attorneys for the offended party ceased to be the attorneys for the deceased upon the death of the latter, the principal x x x." Nevertheless, the case at bar had already been submitted for decision before the RTC on 4 June 1998, several months before the passing away of de Guzman on 19 February 1999. Hence, no further proceedings requiring the appearance of de Guzman’s counsel were conducted before the promulgation of the RTC Decision. Consequently, de Guzman’s counsel cannot be said to have no authority to appear in trial, as trial had already ceased upon the death of de Guzman.

In sum, the RTC Decision is valid despite the failure to comply with Section 16, Rule 3 of the Rules of Court, because of the express waiver of the heirs to the jurisdiction over their persons, and because there had been, before the promulgation of the RTC Decision, no further proceedings requiring the appearance of de Guzman’s counsel.

Before proceeding with the substantive aspects of the case, however, there is still one more procedural issue to tackle, the fourth issue presented by the spouses Carandang on the non-inclusion in the complaint of an indispensable party.

Whether or not the RTC should have dismissed the case for failure to state a cause of action, considering that Milagros de Guzman,












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allegedly an indispensable party, was not included as a party-plaintiff

The spouses Carandang claim that, since three of the four checks used to pay their stock subscriptions were issued in the name of Milagros de Guzman, the latter should be considered an indispensable party. Being such, the spouses Carandang claim, the failure to join Mrs. de Guzman as a party-plaintiff should cause the dismissal of the action because "(i)f a suit is not brought in the name of or against the real party in interest, a motion to dismiss may be filed on the ground that the complaint states no cause of action."

14

The Court of Appeals held:

We disagree. The joint account of spouses Quirino A de Guzman and Milagros de Guzman from which the four (4) checks were drawn is part of their conjugal property and under both the Civil Code and the Family Code the husband alone may institute an action for the recovery or protection of the spouses’ conjugal property.

Thus, in Docena v. Lapesura [355 SCRA 658], the Supreme Court held that "x x x Under the New Civil Code, the husband is the administrator of the conjugal partnership. In fact, he is the sole administrator, and the wife is not entitled as a matter of right to join him in this endeavor. The husband may defend the conjugal partnership in a suit or action without being joined by the wife. x x x Under the Family Code, the administration of the conjugal property belongs to the husband and the wife jointly. However, unlike an act of alienation or encumbrance where the consent of both spouses is required, joint management or administration does not require that the husband and wife always act together. Each spouse may validly exercise full power of management alone, subject to the intervention of the court in proper cases as provided under Article 124 of the Family Code. x x x."

The Court of Appeals is correct. Petitioners erroneously interchange the terms "real party in interest" and "indispensable party." A real party in interest is the party who stands to be benefited or injured by the judgment of the suit, or the party entitled to the avails of the suit.

15 On the other hand, an indispensable party is a party in

interest without whom no final determination can be had of an action,

16 in contrast to a necessary party, which is one who is not

indispensable but who ought to be joined as a party if complete relief is to be accorded as to those already parties, or for a complete determination or settlement of the claim subject of the action.

17

The spouses Carandang are indeed correct that "(i)f a suit is not brought in the name of or against the real party in interest, a motion to dismiss may be filed on the ground that the complaint states no cause of action."

18 However, what dismissal on this ground entails is

an examination of whether the parties presently pleaded are interested in the outcome of the litigation, and not whether all persons interested in such outcome are actually pleaded. The latter query is relevant in discussions concerning indispensable and necessary parties, but not in discussions concerning real parties in interest. Both indispensable and necessary parties are considered as real parties in interest, since both classes of parties stand to be benefited or injured by the judgment of the suit.

Quirino and Milagros de Guzman were married before the effectivity of the Family Code on 3 August 1988. As they did not execute any

marriage settlement, the regime of conjugal partnership of gains govern their property relations.

19

All property acquired during the marriage, whether the acquisition appears to have been made, contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the contrary is proved.

20 Credits are personal properties,

21 acquired during the

time the loan or other credit transaction was executed. Therefore, credits loaned during the time of the marriage are presumed to be conjugal property.

Consequently, assuming that the four checks created a debt for which the spouses Carandang are liable, such credits are presumed to be conjugal property. There being no evidence to the contrary, such presumption subsists. As such, Quirino de Guzman, being a co-owner of specific partnership property,

22 is certainly a real party in

interest. Dismissal on the ground of failure to state a cause of action, by reason that the suit was allegedly not brought by a real party in interest, is therefore unwarranted.

So now we come to the discussion concerning indispensable and necessary parties. When an indispensable party is not before the court, the action should likewise be dismissed.

23 The absence of an

indispensable party renders all subsequent actuations of the court void, for want of authority to act, not only as to the absent parties but even as to those present.

24 On the other hand, the non-joinder

of necessary parties do not result in the dismissal of the case. Instead, Section 9, Rule 3 of the Rules of Court provides for the consequences of such non-joinder:

Sec. 9. Non-joinder of necessary parties to be pleaded. – Whenever in any pleading in which a claim is asserted a necessary party is not joined, the pleader shall set forth his name, if known, and shall state why he is omitted. Should the court find the reason for the omission unmeritorious, it may order the inclusion of the omitted necessary party if jurisdiction over his person may be obtained.

The failure to comply with the order for his inclusion, without justifiable cause, shall be deemed a waiver of the claim against such party.

The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and the judgment rendered therein shall be without prejudice to the rights of such necessary party.

Non-compliance with the order for the inclusion of a necessary party would not warrant the dismissal of the complaint. This is an exception to Section 3, Rule 17 which allows the dismissal of the complaint for failure to comply with an order of the court, as Section 9, Rule 3 specifically provides for the effect of such non-inclusion: it shall not prevent the court from proceeding in the action, and the judgment rendered therein shall be without prejudice to the rights of such necessary party. Section 11, Rule 3 likewise provides that the non-joinder of parties is not a ground for the dismissal of the action.

Other than the indispensable and necessary parties, there is a third set of parties: the pro-forma parties, which are those who are required to be joined as co-parties in suits by or against another party as may be provided by the applicable substantive law or procedural rule.

25 An example is provided by Section 4, Rule 3 of the

Rules of Court:














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Sec. 4. Spouses as parties. – Husband and wife shall sue or be sued jointly, except as provided by law.

Pro-forma parties can either be indispensable, necessary or neither indispensable nor necessary. The third case occurs if, for example, a husband files an action to recover a property which he claims to be part of his exclusive property. The wife may have no legal interest in such property, but the rules nevertheless require that she be joined as a party.

In cases of pro-forma parties who are neither indispensable nor necessary, the general rule under Section 11, Rule 3 must be followed: such non-joinder is not a ground for dismissal. Hence, in a case concerning an action to recover a sum of money, we held that the failure to join the spouse in that case was not a jurisdictional defect.

26 The non-joinder of a spouse does not warrant dismissal as

it is merely a formal requirement which may be cured by amendment.

27

Conversely, in the instances that the pro-forma parties are also indispensable or necessary parties, the rules concerning indispensable or necessary parties, as the case may be, should be applied. Thus, dismissal is warranted only if the pro-forma party not joined in the complaint is an indispensable party.

Milagros de Guzman, being presumed to be a co-owner of the credits allegedly extended to the spouses Carandang, seems to be either an indispensable or a necessary party. If she is an indispensable party, dismissal would be proper. If she is merely a necessary party, dismissal is not warranted, whether or not there was an order for her inclusion in the complaint pursuant to Section 9, Rule 3.

Article 108 of the Family Code provides:

Art. 108. The conjugal partnership shall be governed by the rules on the contract of partnership in all that is not in conflict with what is expressly determined in this Chapter or by the spouses in their marriage settlements.

This provision is practically the same as the Civil Code provision it superceded:

Art. 147. The conjugal partnership shall be governed by the rules on the contract of partnership in all that is not in conflict with what is expressly determined in this Chapter.

In this connection, Article 1811 of the Civil Code provides that "[a] partner is a co-owner with the other partners of specific partnership property." Taken with the presumption of the conjugal nature of the funds used to finance the four checks used to pay for petitioners’ stock subscriptions, and with the presumption that the credits themselves are part of conjugal funds, Article 1811 makes Quirino and Milagros de Guzman co-owners of the alleged credit.

Being co-owners of the alleged credit, Quirino and Milagros de Guzman may separately bring an action for the recovery thereof. In the fairly recent cases of Baloloy v. Hular

28 and Adlawan v.

Adlawan,29

we held that, in a co-ownership, co-owners may bring actions for the recovery of co-owned property without the necessity of joining all the other co-owners as co-plaintiffs because the suit is presumed to have been filed for the benefit of his co-owners. In the

latter case and in that of De Guia v. Court of Appeals,30

we also held that Article 487 of the Civil Code, which provides that any of the co-owners may bring an action for ejectment, covers all kinds of action for the recovery of possession.

31

In sum, in suits to recover properties, all co-owners are real parties in interest. However, pursuant to Article 487 of the Civil Code and relevant jurisprudence, any one of them may bring an action, any kind of action, for the recovery of co-owned properties. Therefore, only one of the co-owners, namely the co-owner who filed the suit for the recovery of the co-owned property, is an indispensable party thereto. The other co-owners are not indispensable parties. They are not even necessary parties, for a complete relief can be accorded in the suit even without their participation, since the suit is presumed to have been filed for the benefit of all co-owners.

32

We therefore hold that Milagros de Guzman is not an indispensable party in the action for the recovery of the allegedly loaned money to the spouses Carandang. As such, she need not have been impleaded in said suit, and dismissal of the suit is not warranted by her not being a party thereto.

Whether or not respondents were able to prove the loan sought to be collected from petitioners

In the second and third issues presented by the spouses Carandang, they claim that the de Guzmans failed to prove the alleged loan for which the spouses Carandang were held liable. As previously stated, spouses Quirino and Milagros de Guzman paid for the stock subscriptions of the spouses Carandang, amounting to P336,375.00. The de Guzmans claim that these payments were in the form of loans and/or advances and it was agreed upon between the late Quirino de Guzman, Sr. and the spouses Carandang that the latter would repay him. Petitioners, on the other hand, argue that there was an oral pre-incorporation agreement wherein it was agreed that Arcardio Carandang would always maintain his 46% equity participation in the corporation even if the capital structures were increased, and that Quirino de Guzman would personally pay the equity shares/stock subscriptions of Arcardio Carandang with no cost to the latter.

On this main issue, the Court of Appeals held:

[The spouses Carandang] aver in its ninth assigned error that [the de Guzmans] failed to prove by preponderance of evidence, either the existence of the purported loan or the non-payment thereof.

Simply put, preponderance of evidence means that the evidence as a whole adduced by one side is superior to that of the other. The concept of preponderance of evidence refers to evidence that is of greater weight, or more convincing, than that which is offered in opposition to it; it means probability of truth.

[The spouses Carandang] admitted that it was indeed [the de Guzmans] who paid their stock subscriptions and their reason for not reimbursing the latter is the alleged pre-incorporation agreement, to which they offer no clear proof as to its existence.

It is a basic rule in evidence that each party must prove his affirmative allegation. Thus, the plaintiff or complainant has to prove his affirmative allegations in the complaints and the









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defendant or respondent has to prove the affirmative allegations in his affirmative defenses and counterclaims.

33

The spouses Carandang, however, insist that the de Guzmans have not proven the loan itself, having presented evidence only of the payment in favor of the Carandangs. They claim:

It is an undeniable fact that payment is not equivalent to a loan. For instance, if Mr. "A" decides to pay for Mr. "B’s" obligation, that payment by Mr. "A" cannot, by any stretch of imagination, possibly mean that there is now a loan by Mr. "B" to Mr. "A". There is a possibility that such payment by Mr. "A" is purely out of generosity or that there is a mutual agreement between them. As applied to the instant case, that mutual agreement is the pre-incorporation agreement (supra) existing between Mr. de Guzman and the petitioners --- to the effect that the former shall be responsible for paying stock subscriptions of the latter. Thus, when Mr. de Guzman paid for the stock subscriptions of the petitioners, there was no loan to speak of, but only a compliance with the pre-incorporation agreement.

34

The spouses Carandang are mistaken. If indeed a Mr. "A" decides to pay for a Mr. "B’s" obligation, the presumption is that Mr. "B" is indebted to Mr. "A" for such amount that has been paid. This is pursuant to Articles 1236 and 1237 of the Civil Code, which provide:

Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.

Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guarantee, or penalty.

Articles 1236 and 1237 are clear that, even in cases where the debtor has no knowledge of payment by a third person, and even in cases where the third person paid against the will of the debtor, such payment would produce a debt in favor of the paying third person. In fact, the only consequences for the failure to inform or get the consent of the debtor are the following: (1) the third person can recover only insofar as the payment has been beneficial to the debtor; and (2) the third person is not subrogated to the rights of the creditor, such as those arising from a mortgage, guarantee or penalty.

35

We say, however, that this is merely a presumption. By virtue of the parties’ freedom to contract, the parties could stipulate otherwise and thus, as suggested by the spouses Carandang, there is indeed a possibility that such payment by Mr. "A" was purely out of generosity or that there was a mutual agreement between them. But such mutual agreement, being an exception to presumed course of events as laid down by Articles 1236 and 1237, must be adequately proven.

The de Guzmans have successfully proven their payment of the spouses Carandang’s stock subscriptions. These payments were, in

fact, admitted by the spouses Carandang. Consequently, it is now up to the spouses Carandang to prove the existence of the pre-incorporation agreement that was their defense to the purported loan.

Unfortunately for the spouses Carandang, the only testimony which touched on the existence and substance of the pre-incorporation agreement, that of petitioner Arcardio Carandang, was stricken off the record because he did not submit himself to a cross-examination of the opposing party. On the other hand, the testimonies of Romeo Saavedra,

36 Roberto S. Carandang,

37 Gertrudes Z. Esteban,

38 Ceferino

Basilio,39

and Ma. Luisa Carandang40

touched on matters other than the existence and substance of the pre-incorporation agreement. So aside from the fact that these witnesses had no personal knowledge as to the alleged existence of the pre-incorporation agreement, the testimonies of these witnesses did not even mention the existence of a pre-incorporation agreement.

Worse, the testimonies of petitioners Arcadio Carandang and Ma. Luisa Carandang even contradicted the existence of a pre-incorporation agreement because when they were asked by their counsel regarding the matter of the check payments made by the late Quirino A. de Guzman, Sr. in their behalf, they said that they had already paid for it thereby negating their own defense that there was a pre-incorporation agreement excusing themselves from paying Mr. de Guzman the amounts he advanced or loaned to them. This basic and irrefutable fact can be gleaned from their testimonies which the private respondents are quoting for easy reference:

a. With respect to the testimony of Ma. Luisa Carandang

Q: Now, can you tell this Honorable Court how do you feel with respect to the Complaint of the plaintiff in this case charging you that you paid for this year and asking enough to paid (sic) your tax?

A: We have paid already, so, we are not liable for anything payment (sic).

41

b. With respect to the testimony of Arcadio Carandang

"Q: How much?

A: P40,000.00 to P50,000.00 per month.

Q: The plaintiff also claimed thru witness Edgar Ragasa, that there were receipts issued for the payment of your shares; which receipts were marked as Exhibits "G" to "L" (Plaintiff).

I’m showing to you these receipts so marked by the plaintiff as their exhibits which were issued in the name of Ma. Luisa Carandang, your wife; and also, Arcadio M. Carandang. Will you please go over this Official Receipt and state for the records, who made for the payment stated in these receipts in your name?

A: I paid for those shares."42

There being no testimony or documentary evidence proving the existence of the pre-incorporation agreement, the spouses Carandang are forced to rely upon an alleged admission by the original plaintiff of the existence of the pre-incorporation agreement.












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Petitioners claim that the late Quirino A. de Guzman, Sr. had admitted the existence of the pre-incorporation agreement by virtue of paragraphs 13 and 14 of their Answer and paragraph 4 of private respondents’ Reply.

Paragraphs 13 and 14 of petitioners’ Answer dated 7 July 1992 state in full:

13. Sometime in November, 1973 or thereabout, herein plaintiff invited defendant Arcadio M. Carandang to a joint venture by pooling together their technical expertise, equipments, financial resources and franchise. Plaintiff proposed to defendant and mutually agreed on the following:

1. That they would organize a corporation known as Mabuhay Broadcasting Systems, Inc.

2. Considering the technical expertise and talent of defendant Arcadio M. Carandang and his new equipments he bought, and his skill in repairing and modifying radio/communication equipments into high proficiency, said defendant would have an equity participation in the corporation of 46%, and plaintiff 54% because of his financial resources and franchise.

3. That defendant would always maintain his 46% equity participation in the corporation even if the capital structures are increased, and that plaintiff would personally pay the equity shares/stock subscriptions of defendant with no cost to the latter.

4. That because of defendant’s expertise in the trade including the marketing aspects, he would be the President and General Manager, and plaintiff the Chairman of the Board.

5. That considering their past and trustworthy relations, they would maintain such relations in the joint venture without any mental reservation for their common benefit and success of the business.

14. Having mutually agreed on the above arrangements, the single proprietorship of plaintiff was immediately spun-off into a corporation now known as Mabuhay Broadcasting System, Inc. The incorporators are plaintiff and his family members/nominees controlling jointly 54% of the stocks and defendant Arcadio M. Carandang controlling singly 46% as previously agreed.

43

Meanwhile, paragraphs 3 and 4 of private respondents’ Reply dated 29 July 1992 state in full:

3. Plaintiffs admits the allegation in paragraph 13.1 of the Answer only insofar the plaintiff and defendant Arcadio M. Carandang organized a corporation known as Mabuhay Broadcasting Systems, Inc. Plaintiff specifically denies the other allegations in paragraph 13 of the Answer, the same being devoid of any legal or factual bases. The truth of the matter is that defendant Arcadio M. Carandang was not able to pay plaintiff the agreed amount of the lease for a number of months forcing the plaintiff to terminate lease. Additionally, the records would show that it was the defendant

Arcadio M. Carandang who proposed a joint venture with the plaintiff.

It appears that plaintiff agreed to the formation of the corporation principally because of a directive of then President Marcos indicating the need to broaden the ownership of radio broadcasting stations. The plaintiff owned the franchise, the radio transmitter, the antenna tower, the building containing the radio transmitter and other equipment. Verily, he would be placed in a great disadvantage if he would still have to personally pay for the shares of defendant Arcadio M. Carandang.

4. Plaintiff admits the allegations in paragraph 14 of the Answer.44

In effect, the spouses Carandang are relying on the fact that Quirino de Guzman stated that he admitted paragraph 14 of the Answer, which incidentally contained the opening clause "(h)aving mutually agreed on the above arrangements, x x x."

Admissions, however, should be clear and unambiguous. This purported admission by Quirino de Guzman reeks of ambiguity, as the clause "(h)aving mutually agreed on the above arrangements," seems to be a mere introduction to the statement that the single proprietorship of Quirino de Guzman had been converted into a corporation. If Quirino de Guzman had meant to admit paragraph 13.3, he could have easily said so, as he did the other paragraphs he categorically admitted. Instead, Quirino de Guzman expressly stated the opposite: that "(p)laintiff specifically denies the other allegations of paragraph 13 of the Answer."

45 The Reply furthermore states that

the only portion of paragraph 13 which Quirino de Guzman had admitted is paragraph 13.1, and only insofar as it said that Quirino de Guzman and Arcardio Carandang organized Mabuhay Broadcasting Systems, Inc.

46

All the foregoing considered, we hold that Quirino de Guzman had not admitted the alleged pre-incorporation agreement. As there was no admission, and as the testimony of Arcardio Carandang was stricken off the record, we are constrained to rule that there was no pre-incorporation agreement rendering Quirino de Guzman liable for the spouses Carandang’s stock subscription. The payment by the spouses de Guzman of the stock subscriptions of the spouses Carandang are therefore by way of loan which the spouses Carandang are liable to pay.1âwphi1

Whether or not the liability of the spouses Carandang is joint and solidary

Finally, the Court of Appeals also upheld the RTC Decision insofar as it decreed a solidary liability. According to the Court of Appeals:

With regards (sic) the tenth assigned error, [the spouses Carandang] contend that:

"There is absolutely no evidence, testimonial or documentary, showing that the purported obligation of [the spouses Carandang] is joint and solidary. x x x

"Furthermore, the purported obligation of [the spouses Carandang] does not at all qualify as one of the obligations required by law to be solidary x x x."






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It is apparent from the facts of the case that [the spouses Carandang] were married way before the effectivity of the Family Code hence; their property regime is conjugal partnership under the Civil Code.

It must be noted that for marriages governed by the rules of conjugal partnership of gains, an obligation entered into by the husband and wife is chargeable against their conjugal partnership and it is the partnership, which is primarily bound for its repayment. Thus, when the spouses are sued for the enforcement of the obligation entered into by them, they are being impleaded in their capacity as representatives of the conjugal partnership and not as independent debtors, such that the concept of joint and solidary liability, as between them, does not apply.

47

The Court of Appeals is correct insofar as it held that when the spouses are sued for the enforcement of the obligation entered into by them, they are being impleaded in their capacity as representatives of the conjugal partnership and not as independent debtors. Hence, either of them may be sued for the whole amount, similar to that of a solidary liability, although the amount is chargeable against their conjugal partnership property. Thus, in the case cited by the Court of Appeals, Alipio v. Court of Appeals,

48 the

two sets of defendant-spouses therein were held liable for P25,300.00 each, chargeable to their respective conjugal partnerships.

WHEREFORE, the Decision of the Court of Appeals, affirming the judgment rendered against the spouses Carandang, is hereby AFFIRMED with the following MODIFICATION: The spouses Carandang are ORDERED to pay the following amounts from their conjugal partnership properties:

(1) P336,375.00 representing the spouses Carandang’s loan to Quirino de Guzman; and

(2) Interest on the preceding amount at the rate of twelve percent (12%) per annum from 5 June 1992 when the complaint was filed until the principal amount can be fully paid; and

(3) P20,000.00 as attorney’s fees.

No costs.

SO ORDERED.




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G.R. No. 150135 October 30, 2006

SPOUSES ANTONIO F. ALGURA and LORENCITA S.J. ALGURA, petitioners, vs. THE LOCAL GOVERNMENT UNIT OF THE CITY OF NAGA, ATTY. MANUEL TEOXON, ENGR. LEON PALMIANO, NATHAN SERGIO and BENJAMIN NAVARRO, SR., respondents.

D E C I S I O N

VELASCO, JR., J.:

Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor. –– James Baldwin

The Constitution affords litigants—moneyed or poor—equal access to the courts; moreover, it specifically provides that poverty shall not bar any person from having access to the courts.

1 Accordingly,

laws and rules must be formulated, interpreted, and implemented pursuant to the intent and spirit of this constitutional provision. As such, filing fees, though one of the essential elements in court procedures, should not be an obstacle to poor litigants' opportunity to seek redress for their grievances before the courts.

The Case

This Petition for Review on Certiorari seeks the annulment of the September 11, 2001 Order of the Regional Trial Court (RTC) of Naga City, Branch 27, in Civil Case No. 99-4403 entitled Spouses Antonio F. Algura and Lorencita S.J. Algura v. The Local Government Unit of the City of Naga, et al., dismissing the case for failure of petitioners Algura spouses to pay the required filing fees.

2 Since the instant

petition involves only a question of law based on facts established from the pleadings and documents submitted by the parties,

3 the

Court gives due course to the instant petition sanctioned under Section 2(c) of Rule 41 on Appeal from the RTCs, and governed by Rule 45 of the 1997 Rules of Civil Procedure.

The Facts

On September 1, 1999, spouses Antonio F. Algura and Lorencita S.J. Algura filed a Verified Complaint dated August 30, 1999

4 for

damages against the Naga City Government and its officers, arising from the alleged illegal demolition of their residence and boarding house and for payment of lost income derived from fees paid by their boarders amounting to PhP 7,000.00 monthly.

Simultaneously, petitioners filed an Ex-Parte Motion to Litigate as Indigent Litigants,

5 to which petitioner Antonio Algura's Pay Slip No.

2457360 (Annex "A" of motion) was appended, showing a gross monthly income of Ten Thousand Four Hundred Seventy Four Pesos (PhP 10,474.00) and a net pay of Three Thousand Six Hundred Sixteen Pesos and Ninety Nine Centavos (PhP 3,616.99) for [the month of] July 1999.

6 Also attached as Annex "B" to the motion was

a July 14, 1999 Certification7 issued by the Office of the City Assessor

of Naga City, which stated that petitioners had no property declared in their name for taxation purposes.

Finding that petitioners' motion to litigate as indigent litigants was meritorious, Executive Judge Jose T. Atienza of the Naga City RTC, in the September 1, 1999 Order,

8 granted petitioners' plea for

exemption from filing fees.

Meanwhile, as a result of respondent Naga City Government's demolition of a portion of petitioners' house, the Alguras allegedly lost a monthly income of PhP 7,000.00 from their boarders' rentals. With the loss of the rentals, the meager income from Lorencita Algura's sari-sari store and Antonio Algura's small take home pay became insufficient for the expenses of the Algura spouses and their six (6) children for their basic needs including food, bills, clothes, and schooling, among others.

On October 13, 1999, respondents filed an Answer with Counterclaim dated October 10, 1999,

9 arguing that the defenses of

the petitioners in the complaint had no cause of action, the spouses' boarding house blocked the road right of way, and said structure was a nuisance per se.

Praying that the counterclaim of defendants (respondents) be dismissed, petitioners then filed their Reply with Ex-Parte Request for a Pre-Trial Setting

10 before the Naga City RTC on October 19,

1999. On February 3, 2000, a pre-trial was held wherein respondents asked for five (5) days within which to file a Motion to Disqualify Petitioners as Indigent Litigants.

On March 13, 2000, respondents filed a Motion to Disqualify the Plaintiffs for Non-Payment of Filing Fees dated March 10, 2000.

11

They asserted that in addition to the more than PhP 3,000.00 net income of petitioner Antonio Algura, who is a member of the Philippine National Police, spouse Lorencita Algura also had a mini-store and a computer shop on the ground floor of their residence along Bayawas St., Sta. Cruz, Naga City. Also, respondents claimed that petitioners' second floor was used as their residence and as a boarding house, from which they earned more than PhP 3,000.00 a month. In addition, it was claimed that petitioners derived additional income from their computer shop patronized by students and from several boarders who paid rentals to them. Hence, respondents concluded that petitioners were not indigent litigants.

On March 28, 2000, petitioners subsequently interposed their Opposition to the Motion

12 to respondents' motion to disqualify

them for non-payment of filing fees.

On April 14, 2000, the Naga City RTC issued an Order disqualifying petitioners as indigent litigants on the ground that they failed to substantiate their claim for exemption from payment of legal fees and to comply with the third paragraph of Rule 141, Section 18 of the Revised Rules of Court—directing them to pay the requisite filing fees.

13

On April 28, 2000, petitioners filed a Motion for Reconsideration of the April 14, 2000 Order. On May 8, 2000, respondents then filed their Comment/Objections to petitioner's Motion for Reconsideration.

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On May 5, 2000, the trial court issued an Order14

giving petitioners the opportunity to comply with the requisites laid down in Section 18, Rule 141, for them to qualify as indigent litigants.

On May 13, 2000, petitioners submitted their Compliance15

attaching the affidavits of petitioner Lorencita Algura

16 and Erlinda

Bangate,17

to comply with the requirements of then Rule 141, Section 18 of the Rules of Court and in support of their claim to be declared as indigent litigants.

In her May 13, 2000 Affidavit, petitioner Lorencita Algura claimed that the demolition of their small dwelling deprived her of a monthly income amounting to PhP 7,000.00. She, her husband, and their six (6) minor children had to rely mainly on her husband's salary as a policeman which provided them a monthly amount of PhP 3,500.00, more or less. Also, they did not own any real property as certified by the assessor's office of Naga City. More so, according to her, the meager net income from her small sari-sari store and the rentals of some boarders, plus the salary of her husband, were not enough to pay the family's basic necessities.

To buttress their position as qualified indigent litigants, petitioners also submitted the affidavit of Erlinda Bangate, who attested under oath, that she personally knew spouses Antonio Algura and Lorencita Algura, who were her neighbors; that they derived substantial income from their boarders; that they lost said income from their boarders' rentals when the Local Government Unit of the City of Naga, through its officers, demolished part of their house because from that time, only a few boarders could be accommodated; that the income from the small store, the boarders, and the meager salary of Antonio Algura were insufficient for their basic necessities like food and clothing, considering that the Algura spouses had six (6) children; and that she knew that petitioners did not own any real property.

Thereafter, Naga City RTC Acting Presiding Judge Andres B. Barsaga, Jr. issued his July 17, 2000

18 Order denying the petitioners' Motion

for Reconsideration.

Judge Barsaga ratiocinated that the pay slip of Antonio F. Algura showed that the "GROSS INCOME or TOTAL EARNINGS of plaintiff Algura [was] ₧10,474.00 which amount [was] over and above the amount mentioned in the first paragraph of Rule 141, Section 18 for pauper litigants residing outside Metro Manila."

19 Said rule provides

that the gross income of the litigant should not exceed PhP 3,000.00 a month and shall not own real estate with an assessed value of PhP 50,000.00. The trial court found that, in Lorencita S.J. Algura's May 13, 2000 Affidavit, nowhere was it stated that she and her immediate family did not earn a gross income of PhP 3,000.00.

The Issue

Unconvinced of the said ruling, the Alguras instituted the instant petition raising a solitary issue for the consideration of the Court: whether petitioners should be considered as indigent litigants who qualify for exemption from paying filing fees.

The Ruling of the Court

The petition is meritorious.

A review of the history of the Rules of Court on suits in forma pauperis (pauper litigant) is necessary before the Court rules on the issue of the Algura spouses' claim to exemption from paying filing fees.

When the Rules of Court took effect on January 1, 1964, the rule on pauper litigants was found in Rule 3, Section 22 which provided that:

Section 22. Pauper litigant.—Any court may authorize a litigant to prosecute his action or defense as a pauper upon a proper showing that he has no means to that effect by affidavits, certificate of the corresponding provincial, city or municipal treasurer, or otherwise. Such authority[,] once given[,] shall include an exemption from payment of legal fees and from filing appeal bond, printed record and printed brief. The legal fees shall be a lien to any judgment rendered in the case [favorable] to the pauper, unless the court otherwise provides.

From the same Rules of Court, Rule 141 on Legal Fees, on the other hand, did not contain any provision on pauper litigants.

On July 19, 1984, the Court, in Administrative Matter No. 83-6-389-0 (formerly G.R. No. 64274), approved the recommendation of the Committee on the Revision of Rates and Charges of Court Fees, through its Chairman, then Justice Felix V. Makasiar, to revise the fees in Rule 141 of the Rules of Court to generate funds to effectively cover administrative costs for services rendered by the courts.

20 A provision on pauper litigants was inserted which reads:

Section 16. Pauper-litigants exempt from payment of court fees.—Pauper-litigants include wage earners whose gross income do not exceed P2,000.00 a month or P24,000.00 a year for those residing in Metro Manila, and P1,500.00 a month or P18,000.00 a year for those residing outside Metro Manila, or those who do not own real property with an assessed value of not more than P24,000.00, or not more than P18,000.00 as the case may be.

Such exemption shall include exemption from payment of fees for filing appeal bond, printed record and printed brief.

The legal fees shall be a lien on the monetary or property judgment rendered in favor of the pauper-litigant.

To be entitled to the exemption herein provided, the pauper-litigant shall execute an affidavit that he does not earn the gross income abovementioned, nor own any real property with the assessed value afore-mentioned [sic], supported by a certification to that effect by the provincial, city or town assessor or treasurer.

When the Rules of Court on Civil Procedure were amended by the 1997 Rules of Civil Procedure (inclusive of Rules 1 to 71) in Supreme Court Resolution in Bar Matter No. 803 dated April 8, 1997, which became effective on July 1, 1997, Rule 3, Section 22 of the Revised Rules of Court was superseded by Rule 3, Section 21 of said 1997 Rules of Civil Procedure, as follows:

Section 21. Indigent party.—A party may be authorized to litigate his action, claim or defense as an indigent if the









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court, upon an ex parte application and hearing, is satisfied that the party is one who has no money or property sufficient and available for food, shelter and basic necessities for himself and his family.

Such authority shall include an exemption from payment of docket and other lawful fees, and of transcripts of stenographic notes which the court may order to be furnished him. The amount of the docket and other lawful fees which the indigent was exempted from paying shall be a lien on any judgment rendered in the case favorable to the indigent, unless the court otherwise provides.

Any adverse party may contest the grant of such authority at any time before judgment is rendered by the trial court. If the court should determine after hearing that the party declared as an indigent is in fact a person with sufficient income or property, the proper docket and other lawful fees shall be assessed and collected by the clerk of court. If payment is not made within the time fixed by the court, execution shall issue for the payment thereof, without prejudice to such other sanctions as the court may impose.

At the time the Rules on Civil Procedure were amended by the Court in Bar Matter No. 803, however, there was no amendment made on Rule 141, Section 16 on pauper litigants.

On March 1, 2000, Rule 141 on Legal Fees was amended by the Court in A.M. No. 00-2-01-SC, whereby certain fees were increased or adjusted. In this Resolution, the Court amended Section 16 of Rule 141, making it Section 18, which now reads:

Section 18. Pauper-litigants exempt from payment of legal fees.—Pauper litigants (a) whose gross income and that of their immediate family do not exceed four thousand (P4,000.00) pesos a month if residing in Metro Manila, and three thousand (P3,000.00) pesos a month if residing outside Metro Manila, and (b) who do not own real property with an assessed value of more than fifty thousand (P50,000.00) pesos shall be exempt from the payment of legal fees.

The legal fees shall be a lien on any judgment rendered in the case favorably to the pauper litigant, unless the court otherwise provides.

To be entitled to the exemption herein provided, the litigant shall execute an affidavit that he and his immediate family do not earn the gross income abovementioned, nor do they own any real property with the assessed value aforementioned, supported by an affidavit of a disinterested person attesting to the truth of the litigant's affidavit.

Any falsity in the affidavit of a litigant or disinterested person shall be sufficient cause to strike out the pleading of that party, without prejudice to whatever criminal liability may have been incurred.

It can be readily seen that the rule on pauper litigants was inserted in Rule 141 without revoking or amending Section 21 of Rule 3, which provides for the exemption of pauper litigants from payment

of filing fees. Thus, on March 1, 2000, there were two existing rules on pauper litigants; namely, Rule 3, Section 21 and Rule 141, Section 18.

On August 16, 2004, Section 18 of Rule 141 was further amended in Administrative Matter No. 04-2-04-SC, which became effective on the same date. It then became Section 19 of Rule 141, to wit:

Sec. 19. Indigent litigants exempt from payment of legal fees.– INDIGENT LITIGANTS (A) WHOSE GROSS INCOME AND THAT OF THEIR IMMEDIATE FAMILY DO NOT EXCEED AN AMOUNT DOUBLE THE MONTHLY MINIMUM WAGE OF AN EMPLOYEE AND (B) WHO DO NOT OWN REAL PROPERTY WITH A FAIR MARKET VALUE AS STATED IN THE CURRENT TAX DECLARATION OF MORE THAN THREE HUNDRED THOUSAND (P300,000.00) PESOS SHALL BE EXEMPT FROM PAYMENT OF LEGAL FEES.

The legal fees shall be a lien on any judgment rendered in the case favorable to the indigent litigant unless the court otherwise provides.

To be entitled to the exemption herein provided, the litigant shall execute an affidavit that he and his immediate family do not earn a gross income abovementioned, and they do not own any real property with the fair value aforementioned, supported by an affidavit of a disinterested person attesting to the truth of the litigant's affidavit. The current tax declaration, if any, shall be attached to the litigant's affidavit.

Any falsity in the affidavit of litigant or disinterested person shall be sufficient cause to dismiss the complaint or action or to strike out the pleading of that party, without prejudice to whatever criminal liability may have been incurred. (Emphasis supplied.)

Amendments to Rule 141 (including the amendment to Rule 141, Section 18) were made to implement RA 9227 which brought about new increases in filing fees. Specifically, in the August 16, 2004 amendment, the ceiling for the gross income of litigants applying for exemption and that of their immediate family was increased from PhP 4,000.00 a month in Metro Manila and PhP 3,000.00 a month outside Metro Manila, to double the monthly minimum wage of an employee; and the maximum value of the property owned by the applicant was increased from an assessed value of PhP 50,000.00 to a maximum market value of PhP 300,000.00, to be able to accommodate more indigent litigants and promote easier access to justice by the poor and the marginalized in the wake of these new increases in filing fees.

Even if there was an amendment to Rule 141 on August 16, 2004, there was still no amendment or recall of Rule 3, Section 21 on indigent litigants.

With this historical backdrop, let us now move on to the sole issue—whether petitioners are exempt from the payment of filing fees.

It is undisputed that the Complaint (Civil Case No. 99-4403) was filed on September 1, 1999. However, the Naga City RTC, in its April 14, 2000 and July 17, 2000 Orders, incorrectly applied Rule 141, Section 18 on Legal Fees when the applicable rules at that time were Rule 3,


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Section 21 on Indigent Party which took effect on July 1, 1997 and Rule 141, Section 16 on Pauper Litigants which became effective on July 19, 1984 up to February 28, 2000.

The old Section 16, Rule 141 requires applicants to file an ex-parte motion to litigate as a pauper litigant by submitting an affidavit that they do not have a gross income of PhP 2,000.00 a month or PhP 24,000.00 a year for those residing in Metro Manila and PhP 1,500.00 a month or PhP 18,000.00 a year for those residing outside Metro Manila or those who do not own real property with an assessed value of not more than PhP 24,000.00 or not more than PhP 18,000.00 as the case may be. Thus, there are two requirements: a) income requirement—the applicants should not have a gross monthly income of more than PhP 1,500.00, and b) property requirement––they should not own property with an assessed value of not more than PhP 18,000.00.

In the case at bar, petitioners Alguras submitted the Affidavits of petitioner Lorencita Algura and neighbor Erlinda Bangate, the pay slip of petitioner Antonio F. Algura showing a gross monthly income of PhP 10,474.00,

21 and a Certification of the Naga City assessor

stating that petitioners do not have property declared in their names for taxation.

22 Undoubtedly, petitioners do not own real

property as shown by the Certification of the Naga City assessor and so the property requirement is met. However with respect to the income requirement, it is clear that the gross monthly income of PhP 10,474.00 of petitioner Antonio F. Algura and the PhP 3,000.00 income of Lorencita Algura when combined, were above the PhP 1,500.00 monthly income threshold prescribed by then Rule 141, Section 16 and therefore, the income requirement was not satisfied. The trial court was therefore correct in disqualifying petitioners Alguras as indigent litigants although the court should have applied Rule 141, Section 16 which was in effect at the time of the filing of the application on September 1, 1999. Even if Rule 141, Section 18 (which superseded Rule 141, Section 16 on March 1, 2000) were applied, still the application could not have been granted as the combined PhP 13,474.00 income of petitioners was beyond the PhP 3,000.00 monthly income threshold.

Unrelenting, petitioners however argue in their Motion for Reconsideration of the April 14, 2000 Order disqualifying them as indigent litigants

23 that the rules have been relaxed by relying on

Rule 3, Section 21 of the 1997 Rules of Civil procedure which authorizes parties to litigate their action as indigents if the court is satisfied that the party is "one who has no money or property sufficient and available for food, shelter and basic necessities for himself and his family." The trial court did not give credence to this view of petitioners and simply applied Rule 141 but ignored Rule 3, Section 21 on Indigent Party.

The position of petitioners on the need to use Rule 3, Section 21 on their application to litigate as indigent litigants brings to the fore the issue on whether a trial court has to apply both Rule 141, Section 16 and Rule 3, Section 21 on such applications or should the court apply only Rule 141, Section 16 and discard Rule 3, Section 21 as having been superseded by Rule 141, Section 16 on Legal Fees.

The Court rules that Rule 3, Section 21 and Rule 141, Section 16 (later amended as Rule 141, Section 18 on March 1, 2000 and subsequently amended by Rule 141, Section 19 on August 16, 2003, which is now the present rule) are still valid and enforceable rules on indigent litigants.

For one, the history of the two seemingly conflicting rules readily reveals that it was not the intent of the Court to consider the old Section 22 of Rule 3, which took effect on January 1, 1994 to have been amended and superseded by Rule 141, Section 16, which took effect on July 19, 1984 through A.M. No. 83-6-389-0. If that is the case, then the Supreme Court, upon the recommendation of the Committee on the Revision on Rules, could have already deleted Section 22 from Rule 3 when it amended Rules 1 to 71 and approved the 1997 Rules of Civil Procedure, which took effect on July 1, 1997. The fact that Section 22 which became Rule 3, Section 21 on indigent litigant was retained in the rules of procedure, even elaborating on the meaning of an indigent party, and was also strengthened by the addition of a third paragraph on the right to contest the grant of authority to litigate only goes to show that there was no intent at all to consider said rule as expunged from the 1997 Rules of Civil Procedure.

Furthermore, Rule 141 on indigent litigants was amended twice: first on March 1, 2000 and the second on August 16, 2004; and yet, despite these two amendments, there was no attempt to delete Section 21 from said Rule 3. This clearly evinces the desire of the Court to maintain the two (2) rules on indigent litigants to cover applications to litigate as an indigent litigant.

It may be argued that Rule 3, Section 21 has been impliedly repealed by the recent 2000 and 2004 amendments to Rule 141 on legal fees. This position is bereft of merit. Implied repeals are frowned upon unless the intent of the framers of the rules is unequivocal. It has been consistently ruled that:

(r)epeals by implication are not favored, and will not be decreed, unless it is manifest that the legislature so intended. As laws are presumed to be passed with deliberation and with full knowledge of all existing ones on the subject, it is but reasonable to conclude that in passing a statute[,] it was not intended to interfere with or abrogate any former law relating to same matter, unless the repugnancy between the two is not only irreconcilable, but also clear and convincing, and flowing necessarily from the language used, unless the later act fully embraces the subject matter of the earlier, or unless the reason for the earlier act is beyond peradventure removed. Hence, every effort must be used to make all acts stand and if, by any reasonable construction they can be reconciled, the later act will not operate as a repeal of the earlier.

24 (Emphasis

supplied).

Instead of declaring that Rule 3, Section 21 has been superseded and impliedly amended by Section 18 and later Section 19 of Rule 141, the Court finds that the two rules can and should be harmonized.

The Court opts to reconcile Rule 3, Section 21 and Rule 141, Section 19 because it is a settled principle that when conflicts are seen between two provisions, all efforts must be made to harmonize them. Hence, "every statute [or rule] must be so construed and harmonized with other statutes [or rules] as to form a uniform system of jurisprudence."

25

In Manila Jockey Club, Inc. v. Court of Appeals, this Court enunciated that in the interpretation of seemingly conflicting laws, efforts must be made to first harmonize them. This Court thus ruled:







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Consequently, every statute should be construed in such a way that will harmonize it with existing laws. This principle is expressed in the legal maxim 'interpretare et concordare leges legibus est optimus interpretandi,' that is, to interpret and to do it in such a way as to harmonize laws with laws is the best method of interpretation.

26

In the light of the foregoing considerations, therefore, the two (2) rules can stand together and are compatible with each other. When an application to litigate as an indigent litigant is filed, the court shall scrutinize the affidavits and supporting documents submitted by the applicant to determine if the applicant complies with the income and property standards prescribed in the present Section 19 of Rule 141—that is, the applicant's gross income and that of the applicant's immediate family do not exceed an amount double the monthly minimum wage of an employee; and the applicant does not own real property with a fair market value of more than Three Hundred Thousand Pesos (PhP 300,000.00). If the trial court finds that the applicant meets the income and property requirements, the authority to litigate as indigent litigant is automatically granted and the grant is a matter of right.

However, if the trial court finds that one or both requirements have not been met, then it would set a hearing to enable the applicant to prove that the applicant has "no money or property sufficient and available for food, shelter and basic necessities for himself and his family." In that hearing, the adverse party may adduce countervailing evidence to disprove the evidence presented by the applicant; after which the trial court will rule on the application depending on the evidence adduced. In addition, Section 21 of Rule 3 also provides that the adverse party may later still contest the grant of such authority at any time before judgment is rendered by the trial court, possibly based on newly discovered evidence not obtained at the time the application was heard. If the court determines after hearing, that the party declared as an indigent is in fact a person with sufficient income or property, the proper docket and other lawful fees shall be assessed and collected by the clerk of court. If payment is not made within the time fixed by the court, execution shall issue or the payment of prescribed fees shall be made, without prejudice to such other sanctions as the court may impose.

The Court concedes that Rule 141, Section 19 provides specific standards while Rule 3, Section 21 does not clearly draw the limits of the entitlement to the exemption. Knowing that the litigants may abuse the grant of authority, the trial court must use sound discretion and scrutinize evidence strictly in granting exemptions, aware that the applicant has not hurdled the precise standards under Rule 141. The trial court must also guard against abuse and misuse of the privilege to litigate as an indigent litigant to prevent the filing of exorbitant claims which would otherwise be regulated by a legal fee requirement.

Thus, the trial court should have applied Rule 3, Section 21 to the application of the Alguras after their affidavits and supporting documents showed that petitioners did not satisfy the twin requirements on gross monthly income and ownership of real property under Rule 141. Instead of disqualifying the Alguras as indigent litigants, the trial court should have called a hearing as required by Rule 3, Section 21 to enable the petitioners to adduce evidence to show that they didn't have property and money sufficient and available for food, shelter, and basic necessities for them and their family.

27 In that hearing, the respondents would

have had the right to also present evidence to refute the allegations and evidence in support of the application of the petitioners to litigate as indigent litigants. Since this Court is not a trier of facts, it will have to remand the case to the trial court to determine whether petitioners can be considered as indigent litigants using the standards set in Rule 3, Section 21.

Recapitulating the rules on indigent litigants, therefore, if the applicant for exemption meets the salary and property requirements under Section 19 of Rule 141, then the grant of the application is mandatory. On the other hand, when the application does not satisfy one or both requirements, then the application should not be denied outright; instead, the court should apply the "indigency test" under Section 21 of Rule 3 and use its sound discretion in determining the merits of the prayer for exemption.

Access to justice by the impoverished is held sacrosanct under Article III, Section 11 of the 1987 Constitution. The Action Program for Judicial Reforms (APJR) itself, initiated by former Chief Justice Hilario G. Davide, Jr., placed prime importance on 'easy access to justice by the poor' as one of its six major components. Likewise, the judicial philosophy of Liberty and Prosperity of Chief Justice Artemio V. Panganiban makes it imperative that the courts shall not only safeguard but also enhance the rights of individuals—which are considered sacred under the 1987 Constitution. Without doubt, one of the most precious rights which must be shielded and secured is the unhampered access to the justice system by the poor, the underprivileged, and the marginalized.

WHEREFORE, the petition is GRANTED and the April 14, 2000 Order granting the disqualification of petitioners, the July 17, 2000 Order denying petitioners' Motion for Reconsideration, and the September 11, 2001 Order dismissing the case in Civil Case No. RTC-99-4403 before the Naga City RTC, Branch 27 are ANNULLED and SET ASIDE. Furthermore, the Naga City RTC is ordered to set the "Ex-Parte Motion to Litigate as Indigent Litigants" for hearing and apply Rule 3, Section 21 of the 1997 Rules of Civil Procedure to determine whether petitioners can qualify as indigent litigants.

No costs.

SO ORDERED.




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G.R. No. 150107 January 28, 2008

TOKIO MARINE MALAYAN INSURANCE COMPANY INCORPORATED, ALMA PEÑALOSA, KIMIO HOSAKA, SUMITOMI NISHIDA, TERESITA H. QUIAMBAO and ANTONIO B. LAPID, petitioners, vs. JORGE VALDEZ, respondent.

x ------------------------------------------ x

G.R. No. 150108 January 28, 2008

TOKIO MARINE MALAYAN INSURANCE COMPANY INCORPORATED and TERESITA H. QUIAMBAO, petitioners, vs. JORGE VALDEZ, respondent.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

For our resolution are two (2) consolidated petitions for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seeking to reverse the Decision

1 of the Court of Appeals

dated September 13, 2001 in the consolidated cases CA-G.R. SP No. 52914 and CA-G.R. SP No. 56579.

Tokio Marine Malayan Insurance Company Incorporated (Tokio Marine), petitioner in these cases, is a domestic corporation engaged in the insurance business. The individual petitioners are its corporate officers, except Antonio B. Lapid, one of Tokio Marine's consultants.

Jorge Valdez, respondent in these cases, was a former unit manager of Tokio Marine pursuant to a Unit Management Contract entered into between them on August 16, 1977.

On October 15, 1998, respondent filed with the Regional Trial Court, Branch 35, Manila a complaint for damages against petitioners, docketed as Civil Case No. 98-91356. He alleged therein that petitioners violated the terms of the Unit Management Contract by refusing to pay him, among others, his "commissions," and bonuses. Respondent prayed for the following reliefs: a) actual damages in the total amount of P71,866,205.67 and the corresponding interests; b) moral damages of P10,000,000.00; c) exemplary damages amounting to P10,000,000.00; d) attorney's fees corresponding to 30% of the said amounts; and e) costs of the suit.

Eventually, respondent filed with the trial court an "Urgent Ex Parte Motion For Authority To Litigate As Indigent Plaintiff."

On October 28, 1998, the trial court issued an Order, the pertinent portions of which read:

The Court hereby allows the plaintiff to litigate as pauper there being sufficient showing that he is an indigent. He does not own any real property in the City of Manila or elsewhere.

The Court therefore directs the Clerk of Court to accept the complaint for filing without payment of filing fees

computed as SIX HUNDRED FIFTEEN THOUSAND SIX HUNDRED SEVENTY TWO AND EIGHTY-THREE CENTAVOS (P615,672.83) which amount, however, shall constitute a lien upon any judgment to be rendered in favor of the plaintiff.

On December 11, 1998, petitioners filed their separate motions to dismiss the complaint.

On December 17, 1998, respondent manifested before the trial court that he filed various criminal complaints against petitioners with the Office of the City Prosecutor of Makati City.

On January 20, 1999, the trial court issued an Order2 denying

petitioners' motions to dismiss. They then filed motions for reconsideration, but they were likewise denied.

On March 12, 1999, petitioners filed their "Answer Ad Cautelam" in Civil Case No. 98-91356.

On May 24, 1999, petitioners filed a petition for certiorari with prayer for a temporary restraining order and preliminary injunction with the Court of Appeals assailing the Order of the trial court dated January 20, 1999 denying their motions to dismiss, docketed as CA-G.R. SP No. 52914.

On October 15, 1999, the Court of Appeals issued a Resolution directing the issuance of a writ of preliminary injunction restraining the trial court from conducting further proceedings in Civil Case No. 98-91356 during the pendency of CA-G.R. SP No. 52914.

Then on December 7, 1999, respondent filed with the Court of Appeals an "Urgent Notice of Taking of Deposition Upon Oral Examination of Private Respondent Jorge Valdez For Purposes of the Above-Captioned Pending Case And For Such Other Legal Purposes As May Be Warranted By Existing Law and Jurisprudence." It appears that respondent was already 75 years old and sickly.

On December 13, 1999, petitioners filed with the Court of Appeals a petition to cite respondent in contempt of court, docketed as CA-G.R. SP No. 56579. Petitioners alleged therein that in filing with the appellate court an urgent notice of taking his deposition, respondent violated the preliminary injunction issued by the said court.

Subsequently, CA-G.R. SP No. 56579 was consolidated with CA-G.R. SP No. 52914.

On December 14, 1999, the deposition of respondent was taken by Atty. Alberto A. Aguja, a Notary Public for Manila. On the same date, he filed with the Court of Appeals respondent's deposition.

On September 13, 2001, the Court of Appeals rendered its Decision in the consolidated cases CA-G.R. SP No. 52914 and CA-G.R. SP No. 56579 dismissing the petitions and lifting and dissolving the writ of preliminary injunction previously issued, thus:

WHEREFORE, for lack of merit, the consolidated petitions filed by the petitioners are hereby DISMISSED. The writ of preliminary injunction dated October 18, 1999 issued by this Court enjoining further proceedings in Civil Case No.

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98-91356, pending before the Regional Trial Court of Manila, Branch 35 is hereby LIFTED and DISSOLVED.

SO ORDERED.

Hence, the instant consolidated petitions.

Petitioners contend that the Court of Appeals erred: (1) in denying their motion to dismiss respondent's complaint in Civil Case No. 98-91356 for nonpayment of docket fees; (2) for not finding that respondent engaged in forum shopping; and (3) in not declaring that he is guilty of contempt of court.

On the first issue, it is hornbook law that courts acquire jurisdiction over any case only upon payment of the prescribed docket fee.

3 As

we held in Magaspi v. Ramolete,4 the correct docket fees must be

paid before courts can act on a petition or complaint. The exception to the rule on payment of docket fees is provided in Section 21, Rule 3 of the 1997 Rules of Civil Procedure, as amended, thus:

SEC. 21. Indigent party. - A party may be authorized to litigate his action, claim or defense as an indigent if the court, upon an ex parte application and hearing, is satisfied that the party is one who has no money or property sufficient and available for food, shelter and basic necessities for himself and his family.

Such authority shall include an exemption from payment of docket and other lawful fees and of transcripts of stenographic notes which the court may order to be furnished him. The amount of the docket and other lawful fees which the indigent was exempted from paying shall be a lien on any judgment rendered in the case favorable to the indigent, unless the court otherwise provides.

Any adverse party may contest the grant of such authority at any time before judgment is rendered by the trial court. If the court should determine after hearing that the party declared as an indigent is in fact a person with sufficient income or property, the proper docket and other lawful fees shall be assessed and collected by the clerk of court. If payment is not made within the time fixed by the court, execution shall issue or the payment thereof, without prejudice to such other sanctions as the court may impose.

The guidelines for determining whether a party qualifies as an indigent litigant are provided for in Section 19, Rule 141,

5 of the

Revised Rules of Court, which reads:

SEC. 19. Indigent litigants exempt from payment of legal fees. - INDIGENT LITIGANT (A) WHOSE GROSS INCOME AND THAT OF THEIR IMMEDIATE FAMILY DO NOT EXCEED AN AMOUNT DOUBLE THE MONTHLY MINIMUM WAGE OF AN EMPLOYEE AND (B) WHO DO NOT OWN REAL PROPERTY WITH A FAIR MARKET VALUE AS STATED IN THE CURRENT TAX DECLARATION OF MORE THAN THREE HUNDRED THOUSAND PESOS (P300,000.00) SHALL BE EXEMPT FROM THE PAYMENT OF LEGAL FEES.

The legal fees shall be a lien on any judgment rendered in the case favorable to the indigent unless the court otherwise provides.

To be entitled to the exemption herein provided, the litigant shall execute an affidavit that he and his immediate family do not earn a gross income abovementioned nor they own any real property with the fair value aforementioned, supported by an affidavit of a disinterested person attesting to the truth of the litigant's affidavit. The current tax declaration, if any, shall be attached to the litigant's affidavit.

Any falsity in the affidavit of the litigant or disinterested person shall be sufficient cause to dismiss the complaint or action or to strike out the pleading of that party, without prejudice to whatever criminal liability may have been incurred.

For purposes of a suit in forma pauperis, an indigent litigant is not really a pauper, but is properly a person who is an indigent although not a public charge, meaning that he has no property or income sufficient for his support aside from his labor, even if he is self-supporting when able to work and in employment.

6 The term

"immediate family" includes those members of the same household who are bound together by ties of relationship but does not include those who are living apart from the particular household of which the individual is a member.

7

In the instant cases, petitioners maintain that respondent's ex parte motion to litigate as an indigent is defective since it was not accompanied or supported by the affidavits of his children, the immediate members of his family. The argument lacks merit. Section 19 clearly states that it is the litigant alone who shall execute the affidavit. The Rule does not require that all members of the litigant's immediate family must likewise execute sworn statements in support of the petition. Expressio unius est exclusio alterius.

Petitioners next argue that respondent's ex parte motion is not supported by sufficient evidence to show his indigent status.

8 Suffice

it to state that this Court is, first and foremost, a court of law. It is not its function to analyze and weigh all over again the evidence or premises supportive of factual determination.

9 Thus, petitioners

cannot now ask us to review the evidence anew.

Anent the second issue, petitioners insist that respondent committed forum shopping when he failed to report to the trial court that he filed criminal cases against petitioners with the Office of the City Prosecutor of Makati City.

Gatmaytan v. Court of Appeals10

describes forum shopping as the act of a litigant who "repetitively availed of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues either pending in, or already resolved adversely by some other court…to increase his chances of obtaining a favorable decision if not in one court, then in another." Differently put, it is "the filing of multiple suits involving the same parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable judgment."

11

The rationale against forum shopping is that a party should not be allowed to pursue simultaneous remedies in two different courts as it constitutes abuse of court processes, which tends to degrade the administration of justice, wreaks havoc upon orderly judicial











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procedure, and adds to the congestion of the heavily burdened dockets of the courts.

12

Section 5, Rule 7 of the 1997 Rules of Civil Procedure, as amended, provides:

SEC. 5. Certification against forum shopping. - The plaintiff or principal party shall certify under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving the same issues in any court, tribunal, or quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that same or similar action or claim has been filed or is pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.

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

Respondent's Certificate of Non-Forum Shopping attached to the complaint in Civil Case No. 98-91356 reads:

FURTHER, that he has not heretofore commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency, except the criminal case for SWINDLING (ESTAFA) under Art. 315, paragraph 1 (b) and for FALSIFICATION BY PRIVATE INDIVIDUALS OF PRIVATE DOCUMENTS under Art. 172, paragraph 2 of the Revised Penal Code to be filed before the Makati Prosecutor's Office, criminal case for violation of the Insurance Code of the Philippines to be filed before the Makati Prosecutor's Office, and the administrative case for violation of the Insurance Code Commission; that to the best of his knowledge no such other action is pending in the Supreme Court and Court of Appeals.

We agree with the Court of Appeals that the foregoing certification is a substantial compliance with Section 5 of Rule 7. Moreover, it should be recalled that respondent manifested before the trial court on December 16, 1998 that he actually filed criminal cases against petitioners with the Office of the City Prosecutor of Makati City.

On the final issue, petitioners claim that the deposition of respondent taken on December 14, 1999 violated the injunction

issued by the Court of Appeals on October 15, 1999. Such act, petitioners assert, is tantamount to indirect contempt of court.

Contempt of court is "a defiance of the authority, justice or dignity of the court: such conduct as tends to bring the authority and administration of the law into disrespect or to interfere with or prejudice parties litigants or their witnesses during litigation."

13

Succinctly, it is the despising of the authority, justice, or dignity of the court.

14 Rule 71 provides for two forms of contumacious acts -

direct and indirect.

Indirect contempt refers to contumacious acts perpetrated outside of the sitting of the court and may include misbehavior of an officer of a court in the performance of his official duties or in his official transactions, disobedience of or resistance to a lawful writ, process, order, judgment, or command of a court, or injunction granted by a court or a judge, any abuse or any unlawful interference with the process or proceedings of a court not constituting direct contempt, or any improper conduct tending directly or indirectly to impede, obstruct or degrade the administration of justice.

15 It is governed by

Section 3, Rule 71 of the 1997 Rules of Civil Procedure, as amended, which provides:

SEC. 3. Indirect contempt to be punished after charge and hearing. - After a charge in writing has been filed and an opportunity given to the respondent to comment thereon within such period as may be fixed by the court and to be heard by himself or by counsel, a person guilty of any of the following acts may be punished for indirect contempt:

(a) Misbehavior of an officer of court in the performance of his official duties or in his official transactions;

(b) Disobedience of or resistance to a lawful writ, process, order, or judgment of a court, including the act of a person who, after being dispossessed or rejected from any real property by the judgment or process of any court of competent jurisdiction, enters or attempts or induces another to enter into or upon such real property, for the purpose of executing acts of ownership or possession, or in any manner disturbs the possession given to the person adjudged to be entitled thereto;

(c) Any abuse of or any unlawful interference with the process or proceeding of a court not constituting direct contempt under Section 1 of this Rule;

(d) Any improper conduct tending directly or indirectly to impede, obstruct, or degrade the administration of justice;

(e) Assuming to be an attorney or an officer of a court and acting as such without authority;

(f) Failure to obey a subpoena duly served;

(g) The rescue, or attempted rescue, of any person or property in the custody of an officer by virtue of an order or process of a court held by him.






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But nothing in this section shall be so construed as to prevent the court from issuing process to bring the respondent into court, or from holding him in custody pending such proceedings.

Before one may be convicted of indirect contempt, there must be compliance with the following requisites: (a) a charge in writing to be filed; (b) an opportunity for respondent to comment thereon within such period as may be fixed by the court; and (c) an opportunity to be heard by himself or by counsel.

16 Records show

that these requirements were complied with.

The Court of Appeals, in CA-G.R. SP No. 56579, dismissed the charge for indirect contempt, holding that respondent's deposition was done in good faith, thus:

It should be emphasized that what triggered the holding of private respondent's deposition last December 14, 1999 was the use by the petitioners of the June 09 and 28, 1999 depositions when at that time no orders were issued by Us enjoining any proceedings below. The use of the petitioners of June 09 and 28 depositions have been vigorously objected to by the private respondent, contending that there was a misunderstanding created when the private respondent was cross-examined by the counsel for the petitioners, and in his honest belief to clarify such misunderstanding in the previous depositions, the December 14, 1999 deposition was taken.

We see no reason to depart from the foregoing findings by the appellate court. Moreover, the taking of respondent's deposition is not a part of the court proceedings in Civil Case No. 98-91356, hence, not covered by the writ of injunction issued by the Court of Appeals. Let it be stressed at this point that we have always abided by the dogma that courts must exercise their contempt powers sparingly.

In sum, we rule that the Court of Appeals did not err in dismissing the petitions in CA-G.R. SP No. 52914 and CA-G.R. SP No. 56579.

WHEREFORE, we DENY the petitions. The challenged Decision of the Court of Appeals in CA-G.R. SP No. 52914 and CA-G.R. SP No. 56579 is AFFIRMED. Costs against petitioners.

SO ORDERED.



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G.R. No. 132765 January 31, 2003

GLICERIO R. BRIOSO, substituted by FELICIDAD Z. BRIOSO, BENER Z. BRIOSO, JULITO Z. BRIOSO, GLICERIO Z. BRIOSO, JR., and ERNESTO Z. BRIOSO, CONCEPCION B. NOLASCO, MARCOS NOLASCO and SALVADOR Z. BRIOSO, petitioners, vs. SALVADORA RILI-MARIANO and LEONARDO C. MARIANO, respondents.

CARPIO, J.:

The Case

This petition for review on certiorari1 seeks to reverse the Decision

2

of the Court of Appeals dated September 2, 1997 in CA-G.R. CV No. 51347, as well as the Resolution dated January 21, 1998 denying the motion for reconsideration. The Court of Appeals in its assailed Decision affirmed the Decision

3 of the Regional Trial Court, Branch

29, Libmanan, Camarines Sur. The trial court ordered petitioners to turn over possession of certain properties to respondents and to pay respondents damages and attorney's fees.

The Facts

On February 1, 1975, the Spouses Salvadora Rili-Mariano and Leonardo C. Mariano ("Spouses Mariano" for brevity), through the Land Bank of the Philippines ("Land Bank" for brevity), repurchased the property that they previously sold to Glicerio Brioso ("Glicerio" for brevity) within the period specified in the parties' pacto de retro sale. Despite repeated demands, however, Glicerio refused to deliver the entire property to the Spouses Mariano. Thus, on May 27, 1977, the Spouses Mariano filed a complaint

4 for recovery of

possession of real property against Glicerio, Ernesto Brioso ("Ernesto" for brevity), Concepcion Brioso-Nolasco ("Concepcion" for brevity), Eusebio Nocedal ("Eusebio" for brevity) and Salvador Brioso ("Salvador" for brevity). The Spouses Mariano sought to repossess Lots 715, 716, 718, 722, 724 and 725 ("Properties" for brevity), which constitute portions of a riceland containing an area of 19.5229 hectares and situated at Potot, Libmanan, Camarines Sur.

Defendants, through their counsels, Augusto Pardalis ("Atty. Pardalis" for brevity) and Salvador, asserted that the Spouses Mariano had no cause of action against Glicerio because the latter had already lost all interest in the land. Defendants claimed that Glicerio installed his son Ernesto, his daughter Concepcion and his employee Eusebio as tenants of the property before the repurchase, therefore, they were bona fide cultivators-possessors of the land. Defendants also averred that the titles to the Properties had already been transferred to the Land Bank. Defendants added that the complaint was defective as it failed to implead Land Bank and Concepcion's husband as indispensable parties. As part of their counterclaim, defendants alleged that the Spouses Mariano failed to comply with their obligation to replace the Land Bank bonds (which Spouses Mariano used to partly pay the repurchase price) with cash.

Subsequently, Spouses Mariano amended their complaint to implead Land Bank and Concepcion spouse, Marcos Nolasco ("Marcos" for brevity).

5

During the pre-trial, upon the Spouses Mariano's motion, the complaint was dismissed against Land Bank, Ernesto and Eusebio.

6

Thereafter, trial against the remaining defendants, namely, Glicerio, Concepcion, Marcos and Salvador, ensued.

On August 30, 1987, Glicerio died. Accordingly, defendants, through Atty. Pardalis, filed a Notice of Death of Glicerio Brioso.

7

Subsequently, the Spouses Mariano's counsel filed a Motion for Substitution of Deceased Defendant

8 which Atty. Pardalis received.

Acting on the motion for substitution, the trial court issued an Order

9 which reads:

"The motion of Atty. Grageda to substitute the deceased defendant Glicerio Brioso is hereby admitted.

SO ORDERED."

Trial on the merits continued. Accordingly, defendants adduced their evidence. Part of defendants' evidence consisted of the testimonies of Salvador, Concepcion and Ernesto.

10

On July 14, 1995, the trial court rendered a decision, the dispositive portion of which reads:

"WHEREFORE, premises considered, after proper evaluation of the evidence presented by both parties, this Court finds and holds that the preponderance of evidence is in favor of the plaintiffs. Hence, judgment is rendered in favor of the plaintiffs and against the defendants Concepcion Brioso-Nolasco and her husband,

11 Salvador

Brioso and the substitute defendants for deceased defendant Glicerio Brioso who are ordered to pay the plaintiffs, jointly and severally, in the proportion stated earlier:

a) P303,972.46, for actual damages;

b) P147,000.00 for transportation, hotel and representation expenses;

c) P95,000.00 for income loss from employment and business activities;

d) P20,000.00 for attorney's fees;

e) P150,000.00 for moral damages;

f) P50,000.00 for exemplary damages; and

g) to pay the cost.

All these amounts shall earn interest at 6% per annum until fully paid by the defendants.

The defendants are also directed to immediately turn over the physical and material possession of Lots 716, 722 and 725 to the plaintiffs as reflected in Exh. D.

SO ORDERED."12

Dissatisfied with the adverse decision, Marcos and Glicerio's heirs, namely, Felicidad Z. Brioso ("Felicidad" for brevity), Bener Z. Brioso


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("Bener" for brevity), Julito Z. Brioso ("Julito" for brevity), Glicerio Z. Brioso, Jr. ("Glicerio, Jr." for brevity), Ernesto, Concepcion and Salvador filed an appeal with the Court of Appeals.

In the Court of Appeals, petitioners presented, among others, the issue of whether there was a valid substitution of the deceased party, the main issue presented in the instant petition. Petitioners maintained that the substitution of Glicerio was invalid as the trial court failed to comply with the Rules of Court on the substitution of a deceased party. Considering that the substitution was null and void, petitioners alleged that the trial court did not acquire jurisdiction over their persons. Hence, the entire proceedings in the trial court and the judgment rendered by the trial court were void.

The Ruling of the Court of Appeals

The Court of Appeals sustained the decision of the trial court. In ruling that there was a valid substitution of the deceased party, the Court of Appeals quoted Section 17, Rule 3 of the old Rules of Court. The Court of Appeals held that the trial court acquired jurisdiction over the persons of the petitioners. Thus, the decision of the trial court is valid and binding upon all of the petitioners. The Court of Appeals anchored its ruling on the following factual findings:

"In this case, the records show that on September 23, 1987, Atty. Augusto Pardales(sic), counsel for defendants, filed a notice of death informing the court that defendant Glicerio R. Brioso died on August 30, 1987 (p. 316, Records). Counsel for the plaintiffs accordingly filed a Motion for Substitution of Deceased Defendant on October 5, 1987 (p. 318, Records). The trial court on October 8, 1987 issued an Order which reads:

xxx xxx xxx

Subsequently, the heirs of Glicerio Brioso, namely: Mrs. Felicidad Z. Brioso, Benet(sic) Z. Brioso, Julito Z. Brioso, Glicerio Z. Brioso, Jr., Ernesto Z. Brioso, Concepcion Brioso-Nolasco, and Salvador Z. Brioso, were made substitute defendants in the case. Their counsels were definitely aware of such substitution. In fact, one of them, Atty. Salvador Z. Brioso, was one of the counsels of the defendants. It was the duty of said counsels to inform the heirs of the substitution after the court had issued the order granting the motion of the plaintiffs.

Moreover, Ernesto Brioso cannot deny the fact that he knew of the pendency of the action and the substitution of the heirs because he participated as a witness for the defendants even after the case against him was earlier dismissed. Undoubtedly, the court had acquired jurisdiction over the persons of the heirs and the judgment is thereby binding upon all of them."

13

Petitioners filed a Motion for Reconsideration of the above decision. Finding no new issues or arguments raised in the motion, the Court of Appeals denied the same.

14


The Issues

Petitioners posed these "two-fold issues"15

for resolution:

1. Whether there was a valid substitution of deceased Glicerio; and

2. Whether the trial court acquired jurisdiction over the persons of the petitioners.

The Court's Ruling

The petition is partly meritorious.

Petitioners assert that the trial court failed to comply with the clear language of Section 17, Rule 3 of the old Rules of Court which provides as follows:

"Death of a party. After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal representative of the deceased, within a period of thirty (30) days, or within such time as may be granted. If the legal representative fails to appear within said time, the court may order the opposing party to procure the appointment of a legal representative of the deceased within a time to be specified by the court, and the representative shall immediately appear for and on behalf of the interest of the deceased. The court charges involved in procuring such appointment, if defrayed by the opposing party, may be recovered as costs. The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the appointment of an executor or administrator and the court may appoint guardian ad litem for the minor heirs."

16

Petitioners allege that, as there was no appointed administrator for the estate of the deceased defendant, the trial court should have ordered the heirs to appear personally before it and manifest whether they were willing to substitute Glicerio. Petitioners further aver that if none of the heirs appeared or manifested to act as substitutes, the trial court should have ordered the adverse party to procure the appointment of a legal representative of the deceased who should appear for and on behalf of the deceased's interest.

Petitioners also harp on their failure to receive a copy of the Spouses Mariano's motion for substitution of Glicerio as well as the Order of the trial court admitting the motion. Petitioners argue that, even if they received a copy of the Order, the same did not grant the Spouses Mariano's motion for substitution. Since they were not aware of the purported substitution because of the lack of service on them of the motion and the Order, petitioners insist that the entire proceedings in the trial court were void for lack of jurisdiction over their persons.

It must be pointed out that, contrary to the Spouses Mariano's view, their complaint for recovery of possession of real property is an action which survives the death of a party.

17 Such being the case, the

rule on substitution of a deceased party is clearly applicable.

Under the express terms of Section 17 of the old Rules, in case of the death of a party and due notice is given to the trial court, it is the duty of the court to order the deceased's legal representative or heir to appear for the deceased.

18 Otherwise, "the trial held by the court

without appearance of the deceased's legal representative or substitution of heirs and the judgment rendered after trial, are null and void."

19


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Non-compliance with the rule on substitution of a deceased party renders the proceedings and judgment of the trial court infirm because the court acquired no jurisdiction over the persons of the legal representatives or of the heirs on whom the trial and the judgment would be binding. In other words, a party's right to due process is at stake, as we enunciated in Vda. de Salazar v. Court of Appeals,

20 thus —

"We should not lose sight of the principle underlying the general rule that formal substitution of heirs must be effectuated for them to be bound by a subsequent judgment. Such had been the general rule established not because the rule on substitution of heirs and that on appointment of a legal representative are jurisdictional requirements per se but because non-compliance therewith results in the undeniable violation of the right to due process of those who, though not duly notified of the proceedings, are substantially affected by the decision rendered therein." (Emphasis supplied.)

In the instant case, it is true that the trial court, after receiving a notice of Glicerio's death, failed to order the appearance of his legal representative or heirs. Instead, the trial court issued an Order merely admitting respondents' motion for substitution. There was no court order for Glicerio's legal representative to appear, nor did any such legal representative ever appear in court to be substituted for Glicerio. Neither did the respondents ever procure the appointment of such legal representative, nor did Glicerio's heirs ever ask to be substituted for Glicerio. Clearly, the trial court failed to observe the proper procedure in substituting Glicerio. As a result, contrary to the Court of Appeals' decision, no valid substitution transpired in the present case.

21

Thus, we rule that the proceedings and judgment of the trial court are void as to Felicidad, Glicerio, Jr., Bener and Julito. There is no iota of proof that they were apprised of the litigation against Glicerio. There is no indication that they authorized Atty. Pardalis to represent them or any showing that they appeared in the proceedings. Given these facts, the trial court clearly did not acquire jurisdiction over their persons. Such being the case, these heirs cannot be bound by the judgment of the trial court, as we have pronounced in Ferreria, et al. v. Vda. de Gonzales, et al.,

22 thus —

"Inasmuch as Manolita Gonzales was never validly served a copy of the order granting the substitution and that furthermore, a valid substitution was never effected, consequently, the court never acquired jurisdiction over Manolita Gonzales for the purpose of making her a party to the case and making the decision binding upon her, either personally or as legal representative of the estate of her mother Manuela."

However, despite the trial court's failure to adhere to the rule on substitution of a deceased party, its judgment remains valid and binding on the following heirs, namely, Salvador, Concepcion and Ernesto. Formal substitution of heirs is not necessary when the heirs themselves voluntarily appeared, shared in the case and presented evidence in defense of deceased defendant.

23 This is precisely

because, despite the court's non-compliance with the rule on substitution, the heirs' right to due process was obviously not impaired.

24 In other words, the purpose of the rule on substitution

of a deceased party was already achieved. The following facts indicate plainly that there was active participation of these heirs in the defense of Glicerio after his death.

First, Salvador and Concepcion were among the original defendants in the case. Needless to state, the trial court, even before Glicerio's death, already acquired jurisdiction over the persons of these heirs. Hence, the rule on substitution of a deceased party is no longer required as to Salvador and Concepcion because they were already impleaded as defendants. In fact, Salvador, a lawyer son of Glicerio, was also one of the counsels for defendants.

Second, the lengthy testimonies of Salvador, Concepcion and Ernesto show that they defended their deceased father. Both Concepcion and Salvador testified in defense not only of themselves but also of their deceased father. As to Ernesto, while he was dropped as a defendant, he testified and admitted that he was one of the substitutes of Glicerio, thus —

"INTERPRETER: Please state your name and other personal circumstances.

WITNESS: ERNESTO BRIOSO, 45 years old, widower, farmer and residing at Puro-Batia, Libmanan, Camarines Sur.

INTERPRETER: Your witness is now ready.

ATTY. PARDALIS: With the permission of the Honorable Court.

COURT: Proceed.

Q: Are you one of the defendants in this case who was substituted for the late Glicerio R. Brioso?

A: Yes sir.

xxx xxx xxx"25

This shows that Ernesto understood that he was a substitute defendant in the case.

Third, Atty. Pardalis continued to represent Glicerio even after the latter's demise. Acting on Glicerio's behalf, Atty. Pardalis presented the testimonies of Salvador, Concepcion and Ernesto, to prove, among others, that Glicerio no longer had any interest in the Properties. These pieces of evidence clearly negate petitioners' contention that Atty. Pardalis ceased to be Glicerio's counsel upon the latter's death.

Assuming that Atty. Pardalis no longer represented Glicerio after his death, he remained as counsel for Salvador, Concepcion and Marcos. He should have questioned immediately the validity of the proceedings absent any formal substitution of Glicerio. Yet, despite the court's alleged lack of jurisdiction over the persons of his clients, Atty. Pardalis never bothered to challenge the same, not until after the trial court rendered its adverse decision.

Lastly, Atty. Pardalis received a copy of respondents' motion for substitution and the trial court's Order admitting the motion. Upon receipt of the motion and the Order, Atty. Pardalis should have immediately opposed the same for failure to comply with the rule on substitution. However, Atty. Pardalis did not question the motion and the Order, not until after the trial court rendered its decision. His long silence, which certainly binds his clients, can be construed


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as defendants' submission to the court's jurisdiction. The acquiescence of defendants and their counsel on the trial court's jurisdiction effectively precluded them from questioning the proceedings in the trial court.

In Ferreria et al. v. Vda. de Gonzales, et al.,26

Manolita Gonzales (one of the heirs of deceased defendant) was not served notice and, more importantly, never appeared in court, unlike Salvador, Concepcion and Ernesto who appeared and even testified regarding their father's interest in the Properties. In sum, with the active participation of Salvador, Concepcion and Ernesto, the trial court acquired jurisdiction over their persons. Accordingly, the proceedings and the decision of the trial court are valid with respect to these heirs.

As regards Marcos Nolasco, he was impleaded as a defendant primarily because he and Concepcion were among the actual possessors of the Properties. It was even defendants' contention that the complaint was defective for failure to implead Marcos as he was an indispensable party.

27 Accordingly, the Spouses Mariano

impleaded Marcos as a defendant, without whom no final determination can be had of the action.

28 With Marcos' inclusion as

a party, it is beyond dispute that the trial court acquired jurisdiction over his person. Therefore, the proceedings and judgment of the trial court are valid and binding upon Marcos.

WHEREFORE, the instant petition is partly GRANTED. The Decision of the Court of Appeals dated September 2, 1997 is MODIFIED. As to Bener Brioso, Julito Brioso and Glicerio Brioso, Jr., the Decision of the Regional Trial Court, Branch 29, Libmanan, Camarines Sur, is void for lack of jurisdiction. As to Felicidad Brioso, Concepcion B. Nolasco, Marcos Nolasco, Salvador Brioso and Ernesto Brioso, the Decision of the Regional Trial Court, Branch 29, Libmanan, Camarines Sur, is valid.

SO ORDERED.


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G.R. No. 106795 November 16, 1999

STATE INVESTMENT HOUSE, INC., petitioner, vs. COURT OF APPEALS and ALLIED BANKING CORPORATION, respondents.

GONZAGA-REYES, J.:

Petitioner State Investment House, Inc. ("SIHI") appeals from the Decision dated June 11, 1992 and the Resolution dated August 21, 1992 rendered by the Court of Appeals in CA-G.R. SP No. 27142 entitled "Allied Banking Corp. vs. Hon. Martin S. Villarama, Jr., et al."

SIHI is the plaintiff in Civil Case No. 59449 entitled "State Investment House, Inc. vs. Cheng Ban Yek Co., Inc. et al.", an action for foreclosure of mortgage.

The antecedents are recited in the questioned decision as follows:

(1) Defendant CBY is a domestic corporation engaged in the business of manufacturing edible oil bearing the brand "Baguio Oil", and in the conduct of its business, it has incurred millions of pesos of obligations with plaintiff SIHI and many other creditors, including defendant Allied Banking Corporation (ALLIED for short) who is the creditor of SIHI in the principal amount of P10 million, exclusive of interests, service charges, penalties, and attorney's fees.

(2) On December 28, 1982, defendant CBY, plaintiff SIHI, and other creditors of CBY entered into an Agreement for the restructuring of CBY's existing obligations to its creditors, but excluding defendant ALLIED and several other creditors who did not sign said Agreement (pp. 72-72, Rollo).

(3) To secure the prompt and full payment of all amounts owed by CBY to its creditors who participated in said Agreement and as required thereunder, the parties thereto executed a Mortgage Indenture dated December 28, 1982 with CBY and FOUR SEAS as Mortgagors and SIHI and 15 other creditors of CBY as mortgagees involving 23 parcels of registered lands and the improvements therein (pp. 17-19, id.), which Mortgage Indenture was subsequently modified several times (pp. 19-20, id.). Moreover, as additional security to said Agreement, the parties also agreed that the Existing Comprehensive Surety Agreement previously executed by defendant Alfredo Ching would continue to subsist and that he would remain jointly and severally liable with CBY for the payment of the amounts owed by the latter to the creditors who were parties to the aforesaid Agreement (p. 20, id.).

(4) On June 28, 1986, CBY defaulted in the payment of its obligations, and in a letter dated August 8, 1988, the CBY Creditors' Committee, pursuant to the aforesaid Agreement and Mortgage Indenture, declared all of CBY's obligations due and payable (p. 24, id.). This letter was followed by a letter dated August 9, 1989 of plaintiff SIHI likewise declaring all of CBY's particular obligations to it immediately due and payable (id.). Then on April 16, 1990, SIHI notified the Creditors' Committee of CBY that it would institute proceedings for the enforcement of the remedies granted under the Mortgage Indenture earlier mentioned, and in a resolution dated April 20, 1990, said Creditors' Committee authorized SIHI to institute the appropriate foreclosure proceedings provided that the proceeds of the foreclosure sale would be distributed and applied to all of CBY's obligations under the terms of the Agreement previously mentioned (p. 25, id.).

(5) Hence, plaintiff SIHI filed on May 10, 1990, C.C. No. 59559 with the respondent court against CBY, FOUR SEAS, and Alfredo Ching, and impleading twenty-two (22) other creditors of CBY including herein petitioner ALLIED, allegedly because they hold inferior or subordinate mortgage rights to the properties sought to be foreclosed (pp. 8-28, id.).

(6) On January 31, 1991, defendant ALLIED filed its Answer to the complaint, denying that its interests in the mortgaged properties in question are subordinate in right to that of plaintiff SIHI; alleging that it was not a party to the Agreement attached to the complaint as Annex "B" and, therefore, not bound by its provisions; likewise denying that it was a party to the Fourth Amendatory Agreement also attached to the complaint as its Annex "S" which it claimed "was never valid, binding and effective for lack of consent on the part of the other creditors as shown by the fact that they did not sign the same"; claiming that defendant CBY owes it the principal amount P10 million, exclusive of interest, service charges, penalties, and attorney’s fees; alleging that as defendant CBY's biggest, single, creditor, plaintiff SIHI "was able to work its way and secure for its representatives/nominees/designees key positions in defendant CBY, including but not limited to seats with full voting rights in defendant CBY's Board of Directors, Executive Committee, and Creditors' Committee, and that in taking control and management of CBY's operations, it "committed irregularities, abuses excesses, and other acts inimical to defendant CBY draining its resources and driving the latter to the financial quagmire it now faces, to the prejudice of herein defendant creditors", as a consequence of which acts, CBY allegedly suffered losses of not less than P50 million or such amount as may be proved at the trial,


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which losses it claims represent assets of CBY answerable to its creditors other than plaintiff SIHI; and that plaintiff should be held liable for such losses, as well as for defendant ALLIED's moral damages and attorney's fees which it alleged in its counterclaim (pp. 29-33, id.). Defendant ALLIED thus prayed for the dismissal of the complaint or, in the alternative, for plaintiff to be ordered to pay CBY's creditors including ALLIED the amount of P50 million to be deducted from the proceeds of the foreclosure sale of the mortgaged properties in question to be distributed among CBY's creditors, and that plaintiff be also ordered to pay ALLIED moral damages and attorney's fees (29-34, id.).

(7) However, on January 31, 1991, plaintiff SIHI, for the consideration of P33 million, entered into a Deed of Assignment with FIL-NIPPON transferring to the latter all its rights, interests, claims, and causes of action arising out of the Agreement mentioned in and annexed to its complaint in C. C. No. 59449 and certain promissory notes and mortgages contracts upon which said civil case was brought, and in which Deed of Assignment FIL-NIPPON also agreed to assume all the obligations of SIHI as party-plaintiff in said civil case (pp. 40-44, 64, id.).

(8) Thereafter, FIL-NIPPON filed in C. C. No. 59449 on April 16, 1991 a "Motion for Substitution of Party Plaintiff" in lieu of plaintiff SIHI (pp. 35-39, id.), which motion was opposed by defendant ALLIED on the grounds that it has a counterclaim against SIHI arising from irregularities, excesses, abuses and inimical acts committed by it in managing defendant CBY; that as long as said counterclaim has not been finally resolved, the substitution of plaintiff SIHI would be improper; and that if at all, FIL-NIPPON can intervene and be a co-plaintiff in C. C. No. 59449 (pp. 45-46, id.).

(9) On July 4, 1991, the respondent court, finding no legal basis for the objections of ALLIED and another defendant, Producers Bank of the Philippines, to the motion for substitution of movant Fil-NIPPON for plaintiff SIHI, granted the motion for substitution (p. 8, id.). and when defendant ALLIED moved for a reconsideration of said order, it denied the motion for reconsideration on August 22, 1991 (p. 9, id.)."

1

Allied Banking Corp. ("Allied") filed a petition for certiorari in the Court of Appeals assailing the above mentioned orders of the Regional Trial Court granting Fil-Nippon's motion for substitution of SIHI as plaintiff in Civil Case No. 59449.

The Court of Appeals granted the petition and ordered SIHI to continue as plaintiff. The dispositive portion of the decision, now assailed in the instant petition, reads:

WHEREFORE, the instant petition is GRANTED; the respondent court's orders of July 4, 1991 and August 22, 1991 are hereby SET ASIDE; and herein private respondent State Investment House, Inc. (SIHI) shall continue to be the plaintiff in C. C. No. 59449 before the respondent court, with the other private respondent herein Fil-Nippon Holdings, Inc. (FIL-NIPPON) ordered impleaded therein as co-plaintiff.

2

In this petition for review on certiorari, SIHI submits the following grounds:

(1)

THE CA ERRED IN FINDING THAT ALLIED'S PERMISSIVE COUNTERCLAIMS CREATE A DEBTOR-CREDITOR RELATIONSHIP BETWEEN SIHI AND ALLIED; ALLIED IS NOT SIHI'S CREDITOR.

(2)

THE CA ERRED IN FINDING THAT A WITNESS WHO MAY BE CALLED TO TESTIFY HAS A MATERIAL INTEREST IN CASE AS TO MAKE HIM A PARTY-LITIGANT.

(3)

THE CA ERRED IN NOT FINDING THAT SUBSTITUTION OF A PARTY-PLAINTIFF PENDENTE LITE IS ALLOWED AND IS LARGELY A MATTER OF DISCRETION; THE LOWER COURT DID NOT COMMIT ARBITRARINESS OR GRAVE ABUSE OF DISCRETION IN ALLOWING THE SUBSTITUTION.

3

We find no merit in the petition.

The issue is whether respondent court erred in ruling that the substitution of SIHI by its assignee Fil-Nippon in C. C. No. 59449 is improper.

Respondent court ruled that even without substitution Fil-Nippon, as assignee of all of SIHI's rights, interests claims and causes of action arising out of the Agreement, would be bound by any judgment for or against SIHI. Moreover, Allied had a counterclaim for damages against SIHI of not less than P50 million allegedly caused by SIHI's taking over the control and management of defendant CBY (Cheng Ban Yek Co. Inc.) through its men which it had put in key positions in the latter's Board of Directors, Executive Committee and Creditors Committee, and who allegedly committed gross mismanagement, nepotism, irregularities, abuses, excesses and other acts inimical to CBY which drained the latter's resources and drove it to the financial quagmire that now faces it to the prejudice of all its creditors. Such acts of SIHI do not arise out of the foreclosure of mortgage which is the subject of C. C. No. 59449 but constitute a permissive counterclaim. Moreover, SIHI had no choice but to actively participate in C. C. No. 59449 in order to defend its assignee Fil-Nippon against Allied's permissive counterclaim. Finally, Fil-Nippon cannot be substituted as debtor under said counterclaim without its consent in view of Article 1293 of the Civil Code which


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provides that novation which consists in substituting a new debtor in the place of the original one cannot be made without the consent of the creditor.

It is petitioner's position, in defending the substitution of parties ordered by the trial court, that Allied is not SIHI's creditor; what Allied admitted is that it is a creditor of CBY for P10 million. Equally important is that Allied's permissive counterclaim for damages does not make SIHI a debtor/obligor of Allied, as a counterclaim is not a source of obligation until a judgment is issued upholding it. Petitioner also submits that even assuming that SIHI, or its officers or employees, can be compelled to be witnesses regarding Allied's permissive counterclaim, the same does not justify the retention of SIHI as party plaintiff below. In fine, petitioner SIHI contends that the trial court did not commit grave abuse of discretion in allowing the substitution of parties that should be corrected by certiorari.

On the other hand, respondent Allied submits that the substitution was improper; for as long as the counterclaim is not finally resolved, the substitution of party plaintiff despite the objection of private respondent and which may result in the discharge of the petitioner as original plaintiff, would be improper. If at all, Fil-Nippon can intervene in the case below and be co-plaintiff with SIHI. Allied also points out that the counterclaim for damages is based on quasi-delict, which is a legal source of obligation.

The rule on substitution of parties in case of transfer of interest is found in Section 19, Rule 3, which states:

Sec. 19. Transfer of Interest — In case of any transfer of interest, the action may be continued by or against the original party, unless the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.

It has been held that a transferee pendente lite does not have to be included or impleaded by name in order to be bound by the judgment because the action or suit may be continued for or against the original party or the transferor and still be binding on the transferee.

4

More specifically , this Court has ruled that a transferee pendente lite is a proper party in the case but it is not an indispensable party.

5

Respondent court did not err in ruling that SIHI should continue to be the plaintiff, and Fil-Nippon should be impleaded as co-plaintiff. The order of the trial court authorizing the substitution of parties failed to take into account the fact that there is a counterclaim for damages contained in Allied Bank's Answer arising from the alleged inimical acts committed by SIHI in manipulating the operations of CBY that drained the latter's resources to the prejudice of its creditors. The counterclaim for damages is severable and independent of SIHI's cause of action under the Agreement dated December 28, 1982 entered into by SIHI, CBY and other creditors of CBY for the restructuring of CBY's existing obligations. As aptly ruled by the Court of Appeals, the alleged acts of SIHI that gave rise to the complaint (counterclaim) for damages do not arise out of the foreclosure of mortgage which is the subject of C. C. No. 59449. Thus —

Upon the other hand, if the substitution of party-plaintiff sought by FIL-NIPPON is granted, what would happen to petitioner ALLIED's claim for damages of not less than P50 million in its answer allegedly caused by plaintiff SIHI's taking over the control and management of defendant CBY's through its men which it had put in key positions in the latter's Board of Directors, Executive Committee, and Creditors' Committee, and who allegedly committed gross mismanagement, nepotism, irregularities, abuses, excesses and other acts inimical to defendant CBY which drained its resources and drove it to the financial quagmire that its faces at present, to the prejudice of all its creditors? Can petitioner ALLIED still prove and recover these damages against FIL-NIPPON if the latter is substituted as party-plaintiff in C. C. No. 59449? We do not think so, for the subject-matter of the Deed of Assignment between plaintiff SIHI and FIL-NIPPON (see pp. 40-44, 64, Rollo) are certain credits, rights, claims and interests which SIHI has against the principal defendants CBY, FOUR SEAS, and Alfredo Ching in C. C. No. 59449, and its SIHI's right to foreclose certain mortgages in favor of SIHI and other creditors of CBY arising out of the agreement between CBY and its creditors, including SIHI, attached to the complaint in C. C. No. 59449. True that SIHI's assignee FIL-NIPPON also assumed all the risks attendant to said civil case and agreed not to have any recourse or claim against SIHI regardless of the outcome of said case or if it is prevented for any reason from foreclosing the properties subject-matter of the case, but such assumption of risk clearly does not include liability for the purely personal acts of abuses, irregularities, nepotism, etc. which petitioner ALLIED charged plaintiff SIHI to have committed while managing and taking over the control of the business of defendant CBY which acts do not arise out of the foreclosure of mortgage which is the subject-matter of C. C. No. 59449, but which constitute, as even private respondent FIL-NIPPON admitted in its Comment to the instant petition, a permissive counterclaim in said civil case (p. 61, Rollo). Respondent FIL-NIPPON, impliedly recognizing that it cannot be liable for said alleged acts of SIHI, even suggests that after plaintiff SIHI is dropped from C. C. No. 59449, petitioner ALLIED can bring original plaintiff SIHI back into said case by filing a third-party complaint against the latter. But why should petitioner ALLIED resort to such a run-about process to hold SIHI liable for the aforementioned alleged personal acts of mismanagement and abuses while in the control of defendant CBY, when it has already claimed the damages supposedly arising from said acts in a permissive counterclaim in its answer to SIHI's complaint and the Rules allow it to do so?

6

Thus, although Fil-Nippon became an assignee of all of SIHI's rights, interests, claims, and causes of action arising out of the Agreement,


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the counterclaim for actual and moral damages and attorney's fees filed by Allied Bank was in no way contemplated in the assignment. It was accordingly error to discharge SIHI as original plaintiff from the case.

The Court of Appeals also correctly pointed out that Fil-Nippon could not be substituted as debtor of Allied with respect to the counterclaim for damages without the latter's consent; thus:

But there is yet still another reason why the respondent court should not have allowed the substitution of plaintiff SIHI's assignee Fil-Nippon as party-plaintiff in C. C. No. 59449, and it is petitioner ALLIED's contention, which we find valid and tenable, that plaintiff SIHI is its debtor/obligor as far as its permissive counterclaim for damages in its answer is concerned, and that FIL-NIPPON cannot be substituted as its debtor under said counterclaim without its consent, in view of Art. 1293 of the Civil Code of the Philippines providing that —

Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter but not without the consent of the creditor. . . ." (Emphasis ours)

Private respondent SIHI answers this argument in its Comment to the instant petition by saying that the above-quoted article finds no application to this case because Sec. 17.7 of the Agreement which it and its creditors had executed expressly allows the assignment which it had made in favor of FIL-NIPPON (p. 67, Rollo). But as pointed out by petitioner ALLIED in its Reply to SIHI's aforesaid Comment, it was not a party to the Agreement in question as shown by the fact that it never signed the same (see p. 82, Rollo); hence, it is not bound by said Agreement including the provision therein allowing the parties to assign their respective rights thereunder.

7

As stated earlier, Fil-Nippon, as transferee of SIHI's interests pendente lite, is not even an indispensable party in the case.

It bears emphasis that Allied claims to be not a party to the Agreement dated December 28, 1982 and therefore not bound by it. Even assuming that Fil-Nippon agreed to assume all the obligations of SIHI in the case and not only those arising under the said Agreement, the assignment cannot bind or prejudice Allied who did not consent to the assignment. It was improvident for the trial court to discharge SIHI on the basis alone of the transfer of its interests under the Agreement to Fil-Nippon. The counterclaim for actual, moral and other damages should be pursued and enforced against the real party-in-interest, which is SIHI, which cannot be discharged from the case over the opposition of Allied.

WHEREFORE, there being no reversible error in the decision and resolution appealed from, the instant petition is denied.

No pronouncement as to costs.

SO ORDERED.


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G.R. No. 79760 June 28, 1993

PERPETUAL SAVINGS BANK, HON. JOSE L. COSCOLLUELA, Presiding Judge, Regional Trial Court, NCJR, Branch 146, petitioners, vs. JOSE ORO B. FAJARDO and EMMANUEL F. DEL MUNDO, respondents.

Yngson & Associates for petitioner.

Cruz, Enverga, Fajardo & Del Mundo for respondents.

FELICIANO, J.:

On 29 December 1982, J.J. Mining and Exploration Corporation ("J.J. Mining") executed and delivered to petitioner Perpetual Savings Bank ("Bank") a promissory note in the amount, of P750,000.00 payable in one lump sum upon maturity on 29 January 1984, with interest at 23% per annum. The note also contained, inter alia, a clause providing for penalty interest at the rate of 3% per month on the amount due, compounded monthly. The promissory note was executed for J.J. Mining by respondents Jose Oro B. Fajardo and Emmanuel F. Del Mundo. Messrs. Fajardo and Del Mundo are said to be officers of J.J. Mining; respondent Del Mundo was apparently also counsel for J.J. Mining.

1

Upon maturity of the promissory note, neither J.J. Mining nor anyone else paid the amount of the indebtedness, notwithstanding petitioner's repeated written demands for payment.

On 31 July 1986, petitioner Bank filed a complaint with the Regional Trial Court, Makati, Metro Manila (Civil Case No. 14501) against J.J. Mining, Jose Emmanuel Jalandoni and herein respondents Fajardo and Del Mundo, for collection of the amounts due under the promissory note. In its complaint petitioner Bank alleged, among other things, the following:

1.6. Defendants Fajardo and Del Mundo are impleaded herein as agents/or representatives of Defendant Corporation who were signatories in the Promissory Note or alternatively, in their personal capacities if it be shown that they contracted the loan fully knowing that the Defendant Corporation would be unable to pay the same upon maturity and/or that they used the proceeds of the loan for their own personal benefit;

1.7. Defendant Jose Jalandoni is impleaded herein in his personal capacity also as alternative Defendant, as the owner of 94% of the subscribed capital stock Defendant Corporation if it be shown that the corporate privilege of Defendant Corporation was used by Defendant Jalandoni to secure the loan and the proceeds thereof for his own personal benefit fully knowing that the Defendant Corporation was with inadequate capital to meet its debts and thereby evade the obligation under the Promissory Note.

xxx xxx xxx

2.1. On 29 December 1982, Defendant Corporation for value received thru Defendants Fajardo and Del Mundo, executed and delivered to Plaintiff a Promissory Note in the sum of Seven Hundred Fifty Thousand Pesos (P750,000.00) payable in lumpsum upon maturity, thereof on 29 January 1984 with interest at 23% per annum from the date thereof;

2.2. Upon maturity of the Promissory Note, Defendants defaulted and failed to satisfy the entire amount of indebtedness.

xxx xxx xxx

3.1. Per the records of the Securities & Exchange Commission, the paid-up capital of Defendant Corporation amounts to only P100,000.00, broken down as follows:

Name and Address Amount Amount of Stockholders Subsribed Paid

1. Jose Emmanuel Jalandoni P368,000.00 P92,000.00 44 San Mateo Bo. Capitolyo Pasig, Rizal

2. Maria Theresa Jalandoni 8,000.00 2,000.00 44 San Mateo Bo. Capitolyo, Pasig, Rizal

3. Florentino Ampil 8,000.00 2,000.00 Biñan, Laguna

4. Rafael Hocson 8,000.00 2,000.00 Biñan, Laguna

5. Tranquilino Mendiola 8,000.00 2,000.00 Mandaluyong, Rizal ———— ————

P400,000.00 P100,000.00

(Copy of the Articles of Incorporation of Defendant Corporation is herewith attached as Annex "E" and made an integral part hereof.)

3.2. Pursuant to such records, Defendant Jalandoni and his spouse Maria Theresa Jalandoni own 94 % of the total shares of stock of Defendant Corporation giving them total control of the corporation;


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3.3. Despite the fact that the paid up capital of Defendant Corporation was only P100,000.00 it managed to borrow P750,000.00 from Plaintiff Bank secured only by shares of stocks of Pamana Mining Corp. also owned by Defendant Jalandoni. (Copy of Pledge of Shares of Stock is herewith attached as ANNEX "F" and made an integral part hereof.)

xxx xxx xxx

Respondents Fajardo and Del Mundo filed a Motion to Dismiss on the ground that the complaint had failed to state a cause of action against them. Petitioner Bank filed an Opposition to the Motion to Dismiss, citing paragraph 1.6 of its complaint and invoking, among other things, Section 13, Rule 3 of the Rules of Court, provides that:

Alternative defendants.— Where the plaintiff is uncertain against which of several persons he is entitled to relief, he may join any or all of them as defendants in the alternative, although aright to relief against one may be inconsistent with a right to relief against the other.

Respondents in turn filed a Reply to petitioner Bank's Opposition.

The Regional Trial Court then resolved respondents' Motion to Dismiss by issuing an Order dated 9 October 1986 denying that Motion "considering that the grounds raised by [respondents] Emmanuel F. Del Mundo and Jose V. Fajardo in their motion to dismiss are not indubitable."

2

Respondents Del Mundo and Fajardo moved for reconsideration of the trial court's Order. After additional pleadings and counter-pleadings, the trial court denied the Motion for Reconsideration.

Respondents Fajardo and Del Mundo then went directly to this Court on Petition for Certiorari (G.R. No. 77100, entitled "Jose Oro B. Fajardo and Emmanuel E. Del Mundo v. Hon. Jose Coscolluela, etc., et al."). On 23 February 1987, however, this Court resolved to refer the case to the Court of Appeals.

Before the Court of Appeals, respondents Fajardo and Del Mundo basically alleged that petitioner Bank's complaint did not set forth any cause of action as against them personally, and that Section 13, Rule 3 of the Rules of Court on alternative defendants was not applicable to the case at bar. On 25 August 1987, the Court of Appeals rendered a Decision which granted respondents' Petition and reversed and set aside the trial court's Orders which had denied respondents' Motion to Dismiss and Motion for Reconsideration, and dismissed petitioner Bank's complaint in Civil Case No. 14501.

In the present Petition for Review on Certiorari brought by the Bank now represented by a Liquidator, the parties have raised the following issues for our consideration:

1. Did the complaint filed in Civil Case No. 14501 state a cause of action against respondents Fajardo and Del Mundo, as distinguished from J.J. Mining, on whose behalf they had purported to act?

2. Is the rule on alternative defendants set out in Section 13, Rule 3 of the Rules of Court applicable to the case at bar?

These two (2) issues are obviously related one to the other and need to be addressed together.

Paragraph 1.6 of petitioner Bank's complaint is quoted again in full for convenience:

1.6 Defendants Fajardo and Del Mundo are impleaded herein as agents/or representatives of Defendant Corporation who were signatories in the Promissory Note or alternatively, in their personal capacities if it be shown that they contracted the loan fully knowing that the Defendant Corporation would be unable to pay the same upon maturity, and/or that they used the proceeds of the loan for their own personal benefit.

xxx xxx xxx

(Emphasis supplied)

Examination of paragraph 1.6 shows that petitioner Bank there seeks to distinguish between (a) respondents Fajardo and Del Mundo in their capacity as "agents and/or representative of" J.J. Mining; and (b) respondents Fajardo and Del Mundo in their individual and personal capacities. As noted earlier, the text of the promissory note shows that respondents Fajardo and Del Mundo had signed for and in behalf of J.J. Mining.

If it be assumed that respondents Fajardo and Del Mundo were properly authorized, and acted within the scope of their authority, to sign for and in behalf of J.J. Mining when the latter borrowed P750,000 from petitioner Bank and signed the promissory note in that connection, then it is J.J. Mining as maker of the note which is directly liable to petitioner Bank for repayment of such loan, and not Messrs. Fajardo and Del Mundo who merely acted for J.J. Mining in that transaction.

3 This follows from the elementary proposition that

J.J. Mining, the borrowing corporation, has a personality separate and distinct from the persons who have been duly authorized to represent the corporation in that particular transaction.

If it be assumed, upon other hand, that when Fajardo and Del Mundo purported to act for and in behalf of J.J. Mining in executing the promissory note here involved, were either not authorized at all to do so or somehow acted in excess of their authority as agents or representatives of J.J. Mining, then in principle Fajardo and Del Mundo would be personally liable upon the promisorry note, instead of the borrower corporation.

4 J.J. Mining as a separate juridical

person would not be so liable, unless it be shown that J.J. Mining actually received all or part of the proceeds of the loan and (presumably) benefited from such loan proceeds, and to that extent, had impliedly ratified the transaction.

5

Respondents Fajardo and Del Mundo were, in the same complaint, and in the alternative, sued in their personal and individual capacities. In this respect, the complaint alleges two (2) distinguishable bases for sustaining the suit. Firstly, Fajardo and Del Mundo are being sued as tort-feasors who contracted the loan although they allegedly knew that the apparent principal obligor, J.J. Mining, would never be able to pay the loan upon maturity. The cause of action here is basically fraudulent inducement,


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concealment or misrepresentation exercised upon petitioner Bank which was misled into granting and releasing the loan.

6 The second

basis for suing Fajardo and Del Mundo in their personal and individual capacities is that they allegedly used the proceeds of the loan for their own personal benefit, rather than for the benefit of the borrower corporation.

7 In respect of these twin, related, bases

for personal liability to the creditor, the Bank stated in paragraph 2.1 of its complaint that J.J. Mining had "received value" "thru [respondents] Fajardo and Del Mundo." Thus, the Bank has alleged that the proceeds of the loan were delivered to the borrower corporation by delivering them to respondents Fajardo and Del Mundo. The Bank has also stressed, in paragraph 3.1 of its complaint, that the paid-up capital of the borrower corporation, was only P100,000.00 which, according to petitioner Bank, was obviously disproportionately small compared to the P750,000.00 borrowed from the Bank.

Analysis of the allegations of the petitioner Bank's complaint thus shows, firstly, that the defendants who are being sued in the alternative are the following:

(a) the borrowing corporation, J.J. Mining; and

(b) respondents Fajardo and Del Mundo in their personal and individual capacities,

and, secondly, that two (2) alternative but related grounds for holding Fajardo and Del Mundo responsible to petitioner Bank, personally and individually, have been pleaded by the Bank. There is, as previously noted, a third possible basis for seeking to hold Fajardo and Del Mundo liable in their personal capacities: that they acted without or in excess of their authority as agents or representatives of the borrower corporation. This third basis, however, was not explicitly set out by the Bank in its complaint. The complaint did not directly allege that respondents Fajardo and Del Mundo had acted without or in excess of their authority as agents and representatives of J.J. Mining, in executing the Promissory Note for J.J. Mining and receiving the proceeds thereof. However, such an allegation may be said to have been implicitly made along with the allegation that respondents had knowingly induced petitioner to grant the loan though J.J. Mining had no capacity to pay, or with the allegation that respondents had converted the loan proceeds to their personal benefit.

The familiar test for determining whether a complaint did or did not state a cause of action against the defendants is whether or not, admitting hypothetically the truth of the allegations of fact made in the complaint, a judge may validly grant the relief demanded in the complaint. In Rava Development Corporation v. Court of Appeals,

8

the Court elaborated on this established standard in the following manner:

The rule is that a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as having hypothetically admitted all the averments thereof. The test of the sufficiency of the facts found in a petition as constituting a cause of action is whether or not, admitting the facts alleged, the court can render a valid judgment upon the same in accordance with the prayer thereof (Consolidated Bank and Trust Corp. v. Court of Appeals, 197 SCRA 663 [1991]).

In determining the existence of a cause of action, only the statements in the complaint may properly be considered. It is error for the court to take cognizance of external facts or hold preliminary hearings to determine their existence. If the allegation in a complaint furnish sufficient basis by which the complaint may be maintained, the same should not be dismissed regardless of the defenses that may be assessed by the defendants (supra).

A careful review of the records of this case reveals that the allegations set forth in the complaint sufficiently establish a cause of action. The following are the requisites for the existence of a cause of action: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect, or not to violate such right; and (3) an act or omission on the part of the said defendants constituting a violation of the plaintiff's right or a breach of the obligation of the defendant to the plaintiff (Heirs of Ildefonso Coscolluela, Sr., Inc. v. Rico General Insurance Corporation, 179 SCRA 511 [1989])."


In its Decision, the Court of Appeals said, among other things, that petitioner Bank's complaint did not state a cause of action against respondents Fajardo and Del Mundo in their personal and individual capacities for the reason that no evidence had been presented to support such alleged liability on the "so called alternative cause of action." The Court of Appeals said:

Petitioners' participation, if any, in the execution of the promissory note in question, is that merely of agents and/or representatives of defendant corporation. Their alleged liability in the so-called alternative cause of action is predicted on hearsay and/or third-hand information. According to private respondent, herein petitioners "must have known" the capital structure of the corporation and therefore, they are guilty of fraud because through false representations they succeeded in inducing plaintiff-respondent to grant or release the loan with full knowledge on their part that defendant corporation was in no position to comply with the obligation it had assumed.

But what is the factual basis of private-respondents allegations. Saved for its allegation in its Opposition to defendants-petitioners Motion to Dismiss that the latter "must have known" the capital structure of the corporation and its allegation in the complaint that "if it be shown" that defendants-petitioners "contracted the loan fully knowing that defendant corporation would be unable to pay the same upon maturity", there is no evidence on record showing that defendants-petitioners had such a knowledge of the financial incapacity of defendant corporation to meet its financial


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obligations at its maturity. Private respondents' allegation in the complaint are based on pure speculations and fantasies and nothing more."

10

(Emphasis supplied)

We consider that the Court of Appeals here was in reversible error. It was quite premature for the Court of Appeals to consider evidence (or lack of evidence) outside the four corners of the complaint and to reach the above conclusion, since the fraud consisting of false representations has yet to be proved by petitioner Bank in the course of the trial before the court a quo. By the same token, respondents' innocence and non-utilization, or fraud and conversion, of the loan proceeds for their private and personal benefit are precisely defenses to be proved by respondents in the course of the trial. Evidently, the Court of Appeals overlooked the fact that the trial has yet to begin; for it assumed as real and established the defenses which need to be proved during that trial.

Having examined the record here carefully, and while the complaint filed in the trial court is not exactly a model of draftmanship, we consider that it substantially meets the established test and that the complaint does state cause(s) of action not only against the borrower corporation, J.J. Mining, but also against respondents Fajardo and Del Mundo in their personal and individual capacities.

Turning to the applicability of Section 13, Rule 3 of the Rules of Court to the complaint in the case at bar, the Court observes that the Court of Appeals found that Section not applicable to the present case. The Court of Appeals said on this point:

Private respondent [petitioner Bank] also invokes the rule on alternative defendants found in Section 13, Rule 3 of the Revised Rules of Court which state:

xxx xxx xxx

But private respondents was never "uncertain" against which of several persons it is entitled to relief. As shown in paragraph 2.1 of the complaint which were previously cited, it was dead sure, as night follows day, that the "defendant corporation for value received thru" petitioners, "executed and delivered to plaintiff a promissory note" for the amount P750,000.00. 11

We believe that here, too, the Court of Appeals was in error. Firstly, the state of mind of petitioner Bank — whether it was "uncertain" or whether it was "dead sure as night follows day" against which of several defendants it is entitled to relief — is, of course, immaterial, except to the extent that such state of minds is externalized by the allegations of the complaint. Petitioner Bank, in paragraph 1.6 in relation to paragraphs 2.1 and 2.2 of its complaint, had pleaded, with sufficient clarity, its claimed rights against alternative defendants: the borrower corporation and respondents Fajardo and Del Mundo. That the rights pleaded against the borrower corporation are prima facie inconsistent with the rights pleaded against respondents Fajardo and Del Mundo, is also clear: either the borrower corporation alone is liable; or respondents Fajardo and Del

Mundo are alone liable in lieu of J.J. Mining; or respondents Fajardo and Del Mundo are solidarily liable with J.J. Mining.

To bolster its position, petitioner Bank in its Memorandum filed with this Court referred to certain additional circumstances which are, of course, more properly alleged and proved before the trial court:

1. that, at the present, J.J. Mining is no longer a going concern "its office and assets nowhere to be found;" and

2. that J.J. Mining has outstanding obligations to different banks which, like petitioner Bank, are undergoing liquidation — i.e., Admiral Savings and Loan Bank; Development Bank of Rizal; and petitioner Bank — in the aggregate principal amount (as of 1984) of P2,750,000.00; that in the transactions with all three (3) banks, the signatories of the promisorry notes were the two (2) respondents in the case at bar, Messrs. Fajardo and Del Mundo.

12

The essential thing is that petitioner Bank must be given an opportunity to prove its allegations in all necessary detail at the trial on the merits. There the respondents will have the opportunity to controvert and refute petitioner's detailed assertions.

13

WHEREFORE, for all the foregoing, the Decision of the Court of Appeals dated 25 August 1987 in C.A.-G.R. SP No. 11547 is hereby REVERSED and SET ASIDE. The Orders of the trial court dated 9 October 1986 and 22 December 1986 in Civil Case No. 14501 are hereby REINSTATED. This case is hereby REMANDED to the trial court for further proceedings not inconsistent with this Decision. Costs against respondents.

SO ORDERED.


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G.R. No. L-4958 March 30, 1954

MONICO PUENTEVELLA, JR., CARMEN GONZAGA, TEOFILO GENSOLI, LUIS HERVIAS, ANTONIO P. CIOCON, ROSARIO GENSOLIN, MARGARITA TULO, DOLORES TANPINCO, ANGELES JARDELEZA, DOLORES ESTROLOGO, TOMAS JAMILE, and BENJAMIN A. LEDESMA, plaintiffs-appellees, vs. FAR EASTERN AIR TRANSPORT, INC., PHILIPPINE AIR LINES, INC., and COMMERCIAL AIR LINES, INC., defendants, FAR EASTERN AIR TRANSPORT, INC., and PHILIPPINE AIR LINES, INC., defendants-appellants.

Pablo S. Rivera for appellees. Daniel Me. Gomez, Ozaeta, Roxas, Lichauco and Picazo for appellants.

LABRADOR, J.:

This action was instituted in the Court of First Instance of Occidental Negros by the plaintiffs, who are owners of certain lands adjacent to the City of Bacolod which the U.S. Army converted into an airfield, known as the Bacolod City Airstrip No. 2, to recover from the defendants the value of the use and occupation of said airfield by them.

The lands in question were occupied by the U.S. Army around the month of April, 1945. It constructed thereon, with or without the consent of the owners, permanent improvements in the form of runways for the landing and taking-off of planes, parking places — therefor, and approaches thereto. It afterwards enter into a contract of lease with the owners, by virtue of which the United States Government was given authority to use and occupy the lands in question for the period from April 1, 1945, to October 15, 1945, at a monthly rental of one-half centavo per square meter.

In the month of November, 1945, the defendant Far Eastern Air Transport, Inc. (FEATI), began to use the said airstrip. Formal authority for its use was extended by the U.S. Army on November 23, 1945 (Exhibit 5). When the FEATI began to use the airstrip, the owner of the lands occupied by the airstrip objected to the Army authorities (Exhibit A), and also appealed to the American High Commissioner in the Philippines (Exhibit A-2), as well as the manager of the FEATI (Exhibit A-4), for a clarification of the status of the airstrip, but nothing was done in this respect. One of the owners later learned that the U.S. Army continued occupying the airstrip, and while no objection thereto was made, he did object to the use of the airstrip by the Commonwealth Government (Exhibit 6). As early as April 20, 1946, the Commonwealth Government, through the Director of the Bureau of Aeronautics, had offered to lease the lands covered by the airstrip at one-half centavo per square meter per month (Exhibit 7), and it advised the plaintiffs that the Commonwealth Government was under the obligation of furnishing airway facilities and airports to all transportation companies and that it was willing to deal with the owners for a lease of their properties at the rate of one-half centavo per square meter per month (Exhibit 12). In spite of the absence of any action on the offer of lease, the Bureau of Aeronautics maintained and operated the airstrip for the purpose of commercial operations from April, 1946 and had sufficient funds to pay for the lease of the lands included in the airfield from March 1, 1946, to December 31, 1946 (Exhibit 14). The owners, however, expressly states to the Bureau of Aeronautics that while "they are willing to give the fullest cooperation to the

Republic insofar as the use by the Government of their properties, . . . , they reserve to themselves the right of full enjoyment of ownership and the fruits thereof, in their particular dealing with the private air lines engaged in commercial aviation." (Exhibit 11).

This status of the occupation of the airstrip appears to be in a nebulous state, although it can be clearly inferred from the various documents presented at the trial that even after the termination of the period of the lease signed by the U.S. Army, which lease was originally to end in October, 1945, the U.S. Army continued occupying the airstrip. On April 22, 1947, it was formally transferred from the Foreign Liquidation Commission to the Surplus Property Commission at the procurement cost of $116,760 (t.s.n., pp. 295-296). The Surplus Property Commission adopted the policy of retaining the Bacolod Airstrip No. 2, as the Bureau of Aeronautics had requested it for the furtherance of civil aviation (Exhibit 1). In this connection, it may be well to note that since July 31, 1946, the Bureau of Aeronautics had advised the defendant Philippine Air Lines that the Bacolod Airstrip had already been released by the U.S. Army, and that the said Bureau was assuming the responsibility of paying rentals for said strip (Exhibit 13). And on August 29, 1946, it certified that all landing fields and airports in the Philippines, including that of the City of Bacolod, are maintained and operated by it and are available to all aircraft of Philippine registry, free of landing charges, in line with the policy of the Government to promote civil aviation (Exhibit 14).

The FEATI began using the airstrip in question in November, 1945, the Philippine Air Lines on July 16, 1946, and the Commercial Air Lines in January, 1947.

It can be gleaned from the pleadings and from the communications coursed between the parties that the plaintiffs herein seek to make the defendants directly responsible to them for the use of the airstrip, irrespective of and notwithstanding the fact that the U.S. Army, and subsequently the Bureau of Aeronautics of the Commonwealth Government, actually occupied, maintained, and operated the airways for the benefit of commercial aviation.

In the answer of the FEATI, it is alleged as special defense that the Bacolod Airstrip has become an airport and landing field open and available to all commercial aircraft by virtue of the provisions of law and in accordance with the regulations issued by the Bureau of Aeronautics. On the other hand, in its answer to the complaint, the Philippine Air Lines alleged as special defense that the airstrip is maintained by the Government of the Republic of the Philippines, under the control and administration of the Director of the Bureau of Aeronautics, and that the responsibility for the payment of rentals to the owners rested on the bureau of Aeronautics. Three of the issues that were tried in the court below are, as stated in the decision, as follows:

1. Whether the defendant companies had legal authority to use the properties in question on the alleged authority of the Commanding General of the United States Air Force in the Pacific, without the consent of the owners;

2. Whether the Bureau of Aeronautics may exempt the defendant companies, for the use of the airstrip in question, from paying compensation to the plaintiffs on the ground that the said Bureau had the obligation under the law of providing grounding facilities to the planes of


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the defendant companies, and that it is the responsibility of that Bureau to make such payments;

3. Whether the defendants are directly responsible to the plaintiffs for the use and enjoyment of their properties.

On the first issue the lower court held that the defendants did not properly derive the authority to use the airstrip in question from the United States Army of Liberation. On the second it held that the obligations of the Bureau of Aeronautics to provide landing fields for companies engaged in commercial aviation refers only to airstrip legally acquired by the government and that since the Bureau of Aeronautics recognized the plaintiffs as entitled to rentals, it is stopped from alleging that it can dispose of these properties without the consent of the owners. As to the third it held that as the acts of the defendants are not justified in law, they are directly responsible to the plaintiffs for the value of the use and enjoyment of the properties in question.

One of the assignments of error made in this appeal is that the trial court erred in not ordering the inclusion of the Philippine Government (or the Bureau of Aeronautics) as an indispensable party in the final determination of the issues raised by the defendants. It will be noted that if this assignment of error is to be sustained, judgment must be reversed, and it would be unnecessary for us to consider all the other assignments of error raised in the appeal.

The tendency or effect of the evidence submitted by the defendants, which is not disputed by plaintiffs, is that they have the authorization of the Bureau of Aeronautics to use the airfield in question (Exhibits 5,7,9,10,13,14). AS a matter of fact, the judgment of the court a quo on the second issue contains a finding that the Bureau of Aeronautics recognized that the plaintiffs are entitled to rentals and is stopped from alleging that it can dispose of these properties without the consent of the owners thereof, which holding reveals the indivisibility of the relationship between the defendants and the Bureau of Aeronautics, as the former had been authorized to use the airfield and the latter had given said authority under the express obligation of making with the plaintiffs the necessary arrangements for the use of the land in question as an airfield, and the resulting need of including the Bureau of Aeronautics as a party defendant in order to determine in a just and equitable manner the final responsibility of defendants for the use by them of the airfield.

A careful consideration of the circumstances surrounding the use of the airfield by the defendants clearly reveals that any responsibility that they may have for their use of the airfield can not be distinguished or dissociated from that of the Bureau of Aeronautics. In the first place, the U.S. Army gave the defendants the authority to use the airfield. After the turn-over of the airfield to the Philippine Government was made, the Bureau of Aeronautics occupied the airfield, maintained and operated it, and, pursuant to the policy that the Philippine Government had adopted of furnishing airport facilities in the interest of commercial aviation (Commonwealth Act No. 168, section 6 (c)), it assured the defendants that it would itself obtain the lease of the land from the owners. Certainly, no separate or distinct responsibility for the use of the airstrip on the part of the defendants may arise independently of that of the Bureau of Aeronautics, not only because the latter and the defendants jointly occupied the airstrip, but mainly because the said Bureau permitted and encouraged the defendants to use the airstrip, assuring them that it had the necessary funds to pay for the use and occupation of

the lands. The defendants can not be held liable without making the Bureau of Aeronautics partly or wholly responsible for said liability. The decision appealed from itself discloses the necessity of a finding as to the Bureau of Aeronautics also. It declared that the Bureau of Aeronautics is estopped from alleging that it can dispose of the properties without the consent of the plaintiffs, as it recognizes that the latter are entitled to rentals. The Bureau of Aeronautics has so much interest in the controversy, and its responsibility for the relief sought so bound up with the defendants, that its presence as a party to the action is an absolute necessity, without which the lower court should not have proceeded. (170 Fed. 2d series, p. 654). Furthermore, it has been held that it is enough that the absence of a party may leave the controversy in such a situation that the final determination may be inconsistent with equity and good conscience. (Davis vs. Henry, C.C.A. Ky, 266 F. 261, 265, 21 W &P 173; State of Washington, vs. United States, et al., 87 F. (2) 421, 427-428.) To hold the defendants liable without determining the corresponding liability of the Bureau of Aeronautics, which permitted and encouraged the defendants to use the airstrip, would be clearly inequitous.

It would be noted that the provisions of the code procedure on parties were taken from the rules of equity and not from the rule of common law, and, therefore, a great amount of latitude is allowed in the inclusion of the parties to a case. The evident aim and intent of the rules regarding the joinder of indispensable and necessary parties is the complete determination of all possible issues, not only between parties themselves but also as regards to other persons who may be affected by the judgment. Pursuant to this intent, we hold that the Bureau of Aeronautics is an indispensable party in so far as the determination of the liability of the defendants for the use of the airstrip is concerned.

In Mallow, et al, vs. Hinde, 6 Law Ed. 599, the complaint charges one Taylor of conspiracy with Hinde, but neither Taylor, from whom Hinde obtained his title or right to the land in litigation, nor the other parties from whom the plaintiffs in turn, derived their right, were made parties. The Supreme Court of the United States held:

In this case, the complainants have no rights separable from, and independent of, the rights of persons not made parties. The rights of those not before the court lie at the very foundation of the claim or right by the plaintiffs, and a final decision cannot be made between the rights of others not made parties.

In Garcia vs. Reyes, et al., 17 Phil. 127, the plaintiff seeks to annul the transfer of a house that belonged to the defendant's father, and which was sold at public auction by the sheriff to the plaintiff. The complaint alleges that prior to the sale by the sheriff, the deceased father of the defendant transferred his said house to Messrs. Chicote, — Miranda & Sierra, a law firm, and this, in turn, transferred the same to Rafael Sierra, one of the members of said firm, who afterwards made a gift of the house to the minor defendants. It was held that all the persons who intervened in the transfers from the original owner to the defendants in the case are parties necessary to the suit, because the transfers and donation are asked to be declared null and void.

The principle involved has been briefly stated as follows:

Where the result of the suit is dependent upon the validity of the right or title of an absent person, as suit for an


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injunction against one who is acting under the charter of another, or a suit between lessees of different persons for the same property, the absent party is indispensable, (Moore's Federal Practice, Vol. 2, p. 2151, citing Northern Indiana RR. Co. vs. Michigan Cent. RR. Co. (1853) 15 How. 233, 14 Law Ed. 674; McConnell vs. Dennis (C.C.A. 8th, 1907) 153 Fed. 547; South Penn Oil Co. vs. Miller (C.C.A. 4th, 1909) 175 729.)

In view of the foregoing considerations, the judgment is hereby set aside and the case ordered remanded to the court a quo, with the instruction that the Bureau of Aeronautics be made a party defendant, and that thereafter the action proceed in accordance with the rules.

Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo, Bautista Angelo, Concepcion and Diokno, JJ., concur.


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G.R. No. 138497 January 16, 2002

IMELDA RELUCIO, petitioner, vs. ANGELINA MEJIA LOPEZ, respondent.

PARDO, J.:

The Case

The case is a petition for review on certiorari1 seeking to set aside

the decision2 of the Court of Appeals that denied a petition for

certiorari assailing the trial court's order denying petitioner's motion to dismiss the case against her inclusion as party defendant therein.

The Facts

The facts, as found by the Court of Appeals, are as follows:

"On September 15, 1993, herein private respondent Angelina Mejia Lopez (plaintiff below) filed a petition for "APPOINTMENT AS SOLE ADMINISTRATIX OF CONJUGAL PARTNERSHIP OF PROPERTIES, FORFEITURE, ETC.," against defendant Alberto Lopez and petition Imelda Relucio, docketed as Spec. Proc. M-3630, in the Regional Trial Court of Makati, Branch 141. In the petition, private-respondent alleged that sometime in 1968, defendant Lopez, who is legally married to the private respondent, abandoned the latter and their four legitimate children; that he arrogated unto himself full and exclusive control and administration of the conjugal properties, spending and using the same for his sole gain and benefit to the total exclusion of the private respondent and their four children; that defendant Lopez, after abandoning his family, maintained an illicit relationship and cohabited with herein petitioner since 1976.

"It was further alleged that defendant Lopez and petitioner Relucio, during their period of cohabitation since 1976, have amassed a fortune consisting mainly of stockholdings in Lopez-owned or controlled corporations, residential, agricultural, commercial lots, houses, apartments and buildings, cars and other motor vehicles, bank accounts and jewelry. These properties, which are in the names of defendant Lopez and petitioner Relucio singly or jointly or their dummies and proxies, have been acquired principally if not solely through the actual contribution of money, property and industry of defendant Lopez with minimal, if not nil, actual contribution from petitioner Relucio.

"In order to avoid defendant Lopez obligations as a father and husband, he excluded the private respondent and their four children from sharing or benefiting from the conjugal properties and the income or fruits there from. As such, defendant Lopez either did not place them in his name or otherwise removed, transferred, stashed away or concealed them from the private-respondent. He placed substantial portions of these conjugal properties in the name of petitioner Relucio.1âwphi1.nêt

"It was also averred that in the past twenty five years since defendant Lopez abandoned the private-respondent, he has sold, disposed of, alienated, transferred, assigned, canceled, removed or stashed away properties, assets and income belonging to the conjugal partnership with the private-respondent and either spent the proceeds thereof for his sole benefit and that of petitioner Relucio and their two illegitimate children or permanently and

fraudulently placed them beyond the reach of the private-respondent and their four children.

"On December 8, 1993, a Motion to Dismiss the Petition was filed by herein petitioner on the ground that private respondent has no cause of action against her.

"An Order dated February 10, 1994 was issued by herein respondent Judge denying petitioner Relucio's Motion to Dismiss on the ground that she is impleaded as a necessary or indispensable party because some of the subject properties are registered in her name and defendant Lopez, or solely in her name.

"Subsequently thereafter, petitioner Relucio filed a Motion for Reconsideration to the Order of the respondent Judge dated February 10, 1994 but the same was likewise denied in the Order dated May 31, 1994."

3

On June 21, 1994, petitioner filed with the Court of Appeals a petition for certiorari assailing the trial court's denial of her motion to dismiss.

4

On May 31, 1996, the Court of Appeals promulgated a decision denying the petition.

5 On June 26, 1996, petitioner filed a motion for

reconsideration.6 However, on April 6, 1996, the Court of Appeals

denied petitioner's motion for reconsideration.7

Hence, this appeal.8

The Issues

1. Whether respondent's petition for appointment as sole administratrix of the conjugal property, accounting, etc. against her husband Alberto J. Lopez established a cause of action against petitioner.

2. Whether petitioner's inclusion as party defendant is essential in the proceedings for a complete adjudication of the controversy.

9

The Court's Ruling

We grant the petition. We resolve the issues in seriatim.

First issue: whether a cause of action exists against petitioner in the proceedings below. "A cause of action is an act or omission of one party the defendant in violation of the legal right of the other."

10 The

elements of a cause of action are:

(1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created;

(2) an obligation on the part of the named defendant to respect or not to violate such right; and

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

11













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A cause of action is sufficient if a valid judgment may be rendered thereon if the alleged facts were admitted or proved.

12

In order to sustain a motion to dismiss for lack of cause of action, the complaint must show that the claim for relief does not exist, rather than that a claim has been merely defectively stated or is ambiguous, indefinite or uncertain.

13

Hence, to determine the sufficiency of the cause of action alleged in Special Proceedings M-3630, we assays its allegations.

In Part Two on the "Nature of [the] Complaint," respondent Angelina Mejia Lopez summarized the causes of action alleged in the complaint below.

The complaint is by an aggrieved wife against her husband.

Nowhere in the allegations does it appear that relief is sought against petitioner. Respondent's causes of action were all against her husband.

The first cause of action is for judicial appointment of respondent as administratrix of the conjugal partnership or absolute community property arising from her marriage to Alberto J. Lopez. Petitioner is a complete stranger to this cause of action. Article 128 of the Family Code refers only to spouses, to wit:

"If a spouse without just cause abandons the other or fails to comply with his or her obligations to the family, the aggrieved spouse may petition the court for receivership, for judicial separation of property, or for authority to be the sole administrator of the conjugal partnership property xxx"

The administration of the property of the marriage is entirely between them, to the exclusion of all other persons. Respondent alleges that Alberto J. Lopez is her husband. Therefore, her first cause of action is against Alberto J. Lopez. There is no right-duty relation between petitioner and respondent that can possibly support a cause of action. In fact, none of the three elements of a cause of action exists.

The second cause of action is for an accounting "by respondent husband."

14 The accounting of conjugal partnership arises from or is

an incident of marriage.

Petitioner has nothing to do with the marriage between respondent Alberto J. Lopez. Hence, no cause of action can exist against petitioner on this ground.

Respondent's alternative cause of action is for forfeiture of Alberto J. Lopez' share in the co-owned property "acquired during his illicit relationship and cohabitation with [petitioner]"

15 and for the

"dissolution of the conjugal partnership of gains between him [Alberto J. Lopez] and the [respondent]."

The third cause of action is essentially for forfeiture of Alberto J. Lopez' share in property co-owned by him and petitioner. It does not involve the issue of validity of the co-ownership between Alberto J. Lopez and petitioner. The issue is whether there is basis in law to

forfeit Alberto J. Lopez' share, if any there be, in property co-owned by him with petitioner.

Respondent's asserted right to forfeit extends to Alberto J. Lopez' share alone. Failure of Alberto J. Lopez to surrender such share, assuming the trial court finds in respondent's favor, results in a breach of an obligation to respondent and gives rise to a cause of action.

16 Such cause of action, however, pertains to Alberto J. Lopez,

not petitioner.

The respondent also sought support. Support cannot be compelled from a stranger.

The action in Special Proceedings M-3630 is, to use respondent Angelina M. Lopez' own words, one by "an aggrieved wife against her husband."

17 References to petitioner in the common and specific

allegations of fact in the complaint are merely incidental, to set forth facts and circumstances that prove the causes of action alleged against Alberto J. Lopez.

Finally, as to the moral damages, respondent's claim for moral damages is against Alberto J. Lopez, not petitioner.

To sustain a cause of action for moral damages, the complaint must have the character of an action for interference with marital or family relations under the Civil Code.

A real party in interest is one who stands "to be benefited or injured by the judgment of the suit."

18 In this case, petitioner would not be

affected by any judgment in Special Proceedings M-3630.

If petitioner is not a real party in interest, she cannot be an indispensable party. An indispensable party is one without whom there can be no final determination of an action.

19 Petitioner's

participation in Special Proceedings M-36-30 is not indispensable. Certainly, the trial court can issue a judgment ordering Alberto J. Lopez to make an accounting of his conjugal partnership with respondent, and give support to respondent and their children, and dissolve Alberto J. Lopez' conjugal partnership with respondent, and forfeit Alberto J. Lopez' share in property co-owned by him and petitioner. Such judgment would be perfectly valid and enforceable against Alberto J. Lopez.

Nor can petitioner be a necessary party in Special Proceedings M-3630. A necessary party as one who is not indispensable but who ought to be joined as party if complete relief is to be accorded those already parties, or for a complete determination or settlement of the claim subject of the action.

20 In the context of her petition in the

lower court, respondent would be accorded complete relief if Alberto J. Lopez were ordered to account for his alleged conjugal partnership property with respondent, give support to respondent and her children, turn over his share in the co-ownership with petitioner and dissolve his conjugal partnership or absolute community property with respondent.

The Judgment

WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the Court of Appeals.

21 The Court DISMISSES Special

Proceedings M-3630 of the Regional Trial Court, Makati, Branch 141 as against petitioner.1âwphi1.nêt












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No costs.

SO ORDERED.


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G.R. No. 146744 March 6, 2006

ROBERT G. DE GALICIA, Petitioner, vs. MELY MERCADO, Respondent.

D E C I S I O N

CORONA, J.:

Petitioner Robert G. de Galicia was a business partner in RCL Enterprises. On or about December 15, 1997, he was asked by his partner Carmen Arciaga to co-sign with her a Philbank check for P50,000 payable to cash. Allegedly without his knowledge and consent, Arciaga rediscounted the check with respondent Mely Mercado at 8% interest. Respondent gave Arciaga the sum of P46,000, representing the value of the check less 8% as interest.

Later, respondent presented the check for payment but it was dishonored for insufficiency of funds. She then filed a complaint for estafa and for violation of Batas Pambansa Blg. (BP) 22

1 against

petitioner and Carmen Arciaga. Petitioner countered by filing in the Regional Trial Court (RTC) of Manila, Branch 32, a case for the declaration of nullity of the agreement to pay interest between respondent and his partner, Arciaga. He prayed that the agreement, together with the rediscounted check, be declared void for being contrary to public policy.

After trial, the RTC, in an order dated November 21, 2000, dismissed petitioner’s case for lack of jurisdiction. In another order dated January 15, 2001, it also denied his motion for reconsideration. Treating the complaint as one for recovery of a sum of money, the trial court ruled:

Even granting in arguendo, that the action seeks to have the agreement (?) between defendant Mely Mercado and one Carmen Arciaga with respect to the payment of interest to be declared null and void, this Court is in a quandary because one of the parties (Carmen Arciaga) in the so-called agreement is not a party to the present case.

Also, even considering and computing the interest rate at 8% or 5%, it is still within the rate of P50,000 and way below the jurisdictional amount vested in the Regional Trial Court.

The present action is treated by this Court as one for the recovery of sum of money, construing the same from the facts alleged in the complaint xxx with the present action/complaint having no title of the action.

A reading of the instant case indicates that the principal relief sought is for the declaration of the subject check in the amount of P50,000 a nullity. Hence, capable of pecuniary estimation, the so-called agreement merely an incident thereto.

After going over the entire record of this case, and further considering that every court has the power to review and amend… its findings and conclusions, this Court finds no reversible error to reconsider its assailed order (dated November 21, 2000).

WHEREFORE, the assailed Order (supra) [D]ismissing this case, [S]tands. The Motion for Reconsideration, for lack of merit, is hereby DENIED.

2

Via this petition for review under Rule 45 of the 1997 Rules of Civil Procedure, on a pure question of law, petitioner assigns this error to the abovementioned order:

THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT FOR LACK OF JURISDICTION OVER ITS SUBJECT MATTER SIMPLY BECAUSE THE AMOUNT INVOLVED [WAS] ONLY P50,000.00.

3

In his memorandum,4 petitioner insisted that the complaint for

declaration of nullity of the agreement between respondent and Arciaga was within the jurisdiction of the RTC. According to petitioner, the subject matter of the complaint was not for the recovery of a sum of money but for the nullification of the agreement to pay interest, with a prayer to also nullify the check, in which case the action was not capable of pecuniary estimation. He argued that it was error for the trial court to dismiss the complaint on the basis merely that the amount involved was P50,000.

Respondent, however, contends that the dismissal by the RTC of the complaint was warranted since the action essentially involved the nullification of the check amounting to P50,000. She insisted that the amount was outside the RTC’s jurisdiction, thus, it could not possibly take cognizance of the case. Respondent added that the RTC did not err in dismissing the complaint because Arciaga, as an indispensable party, was not impleaded.

Under BP 129,5 the RTC shall exercise exclusive jurisdiction on the

following actions:

(1) In all civil actions in which the subject of the litigation is incapable of pecuniary estimation;

(2) In all civil actions which involve the title to, or possession of, real property, or any interest therein, where the assessed value of the property involve[d] exceeds Twenty [T]housand [P]esos (P20,000.00) or for civil actions in Metro Manila, where such value exceeds Fifty [T]housand [P]esos (P50,000.00) except actions for forcible entry into and unlawful detainer of lands or buildings, original jurisdiction over which is conferred upon the Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts.

xxx xxx xxx

In determining whether or not the subject matter of an action is capable of pecuniary estimation, the Court, in the early case of Singsong v. Isabella Sawmill,

6 laid down the following criterion:

xxx this Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is primarily for the recovery of a sum of money, the claim is considered capable of pecuniary estimation, and whether jurisdiction is in the municipal courts or in the courts of first instance (now RTC) would depend on the amount involved. However, where the basic issue is something other than the right to recover a sum of money, where the money claim is purely incidental to, or a consequence of, the principal relief sought, this Court has considered such actions as cases where

http://www.lawphil.net/judjuris/juri2006/mar2006/gr_146744_2006.html#fnt1







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the subject of the litigation may not be estimated in terms of money, and are cognizable by the courts of first instance (RTC). (emphasis supplied)

Based on the foregoing criterion, the subject of the action before the trial court was indeed incapable of pecuniary estimation and therefore cognizable by the RTC.

A perusal of the complaint7 reveals that it primarily sought to annul

the agreement under which Arciaga obligated herself to pay respondent interest on the amount of the rediscounted check. What was being assailed was the payment of interest. Petitioner was not seeking recovery of a sum of money as found by the trial court. The records do not show that he asked for payment of the amount of the check. Besides, it was not for petitioner to ask for reimbursement of the amount of the check but respondent who gave P46,000 to petitioner’s business partner, Arciaga.

Nevertheless, notwithstanding the RTC’s jurisdiction on the subject case, this Court sustains the dismissal of the subject complaint for its failure to implead an indispensable party.

Under Rule 3, Section 7 of the 1997 Rules of Civil Procedure, an indispensable party is a party-in-interest without whom there can be no final determination of an action. The interests of such indispensable party in the subject matter of the suit and the relief are so bound with those of the other parties that his legal presence as a party to the proceeding is an absolute necessity.

8 As a rule, an

indispensable party’s interest in the subject matter is such that a complete and efficient determination of the equities and rights of the parties is not possible if he is not joined.

9

Here, we hold that Arciaga was an indispensable party to the suit filed by petitioner against respondent. Her interest in the suit was intertwined with the rights and interest of both petitioner and respondent. She was as involved in the suit as petitioner and respondent, being a co-signatory of the re-discounted check and being privy to the assailed agreement. Had the subject complaint been resolved on the merits, any judgment made by the trial court was going to affect not only respondent but Arciaga as well. Unfortunately, due to the failure of petitioner to implead her in the complaint, any judgment therein could not bind her. It was as if the complaint had not been filed at all.

In Aracelona v. Court of Appeals,10

the Court held that the joinder of all indispensable parties must be made under any and all conditions, their presence being a sine qua non for the exercise of the judicial power. There, we ruled that when an indispensable party is not before the court, the action should be dismissed.

11

It is interesting to note that petitioner filed the subject complaint after respondent initiated a complaint for estafa and violation of BP 22.

12 The filing of the complaint for declaration of nullity of the

agreement to pay interest and the nullity of the check appeared to be an afterthought and an attempt to affect the outcome of the criminal complaint against him.

WHEREFORE, the petition is hereby DENIED.

No costs.

SO ORDERED.








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G.R. No. L-66620 September 24, 1986

REMEDIO V. FLORES, petitioner, vs. HON. JUDGE HEILIA S. MALLARE-PHILLIPPS, IGNACIO BINONGCAL & FERNANDO CALION, respondents.

Lucio A. Dixon for respondent F. Calion.

FERIA, J.:

The Court rules that the application of the totality rule under Section 33(l) of Batas Pambansa Blg. 129 and Section 11 of the Interim Rules is subject to the requirements for the permissive joinder of parties under Section 6 of Rule 3 which provides as follows:

Permissive joinder of parties.-All persons in whom or against whom any right to relief in respect to or arising out of the same transaction or series of transactions is alleged to exist, whether jointly, severally, or in the alternative, may, except as otherwise provided in these rules, join as plaintiffs or be joined as defendants in one complaint, where any question of law or fact common to all such plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any proceedings in which he may have no interest.

Petitioner has appealed by certiorari from the order of Judge Heilia S. Mallare-Phillipps of the Regional Trial Court of Baguio City and Benguet Province which dismissed his complaint for lack of jurisdiction. Petitioner did not attach to his petition a copy of his complaint in the erroneous belief that the entire original record of the case shall be transmitted to this Court pursuant to the second paragraph of Section 39 of BP129. This provision applies only to ordinary appeals from the regional trial court to the Court of Appeals (Section 20 of the Interim Rules). Appeals to this Court by petition for review on certiorari are governed by Rule 45 of the Rules of Court (Section 25 of the Interim Rules).

However, the order appealed from states that the first cause of action alleged in the complaint was against respondent Ignacio Binongcal for refusing to pay the amount of P11,643.00 representing cost of truck tires which he purchased on credit from petitioner on various occasions from August to October, 1981; and the second cause of action was against respondent Fernando Calion for allegedly refusing to pay the amount of P10,212.00 representing cost of truck tires which he purchased on credit from petitioner on several occasions from March, 1981 to January, 1982.

On December 15, 1983, counsel for respondent Binongcal filed a Motion to Dismiss on the ground of lack of jurisdiction since the amount of the demand against said respondent was only P11,643.00, and under Section 19(8) of BP129 the regional trial court shall exercise exclusive original jurisdiction if the amount of the demand is more than twenty thousand pesos (P20,000.00). It

was further averred in said motion that although another person, Fernando Calion, was allegedly indebted to petitioner in the amount of P10,212.00, his obligation was separate and distinct from that of the other respondent. At the hearing of said Motion to Dismiss, counsel for respondent Calion joined in moving for the dismissal of the complaint on the ground of lack of jurisdiction. Counsel for petitioner opposed the Motion to Dismiss. As above stated, the trial court dismissed the complaint for lack of jurisdiction.

Petitioner maintains that the lower court has jurisdiction over the case following the "novel" totality rule introduced in Section 33(l) of BP129 and Section 11 of the Interim Rules.

The pertinent portion of Section 33(l) of BP129 reads as follows:

... Provided,That where there are several claims or causes of action between the same or different parties, embodied in the same complaint, the amount of the demand shall be the totality of the claims in all the causes of action, irrespective of whether the causes of action arose out of the same or different transactions. ...

Section 11 of the Interim Rules provides thus:

Application of the totality rule.-In actions where the jurisdiction of the court is dependent on the amount involved, the test of jurisdiction shall be the aggregate sum of all the money demands, exclusive only of interest and costs, irrespective of whether or not the separate claims are owned by or due to different parties. If any demand is for damages in a civil action, the amount thereof must be specifically alleged.

Petitioner compares the above-quoted provisions with the pertinent portion of the former rule under Section 88 of the Judiciary Act of 1948 as amended which reads as follows:

... Where there are several claims or causes of action between the same parties embodied in the same complaint, the amount of the demand shall be the totality of the demand in all the causes of action, irrespective of whether the causes of action arose out of the same or different transactions; but where the claims or causes of action joined in a single complaint are separately owned by or due to different parties, each separate claim shall furnish the jurisdictional test. ...

and argues that with the deletion of the proviso in the former rule, the totality rule was reduced to clarity and brevity and the jurisdictional test is the totality of the claims in all, not in each, of the causes of action, irrespective of whether the causes of action arose out of the same or different transactions.

This argument is partly correct. There is no difference between the former and present rules in cases where a plaintiff sues a defendant on two or more separate causes of action. In such cases, the amount of the demand shall be the totality of the claims in all the causes of


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action irrespective of whether the causes of action arose out of the same or different transactions. If the total demand exceeds twenty thousand pesos, then the regional trial court has jurisdiction. Needless to state, if the causes of action are separate and independent, their joinder in one complaint is permissive and not mandatory, and any cause of action where the amount of the demand is twenty thousand pesos or less may be the subject of a separate complaint filed with a metropolitan or municipal trial court.

On the other hand, there is a difference between the former and present rules in cases where two or more plaintiffs having separate causes of action against a defendant join in a single complaint. Under the former rule, "where the claims or causes of action joined in a single complaint are separately owned by or due to different parties, each separate claim shall furnish the jurisdictional test" (Section 88 of the Judiciary Act of 1948 as amended, supra). This was based on the ruling in the case of Vda. de Rosario vs. Justice of the Peace, 99 Phil. 693. As worded, the former rule applied only to cases of permissive joinder of parties plaintiff. However, it was also applicable to cases of permissive joinder of parties defendant, as may be deduced from the ruling in the case of Brillo vs. Buklatan, thus:

Furthermore, the first cause of action is composed of separate claims against several defendants of different amounts each of which is not more than P2,000 and falls under the jurisdiction of the justice of the peace court under section 88 of Republic Act No, 296. The several claims do not seem to arise from the same transaction or series of transactions and there seem to be no questions of law or of fact common to all the defendants as may warrant their joinder under Rule 3, section 6. Therefore, if new complaints are to be filed in the name of the real party in interest they should be filed in the justice of the peace court. (87 Phil. 519, 520, reiterated in Gacula vs. Martinez, 88 Phil. 142, 146)

Under the present law, the totality rule is applied also to cases where two or more plaintiffs having separate causes of action against a defendant join in a single complaint, as well as to cases where a plaintiff has separate causes of action against two or more defendants joined in a single complaint. However, the causes of action in favor of the two or more plaintiffs or against the two or more defendants should arise out of the same transaction or series of transactions and there should be a common question of law or fact, as provided in Section 6 of Rule 3.

The difference between the former and present rules in cases of permissive joinder of parties may be illustrated by the two cases which were cited in the case of Vda. de Rosario vs. Justice of the Peace (supra) as exceptions to the totality rule. In the case of Soriano y Cia vs. Jose (86 Phil. 523), where twenty-nine dismissed employees joined in a complaint against the defendant to collect their respective claims, each of which was within the jurisdiction of the municipal court although the total exceeded the jurisdictional amount, this Court held that under the law then the municipal court had jurisdiction. In said case, although the plaintiffs' demands were separate, distinct and independent of one another, their joint suit was authorized under Section 6 of Rule 3 and each separate claim furnished the jurisdictional test. In the case of International Colleges,

Inc. vs. Argonza (90 Phil. 470), where twenty-five dismissed teachers jointly sued the defendant for unpaid salaries, this Court also held that the municipal court had jurisdiction because the amount of each claim was within, although the total exceeded, its jurisdiction and it was a case of permissive joinder of parties plaintiff under Section 6 of Rule 3.

Under the present law, the two cases above cited (assuming they do not fall under the Labor Code) would be under the jurisdiction of the regional trial court. Similarly, in the abovecited cases of Brillo vs. Buklatan and Gacula vs. Martinez (supra), if the separate claims against the several defendants arose out of the same transaction or series of transactions and there is a common question of law or fact, they would now be under the jurisdiction of the regional trial court.

In other words, in cases of permissive joinder of parties, whether as plaintiffs or as defendants, under Section 6 of Rule 3, the total of all the claims shall now furnish the jurisdictional test. Needless to state also, if instead of joining or being joined in one complaint separate actions are filed by or against the parties, the amount demanded in each complaint shall furnish the jurisdictional test.

In the case at bar, the lower court correctly held that the jurisdictional test is subject to the rules on joinder of parties pursuant to Section 5 of Rule 2 and Section 6 of Rule 3 of the Rules of Court and that, after a careful scrutiny of the complaint, it appears that there is a misjoinder of parties for the reason that the claims against respondents Binongcal and Calion are separate and distinct and neither of which falls within its jurisdiction.

WHEREFORE, the order appealed from is affirmed, without pronouncement as to costs.

SO ORDERED.


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G.R. No. 166519 March 31, 2009

NIEVES PLASABAS and MARCOS MALAZARTE, Petitioners, vs. COURT OF APPEALS (Special Former Ninth Division), DOMINADOR LUMEN, and AURORA AUNZO, Respondents.

D E C I S I O N

NACHURA, J.:

Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court are the May 12, 2004 Decision

1 of the Court of

Appeals (CA) in CA-G.R. CV No. 43085 and the December 1, 2004 Resolution

2 denying reconsideration of the challenged decision.

The pertinent facts and proceedings follow.

In 1974, petitioners3 filed a complaint for recovery of title to

property with damages before the Court of First Instance (now, Regional Trial Court [RTC]) of Maasin, Southern Leyte against respondents. The case was docketed as Civil Case No. R-1949. The property subject of the case was a parcel of coconut land in Canturing, Maasin, Southern Leyte, declared under Tax Declaration No. 3587 in the name of petitioner Nieves with an area of 2.6360 hectares.

4 In their complaint, petitioners prayed that judgment be

rendered confirming their rights and legal title to the subject property and ordering the defendants to vacate the occupied portion and to pay damages.

5

Respondents, for their part, denied petitioners’ allegation of ownership and possession of the premises, and interposed, as their main defense, that the subject land was inherited by all the parties from their common ancestor, Francisco Plasabas.

6

Revealed in the course of the trial was that petitioner Nieves, contrary to her allegations in the complaint, was not the sole and absolute owner of the land. Based on the testimonies of petitioners’ witnesses, the property passed on from Francisco to his son, Leoncio; then to Jovita Talam, petitioner Nieves’ grandmother; then to Antonina Talam, her mother; and then to her and her siblings—Jose, Victor and Victoria.

7

After resting their case, respondents raised in their memorandum the argument that the case should have been terminated at inception for petitioners’ failure to implead indispensable parties, the other co-owners – Jose, Victor and Victoria.

In its April 19, 1993 Order,8 the trial court, without ruling on the

merits, dismissed the case without prejudice, thus:

This Court, much as it wants to decide the instant case on the merits, being one of the old inherited cases left behind, finds difficulty if not impossibility of doing so at this stage of the proceedings when both parties have already rested their cases. Reluctantly, it agrees with the defendants in the observation that some important indispensable consideration is conspicuously wanting or missing.

It is not the Court’s wish to turn its back on the crucial part of the case, which is the pronouncement of the judgment to settle the

issues raised in the pleadings of the parties once and for all, after all the time, effort and expense spent in going through the trial process.

But, rules are rules. They have to be followed, to arrive at a fair and just verdict. Section 7, Rule 3 of the Rules of Court provides:

"x x x Compulsory joinder of indispensable parties. – Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants."

What the Court wants to say here is that the instant case should have been dismissed without prejudice a long time ago for lack of cause of action as the plaintiffs spouses Marcos Malazarte and Nieves Plasabas Malazarte have no complete legal personality to sue by themselves alone without joining the brothers and sisters of Nieves who are as INDISPENSABLE as the latter in the final determination of the case. Not impleading them, any judgment would have no effectiveness.

They are that indispensable that a final decree would necessarily affect their rights, so that the Court cannot proceed without their presence. There are abundant authorities in this regard. Thus –

"The general rule with reference to the making of parties in a civil action requires the joinder of all indispensable parties under any and all conditions, their presence being a sine qua non of the exercise of judicial power. (Borlasa v. Polistico, 47 Phil. 345, 348) For this reason, our Supreme Court has held that when it appears of record that there are other persons interested in the subject matter of the litigation, who are not made parties to the action, it is the duty of the court to suspend the trial until such parties are made either plaintiffs or defendants. (Pobre, et al. v. Blanco, 17 Phil. 156). x x x Where the petition failed to join as party defendant the person interested in sustaining the proceeding in the court, the same should be dismissed. x x x When an indispensable party is not before the court, the action should be dismissed. (People, et al. v. Rodriguez, et al., G.R. Nos. L-14059-62, September 30, 1959) (sic)

"Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants. (Sec. 7, Rule 3, Rules of Court). The burden of procuring the presence of all indispensable parties is on the plaintiff. (39 Amjur [sic] 885). The evident purpose of the rule is to prevent the multiplicity of suits by requiring the person arresting a right against the defendant to include with him, either as co-plaintiffs or as co-defendants, all persons standing in the same position, so that the whole matter in dispute may be determined once and for all in one litigation. (Palarca v. Baginsi, 38 Phil. 177, 178).

"An indispensable party is a party who has such an interest in the controversy or subject matter that a final adjudication cannot be made, in his absence, without inquiring or affecting such interest; a party who has not only an interest of such a nature that a final decree cannot be made without affecting his interest or leaving the controversy in such a condition that its final determination may be wholly inconsistent with equity and good conscience. (67 C.J.S. 892). Indispensable parties are those without whom no action can be finally determined." (Sanidad v. Cabataje, 5 Phil. 204)

WHEREFORE, IN VIEW OF ALL THE FOREGOING CONSIDERATIONS, both the complaint and the counterclaim in the instant case are










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ordered DISMISSED without prejudice. No pronouncement as to costs.

SO ORDERED.9

Aggrieved, petitioners elevated the case to the CA. In the challenged May 12, 2004 Decision,

10 the appellate court affirmed the ruling of

the trial court. The CA, further, declared that the non-joinder of the indispensable parties would violate the principle of due process, and that Article 487 of the Civil Code could not be applied considering that the complaint was not for ejectment, but for recovery of title or a reivindicatory action.

11

With their motion for reconsideration denied in the further assailed December 1, 2004 Resolution,

12 petitioners filed the instant petition.

The Court grants the petition and remands the case to the trial court for disposition on the merits.

Article 487 of the Civil Code provides that any one of the co-owners may bring an action for ejectment.1avvphi1.zw+ The article covers all kinds of actions for the recovery of possession, including an accion publiciana and a reivindicatory action. A co-owner may file suit without necessarily joining all the other co-owners as co-plaintiffs because the suit is deemed to be instituted for the benefit of all. Any judgment of the court in favor of the plaintiff will benefit the other co-owners, but if the judgment is adverse, the same cannot prejudice the rights of the unimpleaded co-owners.

13

With this disquisition, there is no need to determine whether petitioners’ complaint is one for ejectment or for recovery of title. To repeat, Article 487 of the Civil Code applies to both actions.

Thus, petitioners, in their complaint, do not have to implead their co-owners as parties. The only exception to this rule is when the action is for the benefit of the plaintiff alone who claims to be the sole owner and is, thus, entitled to the possession thereof. In such a case, the action will not prosper unless the plaintiff impleads the other co-owners who are indispensable parties.

14

Here, the allegation of petitioners in their complaint that they are the sole owners of the property in litigation is immaterial, considering that they acknowledged during the trial that the property is co-owned by Nieves and her siblings, and that petitioners have been authorized by the co-owners to pursue the case on the latter’s behalf.

15 Impleading the other co-owners is, therefore, not

mandatory, because, as mentioned earlier, the suit is deemed to be instituted for the benefit of all.

In any event, the trial and appellate courts committed reversible error when they summarily dismissed the case, after both parties had rested their cases following a protracted trial commencing in 1974, on the sole ground of failure to implead indispensable parties. The rule is settled that the non-joinder of indispensable parties is not a ground for the dismissal of an action. The remedy is to implead the non-party claimed to be indispensable. Parties may be added by order of the court on motion of the party or on its own initiative at any stage of the action and/or at such times as are just. If petitioner refuses to implead an indispensable party despite the order of the court, the latter may dismiss the complaint/petition for the plaintiff’s/petitioner's failure to comply therewith.

16

WHEREFORE, premises considered, the instant petition is GRANTED, and the case is REMANDED to the trial court for appropriate proceedings. The trial court is further DIRECTED to decide on the merits of the civil case WITH DISPATCH.

SO ORDERED.










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G.R. No. 126950 July 2, 1999

NELSON NUFABLE, SILMOR NUFABLE and AQUILINA NUFABLE, petitioners, vs. GENEROSA NUFABLE, VILFOR NUFABLE, MARCELO NUFABLE, and the COURT OF APPEALS, respondents.

GONZAGA-REYES, J.:

This petition for review on certiorari seeks to reverse and set aside the Decision dated November 25, 1995 of the Fifth Division

1 of the

Court of Appeals for allegedly being contrary to law.

The following facts as found by the Court of Appeals are undisputed:

Edras Nufable owned at Poblacion, Manjuyod, Negros Oriental, consisting of 948 square meters, more or less. He died on August 9, 1965 and was survived by his children, namely: Angel Custodio, Generosa, Vilfor and Marcelo, all surnamed Nufable. Upon petition for probate filed by said heirs and after due publication and hearing, the then Court of First Instance of Negros Oriental (Branch II) issued an Order dated March 30, 1966 admitting to probate the last will and testament executed by the deceased Edras Nufable (Exhs. B, C and C-1).

On June 6, 1966 the same court issued an Order approving the Settlement of Estate submitted by the heirs of the late ESdras Nufable, portions of which read:

KNOW ALL MEN BY THESE PRESENTS:

We, ANGEL CUSTODIO NUFABLE, GENEROSA NUFABLE, VILFOR NUFABLE and MARCELO NUFABLE, all of legal ages (sic), Filipinos, and with residence and postal address at Manjuyod, Negros Oriental, Philippines,

— HEREBY DECLARE AND MAKE MANIFEST —

1. That on August 9, 1965, Rev. Fr. Esdras Nufable died leaving (a) Last Will and Testament (marked Exh. G) disposing (of) his properties or estate in favor of his four legitimate children, namely: Angel Custodio Nufable, Generosa Nufable, Vilfor Nufable and Marcelo Nufable;

2. That on March 30, 1966 the said Last Will and Testament was probated by the Honorable Court, Court of First Instance of Negros Oriental, and is embodied in the same order appointing an Administratrix, Generosa Nufable, but to qualify only if she put up a necessary bond of P1,000.00;

3. That herein legitimate children prefer not to appoint an Administratrix, as agreed upon (by) all the heirs, because they have no objection as to the manner of disposition of their share made by the testator, the expenses of the proceedings and that they have already taken possession of their respective shares in accordance with the will;

4. That the herein heirs agreed, as they hereby agree to settle the estate in accordance with the terms and condition of the will in the following manner, to wit:

a) That the parcel of land situated in Poblacion Manjuyod, Negros Oriental remains undivided for community ownership but respecting conditions imposed therein (sic) in the will;

xxx xxx xxx

(Exhs. "E" and "E-1")

Two months earlier, or on March 15, 1966, spouses Angel Custodio and Aquilina Nufable mortgaged the entire property located at Manjuyod to the Development Bank of the Philippines [DBP] (Pre-trial Order, dated January 7, 1992, p. 103, Original Records). Said mortgagors became delinquent for which reason the mortgaged property was foreclosed by DBP on February 26, 1973 (id.).

On January 11, 1980, Nelson Nufable, the son of Angel Custodio Nufable (who died on August 29, 1978 [TSN, Testimony of Nelson Nufable, Hearing of August 18, 1992, p. 17]), purchased said property from DBP (Exh. "1").

Generosa, Vilfor and Marcelo, all surnamed Nufable filed with the lower court a complaint dated July 25, 1985 "To Annul Fraudulent Transactions, to Quiet Title and To Recover Damages' against Nelson Nufable, and wife, Silmor Nufable and his mother Aquilina Nufable. Plaintiffs pray:

WHEREFORE, plaintiffs pray this Honorable Court that after trial judgment be rendered ordering:

(a) That the said Deed of Sale (Annex "C") executed by the Development Bank of the Philippines in favor of the defendants be declared null and void as far as the three fourths (3/4) rights which belongs (sic) to the plaintiffs are concerned;

(b) That the said three fourths (3/4) rights over the above parcel in question be declared as belonging to the plaintiffs at one fourth right to each of them;

(c) To order the defendants to pay jointly and severally to the plaintiffs by way of actual and moral damages the amount of P10,000.00 and another P5,000.00 as Attorney's fees, and to pay the costs.

(d) Plus any other amount which this Court may deem just and equitable. (p. 6, Original Records)

In their Answer, defendants contend:

4. Paragraph 4 is denied, the truth being that the late Angel Nufable was the exclusive owner of said property, that as such owner he mortgaged the same to the Development Bank of the Philippines on March 15, 1966, that said mortgage was foreclosed and the DBP became the successful bidder at the auction sale, that ownership was consolidated in the name of the DBP, and that defendant Nelson Nufable bought said property from the DBP thereafter. During this period, the plaintiffs never questioned the transactions which were public, never filed any third party claim nor attempted


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to redeem said property as redemptioners, and that said Deed of Sale, Annex "B" to the complaint, is fictitious, not being supported by any consideration; (pp. 20-21, id.)

The Deed of Sale (Annex "B"), referred to by the parties is a notarized Deed of Sale, dated July 12, 1966 (marked as Exhibit "H") by virtue of which, spouses Angel and Aquilina Nufable, as vendors, sold 3/4 portion of the subject property to herein plaintiffs for and in consideration of P1,000.00 (Exh. "5").

2

On November 29, 1995, the Court of Appeals rendered judgment, the dispositive portion

3 of which reads:

WHEREFORE, the appealed decision of the lower court is REVERSED and SET ASIDE. A new judgment is hereby entered declaring plaintiffs-appellants as the rightful co-owners of the subject property and entitled to possession of 3/4 southern portion thereof; and defendant-appellee Nelson Nufable to 1/4 portion.

No award on damages.

No costs.

Defendants-appellees' Motion for Reconsideration was denied for lack of merit in the Resolution of the Court of Appeals

4 dated

October 2, 1996.

Hence, the present petition. Petitioners raise the following grounds for the petition:

1. Honorable Court of Appeals erred in considering as controlling the probate of the Last Will and Testament of Esdras Nufable, the probate thereof not being an issue in this case;

2. The Honorable Court of Appeals erred in not considering the fact that the Development Bank of the Philippines became absolute, exclusive, legal and rightful owner of the land in question, from whom petitioner Nelson Nufable acquired the same by purchase and that, therefore, no award can be made in favor of private respondent unless and until the Development Bank of the Philippines' title thereto is first declared null and void by the court.

The Court of Appeals, in its decision, stated that the trial court failed to take into consideration the probated will of the late Esdras Nufable bequeathing the subject property to all his four children.

5 In

the present petition, petitioner present the issue of whether or not the Last Will and Testament of Esdras Nufable and its subsequent probate are pertinent and material to the question of the right of ownership of petitioner Nelson Nufable who purchased the land in question from, and as acquired property of, the Development Bank of the Philippines (DBP, for short). They contend that the probate of the Last Will Testament and of Esdras Nufable did not determine the ownership of the land in question as against third parties.1âwphi1.nêt

As a general rule, courts in probate proceedings are limited only to passing upon the extrinsic validity of the will sought to be probated, the due execution thereof, the testator's testamentary capacity and the compliance with the requisites or solemnities prescribes by law.

Said court at this stage of the proceedings is not called to rule on the rule on the intrinsic validity or efficacy of the will.

6 The question of

the intrinsic validity of a will normally comes only after the court has declared that the will has been duly authenticated.

The records show that upon petition for probate filed by the heirs of the late Esdras Nufable, an Order dated March 30, 1966 was issued by then Court of First Instance of Negros Oriental, Branch II, admitting to probate the last will and testament executed by the decedent.

7 Thereafter, on June 6, 1966, the same court approved

the Settlement of Estate submitted by the heirs of the late Esdras Nufable wherein they agreed "(T)hat the parcel land situated in Poblacion Manjuyod, Negros Oriental remains undivided for community ownership but respecting conditions imposed therein (sic) in the will."

8 In paragraph 3 thereof, they stated that "they have

no objection as to the manner of disposition of their share made by the testator, the expenses of the proceeding and that they have already taken possession of their respective shares in accordance with the will." Verily, it was the heirs of the late Esdras Nufable who agreed among themselves on the disposition of their shares. The probate court simply approved the agreement among the heirs which approval was necessary for the validity of any disposition of the decedent's estate.

9

It should likewise be noted that the late Esdras Nufable died on August 9, 1965. When the entire property located at Manjuyod was mortgaged on March 15, 1966 by his son Angel Custodio with DBP, the other heirs of Esdras — namely: Generosa, Vilfor and Marcelo — had already acquired successional rights over the said property. This is so because of the principle contained in Article 777 of the Civil Code to the effect that the rights to the succession are transmitted from the moment of death of the decedent. Accordingly, for the purpose of transmission of rights, it does not matter whether the Last Will and Testament of the late Esdras Nufable was admitted on March 30, 1966 or thereafter or that the Settlement of Estate was approved on June 6, 1966 or months later. It is to be noted that the probated will of the late Esdras Nufable specifically referred to the subject property in stating that "the land situated in the Poblacion, Manjuyod, Negros Oriental, should not be divided because this must remain in common for them, but it is necessary to allow anyone of them brothers and sisters to construct a house therein."

10 It was

therefor the will of the decedent that the subject property should undivided, although the restriction should not exceed twenty (20) years pursuant to Article 870

11 of the Civil Code.

Thus, when Angel Nufable and his spouses mortgaged the subject property to DBP on March 15, 1966, they had no right to mortgage the entire property. Angel's right over the subject property was limited only to 1/4 pro indiviso share. As co-owner of the subject property, Angel's right to sell, assign or mortgage is limited to that portion that may be allotted to him upon termination of the co-ownership. Well-entrenched is the rule that a co-owner can only alienate his pro indiviso share in the co-owned property.

12

The Court of Appeals did not err in ruling that Angel Custodio Nufable "had no right to mortgage the subject property in its entirety. His right to encumber said property was limited only to 1/4 pro indiviso share of the property in question."

13 Article 493 of the

Civil Code spells out the rights or co-owners over a co-owned property. Pursuant to said Article, a co-owner shall have full ownership of his part and of the fruits and benefits pertaining thereto. He has the right to alienate, assign or mortgage it, and even substitute another person in its enjoyment. As a mere part owner,


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he cannot alienate the shares of the other co-owners. The prohibition is premised on the elementary rule that "no one can give what he does not have."

14

Moreover, respondents stipulated that they were not aware of the mortgage by petitioners of the subject property.

15 This being the

case, a co-owner does not lose his part ownership of a co-owned property when his share is mortgaged by another co-owner without the former's knowledge and consent

16 as in the case at bar. It has

likewise been ruled that the mortgage of the inherited property is not binding against co-heirs who never benefitted.

17

Furthermore, the Deed of Sale dated June 17, 1966 marked as Exhibit "H" executed by spouses Angel and Aquilina Nufable in favor of respondents Generosa, Vilfor and Marcelo wherein the former sold, ceded and transferred back to the latter the 3/4 portion of the subject property bolsters respondents' claim that there was co-ownership. Petitioner Nelson himself claimed that he was aware of the aforesaid Deed of Sale.

18

Anent the second ground of the petition, petitioners allege that the Development Bank of the Philippines acquired ownership of the land in question through foreclosure, purchase and consolidation of ownership. Petitioners argue that if petitioner Nelson Nufable had not bought said land from the DBP, private respondents, in order to acquire said property, must sue said bank for the recovery thereof, and in so doing, must allege grounds for the annulment of documents evidencing the bank's ownership thereof. Petitioners contend that since petitioner Nelson Nufable simply bought the whole land from the bank, they cannot be deprived of the ownership of 3/4 without making any pronouncement as to the legality or illegality of the bank's ownership of said land. It is argued that there was no evidence to warrant declaration of nullity of the bank's acquisition of said land; and that neither was there a finding by the court that the bank illegally acquired the said property.

As adverted to above, when the subject property was mortgaged by Angel Custodio, he had no right to mortgage the entire property but only with respect to his 1/4 pro indiviso share as the property was subject to the successional rights of the other heirs of the late Esdras. Moreover, in case of foreclosure; a sale would result in the transmission of title to the buyer which is feasible only if the seller can be in a position to convey ownership of the things sold.

19 And in

one case, 20

it was held that a foreclosure would be ineffective unless the mortgagor has title to the property to be foreclosed. Therefore, as regards the remaining 3/4 pro indiviso share, the same was held in trust for the party rightfully entitled thereto,

21 who are

the private respondents herein.

Pursuant to Article 1451 of the Civil Code, when land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner. Likewise, under Article 1456 of the same Code, if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. In the case of Noel vs. Court of Appeals,

22 this Court held

that "a buyer of a parcel of land at a public auction to satisfy a judgment against a widow acquired only one-half interest on the land corresponding to the share of the widow and the other half belonging to the heirs of her husband became impressed with a constructive trust in behalf of said heirs."

Neither does the fact that DBP succeeded in consolidating ownership over the subject property in its name terminate the existing co-ownership. Registration of property is not a means of acquiring ownership.

23 When the subject property was sold to and

consolidated in the name of DBP, it being the winning bidder in the public auction, DBP merely held the 3/4 portion in trust for the private respondents. When petitioner Nelson purchased the said property, he merely stepped into the shoes of DBP and acquired whatever rights and obligations appertain thereto.

This brings us to the issue of whether or not the DBP should have been impleaded as party-defendant in the case at bar. Petitioners contend that DBP was never impleaded and that due process requires that DBP be impleaded so that it can defend its sale to petitioner Nelson Nufable; and that it was the duty of private respondents, and not of petitioner Nelson, to implead the bank and ask for the annulment of documents evidencing the bank's ownership of the disputed land.

In the Rejoinder to the Reply, private respondents that the non-inclusion of DBP as a "necessary party" was not questioned by petitioners from the time the Complaint was filed until the case was "finished." It was only after the adverse decision by the respondent Court of Appeals that petitioners raised the issue.

At the outset, it should be stated petitioners never raised this issue in their Answers and pursuant to Section 2, Rule 9 of the Rules of Court, defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived.

Nonetheless, the rule is that indispensable parties, i.e., parties in interest without whom no final determination can be had of an action, shall be joined either as plaintiffs or defendants; the inclusion as a party, i.e., persons who are not indispensable but ought to be parties if complete relief is to be accorded as between those already parties, the court may, in its discretion, proceed in the action without making such persons parties, and the judgment rendered therein shall be without prejudice to the rights of such persons.

25 Proper parties, therefore, have been described as parties

whose presence in necessary in order to adjudicate the whole controversy, but whose interests are so far separable that a final decree can be made in their absence without affecting them.

26 Any

claim against a party may be severed and proceeded with separately.

27

The pivotal issue to be determined is whether DBP is an indispensable party in this case.

Private respondents do not question the legality of the foreclosure of the mortgaged property and the subsequent sale of the same to DBP. The subject property was already purchased by petitioner Nelson from DBP and latter, by such sale, transferred its rights and obligations to the former. Clearly, petitioners' interest in the controversy is distinct and separable from the interest of DBP and a final determination can be had of the action despite the non-inclusion of DBP as party-defendant. Hence, DBP, not being an indispensable party, did not have to be impleaded in this case.

WHEREFORE, there being no reversible error in the decision appealed from, the petition for review on certiorari is hereby DENIED. SO ORDERED.


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G.R. No. 156117 May 26, 2005

REPUBLIC OF THE PHILIPPINES, petitioner, vs. JEREMIAS AND DAVID HERBIETO, respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Procedure, seeking the reversal of the Decision of the Court of Appeals in CA-G.R. CV No. 67625, dated 22 November 2002,

1 which affirmed the Judgment of the Municipal

Trial Court (MTC) of Consolacion, Cebu, dated 21 December 1999,2

granting the application for land registration of the respondents.

Respondents in the present Petition are the Herbieto brothers, Jeremias and David, who filed with the MTC, on 23 September 1998, a single application for registration of two parcels of land, Lots No. 8422 and 8423, located in Cabangahan, Consolacion, Cebu (Subject Lots). They claimed to be owners in fee simple of the Subject Lots, which they purchased from their parents, spouses Gregorio Herbieto and Isabel Owatan, on 25 June 1976.

3 Together with their

application for registration, respondents submitted the following set of documents:

(a) Advance Survey Plan of Lot No. 8422, in the name of respondent Jeremias; and Advance Survey Plan of Lot No. 8423, in the name of respondent David;

4

(b) The technical descriptions of the Subject Lots;5

(c) Certifications by the Department of Environment and Natural Resources (DENR) dispensing with the need for Surveyor's Certificates for the Subject Lots;

6

(d) Certifications by the Register of Deeds of Cebu City on the absence of certificates of title covering the Subject Lots;

7

(e) Certifications by the Community Environment and Natural Resources Office (CENRO) of the DENR on its finding that the Subject Lots are alienable and disposable, by virtue of Forestry Administrative Order No. 4-1063, dated 25 June 1963;

8

(f) Certified True Copies of Assessment of Real Property (ARP) No. 941800301831, in the name of Jeremias, covering Lot No. 8422, issued in 1994; and ARP No. 941800301833, in the name of David, covering Lot No. 8423, also issued in 1994;

9 and

(g) Deed of Definite Sale executed on 25 June 1976 by spouses Gregorio Herbieto and Isabel Owatan selling the Subject Lots and the improvements thereon to their sons and respondents herein, Jeremias and David, for P1,000. Lot No. 8422 was sold to Jeremias, while Lot No. 8423 was sold to David.

10

On 11 December 1998, the petitioner Republic of the Philippines (Republic) filed an Opposition to the respondents' application for registration of the Subject Lots arguing that: (1) Respondents failed to comply with the period of adverse possession of the Subject Lots required by law; (2) Respondents' muniments of title were not genuine and did not constitute competent and sufficient evidence of bona fide acquisition of the Subject Lots; and (3) The Subject Lots were part of the public domain belonging to the Republic and were not subject to private appropriation.

11

The MTC set the initial hearing on 03 September 1999 at 8:30 a.m.12

All owners of the land adjoining the Subject Lots were sent copies of the Notice of Initial Hearing.

13 A copy of the Notice was also posted

on 27 July 1999 in a conspicuous place on the Subject Lots, as well as on the bulletin board of the municipal building of Consolacion, Cebu, where the Subject Lots were located.

14 Finally, the Notice was also

published in the Official Gazette on 02 August 199915

and The Freeman Banat News on 19 December 1999.

16

During the initial hearing on 03 September 1999, the MTC issued an Order of Special Default,

17 with only petitioner Republic opposing

the application for registration of the Subject Lots. The respondents, through their counsel, proceeded to offer and mark documentary evidence to prove jurisdictional facts. The MTC commissioned the Clerk of Court to receive further evidence from the respondents and to submit a Report to the MTC after 30 days.

On 21 December 1999, the MTC promulgated its Judgment ordering the registration and confirmation of the title of respondent Jeremias over Lot No. 8422 and of respondent David over Lot No. 8423. It subsequently issued an Order on 02 February 2000 declaring its Judgment, dated 21 December 1999, final and executory, and directing the Administrator of the Land Registration Authority (LRA) to issue a decree of registration for the Subject Lots.

18

Petitioner Republic appealed the MTC Judgment, dated 21 December 1999, to the Court of Appeals.

19 The Court of Appeals, in

its Decision, dated 22 November 2002, affirmed the appealed MTC Judgment reasoning thus:

In the case at bar, there can be no question that the land sought to be registered has been classified as within the alienable and disposable zone since June 25, 1963. Article 1113 in relation to Article 1137 of the Civil Code, respectively provides that "All things which are within the commerce of men are susceptible of prescription, unless otherwise provided. Property of the State or any of its subdivisions of patrimonial character shall not be the object of prescription" and that "Ownership and other real rights over immovables also prescribe through uninterrupted adverse possession thereof for thirty years, without need of title or of good faith."

As testified to by the appellees in the case at bench, their parents already acquired the subject parcels of lands, subject matter of this application, since 1950 and that they cultivated the same and planted it with jackfruits, bamboos, coconuts, and other trees (Judgment dated December 21, 1999, p. 6). In short, it is undisputed that herein appellees or their predecessors-in-interest had occupied and possessed the subject land openly, continuously, exclusively, and adversely since 1950. Consequently, even assuming arguendo that appellees'

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possession can be reckoned only from June 25, 1963 or from the time the subject lots had been classified as within the alienable and disposable zone, still the argument of the appellant does not hold water.

As earlier stressed, the subject property, being alienable since 1963 as shown by CENRO Report dated June 23, 1963, may now be the object of prescription, thus susceptible of private ownership. By express provision of Article 1137, appellees are, with much greater right, entitled to apply for its registration, as provided by Section 14(4) of P.D. 1529 which allows individuals to own land in any manner provided by law. Again, even considering that possession of appelless should only be reckoned from 1963, the year when CENRO declared the subject lands alienable, herein appellees have been possessing the subject parcels of land in open, continuous, and in the concept of an owner, for 35 years already when they filed the instant application for registration of title to the land in 1998. As such, this court finds no reason to disturb the finding of the court a quo.

20

The Republic filed the present Petition for the review and reversal of the Decision of the Court of Appeals, dated 22 November 2002, on the basis of the following arguments:

First, respondents failed to establish that they and their predecessors-in-interest had been in open, continuous, and adverse possession of the Subject Lots in the concept of owners since 12 June 1945 or earlier. According to the petitioner Republic, possession of the Subject Lots prior to 25 June 1963 cannot be considered in determining compliance with the periods of possession required by law. The Subject Lots were classified as alienable and disposable only on 25 June 1963, per CENRO's certification. It also alleges that the Court of Appeals, in applying the 30-year acquisitive prescription period, had overlooked the ruling in Republic v. Doldol,

21 where this Court declared that Commonwealth

Act No. 141, otherwise known as the Public Land Act, as amended and as it is presently phrased, requires that possession of land of the public domain must be from 12 June 1945 or earlier, for the same to be acquired through judicial confirmation of imperfect title.

Second, the application for registration suffers from fatal infirmity as the subject of the application consisted of two parcels of land individually and separately owned by two applicants. Petitioner Republic contends that it is implicit in the provisions of Presidential Decree No. 1529, otherwise known as the Property Registration Decree, as amended, that the application for registration of title to land shall be filed by a single applicant; multiple applicants may file a single application only in case they are co-owners. While an application may cover two parcels of land, it is allowed only when the subject parcels of land belong to the same applicant or applicants (in case the subject parcels of land are co-owned) and are situated within the same province. Where the authority of the courts to proceed is conferred by a statute and when the manner of obtaining jurisdiction is mandatory, it must be strictly complied with or the proceedings will be utterly void. Since the respondents failed to comply with the procedure for land registration under the Property Registration Decree, the proceedings held before the MTC is void, as the latter did not acquire jurisdiction over it.

I

Jurisdiction

Addressing first the issue of jurisdiction, this Court finds that the MTC had no jurisdiction to proceed with and hear the application for registration filed by the respondents but for reasons different from those presented by petitioner Republic.

A. The misjoinder of causes of action and parties does not affect the jurisdiction of the MTC to hear and proceed with respondents' application for registration.

Respondents filed a single application for registration of the Subject Lots even though they were not co-owners. Respondents Jeremias and David were actually seeking the individual and separate registration of Lots No. 8422 and 8423, respectively.

Petitioner Republic believes that the procedural irregularity committed by the respondents was fatal to their case, depriving the MTC of jurisdiction to proceed with and hear their application for registration of the Subject Lots, based on this Court's pronouncement in Director of Lands v. Court of Appeals,

22 to wit:

. . . In view of these multiple omissions which constitute non-compliance with the above-cited sections of the Act, We rule that said defects have not invested the Court with the authority or jurisdiction to proceed with the case because the manner or mode of obtaining jurisdiction as prescribed by the statute which is mandatory has not been strictly followed, thereby rendering all proceedings utterly null and void.

This Court, however, disagrees with petitioner Republic in this regard. This procedural lapse committed by the respondents should not affect the jurisdiction of the MTC to proceed with and hear their application for registration of the Subject Lots.

The Property Registration Decree23

recognizes and expressly allows the following situations: (1) the filing of a single application by several applicants for as long as they are co-owners of the parcel of land sought to be registered;

24 and (2) the filing of a single

application for registration of several parcels of land provided that the same are located within the same province.

25 The Property

Registration Decree is silent, however, as to the present situation wherein two applicants filed a single application for two parcels of land, but are seeking the separate and individual registration of the parcels of land in their respective names.

Since the Property Registration Decree failed to provide for such a situation, then this Court refers to the Rules of Court to determine the proper course of action. Section 34 of the Property Registration Decree itself provides that, "[t]he Rules of Court shall, insofar as not inconsistent with the provisions of this Decree, be applicable to land registration and cadastral cases by analogy or in a suppletory character and whenever practicable and convenient."

Considering every application for land registration filed in strict accordance with the Property Registration Decree as a single cause of action, then the defect in the joint application for registration filed by the respondents with the MTC constitutes a misjoinder of causes of action and parties. Instead of a single or joint application for registration, respondents Jeremias and David, more


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appropriately, should have filed separate applications for registration of Lots No. 8422 and 8423, respectively.

Misjoinder of causes of action and parties do not involve a question of jurisdiction of the court to hear and proceed with the case.

26 They

are not even accepted grounds for dismissal thereof.27

Instead, under the Rules of Court, the misjoinder of causes of action and parties involve an implied admission of the court's jurisdiction. It acknowledges the power of the court, acting upon the motion of a party to the case or on its own initiative, to order the severance of the misjoined cause of action, to be proceeded with separately (in case of misjoinder of causes of action); and/or the dropping of a party and the severance of any claim against said misjoined party, also to be proceeded with separately (in case of misjoinder of parties).

The misjoinder of causes of action and parties in the present Petition may have been corrected by the MTC motu propio or on motion of the petitioner Republic. It is regrettable, however, that the MTC failed to detect the misjoinder when the application for registration was still pending before it; and more regrettable that the petitioner Republic did not call the attention of the MTC to the fact by filing a motion for severance of the causes of action and parties, raising the issue of misjoinder only before this Court.

B. Respondents, however, failed to comply with the publication requirements mandated by the Property Registration Decree, thus, the MTC was not invested with jurisdiction as a land registration court.

Although the misjoinder of causes of action and parties in the present Petition did not affect the jurisdiction of the MTC over the land registration proceeding, this Court, nonetheless, has discovered a defect in the publication of the Notice of Initial Hearing, which bars the MTC from assuming jurisdiction to hear and proceed with respondents' application for registration.

A land registration case is a proceeding in rem,28

and jurisdiction in rem cannot be acquired unless there be constructive seizure of the land through publication and service of notice.

29

Section 23 of the Property Registration Decree requires that the public be given Notice of the Initial Hearing of the application for land registration by means of (1) publication; (2) mailing; and (3) posting. Publication of the Notice of Initial Hearing shall be made in the following manner:

1. By publication. –

Upon receipt of the order of the court setting the time for initial hearing, the Commissioner of Land Registration shall cause a notice of initial hearing to be published once in the Official Gazette and once in a newspaper of general circulation in the Philippines: Provided, however, that the publication in the Official Gazette shall be sufficient to confer jurisdiction upon the court. Said notice shall be addressed to all persons appearing to have an interest in the land involved including the adjoining owners so far as known, and "to all whom it may concern." Said notice shall also require all persons concerned to appear in court at a certain date and time to show cause why the prayer of said application shall not be granted.

Even as this Court concedes that the aforequoted Section 23(1) of the Property Registration Decree expressly provides that publication in the Official Gazette shall be sufficient to confer jurisdiction upon the land registration court, it still affirms its declaration in Director of Lands v. Court of Appeals

30 that publication in a newspaper of

general circulation is mandatory for the land registration court to validly confirm and register the title of the applicant or applicants. That Section 23 of the Property Registration Decree enumerated and described in detail the requirements of publication, mailing, and posting of the Notice of Initial Hearing, then all such requirements, including publication of the Notice in a newspaper of general circulation, is essential and imperative, and must be strictly complied with. In the same case, this Court expounded on the reason behind the compulsory publication of the Notice of Initial Hearing in a newspaper of general circulation, thus –

It may be asked why publication in a newspaper of general circulation should be deemed mandatory when the law already requires notice by publication in the Official Gazette as well as by mailing and posting, all of which have already been complied with in the case at hand. The reason is due process and the reality that the Official Gazette is not as widely read and circulated as newspaper and is oftentimes delayed in its circulation, such that the notices published therein may not reach the interested parties on time, if at all. Additionally, such parties may not be owners of neighboring properties, and may in fact not own any other real estate. In sum, the all encompassing in rem nature of land registration cases, the consequences of default orders issued against the whole world and the objective of disseminating the notice in as wide a manner as possible demand a mandatory construction of the requirements for publication, mailing and posting.

31

In the instant Petition, the initial hearing was set by the MTC, and was in fact held, on 03 September 1999 at 8:30 a.m. While the Notice thereof was printed in the issue of the Official Gazette, dated 02 August 1999, and officially released on 10 August 1999, it was published in The Freeman Banat News, a daily newspaper printed in Cebu City and circulated in the province and cities of Cebu and in the rest of Visayas and Mindanao, only on 19 December 1999, more than three months after the initial hearing.

Indubitably, such publication of the Notice, way after the date of the initial hearing, would already be worthless and ineffective. Whoever read the Notice as it was published in The Freeman Banat News and had a claim to the Subject Lots was deprived of due process for it was already too late for him to appear before the MTC on the day of the initial hearing to oppose respondents' application for registration, and to present his claim and evidence in support of such claim. Worse, as the Notice itself states, should the claimant-oppositor fail to appear before the MTC on the date of initial hearing, he would be in default and would forever be barred from contesting respondents' application for registration and even the registration decree that may be issued pursuant thereto. In fact, the MTC did issue an Order of Special Default on 03 September 1999.

The late publication of the Notice of Initial Hearing in the newspaper of general circulation is tantamount to no publication at all, having the same ultimate result. Owing to such defect in the publication of the Notice, the MTC failed to constructively seize the Subject Lots and to acquire jurisdiction over respondents' application for registration thereof. Therefore, the MTC Judgment, dated 21





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December 1999, ordering the registration and confirmation of the title of respondents Jeremias and David over Lots No. 8422 and 8423, respectively; as well as the MTC Order, dated 02 February 2000, declaring its Judgment of 21 December 1999 final and executory, and directing the LRA Administrator to issue a decree of registration for the Subject Lots, are both null and void for having been issued by the MTC without jurisdiction.

II

Period of Possession

Respondents failed to comply with the required period of possession of the Subject Lots for the judicial confirmation or legalization of imperfect or incomplete title.

While this Court has already found that the MTC did not have jurisdiction to hear and proceed with respondents' application for registration, this Court nevertheless deems it necessary to resolve the legal issue on the required period of possession for acquiring title to public land.

Respondents' application filed with the MTC did not state the statutory basis for their title to the Subject Lots. They only alleged therein that they obtained title to the Subject Lots by purchase from their parents, spouses Gregorio Herbieto and Isabel Owatan, on 25 June 1976. Respondent Jeremias, in his testimony, claimed that his parents had been in possession of the Subject Lots in the concept of an owner since 1950.

32

Yet, according to the DENR-CENRO Certification, submitted by respondents themselves, the Subject Lots are "within Alienable and Disposable, Block I, Project No. 28 per LC Map No. 2545 of Consolacion, Cebu certified under Forestry Administrative Order No. 4-1063, dated June 25, 1963. Likewise, it is outside Kotkot-Lusaran Mananga Watershed Forest Reservation per Presidential Proclamation No. 932 dated June 29, 1992."

33 The Subject Lots are

thus clearly part of the public domain, classified as alienable and disposable as of 25 June 1963.

As already well-settled in jurisprudence, no public land can be acquired by private persons without any grant, express or implied, from the government;

34 and it is indispensable that the person

claiming title to public land should show that his title was acquired from the State or any other mode of acquisition recognized by law.

35

The Public Land Act, as amended, governs lands of the public domain, except timber and mineral lands, friar lands, and privately-owned lands which reverted to the State.

36 It explicitly enumerates

the means by which public lands may be disposed, as follows:

(1) For homestead settlement;

(2) By sale;

(3) By lease;

(4) By confirmation of imperfect or incomplete titles;

(a) By judicial legalization; or

(b) By administrative legalization (free patent).37

Each mode of disposition is appropriately covered by separate chapters of the Public Land Act because there are specific requirements and application procedure for every mode.

38 Since

respondents herein filed their application before the MTC,39

then it can be reasonably inferred that they are seeking the judicial confirmation or legalization of their imperfect or incomplete title over the Subject Lots.

Judicial confirmation or legalization of imperfect or incomplete title to land, not exceeding 144 hectares,

40 may be availed of by persons

identified under Section 48 of the Public Land Act, as amended by Presidential Decree No. 1073, which reads –

Section 48. The following-described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate of title thereafter, under the Land Registration Act, to wit:

(a) [Repealed by Presidential Decree No. 1073].

(b) Those who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive, and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, since June 12, 1945, or earlier, immediately preceding the filing of the applications for confirmation of title, except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.

(c) Members of the national cultural minorities who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of lands of the public domain suitable to agriculture whether disposable or not, under a bona fide claim of ownership since June 12, 1945 shall be entitled to the rights granted in subsection (b) hereof.

Not being members of any national cultural minorities, respondents may only be entitled to judicial confirmation or legalization of their imperfect or incomplete title under Section 48(b) of the Public Land Act, as amended. Section 48(b), as amended, now requires adverse possession of the land since 12 June 1945 or earlier. In the present Petition, the Subject Lots became alienable and disposable only on 25 June 1963. Any period of possession prior to the date when the Subject Lots were classified as alienable and disposable is inconsequential and should be excluded from the computation of the period of possession; such possession can never ripen into ownership and unless the land had been classified as alienable and











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disposable, the rules on confirmation of imperfect title shall not apply thereto.

41 It is very apparent then that respondents could not

have complied with the period of possession required by Section 48(b) of the Public Land Act, as amended, to acquire imperfect or incomplete title to the Subject Lots that may be judicially confirmed or legalized.

The confirmation of respondents' title by the Court of Appeals was based on the erroneous supposition that respondents were claiming title to the Subject Lots under the Property Registration Decree. According to the Decision of the Court of Appeals, dated 22 November 2002, Section 14(4) of the Property Registration Decree allows individuals to own land in any other manner provided by law. It then ruled that the respondents, having possessed the Subject Lots, by themselves and through their predecessors-in-interest, since 25 June 1963 to 23 September 1998, when they filed their application, have acquired title to the Subject Lots by extraordinary prescription under Article 1113, in relation to Article 1137, both of the Civil Code.

42

The Court of Appeals overlooked the difference between the Property Registration Decree and the Public Land Act. Under the Property Registration Decree, there already exists a title which is confirmed by the court; while under the Public Land Act, the presumption always is that the land applied for pertains to the State, and that the occupants and possessors only claim an interest in the same by virtue of their imperfect title or continuous, open, and notorious possession.

43 As established by this Court in the preceding

paragraphs, the Subject Lots respondents wish to register are undoubtedly alienable and disposable lands of the public domain and respondents may have acquired title thereto only under the provisions of the Public Land Act.

However, it must be clarified herein that even though respondents may acquire imperfect or incomplete title to the Subject Lots under the Public Land Act, their application for judicial confirmation or legalization thereof must be in accordance with the Property Registration Decree, for Section 50 of the Public Land Act reads –

SEC. 50. Any person or persons, or their legal representatives or successors in right, claiming any lands or interest in lands under the provisions of this chapter, must in every case present an application to the proper Court of First Instance, praying that the validity of the alleged title or claim be inquired into and that a certificate of title be issued to them under the provisions of the Land Registration Act.

44

Hence, respondents' application for registration of the Subject Lots must have complied with the substantial requirements under Section 48(b) of the Public Land Act and the procedural requirements under the Property Registration Decree.

Moreover, provisions of the Civil Code on prescription of ownership and other real rights apply in general to all types of land, while the Public Land Act specifically governs lands of the public domain. Relative to one another, the Public Land Act may be considered a special law

45 that must take precedence over the Civil Code, a

general law. It is an established rule of statutory construction that between a general law and a special law, the special law prevails – Generalia specialibus non derogant.

46

WHEREFORE, based on the foregoing, the instant Petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 67625, dated 22 November 2002, is REVERSED. The Judgment of the MTC of Consolacion, Cebu in LRC Case No. N-75, dated 21 December 1999, and its Order, dated 02 February 2000 are declared NULL AND VOID. Respondents' application for registration is DISMISSED.

SO ORDERED.








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G.R. No. L-23136 August 26, 1974

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

Deogracias T. Reyes & Associates for appellants.

Tañada, Teehankee & Carreon for appellees.

Paterno Pedrena for appellee Fermin Z. Caram, Jr.

ZALDIVAR, J.:p

In this appeal, appellants-plaintiffs and movants-intervenors seek the reversal of the order dated March 21, 1964 of the Court of First Instance of Manila dismissing the complaint together with all other pending incidents in Civil Case No. 55810.

The complaint in this case, filed on December 24, 1963 as a class suit, under Section 12, Rule 3, of the Rules of Court, contained six causes of action. Under the first cause of action, plaintiffs-appellants alleged that they were, on or before March 28, 1962, stockholders in the Consolidated Mines, Inc. (hereinafter referred to as CMI), a corporation duly organized and existing under Philippine laws; that the stockholders of the CMI, including the plaintiffs-appellants, passed, at a regular stockholders' meeting, a Resolution providing: (a) that the Consolidated Bank & Trust Co. (hereinafter referred to as Bank) be organized with an authorized capital of P20,000,000.00; (b) that the organization be undertaken by a Board of Organizers composed of the President and Members of the Board of Directors of the CMI; (c) that all stockholders of the CMI, who were legally qualified to become stockholders, would be entitled to subscribe to the capital stock of the proposed Bank "at par value to the same extent and in the same amount as said stockholders' respective share holdings in the CMI," as shown in its stock books on a date to be fixed by the Board of Directors [which date was subsequently fixed as January 15, 1963], provided that the right to subscribe should be exercised within thirty days from the date so fixed, and "that if such right to subscription be not so exercised then the stockholders concerned shall be deemed to have thereby waived and released ipso facto their right to such subscription in favor of the Interim Board of Organizers of the Defendant Bank or their assignees;" and (d) that the Board of Directors of the CMI be authorized to declare a "special dividend" in an amount it would fix, which the subscribing stockholders might authorize to be paid directly to the treasurer of the proposed Bank in payment of the subscriptions; that the President and members of the Board of Directors of the CMI, who are the individuals-defendants-appellees in the instant case, constituted themselves as the Interim Board of Organizers; that said Board sent out, on or about November 20, 1962, to the CMI stockholders, including the plaintiffs-appellants, circular letters with "Pre-Incorporation Agreement to Subscribe"

forms that provided that the payment of the subscription should be made in cash from time to time or by the application of the special dividend declared by the CMI, and that the subscription must be made within the period from December 4, 1962 to January 15, 1963, "otherwise such subscription right shall be deemed to have been thereby ipso facto waived and released in favor of the Board of Organizers of the Defendant Bank and their assignees"; that the plaintiffs-appellants accomplished and filed their respective "Pre-Incorporation Agreement to Subscribe" and paid in full their subscriptions; that plaintiffs-appellants and the other CMI subscribing stockholders in whose behalf the action was brought also subscribed to a very substantial amount of shares; that on June 25, 1963, the Board of Organizers caused the execution of the Articles or Incorporation of the proposed Bank indicating an original subscription of 50,000 shares worth P5,000,000 subscribed and paid only by six of the individuals-defendants-appellees, namely, Antonio P. Madrigal, Jose P. Madrigal Simon R. Paterno, Fermin Z. Caram, Jr., Claudio Teehankee, and Wilfredo C. Tecson, thereby excluding the plaintiffs-appellants and the other CMI subscribing stockholders who had already subscribed; that the execution of said Articles of Incorporation was "in violation of law and in breach of trust and contractual agreement as a means to gain control of Defendant Bank by Defendant Individuals and persons or entities chosen by them and for their personal profit or gain in disregard of the rights of Plaintiffs and other CMI Subscribing Stockholders;" that the paid-in capital stock was raised, as required by the Monetary Board, to P8,000,000.00, and individuals-defendants-appellees caused to be issued from the unissued shares 30,000 shares amounting to P3,000,000.00, all of which were again subscribed and paid for entirely by individuals-defendants-appellees or entities chosen by them "to the exclusion of Plaintiffs and other CMI subscribing stockholders" "in violation of law and breach of trust and of the contractual agreement embodied in the contractual agreement of March 28, 1962"; that the Articles were filed with the Securities and Exchange Commission which issued the Certificate of Incorporation on June 25, 1963; that as of the date of the Complaint, the plaintiffs-appellants and other CMI subscribing stockholders had been denied, through the unlawful acts and manipulation of the defendant Bank and Individuals-defendants-appellees, the right to subscribe at par value, in proportion to their equities established under their respective "Pre-Incorporation Agreements to Subscribe" to the capital stock, i.e., (a) to the original issue of 50,000 shares and/or (b) to the additional issue of 30,000 shares, and/or (c) in that portion of said original or additional issue which was unsubscribed; that the individuals-defendants-appellees and the persons chosen by them had unlawfully acquired stockholdings in the defendant-appellee Bank in excess of what they were lawfully entitled and held such shares "in trust" for the plaintiffs-appellants and the other CMI stockholders; that it would have been vain and futile to resort to intra corporate remedies under the facts and circumstances alleged above. As relief on the first cause of action, plaintiffs-appellants prayed that the subscriptions and share holdings acquired by the individuals-defendants- appellees and the persons chosen by them, to the extent that plaintiffs-appellants and the other CMI stockholders had been deprived of their right to subscribe, be annulled and transferred to plaintiffs-appellants and other CMI subscribing stockholders.

Besides reproducing all the above allegations in the other causes of action, plaintiffs-appellants further alleged under the second cause of action that on or about August 28, 1963, defendants-appellees Antonio P. Madrigal, Jose P. Madrigal: Fermin Z. Caram, Jr., and Wilfredo C. Tecson "falsely certified to the calling of a special stockholders' meeting allegedly pursuant to due notice and call of


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Defendant Bank" although plaintiffs-appellants and other CMI stockholders were not notified thereof, and amended the Articles of Incorporation increasing the number of Directors from 6 to 7, and had the illegally created Position of Director filled up by defendant-appellee Alfonso Juan Olondriz, who was not competent or qualified to hold such position. In the third cause of action, plaintiffs-appellants claimed actual damages in an amount equivalent to the difference between the par value of the shares they were entitled, but failed, to acquire and the higher market value of the same shares. In the fourth cause of action, Plaintiffs-appellants claimed moral damages; in the fifth, exemplary damages; and in the sixth, attorney's fees.

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

On February 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a motion to dismiss on the grounds that (a) plaintiffs-appellants had no legal standing or capacity to institute the alleged class suit; (b) that the complaint did not state a sufficient and valid cause of action; and (c) that plaintiffs-appellants' complaint against the increase of the number of directors did not likewise state a cause of action. Plaintiffs-appellants filed their opposition thereto on February 21, 1964.

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

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

On March 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a supplemental ground for their motion to dismiss, to wit, that the stockholders, except Fermin Z. Caram, Jr., who abstained, had unanimously, at their regular annual meeting held on March 5, 1964, ratified and confirmed all the actuations of the organizers-directors in the incorporation, organization and establishment of the Bank.

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

1. In holding that plaintiffs-appellants could not maintain the present class suit because of the absence of a showing in the complaint that they were sufficiently numerous and representative;

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

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

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

V. In resolving defendants-appellees' motion on the basis of facts not alleged in the complaint;

VI. In holding that plaintiffs-appellants' complaint stated no valid cause of action against defendants-appellees;

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

VIII. In holding that the failure of plaintiffs-appellants to allege that they had paid or had offered to pay for the shares allegedly pertaining to them constituted another ground for dismissal;

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

X. In holding that plaintiffs-appellants' complaint stated no cause of action against defendant-appellee Bank; and

XI. In considering the resolution of ratification and confirmation and in holding that the resolution rendered the issues in this case moot.

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


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1. Appellants contended in the first three assigned errors that the trial court erred in holding that the present suit could not be maintained as a class suit, and in support thereof argued that the propriety of a class suit should be determined by the common interest in the subject matter of the controversy; that in the instant case there existed such common interest which consisted not only in the recovery of the shares of which the appellants were unlawfully deprived, but also in divesting the individuals-defendants-appellees and the person or entities chosen by them of control of the appellee Bank.

1 ; that the complaint showed that besides the four plaintiff-

appellants of record, and the four movant-intervenors-appellants there were in the appellee Bank many other stockholders who, tough similarly situated as the appellants, did not formally include themselves as parties on record in view of the representative character of the suit; that the test, in order to determine the legal standing of a party to institute a class suit, was not one, of number, but whether or not the interest of said party was representative of the persons in whose behalf the class suit was instituted; that granting arguendo, that the plaintiffs-appellants were not sufficiently numerous and representative, the court should not have dismissed the action, for insufficiency of number in a class suit was not a ground for a motion to dismiss, and the court should have treated the suit as an action under Rule 3, section 6, of the Rules of Court which permits a joinder of parties.

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

2

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

antagonistic to those of the latter, and appellants were in the same position as the group in whose behalf the complaint was filed.

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

Sec. 12. Class suit — When the subject matter of the controversy is one of common or general interest to many persons, and the parties are so numerous that it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of -ill. But in such case the court shall make sure that the parties actually before it are sufficiently numerous and representative so that all interests concerned are fully protected. Any party in interest shall have a right to intervene in protection of his individual interest.

The necessary elements for the maintenance of a class suit are accordingly: (1) that the subject matter of the controversy be one of common or general interest to many persons, and (2) that such persons be so numerous as to make it impracticable to bring them all to the court. An action does not become a class suit merely because it is designated as such in the pleadings. Whether the suit is or is not a class quit depends upon the attending facts, and the complaint, or other pleading initiating the class action should allege the existence of the necessary facts, to wit, the existence of a subject matter of common interest, and the existence of a class and the number of persons in the alleged class,

3 in order that the court

might be enabled to determine whether the members of the class are so numerous as to make it impracticable to bring them all before the court, to contrast the number appearing on the record with the number in the class and to determine whether claimants on record adequately represent the class and the subject matter of general or common interest.

4

The complaint in the instant case explicitly declared that the plaintiffs- appellants instituted the "present class suit under Section 12, Rule 3, of the Rules of Court in. behalf of CMI subscribing stockholders"

5 but did not state the number of said CMI subscribing

stockholders so that the trial court could not infer, much less make sure as explicitly required by the sufficiently numerous and representative in order that all statutory provision, that the parties actually before it were interests concerned might be fully protected, and that it was impracticable to bring such a large number of parties before the court.

The statute also requires, as a prerequisite to a class suit, that the subject-matter of the controversy be of common or general interest to numerous persons. Although it has been remarked that the "innocent 'common or general interest' requirement is not very helpful in determining whether or not the suit is proper",

6 the

decided cases in our jurisdiction have more incisively certified the matter when there is such common or general interest in the subject matter of the controversy. By the phrase "subject matter of the action" is meant "the physical facts, the things real or personal, the money, lands, chattels, and the like, in relation to which the suit is prosecuted, and not the delict or wrong committed by the defendant."

7

This Court has ruled that a class suit did not lie in an action for recovery of real property where separate portions of the same


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parcel were occupied and claimed individually by different parties to the exclusion of each other, such that the different parties had determinable, though undivided interests, in the property in question.

8 It his likewise held that a class suit would not lie against

319 defendants individually occupying different portions of a big parcel of land, where each defendant had an interest only in the particular portion he was occupying, which portion was completely different from the other portions individually occupied by other defendants, for the applicable section 118 of the Code of Civil Procedure relates to a common and general interest in single specific things and not to distinct ones.

9 In an action for the

recovery of amounts that represented surcharges allegedly collected by the city from some 30,000 customers of four movie houses, it was held that a class suit did not lie, as no one plaintiff had any right to, or any share in the amounts individually claimed by the others, as each of them was entitled, if at all, only to the return of what he had personally paid.

10

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

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

defendant individuals. Hence, no CMI subscribing stockholder or, for that matter, not any number of CMI stockholders can maintain a class suit in behalf of others,...

11

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

Separate wrongs to separate persons, although committed by similar means and even pursuant to a single plan, do not alone create a 'common' or 'general' interest in those who are wronged so as to entitle them to maintain a representative action.

12

Appellants, however, insisted, citing American authorities, 13

that a class suit might be brought even if the interests of plaintiffs-appellants might be several as long as there was a common question of law or fact affecting them and a common relief was sought. We have no conflict with the authorities cited; those were rulings under the Federal Rules of Civil Procedure, pursuant to Rule 23 of which, there were three types of class suits, namely: the true, the hybrid, and the spurious, and these three had only one feature in common, that is, in each the persons constituting the class must be so numerous as to make it impracticable to bring them all before the court. The authorities cited by plaintiffs-appellants refer to the spurious class action (Rule 23 (a) (3) which involves a right sought to be enforced, which is several, and there is a common question of law or fact affecting the several rights and a common relief is sought.

14 The spurious class action is merely a permissive joinder

device; between the members of the class there is no jural relationship, and the right or liability of each is distinct, the class being formed solely by the presence of a common question of law or fact.

15 This permissive joinder is provided in Section 6 of Rule 3, of

our Rules of Court. Such joinder is not and cannot be regarded as a class suit, which this action purported and was intended to be as per averment of the complaint.

It may be granted that the claims of all the appellants involved the same question of law. But this alone, as said above, did not constitute the common interest over the subject matter indispensable in a class suit. The right to purchase or subscribe to the shares of the proposed Bank, claimed by appellants herein, is analogous to the right of preemption that stockholders have when their corporation increases its capital. The right to preemption, it has been said, is personal to each stockholder,

16 and while a

stockholder may maintain a suit to compel the issuance of his proportionate share of stock, it has been ruled, nevertheless, that he may not maintain a representative action on behalf of other stockholders who are similarly situated.

17 By analogy, the right of

each of the appellants to subscribe to the waived stocks was personal, and no one of them could maintain on behalf of others similarly situated a representative suit.

Straining to make it appear that appellants and the CMI subscribing stockholders had a common or general interest in the subject matter


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of the suit, appellants stressed in their brief that one of the reliefs sought in the instant action was "to divest defendant individuality and the persons or entities chosen by them of control of the defendant bank."

18 This relief allegedly sought by appellants did not,

however, appear either in the text or in the prayer of the complaint.

Appellants, furthermore, insisted that insufficiency of number in a class suit was not a ground for dismissal of one action. This Court has, however, said that where it appeared that no sufficient representative parties had been joined, the dismissal by the trial court of the action, despite the contention by plaintiffs that it was a class suit, was correct.

19 Moreover, insofar as the instant case is

concerned, even if it be granted for the sake of argument, that the suit could not be dismissed on that ground, it could have been dismissed, nevertheless, on the ground of lack of cause of action which will be presently discussed. .

2. Appellants supported their assigned error that the court erred in holding that the complaint stated no valid cause of action, by claiming that paragraph 15 together with the other allegations of the complaint to the effect that defendants-appellees had unlawfully acquired stockholdings in the capital stock of defendant-appellee Bank in excess of what they were lawfully entitled to, in violation of law and in breach of trust and the contractual agreement, constituted a valid and sufficient cause of action;

20 and

that only the allegations in the complaint should have been considered by the trial court in determining whether the complaint stated a cause of action or not.

Defendants-appellees, on the contrary, maintained that the allegations of the complaint should not be the only ones to be considered in determining whether there is a cause of action; that even if the ultimate facts alleged in the first cause of action of the complaint be the only ones considered the complaint would still fail to state a valid cause of action on the following grounds: first, there was no allegation regarding appellants' qualification to subscribe to the capital stock of the appellee Bank, for under the CMI stockholders' resolution of March 28, 1962, only those qualified under the law were entitled to subscribe, and under the regulations of the Monetary Board, only natural-born Filipino citizens could be stockholders of a banking corporation organized under the laws of the Philippines, and nowhere did the complaint alleged that plaintiffs-appellants were natural born Filipino citizens.

21 Second,

appellants' averment in paragraph 8 that they "subscribed," and their averment in paragraph 15 that they were "denied the right to subscribe ... to the capital stock of the defendant Bank", were inconsistent, and hence neutralized each other, thereby leaving in shambles the first cause of action. Third, there was no allegation that appellants had not yet received or had not been issued the corresponding certificates of stock covering the shares they had subscribed and paid for. Fourth, the allegations failed to show the existence of the supposed trust; and fifth, the complaint failed to allege that plaintiffs-appellants had paid or offered to pay for the shares allegedly pertaining to them.

22

Let us premise the legal principles governing the motion to dismiss on the ground of lack of cause of action.

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

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

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

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

As a rule the sufficiency of the complaint, when Challenged in a motion to dismiss, must be determined exclusively on the basis of the facts alleged therein.

23

It has been likewise held that a motion to dismiss based on lack of cause of action hypothetically admits the truth of the allegations of fact made in the complaint.

24 It is to be noted that only the facts

well pleaded in the complaint, and likewise, any inferences fairly deducible therefrom, are deemed admitted by a motion to dismiss. Neither allegations of conclusions

25 nor allegations of facts the

falsity of which the court may take judicial notice are deemed admitted.

26 The question, therefore, submitted to the Court in a

motion to dismiss based on lack of cause of action is not whether the facts alleged in the complaint are true, for these are hypothetically admitted, but whether the facts alleged are sufficient to constitute a cause of action such that the court may render a valid judgment upon the facts alleged therein.

A cause of action is an act or omission of one party in violation of the legal right of the other. Its essential elements are, namely: (1) the existence of a legal right in the plaintiff, (2) a correlative legal duty in the defendant, and (3) an act or omission of the defendant in violation of plaintiff's right with consequential injury or damage to the plaintiff for which he may maintain an action for the recovery of damages or other appropriate relief.

27 On the other hand, Section 3

of Rule 6 of the Rules of Court provides that the complaint must state the ultimate facts constituting the plaintiff's cause of action. Hence, where the complaint states ultimate facts that constitute the three essential elements of a cause of action, the complaint states a cause of action;

28 otherwise, the complaint must succumb to a

motion to dismiss on that ground.

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

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

Did the complaint state the important and substantial facts directly forming the basis of the primary right claimed by plaintiffs? Before proceeding to elucidate this question, it should be noted that a bare allegation that one is entitled to something is an allegation of a conclusion. Such allegations adds nothing to the pleading, it being necessary to plead specifically the facts upon which such conclusion


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is founded. 29

The complaint alleged that appellants were stockholders of the CMI; that as such stockholders, they were entitled; by virtue of the resolution of March 28, 1962, to subscribe to the capital stock of the proposed Consolidated Bank and Trust Co., at par value to the same extent and in the same amount as said stockholders' respective share holdings in the CMI as shown in the latter's stock book as of January 15, 1963, the right to subscribe to be exercised until January 15, 1963, provided said stockholders of the CMI were qualified under the law to become stockholders of the proposed Bank;

30 that appellants accomplished and filed their

respective "Pre-Incorporation Agreements to Subscribe" and fully paid the subscription.

31

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

Assuming arguendo that appellants were qualified to become stockholders of the Bank, they could subscribe, pursuant to the explicit terms of the resolution of March 28, 1962, "to the same extent and in the same amount as said stockholders' respective stockholdings in the CMI" as of January 15, 1963.

32 This was the

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

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

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

Even if it be assumed arguendo that defendants-appellees had the duty to have the waived stocks subscribed to by the CMI stockholders, this duty was not owed to all the CMI stockholders, but only to such CMI stockholders as were qualified to become

stockholders of the proposed Bank. Inasmuch as it has been shown that the complaint did not contain ultimate facts to show that plaintiffs-appellants were qualified to become stockholders of the Bank, it follows that the complaint did not show that defendants-appellees were under duty to have plaintiffs-appellants subscribe to the stocks of the proposed Bank. It inevitably follows also that the complaint did not contain ultimate facts to show that the right of the plaintiffs-appellants to subscribe to the shares of the proposed Bank had been violated by defendants-appellees. How could a non-existent right be violated?

Let us continue the discussion further. The complaint alleged that by virtue of the resolution of March 28, 1962, the President and Members of the Board of Directors of the CMI would be constituted as a Board of Organizers to undertake and carry out the organization of the Bank;

34 that the Board of Organizers was constituted and

proceeded with the establishment of the Bank, 35

that the persons composing the Board of Organizers were the individuals-defendants-appellees;

36 that the Board of Organizers sent our circular letters

with "Pre-Incorporation Agreement to Subscribe" forms 37

which specified, among others, "such subscription right shall be deemed ipso facto waived and released in favor of the Board of Organizers of the defendant Bank and their assignees";

38 that in the Articles of

Incorporation prepared by the Board of Organizers, the individuals-defendants-appellees alone appeared to have subscribe to the 50, shares;

39 and that individuals-defendants-appellees again subscribe

to all the additional 30,000 shares. 40

From these facts, appellants concluded that they were denied their right to subscribe in proportion to their equities;

41 that the individuals-defendants-

appellees unlawfully acquired stockholdings far in excess of what they were lawfully entitled in violation of law and in breach of trust and of contractual agreement;

42 and that, because of matters

already alleged, the individuals-defendants-appellees "hold their shares in the defendant bank in trust for plaintiffs."

43

The allegation in the complaint that the individuals-defendants-appellees held their shares "in trust" for plaintiffs-appellants without averment of the facts from which the court could conclude the existence of the alleged trust, was not deemed admitted by the motion to dismiss for that was a conclusion of law. Express averments "that a party was the beneficial owner of certain property; ... that property or money was received or held in trust, or for the use of another; that particular funds were trust funds; that a particular transaction created an irrevocable trust; that a person held Property as constructive trustee; that on the transfer of certain property a trust resulted" have been considered as mere conclusions of law.

44 The facts alleged in the complaint did not, by logical

reasoning, necessarily lead to the conclusion that defendants-appellees were trustees in favor of appellants of the shares of stock waived by the CMI stockholders who failed to exercise their right to subscribe. In this connection, it has been likewise said that:

"The general rule is that an allegation of duty in terms unaccompanied by a statement of the facts showing the existence of the duty, is a mere conclusion of law, unless there is a relation set forth from which the law raises the duty."

45

In like manner, the allegation that individuals-defendants-appellees held said shares in trust was no more than an interpretation by appellants of the effect of the waiver clause of the Resolution and as such it was again a mere conclusion of law. It has been said that:


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The following are also conclusions of law: ... an allegation characterizing an instrument or purporting to interpret it and state its effects, ... 46

Allegations in petition in the nature of conclusions about the meaning of contract, inconsistent with stated terms of the contract, cannot be considered.

47

The allegation that the defendants-appellee acquired stockholdings far in excess of what they were lawfully entitled, in violation of law and in breach of trust and of contractual agreement, is also mere conclusion of law.

Of course, the allegation that there was a violation of trust duty was plainly a conclusion of law, for "a mere allegation that it was the duty of a party to do this or that, or that he was guilty of a breach of duty, is a statement of a conclusion not of fact."

48

An averment ... that an act was 'unlawful' or 'wrongful' is a mere legal conclusion or opinion of the pleader.

49

Moreover, plaintiffs-appellants did not state in the complaint the amount of subscription the individual defendant-appellee were entitled to; hence there was no basis for the court to determine what amount subscribed to by them was excessive.

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

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

An averment that ... an act was 'unlawful' or 'wrongful' is a mere legal conclusion or opinion of the pleader. The same is true of allegations that an instrument was 'illegally' certified or ... that an act was arbitrarily done ..."

50

A pleader states a mere conclusion when he makes any of the following allegations: that a party was incapacitated to enter into a contract or convey property ...

51

The third, fourth, fifth and sixth causes of action depended on the first cause of action, which, as has been shown, did not state ultimate facts sufficient to constitute a cause of action. It stands to reason, therefore, that said causes of action would also be fatally defective.

It having been shown that the complaint failed to state ultimate facts to constitute a cause of action, it becomes unnecessary to discuss the other assignments of errors.

WHEREFORE, the instant appeal is dismissed, and the order dated March 21, 1964 of the Court of First Instance of Manila dismissing the complaint in Civil Case No. 55810 is affirmed, with costs in this instance against appellants. It is so ordered.

Fernando, Barredo, Fernandez and Aquino, JJ, concur.

Antonio, J., took no part.


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G.R. No. 152272 March 5, 2012

JUANA COMPLEX I HOMEOWNERS ASSOCIATION, INC., ANDRES C. BAUTISTA, BRIGIDO DIMACULANGAN, DOLORES P. PRADO, IMELDA DE LA CRUZ, EDITHA C. DY, FLORENCIA M. MERCADO, LEOVINO C. DATARIO, AIDA A. ABAYON, NAPOLEON M. DIMAANO, ROSITA G. ESTIGOY and NELSON A. LOYOLA, Petitioners, vs. FIL-ESTATE LAND, INC., FIL ESTATE ECOCENTRUM CORPORATION, LA PAZ HOUSING AND DEVELOPMENT CORPORATION, WARBIRD SECURITY AGENCY, ENRIQUE RIVILLA, MICHAEL E. JETHMAL and MICHAEL ALUNAN, Respondents.

x - - - - - - - - - - - - - - - - - - - - - - - x

G. R. No. 152397

FIL-ESTATE LAND, INC., FIL ESTATE ECOCENTRUM CORPORATION, LA PAZ HOUSING AND DEVELOPMENT CORPORATION, WARBIRD SECURITY AGENCY, ENRIQUE RIVILLA, MICHAEL E. JETHMAL and MICHAEL ALUNAN, Petitioners, vs. JUANA COMPLEX I HOMEOWNERS ASSOCIATION, INC., ANDRES C. BAUTISTA, BRIGIDO DIMACULANGAN, DOLORES P. PRADO, IMELDA DE LA CRUZ, EDITHA C. DY, FLORENCIA M. MERCADO, LEOVINO C. DATARIO, AIDA A. ABAYON, NAPOLEON M. DIMAANO, ROSITA G. ESTIGOY and NELSON A. LOYOLA, Respondents.

D E C I S I O N

MENDOZA, J.:

Before the Court are two (2) consolidated petitions assailing the July 31, 2001 Decision

1 and February 21, 2002 Resolution

2 of the Court of

Appeals (CA) in CA-G.R. SP No. 60543, which annulled and set aside the March 3, 1999 Order

3 of the Regional Trial Court, Branch 25,

Biñan, Laguna (RTC), granting the application for the issuance of a writ of preliminary injunction, and upheld the June 16, 2000 Omnibus Order

4 denying the motion to dismiss.

The Facts:

On January 20, 1999, Juana Complex I Homeowners Association, Inc. (JCHA), together with individual residents of Juana Complex I and other neighboring subdivisions (collectively referred as JCHA, et. al.), instituted a complaint

5 for damages, in its own behalf and as a class

suit representing the regular commuters and motorists of Juana Complex I and neighboring subdivisions who were deprived of the use of La Paz Road, against Fil-Estate Land, Inc. (Fil-Estate), Fil-estate Ecocentrum Corporation (FEEC), La Paz Housing & Development Corporation (La Paz), and Warbird Security Agency and their respective officers (collectively referred as Fil-Estate, et al.).

The complaint alleged that JCHA, et al. were regular commuters and motorists who constantly travelled towards the direction of Manila and Calamba; that they used the entry and exit toll gates of South Luzon Expressway (SLEX) by passing through right-of-way public road known as La Paz Road; that they had been using La Paz Road for more than ten (10) years; that in August 1998, Fil-estate excavated, broke and deliberately ruined La Paz Road that led to SLEX so JCHA, et al. would not be able to pass through the said road; that La Paz Road was restored by the residents to make it passable but Fil-

estate excavated the road again; that JCHA reported the matter to the Municipal Government and the Office of the Municipal Engineer but the latter failed to repair the road to make it passable and safe to motorists and pedestrians; that the act of Fil-estate in excavating La Paz Road caused damage, prejudice, inconvenience, annoyance, and loss of precious hours to them, to the commuters and motorists because traffic was re-routed to narrow streets that caused terrible traffic congestion and hazard; and that its permanent closure would not only prejudice their right to free and unhampered use of the property but would also cause great damage and irreparable injury.

Accordingly, JCHA, et al. also prayed for the immediate issuance of a Temporary Restraining Order (TRO) or a writ of preliminary injunction (WPI) to enjoin Fil-Estate, et al. from stopping and intimidating them in their use of La Paz Road.

On February 10, 1999, a TRO was issued ordering Fil-Estate, et al, for a period of twenty (20) days, to stop preventing, coercing, intimidating or harassing the commuters and motorists from using the La Paz Road.

6

Subsequently, the RTC conducted several hearings to determine the propriety of the issuance of a WPI.

On February 26, 1999, Fil-Estate, et al. filed a motion to dismiss7

arguing that the complaint failed to state a cause of action and that it was improperly filed as a class suit. On March 5, 1999, JCHA, et al. filed their comment

8 on the motion to dismiss to which respondents

filed a reply.9

On March 3, 1999, the RTC issued an Order 10

granting the WPI and required JCHA, et al. to post a bond.

On March 19, 1999, Fil-Estate, et al. filed a motion for reconsideration

11 arguing, among others, that JCHA, et al. failed to

satisfy the requirements for the issuance of a WPI. On March 23, 1999, JCHA, et al. filed their opposition to the motion.

12

The RTC then issued its June 16, 2000 Omnibus Order, denying both the motion to dismiss and the motion for reconsideration filed by Fil-Estate, et al.

Not satisfied, Fil-Estate, et al. filed a petition for certiorari and prohibition before the CA to annul (1) the Order dated March 3, 1999 and (2) the Omnibus Order dated June 16, 2000. They contended that the complaint failed to state a cause of action and that it was improperly filed as a class suit. With regard to the issuance of the WPI, the defendants averred that JCHA, et al. failed to show that they had a clear and unmistakable right to the use of La Paz Road; and further claimed that La Paz Road was a torrens registered private road and there was neither a voluntary nor legal easement constituted over it.

13

On July 31, 2001, the CA rendered the decision partially granting the petition, the dispositive portion of which reads:

WHEREFORE, the petition is hereby partially GRANTED. The Order dated March 3, 1999 granting the writ of preliminary injunction is hereby ANNULLED and SET ASIDE but the portion of the Omnibus Order dated June 16, 2000 denying the motion to dismiss is upheld.















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SO ORDERED.14

The CA ruled that the complaint sufficiently stated a cause of action when JCHA, et al. alleged in their complaint that they had been using La Paz Road for more than ten (10) years and that their right was violated when Fil-Estate closed and excavated the road. It sustained the RTC ruling that the complaint was properly filed as a class suit as it was shown that the case was of common interest and that the individuals sought to be represented were so numerous that it was impractical to include all of them as parties. The CA, however, annulled the WPI for failure of JCHA, et al. to prove their clear and present right over La Paz Road. The CA ordered the remand of the case to the RTC for a full-blown trial on the merits.

Hence, these petitions for review.

In G.R. No. 152272, JCHA, et al. come to this Court, raising the following issues:

(A)

THE HONORABLE COURT OF APPEALS, IN HOLDING THAT A FULL-BLOWN TRIAL ON THE MERITS IS REQUIRED TO DETERMINE THE NATURE OF THE LA PAZ ROAD, HAD DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE POWER OF SUPERVISION.

(B)

THE HONORABLE COURT OF APPEALS, IN HOLDING THAT THE PETITIONERS FAILED TO SATISFY THE REQUIREMENTS FOR THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION, HAD DECIDED NOT IN ACCORD WITH LAW AND WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT.

15

In G.R. No. 152397, on the other hand, Fil-Estate, et al. anchor their petition on the following issues:

I.

The Court of Appeals’ declaration that respondents’ Complaint states a cause of action is contrary to existing law and jurisprudence.

II.

The Court of Appeals’ pronouncement that respondents’ complaint was properly filed as a class suit is contrary to existing law and jurisprudence.

III.

The Court of Appeals’ conclusion that full blown trial on the merits is required to determine the nature of the La Paz Road is contrary to existing laws and jurisprudence.

16

JCHA, et al. concur with the CA that the complaint sufficiently stated a cause of action. They, however, disagree with the CA’s pronouncement that a full-blown trial on the merits was necessary. They claim that during the hearing on the application of the writ of

injunction, they had sufficiently proven that La Paz Road was a public road and that commuters and motorists of their neighboring villages had used this road as their means of access to the San Agustin Church, Colegio De San Agustin and to SLEX in going to Metro Manila and to Southern Tagalog particularly during the rush hours when traffic at Carmona Entry/Exit and Susana Heights Entry/Exit was at its worst.

JCHA, et al. argue that La Paz Road has attained the status and character of a public road or burdened by an apparent easement of public right of way. They point out that La Paz Road is the widest road in the neighborhood used by motorists in going to Halang Road and in entering the SLEX-Halang toll gate and that there is no other road as wide as La Paz Road existing in the vicinity. For residents of San Pedro, Laguna, the shortest, convenient and safe route towards SLEX Halang is along Rosario Avenue joining La Paz Road.

Finally, JCHA, et al. argue that the CA erred when it voided the WPI because the public nature of La Paz Road had been sufficiently proven and, as residents of San Pedro and Biñan, Laguna, their right to use La Paz Road is undeniable.

In their Memorandum,17

Fil-Estate, et al. explain that La Paz Road is included in the parcels of land covered by Transfer Certificates of Title (TCT) Nos. T-120008, T-90321 and T-90607, all registered in the name of La Paz. The purpose of constructing La Paz Road was to provide a passageway for La Paz to its intended projects to the south, one of which was the Juana Complex I. When Juana Complex I was completed, La Paz donated the open spaces, drainage, canal, and lighting facilities inside the Juana Complex I to the Municipality of Biñan. The streets within the subdivisions were then converted to public roads and were opened for use of the general public. The La Paz Road, not being part of the Juana Complex I, was excluded from the donation. Subsequently, La Paz became a shareholder of FEEC, a consortium formed to develop several real properties in Biñan, Laguna, known as Ecocentrum Project. In exchange for shares of stock, La Paz contributed some of its real properties to the Municipality of Biñan, including the properties constituting La Paz Road, to form part of the Ecocentrum Project.

Fil-Estate, et al. agree with the CA that the annulment of the WPI was proper since JCHA, et al. failed to prove that they have a clear right over La Paz Road. Fil-Estate, et al. assert that JCHA, et al. failed to prove the existence of a right of way or a right to pass over La Paz Road and that the closure of the said road constituted an injury to such right. According to them, La Paz Road is a torrens registered private road and there is neither a voluntary nor legal easement constituted over it. They claim that La Paz Road is a private property registered under the name of La Paz and the beneficial ownership thereof was transferred to FEEC when La Paz joined the consortium for the Ecocentrum Project.

Fil-Estate, et al., however, insist that the complaint did not sufficiently contain the ultimate facts to show a cause of action. They aver the bare allegation that one is entitled to something is an allegation of a conclusion which adds nothing to the pleading.

They likewise argue that the complaint was improperly filed as a class suit for it failed to show that JCHA, et al. and the commuters and motorists they are representing have a well-defined community of interest over La Paz Road. They claim that the excavation of La Paz Road would not necessarily give rise to a common right or cause of action for JCHA, et al. against them since each of them has a






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separate and distinct purpose and each may be affected differently than the others.

The Court’s Ruling

The issues for the Court’s resolution are: (1) whether or not the complaint states a cause of action; (2) whether the complaint has been properly filed as a class suit; and (2) whether or not a WPI is warranted.

Section 2, Rule 2 of the Rules of Court defines a cause of action as an act or omission by which a party violates the right of another. A complaint states a cause of action when it contains 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.

18

The question of whether the complaint states a cause of action is determined by its averments regarding the acts committed by the defendant.

19 Thus, it must contain a concise statement of the

ultimate or essential facts constituting the plaintiff’s cause of action.

20 To be taken into account are only the material allegations

in the complaint; extraneous facts and circumstances or other matters aliunde are not considered.

21

The test of sufficiency of facts alleged in the complaint as constituting a cause of action is whether or not admitting the facts alleged, the court could render a valid verdict in accordance with the prayer of said complaint.

22 Stated differently, if the allegations in the

complaint furnish sufficient basis by which the complaint can be maintained, the same should not be dismissed regardless of the defense that may be asserted by the defendant.

23

In the present case, the Court finds the allegations in the complaint sufficient to establish a cause of action. First, JCHA, et al.’s averments in the complaint show a demandable right over La Paz Road. These are: (1) their right to use the road on the basis of their allegation that they had been using the road for more than 10 years; and (2) an easement of a right of way has been constituted over the said roads. There is no other road as wide as La Paz Road existing in the vicinity and it is the shortest, convenient and safe route towards SLEX Halang that the commuters and motorists may use. Second, there is an alleged violation of such right committed by Fil-Estate, et al. when they excavated the road and prevented the commuters and motorists from using the same. Third, JCHA, et al. consequently suffered injury and that a valid judgment could have been rendered in accordance with the relief sought therein.

With respect to the issue that the case was improperly instituted as a class suit, the Court finds the opposition without merit.

Section 12, Rule 3 of the Rules of Court defines a class suit, as follows:

Sec. 12. Class suit. – When the subject matter of the controversy is one of common or general interest to many persons so numerous

that it is impracticable to join all as parties, a number of them which the court finds to be sufficiently numerous and representative as to fully protect the interests of all concerned may sue or defend for the benefit of all. Any party in interest shall have the right to intervene to protect his individual interest.

The necessary elements for the maintenance of a class suit are: 1) the subject matter of controversy is one of common or general interest to many persons; 2) the parties affected are so numerous that it is impracticable to bring them all to court; and 3) the parties bringing the class suit are sufficiently numerous or representative of the class and can fully protect the interests of all concerned.

24

In this case, the suit is clearly one that benefits all commuters and motorists who use La Paz Road. As succinctly stated by the CA:

The subject matter of the instant case, i.e., the closure and excavation of the La Paz Road, is initially shown to be of common or general interest to many persons. The records reveal that numerous individuals have filed manifestations with the lower court, conveying their intention to join private respondents in the suit and claiming that they are similarly situated with private respondents for they were also prejudiced by the acts of petitioners in closing and excavating the La Paz Road. Moreover, the individuals sought to be represented by private respondents in the suit are so numerous that it is impracticable to join them all as parties and be named individually as plaintiffs in the complaint. These individuals claim to be residents of various barangays in Biñan, Laguna and other barangays in San Pedro, Laguna.

Anent the issue on the propriety of the WPI, Section 3, Rule 58 of the Rules of Court lays down the rules for the issuance thereof. Thus:

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

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

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

A writ of preliminary injunction is available to prevent a threatened or continuous irremediable injury to parties before their claims can be thoroughly studied and adjudicated.

25 The requisites for its

issuance are: (1) the existence of a clear and unmistakable right that must be protected; and (2) an urgent and paramount necessity for the writ to prevent serious damage.

26 For the writ to issue, the right

sought to be protected must be a present right, a legal right which must be shown to be clear and positive.

27 This means that the

persons applying for the writ must show that they have an ostensible right to the final relief prayed for in their complaint.

28













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In the case at bench, JCHA, et al. failed to establish a prima facie proof of violation of their right to justify the issuance of a WPI. Their right to the use of La Paz Road is disputable since they have no clear legal right therein. As correctly ruled by the CA:

Here, contrary to the ruling of respondent Judge, private respondents failed to prove as yet that they have a clear and unmistakable right over the La Paz Road – which was sought to be protected by the injunctive writ. They merely anchor their purported right over the La Paz Road on the bare allegation that they have been using the same as public road right-of-way for more than ten years. A mere allegation does not meet the standard of proof that would warrant the issuance of the injunctive writ. Failure to establish the existence of a clear right which should be judicially protected through the writ of injunction is a sufficient ground for denying the injunction.

Consequently, the case should be further heard by the RTC so that the parties can fully prove their respective positions on the issues.1âwphi1

Due process considerations dictate that the assailed injunctive writ is not a judgment on the merits but merely an order for the grant of a provisional and ancillary remedy to preserve the status quo until the merits of the case can be heard. The hearing on the application for issuance of a writ of preliminary injunction is separate and distinct from the trial on the merits of the main case.

29 The

evidence submitted during the hearing of the incident is not conclusive or complete for only a "sampling" is needed to give the trial court an idea of the justification for the preliminary injunction pending the decision of the case on the merits.

30 There are vital facts

that have yet to be presented during the trial which may not be obtained or presented during the hearing on the application for the injunctive writ.

31 Moreover, the quantum of evidence required for

one is different from that for the other.32

WHEREFORE, the petitions are DENIED. Accordingly, the July 31, 2001 Decision and February 21, 2002 Resolution of the Court of Appeals in CA-G.R. SP No. 60543 are AFFIRMED.

SO ORDERED.






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G.R. No. 162109 January 21, 2005

LAPANDAY AGRICULTURAL & DEVELOPMENT CORPORATION (L.S. VENTURES, INC., ALREADY MERGED WITH LAPANDAY AGRICULTURAL AND DEVELOPMENT CORP.), petitioner, vs. MAXIMO ESTITA, JUANITO ABASOLO, PEDRO ALQUIZA, ISMAEL ALFAR, MANUEL ALFAR, ERLINDA S. ARIS, PAULO ABLAÑA, RUFO ALIPUYO, MARY ANIÑON, ROSALIO ALFAR, AQUILINO ABILIS, HERSON ALFANTA, GETRODEZ BALANAY, ELENA BATO-BATO, ALBERTO BOHOLST, PRISCILA CABATUAN, VICTORINO CABATUAN, RUPERTO CABATUAN, CRISTINO CONANG, PANFILO, CABIGAS, APOLINARIO CABIGAS, EUSTAQUIO CELEN, ANTONIA COMENDADOR, POLICARPIO CLARIDO, JOSE CABONITA, CANDELARIO COSEP, GUILLERMO CASINILLO, SEBASTIAN CASINILLO, JOSE CAMUS, MARGARITO CLARIDO, JUAN CABAÑOG, MARIAS CABAÑOG, MARIAS CABAÑOG, TEOFISTA CASAS, ISMAEL CLARIDO, TOMASA BUDIANG, SOZIMA CASAS, LEONARDO CEJAS, JOSUE DANDAN, EFREN DEL RIO, LEONARDO DELLO, PABLO DINALO, BERNARDITO EUSALINA, EGMEDIO EUSALINA, PELAGIO ESTITA, MAMERTA ENERO, MARCELINA ENERO, REMEGIO ENERO, MATEO ENERO, PLACIDO ESPINOSA, ANA FRANCO, MELVIN FRANCO, ELESIO GEONSON, CIRIACO GEONSON, URBANO GEONSON, CIRIACO GEONSON, MARINA GEONSON, TEOFILO GEONSON, GAUDIOSO GEONSON, ANACLITO GEONSON, LAREANA GEONSON, URBANO GEONSON, ANDRICA GIOCA, MARCILA GEALON, RODRIGO GEALON, PATERNO GUMBA, AGAPITO GUMBA, FRANCISCO HERSAMIO, ROMEO INONG, ABDON INONG, ANDRES YBAÑEZ, ALBINA JIMENEZ, SERGIO JIMENEZ, SIMPLICIO LABRADO, ENCARNACION LASCUÑA, IGNACIA LASCUÑA, MELCHOR LACANG, MAURITO LOQUIÑO, GAUDIOSO LASCUÑA, PRIMO MONTAÑEZ, JOSE MONTAÑEZ, BEINVINIDO MONTAÑEZ, PABLO MENDOZA, JUANITA MENDOZA, VICENTE MACION, JR., CIPRIANA MACION, EDUARDO MONTOYA, CESAR MADRAGA, JUSTO NORO, ALEXANDER NORO, DOMINGO NORO, FERMIN NORO, QUINTIN NORO, MAURO NORO, ULPIANO NORO, GERTRODEZ NORO, ENRIQUE OBENZA, DANILO OBENZA, LEONARDO PEPITO, EULALIO PANLAAN, EDILITO PAMULAWAN, LEONILA PACIONES, REMEDIOS PACIONES, REGALADO PACIONES, JAIME RECEBAS, RODRIGO REBUYAS, AMANCIO RESGONIA, EPETACIO ROLUNA, LEONARDO ROTAQUIOU, ISIDRA RAMOS, HERMINIGILDO SELGAS, LILIA TAPIC, ISIDRO TALAOGON, IGMEDIO VILLARIN, EUGENIA BRIGOLE, FLAVIANO BATOBATO, MANUELA PIALA, CLAUDIA ENERO, GEORGE COSEP, ANTONIO COSEP, ALFREDO MENDOZA, ALBERTO MENDOZA, QUINTIN JABELLO, DOLORES JABILLO, ROLUNA DIONESIO, LOLITA ALFOJA, TOCAO RODOLFO, AVELINO, CABONIA, GAUDENCIO VILLARAMIA, MARIA PESIAO AND SOFIO ANTIPUESTO, VICTORIANO CASAS, CELEDONIO CARILLO, CONCHITA CARILLO, CORNELIO BAYARCAL, AURELIO GALLARDO, FRANCISCA CARTAGENA, AVELINO CABONITA, BALBINO HERSAMIO, TEOFISTO ABALAÑA, NORMA GANTUANCO and PATERNO GUMBA and/or MEMBERS OF THE DAVAO DEL SUR FARMERS ASSOCIATION (DASURFA), respondents.

D E C I S I O N

GARCIA, J.:

In this verified petition for review on certiorari, petitioner Lapanday Agricultural & Development Corporation assails and seeks the annulment of the following issuances of the Court of Appeals in CA-G.R. SP No. 71230, to wit:

1. Decision dated September 3, 2003,1 declaring as valid

an earlier decision dated January 17, 2001 of the Department of Agrarian Reform Adjudication Board (DARAB) in DARAB Case No. 8117, which, in turn, affirmed with modification the resolution dated October 20, 1997 of the DAR Provincial Agrarian Reform Adjudicator of Digos, Davao del Sur in a land dispute involving the vast agricultural land of the late Orval Hughes at Malalag, Davao del Sur; and

2. Resolution dated January 19, 2004,2 denying

petitioner’s motion for reconsideration.

We lift from the decision under review and reproduce hereunder the factual backdrop of the case, thus:

The instant petition involves a vast tract of an agricultural land with an area of 716 hectares located at Malalag, Davao del Sur. On July 28, 1924, this land was leased by the Government to Orval Hughes for a period of twenty-five (25) years under Lease Application No. 815 (E-172). The lease actually expired on May 25, 1952, it having been extended for three (3) years. Orval Hughes died and was survived by his five (5) heirs who then filed their Sales Application Nos. V-11538, V-12992, V-13837, V-14586 and V- 15003 with the Bureau of Lands. Teodulo Tocao, et al., filed a protest against the sales application.

On August 20, 1957, the Office of the President gave due course to the applications to cover only 317 hectares at 63 hectares per heir as per OCT No. P-4712 but awarded 399 hectares to 133 protesters [led by Teodulo Tocao] at three (3) hectares each.

On September 17, 1981, the Ministry of Natural Resources issued an Order implementing said decision (Annex "N", Rollo, pp. 160-164). However, the 133 petitioners listed in the said Order were not in possession of the land allotted to them. So, they formed the Malalag Land Petitioners Association, Inc. (The Association) headed by one Cecilio R. Mangubat Sr.

On the other hand, those in possession of the land sought the assistance of the Malalag Ventures Plantation Inc., in its development into a viable banana production project to which the corporation acceded.

Meanwhile, on November 12, 1987, the Supreme Court in Minister of Natural Resources vs. Heirs of Orval Hughes, 155 SCRA 566, sustained the OP decision and it became final and executory.

On December 12, 1991, the association, through its president Mr. Mangubat, sent a letter to the management of Lapanday Group of Companies, Inc. manifesting that they were no longer interested in the government grant under the Order of the Ministry of Natural Resources and offered to transfer and waive whatever interest they have over the subject land for a monetary consideration (Annex "O", Rollo, p. 165).

Mr. Mangubat was the first to relinquish his right for P54,000.00 (Annex "P", Rollo, p. 166). The individual respondents allegedly followed suit. He facilitated the relinquishment in the Office of the Commission on the Settlement of Land Problems (COSLAP) (Annex "Q", Rollo, pp. 167-169).




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It therefore came as a surprise when, on January 17, 1995, the individual respondents filed [against Lapanday and/or L.S. Ventures, Inc., the Heirs of Orval Hughes, the DENR/COSLAP and Cecilio Mangubat, Sr.] the following cases: forcible entry, reinstatement, nullification of affidavits of quitclaims, relinquishment, waiver and any other documents on disposition of lands before the Provincial Agrarian Reform Adjudication Board (PARAD) of Digos, Davao, del Sur. They alleged that since 1947, they had been the share tenants-tillers, openly and continuously, of the late Orval Hughes and his heirs and they remained as such on the 317 hectares land (Annexes "A" & "B", Rollo, pp. 40-72).

They further averred that on February 11, 1991, petitioner-corporation, Hughes’ heirs and Cecilio Mangubat Sr., conspiring together, misled them to receive P54,000.00 each as rentals on their respective landholdings and deceived to sign receipts in English which turned out to be affidavits of quitclaims in favor of the petitioner (Annex "E", PARAD Decision dated July 9, 1997, p. 3; Rollo, p. 111).

Petitioner [Lapanday Agricultural & Development Corporation] opposed said actions for being factually and legally baseless, there being no entity by the name of Lapanday and L.S. Ventures Inc. which has agricultural operation in Davao del Sur. The fact is that said company had already merged with Lapanday Agricultural and Development Corporation (Annexes "C" & "M", Rollo, pp. 73-79 & 159, respectively).

In a decision dated July 9, 1997,3 the DAR Provincial Agrarian Reform

Adjudicator of Digos, Davao del Sur, Mardonio L. Edica, rendered judgment in favor of the Malalag Ventures Plantation, Inc. and declared the entire 716-hectare property as covered by the Comprehensive Agrarian Reform Program or CARP. More specifically, the decision dispositively reads:

WHEREFORE, premises considered, a decision is hereby rendered declaring that the entire 716 hectares shall be covered by CARP. The portion planted to bananas by the Malalag Plantation Ventures shall be governed by Sections 13 and 32 of Republic Act No. 6657 in favor of Malalag Land Petitioner Association. The Operation Division of the Provincial Agrarian Reform Office shall implement this decision in accordance with existing guidelines, rules and regulations.

The heirs of Orval Hughes are hereby ordered to reinstate the Malalag Land Petitioners Association. Leasehold tenancy shall be observed collectively, pending recommendation by the PARO Operations Division, without prejudice to the outcome of the cases still pending with the administrative agencies and the regular courts.

SO ORDERED.

Upon motion for reconsideration, Provincial Agrarian Reform Adjudicator Mardonio L. Edica, in a Resolution dated October 20, 1997,

4 modified his aforequoted decision of July 9, 1997 by

specifically directing "Lapanday and/or L.S. Ventures, Inc." to turn over the area involved for CARP coverage, and ordering the Hughes heirs to reinstate the members of the Davao del Sur Farmer’s Association (DASUFRA) as leasehold tenants of the subject land. We quote the dispositive portion of the same Resolution:

"WHEREFORE, the decision of 9 July 1997 is hereby modified to read:

Declaring that the entire 716 hectares shall be covered by CARP. The portion planted to bananas by the Malalag Plantation Ventures, Inc. shall be governed by Sections 13 and 32 of Republic Act No. 6657 in favor of qualified members of the Malalag Land Petitioners’ Association (MLPA), and the remaining portion shall be allotted to all deserving and listed members of the Davao del Sur Farmer’s Association (DASUFRA). The LAPANDAY, L.S. Ventures and/or the Malalag Plantation Ventures, Inc. is hereby mandated to turn over the area involved for CARP coverage. The Operations division of the Provincial Agrarian Reform Office of Davao del Sur is likewise mandated to implement this resolution in accordance with existing guidelines, rules and regulations.

The heirs of Orval Hughes are hereby ordered to reinstate the members of the DASUFRA. Leasehold tenancy shall be observed collectively pending documentation of the area by the PARO Operations Division regardless of the outcome of the cases still pending with the administrative agencies and the regular courts.

The local National Police, Armed Forces of the Philippines or any of the component units are hereby directed to assist the DAR in the enforcement and/or implementation of this resolution xxx.

This resolution is immediately executory.

SO ORDERED".

From the aforequoted resolution of the Provincial Agrarian Reform Adjudicator, "Lapanday and/or L.S. Ventures, Inc.", went on appeal to the Department of Agrarian Reform Adjudication Board (DARAB), at Quezon City where the appeal was docketed as DARAB Case No. 8117.

In a decision dated January 17, 2001,5 the DARAB, ruling that the

Provincial Agrarian Reform Adjudicator had no jurisdiction to declare the entire 716-hectare landholding as covered by the CARP and that the only issue within his competence is to find out whether sufficient grounds exist to warrant respondents’ dispossession from the 317-hectare portion thereof which was earlier awarded to the heirs of Orval Hughes, modified the appealed resolution of Provincial Adjudicator Edica, thus:

WHEREFORE, premises considered, the appealed Resolution of October 20, 1997, is hereby MODIFIED to read as follows:

1. Ordering respondents heirs of Orval Hughes to vacate the premises of the 133 (sic, should be 399) hectares which were long ago awarded to 133 awardees who were identified in the Order of Natural Resources Minister dated September 17, 1981, and turn over the peaceful possession thereof to the said 133 awardees or their heirs;

2. Ordering respondents Lapanday and/or L.S. Ventures and Hughes’ heirs to restore petitioners Maximo Estita, et al., to their respective farmlots within the 317 hectares owned by the Hughes’ Heirs; and

3. Declaring the nullity of the quitclaims allegedly executed by petitioners.





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The matter of placing the 317 hectares under CARP shall be pursued in the proper forum which is the Office of the Honorable DAR Secretary.

This decision is immediately executory.

SO ORDERED.

With their motion for reconsideration of the same decision having been denied by DARAB in its Resolution of March 15, 2002, "Lapanday and/or L.S. Ventures, Inc.", this time under the name Lapanday Agricultural & Development Corporation (the herein petitioner), elevated the case to the Court of Appeals via a petition for review, thereat docketed as CA-G.R. SP No. 71230.

As stated at the threshold hereof, the Court of Appeals, in a Decision dated September 3, 2003,

6 denied petitioner’s recourse thereto for

being merely dilatory and accordingly upheld the validity of the aforementioned DARAB decision of 17 January 2001 and resolution of 15 March 2002, as follows:

WHEREFORE, in consonance with the Supreme Court’s directive not to further delay the implementation of the August 20, 1957 Decision, the instant petition is hereby DENIED for being dilatory. The assailed Decision of the DARAB dated 17 January 2001 and Resolution dated 15 March 2002 are declared VALID.

Petitioner and its counsel are warned not to further resort to measures of this nature, otherwise, they shall be dealt with severely for having abused the processes of the courts.

The individual respondents who received the amount of P54,000.00 are ordered to return the same to the petitioner.

SO ORDERED.

In time, petitioner moved for a reconsideration, which motion was denied by the same court in the herein equally assailed Resolution dated January 19, 2004

7 for being merely pro forma.

Hence, this recourse by petitioner Lapanday Agricultural & Development Corporation on its basic submission that the Department of Agrarian Reform thru its Provincial Agrarian Reform Adjudicator, the DARAB and the Court of Appeals all erred (1) in assuming jurisdiction over an issue covering a public land; and (2) in rendering judgment against it even as it is not a real party-in-interest in the case.

The petition is bereft of merit.

Before going any further, however, we shall first address respondents’ concern as to what remedy petitioner has resorted to in coming to this Court: whether by petition for review on certiorari under Rule 45 of the Rules of Court, wherein only "questions of law" may be raised, albeit jurisprudence extends this remedy even to questions of fact in exceptional cases,

8 or by the special civil action

of certiorari under Rule 65, whereunder the main inquiry is whether there is grave abuse of discretion or lack of jurisdiction.

While the petition raises jurisdictional issue, it is apparent from our reading thereof that the same is a petition for review on certiorari

under Rule 45. For one, the very recourse itself is captioned as a "petition for review on certiorari". For another, even as petitioner came to this Court from a final decision of the Court of Appeals, the latter is not impleaded as a nominal party-respondent in the petition thus filed, as in fact the ones impleaded as respondents in the caption thereof are only the very same original parties to the case while still in the offices a quo.

We shall then deal with the petition as one filed under Rule 45 and treat the alleged lack of jurisdiction on the part of the Department of Agrarian Reform (DAR), the DARAB and the Court of Appeals as allegation of reversible error.

Petitioner first contends that the subject landholding is still part of the public domain, hence, still under the jurisdiction of the Department of Environment and Natural Resources (DENR) and, therefore, beyond the coverage of the Comprehensive Agrarian Reform Program (CARP).

There can be no debate at all that under the Public Land Act, the management and disposition of public lands is under the primary control of the Director of Lands (now the Director of the Lands Management Bureau or LMB) subject to review by the DENR Secretary

9

The hard reality in this case, however, is that the land in question has ceased to be public, as in fact it is already titled. As found by both the DARAB and the Court of Appeals, the 317-hectare land awarded to the Hughes Heirs is covered by Original Certificate of Title No. P-4712, the existence of which was never refuted by the petitioner. Specifically, the DARAB decision of January 17, 2001,

10

partly states:

"On August 20, 1957 the Office of the President gave due course to applications to cover only 317 hectares at 63 hectares each heir as per OCT No. P-4712 but awarding 399 hectares to 133 awardees at three (3) hectares each" (Emphasis supplied),

a finding reechoed on page 3 of the CA decision of September 3, 2003.

11

With the above, and bearing in mind that the CARP covers, regardless of tenurial arrangement and commodity produce, all public and private agricultural lands,

12 with the DAR vested with

primary jurisdiction to determine and adjudicate, through its adjudication boards, agrarian reform matters, and exclusive jurisdiction over all matters involving the implementation of the agrarian reform program,

13 we rule and so hold, contrary to

petitioner’s assertion, that the DAR, thru its Provincial Agrarian Reform Adjudicator at Digos, Davao del Sur correctly took cognizance of the case in the first instance.

Petitioner next argues that the DARAB decision, as affirmed by the Court of Appeals, ordering "Lapanday and/or L.S. Ventures Inc. to restore [respondents] Maximo Estita et al. to their respective farm lots within the 317 hectares owned by the Hughes Heirs", has no valid force and effect against petitioner because it is not a real party-in-interest, pointing out that "Lapanday and/or L.S. Ventures, Inc.," are separate and distinct from petitioner’s corporate personality. Petitioner asserts that "Lapanday" has no juridical personality, while the corporate life of "L.S. Ventures Inc." has ceased when said entity merged with petitioner in 1996. Moreover, petitioner points out










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that it has no business operations in Davao del Sur where the land in question lies.1awphi1.nét

We are not persuaded.

To begin with, it is basic in the law of procedure that misjoinder of parties is not a ground for the dismissal of an action, as parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the proceedings and on such terms as are just

14

Then, too, there is the rule that objections to defects in parties should be made at the earliest opportunity, that is, at the moment such defect becomes apparent, by a motion to strike the names of the parties wrongly impleaded. For, objections to misjoinder cannot be raised for the first time on appeal.

15

Here, aside from unsubstantiated denials that it is not the party referred to in the complaint for forcible entry, etc., commenced by the respondents before the office of the Provincial Agrarian Reform Adjudicator of Digos, Davao del Sur, petitioner did not even file a motion to strike its name in all the proceedings below. Quite the contrary, and as correctly found by the Court of Appeals in the decision under review, petitioner corporation -

"x x x filed an Answer (Annex "D", Rollo, pp.91-96) thereby submitting to the jurisdiction of the Board. The same answer bears the name "LAPANDAY AND/OR L.S. VENTURES, INC.", signed by its representative Caesar E. Barcenas and assisted by its counsel Jose V. Yap (Ibid, Rollo, p. 96). This alone negates the petitioner’s stance that there is no entity by the name of Lapanday and that L.S. Ventures, Inc. is seperate and distinct from any company (see Annex "M" Rollo, p. 159 on Merger of Lapanday Agricultural & Development Corporation and L.S. Ventures, Inc.). And such admission made by the petitioner in the course of the proceedings in this case, does not require proof (Sec. 4, Rule 129 of the Revised Rules on Evidence)."

Petitioner’s filing of an Answer has thereby cured whatever jurisdictional defect it now raises. As we have said time and again, "the active participation of a party in a case pending against him before a court or a quasi judicial body, is tantamount to a recognition of that court’s or body’s jurisdiction and a willingness to abide by the resolution of the case and will bar said party from later on impugning the court’s or body’s jurisdiction."

16

But even assuming, in gratia argumenti, that "Lapanday" does not have a juridical personality, it may nonetheless be sued under such a name considering that respondents commonly know petitioner by the name "Lapanday Group of Companies", as shown in their alleged letter of intent to relinquish their rights over the subject land.

17 This

brings to mind Section 15, Rule 3, of the 1997 Rules of Civil Procedure, which reads:

"SEC. 15. Entity without juridical personality as defendant. - When two or more persons not organized as an entity with juridical personality enter into a transaction, they may be sued under the name by which they are generally or commonly known" (Emphasis added).

Aware of the hopelessness of its cause, petitioner invariably posits that the herein respondents are not real parties-in-interest and are

bereft of any legal personality to file and initiate the complaint for forcible entry, etc. before the office of the Provincial Agrarian Reform Adjudicator of Digos, Davao del Sur because they are not tenant-tillers of the land in dispute. Consequently, so petitioner argues, respondents are not entitled to be restored thereto.

Petitioner’s posture cannot hold water.

Both the DAR Provincial Agrarian Reform Adjudicator and the DARAB affirmed and confirmed the tenancy status of the respondents. We see no reason why the Court of Appeals should not rely on such a finding in upholding the respondents’ right to be restored to their respective farmlots as leasehold tenants thereof.

For sure, the evidence adduced by the respondents clearly indicate that they were tenant-tillers of the 317-hectare land owned by the heirs of Orval Hughes. Indeed, documents

18 showing that the Judicial

Administrator of the Intestate Estate of Orval Hughes had filed cases in court against the respondents for their failure to deliver the Estate’s share in the harvests, are unmistakable proofs that a tenurial arrangement exists regarding the agricultural produce of the land.

Besides, the heirs of Orval Hughes as former landlords of the respondents, never denied the tenancy status of the latter, as in fact they did not even bother to answer respondents’ complaint for forcible entry, etc., before the Office of the Provincial Agrarian Adjudicator.

In any event, it need not be stressed that the question regarding the respondents’ tenancy status is factual in nature, which is not proper in a petition for review.

19 More so must this be where, as here, the

Provincial Agrarian Reform Adjudicator, the DARAB and the Court of Appeals were one in upholding the tenancy status of the respondents.1a\^/phi1.net

Moreover, it is axiomatic that findings of administrative agencies, which have acquired expertise because their jurisdiction is confined to specific matters, are accorded not only respect but even finality by the courts

20 In Corpuz vs. Sps. Grospe ,

21 we categorically held:

"As a rule, if the factual findings of the CA coincide with those of the DARAB – an administrative body which has acquired expertise on the matter – such findings are accorded respect and will not be disturbed on appeal"

As tenant-tillers of the 317-hectare land owned by the heirs of Orval Hughes, respondents are undeniably parties-in-interest to this controversy. As such, they have the legal personality to institute the action in the office a quo, namely, the office of the Provincial Agrarian Reform Adjudicator at Digos, Davao del Sur.

But then, there is petitioner’s contention that respondents’ interests over the subject land have already been waived when quitclaims to that effect were allegedly executed and signed by them.

The submission is equally puerile.

Waivers of rights and/or interests over landholdings awarded by the government are invalid for being violative of the agrarian reform








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laws. To quote from our decision in Torres vs. Ventura,22

as reiterated in Corpuz vs. Sps. Grospe :

23

"x x x As such [the farmer-beneficiaries] gained the rights to possess, cultivate and enjoy the landholding for himself. Those rights over that particular property were granted by the government to him and no other. To insure his continued possession and enjoyment of the property, he could not, under the law, make any valid form of transfer except to the government or by hereditary succession, to his successors"

WHEREFORE, the instant petition is DENIED and the assailed decision and resolution of the Court of Appeals AFFIRMED in toto.

Costs against petitioner.

SO ORDERED.


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G.R. No. 78295 & 79917 April 10, 1989

ATTORNEY CELSO D. LAVIÑA, REMEDIOS M. MUYOT, SPOUSES VIRGILIO D. CEBRERO and SEGUNDINA MAGNO-CEBRERO, petitioners, vs. HONORABLE COURT OF APPEALS and JOSEFINA C. GABRIEL, respondents.

Arturo A. Alafriz & Associates for petitioners.

Ramon A. Academia for private respondent.

GRIÑO-AQUINO, J.:

Two petitions were filed in this Court to review: (1) the contempt resolution dated May 4, 1987, of the Court of Appeals, and (2) its decision dated September 15, 1987 in a special civil action of certiorari (CA-G.R. SP No. 11260).

G.R. No. 78295. —

Assailed in G.R. No. 78295 is the resolution dated May 4, 1987 of the Court of Appeals: (a) annulling Judge Vicencio's order cancelling the notice of lis pendens on the title of the disputed property; (b) ordering the Register of Deeds of Manila to revive the said notice of lis pendens; and (c) requiring Judge Vicencio, his branch clerk of court, Virgilio Caballero, and petitioner, Attorney Celso Laviña, to show cause, within one week from notice, why they should not be punished for contempt of court for having disobeyed the temporary restraining order of the Court of Appeals.

On April 6, 1983, Maria Carmen Gabriel y Paterno, single, 72 years old, executed a donation mortis causa in favor of her widowed sister-in-law, Josefina C. Gabriel, 75 years of age, over a 3,081 square-meter parcel of land with improvements in Sampaloc, Manila, covered by Transfer Certificate of Title No. 155865 in Carmen's name. The donation was thumbmarked by Carmen before Notary Public Jose T. Constantino. It was accepted by the donee in the same instrument (pp. 77-82 & 293, Rollo, G.R. No. 79917).

Four months later, on August 11, 1983, Carmen, who was already gravely ill with breast cancer, executed a Last Win And Testament in which she bequeathed the same Sampaloc property to her cousin and companion, Remedios C. Muyot, and willed a small 240-square-meter lot in Antipolo, Rizal (TCT No. 278-6) to Josefina. She named a friend, Concepcion M. De Garcia, as executrix of her will (pp. 288-291, Rollo, G.R. No. 79917).

On August 15, 1983, Carmen executed a General Power of Attorney appointing Remedios M. Muyot, as her attomey-in-fact for the following purposes:

1. To administer, take charge, and manage for my sole benefit, all my properties, whether real or personal, wheresoever located;

2. To collect, demand and recover all debts, notes or sums of money due me now or which in the future may become due or payable to me, and for this purpose, to issue such receipts, papers, or deeds in my name and stead; to cash or endorse checks drawn in my favor, to deposit in, or withdraw from, any accounts with any banks wherever I may have savings, checking, or time deposit accounts;

3. To execute, sign, authenticate, and enter into any and all contracts and agreements for me and in my name with any person or entity; and, if necessary to settle my personal obligations, such as for medical expenses, to mortgage or to dispose of for value any or portion of any of my properties, whether real or personal; and

4. To bring suit, defend, and enter into compromises in my name and stead, in connection with actions brought for or against me, of whatever nature and kind. (Annex D, p. 61, Rollo, G.R. No. 79917.)

On November 3, 1983, Josefina registered an adverse claim on the title of the Sampaloc property based on the donation made by Carmen in her favor (p. 98, Rollo, G.R. No. 79917).

The next day, November 4, 1983, Remedios Muyot, as Carmen's attorney- in-fact, hired Atty. Celso D. Laviña, as Carmen's counsel, on a 30% contingent fee basis (Annex E, p. 62, Rollo, G.R. No. 79917).

On November 19, 1983, Carmen thumbmarked an "AFFIDAVIT OF DENIAL" repudiating the donation of the Sampaloc property to Josefina because it was allegedly procured through fraud and trickery. She alleged that in April 1983, she still could sign her name, and that she had no intention of donating the property to Josefina who had not done her any favor and in fact abandoned her during her illness (pp. 100 and 113, Rollo, G.R. No. 79917).

On the same occasion, November 19, 1983, she thumbmarked a "REVOCATION OF DONATION" before Notary Public James Beltran (p. 85, Rollo, G.R. No. 79917).

Two days later, on November 21, 1983, Remedios Muyot, as Carmen's attorney-in-fact, sold the Sampaloc property to Virgilio D.


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Cebrero for an alleged consideration of P2,664,655 (p. 88, Rollo, G.R. No. 79917).

On November 29, 1983, Carmen passed away (Annex C, p. 83, Rollo, G.R. No. 79917).

On December 1, 1983, the "REVOCATION OF DONATION" was registered on the back of Carmen's TCT No. 155865 (p. 119, Rollo, G.R. No. 79917).

On December 5, 1983, Josefina filed a complaint in the Regional Trial Court of Manila against Carmen's estate and the Register of Deeds of Manila to annul the Deed of Revocation of Donation (Civil Case No. 83-21629). She alleged that the deed of revocation, made only ten (10) days before Carmen's death, was false and fictitious. She asked the court to appoint an administrator ad litem for the estate of Carmen P. Gabriel (Annex B, p. 55, Rollo, G.R. No. 79917). Upon filing the complaint, she caused to be recorded a Notice of Lis Pendens on the title of the property (p. 98, Rollo, G.R. No. 79917).

Without appointing a special administrator for Carmen's estate, the court caused summons to be served on the estate. The summons was received by Remedios Muyot (Annex C, p. 60, Rollo, G.R. No. 79917).

On January 24, 1984, the Cebreros registered the sale of the Sampaloc property to them and obtained TCT No. 158305 in their names (p. 90, Rollo, G.R. No. 79917).

On February 6, 1984, Josefina's complaint was amended to implead Muyot and the Cebrero spouses as additional defendants. In addition to the original causes of action, the amended complaint sought the nullification of Muyot's General Power of Attorney and the sale of the Sampaloc property to the Cebrero spouses (Annex G, p. 68, Rollo, G.R. No. 79917).

Atty. Laviña filed an Answer (later an "Amended Answer with Compulsory Counter-claim") for the Estate and Muyot (Annexes H and I, pp. 91 and 105, Rollo, G.R. No. 79917).

Thereupon, Josefina filed a motion to disqualify him on the ground that his authority as counsel for Carmen was extinguished upon her death. She also assailed the service of summons to the decedent's Estate through Muyot and reiterated her motion for the appointment of a special administrator for the Estate. Atty. Laviña opposed the motions (Annexes K and L, pp. 125 and 130, Rollo, G.R. No. 79917).

On September 23, 1986, Judge Vicencio denied Josefina's motion to disqualify Atty. Laviña. He also denied the motion to appoint a special administrator for the Estate "since the deceased left a Will naming an administratrix (executrix) and the latter has accepted the trust." He sustained his court's jurisdiction over the Estate based on the service of summons upon Muyot (Annex P, p. 179, Rollo, G.R. No. 79917).

On January 23, 1987, Cebrero filed a motion to cancel the notice of lis pendens on the Sampaloc property (Annex B, Rollo, G.R. No. 78295). Before Judge Vicencio could act on it, Josefina filed a petition for certiorari on February 6, 1987 in the Court of Appeals (CA-G.R. SP No. 11260) assailing Judge Vicencio's order of September 23,1986 (Annex P, p. 179, Rollo, G.R. No. 79919) and

praying for a writ of preliminary injunction to stop him from further proceeding in Civil Case No. 8321629 (Annex V, p. 236, Rollo, G.R. No. 79917). The Court of Appeals issued a restraining order on February 10, 1987, ordering the lower court to "desist from proceeding with Civil Case No. 83-21629 until further orders." (Annex W, p. 260, Rollo, G.R. No. 79917.)

However, on March 16, 1987, in spite of the restraining order, Judge Vicencio issued an order cancelling the notice of lis pendens (Annex N, p. 170, Rollo, G.R. No. 78295) because he believed the Appellate Court's restraining order of February 10, 1987 expired on March 3, 1987, i.e., after 20 days.

On motions of Josefina (Annex O, p. 153, Rollo, G.R. No. 79917 and Annex P, p. 178, Rollo, G.R. No. 78295), the Court of Appeals, on May 4,1987, set aside Judge Vicencio's order and required him, as well as his branch clerk of court and Attorney Laviña to show cause why they should not be punished for contempt of court. The Court of Appeals held that the 20-day limitation on the life of a restraining order did not apply to it but only to lower court "judges," for Section 5 of BP Blg. 224 provides that:

... the judge to whom the application for preliminary injunction was made, may issue a restraining order to be effective only for a period of twenty days from date of its issuance. Within the said twenty-day period, the judge must cause an order to be served on the defendant, requiring him to show cause, at a specified time and place, why the injunction should not be granted ...

While the Appellate Court was aware that Section 8 of the Interim Rules uses the word "court" instead of "judges," it opined that:

l. ... the Interim Rules was not meant to effect, modify or alter BP 224 which took effect in 1982, subsequent to the enactment of BP 129, particularly so since BP 224 specifically governs the exclusive subject of restraining orders, whereas the Interim Rules treats of the broad Judiciary Reorganization Act of 1981.

2. BP 224 is a legislative act laying down a substantive policy regulating the issuance and effectivity of restraining orders issued by 'judges,' specifically decreeing a limitation of 20 days to such orders of 'judges'.

The highest tribunal of the land in National Dental Supply Co. vs. Bibiano Meer, 90 Phil. 265 ... ruled in no uncertain terms that the Supreme Court in the exercise of its rule-making power


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cannot repeal or alter a substantive piece of legislation. (p. 49, Rollo, G.R. No. 78295.)

The Court of Appeals further observed that the application of BP Blg. 224 to "judges" only "springs from practical considerations evident from the Rule itself." (p. 51, Rollo, G.R. No. 78295.) It pointed out that:

... Rule 58, as amended by BP 224 requires-upon issuance of a restraining order and within 20 days from said issuance-that 'the judge must cause an order to be served on the defendant, requiring him to show cause, at a specified time and place, why the injunction should not be granted, and determine within the same period whether or not the preliminary injunction shall be granted . . In other words, an actual hearing on the application for injunction must be scheduled; the parties must be notified thereof, and immediately thereafter, the judge must resolve the application-all within twenty (20) days from the date of issuance of the restraining order. The clearly recognized implication being that after said period-whether the parties have already received notice or not, whether the hearing has been conducted or not-the restraining order if not yet converted into an injunction by then, automatically self-destructs. Certainly, while these pressing time and procedural constraints may reasonably be brought to bear upon the Regional Trial Courts whose injunctive writs may be enforced only within the narrow confines of their respective regions (Sec. 3[a], Interim Rules and Guidelines), they cannot sensibly be imposed upon the Court of Appeals and the Honorable Supreme Court whose territorial jurisdiction stretches to the many ends of our broad archipelago. (Emphasis supplied.) (pp. 51-52, Rollo, G.R. No. 78295.)

On May 26, 1987, Laviña, Muyot, and Cebrero filed in this Court a petition for certiorari and prohibition (G.R. No. 78295) assailing that resolution. They prayed that the Court of Appeals be enjoined from further proceeding in CA-G.R. SP No. 11260.

Without giving due course to the petition, We ordered the respondents to comment (p. 189, Rollo, G.R. No. 78295).

During the pendency of G.R. No. 78295, and eleven (11) months after the Court of Appeals issued the assailed order on May 4, 1987, this Court rendered a divided opinion in another case, "Delbros Hotel Corporation vs. The Intermediate Appellate Court, et al." (G.R. No. 72566, April 12,1988), defining the scope of BP Blg. 224. In a ten to four decision with one abstention, this Court held:

The applicability of the above-quoted provision (Sec. 5, B.P. Blg. 224) to the then Intermediate Appellate Court, now the Court of Appeals, can hardly be doubted. The Interim Rules and Guidelines were promulgated to implement the Judiciary Reorganization Act of 1981 (B.P. Blg. 129) which include the Intermediate Appellate Court among the courts organized thereunder.

This is emphasized in the preamble of the Interim Rules which states that the same shall apply to all inferior courts according to the Constitution. The term 'inferior courts' as used therein refers to all courts except the Supreme Court, the Sandiganbayan and the Court of Tax Appeals. Thus, paragraphs 14 and 15 of the Interim Rules expressly provide for Procedure in the Intermediate Appellate Court.

Indeed, if paragraph 8 of the Interim Rules were not intended to apply to temporary restraining orders issued by the respondent Court, there would have been absolutely no reason for the inclusion of said paragraph in the Interim Rules. The limited life-span of temporary restraining orders issued by the regional trial courts and municipal trial courts is already provided for in B.P. Blg. 224. It was precisely to include the Intermediate Appellate Court within the same limitation as to the effectivity of its temporary restraining orders that B.P. Blg. 224 was incorporated in the Interim Rules, with the significant change of the word 'judge' to 'court,' so as to make it clear and unequivocal that the temporary restraining orders contemplated therein are those issued not only by trial judges but also by justices of the appellate court. (Delbros Hotel Corporation vs. Intermediate Appellate Court, supra.)

This decision sustains Judge Vicencio's, not the Court of Appeals', interpretation of BP Blg. 224. However, this circumstance does not excuse his defiance of the Appellate Court's restraining order, for the heart of the issue in this case, is not whether the Court of Appeals correctly interpreted BP Blg. 224, but whether petitioners' disobedience of the Appellate Court's restraining order was contemptuous. We hold that it was.

Before the promulgation of the Delbros decision on April 12, 1988, there existed no jurisprudence interpreting "judges" as used in BP Blg. 224, to include the justices of the Court of Appeals also. Hence, even if Judge Vicencio thought that Court of Appeals justices were covered by BP Blg. 224, out of respect for the second highest court of the land, he should have obeyed its explicit mandate for him to desist from proceeding with Civil Case No. 83-21629 "until further orders." His disobedience of that lawful order of the Court was contemptuous (Sec. 3-b, Rule 71, Rules of Court). His rushing to lift the notice of lis pendens barely four (4) days before his retirement from the Bench on March 20,1987, and while his own jurisdiction in the case was still in issue, puts his motives under a cloud.

If the petitioners wanted the Court of Appeals to hear Josefina's application for a preliminary writ of injunction within twenty (20) days after it issued the temporary restraining order, they should have filed a motion to that effect, or, they should have asked the Court to limit the duration of its restraining order. Instead, without notice to the other party or to the Court of Appeals, they persuaded the trial judge to grant their pending motion to cancel the notice of lis pendens. The secrecy that shrouded that maneuver is a badge of their bad faith and constitutes contempt for the Appellate Court that issued the restraining order.


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G.R. No. 79917. —

During the pendency of G.R. No. 78295 in this Court, the Court of Appeals rendered a decision on September 15, 1987 in CA-G.R. SP No. 11260, granting Josefina's petition for certiorari, prohibition and mandamus. The dispositive part of its decision reads:

WHEREFORE, based on all the foregoing considerations, judgment is hereby rendered: (1) annulling the assailed order dated 12 January 1987 as well as its related earlier order of September 23, 1986; (2) declaring that the lower court did not acquire jurisdiction over the person of the estate of Maria Carmen P. Gabriel; (3) ordering respondent Atty. Celso Laviña to refrain from representing the estate of the deceased Maria Carmen P. Gabriel in Civil Case No. 8321629; and (4) declaring that all pleadings, motions and papers filed by Atty. Laviña are sham and ordered expunged from the records of said case.

Resolution of the contempt incident against respondent judge, Atty. Laviña and the branch clerk of court of respondent judge is hereby held in abeyance pending the Supreme Court's resolution of respondent's petition for review. (pp. 53-54, Rollo, G.R. No. 79917.)

Within the 30-day extension granted by this Court, Attorney Laviña, Remedios Muyot, and the Cebrero spouses appealed by certiorari to this Court where their petition was docketed as G.R. No. 79917. The case was later consolidated with G.R. No. 78295.

The Court of Appeals held that Attorney Laviña may not appear "as counsel for the estate of Carmen P. Gabriel because his authority as her counsel was extinguished upon Carmen's death" (Art. 1919, Civil Code). It also held that "respondent Remedios Muyot was not capacitated to receive summons for the estate because the general power of attorney constituting her as agent of the deceased became inoperative upon the death of the principal." The service of summons upon her was void (pp. 52-53, Rollo, G.R. No. 79917).

However, the Court held that a special administrator need not be appointed for the estate in Civil Case No. 83-21629 as the last will and testament of Maria Carmen P. Gabriel had been allowed probate on 3 February 1987 in Sp. Proc. No. 8423954 and letters testamentary had been issued to the duly designated executrix, Concepcion M. De Garcia (p. 54, Rollo, G.R. No. 79917), to represent the Estate.

The petitioners allege in their petition for review of the decision that the Court of Appeals erred:

1. in holding that the trial court had not acquired jurisdiction over the estate of Carmen P. Gabriel; and

2. in holding that Attorney Celso Laviña's authority as counsel for Carmen P.

Gabriel was extinguished upon her death.

The petitioners' argument that service of the summons on Remedios Muyot was valid and sufficient to vest jurisdiction in the Court over the Estate of Carmen P. Gabriel, because Muyot was Carmen's attorney-in-fact, is not correct. The estate of a dead person may only be summoned through the executor or administrator of his estate for it is the executor or administrator who may sue or be sued (Sec. 3, Rule 3, Rules of Court) and who may bring or defend actions for the recovery or protection of the property or rights of the deceased (Sec. 2, Rule 87, Rules of Court). The general power of attorney appointing Remedios as Carmen's agent or attorney-in- fact was extinguished upon Carmen's demise (Art. 1919[3], Civil Code; Ramos vs. Caoibes 94 Phil. 440; Hermosa vs. Longara 93 Phil. 977). Thereafter, Remedios was bereft of authority to represent Carmen.

The petitioner's contention that the agency was "constituted in the common interest of the principal and the agent" and that hence it was not extinguished by the death of the principal (Art. 1930, Civil Code) is refuted by the instrument itself which explicitly provided that the powers conferred on the agent were to be exercised for the "sole benefit" of the principal, Carmen P. Gabriel (Annex D, p. 61, Rollo, G.R. No. 79917).

Carmen's death likewise divested Attorney Laviña of authority to represent her as counsel. A dead client has no personality and cannot be represented by an attorney (Barrameda vs. Barbara, 90 Phil. 718, 723; Caisip vs. Hon. Cabangon, 109 Phil. 150).

WHEREFORE, finding no reversible error in the appealed decision and orders of the Court of Appeals in CA-G.R. SP No. 11260, the petitions for review are dismissed with costs against the petitioners.

SO ORDERED.


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G.R. No. L-45809 December 12, 1986

SOCORRO SEPULVEDA LAWAS, petitioner, vs. COURT OF APPEALS, HON. BERNARDO LL. SALAS, [as Judge, CFI, Cebu, Branch VIII], and PACIFICO PELAEZ, respondents.

Jesus Yray for petitioner.

Teodoro Almase for respondents.

FERIA, J.:

This is an appeal by certiorari under Rule 45 of the Revised Rules of Court from the decision of the Court of Appeals which dismissed the petition for certiorari under, Rule 65 of said Rules against respondent Judge Bernardo L. Salas of the Court of First Instance of Cebu. The antecedent facts are briefly as follows:

Private respondent Pacifico Pelaez filed a Complaint on December 6, 1972 against petitioner's father, Pedro Sepulveda, for ownership and partition of certain parcels of land. Defendant Pedro Sepulveda filed his Answer dated December 31, 1972 resisting the claim and raising the special defenses of laches, prescription and failure to ventilate in a previous special proceeding. During the presentation of evidence for the plaintiff, the defendant died on March 25, 1975. On May 21, 1975, counsels for the deceased defendant filed a notice of death wherein were enumerated the thirteen children and surviving spouse of the deceased.

On May 5, 1975, petitioner filed a petition for letters of administration and she was appointed judicial administratrix of the estate of her late father in July, 1976.

At the hearing of the case on November 27, 1975, Attys. Domingo Antigua and Serafin Branzuela, former counsels for the deceased defendant, manifested in open court that with the death of their client, their contract with him was also terminated and none of the thirteen children nor the surviving spouse had renewed the contract, but instead they had engaged the services of other lawyers in the intestate proceedings.

Notwithstanding the manifestation of the former counsels of the deceased defendant, the respondent trial judge set the case for hearing on January 13, 1976 and sent the notice of hearing to said counsels.

On January 13, 1976, the respondent trial judge issued three orders. The first order substituted the heirs of the deceased defendant, namely, his thirteen children and surviving spouse, as defendants; the second order authorized Atty. Teodoro Almase, counsel for the plaintiff, to present his evidence in the absence of Attys. Antigua and Branzuela and the third order treated the case submitted for decision, after the plaintiff had presented his evidence and rested his case, and directed that said counsels and the fourteen heirs of the deceased defendant be furnished copies thereof.

On January 28, 1976, the respondent trial judge rendered a decision against the heirs of the deceased defendant.

On February 19, 1976, ten of the children of the deceased defendant, who apparently did not know that a decision had already been rendered, filed an Answer in-substitution of the deceased defendant through their counsel Atty. Jesus Yray. This was denied admission by the respondent trial judge for being already moot and academic because of the earlier decision.

On March 9, 1976, the widow and two other children of the deceased defendant, through their counsel Atty. Delfin Quijano, filed a motion for substitution and for reconsideration of the decision dated January 28, 1976. On April 7, 1976, the respondent trial judge issued an order setting aside his decision and setting the case in the calendar for cross-examination of the plaintiff, Pacifico Pelaez, with a proviso that said order was applicable only to the three heirs who had filed the motion. On July 14, 1976, the respondent trial judge lifted the order setting aside his decision, despite the verbal petition for postponement of the hearing made by one of the three heirs on the ground of the absence of their counsel.

On July 9, 1976, petitioner, who had been appointed judicial administratrix of the estate of the deceased defendant and who was one of the heirs who had filed an Answer on February 19, 1976, filed a motion to intervene and/or substitute the deceased defendant. On August 25, 1976, the respondent trial judge denied the motion for the reason that the decision had already become final.

Petitioner then filed a special civil action of certiorari with the Court of Appeals to annul the proceedings in the respondent trial court. However, the Court of Appeals dismissed the petition for certiorari. Hence, the present appeal.

The appeal is meritorious.

Section 16 of Rule 3 provides as follows:

Duty of attorney upon death, incapacity, or incompetency of party. — Whenever a party to a pending case dies, becomes incapacitated or incompetent, it shall be the duty of his attorney to inform the court promptly of such death, incapacity or incompetency, and to give the name and residence of his executor, administrator, guardian or other legal representative.

The former counsels for the deceased defendant, Pedro Sepulveda, complied with this rule by filing a notice of death on May 21, 1975. They also correctly manifested in open court at the hearing of the case on November 27, 1975, that with the death of their client their contract with him was also terminated and none of the heirs of the deceased had renewed the contract, and the heirs had instead engaged the services of other lawyers in the intestate proceedings.

Both the respondent trial judge and the Court of Appeals erred in considering the former counsels of the deceased defendant as counsels for the heirs of the deceased. The statement in the decision of the Court of Appeals that "the appearance of the lawyers of their deceased father in court on January 13, 1976 (Annex K) carries the presumption that they were authorized by the heirs of the deceased defendant" is erroneous. As this Court held in People vs. Florendo (77 Phil. 16), "the attorneys for the offended party ceased to be the attorneys for the deceased upon the death of the latter, the principal. " Moreover, such a presumption was not warranted in


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view of the manifestation of said lawyers in open court on November 27, 1975 that they were not representing the heirs of the deceased defendant.

Consequently, when on the same date, November 27, 1975, the respondent trial judge issued an order setting the continuation of the trial of the case on January 13, 1976, with notices sent to Atty. Almase for the plaintiff and Attys. Antigua and Branzuela for the deceased defendant, he acted with grave abuse of discretion amounting to excess of jurisdiction.

It was only at the hearing on January 13, 1976 that the respondent trial judge issued an order substituting the deceased defendant with his fourteen heirs. This was followed with an order authorizing counsel for the plaintiff to present his evidence in the absence of Attys. Antigua and Branzuela, and lastly, an order treating the case as submitted for decision.

In the order of the respondent trial judge dated November 10, 1976, denying petitioner's motion for reconsideration of the order denying her motion for intervention (Annex 1 of the Comment), mention was made of the delayed arrival of Attys. Antigua and Branzuela at the hearing on January 13, 1976 and of their being allowed to cross-examine the plaintiff himself.

The refusal of said former counsels of the deceased defendant to cross-examine the plaintiff was justified —

... in view of the intervening event of appellant's death and the interposition of the equally established principle that the relationship of attorney and client is terminated by the death of the client, as acknowledged by respondent court itself as well as respondents. In the absence of a retainer from the heirs or authorized representatives of his deceased defendant the attorney would have no further power or authority to appear or take any further action in the case, save to inform the court of the client's death and take the necessary steps to safeguard the decedent's rights in the case. (Vda. de Haberer vs. Court of Appeals, May 26, 1981, 104 SCRA 534, 540)

Moreover, as above stated, petitioner had as early as May 5, 1975 filed a petition for letters of administration, and the same was granted in July, 1975.

Section 17 of Rule 3 provides as follows:

Death of party. After a party dies and the claim is not thereby extinguished, the court shag order, upon proper notice, the legal representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30) days, or within such time as may be granted. If the legal representative fails to appear within said time, the court may order the opposing party to procure the appointment of a legal representative of the deceased within a time to be specified by the court, and the representative shall immediately appear for and on behalf of the interest of the deceased. The court charges involved in procuring such appointment, if defrayed by the opposing party, may be recovered as costs. The heirs of the de ceased may be allowed to be substituted for the deceased, without requiring the appointment of an

executor or administrator and the court may appoint guardian ad litem for the minor heirs.

As this Court has held:

... Under the Rule, it is the court that is called upon, after notice of a party's death and the claim is not thereby extinguished, to order upon proper notice the legal representative of the deceased to appear within a period of 30 days or such time as it may grant. Since no administrator of the estate of the deceased appellant had yet been appointed as the same was still pending determination in the Court of First Instance of Quezon City, the motion of the deceased's counsel for the suspension of the running of the period within which to file appellant's brief was well-taken. More, under the Rule, it should have set a period for the substitution of the deceased party with her legal representative or heirs, failing which, the court is called upon to order the opposing party to procure the appointment of a legal representative of the deceased at the cost of the deceased's estate, and such representative shall then 'immediately appear for and on behalf of the interest of the deceased.

Respondent court gravely erred in not following the Rule and requiring the appearance of the legal representative of the deceased and instead dismissing the appeal of the deceased who yet had to be substituted in the pending appeal Thus, it has been held that when a party dies in an action that survives, and no order is issued by the court for the appearance of the legal representative or of the heirs of the deceased in substitution of the deceased, and as a matter of fact no such substitution has ever been effected, the trial held by the court without such legal representatives or heirs and the judgment rendered after such trial are null and void because the court acquired no jurisdiction over the persons of the legal representatives or of the heirs upon whom the trial and the judgment would be binding. (Ordoveza vs. Raymundo, 63 Phil 275 [1936]; Obut vs. Court of Appeals, et al., 70 SCRA 546) (Vda. de Haberer vs. Court of Appeals, supra, p. 541.

Under the said Rule, priority is given to the legal representative of the deceased, that is, the executor or administrator of his estate. It is only in cases of unreasonable delay in the appointment of an executor or administrator, or in cases where the heirs resort to an extrajudicial settlement of the estate, that the court may adopt the alternative of allowing the heirs of the deceased to be substituted for the deceased.

In the case at bar, in view of the pendency of Special Proceeding No. 37-SF Intestate Estate of Pedro Sepulveda, and the pending application of petitioner to be appointed judicial administratrix of the estate, the respondent trial judge should have awaited the appointment of petitioner and granted her motion to substitute the deceased defendant.

While the lower courts correctly held that the death of Pedro Sepulveda did not obliterate his verified Answer to the Complaint filed by private respondent and that the Answer filed by the ten heirs and the Answer filed by the Administratrix were both


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unnecessary, the said heirs or the administratrix could, with leave of court, file an Amended Answer.

In view of the foregoing, the Court rules that the proceedings conducted by the respondent trial judge after the death of the deceased defendant are null and void.

WHEREFORE, the decision of the Court of Appeals is reversed; the petition for certiorari is granted; petitioner is ordered substituted for the deceased defendant, Pedro Sepulveda; and the proceedings conducted by the respondent trial judge after the death of the deceased defendant, including the decision rendered by him on January 28, 1976, are set aside; with costs against private respondent.

SO ORDERED.

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