Civpro Dec 13 and 14, 2015

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G.R. No. 97816 July 24, 1992

MERRILL LYNCH FUTURES, INC., petitioner, vs.HON. COURT OF APPEALS, and the SPOUSES PEDRO M. LARA and ELISA G. LARA, respondents.

NARVASA, C.J.:

The capacity of a foreign corporation to maintain an action in the Philippines against residents thereof, is the principal question in the appellate proceedings at bar. The issue arises from the undisputed facts now to be briefly narrated.

On November 23, 1987, Merrill Lynch Futures, Inc. (hereafter, simply ML FUTURES) filed a complaint with the Regional Trial Court at Quezon City against the Spouses Pedro M. Lara and Elisa G. Lara for the recovery of a debt and interest thereon, damages, and attorney's fees. 1 In its complaint ML FUTURES described itself as —

a) a non-resident foreign corporation, not doing business in the Philippines, duly organized and existing under and by virtue of the laws of the state of Delaware, U.S.A.;" as well as

b) a "futures commission merchant" duly licensed to act as such in the futures markets and exchanges in the United States, . . essentially functioning as a broker . . (executing) orders to buy and sell futures contracts received from its customers on U.S. futures exchanges.

It also defined a "futures contract" as a "contractual commitment to buy and sell a standardized quantity of a particular item at a specified future settlement date and at a price agreed upon, with the purchase or sale being executed on a regulated futures exchange."

In its complaint ML FUTURES alleged the following:

1) that on September 28, 1983 it entered into a Futures Customer Agreement with the defendant spouses (Account No. 138-12161), in virtue of which it agreed to act as the latter's broker for the purchase and sale of futures contracts in the U.S.;

2) that pursuant to the contract, orders to buy and sell futures contracts were transmitted to ML FUTURES by the Lara Spouses "through the facilities of Merrill Lynch Philippines, Inc., a Philippine corporation and a company servicing plaintiffs customers; 2

3) that from the outset, the Lara Spouses "knew and were duly advised that Merrill Lynch Philippines, Inc. was not a broker in futures contracts," and that it "did not have a license from the Securities and Exchange Commission to operate as a commodity trading advisor (i.e., 'an entity which, not being a broker, furnishes advice on commodity futures to persons who trade in futures contracts');

4) that in line with the above mentioned agreement and through said Merrill Lynch Philippines, Inc., the Lara Spouses actively traded in futures contracts, including "stock index futures" for four years or so, i.e., from 1983 to October, 1987, 3 there being more or less regular accounting and corresponding remittances of money (or crediting or debiting) made between the spouses and ML FUTURES;

5) that because of a loss amounting to US$160,749.69 incurred in respect of three (3) transactions involving "index futures," and after setting this off against an amount of US$75,913.42 then owing by ML FUTURES to the Lara Spouses, said spouses became indebted to ML FUTURES for the ensuing balance of US$84,836.27, which the latter asked them to pay;

6) that the Lara Spouses however refused to pay this balance, "alleging that the transactions were null and void because Merrill Lynch Philippines, Inc., the Philippine company servicing accounts of plaintiff, . . had no license to operate as a 'commodity and/or financial futures broker.'"

On the foregoing essential facts, ML FUTURES prayed (1) for a preliminary attachment against defendant spouses' properties "up to the value of at least P2,267,139.50," and (2) for judgment, after trial, sentencing the spouses to pay ML FUTURES:

a) the Philippine peso equivalent of $84,836.27 at the applicable exchanged rate on date of payment, with legal interest from date of demand until full payment;

b) exemplary damages in the sum of at least P500,000.00; and

c) attorney's fees and expenses of litigation as may be proven at the trial.

Preliminary attachment issued ex parte on December 2, 1987, and the defendant spouses were duly served with summons.

They then filed a motion to dismiss dated December 18, 1987 on the grounds that:

(1) plaintiff ML FUTURES had "no legal capacity to sue" and

(2) its "complaint states no cause of action since . . (it) is not the real party in interest."

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In that motion to dismiss, the defendant spouses averred that:

a) although not licensed to do so, ML FUTURES had been doing business in the Philippines "at least for the last four (4) years," this being clear from the very allegations of the complaint; consequently, ML FUTURES is prohibited by law "to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines;" and

b) they had never been informed that Merrill Lynch Philippines, Inc. was not licensed to do business in this country; and contrary to the allegations of the complaint, all their transactions had actually been with MERRILL LYNCH PIERCE FENNER & SMITH, INC., and not with ML FUTURES (Merrill Lynch Futures, Inc.), in proof of which they attached to their motion to dismiss copies of eight (8) agreements, receipts or reminders, etc., executed on standard printed forms of said Merrill Lynch Pierce Fenner & Smith Inc. 4

ML FUTURES filed an OPPOSITION to the defendant spouses' motion to dismiss. In that motion —

a) it drew attention to paragraph 4 of its complaint, admitted by defendants, that the latter "have been actively trading in futures contracts . . . in U.S. futures exchanges from 1983 to 1987," and ask, "If the trading . . . (was) made in U.S., how could plaintiff be doing business in the Philippines?"

b) it also drew attention to a printed form of "Merrill Lynch Futures, Inc." filled out and signed by defendant spouses when they opened an account with ML Futures, in order to supply information about themselves, including their bank's name —

(1) in which appear the following epigraph: "Account introduced by Merrill Lynch International, Inc.," and the following statements, to wit:

This Commodity Trading Advisor (Merrill Lynch, Pierce, Fenner & Smith Philippines, Inc.) is prohibited by the Philippine Securities and Exchange Commission from accepting funds in the trading advisor's name from a client of Merrill Lynch Futures, Inc. for trading commodity interests. All funds in this trading program must be placed with Merrill Lynch Futures, Inc.;

and

. . . It is agreed between MERRILL LYNCH, PIERCE, FENNER & SMITH INC., and other account carrying MERRILL LYNCH entities and their customers that all legal relationships between them will be governed by applicable laws in countries outside the Philippines where sale and purchase transactions take place.

c) and it argued that —

(1) it is not permitted for defendant spouses to present "evidence" in connection with a motion to dismiss based on failure of the complaint to state a cause of action;

(2) even if the documents appended to the motion to dismiss be considered as admissible "evidence," the same would be immaterial since the documents refer to a different account number:138-12136, the defendants' account number with ML FUTURES being 138-12161;

(3) it is a lie for the defendant spouses to assert that they were never informed that Merrill Lynch Philippines, Inc. had not been licensed to do business in the Philippines; and

(4) defendant spouses should not be allowed to "invoke the aid of the court with unclean hands.

The defendant spouses filed a REPLY reaffirming their lack of awareness that Merrill Lynch Philippines, Inc.(formerly registered as Merrill Lynch, Pierce, Fenner & Smith Philippines, Inc.) 5 did not have a license, claiming that they learned of this only from inquiries with the Securities and Exchange Commission which elicited the information that it had denied said corporation's application to operate as a commodity futures trading advisor — a denial subsequently affirmed by the Court of Appeals (Merrill Lynch Philippines, Inc. v. Securities & Exchange Commission, CA-G.R. No. 10821-SP, Nov. 19, 1987). The spouses also submitted additional documents (Annexes J to R) involving transactions with Merrill Lynch Pierce Fenner & Smith, Inc., dating back to 1980, stressing that all but one of the documents "refer to Account No. 138-12161 which is the very account that is involved in the instant complaint."

ML FUTURES filed a Rejoinder alleging it had given the spouses a disclosure statement by which the latter were made aware that the transactions they were agreeing on would take place outside of the Philippines, and that "all funds in the trading program must be placed with Merrill Lynch Futures, Inc."

On January 12, 1988, the Trial Court promulgated an Order sustaining the motion to dismiss, directing the dismissal of the case and discharging the writ of preliminary attachment. It later denied ML FUTURES's motion for reconsideration, by Order dated February 29, 1988. ML FUTURES appealed to the Court of Appeals. 6

In its own decision promulgated on November 27, 1990, 7 the Court of Appeals affirmed the Trial Court's judgment. It declared that the Trial Court had seen "through the charade in the representation of MLPI and the plaintiff that MLPI is only a trading advisor and in fact it is a conduit in the plaintiff's business transactions in the Philippines as a basis for invoking the provisions of Section 133 of the Corporation Code," 8 viz.:

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Sec. 133. Doing business without a license. — No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency in the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

It also declared that the evidence established that plaintiff had in fact been "doing business" in this country in legal contemplation, adverting to Mentholatum v. Mangaliman, 72 Phil. 524, 528-530, and Section 1 of Republic Act No. 5455 reading as follows: 9

Sec. 1. Definition and scope of this ACT . (1) As used in this Act, the term "investment" shall mean equity participation in any enterprise formed, organized, or existing under the laws of the Philippines; and 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 totalling 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 FUNCTIONS NORMALLY INCIDENT TO, AND IN PROGRESSIVE PROSECUTION OF COMMERCIAL GAIN OR OF THE PURPOSE AND OBJECT OF THE BUSINESS ORGANIZATION.

As regards the claim that it was error for the Trial Court to place reliance on the decision of the Court of Appeals in CA-G.R. No. 10821-SP — sustaining the finding of the Securities & Exchange Commission that ML FUTURES was doing business in the Philippines — since that judgment was not yet final and ML FUTURES was not a party to that proceeding, the Court of Appeals ruled that there was no need to belabor the point considering that there was, in any event, "adequate proof of the activities of MLPI . . . which manifestly show that the plaintiff (ML FUTURES) performed a series of business acts, consummated contracts and undertook transactions for the period from 1983 to October 1987," "and because ML FUTURES had done so without license, it consequently had "no legal personality to bring suit in Philippine courts."

Its motion for reconsideration having been denied, 10 ML FUTURES has appealed to this Court on certiorari. Here, it submits the following issues for resolution:

(a) Whether or not the annexes appended by the Laras to their Motion to Dismiss and Reply filed with the Regional Trial Court, but never authenticated or offered, constitute admissible evidence.

(b) Whether or not in the proceedings below, ML FUTURES has been accorded procedural due process.

(c) Whether or not the annexes, assuming them to be admissible, established that ML FUTURES was doing business in the Philippines without a license.

As just stated, the Lara Spouse's motion to dismiss was founded on two (2) grounds: (a) that the plaintiff has no legal capacity to sue, and (b) that the complaint states no cause of action (Sec. 1 [d], and [g], Rule 16, Rules of Court).

As regards the second ground, i.e., that the complaint states no cause of action, the settled doctrine of course is that said ground must appear on the face of the complaint, and its existence may be determined only by the allegations of the complaint, consideration of other facts being proscribed, and any attempt to prove extraneous circumstances not being allowed. 11 The test of the sufficiency of the facts alleged in a complaint as constituting a cause of action is whether or not, admitting the facts alleged, the court might render a valid judgment upon the same in accordance with the prayer of the complaint. 12 Indeed, it is error for a judge to conduct a preliminary hearing and receive evidence on the affirmative defense of failure of the complaint to state a cause of action. 13

The other ground for dismissal relied upon, i.e., that the plaintiff has no legal capacity to sue — may be understood in two senses: one, that the plaintiff is prohibited or otherwise incapacitated by law to institute suit in Philippine Courts, 14 or two, although not otherwise incapacitated in the sense just stated, that it is not a real party in interest. 15 Now, the Lara Spouses contend that ML Futures has no capacity to sue them because the transactions subject of the complaint were had by them, not with the plaintiff ML FUTURES, but with Merrill Lynch Pierce Fenner & Smith, Inc. Evidence is quite obviously needed in this situation, for it is not to be expected that said ground, or any facts from which its existence may be inferred, will be found in the averments of the complaint. When such a ground is asserted in a motion to dismiss, the general rule governing evidence on motions applies. The rule is embodied in Section 7, Rule 133 of the Rules of Court.

Sec. 7. Evidence on motion. — When a motion is based on facts not appearing of record the court may hear the matter on affidavits or depositions presented by the respective parties, but the court may direct that the matter be heard wholly or partly on oral testimony or depositions.

There was, to be sure, no affidavit or deposition attached to the Lara Spouses' motion to dismiss or thereafter proffered in proof of the averments of their motion. The motion

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itself was not verified. What the spouses did do was to refer in their motion to documents which purported to establish that it was not with ML FUTURES that they had theretofore been dealing, but another, distinct entity, Merrill Lynch, Pierce, Fenner & Smith, Inc., copies of which documents were attached to the motion. It is significant that ML FUTURES raised no issue relative to the authenticity of the documents thus annexed to the Laras' motion. In fact, its arguments subsumed the genuineness thereof and even adverted to one or two of them. Its objection was centered on the propriety of taking account of those documents as evidence, considering the established principle that no evidence should be received in the resolution of a motion to dismiss based on an alleged failure of the complaint to state a cause of action.

There being otherwise no question respecting the genuineness of the documents, nor of their relevance to at least one of the grounds for dismissal — i.e., the prohibition on suits in Philippine Courts by foreign corporations doing business in the country without license — it would have been a superfluity for the Court to require prior proof of their authenticity, and no error may be ascribed to the Trial Court in taking account of them in the determination of the motion on the ground, not that the complaint fails to state a cause of action — as regards which evidence is improper and impermissible — but that the plaintiff has no legal capacity to sue — respecting which proof may and should be presented.

Neither may ML FUTURES argue with any degree of tenability that it had been denied due process in the premises. As just pointed out, it was very clear from the outset that the claim of lack of its capacity to sue was being made to rest squarely on the documents annexed thereto, and ML FUTURES had more than ample opportunity to impugn those documents and require their authentication, but did not do so. To sustain its theory that there should have been identification and authentication, and formal offer, of those documents in the Trial Court pursuant to the rules of evidence would be to give unwarranted importance to technicality and make it prevail over the substance of the issue.

The first question then, is, as ML FUTURES formulates it, whether or not the annexes, assuming them to be admissible, establish that (a) ML FUTURES is prohibited from suing in Philippine Courts because doing business in the country without a license, and that (b) it is not a real party in interest since the Lara Spouses had not been doing business with it, but with another corporation, Merrill Lynch, Pierce, Fenner & Smith, Inc.

The Court is satisfied that the facts on record adequately establish that ML FUTURES, operating in the United States, had indeed done business with the Lara Spouses in the Philippines over several years, had done so at all times through Merrill Lynch Philippines, Inc. (MLPI), a corporation organized in this country, and had executed all these transactions without ML FUTURES being licensed to so transact business here, and without MLPI being authorized to operate as a commodity futures trading advisor. These are the factual findings of both the Trial Court and the Court of Appeals. These, too, are the conclusions of the Securities & Exchange Commission which denied MLPI's application to operate as a commodity futures trading advisor, a

denial subsequently affirmed by the Court of Appeals. Prescinding from the proposition that factual findings of the Court of Appeals are generally conclusive this Court has been cited to no circumstance of substance to warrant reversal of said Appellate Court's findings or conclusions in this case.

The Court is satisfied, too, that the Laras did transact business with ML FUTURES through its agent corporation organized in the Philippines, it being unnecessary to determine whether this domestic firm was MLPI (Merrill Lynch Philippines, Inc.) or Merrill Lynch Pierce Fenner & Smith (MLPI's alleged predecessor). The fact is that ML FUTURES did deal with futures contracts in exchanges in the United States in behalf and for the account of the Lara Spouses, and that on several occasions the latter received account documents and money in connection with those transactions.

Given these facts, if indeed the last transaction executed by ML FUTURES in the Laras's behalf had resulted in a loss amounting to US $160,749.69; that in relation to this loss, ML FUTURES had credited the Laras with the amount of US$75,913.42 — which it (ML FUTURES) then admittedly owed the spouses — and thereafter sought to collect the balance, US$84,836.27, but the Laras had refused to pay (for the reasons already above stated), the crucial question is whether or not ML FUTURES may sue in Philippine Courts to establish and enforce its rights against said spouses, in light of the undeniable fact that it had transacted business in this country without being licensed to do so. In other words, if it be true that during all the time that they were transacting with ML FUTURES, the Laras were fully aware of its lack of license to do business in the Philippines, and in relation to those transactions had made payments to, and received money from it for several years, the question is whether or not the Lara Spouses are now estopped to impugn ML FUTURES' capacity to sue them in the courts of the forum.

The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. 16 And the "doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations;" 17 "one who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity." 18 The principle "will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes, chiefly in cases where such person has received the benefits of the contract (Sherwood v. Alvis, 83 Ala 115, 3 So 307, limited and distinguished in Dudley v. Collier, 87 Ala 431, 6 So 304; Spinney v. Miller, 114 Iowa 210, 86 NW 317), where such person has acted as agent for the corporation and has violated his fiduciary obligations as such, and where the statute does not provide that the contract shall be void, but merely fixes a special penalty for violation of the statute. . . ." 19

The doctrine was adopted by this Court as early as 1924 in Asia Banking Corporation v. Standard Products Co.,20 in which the following pronouncement was made: 21

The general rule that in the absence of fraud of person who has contracted or otherwise dealt with an association in such a way as to recognize and in effect admit its legal existence as a corporate

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body is thereby estopped to deny its corporate existence in any action leading out of or involving such contract or dealing, unless its existence is attacked for causes which have arisen since making the contract or other dealing relied on as an estoppel and this applies to foreign as well as domestic corporations. (14 C.J .7; Chinese Chamber of Commerce vs. Pua Te Ching, 14 Phil. 222).

There would seem to be no question that the Laras received benefits generated by their business relations with ML FUTURES. Those business relations, according to the Laras themselves, spanned a period of seven (7) years; and they evidently found those relations to be of such profitability as warranted their maintaining them for that not insignificant period of time; otherwise, it is reasonably certain that they would have terminated their dealings with ML FUTURES much, much earlier. In fact, even as regards their last transaction, in which the Laras allegedly suffered a loss in the sum of US$160,749.69, the Laras nonetheless still received some monetary advantage, for ML FUTURES credited them with the amount of US$75,913.42 then due to them, thus reducing their debt to US$84,836.27. Given these facts, and assuming that the Lara Spouses were aware from the outset that ML FUTURES had no license to do business in this country and MLPI, no authority to act as broker for it, it would appear quite inequitable for the Laras to evade payment of an otherwise legitimate indebtedness due and owing to ML FUTURES upon the plea that it should not have done business in this country in the first place, or that its agent in this country, MLPI, had no license either to operate as a "commodity and/or financial futures broker."

Considerations of equity dictate that, at the very least, the issue of whether the Laras are in truth liable to ML FUTURES and if so in what amount, and whether they were so far aware of the absence of the requisite licenses on the part of ML FUTURES and its Philippine correspondent, MLPI, as to be estopped from alleging that fact as defense to such liability, should be ventilated and adjudicated on the merits by the proper trial court.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 16478 dated November 27, 1990 and its Resolution of March 7, 1991 are REVERSED and SET ASIDE, and the Regional Trial Court at Quezon City, Branch 84, is ORDERED to reinstate Civil Case No. Q-52360 and forthwith conduct a hearing to adjudicate the issues set out in the preceding paragraph on the merits.

SO ORDERED.

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G.R. No. 102223 August 22, 1996

COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTI-TRADE, INC., (formerly ASPAC-ITEC PHILIPPINES, INC.) and FRANCISCO S. AGUIRRE, petitioners, vs.THE COURT OF APPEALS, ITEC INTERNATIONAL, INC., and ITEC, INC., respondents.

TORRES, JR., J.:p

Business Corporations, according to Lord Coke, "have no souls." They do business peddling goods, wares or even services across national boundaries in "souless forms" in quest for profits albeit at times, unwelcomed in these strange lands venturing into uncertain markets and, the risk of dealing with wily competitors.

This is one of the issues in the case at bar.

Contested in this petition for review on Certiorari is the Decision of the Court of Appeals on June 7, 1991, sustaining the RTC Order dated February 22, 1991, denying the petitioners' Motion to Dismiss, and directing the issuance of a writ of preliminary injunction, and its companion Resolution of October 9, 1991, denying the petitioners' Motion for Reconsideration.

Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI, for brevity) and ASPAC MULTI-TRADE INC., (ASPAC, for brevity) are both domestic corporations, while petitioner Francisco S. Aguirre is their President and majority stockholder. Private Respondents ITEC, INC. and/or ITEC, INTERNATIONAL, INC. (ITEC, for brevity) are corporations duly organized and existing under the laws of the State of Alabama, United States of America. There is no dispute that ITEC is a foreign corporation not licensed to do business in the Philippines.

On August 14, 1987, ITEC entered into a contract with petitioner ASPAC referred to as "Representative Agreement". 1 Pursuant to the contract, ITEC engaged ASPAC as its "exclusive representative" in the Philippines for the sale of ITEC's products, in consideration of which, ASPAC was paid a stipulated commission. The agreement was signed by G.A. Clark and Francisco S. Aguirre, presidents of ITEC and ASPAC respectively, for and in behalf of their companies. 2 The said agreement was initially for a term of twenty-four months. After the lapse of the agreed period, the agreement was renewed for another twenty-four months.

Through a "License Agreement" 3 entered into by the same parties on November 10, 1988, ASPAC was able to incorporate and use the name "ITEC" in its own name. Thus , ASPAC Multi-Trade, Inc. became legally and publicly known as ASPAC-ITEC (Philippines).

By virtue of said contracts, ASPAC sold electronic products, exported by ITEC, to their sole customer, the Philippine Long Distance Telephone Company, (PLDT, for brevity).

To facilitate their transactions, ASPAC, dealing under its new appellation, and PLDT executed a document entitled "PLDT-ASPAC/ITEC PROTOCOL" 4 which defined the project details for the supply of ITEC's Interface Equipment in connection with the Fifth Expansion Program of PLDT.

One year into the second term of the parties' Representative Agreement, ITEC decided to terminate the same, because petitioner ASPAC allegedly violated its contractual commitment as stipulated in their agreements. 5

ITEC charges the petitioners and another Philippine Corporation, DIGITAL BASE COMMUNICATIONS, INC. (DIGITAL, for brevity), the President of which is likewise petitioner Aguirre, of using knowledge and information of ITEC's products specifications to develop their own line of equipment and product support, which are similar, if not identical to ITEC's own, and offering them to ITEC's former customer.

On January 31, 1991, the complaint 6 in Civil Case No. 91-294, was filed with the Regional Trial Court of Makati, Branch 134 by ITEC, INC. Plaintiff sought to enjoin, first, preliminarily and then, after trial, permanently; (1) defendants DIGITAL, CMDI, and Francisco Aguirre and their agents and business associates, to cease and desist from selling or attempting to sell to PLDT and to any other party, products which have been copied or manufactured "in like manner, similar or identical to the products, wares and equipment of plaintiff," and (2) defendant ASPAC, to cease and desist from using in its corporate name, letter heads, envelopes, sign boards and business dealings, plaintiff's trademark, internationally known as ITEC; and the recovery from defendants in solidum, damages of at least P500,000.00, attorney's fees and litigation expenses.

In due time, defendants filed a motion to dismiss 7 the complaint on the following grounds:

(1) That plaintiff has no legal capacity to sue as it is a foreign corporation doing business in the Philippines without the required BOI authority and SEC license, and (2) that plaintiff is simply engaged in forum shopping which justifies the application against it of the principle of "forum non conveniens".

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On February 8, 1991, the complaint was amended by virtue of which ITEC INTERNATIONAL, INC. was substituted as plaintiff instead of ITEC, INC. 8

In their Supplemental Motion to Dismiss, 9 defendants took note of the amendment of the complaint and asked the court to consider in toto their motion to dismiss and their supplemental motion as their answer to the amended complaint.

After conducting hearings on the prayer for preliminary injunction, the court a quo on February 22, 1991, issued its Order: 10 (1) denying the motion to dismiss for being devoid of legal merit with a rejection of both grounds relied upon by the defendants in their motion to dismiss, and (2) directing the issuance of a writ of preliminary injunction on the same day.

From the foregoing order, petitioners elevated the case to the respondent Court of Appeals on a Petition forCertiorari and Prohibition 11 under Rule 65 of the Revised Rules of Court, assailing and seeking the nullification and the setting aside of the Order and the Writ of Preliminary Injunction issued by the Regional Trial Court.

The respondent appellate court stated, thus:

We find no reason whether in law or from the facts of record, to disagree with the (lower court's) ruling. We therefore are unable to find in respondent Judge's issuance of said writ the grave abuse of discretion ascribed thereto by the petitioners.

In fine, We find that the petition prima facie does not show that Certiorari lies in the present case and therefore, the petition does not deserve to be given due course.

WHEREFORE, the present petition should be, as it is hereby, denied due course and accordingly, is hereby dismissed. Costs against the petitioners.

SO ORDERED. 12

Petitioners filed a motion for reconsideration 13 on June 7, 1991, which was likewise denied by the respondent court.

WHEREFORE, the present motion for reconsideration should be, as it is hereby, denied for lack of merit. For the same reason, the motion to have the motion for reconsideration set for oral argument likewise should be and is hereby denied.

SO ORDERED. 14

Petitioners are now before us via Petition for Review on Certiorari 15 under Rule 45 of the Revised Rules of Court.

It is the petitioners' submission that private respondents are foreign corporations actually doing business in the Philippines without the requisite authority and license from the Board of Investments and the Securities and Exchange Commission, and thus, disqualified from instituting the present action in our courts. It is their contention that the provisions of the Representative Agreement, petitioner ASPAC executed with private respondent ITEC, are similarly "highly restrictive" in nature as those found in the agreements which confronted the Court in the case of Top-Weld Manufacturing, Inc. vs. ECED S.A. et al., 16 as to reduce petitioner ASPAC to a mere conduit or extension of private respondents in the Philippines.

In that case, we ruled that respondent foreign corporations are doing business in the Philippines because when the respondents entered into the disputed contracts with the petitioner, they were carrying out the purposes for which they were created, i.e., to manufacture and market welding products and equipment. The terms and conditions of the contracts as well as the respondents' conduct indicate that they established within our country a continuous business, and not merely one of a temporary character. The respondents could be exempted from the requirements of Republic Act 5455 if the petitioner is an independent entity which buys and distributes products not only of the petitioner, but also of other manufacturers or transacts business in its name and for its account and not in the name or for the account of the foreign principal. A reading of the agreements between the petitioner and the respondents shows that they are highly restrictive in nature, thus making the petitioner a mere conduit or extension of the respondents.

It is alleged that certain provisions of the "Representative Agreement" executed by the parties are similar to those found in the License Agreement of the parties in the Top-Weld case which were considered as "highly restrictive" by this Court. The provisions in point are:

2.0 Terms and Conditions of Sales.

2.1 Sale of ITEC products shall be at the purchase price set by ITEC from time to time. Unless otherwise expressly agreed to in writing by ITEC the purchase price is net to ITEC and does not include any transportation charges, import charges or taxes into or within the Territory. All orders from customers are subject to formal acceptance by ITEC at its Huntsville, Alabama U.S.A. facility.

xxx xxx xxx

3.0 Duties of Representative

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3.1. REPRESENTATIVE SHALL:

3.1.1. Not represent or offer for sale within the Territory any product which competes with an existing ITEC product or any product which ITEC has under active development.

3.1.2. Actively solicit all potential customers within the Territory in a systematic and business like manner.

3.1.3. Inform ITEC of all request for proposals, requests for bids, invitations to bid and the like within the Territory.

3.1.4. Attain the Annual Sales Goal for the Territory established by ITEC. The Sales Goals for the first 24 months is set forth on Attachment two (2) hereto. The Sales Goal for additional twelve month periods, if any, shall be sent to the Sales Agent by ITEC at the beginning of each period. These Sales Goals shall be incorporated into this Agreement and made a part hereof.

xxx xxx xxx

6.0. Representative as Independent Contractor

xxx xxx xxx

6.2. When acting under this Agreement REPRESENTATIVE is authorized to solicit sales within the Territory on ITEC's behalf but is authorized to bind ITEC only in its capacity as Representative and no other, and then only to specific customers and on terms and conditions expressly authorized by ITEC in writing. 17

Aside from the abovestated provisions, petitioners point out the following matters of record, which allegedly bear witness to the respondents' activities within the Philippines in pursuit of their business dealings:

a. While petitioner ASPAC was the authorized exclusive representative for three (3) years, it solicited from and closed several sales for and on behalf of private respondents as to their products only and no other, to PLDT, worth no less than US $ 15 Million (p. 20, tsn, Feb. 18, 1991);

b. Contract No. 1 (Exhibit for Petitioners) which covered these sales and identified by private respondents' sole witness, Mr. Clarence Long, is not in the name of petitioner ASPAC as such representative, but in the name of private respondent ITEC, INC. (p. 20, tsn, Feb. 18, 1991);

c. The document denominated as "PLDT-ASPAC/ITEC PROTOCOL (Annex C of the original and amended complaints) which defined the responsibilities of the parties thereto as to the supply, installation and maintenance of the ITEC equipment sold under said Contract No. 1 is, as its very title indicates, in the names jointly of the petitioner ASPAC and private respondents;

d. To evidence receipt of the purchase price of US $ 15 Million, private respondent ITEC, Inc. issued in its letter head, a Confirmation of payment dated November 13, 1989 and its Invoice dated November 22, 1989 (Annexes 1 and 2 of the Motion to Dismiss and marked as Exhibits 2 and 3 for the petitioners), both of which were identified by private respondent's sole witness, Mr. Clarence Long (pp. 25-27, tsn, Feb. 18, 1991). 18

Petitioners contend that the above acts or activities belie the supposed independence of petitioner ASPAC from private respondents. "The unrebutted evidence on record below for the petitioners likewise reveal the continuous character of doing business in the Philippines by private respondents based on the standards laid down by this Court in Wang Laboratories, Inc. vs. Hon. Rafael T . Mendoza, et al. 19 and again in TOP-WELD. (supra)" It thus appears that as the respondent Court of Appeals and the trial court's failure to give credence on the grounds relied upon in support of their Motion to Dismiss that petitioners ascribe grave abuse of discretion amounting to an excess of jurisdiction of said courts.

Petitioners likewise argue that since private respondents have no capacity to bring suit here, the Philippines is not the "most convenient forum" because the trial court is devoid of any power to enforce its orders issued or decisions rendered in a case that could not have been commenced to begin with, such that in insisting to assume and exercise jurisdiction over the case below, the trial court had gravely abused its discretion and even actually exceeded its jurisdiction.

As against petitioner's insistence that private respondent is "doing business" in the Philippines, the latter maintains that it is not.

We can discern from a reading of Section 1 (f) (1) and 1 (f) (2) of the Rules and Regulations Implementing the Omnibus Investments Code of 1987, the following:

(1) A foreign firm is deemed not engaged in business in the Philippines if it transacts business through middlemen, acting in their own names, such as indebtors, commercial bookers commercial merchants.

(2) A foreign corporation is deemed not "doing business" if its representative domiciled in the Philippines has an independent

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status in that it transacts business in its name and for its account. 20

Private respondent argues that a scrutiny of its Representative Agreement with the Petitioners will show that although ASPAC was named as representative of ITEC., ASPAC actually acted in its own name and for its own account. The following provisions are particularly mentioned:

3.1.7.1. In the event that REPRESENTATIVE imports directly from ITEC, REPRESENTATIVE will pay for its own account; all customs duties and import fees imposed on any ITEC products; all import expediting or handling charges and expenses imposed on ITEC products; and any stamp tax fees imposed on ITEC.

xxx xxx xxx

4.1. As complete consideration and payment for acting as representative under this Agreement, REPRESENTATIVE shall receive a sales commission equivalent to a per centum of the FOB value of all ITEC equipment sold to customers within the territory as a direct result of REPRESENTATIVE's sales efforts. 21

More importantly, private respondent charges ASPAC of admitting its independence from ITEC by entering and ascribing to provision No. 6 of the Representative Agreement.

6.0 Representative as Independent Contractor

6.1. When performing any of its duties under this Agreement, REPRESENTATIVE shall act as an independent contractor and not as an employee, worker, laborer, partner, joint venturer of ITEC as these terms are defined by the laws, regulations, decrees or the like of any jurisdiction, including the jurisdiction of the United States, the state of Alabama and the Territory. 22

Although it admits that the Representative Agreement contains provisions which both support and belie the independence of ASPAC, private respondent echoes the respondent court's finding that the lower court did not commit grave abuse of discretion nor acted in excess of jurisdiction when it found that the ground relied upon by the petitioners in their motion to dismiss does not appear to be indubitable. 23

The issues before us now are whether or not private respondent ITEC is an unlicensed corporation doing business in the Philippines, and if it is, whether or not this fact bars it from invoking the injunctive authority of our courts.

Considering the above, it is necessary to state what is meant by "doing business" in the Philippines. Section 133 of the Corporation Code, provides that "No foreign corporation, transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine Courts or administrative tribunals on any valid cause of action recognized under Philippine laws." 24

Generally, a "foreign corporation" has no legal existence within the state in which it is foreign. This proceeds from the principle that juridical existence of a corporation is confined within the territory of the state under whose laws it was incorporated and organized, and it has no legal status beyond such territory. Such foreign corporation may be excluded by any other state from doing business within its limits, or conditions may be imposed on the exercise of such privileges. 25 Before a foreign corporation can transact business in this country, it must first obtain a license to transact business in the Philippines, and a certificate from the appropriate government agency. If it transacts business in the Philippines without such a license, it shall not be permitted to maintain or intervene in any action, suit, or proceeding in any court or administrative agency of the Philippines, but it may be sued on any valid cause of action recognized under Philippine laws. 26

In a long line of decisions, this Court has not altogether prohibited foreign corporation not licensed to do business in the Philippines from suing or maintaining an action in Philippine Courts. What it seeks to prevent is a foreign corporation doing business in the Philippines without a licensed from gaining access to Philippine Courts. 27

The purpose of the law in requiring that foreign corporations doing business in the Philippines be licensed to do so and that they appoint an agent for service of process is to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. The object is not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking steps necessary to render it amenable to suit in the local courts. 28 The implication of the law is that it was never the purpose of the legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. 29

There is no exact rule or governing principle as to what constitutes "doing" or "engaging" or "transacting" business. Indeed, such case must be judged in the light of its peculiar circumstances, upon its peculiar facts and upon the language of the statute applicable. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized. 30

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Article 44 of the Omnibus Investments Code of 1987 defines the phrase to include:

soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity or commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.

Thus, a foreign corporation with a settling agent in the Philippines which issued twelve marine policies covering different shipments to the Philippines 31 and a foreign corporation which had been collecting premiums on outstanding policies 32 were regarded as doing business here.

The same rule was observed relating to a foreign corporation with an "exclusive distributing agent" in the Philippines, and which has been selling its products here since 1929, 33 and a foreign corporation engaged in the business of manufacturing and selling computers worldwide, and had installed at least 26 different products in several corporations in the Philippines, and allowed its registered logo and trademark to be used and made it known that there exists a designated distributor in the Philippines. 34

In Georg Grotjahn GMBH and Co. vs. Isnani, 35 it was held that the uninterrupted performance by a foreign corporation of acts pursuant to its primary purposes and functions as a regional area headquarters for its home office, qualifies such corporation as one doing business in the country.

These foregoing instances should be distinguished from a single or isolated transaction or occasional, incidental, or casual transactions, which do not come within the meaning of the law, 36 for in such case, the foreign corporation is deemed not engaged in business in the Philippines.

Where a single act or transaction, however, is not merely incidental or casual but indicates the foreign 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. 37

In determining whether a corporation does business in the Philippines or not, aside from their activities within the forum, reference may be made to the contractual agreements entered into by it with other entities in the country.

Thus, in the Top-Weld case (supra), the foreign corporation's LICENSE AND TECHNICAL AGREEMENT and DISTRIBUTOR AGREEMENT with their local contacts were made the basis of their being regarded by this Tribunal as corporations doing business in the country. Likewise, in Merill Lynch Futures, Inc. vs. Court of Appeals, etc. 38 the FUTURES CONTRACT entered into by the petitioner foreign corporation weighed heavily in the court's ruling.

With the abovestated precedents in mind, we are persuaded to conclude that private respondent had been "engaged in" or "doing business" in the Philippines for some time now. This is the inevitable result after a scrutiny of the different contracts and agreements entered into by ITEC with its various business contacts in the country, particularly ASPAC and Telephone Equipment Sales and Services, Inc. (TESSI, for brevity). The latter is a local electronics firm engaged by ITEC to be its local technical representative, and to create a service center for ITEC products sold locally. Its arrangements, with these entities indicate convincingly ITEC's purpose to bring about the situation among its customers and the general public that they are dealing directly with ITEC, and that ITEC is actively engaging in business in the country.

In its Master Service Agreement 39 with TESSI, private respondent required its local technical representative to provide the employees of the technical and service center with ITEC identification cards and business cards, and to correspond only on ITEC, Inc., letterhead. TESSI personnel are instructed to answer the telephone with "ITEC Technical Assistance Center.", such telephone being listed in the telephone book under the heading of ITEC Technical Assistance Center, and all calls being recorded and forwarded to ITEC on a weekly basis.

What is more, TESSI was obliged to provide ITEC with a monthly report detailing the failure and repair of ITEC products, and to requisition monthly the materials and components needed to replace stock consumed in the warranty repairs of the prior month.

A perusal of the agreements between petitioner ASPAC and the respondents shows that there are provisions which are highly restrictive in nature, such as to reduce petitioner ASPAC to a mere extension or instrument of the private respondent.

The "No Competing Product" provision of the Representative Agreement between ITEC and ASPAC provides: "The Representative shall not represent or offer for sale within the Territory any product which competes with an existing ITEC product or any product which ITEC has under active development." Likewise pertinent is the following provision: "When acting under this Agreement, REPRESENTATIVE is authorized to solicit sales within the Territory on ITEC's behalf but is authorized to bind ITEC only in its capacity as Representative and no other, and then only to specific

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customers and on terms and conditions expressly authorized by ITEC in writing."

When ITEC entered into the disputed contracts with ASPAC and TESSI, they were carrying out the purposes for which it was created, i.e., to market electronics and communications products. The terms and conditions of the contracts as well as ITEC's conduct indicate that they established within our country a continuous business, and not merely one of a temporary character. 40

Notwithstanding such finding that ITEC is doing business in the country, petitioner is nonetheless estopped from raising this fact to bar ITEC from instituting this injunction case against it.

A foreign corporation doing business in the Philippines may sue in Philippine Courts although not authorized to do business here against a Philippine citizen or entity who had contracted with and benefited by said corporation. 41 To put it in another way, a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. And the doctrine of estoppel to deny corporate existence applies to a foreign as well as to domestic corporations. 42 One who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity: The principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes chiefly in cases where such person has received the benefits of the contract. 43

The rule is deeply rooted in the time-honored axiom of Commodum ex injuria sua non habere debet — no person ought to derive any advantage of his own wrong. This is as it should be for as mandated by law, "every person must in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." 44

Concededly, corporations act through agents, like directors and officers. Corporate dealings must be characterized by utmost good faith and fairness. Corporations cannot just feign ignorance of the legal rules as in most cases, they are manned by sophisticated officers with tried management skills and legal experts with practiced eye on legal problems. Each party to a corporate transaction is expected to act with utmost candor and fairness and, thereby allow a reasonable proportion between benefits and expected burdens. This is a norm which should be observed where one or the other is a foreign entity venturing in a global market.

As observed by this Court in TOP-WELD (supra), viz:

The parties are charged with knowledge of the existing law at the time they enter into a contract and at the time it is to become operative. (Twiehaus v.

Rosner, 245 SW 2d 107; Hall v. Bucher, 227 SW 2d 98). Moreover, a person is presumed to be more knowledgeable about his own state law than his alien or foreign contemporary. In this case, the record shows that, at least, petitioner had actual knowledge of the applicability of R.A. No. 5455 at the time the contract was executed and at all times thereafter. This conclusion is compelled by the fact that the same statute is now being propounded by the petitioner to bolster its claim. We, therefore sustain the appellate court's view that "it was incumbent upon TOP-WELD to know whether or not IRTI and ECED were properly authorized to engage in business in the Philippines when they entered into the licensing and distributorship agreements." The very purpose of the law was circumvented and evaded when the petitioner entered into said agreements despite the prohibition of R.A. No. 5455. The parties in this case being equally guilty of violating R.A. No. 5455, they are in pari delicto, in which case it follows as a consequence that petitioner is not entitled to the relief prayed for in this case.

The doctrine of lack of capacity to sue based on the failure to acquire a local license is based on considerations of sound public policy. The license requirement was imposed to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. It was never intended to favor domestic corporations who enter into solitary transactions with unwary foreign firms and then repudiate their obligations simply because the latter are not licensed to do business in this country. 45

In Antam Consolidated Inc. vs. Court of Appeals, et al. 46 we expressed our chagrin over this commonly used scheme of defaulting local companies which are being sued by unlicensed foreign companies not engaged in business in the Philippines to invoke the lack of capacity to sue of such foreign companies. Obviously, the same ploy is resorted to by ASPAC to prevent the injunctive action filed by ITEC to enjoin petitioner from using knowledge possibly acquired in violation of fiduciary arrangements between the parties.

By entering into the "Representative Agreement" with ITEC, Petitioner is charged with knowledge that ITEC was not licensed to engage in business activities in the country, and is thus estopped from raising in defense such incapacity of ITEC, having chosen to ignore or even presumptively take advantage of the same.

In Top-Weld, we ruled that a foreign corporation may be exempted from the license requirement in order to institute an action in our courts if its representative in the country maintained an independent status during the existence of the disputed contract. Petitioner is deemed to have acceded to such independent character when it entered into the Representative Agreement with ITEC, particularly, provision 6.2 (supra).

Petitioner's insistence on the dismissal of this action due to the application, or non application, of the private international law rule of forum non

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conveniens defies well-settled rules of fair play. According to petitioner, the Philippine Court has no venue to apply its discretion whether to give cognizance or not to the present action, because it has not acquired jurisdiction over the person of the plaintiff in the case, the latter allegedly having no personality to sue before Philippine Courts. This argument is misplaced because the court has already acquired jurisdiction over the plaintiff in the suit, by virtue of his filing the original complaint. And as we have already observed, petitioner is not at liberty to question plaintiff's standing to sue, having already acceded to the same by virtue of its entry into the Representative Agreement referred to earlier.

Thus, having acquired jurisdiction, it is now for the Philippine Court, based on the facts of the case, whether to give due course to the suit or dismiss it, on the principle of forum non convenience. 47 Hence, the Philippine Court may refuse to assume jurisdiction in spite of its having acquired jurisdiction. Conversely, the court may assume jurisdiction over the case if it chooses to do so; provided, that the following requisites are met: 1) That the Philippine Court is one to which the parties may conveniently resort to; 2) That the Philippine Court is in a position to make an intelligent decision as to the law and the facts; and, 3) That the Philippine Court has or is likely to have power to enforce its decision. 48

The aforesaid requirements having been met, and in view of the court's disposition to give due course to the questioned action, the matter of the present forum not being the "most convenient" as a ground for the suit's dismissal, deserves scant consideration.

IN VIEW OF THE FOREGOING PREMISES, the instant Petition is hereby DISMISSED. The decision of the Court of Appeals dated June 7, 1991, upholding the RTC Order dated February 22, 1991, denying the petitioners' Motion to Dismiss, and ordering the issuance of the Writ of Preliminary Injunction, is hereby affirmed in toto.

SO ORDERED.

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G.R. No. 113074 January 22, 1997

ALFRED HAHN, petitioner, vs.COURT OF APPEALS and BAYERSCHE MOTOREN WERKE AKTIENGSELLSCHAFT (BMW), respondents.

MENDOZA, J.:

This is a petition for review of the decision 1 of the Court of Appeals dismissing a complaint for specific performance which petitioner had filed against private respondent on the ground that the Regional Trial Court of Quezon City did not acquire jurisdiction over private respondent, a nonresident foreign corporation, and of the appellate court's order denying petitioner's motion for reconsideration.

The following are the facts:

Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila." On the other hand, private respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the laws of the former Federal Republic of Germany, with principal office at Munich, Germany.

On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment with Special Power of Attorney," which reads in full as follows:

WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark and device in the Philippines which ASSIGNOR uses and has been using on the products manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized exclusive Dealer of the ASSIGNEE in the Philippines, the same being evidenced by certificate of registration issued by the Director of Patents on 12 December 1963 and is referred to as Trademark No. 10625;

WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said transfer of the said BMW trademark and device in favor of the ASSIGNEE herein with the Philippines Patent Office;

NOW THEREFORE, in view of the foregoing and in consideration of the stipulations hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in favor of the ASSIGNEE under the following terms and conditions:

1. The ASSIGNEE shall take appropriate steps against any user other than ASSIGNOR or infringer of the BMW trademark in the Philippines; for such

purpose, the ASSIGNOR shall inform the ASSIGNEE immediately of any such use or infringement of the said trademark which comes to his knowledge and upon such information the ASSIGNOR shall automatically act as Attorney-In-Fact of the ASSIGNEE for such case, with full power, authority and responsibility to prosecute unilaterally or in concert with ASSIGNEE, any such infringer of the subject mark and for purposes hereof the ASSIGNOR is hereby named and constituted as ASSIGNEE's Attorney-In-Fact, but any such suit without ASSIGNEE's consent will exclusively be the responsibility and for the account of the ASSIGNOR,

2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has been usual in the past without a formal contract, and for that purpose, the dealership of ASSIGNOR shall cover the ASSIGNEE's complete production program with the only limitation that, for the present, in view of ASSIGNEE's limited production, the latter shall not be able to supply automobiles to ASSIGNOR.

Per the agreement, the parties "continue[d] business relations as has been usual in the past without a formal contract." But on February 16, 1993, in a meeting with a BMW representative and the president of Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW cars and products to CMC, which had expressed interest in acquiring the same. On February 24, 1993, petitioner received confirmation of the information from BMW which, in a letter, expressed dissatisfaction with various aspects of petitioner's business, mentioning among other things, decline in sales, deteriorating services, and inadequate showroom and warehouse facilities, and petitioner's alleged failure to comply with the standards for an exclusive BMW dealer. 2 Nonetheless, BMW expressed willingness to continue business relations with the petitioner on the basis of a "standard BMW importer" contract, otherwise, it said, if this was not acceptable to petitioner, BMW would have no alternative but to terminate petitioner's exclusive dealership effective June 30, 1993.

Petitioner protested, claiming that the termination of his exclusive dealership would be a breach of the Deed of Assignment. 3 Hahn insisted that as long as the assignment of its trademark and device subsisted, he remained BMW's exclusive dealer in the Philippines because the assignment was made in consideration of the exclusive dealership. In the same letter petitioner explained that the decline in sales was due to lower prices offered for BMW cars in the United States and the fact that few customers returned for repairs and servicing because of the durability of BMW parts and the efficiency of petitioner's service.

Because of Hahn's insistence on the former business relation, BMW withdrew on March 26, 1993 its offer of a "standard importer contract" and terminated the exclusive dealer relationship effective June 30, 1993. 4 At a conference of BMW Regional Importers held on April 26, 1993 in Singapore, Hahn was surprised to find Alvarez among those invited from the Asian region. On April 29, 1993, BMW proposed that Hahn and CMC jointly import and distribute BMW cars and parts.

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Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for specific performance and damages against BMW to compel it to continue the exclusive dealership. Later he filed an amended complaint to include an application for temporary restraining order and for writs of preliminary, mandatory and prohibitory injunction to enjoin BMW from terminating his exclusive dealership. Hahn's amended complaint alleged in pertinent parts:

2. Defendant [BMW] is a foreign corporation doing business in the Philippines with principal offices at Munich, Germany. It may be served with summons and other court processes through the Secretary of the Department of Trade and Industry of the Philippines. . . .

xxx xxx xxx

5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of Assignment with Special Power of Attorney covering the trademark and in consideration thereof, under its first whereas clause, Plaintiff was duly acknowledged as the "exclusive Dealer of the Assignee in the Philippines. . . .

xxx xxx xxx

8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without any monetary contribution from defendant BMW, established BMW's goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff has invested a lot of money and resources in order to single-handedly compete against other motorcycle and car companies. . . . Moreover, Plaintiff has built buildings and other infrastructures such as service centers and showrooms to maintain and promote the car and products of defendant BMW.

xxx xxx xxx

10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was willing to maintain with Plaintiff a relationship but only "on the basis of a standard BMW importer contract as adjusted to reflect the particular situation in the Philippines" subject to certain conditions, otherwise, defendant BMW would terminate Plaintiffs exclusive dealership and any relationship for cause effective June 30, 1993. . . .

xxx xxx xxx

15. The actuations of defendant BMW are in breach of the assignment agreement between itself and plaintiff since the consideration for the assignment of the BMW trademark is the continuance of the exclusive dealership agreement. It thus, follows that the exclusive dealership should

continue for so long as defendant BMW enjoys the use and ownership of the trademark assigned to it by Plaintiff.

The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104 of the Quezon City Regional Trial Court, which on June 14, 1993 issued a temporary restraining order. Summons and copies of the complaint and amended complaint were thereafter served on the private respondent through the Department of Trade and Industry, pursuant to Rule 14, §14 of the Rules of Court. The order, summons and copies of the complaint and amended complaint were later sent by the DTI to BMW via registered mail on June 15, 1993 5 and received by the latter on June 24, 1993.

On June 17, 1993, without proof of service on BMW, the hearing on the application for the writ of preliminary injunction proceeded ex parte, with petitioner Hahn testifying. On June 30, 1993, the trial court issued an order granting the writ of preliminary injunction upon the filing of a bond of P100,000.00. On July 13, 1993, following the posting of the required bond, a writ of preliminary injunction was issued.

On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did not acquire jurisdiction over it through the service of summons on the Department of Trade and Industry, because it (BMW) was a foreign corporation and it was not doing business in the Philippines. It contended that the execution of the Deed of Assignment was an isolated transaction; that Hahn was not its agent because the latter undertook to assemble and sell BMW cars and products without the participation of BMW and sold other products; and that Hahn was an indentor or middleman transacting business in his own name and for his own account.

Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in the Philippines through him as its agent, as shown by the fact that BMW invoices and order forms were used to document his transactions; that he gave warranties as exclusive BMW dealer; that BMW officials periodically inspected standards of service rendered by him; and that he was described in service booklets and international publications of BMW as a "BMW Importer" or "BMW Trading Company" in the Philippines.

The trial court 6 deferred resolution of the motion to dismiss until after trial on the merits for the reason that the grounds advanced by BMW in its motion did not seem to be indubitable.

Without seeking reconsideration of the aforementioned order, BMW filed a petition for certiorari with the Court of Appeals alleging that:

I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE WRIT OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR THE ISSUANCE THEREOF.

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II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION OF THE MOTION TO DISMISS ON THE GROUND OF LACK OF JURISDICTION, AND THEREBY FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.

BMW asked for the immediate issuance of a temporary restraining order and, after hearing, for a writ of preliminary injunction, to enjoin the trial court from proceeding further in Civil Case No. Q-93-15933. Private respondent pointed out that, unless the trial court's order was set aside, it would be forced to submit to the jurisdiction of the court by filing its answer or to accept judgment in default, when the very question was whether the court had jurisdiction over it.

The Court of Appeals enjoined the trial court from hearing petitioner's complaint. On December 20, 1993, it rendered judgment finding the trial court guilty of grave abuse of discretion in deferring resolution of the motion to dismiss. It stated:

Going by the pleadings already filed with the respondent court before it came out with its questioned order of July 26, 1993, we rule and so hold that petitioner's (BMW) motion to dismiss could be resolved then and there, and that the respondent judge's deferment of his action thereon until after trial on the merit constitutes, to our mind, grave abuse of discretion.

xxx xxx xxx

. . . [T]here is not much appreciable disagreement as regards the factual matters relating to the motion to dismiss. What truly divide (sic) the parties and to which they greatly differ is the legal conclusions they respectively draw from such facts, (sic) with Hahn maintaining that on the basis thereof, BMW is doing business in the Philippines while the latter asserts that it is not.

Then, after stating that any ruling which the trial court might make on the motion to dismiss would anyway be elevated to it on appeal, the Court of Appeals itself resolved the motion. It ruled that BMW was not doing business in the country and, therefore, jurisdiction over it could not be acquired through service of summons on the DTI pursuant to Rule 14, §14. 'The court upheld private respondent's contention that Hahn acted in his own name and for his own account and independently of BMW, based on Alfred Hahn's allegations that he had invested his own money and resources in establishing BMW's goodwill in the Philippines and on BMW's claim that Hahn sold products other than those of BMW. It held that petitioner was a mere indentor or broker and not an agent through whom private respondent BMW transacted business in the Philippines. Consequently, the Court of Appeals dismissed petitioner's complaint against BMW.

Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding that the trial court gravely abused its discretion in deferring action on the motion to

dismiss and (2) in finding that private respondent BMW is not doing business in the Philippines and, for this reason, dismissing petitioner's case.

Petitioner's appeal is well taken. Rule 14, §14 provides:

§14. Service upon private foreign corporations. — If the defendant is a foreign corporation, or a nonresident joint stock company or association, doing business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines. (Emphasis added).

What acts are considered "doing business in the Philippines" are enumerated in §3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) as follows: 7

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 eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines;and any other act or acts that imply a continuity 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)

Thus, the phrase includes "appointing representatives or distributors in the Philippines" but not when the representative or distributor "transacts business in its name and for its own account." In addition, §1(f)(1) of the Rules and Regulations implementing (IRR) the Omnibus Investment Code of 1987 (E.O. No. 226) provided:

(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44 of the Code. In particular, "doing business" includes:

(1) . . . A foreign firm which does business through middlemen acting in their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines.

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The question is whether petitioner Alfred Hahn is the agent or distributor in the Philippines of private respondent BMW. If he is, BMW may be considered doing business in the Philippines and the trial court acquired jurisdiction over it (BMW) by virtue of the service of summons on the Department of Trade and Industry. Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of BMW cars and products, BMW, a foreign corporation, is not considered doing business in the Philippines within the meaning of the Foreign Investments Act of 1991 and the IRR, and the trial court did not acquire jurisdiction over it (BMW).

The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for his own account and not as agent or distributor in the Philippines of BMW on the ground that "he alone had contacts with individuals or entities interested in acquiring BMW vehicles. Independence characterizes Hahn's undertakings, for which reason he is to be considered, under governing statutes, as doing business." (p. 13) In support of this conclusion, the appellate court cited the following allegations in Hahn's amended complaint:

8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without any monetary contributions from defendant BMW, established BMW's goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff invested a lot of money and resources in order to single-handedly compete against other motorcycle and car companies. . . . Moreover, Plaintiff has built buildings and other infrastructures such as service centers and showrooms to maintain and promote the car and products of defendant BMW.

As the above quoted allegations of the amended complaint show, however, there is nothing to support the appellate court's finding that Hahn solicited orders alone and for his own account and without "interference from, let alone direction of, BMW." (p. 13) To the contrary, Hahn claimed he took orders for BMW cars and transmitted them to BMW. Upon receipt of the orders, BMW fixed the downpayment and pricing charges, notified Hahn of the scheduled production month for the orders, and reconfirmed the orders by signing and returning to Hahn the acceptance sheets. Payment was made by the buyer directly to BMW. Title to cars purchased passed directly to the buyer and Hahn never paid for the purchase price of BMW cars sold in the Philippines. Hahn was credited with a commission equal to 14% of the purchase price upon the invoicing of a vehicle order by BMW. Upon confirmation in writing that the vehicles had been registered in the Philippines and serviced by him, Hahn received an additional 3% of the full purchase price. Hahn performed after-sale services, including warranty services, for which he received reimbursement from BMW. All orders were on invoices and forms of BMW. 8

These allegations were substantially admitted by BMW which, in its petition for certiorari before the Court of Appeals, stated: 9

9.4. As soon as the vehicles are fully manufactured and full payment of the purchase prices are made, the vehicles are shipped to the Philippines. (The

payments may be made by the purchasers or third-persons or even by Hahn.) The bills of lading are made up in the name of the purchasers, but Hahn-Manila is therein indicated as the person to be notified.

9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the purchasers.

9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a commission of fourteen percent (14%) of the full purchase price thereof, and as soon as he confirms in writing that the vehicles have been registered in the Philippines and have been serviced by him, he will receive an additional three percent (3%) of the full purchase prices as commission.

Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made.

As to the service centers and showrooms which he said he had put up at his own expense, Hahn said that he had to follow BMW specifications as exclusive dealer of BMW in the Philippines. According to Hahn, BMW periodically inspected the service centers to see to it that BMW standards were maintained. Indeed, it would seem from BMW's letter to Hahn that it was for Hahn's alleged failure to maintain BMW standards that BMW was terminating Hahn's dealership.

The fact that Hahn invested his own money to put up these service centers and showrooms does not necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the record which suggest that BMW exercised control over Hahn's activities as a dealer and made regular inspections of Hahn's premises to enforce compliance with BMW standards and specifications. 10 For example, in its letter to Hahn dated February 23, 1996, BMW stated:

In the last years we have pointed out to you in several discussions and letters that we have to tackle the Philippine market more professionally and that we are through your present activities not adequately prepared to cope with the forthcoming challenges. 11

In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.

This case fits into the mould of Communications Materials, Inc. v. Court of Appeals, 12 in which the foreign corporation entered into a "Representative Agreement" and a "Licensing Agreement" with a domestic corporation, by virtue of which the latter was appointed "exclusive representative" in the Philippines for a stipulated commission. Pursuant to these contracts, the domestic corporation sold products exported by the foreign corporation and put up a service center for the products sold locally. This Court held that these acts constituted doing business in the

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Philippines. The arrangement showed that the foreign corporation's purpose was to penetrate the Philippine market and establish its presence in the Philippines.

In addition, BMW held out private respondent Hahn as its exclusive distributor in the Philippines, even as it announced in the Asian region that Hahn was the "official BMW agent" in the Philippines. 13

The Court of Appeals also found that petitioner Alfred Hahn dealt in other products, and not exclusively in BMW products, and, on this basis, ruled that Hahn was not an agent of BMW. (p. 14) This finding is based entirely on allegations of BMW in its motion to dismiss filed in the trial court and in its petition for certiorari before the Court of Appeals. 14 But this allegation was denied by Hahn 15 and therefore the Court of Appeals should not have cited it as if it were the fact.

Indeed this is not the only factual issue raised, which should have indicated to the Court of Appeals the necessity of affirming the trial court's order deferring resolution of BMW's motion to dismiss. Petitioner alleged that whether or not he is considered an agent of BMW, the fact is that BMW did business in the Philippines because it sold cars directly to Philippine buyers. 16 This was denied by BMW, which claimed that Hahn was not its agent and that, while it was true that it had sold cars to Philippine buyers, this was done without solicitation on its part. 17

It is not true then that the question whether BMW is doing business could have been resolved simply by considering the parties' pleadings. There are genuine issues of facts which can only be determined on the basis of evidence duly presented. BMW cannot short circuit the process on the plea that to compel it to go to trial would be to deny its right not to submit to the jurisdiction of the trial court which precisely it denies. Rule 16, §3 authorizes courts to defer the resolution of a motion to dismiss until after the trial if the ground on which the motion is based does not appear to be indubitable. Here the record of the case bristles with factual issues and it is not at all clear whether some allegations correspond to the proof.

Anyway, private respondent need not apprehend that by responding to the summons it would be waiving its objection to the trial court's jurisdiction. It is now settled that, for purposes of having summons served on a foreign corporation in accordance with Rule 14, §14, it is sufficient that it be alleged in the complaint that the foreign corporation is doing business in the Philippines. The court need not go beyond the allegations of the complaint in order to determine whether it has Jurisdiction. 18 A determination that the foreign corporation is doing business is only tentative and is made only for the purpose of enabling the local court to acquire jurisdiction over the foreign corporation through service of summons pursuant to Rule 14, §14. Such determination does not foreclose a contrary finding should evidence later show that it is not transacting business in the country. As this Court has explained:

This is not to say, however, that the petitioner's right to question the jurisdiction of the court over its person is now to be deemed a foreclosed matter. If it is true, as Signetics claims, that its only involvement in the Philippines was through a passive investment in Sigfil, which it even later

disposed of, and that TEAM Pacific is not its agent, then it cannot really be said to be doing business in the Philippines. It is a defense, however, that requires the contravention of the allegations of the complaint, as well as a full ventilation, in effect, of the main merits of the case, which should not thus be within the province of a mere motion to dismiss. So, also, the issue posed by the petitioner as to whether a foreign corporation which has done business in the country, but which has ceased to do business at the time of the filing of a complaint, can still be made to answer for a cause of action which accrued while it was doing business, is another matter that would yet have to await the reception and admission of evidence. Since these points have seasonably been raised by the petitioner, there should be no real cause for what may understandably be its apprehension,i.e., that by its participation during the trial on the merits, it may, absent an invocation of separate or independent reliefs of its own, be considered to have voluntarily submitted itself to the court's jurisdiction. 19

Far from committing an abuse of discretion, the trial court properly deferred resolution of the motion to dismiss and thus avoided prematurely deciding a question which requires a factual basis, with the same result if it had denied the motion and conditionally assumed jurisdiction. It is the Court of Appeals which, by ruling that BMW is not doing business on the basis merely of uncertain allegations in the pleadings, disposed of the whole case with finality and thereby deprived petitioner of his right to be heard on his cause of action. Nor was there justification for nullifying the writ of preliminary injunction issued by the trial court. Although the injunction was issued ex parte, the fact is that BMW was subsequently heard on its defense by filing a motion to dismiss.

WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is REMANDED to the trial court for further proceedings.

SO ORDERED.

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G.R. No. 143723 June 28, 2001

LITONJUA GROUP OF COMPANIES, EDDIE LITONJUA and DANILO LITONJUA, petitioners, vs.TERESITA VIGAN, respondent.

GONZAGA-REYES, J.:

In this petition for review on certiorari, petitioners seek to annul and set aside the (1) decision1 of the respondent Court of Appeals dated March 20, 2000 which reversed and set aside the decision of the National Labor Relations Commission finding respondent guilty of abandonment and (2) resolution2 dated June 19, 2000 denying petitioners’ motion for reconsideration.

The factual backdrop as found by the respondent Court of Appeals is as follows:3

"As to the factual milieu, the contending parties have diametrically opposed versions. Vigan tells it this way; She was hired by the Litonjua Group of Companies on February 2, 1979 as telex operator. Later, she was assigned as accounting and payroll clerk under the supervision of Danilo Litonjua. She had been performing well until 1995, when Danilo Litonjua who was already naturally a (sic) very ill-tempered, ill-mouthed and violent employer, became more so due to business problems. In fact, a complaint letter (Annex "I", p. 85, rollo) was sent by the Litonjua Employees to the father and his junior regarding the boorishness of their kin Danilo Litonjua but apparently the management just glossed over this.1âwphi1.nêt

Danilo Litonjua became particularly angry with Vigan and threw a stapler at her when she refused to give him money upon the instructions of Eddie Litonjua. From then on, Danilo Litonjua had been rabid towards her – berated and bad-mouthed her, calling her a "mental case" "psycho", "sira ulo", etc. and even threatened to hit her for some petty matters. Danilo Litonjua even went so far as to lock her up in the comfort room and preventing others to help her out. Not contented, Danilo Litonjua would order the security guards to forcibly eject her or prevent her entry in the office premises whenever he was angry. This occurred twice in July of 1995, first on the 5th then on the 7th. The incidents prompted Vigan to write Danilo Litonjua letters asking why she was treated so and what was her fault (Annexes "F", "G" & "K", pp. 82, 83 & 87, rollo). She suspected that Danilo Litonjua wanted her out for he would not let her inside the office such that even while abroad he would order the guards by phone to bar her. She pleaded for forgiveness or at least for explanation but it fell on deaf ears.

Later, Danilo Litonjua changed tack and charged that Vigan had been hysterical, emotional and created scenes at the office. He even required her to secure psychiatric assistance. (Annexes "L" to "N", pp. 88-90, rollo) But

despite proof that she was not suffering from psychosis or organic brain syndrome as certified to by a Psychiatrist of Danilo Litonjua’s choice (Annex "H", p. 84, rollo), still she was denied by the guards entry to her work upon instructions again of Danilo Litonjua. Left with no alternative, Vigan filed this case for illegal dismissal, alleging she was receiving a monthly salary of P8,000.00 at the time she was unlawfully terminated.

The Litonjuas have a different version. They negate the existence of the Litonjua Group of Companies and the connection of Eduardo Litonjua thereto. They contend that Vigan was employed by ACT Theater, Inc., where Danilo Litonjua is a Director. They dispute the charge of illegal dismissal for it was Vigan who ceased to report for work despite notices and likewise contest the P8,000.00 monthly salary alleged by Vigan, claiming it was merely P6,850.00.

They claim that Vigan was a habitual absentee specially on Tuesdays that fell within three days before and after the "15th" day and "30th" day of every month. Her performance had been satisfactory, but then starting March 15, 1996 she had become emotional, hysterical, uncontrollable and created disturbances at the office with her crying and shouting for no reason at all. The incident was repeated on April 3, 1996, May 24, 1996 and on June 4, 1996. Thus alarmed, on July 24, 1996 Vigan was required by management to undergo medical and psychological examination at the company’s expense and naming three doctors to attend to her. Dr. Baltazar Reyes and Dr. Tony Perlas of the Philippine General Hospital and Dr. Lourdes Ignacio of the Medical Center Manila. But they claim that Vigan refused to comply.

On August 2, 1996, Vigan again had another breakdown, hysterical, shouting and crying as usual for about an hour, and then she just left the premises without a word. The next day, August 3, 1996, Saturday, she came to the office and explained she was not feeling well the day before. After that Vigan went AWOL and did not heed telegram notices from her employer made on August 26, 1996 and on September 9, 1996 (Annexes "1" & "2", pp. 108 to 109, rollo). She instead filed the instant suit for illegal dismissal."

On June 10, 1997, Labor Arbiter Ernesto S. Dinopol rendered his decision4 finding Vigan diseased and unfit for work under Article 284 of the Labor Code5 and awarded the corresponding separation pay as follows:6

"WHEREFORE, judgment is hereby rendered ordering respondents LITONJUA GROUP OF COMPANIES, EDDIE K. LITONJUA and DANILO LITONJUA to jointly and severally pay complainant TERESITA Y. VIGAN, the following amounts:

Separation pay (P4,000 x 18) years….= P72,000.00

Proportionate 13th" month pay 4,666.66

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(P8,000 x 8 months over 12) …=

TOTAL AWARD………. P76,666.66

All other causes of action are DISMISSED for lack of merit."

Vigan appealed the decision to the National Labor Relations Commission which modified7 the arbiter’s decision by ruling that Art. 284 of the Labor Code is inapplicable in the instant case but affirmed the legality of the termination of the complainant based on her having effectively abandoned her job; the rest of the decision was affirmed. Vigan moved for a partial reconsideration which was denied in a resolution dated August 7, 1998.

Dissatisfied, Vigan filed a petition for certiorari with the respondent Court of Appeals which rendered its assailed decision dated March 20, 2000 reversing the NLRC Resolution. The dispositive portion of the decision reads:8

"WHEREFORE, premises considered, the assailed NLRC Decision and Resolution are hereby REVERSEDand SET ASIDE. In its stead judgment is rendered ordering the respondents LITONJUA GROUP OF COMPANIES, EDDIE K. LITONJUA and DANILO LITONJUA jointly and severally to:

(a) Reinstate complainant TERESITA Y. VIGAN if she so desires;

or

(b) pay her separation compensation in the sum of P8,000.00 multiplied by her years of service counted from February 2, 1979 up to the time this Decision becomes final; and in either case to pay Vigan;

(c) full back wages from the time she was illegally dismissed up to the date of the finality of this Decision;

(d) moral damages in the amount of P40,000.00;

(e) exemplary damages in the amount of P15,000.00; and

(f) attorney’s fees of P10,000.00.

SO ORDERED."

Litonjuas filed their motion for reconsideration which was denied in a resolution dated June 19, 2000.

Petitioners Litonjuas filed the instant petition for review on certiorari alleging the following grounds:

I

WHETHER OR NOT "LITONJUA GROUP OF COMPANIES", WHICH HAS NO JURIDICAL PERSONALITY, BUT ONLY A GENERIC NAME TO DESCRIBE THE VARIOUS COMPANIES WHICH THE LITONJUA FAMILY HAS INTERESTS, CAN BE LEGALLY CONSTRUED AS RESPONDENT’S EMPLOYER.

II

WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED AS A MATTER OF LAW IN HOLDING THAT RESPONDENT WAS ILLEGALLY DISMISSED FROM HER EMPLOYMENT, INSTEAD OF AFFIRMING THE DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION THAT SHE HAD ABANDONED HER JOB OR THAT OF LABOR ARBITER ERNESTO DINOPOL HOLDING THAT SHE SHOULD BE SEPARATED ON THE GROUND OF DISEASE UNDER ARTICLE 284 OF THE LABOR CODE, CONSIDERING THAT SHE HAS EXHIBITED A PATTERN OF PSYCHOLOGICAL AND MENTAL DISTURBANCE WHICH ADMITTEDLY NO LONGER MADE HER PHYSICALLY FIT TO WORK.

III

WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED AS A MATTER OF LAW IN DIRECTING RESPONDENT’S REINSTATEMENT AT HER OWN CHOICE OR PAYMENT OF SEPARATION PAY OF ONE MONTH SALARY FOR EVERY YEAR OF SERVICE AND BACKWAGES.

IV

THE COURT OF APPEALS SERIOUSLY ERRED AS A MATTER OF LAW IN HOLDING PETITIONERS LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES.

Anent the first assigned error, petitioners allege that the Litonjua group of companies cannot be a party to this suit for it is not a legal entity with juridical personality but is merely a generic name used to describe collectively the various companies in which the Litonjua family has business interest; that the real employer of respondent Vigan was the ACT theater Incorporated where Danilo Litonjua is a member of the Board of Directors while Eddie Litonjua was not connected in any capacity.

Petitioners’ argument is meritorious. Only natural or juridical persons or entities authorized by law may be parties to a civil action and every action must be

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prosecuted and defended in the name of the real parties in interest.9Petitioners’ claim that Litonjua Group of Companies is not a legal entity with juridical personality hence cannot be a party to this suit deserves consideration since respondent failed to prove otherwise. In fact, respondent Vigan’s own allegation in her Memorandum supported petitioners’ claim that Litonjua group of companies does not exist when she stated therein that instead of naming each and every corporation of the Litonjua family where she had rendered accounting and payroll works, she simply referred to these corporations as the Litonjua group of companies, thus, respondent merely used such generic name to describe collectively the various corporations in which the Litonjua family has business interest. Considering the non-existence of the Litonjua group of companies as a juridical entity and petitioner Eddie Litonjua’s denial of his connection in any capacity with the ACT Theater, the supposed company where Vigan was employed, petitioner Eddie Litonjuas should also be excluded as a party in this case since respondent Vigan failed to prove Eddie Litonjua’s participation in the instant case. It is respondent Vigan, being the party asserting a fact, who has the burden of proof as to such fact10 which however, she failed to discharge.

Next, petitioners claim that the complaint for illegal dismissal was prematurely filed since Vigan was not dismissed, actual or constructive, from her employment as the records show that despite being absent without official leave since August 5, 1996 and her receipt of two telegram notices sent to her by petitioners on August 26, and September 9, 1996 for her to report for work, she failed to do so and yet petitioners had not done any act to dismiss her. Petitioners deny Vigan’s claim that she had been physically barred from entering the work premises.

Petitioners thus contend that since respondent Vigan was not illegally dismissed from employment, the respondent court’s order reinstating the latter, awarding her separation pay equivalent to one month salary per year of service as well as backwages, damages and attorney’s fees have no factual and legal basis.

We are not persuaded.

The above arguments relate mainly to the correctness of the factual findings of the Court of Appeals and the award of damages. This Court has consistently affirmed that the findings of fact of the Court of Appeals are as a rule binding upon it, subject to certain exceptions, one of which is when the factual findings of the Court of Appeals are contrary to those of the trial court (or administrative body, as the case may be).11 However, it bears emphasizing that mere disagreement between the Court of Appeals and the trial court as to the facts of a case does not of itself warrant this Court's review of the same. It has been held that the doctrine that the findings of fact made by the Court of Appeals, being conclusive in nature, are binding on this Court, applies even if the Court of Appeals was in disagreement with the lower court as to the weight of evidence with a consequent reversal of its findings of fact, so long as the findings of the Court of Appeals are borne out by the record or based on substantial evidence.12

We have gone over the records of this case and found no cogent reason to disagree with the respondent court’s findings that respondent Vigan did not abandon her job

but was illegally dismissed. Petitioners’ claim that despite two (2) telegram notices dated August 26 and September 9, 1996 respectively sent to respondent Vigan to report for work, the latter did not heed the demands and absented herself since August 5, 1996 was belied by the respondent’s evidence, as it was upon instructions of petitioner Danilo Litonjua to the guards on duty that she could not enter the premises of her workplace. In fact, in her letter dated August 30, 1996 addressed to petitioner Danilo Litonjua, respondent Vigan had complained of petitioner Danilo’s inhumane treatment in barring her from entering her workplace, to wit:

"Sukdulan na po ang pang-aaping dinaranas ko sa inyo, sir. Since August 5 etc. I was always approached by your guard Batutay and harassed by your men to vacate my cubicle as per your strict order. Only this August 7 that you succeeded as you order the door locked for me only. As per our agreement Aug. 27 at Jollibee (sic) gave me assurance that I willingly undergo psychiatric test I could freely report for work without intimidating me, you won’t anymore charge me of insubordination. You won’t disturb my family anymore, so why do you advice to try to go back Aug. 30 but as always to be barred by guard Batutay? Sir, with my 18 years of loyal service, all I need is a little respect. Tao ako sir, hindi hayop. Malaki ang nawawala sa akin."

Notwithstanding the fact the she was refused entrance to her workplace, respondent Vigan, to show her earnest desire to report for work, would sneak her way into the premises and punched her time card but she could not resume work as the guards in the company gate would prevent her per petitioner Danilo Litonjua’s instructions. It appears also that respondent Vigan wrote petitioner Danilo a letter dated September 9, 1996 notifying him that per his instructions, she had made an appointment for a psychiatric test on September 11, 1996 and requested him to make a check payable to Dr. Lourdes Ladrido-Ignacio in the amount of P800.00 consultation fee as they agreed upon. She underwent a psychiatric examination as a result of which Dr. Ignacio issued a medical certificate as follows:13

"This is to certify that MISS TERESITA VIGAN has come for psychiatric evaluation on September 11 and 17, 1996. The psychiatric interview and mental status examination did not reveal any symptoms of psychosis or organic brain syndrome. She showed anxiety but this was deemed a realistic reaction to her present job difficulties."

Respondent’s actuations militate against petitioners’ claim that she did not heed the notices to return to work and abandoned her job. She had been going to her workplace to report for work but was prevented from resuming her work upon the instructions of petitioner Danilo Litonjua. It would be the height of injustice to allow an employee to claim as a ground for abandonment a situation which he himself had brought about.14

We fully agree with the respondent court’s ratiocination on the illegality of Vigan’s dismissal, to wit:15

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"The basic issue is whether Vigan’s employment was terminated by illegal dismissal or by abandonment of work, and We hold that this was a case of illegal dismissal.

Shopworn is the rule on abandonment that the immediate filing of a case for illegal dismissal negates the same. Mark that Vigan promptly filed this suit for illegal dismissal when her attempts to enter the premises of her workplace became futile and the efforts to bar and eject her became unmistakable. In the more recent case of Rizada vs. NLRC (G.R. No. 96982, September 21, 1999), the Supreme Court reiterated anew the hoary rule that:

"To constitute abandonment two elements must concur (1) the failure to report for work or absence without valid or justifiable reason, and (2) a clear intention to sever the employer-employee relationship, with the second element as the more determinative factor and being manifested by some overt acts. Abandoning one’s job means the deliberate, unjustified refusal of the employee to resume his employment and the burden of proof is on the employer to show a clear and deliberate intent on the part of the employee to discontinue employment.

Abandonment is a matter of intention and cannot be lightly inferred, much less legally presumed from certain equivocal acts. (Shin Industrial v. National Labor Relations Commission, 164 SCRA 8).

An employee who forthwith took steps to protest his dismissal cannot be said to have abandoned his work." (Toogue v. National Labor Relations Commission, 238 SCRA 241), as where the employee immediately filed a complaint for illegal dismissal to seek reinstatement (Tolong Aqua Culture Corp., et al. V. National Labor Relations Commission, G.R. 122268, November 12, 1996) (emphasis supplied).

Note that in the instant case Vigan was even pleading to be allowed to work but she was prevented by the guards thereat upon the orders of Danilo Litonjua. These are disclosed by her letters (Annexes "F", "G", "K", "Q", "R" and "U", pp. 82, 83, 87, 93, 94 & 97, rollo), the entries in her time cards (Annexes "P", "S", "W" and "X", pp. 92, 95, 99 & 100, rollo) and her compliance when required to see a psychiatrist (Annex "H", p. 84, rollo). On the other hand there is complete silence from the Litonjuas on these matters, including on the collective manifesto of several employees against Danilo Litonjua and his highhanded ways (Annex "I", p. 85). They chose to ignore material and telling points. They even alleged that Vigan refused to comply with their request for her to have medical examination (Comment, pp. 164-171, rollo and Memorandum for the Respondents, pp. 215-222, rollo), an unmitigated falsity in the face of clear proofs that she complied with their

directive and was given a clean bill of mental health by a reputable psychiatrist of their choice.

For emphasis, We shall quote with seeming triteness the dictum laid down in Mendoza vs. NLRC (supra) regarding the unflinching rule in illegal dismissal cases:

"that the employer bears the burden of proof. To establish a case of abandonment, the employer must prove the employees deliberate and unjustified refusal to resume employment without any intention of returning. . .

mere absence from work, especially where the employee has been verbally told not to report, cannot by itself constitute abandonment. To repeat, the employer has the burden of proving overt acts on the employee’s part which demonstrate a desire or intention to abandon her work…"

The NLRC had erred in shifting the onus probandi to Vigan in the charge of abandonment against her, while the Litonjuas failed to discharge their burden. Though they may not have verbally told Vigan not to report for work but the act of ordering the guards not to let her in was just as clear a notice. Vigan’s plight was akin to that of the truck helper in the case of Masagana Concrete Products, et al. vs. NLRC (G.R. No. 106916, September 3, 1999) who was likewise prevented from coming to work.

While there was no formal termination of his services, Mariñas, was constructively dismissed when he was accused of tampering the "vale sheet" and prevented from returning to work. Constructive dismissal does not always involve forthright dismissal or diminution in rank, compensation, benefit and privileges. For an act of clear discrimination insensibility or disdain by an employer may become so unbearable on the part of the employee that it could foreclose any choice by him except to forego his continued employment. In this case, Mariñas had to resign from his job because he was prevented from returning back to work unless he admitted his mistake in writing and he was not given any opportunity to contest the charge against him. It is a rule often repeated that unsubstantiated accusation without anything more are not synonymous with guilt and unless a clear, valid, just or authorized ground for dismissing an employee is established by the employer the dismissal shall be considered unfounded.

Similarly, Vigan was accused of having mental, emotional and physical disorders (Annex "M", p. 89, rollo), but per medical examination it was proven that hers was pure anxiety as a realistic reaction to her present job difficulties. She was charged of habitual absenteeism on Tuesdays that fell within three days before and after the "15th" day and "30th" day of every

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month (Litonjua’s Position Paper, pp. 101-107, rollo). This is preposterous for how many Tuesdays in a year would fall within three days before and after the "15th" day and "30th" day of every month? By no extrapolation can this be habitual absenteeism."

Since respondent Vigan was illegally dismissed from her employment, she is entitled to: (1) either reinstatement, if viable, or separation pay if reinstatement is no longer viable, and (2) backwages.16 As correctly disposed by the respondent Court:17

"Thus finding that Vigan was illegally dismissed, she is entitled to the following:

1) Either reinstatement, if viable, or separation pay if reinstatement is no longer viable; and 2) Backwages, Backwages and separation pay are distinct relief given to alleviate the economic damage by an illegally dismissed employee. Hence, an award of separation pay in lieu of reinstatement does not bar an award of backwages, computed from the time of illegal dismissal… up to the date of the finality of the Decision... without qualification or deduction. Separation pay, equivalent to one month’s salary for every year of service, is awarded as an alternative to reinstatement when the latter is no longer an option. Separation pay is computed from the commencement of employment up to the time of termination, including the imputed service for which the employee is entitled to backwages, with the salary rate prevailing at the end of the period of putative service being the basis for computation (Masagana Concrete Products, et al. vs. NLRC, supra). In case of a fraction of at least six (6) months in the length of service, the same shall be considered as one year in computing the separation pay. With regard to backwages, it meant literal "full backwages" that is inclusive of allowances and other benefits or their monetary equivalent computed from the time her compensation was withheld from her up to the time of her actual reinstatement, if it is still viable or up to the time the Decision in her favor becomes final – without deducting from back wages the earning derived elsewhere, if there is any, by Vigan during the period of her illegal dismissal. (Lopez vs. NLRC, 297 SCRA 508).

In other words, Vigan is entitled to reinstatement, which perhaps is no longer viable due to the strained relations between the parties, or separation pay of P8,000.00 for every year of service and backwages of another P8,000 per month reckoned from the time she last received salary from the Litonjuas up to the date of the finality of this Decision. Mark again that We allowed the P8,000.00 claim of Vigan as her last salary received for again the Litonjuas failed to validly refute the same."

We likewise affirm respondent court’s award of moral and exemplary damages to the respondent. As a rule, moral damages are recoverable only where the dismissal of the employee was attended by bad faith or fraud or constituted an act oppressive to labor, or was done in a manner contrary to morals, good customs or public policy. We find that bad faith attended respondent’s dismissal from her employment. Bad faith

involves a state of mind dominated by ill will or motive. It implies a conscious and intentional design to do a wrongful act for a dishonest purpose or some moral obliquity.18 Petitioner Danilo Litonjua showed ill will in treating respondent Vigan in a very unfair and cruel manner which made her suffer anxieties by reason of such job difficulties. The report to work notices sent by petitioners to respondent Vigan was just part of the ploy to make it appear that the latter abandoned her work but in reality, Vigan was barred from entering her work premises. We fully subscribe to respondent’s position that petitioners’ action was for the purpose of removing her from her employment. Respondent Vigan is also entitled to exemplary damages as her dismissal was effected in an oppressive and malevolent manner.19

We also find that there is a basis for the award of attorney’s fees. It is settled that in actions for recovery of wages or where an employee was forced to litigate and incur expenses to protect his rights and interest, he is entitled to an award of attorney’s fees.20

WHEREFORE, premises considered, the decision of the respondent Court of Appeals dated March 20, 2000 is hereby AFFIRMED with the MODIFICATION that Litonjua Group of Companies and Eddie Litonjua are dropped as parties in the instant case.1âwphi1.nêt

SO ORDERED.

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G.R. No. 106436 December 3, 1994

VIRGILIO D. IMSON, petitioner, vs.HON. COURT OF APPEALS, HOLIDAY HILLS STOCK AND BREEDING FARM CORPORATION, FNCB FINANCE CORPORATION, respondents.

Polotan Law Office for petitioner.

Felix R. Solomon for private respondents.

PUNO, J.:

The case at bench arose from a vehicular collision on December 11, 1983, involving petitioner's Toyota Corolla and a Hino diesel truck registered under the names of private respondents FNCB Finance Corporation and Holiday Hills Stock and Breeding Farm Corporation. The collision seriously injured petitioner and totally wrecked his car.

On January 6, 1984, petitioner filed with the RTC Baguio City 1 a Complaint for Damages 2 Sued were private respondents as registered owners of the truck; truck driver Felix B. Calip, Jr.; the beneficial owners of the truck, Gorgonio Co Adarme, Felisa T. Co (also known as Felisa Tan), and Cirilia Chua Siok Bieng, and the truck insurer, Western Guaranty Corporation.

The Complaint prayed that defendants be ordered to pay, jointly and severally, two hundred seventy thousand pesos (P270,000.00) as compensatory damages, fifty thousand pesos (P50,000.00) each as moral and exemplary damages, and attorney's fees, litigation expenses, and cost of suit. 8

Defendants driver and beneficial owners failed to answer and were declared in default. 4 On May 29, 1987, however, petitioner and defendant insurer, entered into a compromise agreement which provided, inter alia:

1. Defendant Western Guaranty Corporation (Western Guaranty for short) admits that its total liability under the laws and the insurance contract sued upon is P70,000.00;

2. In full settlement of its liability under the laws and the said insurance contract, defendant Western Guaranty shall pay plaintiff (herein petitioner) the amount of P70,000.00 upon the signing of this compromise agreement;

3. This compromise agreement shall in no way waive nor prejudice plaintiffs (herein petitioner's) rights to proceed against the other defendants with respect the remainder of his claims;

4. This compromise agreement shall be a full and final settlement of the issues between plaintiff (herein petitioner) and defendant Western Guaranty in their complaint and answer and, from now on, they shall have no more right against one another except the enforcement of this compromise agreement.

In consequence of the compromise agreement, the trial court dismissed the Complaint for Damages against Western Guaranty Corporation on June 16, 1987. 8 A copy of the Order of dismissal was received by private respondent Holiday Hills Stock and Breeding Farm Corporation on July 13, 1987. Nearly eighteen (18) months later, said private respondent moved to dismiss the case against all the other defendants. It argued that since they are all indispensable parties under a common cause of action, the dismissal of the case against defendant insurer must result in the dismissal of the suit against all of them. The trial court denied the motion.

Private respondent Holiday Hills Stock and Breeding Farm Corporation assailed the denial order through a Petition for Certiorari, Prohibition and Mandamus With Restraining Order filed with respondent Court of Appeals. The Petition was docketed as CA-G.R. SP No. 17651. On July 10, 1992, the Court of Appeals, 7 through its Special Sixth Division, 8 reversed the trial court, as it ruled:

The petitioner (herein private respondent Holiday Hills Stock and Breeding Farm Corporation) cites the doctrine laid down in Lim Tanhu v. Hon. Ramolete, 66 SCRA 425, as applied later in Co v. Acosta, 134 SCRA 185, to support its averment that the court a quo gravely abused its discretion in refusing to dismiss the case.

Essentially, the doctrine adverted to essays that in a common cause of action where all the defendants are indispensable parties, the court's power to act is integral and cannot be split, such that it cannot relieve any of them and at the same time render judgment against the rest.

We find applicability of the doctrine to the case at bar.

A cursory reading of the complaint . . . reveals that the cause of action was the alleged bad faith and gross negligence of the defendants resulting in the injuries complained of and for which the action for damages was filed. The inclusion of Western Guaranty Corporation was vital to the claim, it being the insurer of the diesel truck without which, the claim could be set for naught. Stated otherwise, it is an indispensable party as the petitioner (herein private respondent stock and breeding farm corporation) . . . . Private respondent's (herein petitioner's argument that the said insurance company was sued on a different cause of action, i.e., its bounden duty under the insurance law to pay or settle claims arising under its policy coverage, is untenable, for the cited law perceives the existence of a just cause, and according to

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the answer filed by the Western Guaranty Corporation . . . the proximate cause of the accident was the fault of the plaintiff (herein petitioner), hence it was not liable for damages. There is in fact a congruence of affirmative defense among the answering defendants.

Moreover, it is undisputed that the injury caused is covered by the insurance company concerned. Thus, when the said insurer settled its liability with the private respondent (petitioner herein) . . . , the other defendants, as the insured and indispensable parties to a common cause of action, necessarily benefited from such settlement including the defaulted defendants, for as stated in the aforecited cases, it is deemed that anything done by or for the answering defendant is done by or for the ones in default since it is implicit in the rule that default is in essence a mere formality that deprives them of no more than to take part in the trial, but if the complaint is dismissed as to the answering defendant, it should also be dismissed as to them. 9 (Citations omitted.)

Petitioner now comes to this Court with the following assignments of error:

A.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE DEFENDANTS IN CIVIL CASE NO. 248-R ARE INDISPENSABLE PARTIES;

B.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT IN CIVIL CASE NO. 248-R THERE IS A COMMON CAUSE OF ACTION AGAINST THE DEFENDANTS THEREIN;

C.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT IN CIVIL CASE NO. 248-R THE RULING OF THIS HONORABLE COURT IN LIM TAN HU VS. RAMOLETE IS APPLICABLE;

D.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE DOCTRINE OF ESTOPPEL AND LACHES ON MATTERS OF JURISDICTION IS NOT APPLICABLE IN CIVIL CASE NO. 248-R.

There is merit to the petition,.

In the case of Lim Tanhu v. Ramolete, 66 SCRA 425, 458-459 (1975) this court held that:

. . . (I)n all instances where a common cause of action is alleged against several defendants, some of whom answer and the others do not, the latter or those in default acquire a vested right not only to own the defense interposed in the answer of their co-defendant or co-defendants not in default but also to expect a result of the litigation totally common with them in kind and in amount whether favorable or unfavorable. The substantive unity of the plaintiffs cause against all the defendants is carried through to its adjective phase as ineluctably demanded by the homogeneity and indivisibility of justice itself. . . . The integrity of the common cause of action against all the defendants and the indispensability of all of them in the proceedings do not permit any possibility of waiver of the plaintiffs right only as to one or some of them, without including all of them, and so, as a rule, withdrawal must be deemed to be a confession of weakness as to all. . . . . Where all the defendants are indispensable parties, for which reason the absence of any of them in the case would result in the court losing its competency to act validly, any compromise that the plaintiff might wish to make with any of them must, as a matter of correct procedure, have to await until after the rendition of the judgment, at which stage the plaintiff may then treat the matter of its execution and the satisfaction of his claim as variably as he might please. Accordingly, in the case now before Us together with the dismissal of the complaint against the non-defaulted defendants, the court should have ordered also the dismissal thereof as to petitioner (referring to the defaulting defendants in the case).

In sum, Lim Tanhu states that where a complaint alleges a common cause of action against defendants who are all indispensable parties to the case, its dismissal against any of them by virtue of a compromise agreement with the plaintiff necessarily results in the dismissal of the case against the other defendants, including those in default. The ruling is rooted on the rationale that the court's power to act in a case involving a common cause of action against indispensable parties "is integral and cannot be split such that it cannot relieve any of them and at the same time render judgment against the rest. 10

For Lim Tanhu to apply to the case at bench, it must be established that: (1) petitioner has common cause of action against private respondents and the other defendants in Civil Case No. 248-R; and (2) all the defendants are indispensable parties to the case.

Cause of action has a fixed meaning in this jurisdiction. It is the delict or wrong by which the right of the plaintiff is violated by the defendant. 11 The question as to whether a plaintiff has a cause of action is determined by the averments in the

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pleadings pertaining to the acts of the defendant. Whether such acts give him a right of action is determined by substantive law. 12

In the case at bench, it is clear that petitioner has different and separate causes of action against the defendants in the case. The allegations in the Complaint show that petitioner seeks to recover from the truck driver for his wrong which caused injury to petitioner and his car. The cause of action against him is based on quasi-delict under Article 2176 of the New Civil Code. Quasi-delict, too, is the basis of the cause of action against defendants beneficial and registered owners. But in their case, it is Article 2180 of the same Code which governs the rights of the parties.

However, with respect to defendant Western Guaranty Corporation, petitioner's cause of action is based on contract. He seeks to recover from the insurer on the basis of the third party liability clause of its insurance contract with the owners of the truck. This is acknowledged by the second paragraph of the compromise agreement between petitioner and defendant insurer, thus:

2. In full settlement of its liability under the laws and the said insurance contract, defendant Western Guaranty shall pay plaintiff (herein petitioner) the amount of P70,000.00 upon the signing of this compromise agreement.

Quite clearly then, Lim Tanhu will not apply to the case at bench for there is no showing that petitioner has a common cause of action against the defendants in Civil Case No. 248-R.

But this is not all. Defendants in Civil Case No. 248-R are not all indispensable parties. An indispensable party is one whose interest will be affected by the court's action in the litigation, and without whom no final determination of the case can be had. The party's interest in the subject matter of the suit and in the relief sought are so inextricably intertwined with the other parties' that his legal presence as a party to the proceeding is an absolute necessity. 13 In his absence there cannot be a resolution of the dispute of the parties before the court which is effective, complete, or equitable. 14

Conversely, a party is not indispensable to the suit if his interest in the controversy or subject matter is distinct and divisible from the interest of the other parties and will not necessarily be prejudiced by a judgment which does complete justice to the parties in court. 15 He is not indispensable if his presence would merely permit complete relief between him and those already parties to the action, or will simply avoid multiple litigation. 16

It is true that all of petitioner's claims in Civil Case No. 248-R is premised on the wrong committed by defendant truck driver. Concededly, the truck driver is an indispensable party to the suit. The other defendants, however, cannot be categorized as indispensable parties. They are merely proper parties to the case. Proper parties have been described as parties whose presence is necessary in order

to adjudicate the whole controversy, but whose interests are so far separable that a final decree can be made in their absence without affecting them. 17 It is easy to see that if any of them had not been impleaded as defendant, the case would still proceed without prejudicing the party not impleaded. Thus, if petitioner did not sue Western Guaranty Corporation, the omission would not cause the dismissal of the suit against the other defendants. Even without the insurer, the trial court would not lose its competency to act completely and validly on the damage suit. The insurer, clearly, is not an indispensable party in Civil Case No. 248-R.

IN VIEW WHEREOF, the instant petition is GRANTED. The Decision, dated July 10, 1992, of the Court of Appeals in CA-G.R. SP No. 17651 is REVERSED AND SET ASIDE. The Complaint in Civil Case No. 248-R is REINSTATED and REMANDED to the trial court for further proceedings. No costs.

SO ORDERED.

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G.R. No. 103301 December 8, 1995

SERVICEWIDE SPECIALISTS INCORPORATED, petitioner, vs.HON. COURT OF APPEALS and ARMANDO CUSTODIO, JR., respondents.

VITUG, J.:

This petition of Servicewide Specialists, Incorporated, seeks a review on certiorari of the 30th August 1991 decision of the Court of Appeals 1 in CA-G.R. CV No. 20289 setting aside the judgment of the Regional Trial Court of Manila, Branch 19, 2 which disposed of then Civil Case No. 83-18536, a suit for replevin and damages, as follows:

WHEREFORE, judgment is hereby rendered, in favor of plaintiff and against the defendant Armando Custodio, Jr., ordering him to deliver and return the motor vehicle in question, complete with accessories and equipment; and in the event that manual delivery of the said meter vehicle cannot be effected, ordering said defendant to pay the sum of P54,642.50, plus interest at the rate of 14%per annum, from June 18, 1983 until fully paid, and to pay the costs.

SO ORDERED. 3

The litigation concerns a motor vehicle, a Colt Galant Sigma 1600E, 1977 model, 4-door sedan, colored Baikal White, with Serial No. A-121-UL-493 and Engine No. 2G-171-34. The decisions of both the appellate court and the trial court rest on the following representation of the facts:

Plaintiff's evidence shows that, on August 29, 1977, Eleuterio Bondoc executed and delivered to Carmark Philippines a promissory note in the sum of P66,119.04, payable in installments, Exhibit A, and in order to secure payment, a chattel mortgage was executed in favor of Carmark Philippines over the aforementioned motor vehicle, Exhibit B, which was subsequently assigned in favor of Filinvest Corporation, with the conformity of Eleuterio Bondoc, Exhibit C.

On July 27, 1979, Eleuterio Bondoc, as vendor, executed a deed of sale with assumption of mortgage of the balance of the account in favor of Cesar Dollente, Exhibits D and D-1, which, upon approval by Filinvest Corporation, Cesar Dollente executed and delivered to Filinvest Corporation a promissory note in the amount of P37,528.83, payable in installments, Exhibit E. On October 26,

1979, Cesar Dollente, as vendor, executed a deed of sale with assumption of mortgage over the aforementioned vehicle for the balance of his account in favor of Ernesto Dollente, Exhibit E. On September 28, 1979, Ernesto Dollente executed and delivered to Filinvest Corporation a promissory note for the sum of P37,528.83, payable in monthly installments. This obligation was secured by a chattel mortgage executed between Cesar Dollente and Ernesto Dollente, which was annotated and registered, Exhibit B-1. Subsequently, Filinvest Corporation assigned all its rights and interests on the promissory note and chattel mortgage to plaintiff, with notice to Ernesto Dollente. The original defendant Ernesto Dollente, having defaulted in the payment of the monthly installments which fell due on June 15, 1979 up to September 15, 1981, plaintiff demanded from said defendant the payment of the entire balance, which includes interest thereon and to return the motor vehicle in question. By reason of the refusal of the original defendant to pay the entire balance and to surrender possession of the subject motor vehicle, this case was filed and, upon its filing, upon motion, a writ of seizure was issued and the same was implemented by the sheriff. A counter-replevin bond having been filed, defendant Armando Custodio, Jr. had obtained possession of the mortgaged vehicle.

Traversing the plaintiffs claim, defendant's evidence shows that, on September 8, 1978, defendant Armando Custodio, Jr. obtained the motor vehicle in question by purchase from Ernesto Dollente, Exhibit 1. Ernesto Dollente bought the same on April 14, 1978 from Venus Motor Sales, Exhibits 2 and 3. When defendant bought the said vehicle from Ernesto Dollente, he was issued a clearance from the Constabulary Highway Patrol Group, Exhibits 4 and 4-A. Since then defendant has been possessing the vehicle in question. This vehicle was previously registered at Urdaneta, Pangasinan.4

Finding preponderance of the evidence in favor of herein petitioner, the lower court ruled:

The claim of herein defendant that, Ernesto Dollente's breach of the chattel mortgage should not bind him, because he is not a privy to such contract, is hardly acceptable, for the reason that the registration of the chattel mortgage is an effective and binding notice to him of its existence. The transaction of Ernesto Dollente, which led to the transfer of the registration of this motor vehicle in favor of defendant Armando Custodio, Jr., is doubtful and must have been conveniently arranged or manipulated to effect this transfer. It is settled that once a mortgage is registered with the Register of Deeds and in the Land Transportation Commission, it is binding against anybody, including defendant Armando Custodio, Jr. As correctly pointed out, in purchasing the motor vehicle in question, defendant Armando Custodio, Jr. knew or, at least, was

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presumed to know, by the mere fact that the mortgage was registered in the Office of the Register of Deeds, as in this case, the said chattel mortgage was subject to a mortgage lien. 5

On appeal to it, the Court of Appeals saw merit in the contention of private respondent that the dismissal at the instance of petitioner himself of the amended complaint against Ernesto Dollente after a failure of summons on him, was "fatal to the entire action" Dollente being, in the considered view of the appellate court, an indispensable party to the proceedings. The appellate court elaborated:

. . . it is abundantly clear that the dismissal of the complaint as against the principal defendant Dollente has robbed the action of any cause for survival. The replevin suit owed its existence to an alleged right to possession of the motor vehicle, which right in turn was founded on the alleged default of Dollente. Now, since "the case against Ernesto Dollente" was dismissed, albeit without prejudice, there remains no cause of action against said defendant in the case. And since, there is no distinct cause of action against the remaining defendant, herein appellant Custodio, there remains no provable cause in the action. The plaintiff's right to possession of the car in case which is "conditioned upon the fact of actual default on the part of the principal obligor" the existence of which fact "may naturally be the subject of controversy" could not properly be established in the absence, and after the plaintiff-initiated exclusion, of the principal obligor and principal defendant. There is no question, under the circumstances, that Dollente was an indispensable party in the action. His presence is indispensable, essential and compulsory if a final determination of the action should be achieved (Sec. 7, Rule 3).

It was clearly an error for the trial court to have proceeded with the case without the indispensable Dollente. The judgment rendered by the trial court following such flawed proceedings is therefore ineffectual and ineffective. 6

While, in its present petition for review on certiorari, Servicewide has raised a number of points, the crucial issue still remains, however, to be whether or not an action filed by the mortgagee for replevin to effect a foreclosure of the property covered by the chattel mortgage would require that the mortgagor be so impleaded as an indispensable party thereto.

Rule 60 of the Rules of Court allows a plaintiff, in an action for the recovery of possession of personal property, to apply for a writ of replevin if it can be shown that he is "the owner of the property claimed . . . or is entitled to the possession thereof." 7 The plaintiff need not be the owner so long as he is able to specify his right to the possession of the property and his legal basis therefor. The question then, insofar as the matter finds relation to the instant case, is whether or not the plaintiff (herein petitioner) who has predicated his right on being the mortgagee of

a chattel mortgage should implead the mortgagor in his complaint that seeks to recover possession of the encumbered property in order to effect its foreclosure.

The answer has to be in the affirmative. 8 In a suit for replevin, a clear right of possession must be established. A foreclosure under a chattel mortgage may properly be commenced only once there is default on the part of the mortgagor of his obligation secured by the mortgage. The replevin in the instant case has been sought to pave the way for the foreclosure of the object covered by the chattel mortgage. The conditions essential for that foreclosure would be to show, firstly, the existence of the chattel mortgage and, secondly, the default of the mortgagor. These requirements must be established since the validity of the plaintiffs exercise of the right of foreclosure are inevitably dependent thereon. It would thus seem, considering particularly an adverse and independent claim of ownership by private respondent, that the lower court acted improvidently when it granted the dismissal of the complaint against Dollente, albeit on petitioner's (then plaintiff) plea, on the ground that the "non-service of summons upon Ernesto Dollente (would) only delay the determination of the merits of the case, to the prejudice of the parties." 9 In Imson v. Court of Appeals, we have explained:

. . . An indispensable party is one whose interest will be affected by the court's action in the litigation, and without whom no final determination of the case can be had. The party's interest in the subject matter of the suit and in the relief sought are so inextricably intertwined with the other parties' that his legal presence as a party to the proceeding is an absolute necessity. In his absence there cannot be a resolution of the dispute of the parties before the court which is effective, complete, or equitable.

Conversely, a party is not indispensable to the suit if his interest in the controversy or subject matter is distinct and divisible from the interest of the other parties and will not necessarily be prejudiced by a judgment which does complete justice to the parties in court. He is not indispensable if his presence would merely permit complete relief between him and those already parties to the action or will simply avoid multiple litigation. 10

Without the presence of indispensable parties to a suit or proceeding, a judgment of a court cannot attain real finality. 11

Having arrived at the foregoing conclusion, the Court need not take up the other issues raised by petitioner.

In passing, the failure of summons upon Ernesto Dollente, per the Sheriffs Return dated July 19, 1983, 12 is said to have been due to defendant's being no longer a resident "at the given address as per information gathered from the present occupant of the premises." It appears that the remedial measures provided in Rule 14 of the Rules of Court regrettably have not been properly availed of; for instance, substitute service of summons under Section 8 thereof could have been resorted to. 13

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WHEREFORE, the decision of the Court of Appeals is AFFIRMED. Costs against petitioner.

SO ORDERED.

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G.R. No. 140746 March 16, 2005

PANTRANCO NORTH EXPRESS, INC., and ALEXANDER BUNCAN, Petitioner, vs.STANDARD INSURANCE COMPANY, INC., and MARTINA GICALE, Respondents.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari assailing the Decision1 dated July 23 1999 and Resolution2 dated November 4, 1999 of the Court of Appeals in CA-G.R. CV No. 38453, entitled "Standard Insurance Company, Inc., and Martina Gicale vs. PANTRANCO North Express, Inc., and Alexander Buncan."

In the afternoon of October 28, 1984, Crispin Gicale was driving the passenger jeepney owned by his mother Martina Gicale, respondent herein. It was then raining. While driving north bound along the National Highway in Talavera, Nueva Ecija, a passenger bus, owned by Pantranco North Express, Inc., petitioner, driven by Alexander Buncan, also a petitioner, was trailing behind. When the two vehicles were negotiating a curve along the highway, the passenger bus overtook the jeepney. In so doing, the passenger bus hit the left rear side of the jeepney and sped away.

Crispin reported the incident to the Talavera Police Station and respondent Standard Insurance Co., Inc. (Standard), insurer of the jeepney. The total cost of the repair was P21,415.00, but respondent Standard paid only P8,000.00. Martina Gicale shouldered the balance of P13,415.00.

Thereafter, Standard and Martina, respondents, demanded reimbursement from petitioners Pantranco and its driver Alexander Buncan, but they refused. This prompted respondents to file with the Regional Trial Court (RTC), Branch 94, Manila, a complaint for sum of money.

In their answer, both petitioners specifically denied the allegations in the complaint and averred that it is the Metropolitan Trial Court, not the RTC, which has jurisdiction over the case.

On June 5, 1992, the trial court rendered a Decision3 in favor of respondents Standard and Martina, thus:

"WHEREFORE, and in view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs, Standard Insurance Company and Martina Gicale, and against defendants Pantranco Bus Company and Alexander Buncan, ordering the latter to pay as follows:

(1) to pay plaintiff Standard Insurance the amount of P8,000.00 with interest due thereon from November 27, 1984 until fully paid;

(2) to pay plaintiff Martina Gicale the amount of P13,415.00 with interest due thereon from October 22, 1984 until fully paid;

(3) to pay the sum of P10,000.00 for attorney’s fees;

(4) to pay the expenses of litigation and the cost of suit.

SO ORDERED."

On appeal, the Court of Appeals, in a Decision4 dated July 23, 1999, affirmed the trial court’s ruling, holding that:

"The appellants argue that appellee Gicale’s claim of P13,415.00 and appellee insurance company’s claim of P8,000.00 individually fell under the exclusive original jurisdiction of the municipal trial court. This is not correct because under the Totality Rule provided for under Sec. 19, Batas Pambansa Bilang 129, it is the sum of the two claims that determines the jurisdictional amount.

x x x

In the case at bench, the total of the two claims is definitely more than P20,000.00 which at the time of the incident in question was the jurisdictional amount of the Regional Trial Court.

Appellants contend that there was a misjoinder of parties. Assuming that there was, under the Rules of Court (Sec. 11, Rule 7) as well as under the Rules of Civil Procedure (ditto), the same does not affect the jurisdiction of the court nor is it a ground to dismiss the complaint.

x x x

It does not need perspicacity in logic to see that appellees Gicale’s and insurance company’s individual claims against appellees (sic) arose from the same vehicular accident on October 28, 1984 involving appellant Pantranco’s bus and appellee Gicale’s jeepney. That being the case, there was a question of fact common to all the parties: Whose fault or negligence caused the damage to the jeepney?

Appellants submit that they were denied their day in court because the case was deemed submitted for decision "without even declaring defendants in default or to have waived the presentation of evidence." This is incorrect. Of course, the court did not declare defendants in default because that is done

http://www.lawphil.net/judjuris/juri2005/mar2005/gr_140746_2005.html#fnt4




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only when the defendant fails to tender an answer within the reglementary period. When the lower court ordered that the case is deemed submitted for decision that meant that the defendants were deemed to have waived their right to present evidence. If they failed to adduce their evidence, they should blame nobody but themselves. They failed to be present during the scheduled hearing for the reception of their evidence despite notice and without any motion or explanation. They did not even file any motion for reconsideration of the order considering the case submitted for decision.

Finally, contrary to the assertion of the defendant-appellants, the evidence preponderantly established their liability for quasi-delict under Article 2176 of the Civil Code."

Petitioners filed a motion for reconsideration but was denied by the Appellate Court in a Resolution dated November 4, 1999.

Hence, this petition for review on certiorari raising the following assignments of error:

"I

WHETHER OR NOT THE TRIAL COURT HAS JURISDICTION OVER THE SUBJECT OF THE ACTION CONSIDERING THAT RESPONDENTS’ RESPECTIVE CAUSE OF ACTION AGAINST PETITIONERS DID NOT ARISE OUT OF THE SAME TRANSACTION NOR ARE THERE QUESTIONS OF LAW AND FACTS COMMON TO BOTH PETITIONERS AND RESPONDENTS.

II

WHETHER OR NOT PETITIONERS ARE LIABLE TO RESPONDENTS CONSIDERING THAT BASED ON THE EVIDENCE ADDUCED AND LAW APPLICABLE IN THE CASE AT BAR, RESPONDENTS HAVE NOT SHOWN ANY RIGHT TO THE RELIEF PRAYED FOR.

III

WHETHER OR NOT PETITIONERS WERE DEPRIVED OF THEIR RIGHT TO DUE PROCESS."

For their part, respondents contend that their individual claims arose out of the same vehicular accident and involve a common question of fact and law. Hence, the RTC has jurisdiction over the case.

I

Petitioners insist that the trial court has no jurisdiction over the case since the cause of action of each respondent did not arise from the same transaction and that there are no common questions of law and fact common to both parties. Section 6, Rule 3 of the Revised Rules of Court,5 provides:

"Sec. 6. Permissive joinder of parties. – All persons in whom or against whom any right to relief in respect to or arising out of the same transaction or series of transactions is alleged to exist, whether jointly, severally, or in the alternative, may, except as otherwise provided in these Rules, join as plaintiffs or be joined as defendants in one complaint, where any question of law or fact common to all such plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any proceedings in which he may have no interest."

Permissive joinder of parties requires that: (a) the right to relief arises out of the same transaction or series of transactions; (b) there is a question of law or fact common to all the plaintiffs or defendants; and (c) such joinder is not otherwise proscribed by the provisions of the Rules on jurisdiction and venue.6

In this case, there is a single transaction common to all, that is, Pantranco’s bus hitting the rear side of the jeepney. There is also a common question of fact, that is, whether petitioners are negligent. There being a single transaction common to both respondents, consequently, they have the same cause of action against petitioners.

To determine identity of cause of action, it must be ascertained whether the same evidence which is necessary to sustain the second cause of action would have been sufficient to authorize a recovery in the first.7 Here, had respondents filed separate suits against petitioners, the same evidence would have been presented to sustain the same cause of action. Thus, the filing by both respondents of the complaint with the court below is in order. Such joinder of parties avoids multiplicity of suit and ensures the convenient, speedy and orderly administration of justice.

Corollarily, Section 5(d), Rule 2 of the same Rules provides:

"Sec. 5. Joinder of causes of action. – A party may in one pleading assert, in the alternative or otherwise, as many causes of action as he may have against an opposing party, subject to the following conditions:

x x x

(d) Where the claims in all the causes of action are principally for recovery of money the aggregate amount claimed shall be the test of jurisdiction."

The above provision presupposes that the different causes of action which are joined accrue in favor of the same plaintiff/s and against the same defendant/s and that no misjoinder of parties is involved.8 The issue of whether respondents’ claims shall be





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lumped together is determined by paragraph (d) of the above provision. This paragraph embodies the "totality rule" as exemplified by Section 33 (1) of B.P. Blg. 1299 which states, among others, 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."

As previously stated, respondents’ cause of action against petitioners arose out of the same transaction. Thus, the amount of the demand shall be the totality of the claims.

Respondent Standard’s claim is P8,000.00, while that of respondent Martina Gicale is P13,415.00, or a total ofP21,415.00. Section 19 of B.P. Blg. 129 provides that the RTC has "exclusive original jurisdiction over all other cases, in which the demand, exclusive of interest and cost or the value of the property in controversy, amounts to more than twenty thousand pesos (P20,000.00)." Clearly, it is the RTC that has jurisdiction over the instant case. It bears emphasis that when the complaint was filed, R.A. 7691 expanding the jurisdiction of the Metropolitan, Municipal and Municipal Circuit Trial Courts had not yet taken effect. It became effective on April 15, 1994.

II

The finding of the trial court, affirmed by the Appellate Court, that petitioners are negligent and thus liable to respondents, is a factual finding which is binding upon us, a rule well-established in our jurisprudence. It has been repeatedly held that the trial court's factual findings, when affirmed by the Appellate Court, are conclusive and binding upon this Court, if they are not tainted with arbitrariness or oversight of some fact or circumstance of significance and influence. Petitioners have not presented sufficient ground to warrant a deviation from this rule.10

III

There is no merit in petitioners’ contention that they were denied due process. Records show that during the hearing, petitioner Pantranco’s counsel filed two motions for resetting of trial which were granted by the trial court. Subsequently, said counsel filed a notice to withdraw. After respondents had presented their evidence, the trial court, upon petitioners’ motion, reset the hearing to another date. On this date, Pantranco failed to appear. Thus, the trial court warned Pantranco that should it fail to appear during the next hearing, the case will be submitted for resolution on the basis of the evidence presented. Subsequently, Pantranco’s new counsel manifested that his client is willing to settle the case amicably and moved for another postponement. The trial court granted the motion. On the date of the hearing, the new counsel manifested that Pantranco’s employees are on strike and moved for another postponement. On the next hearing, said counsel still failed to appear. Hence, the trial court considered the case submitted for decision.

We have consistently held that the essence of due process is simply an opportunity to be heard, or an opportunity to explain one’s side or an opportunity to seek for a reconsideration of the action or ruling complained of.11

Petitioner Pantranco filed an answer and participated during the trial and presentation of respondents’ evidence. It was apprised of the notices of hearing issued by the trial court. Indeed, it was afforded fair and reasonable opportunity to explain its side of the controversy. Clearly, it was not denied of its right to due process. What is frowned upon is the absolute lack of notice and hearing which is not present here.

WHEREFORE, the petition is DENIED. The assailed Decision dated July 23 1999 and Resolution dated November 4, 1999 of the Court of Appeals in CA-G.R. CV No. 38453 are hereby AFFIRMED. Costs against petitioners.

SO ORDERED.




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G.R. No. 162575 December 15, 2010

BEATRIZ SIOK PING TANG, Petitioner, vs.SUBIC BAY DISTRIBUTION, INC., Respondent.

D E C I S I O N

PERALTA, J.:

Before us is a petition for review on certiorari filed by petitioner Beatriz Siok Ping Tang seeking to annul and set aside the Decision1 dated October 17, 2003 and the Resolution2 dated March 5, 2004 of the Court of Appeals (CA) in CA-G.R. SP No. 74629.

The antecedent facts are as follows:

Petitioner is doing business under the name and style of Able Transport. Respondent Subic Bay Distribution, Inc. (SBDI) entered in two Distributorship Agreements with petitioner and Able Transport in April 2002. Under the Agreements, respondent, as seller, will sell, deliver or procure to be delivered petroleum products, and petitioner, as distributor, will purchase, receive and pay for its purchases from respondent. The two Agreements had a period of one year, commencing on October 2001 to October 2002, which shall continue on an annual basis unless terminated by either party upon thirty days written notice to the other prior to the expiration of the original term or any extension thereof.

Section 6.3 of the Distributorship Agreement provides that respondent may require petitioner to put up securities, real or personal, or to furnish respondent a performance bond issued by a bonding company chosen by the latter to secure and answer for petitioner's outstanding account, and or faithful performance of her obligations as contained or arising out of the Agreement. Thus, petitioner applied for and was granted a credit line by the United Coconut Planters Bank (UCPB), International Exchange Bank (IEBank), and Security Bank Corporation (SBC). Petitioner also applied with the Asia United Bank (AUB) an irrevocable domestic standby letter of credit in favor of respondent. All these banks separately executed several undertakings setting the terms and conditions governing the drawing of money by respondent from these banks.

Petitioner allegedly failed to pay her obligations to respondent despite demand, thus, respondent tried to withdraw from these bank undertakings.

Petitioner then filed with the Regional Trial Court (RTC) of Quezon City separate petitions3 against the banks for declaration of nullity of the several bank undertakings and domestic letter of credit which they issued with the application for the issuance of a temporary restraining order (TRO) and writ of preliminary injunction. The cases were later consolidated and were assigned to Branch 101. Petitioner asked for the

annulment of the bank undertakings/letter of credit which she signed on the ground that the prevailing market rate at the time of respondent's intended drawings with which petitioner will be charged of as interests and penalties is oppressive, exorbitant, unreasonable and unconscionable rendering it against public morals and policy; and that to make her automatically liable for millions of pesos on the bank undertakings, these banks merely required the submission of a mere certification from the company (respondent) that the customer (petitioner) has not paid its account (and its statement of account of the client) without first verifying the truthfulness of the alleged petitioner's total liability to the drawer thereon. Therefore, such contracts are oppressive, unreasonable and unconscionable as they would result in her obtaining several millions of liability.

On November 28, 2002, a hearing was conducted for the issuance of the TRO and the writ of preliminary injunction wherein the petitioner and the bank representatives were present. On query of the respondent Judge Normandie Pizarro (Judge Pizarro) to the bank representatives with regard to the eventual issuance of the TRO, the latter all replied that they will abide by the sound judgment of the court. The court then issued an Order4granting the TRO and requiring petitioner to implead respondent as an indispensable party and for the latter to submit its position paper on the matter of the issuance of the injunction. Petitioner and respondent submitted their respective position papers.

On December 17, 2002, the RTC rendered an Order,5 the dispositive portion of which reads:

ACCORDINGLY, let a Writ of Preliminary Injunction be issued restraining and enjoining herein Respondent UCPB, IEB, SB and AUB from releasing any funds to SBDI, pursuant to the Bank Undertakings and/or Domestic Standby Letter of Credit until further orders from this Court. Consequently, Petitioner is hereby DIRECTED to post a bond in the amount of TEN MILLION PESOS (P10,000,000.00), to answer for whatever damages respondent banks and SBDI may suffer should this Court finally decide that petitioner was not entitled thereto. 6

The RTC found that both respondent and petitioner have reasons for the enforcement or non-enforcement of the bank undertakings, however, as to whether said reasons were justifiable or not, in view of the attending circumstances, the RTC said that these can only be determined after a full blown trial. It ruled that the outright denial of petitioner's prayer for the issuance of injunction, even if the evidence warranted the reasonable probability that real injury will occur if the relief for shall not be granted in favor of petitioner, will not serve the ends of justice.

Respondent filed with the CA a petition for certiorari with prayer for the issuance of a TRO and writ of preliminary injunction against respondent Judge Pizarro and petitioner. Subsequently, petitioner filed her Comment and respondent filed its Reply.

On July 4, 2003, the CA issued a Resolution7 granting the TRO prayed for by respondent after finding that it was apparent that respondent has a legal right under the bank undertakings issued by UCPB, SBC, and IEBank; and that until those

http://www.lawphil.net/judjuris/juri2010/dec2010/gr_162575_2010.html#fnt7







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undertakings were nullified, respondent's rights under the same should be maintained.

On July 11, 2003, the CA issued a Supplemental Resolution8 wherein the Domestic Standby Letter of Credit issued by AUB was ordered included among the bank undertakings, to which respondent has a legal right.

On October 17, 2003, the CA rendered its assailed Decision, the decretal portion of which reads:

WHEREFORE, the petition is hereby GRANTED. The Order dated December 17, 2002 is hereby ANNULLED AND SET ASIDE. The writ of preliminary injunction issued by the lower court is hereby LIFTED.9

In so ruling, the CA said that the grant or denial of an injunction rests on the sound discretion of the RTC which should not be intervened, except in clear cases of abuse. Nonetheless, the CA continued that the RTC should avoid issuing a writ of preliminary injunction which would, in effect, dispose of the main case without trial. It found that petitioner was questioning the validity of the bank undertakings and letter of credit for being oppressive, unreasonable and unconscionable. However, as provided under the law, private transactions are presumed to be fair and regular and that a person takes ordinary care of his concerns. The CA ruled that the RTC's issuance of the injunction, which was premised on the abovementioned justification, would be a virtual acceptance of petitioner's claim, thus, already a prejudgment of the main case. It also said that contracts are presumed valid until they are voided by a court of justice, thus, until such time that petitioner has presented sufficient evidence to rebut such presumption, her legal right to the writ is doubtful.

As to petitioner's claim of respondent's non-filing of a motion for reconsideration before resorting to a petition forcertiorari, the CA said that it is not a rigid rule, as jurisprudence had said, that when a definite question has been properly raised, argued and submitted in the RTC and the latter had decided the question, a motion for reconsideration is no longer necessary before filing a petition for certiorari. The court found that both parties had fully presented their sides on the issuance of the writ of preliminary injunction and that the RTC had squarely resolved the issues presented by both parties. Thus, respondent could not be faulted for not filing a motion for reconsideration.

In a Resolution dated March 5, 2004, petitioner's motion for reconsideration was denied.

Hence, this petition, wherein petitioner raises the following assignment of errors:

I. THE HONORABLE COURT OF APPEALS A QUO COMMITTED A SERIOUS AND REVERSIBLE ERROR IN GIVING DUE COURSE AND GRANTING THE PETITION FOR CERTIORARI FILED BY PRIVATE RESPONDENT SBDI, DESPITE THE FACT THAT THE ORIGINAL

PARTIES IN THE TRIAL COURT, WHO ARE EQUALLY MANDATED BY THE QUESTIONED ORDER OF THE TRIAL COURT, NAMELY; UCPB, IEBANK, SBC AND AUB, AS DEFENDANTS IN THE MAIN CASE, WERE NOT IMPLEADED AS INDISPENSABLE PARTIES IN THE PETITION.

II. THE HONORABLE COURT OF APPEALS A QUO COMMITTED A SERIOUS AND REVERSIBLE ERROR IN GIVING DUE COURSE AND GRANTING PRIVATE RESPONDENT SBDI'S PETITION WHEN THE LATTER ADMITTEDLY FAILED TO FILE A PRIOR MOTION FOR RECONSIDERATION BEFORE THE TRIAL COURT, MORESO WHEN INDISPENSABLE PARTIES WERE NOT IMPLEADED WHICH SHOULD HAVE RENDERED THE COURT OF APPEALS IN WANT OF JURISDICTION TO ACT.10

Petitioner claims that the CA decision is void for want of authority of the CA to act on the petition as the banks should have been impleaded for being indispensable parties, since they are the original party respondents in the RTC; that the filing with the CA of respondent's petition for certiorari emanated from the RTC Order wherein the banks were the ones against whom the questioned Order was issued; that the banks are the ones who stand to release hundred millions of pesos which respondent sought to draw from the questioned bank undertakings and domestic standby letter of credit through the certiorari proceedings, thus, they should be given an opportunity to be heard. Petitioner claims that even the CA recognized the banks' substantial interest over the subject matter of the case when, despite not being impleaded as parties in the petition filed by respondent, the CA also notified the banks of its decision.

Petitioner argues that a petition for certiorari filed without a prior motion for reconsideration is a premature action and such omission constitutes a fatal infirmity; that respondent explained its omission only when petitioner already brought the same to the attention of the CA, thus, a mere afterthought and an attempt to cure the fatal defects of its petition.

In its Comment, respondent contends that the banks which issued the bank undertakings and letter of credit are not indispensable parties in the petition for certiorari filed in the CA. Respondent argues that while the RTC preliminarily resolved the issue of whether or not petitioner was entitled to an injunctive relief, and the enforcement of any decision granting such would necessarily involve the banks, the resolution of the issue regarding the injunction does not require the banks' participation. This is so because on one hand the entitlement or non-entitlement to an injunction is a matter squarely between petitioner and respondent, the latter being the party that is ultimately enjoined from benefiting from the banks' undertakings. On the other hand, respondent contends that the issue resolved by the CA was whether or not the RTC gravely abused its discretion in granting the injunctive relief to respondent; that while the enforcement of any decision enjoining the implementation of the injunction issued by the RTC would affect the banks, the resolution of whether there is grave abuse of discretion committed by the RTC does not require the banks' participation.




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Respondent claims that while as a rule, a motion for reconsideration is required before filing a petition forcertiorari, the rule admits of exceptions, which are, among others: (1) when the issues raised in the certiorariproceedings have been duly raised and passed upon by the RTC or are the same as those raised and passed upon in the RTC; (2) there is an urgent necessity and time is of the essence for the resolution of the issues raised and any further delay would prejudice the interests of the petitioner; and (3) the issue raised is one purely of law, which are present in respondent's case.

In her Reply, petitioner claims that the decree that will compel and order the banks to release any funds to respondent pending the resolution of her petition in the RTC will have an injurious effect upon her rights and interest. She reiterates her arguments in her petition.

Respondent filed a Rejoinder saying that it is misleading for petitioner to allege that the decree sought by respondent before the CA is directed against the banks; that even the dispositive portion of the CA decision did not include any express directive to the banks; that there was nothing in the CA decision which compelled and ordered the banks to release funds in favor of respondent as the CA decision merely annulled the RTC Order and lifted the writ of preliminary injunction. Respondent contends that the banks are not persons interested in sustaining the RTC decision as this was obvious from the separate answers they filed in the RTC wherein they uniformly maintained that the bank undertakings/letter of credit are not oppressive, unreasonable and unconscionable. Respondent avers that petitioner is the only person interested in upholding the injunction issued by the RTC, since it will enable her to prevent the banks from releasing funds to respondent. Respondent insists that petitioner's petition before the RTC and the instant petition have caused and continues to cause respondent grave and irreparable damage.

Both parties were then required to file their respective memoranda, in which they complied.

Petitioner's insistence that the banks are indispensable parties, thus, should have been impleaded in the petition for certiorari filed by respondent in the CA, is not persuasive.

In Arcelona v. Court of Appeals,11 we stated the nature of indispensable party, thus:

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 injuring or affecting that interest, a party who has not only an interest in the subject matter of the controversy, but also has an interest of such 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. It has also been considered that an indispensable party is a person in whose absence there cannot be a determination between the parties already before the court which is effective, complete, or equitable. Further, an indispensable party is one who must be included in an action before it may properly go forward.

A person is not an indispensable party, however, if his interest in the controversy or subject matter is separable from the interest of the other parties, so that it will not necessarily be directly or injuriously affected by a decree which does complete justice between them. Also, a person is not an indispensable party if his presence would merely permit complete relief between him and those already parties to the action, or if he has no interest in the subject matter of the action. It is not a sufficient reason to declare a person to be an indispensable party that his presence will avoid multiple litigation.12

Applying the foregoing, we find that the banks are not indispensable parties in the petition for certiorari which respondent filed in the CA assailing the RTC Order dated December 17, 2002. In fact, several circumstances would show that the banks are not parties interested in the matter of the issuance of the writ of preliminary injunction, whether in the RTC or in the CA.

First. During the hearing of petitioner's prayer for the issuance of a TRO, the RTC, in open court, elicited from the lawyer-representatives of the four banks their position in the event of the issuance of the TRO, and all these representatives invariably replied that they will abide and/or submit to the sound judgment of the court.13

Second. When the RTC issued its Order dated December 17, 2002 granting the issuance of the writ of preliminary injunction, the banks could have challenged the same if they believe that they were aggrieved by such issuance. However, they did not, and such actuations were in consonance with their earlier position that they would submit to the sound judgment of the RTC.

Third. When respondent filed with the CA the petition for certiorari with prayer for the issuance of a TRO and writ of preliminary injunction, and a TRO was subsequently issued, copies of the resolution were also sent14 to the banks, although not impleaded, yet the latter took no action to question their non-inclusion in the petition. Notably, the SBC filed an Urgent Motion for Clarification15 on whether or not the issuance of the TRO has the effect of restraining the bank from complying with the writ of preliminary injunction issued by the RTC or nullifying /rendering ineffectual the said writ. In fact, SBC even stated that the motion was filed for no other purpose, except to seek proper guidance on the issue at hand so that whatever action or position it may take with respect to the CA resolution will be consistent with its term and purposes.

Fourth. When the CA rendered its assailed Decision nullifying the injunction issued by the RTC, and copies of the decision were furnished these banks, not one of these banks ever filed any pleading to assail their non-inclusion in the certiorari proceedings.

Indeed, the banks have no interest in the issuance of the injunction, but only the petitioner. The banks' interests as defendants in the petition for declaration of nullity of their bank undertakings filed against them by petitioner in the RTC are separable from the interests of petitioner for the issuance of the injunctive relief.






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Moreover, certiorari, as a special civil action, is an original action invoking the original jurisdiction of a court to annul or modify the proceedings of a tribunal, board or officer exercising judicial or quasi-judicial functions.16 It is an original and independent action that is not part of the trial or the proceedings on the complaint filed before the trial court.17 Section 5, Rule 65 of the Rules of Court provides:

Section 5. Respondents and costs in certain cases. - When the petition filed relates to the acts or omissions of a judge, court, quasi-judicial agency, tribunal, corporation, board, officer or person, the petitioner shall join, as private respondent or respondents with such public respondent or respondents. the person or persons interested in sustaining the proceedings in the court; and it shall be the duty of such private respondents to appear and defend, both in his or their own behalf and in behalf of the public respondent or respondents affected by the proceedings, and the costs awarded in such proceedings in favor of the petitioner shall be against the private respondents only, and not against the judge, court, quasi-judicial agency, tribunal, corporation, board, officer or person impleaded as public respondent or respondents.

x x x x

Clearly, in filing the petition for certiorari, respondent should join as party defendant with the court or judge, the person interested in sustaining the proceedings in the court, and it shall be the duty of such person to appear and defend, both in his own behalf and in behalf of the court or judge affected by the proceedings. In this case, there is no doubt that it is only the petitioner who is the person interested in sustaining the proceedings in court since she was the one who sought for the issuance of the writ of preliminary injunction to enjoin the banks from releasing funds to respondent. As earlier discussed, the banks are not parties interested in the subject matter of the petition. Thus, it is only petitioner who should be joined as party defendant with the judge and who should defend the judge's issuance of injunction.

Notably, the dispositive portion of the assailed CA Decision declared the annulment of the Order dated December 17, 2002 and lifted the writ of preliminary injunction issued by the RTC. The decision was directed against the order of the judge. There was no order for the banks to release the funds subject of their undertakings/letter of credit although such order to lift the injunction would ultimately result to the release of funds to respondent.

Petitioner contends that respondent filed its petition for certiorari in the CA without a prior motion for reconsideration, thus, constitutes a fatal infirmity.

We do not agree.

Concededly, the settled rule is that a motion for reconsideration is a condition sine qua non for the filing of a petition for certiorari.18 Its purpose is to grant an opportunity for the court to correct any actual or perceived error attributed to it by the re-examination of the legal and factual circumstances of the case.19 The rule is, however, circumscribed by well-defined exceptions, such as (a) where the order is a

patent nullity, as where the court a quo had no jurisdiction; (b) where the questions raised in the certiorari proceeding have been duly raised and passed upon by the lower court, or are the same as those raised and passed upon in the lower court; (c) where there is an urgent necessity for the resolution of the question and any further delay would prejudice the interests of the Government or of the petitioner or the subject matter of the action is perishable; (d) where, under the circumstances, a motion for reconsideration would be useless; (e) where petitioner was deprived of due process and there is extreme urgency for relief; (f) where, in a criminal case, relief from an order of arrest is urgent and the granting of such relief by the trial court is improbable; (g) where the proceedings in the lower court are a nullity for lack of due process; (h) where the proceedings were ex parte, or in which the petitioner had no opportunity to object; and (i) where the issue raised is one purely of law or where public interest is involved.20

Respondent explained their omission of filing a motion for reconsideration before resorting to a petition forcertiorari based on exceptions (b), (c) and (i). The CA brushed aside the filing of the motion for reconsideration based on the ground that the questions raised in the certiorari proceedings have been duly raised and passed upon by the lower court, or are the same as those raised and passed upon in the lower court.lawp++!1 We agree.

Respondent had filed its position paper in the RTC stating the reasons why the injunction prayed for by petitioner should not be granted. However, the RTC granted the injunction. Respondent filed a petition for certiorari with the CA and presented the same arguments which were already passed upon by the RTC. The RTC already had the opportunity to consider and rule on the question of the propriety or impropriety of the issuance of the injunction. We found no reversible error committed by the CA for relaxing the rule since respondent's case falls within the exceptions.

Petitioner's reliance on Philippine National Construction Corporation v. National Labor Relations Commission,21where we required the filing of a motion for reconsideration before the filing of a petition for certiorarinotwithstanding petitioner's invocation of the recognized exception, i.e., the same questions raised before the public respondent were to be raised before us, is not applicable. In said case, we ruled that petitioner failed to convince us that his case falls under the recognized exceptions as the basis was only petitioner's bare allegation. In this case before us, the CA found, and to which we agree, that both parties have fully presented their respective arguments in the RTC on petitioner's prayer for the issuance of the writ of preliminary injunction, and that respondent's argument that petitioner is not entitled to the injunctive relief had been squarely resolved by the RTC.

WHEREFORE, the petition is DENIED. The Decision dated October 17, 2003 and the Resolution dated March 5, 2004 of the Court of Appeals, in CA-G.R. SP No. 74629, are hereby AFFIRMED.

SO ORDERED.







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G.R. No. 121510 November 23, 1995

FABIANA C. VDA. DE SALAZAR, petitioner, vs.COURT OF APPEALS, PRIMITIVO NEPOMUCENO and EMERENCIANA NEPOMUCENO, respondents.

HERMOSISIMA, JR., J.:

Where the defendant in an ejectment case dies before the rendition by the trial court of its decision therein, does the trial court's failure to effectuate a substitution of heirs before its rendition of judgment render such judgment jurisdictionally infirm?

On July 23, 1970, both private respondents Primitive Nepomuceno and Emerenciana Nepomuceno filed separate complaints 1 with the then Court of Agrarian Relations of Malolos, Bulacan, for ejectment on the ground of personal cultivation and conversion of land for useful non-agricultural purposes against petitioner's deceased husband, Benjamin Salazar. After protracted proceedings in the agrarian court and then the Regional Trial Court 2 spanning from 1970 to 1993, the trial court rendered its joint decision 3 in favor of private respondents. An appeal 4 therefrom was interposed in the name of petitioner's deceased husband on the ground that private respondents herein failed to satisfy the requirements pertaining to personal cultivation and conversion of the landholdings into non-agricultural uses. The Court of Appeals rejected such contention upon finding that the record was replete with evidence justifying private respondents' assertion of their right of cultivation and conversion of their landholdings. 5

Almost a year after the termination of that appeal, the same trial court decision subject thereof was once again assailed before the Court of Appeals through a petition 6 for annulment of judgment. Herein petitioner assailed the same trial court decision as having been rendered by a court that did not have jurisdiction over her and the other heirs of her deceased husband because notwithstanding the fact that her husband had already died on October 3, 1991, the trial court still proceeded to render its decision on August 23, 1993 without effecting the substitution of heirs in accordance with Section 17, Rule 3, of the Rules of Court thereby depriving her of her day in court.

Petitioner, not having asserted the matter of fraud or collusion in her petition for annulment of judgment, the Court of Appeals decided the same on the basis of the sole issue of non-jurisdiction resulting from the alleged deprivation of petitioner's right to due process and ruled in favor of the validity of the challenged decision. 7Petitioner filed a motion for reconsideration of the decision of the appellate court reiterating the trial court's lack of jurisdiction over the heirs of petitioner's deceased husband as a consequence of the failure of the trial court to effectuate a valid substitution of heirs.

Said motion was denied in a resolution promulgated on August 14, 1995. Hence this petition.

The petition is bereft of merit.

The need for substitution of heirs is based on the right to due process accruing to every party in any proceeding. 8The rationale underlying this requirement in case a party dies during the pendency of proceedings of a nature not extinguished by such death, is that

. . . the exercise of judicial power to hear and determine a cause implicitly presupposes in the trial court, amongst other essentials, jurisdiction over the persons of the parties. That jurisdiction was inevitably impaired upon the death of the protestee pending the proceedings below such that unless and until a legal representative is for him duly named and within the jurisdiction of the trial court, no adjudication in the cause could have been accorded any validity or binding effect upon any party, in representation of the deceased, without trenching upon the fundamental right to a day in court which is the very essence of the constitutionally enshrined guarantee of due process. 9

We are not unaware of several cases 10 where we have ruled that a party having died in an action that survives, the trial held by the court without appearance of the deceased's legal representative or substitution of 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. This general rule notwithstanding, in denying petitioner's motion for reconsideration, the Court of Appeals correctly ruled that formal substitution of heirs is not necessary when the heirs themselves voluntarily appeared, participated in the case and presented evidence in defense of deceased defendant. Attending the case at bench, after all, are these particular circumstances which negate petitioner's belated and seemingly ostensible claim of violation of her rights to due process. 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. Viewing the rule on substitution of heirs in this light, the Court of Appeals, in the resolution denying petitioner's motion for reconsideration, thus expounded:

Although the jurisprudential rule is that failure to make the substitution is a jurisdictional defect, it should be noted that the

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purpose of this procedural rule is to comply with due process requirements. The original party having died, he could not continue to defend himself in court despite the fact that the action survived him. For the case to continue, the real party in interest must be substituted for the deceased. The real party in interest is the one who would be affected by the judgment. It could be the administrator or executor or the heirs. In the instant case, the heirs are the proper substitutes. Substitution gives them the opportunity to continue the defense for the deceased. Substitution is important because such opportunity to defend is a requirement to comply with due process. Such substitution consists of making the proper changes in the caption of the case which may be called the formal aspect of it. Such substitution also includes the process of letting the substitutes know that they shall be bound by any judgment in the case and that they should therefore actively participate in the defense of the deceased. This part may be called the substantive aspect. This is the heart of the procedural rule because this substantive aspect is the one that truly embodies and gives effect to the purpose of the rule. It is this court's view that compliance with the substantive aspect of the rule despite failure to comply with the formal aspect may be considered substantial compliance. Such is the situation in the case at bench because the only inference that could be deduced from the following facts was that there was active participation of the heirs in the defense of the deceased after his death:

1. The original lawyer did not stop representing the deceased. It would be absurd to think that the lawyer would continue to represent somebody if nobody is paying him his fees. The lawyer continued to represent him in the litigation before the trial court which lasted for about two more years. A dead party cannot pay him any fee. With or without payment of fees, the fact remains that the said counsel was allowed by the petitioner who was well aware of the instant litigation to continue appearing as counsel until August 23, 1993 when the challenged decision was rendered;

2. After the death of the defendant, his wife, who is the petitioner in the instant case, even testified in the court and declared that her husband is already deceased. She knew therefore that there was a litigation against her husband and that somehow her interest and those of her children were involved;

3. This petition for annulment of judgment was filed only after the appeal was decided against the defendant on April 3, 1995, more than one and a half year (sic) after the decision was rendered (even if we were to give credence to petitioner's manifestation that she was not aware that an appeal had been made);

4. The Supreme Court has already established that there is such a thing as jurisdiction by estoppel. This principle was established even in cases where jurisdiction over the subject matter was being questioned. In the instant case, only jurisdiction over the person of the heirs is in issue. Jurisdiction over the person may be acquired by the court more easily than jurisdiction over the subject matter. Jurisdiction over the person may be acquired by the simple appearance of the person in court as did herein petitioner appear;

5. The case cited by the herein petitioner (Ferreria et al. vs. Manuela Ibarra vda. de Gonzales, et al.) cannot be availed of to support the said petitioner's contention relative to non-acquisition of jurisdiction by the court. In that case, Manolita Gonzales was not served notice and, more importantly, she never appeared in court, unlike herein petitioner who appeared and even testified regarding the death of her husband. 11

Consequently, we rule that, as in the case at bench, the defendant in an ejectment case having died before the rendition by the trial court of its decision therein, its failure to effectuate a formal substitution of heirs before its rendition of judgment, does not invalidate such judgment where the heirs themselves appeared before the trial court, participated in the proceedings therein, and presented evidence in defense of deceased defendant, it undeniably being evident that the heirs themselves sought their day in court and exercised their right to due process.

Respondent Court of Appeals also correctly ruled that ejectment, being an action involving recovery of real property, is a real action which as such, is not extinguished by the defendant's death.

. . . The question as to whether an action survives or not depends on the nature of the action and the damage sued for. In the causes of action which survive, the wrong complained affects primarily and principally property and property rights, the injuries to the person being merely incidental, while in the causes of action which do not survive, the injury complained of is to the person, the property and rights of property affected being incidental. 12

There is no dispute that an ejectment case survives the death of a party, which death did not extinguish the deceased's civil personality. 13 More significantly, a judgment in an ejectment case is conclusive between the parties and their successors in interest by title subsequent to the commencement of the action. 14 Thus, we have held that:

. . . In such a case and considering that the supervening death of appellant did not extinguish her civil personality, the appellate court was well within its jurisdiction to proceed as it did with the case.

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There is no showing that the appellate court's proceedings in the case were tainted with irregularities.

It appears that petitioners are heirs of Adela Salindon. In fact, it was because of this relationship that the petitioners were able to transfer the title of Adela Salindon over the subject lot to their names. . . . Considering all this, the appellate decision is binding and enforceable against the petitioners as successors-in-interest by title subsequent to the commencement of the action (Section 49 [b] Rule 39, Rules of Court). Furthermore, . . . judgment in an ejectment case may be enforced not only against defendants therein but also against the members of their family, their relatives, or privies who derive their right of possession from the defendants (Ariem v. De los Angeles, 49 SCRA 343). Under the circumstances of this case, the same rule should apply to the successors-in-interest . . . . 15

While it is true that a decision in an action for ejectment is enforceable not only against the defendant himself but also against members of his family, his relatives, and his privies who derived their right of possession from the defendant and his successors-in-interest, 16 it had been established that petitioner had, by her own acts, submitted to the jurisdiction of the trial court. She is now estopped to deny that she had been heard in defense of her deceased husband in the proceedings therein. As such, this petition evidently has no leg to stand on.

WHEREFORE, the instant petition is dismissed for lack of merit. Costs against petitioner.

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

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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 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

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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 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 bycertiorari.

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 onquasi-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

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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, 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 providingthat —

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. 117355 April 5, 2002

RIVIERA FILIPINA, INC., petitioner, vs.COURT OF APPEALS, JUAN L. REYES, (now deceased), substituted by his heirs, namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes, PHILIPPINE CYPRESS CONSTRUCTION & DEVELOPMENT CORPORATION, CORNHILL TRADING CORPORATION and URBAN DEVELOPMENT BANK,respondents.

DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2 dated June 6, 1994 in CA-G.R. CV No. 26513 affirming the Decision3 dated March 20, 1990 of the Regional Trial Court of Quezon City, Branch 89 dismissing Civil Case No. Q-89-3371.

Civil Case No. Q-89-3371 is a suit instituted by Riviera Filipina, Inc. (Riviera) on August 31, 19894 to compel the defendants therein Juan L. Reyes, now deceased, Philippine Cypress Construction & Development Corporation (Cypress), Cornhill Trading Corporation (Cornhill) and Urban Development Bank to transfer the title covering a 1,018 square meter parcel of land located along EDSA, Quezon City for alleged violation of Riviera’s right of first refusal.

It appears that on November 23, 1982, respondent Juan L. Reyes (Reyes, for brevity) executed a Contract of Lease with Riviera. The ten-year (10) renewable lease of Riviera, which started on August 1, 1982, involved a 1,018 square meter parcel of land located along Edsa, Quezon City, covered and described in Transfer Certificate of Title No. 186326 of the Registry of Deeds of Quezon City in the name of Juan L. Reyes.5

The said parcel of land was subject of a Real Estate Mortgage executed by Reyes in favor of Prudential Bank. Since the loan with Prudential Bank remained unpaid upon maturity, the mortgagee bank extrajudicially foreclosed the mortgage thereon. At the public auction sale, the mortgagee bank emerged as the highest bidder. The redemption period was set to expire on March 7, 1989. Realizing that he could not possibly raise in time the money needed to redeem the subject property, Reyes decided to sell the same.6

Since paragraph 11 of the lease contract expressly provided that the "LESSEE shall have the right of first refusal should the LESSOR decide to sell the property during the term of the lease,"7 Reyes offered to sell the subject property to Riviera, through its President Vicente C. Angeles, for Five Thousand Pesos (P5,000.00) per square meter. However, Angeles bargained for Three Thousand Five Hundred Pesos (P3,500.00) per square meter. Since Reyes was not amenable to the said price and insisted on Five Thousand Pesos (P5,000.00) per square meter, Angeles requested Reyes to allow him to consult the other members of the Board of Directors of Riviera.8

Seven (7) months later, or sometime in October 1988, Angeles communicated with Reyes Riviera’s offer to purchase the subject property for Four Thousand Pesos (P4,000.00) per square meter. However, Reyes did not accept the offer. This time he asked for Six Thousand Pesos (P6,000.00) per square meter since the value of the property in the area had appreciated in view of the plans of Araneta to develop the vicinity.9

In a letter dated November 2, 1988, Atty. Irineo S. Juan, acting as counsel for Reyes, informed Riviera that Reyes was selling the subject property for Six Thousand Pesos (P6,000.00) per square meter, net of capital gains and transfer taxes, registration fees, notarial fees and all other attendant charges. He further stated therein that:

In this connection, conformably to the provisions stipulated in Paragraph/Item No. 11 of your CONTRACT OF LEASE (Doc. No. 365, Page No. 63, Book No. X, Series of 1982, of the Notarial Registry of Notary Public Leovillo S. Agustin), notice is served upon your goodselves for you to exercise "the right of first refusal" in the sale of said property, for which purpose you are hereby given a period of ten (10) days from your receipt hereof within which to thus purchase the same under the terms and conditions aforestated, and failing which you shall be deemed to have thereby waived such pre-emptive right and my client shall thereafter be absolutely free to sell the subject property to interested buyers.10

To answer the foregoing letter and confirm their telephone conversation on the matter, Riviera sent a letter dated November 22, 1988 to Atty. Juan, counsel for Reyes, expressing Riviera’s interest to purchase the subject property and that Riviera is already negotiating with Reyes which will take a couple of days to formalize.11 Riviera increased its offer to Five Thousand Pesos (P5,000.00) per square meter but Reyes did not accede to said price as it was still lower than his quoted price of Six Thousand Pesos (P6,000.00) per square meter.12 Angeles asked Reyes to give him until the end of November 1988 for Riviera’s final decision. 1âwphi1.nêt

In a letter dated December 2, 1988, Angeles wrote Reyes confirming Riviera’s intent to purchase the subject property for the fixed and final13 price of Five Thousand Pesos (P5,000.00) per square meter, complete payment within sixty (60) to ninety (90) days which "offer is what we feel should be the market price of your property." Angeles asked that the decision of Reyes and his written reply to the offer be given within fifteen (15) days since there are also other properties being offered to them at the moment.14

In response to the foregoing letter, Atty. Juan sent a letter to Riviera dated December 5, 1988 informing Riviera that Riviera’s offer is not acceptable to his client. He further expressed, "let it be made clear that, much as it is the earnest desire of my client to really give you the preference to purchase the subject property, you have unfortunately failed to take advantage of such opportunity and thus lost your right of first refusal in sale of said property."15

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Meanwhile, on December 4, 1988, Reyes confided to Rolando P. Traballo, a close family friend and President of Cypress, his predicament about the nearing expiry date of the redemption period of the foreclosed mortgaged property with Prudential Bank, the money for which he could not raise on time thereby offering the subject property to him for Six Thousand Pesos (P6,000.00) per square meter. Traballo expressed interest in buying the said property, told Reyes that he will study the matter and suggested for them to meet the next day.16

They met the next day, December 5, 1988, at which time Traballo bargained for Five Thousand Three Hundred Pesos (P5,300.00) per square meter. After considering the reasons cited by Traballo for his quoted price, Reyes accepted the same. However, since Traballo did not have the amount with which to pay Reyes, he told the latter that he will look for a partner for that purpose.17 Reyes told Traballo that he had already afforded Riviera its right of first refusal but they cannot agree because Riviera’s final offer was for Five Thousand Pesos (P5,000.00) per square meter.18

Sometime in January 1989, apprehensive of the impending expiration in March 1989 of the redemption period of the foreclosed mortgaged property with Prudential Bank and the deal between Reyes and Traballo was not yet formally concluded, Reyes decided to approach anew Riviera. For this purpose, he requested his nephew, Atty. Estanislao Alinea, to approach Angeles and find out if the latter was still interested in buying the subject property and ask him to raise his offer for the purchase of the said property a little higher. As instructed, Atty. Alinea met with Angeles and asked the latter to increase his offer of Five Thousand Pesos (P5,000.00) per square meter but Angeles said that his offer is Five Thousand Pesos (P5,000.00) per square meter.19

Following the meeting, Angeles sent a letter dated February 4, 1989 to Reyes, through Atty. Alinea, that his offer is Five Thousand Pesos (P5,000.00) per square meter payment of which would be fifty percent (50%) down within thirty (30) days upon submission of certain documents in three (3) days, the balance payable in five (5) years in equal monthly installments at twelve percent (12%) interest in diminishing balance.20 With the terms of this second offer, Angeles admittedly downgraded the previous offer of Riviera on December 2, 1988.21

Atty. Alinea conveyed to Reyes Riviera’s offer of Five Thousand Pesos (P5,000.00) per square meter but Reyes did not agree. Consequently, Atty. Alinea contacted again Angeles and asked him if he can increase his price. Angeles, however, said he cannot add anymore.22 Reyes did not expressly offer his subject property to Riviera at the price of Five Thousand Three Hundred Pesos (P5,300.00) per square meter.23

Sometime in February 1989, Cypress and its partner in the venture, Cornhill Trading Corporation, were able to come up with the amount sufficient to cover the redemption money, with which Reyes paid to the Prudential Bank to redeem the subject property.24 On May 1, 1989, a Deed of Absolute Sale covering the subject property was executed by Reyes in favor of Cypress and Cornhill for the consideration of Five Million Three Hundred Ninety Five Thousand Four Hundred Pesos (P5,395,400.00).25 On the same date, Cypress and Cornhill mortgaged the subject property to Urban Development Bank for Three Million Pesos (P3,000,000.00).26

Thereafter, Riviera sought from Reyes, Cypress and Cornhill a resale of the subject property to it claiming that its right of first refusal under the lease contract was violated. After several unsuccessful attempts,27 Riviera filed the suit to compel Reyes, Cypress, Cornhill and Urban Development Bank to transfer the disputed title to the land in favor of Riviera upon its payment of the price paid by Cypress and Cornhill.

Following trial on the merits, the trial court dismissed the complaint of Riviera as well as the counterclaims and cross-claims of the other parties.28 It ruled that the defendants therein did not violate Riviera’s right of first refusal, ratiocinating in this wise:

Resolving the first issue, this Court takes note that since the beginning of the negotiation between the plaintiff and defendant Reyes for the purchase of the property, in question, the plaintiff was firm and steadfast in its position, expressed in writing by its President Vicente Angeles, that it was not willing to buy the said property higher than P5,000.00, per square meter, which was far lower than the asking price of defendant Reyes for P6,000.00, per square meter, undoubtedly, because, in its perception, it would be difficult for other parties to buy the property, at a higher price than what it was offering, since it is in occupation of the property, as lessee, the term of which was to expire after about four (4) years more.

On the other hand, it was obvious, upon the basis of the last ditch effort of defendant Reyes, thru his nephew, Atty. Alinea, to have the plaintiff buy the property, in question, that he was willing to sell the said property at a price less than P6,000.00 and a little higher than P5,000.00, per square meter, precisely, because Atty. Alinea, in behalf of his uncle, defendant Reyes, sought plaintiff’s Angeles and asked him to raise his price a little higher, indicating thereby the willingness of defendant Reyes to sell said property at less than his offer of P6,000.00, per square meter.

This being the case, it can hardly be validly said by the plaintiff that he was deprived of his right of first refusal to buy the subject property at a price of P5,300.00, per square meter which is the amount defendants Cypress/Cornhill bought the said property from defendant Reyes. For, it was again given such an opportunity to exercise its right of first refusal by defendant Reyes had it only signified its willingness to increase a little higher its purchase price above P5,000.00, per square meter, when its President, Angeles, was asked by Atty. Alinea to do so, instead of adamantly sticking to its offer of only P5,000.00 per square meter, by reason of which, therefore, the plaintiff had lost, for the second time, its right of first refusal, even if defendant Reyes did not expressly offer to sell to it the subject land at P5,300.00, per square meter, considering that by the plea of Atty. Alinea, in behalf of defendant Reyes, for it to increase its price a little, the plaintiff is to be considered as having forfeited again its right of first refusal, it having refused to budged from its regid (sic) offer to buy the subject property at no more than P5,000.00, per square meter.














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As such, this Court holds that it was no longer necessary for the defendant Reyes to expressly and categorically offer to the plaintiff the subject property at P5,300.00, per square meter, in order that he can comply with his obligation to give first refusal to the plaintiff as stipulated in the Contract of Lease, the plaintiff having had already lost its right of first refusal, at the first instance, by refusing to buy the said property at P6,000.00, per square meter, which was the asking price of defendant Reyes, since to do so would be a useless ceremony and would only be an exercise in futility, considering the firm and unbending position of the plaintiff, which defendant Reyes already knew, that the plaintiff, at any event, was not amenable to increasing its price at over P5,000.00, per square meter.

Dissatisfied with the decision of the trial court, both parties appealed to the Court of Appeals.29 However, the appellate court, through its Special Seventh Division, rendered a Decision dated June 6, 1994 which affirmed the decision of the trial court in its entirety.30 In sustaining the decision of the trial court, the Court of Appeals adopted the above-quoted ratiocination of the trial court and further added:

To put things in its proper perspective in accordance with the peculiar attendant circumstances herein, particular stress should be given to RIVIERA’s uncompromising counter offer of only P5,000.00 per square meter on all the occasions when REYES offered the subject property to it. RIVIERA, in its letter to REYES dated December 2, 1988 (Exhibit "D", p. 68, Rollo) justified its rigid offer by saying that "the above offer is what we feel should be the market price of your property." If that be the case, We are convinced, the same manner that REYES was, that RIVIERA was unwilling to increase its counter offer at any present or future time. RIVIERA’s unilateral valuation of the subject property thus binds him, it cannot now be heard to claim that it could have upped its offer had it been informed of CYPRESS’ and CORNHILL’S offer of P5,000.00 (sic) per square meter. Defendants CYPRESS and CORNHILL were therefore right in saying that:

On the basic assumption that RIVIERA really meant what it said in its letter, DR. REYES could not be faulted for believing that RIVIERA was definitely NOT WILLING TO PAY MORE THAN P5,000.00 PER SQUARE METER ON HIS PROPERTY. The fault lies with the deceptive and insincere words of RIVIERA. Injustice (sic) and equity, RIVIERA must be deemed in estoppel in now belatedly asserting that it would have been willing to pay a price higher than P5,000.00 x x x." (Defendants-Appellees Cypress’ and Cornhill’s Brief, p. 8)

For this reason, no adverse inference can be drawn from REYES’ failure to disclose to RIVIERA the intervening counter-offer of CYPRESS and CORNHILL.

It would have been far different had REYES’ non-disclosure of CYPRESS’ and CORNHILL’s counter-offer to RIVIERA resulted in the sale of the subject

property at equal or less than RIVIERA’s offer; in which case, REYES would have been rightly accused of cunningly circumventing RIVIERA’s right of first refusal. But the incontrovertible antecedents obtaining here clearly reveal REYES’ earnest efforts in respecting RIVIERA’s contractual right to initially purchase the subject property. Not only once – but twice – did REYES approach RIVIERA, the last one being the most telling indication of REYES’ sincerest intention in RIVIERA eventually purchasing the subject property if only the latter would increase a little its offer of P5,000.00 per square meter. And to this REYES was desperately willing to accede to despite the financial quandary he was then in as the expiration of the redemption period drew closer and closer, and despite the better offer of CYPRESS and CORNHILL. REYES unquestionably had displayed good faith. Can the same be said of RIVIERA? We do not think so. It appears that RIVIERA all along was trying to push REYES’ back against the wall, for RIVIERA was well-aware of REYES’ precarious financial needs at that time, and by clinging to its offer, REYES might eventually succumb to its offer out of sheer desperation. RIVIERA was, to be frank, whimsically exercising its contractual right to the prejudice of REYES who had commendably given RIVIERA extra leeway in exercising it. And to this We say that no amount of jurisprudence RIVIERA might avail of for the purpose of construing the right of first refusal, however enlightening and persuasive they may be, will cover-up for its arrogant exercise of its right as can be gleaned from the factual premises. Equity in this case tilts in favor of defendants REYES, CYPRESS and CORNHILL that the consummated sale between them concerning the subject property be given this Court’s imprimatur, for if RIVIERA lost its opportunity to acquire it, it has only itself to blame. For after all, REYES’ fundamental and intrinsic right of ownership which necessarily carries with it the exclusive right to dispose of it to whoever he pleases, must ultimately prevail over RIVIERA’s right of first refusal which it unscrupulously tried to exercise.

From this decision, Riviera filed a motion for reconsideration,31 but the appellate court denied the same in a Resolution dated September 22, 1994.32

Hence, Riviera interposed the instant petition anchored on the following errors:33

I

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN RULING THAT PETITIONER RIVIERA FILIPINA, INC. ALREADY LOST ITS RIGHT OF FIRST REFUSAL.

II

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN NOT FINDING THAT IT WAS THE PETITIONER, NOT RESPONDENT JUAN L. REYES, WHICH HAD BEEN THOROUGHLY






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DECEIVED BY THE LATTER OUT OF ITS RIGHTS TO ITS CONTINUING PREJUDICE.

III

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN DENYING RECONSIDERATION.

IV

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN DECIDING PETITIONER’S APPEAL AT A TIME WHEN THE PRINCIPAL APPELLEE IS ALLEGEDLY DEAD AND NO PROPER SUBSTITUTION OF THE ALLEGED DECEASED PARTY HAS BEEN MADE; HENCE, THE DECISION OF THE COURT OF APPEALS AND ITS RESOLUTION DENYING RECONSIDERATION, IS NULL AND VOID.

At the outset, we note that, while Riviera alleges that the Court of Appeals committed grave abuse of discretion amounting to lack or excess of jurisdiction, the instant petition is, as it should be, treated as a petition for review under Rule 45 and not as a special civil action for certiorari under Rule 65 of the Revised Rules of Court, now the 1997 Rules of Civil Procedure.

The distinctions between Rule 45 and 65 are far and wide, the most notable of which is that errors of jurisdiction are best reviewed in a special civil action for certiorari under Rule 65, while errors of judgment are correctible only by appeal in a petition for review under Rule 45.34 The rationale for the distinction is simple. When a court exercises its jurisdiction an error committed while so engaged does not deprive it of the jurisdiction being exercised when the error is committed. If it did, every error committed by a court would deprive it of its jurisdiction and every erroneous judgment would be a void judgment. This cannot be allowed. The administration of justice would not countenance such a rule. Thus, an error of judgment that the court may commit in the exercise of its jurisdiction is not correctible through the original special civil action of certiorari.35 Appeal from a final disposition of the Court of Appeals, as in the case at bar, is by way of a petition for review under Rule 45.36

In the petition at bar, Riviera posits the view that its right of first refusal was totally disregarded or violated by Reyes by the latter’s sale of the subject property to Cypress and Cornhill. It contends that the right of first refusal principally amounts to a right to match in the sense that it needs another offer for the right to be exercised.

The concept and interpretation of the right of first refusal and the consequences of a breach thereof evolved in Philippine juristic sphere only within the last decade. It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie37 where the Court held that a lease with a proviso granting the lessee the right of first priority "all things and

conditions being equal" meant that there should be identity of the terms and conditions to be offered to the lessee and all other prospective buyers, with the lessee to enjoy the right of first priority. A deed of sale executed in favor of a third party who cannot be deemed a purchaser in good faith, and which is in violation of a right of first refusal granted to the lessee is not voidable under the Statute of Frauds but rescissible under Articles 1380 to 1381 (3) of the New Civil Code.

Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals,38 the Court en banc departed from the doctrine laid down in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a contract of sale which violated the right of first refusal. The Court held that the so-called "right of first refusal" cannot be deemed a perfected contract of sale under Article 1458 of the New Civil Code and, as such, a breach thereof decreed under a final judgment does not entitle the aggrieved party to a writ of execution of the judgment but to an action for damages in a proper forum for the purpose.

In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,39 the Court en bancreverted back to the doctrine in Guzman Bocaling & Co. v. Bonnevie stating that rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some incompatible and preferred right by the contract.

Thereafter in 1997, in Parañaque Kings Enterprises, Inc. v. Court of Appeals,40 the Court affirmed the nature of and the concomitant rights and obligations of parties under a right of first refusal. The Court, summarizing the rulings in Guzman, Bocaling & Co. v. Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the price for which they were finally sold to a third person should have likewise been first offered to the former. Further, there should be identity of terms and conditions to be offered to the buyer holding a right of first refusal if such right is not to be rendered illusory. Lastly, the basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer.

Thus, the prevailing doctrine is that a right of first refusal means identity of terms and conditions to be offered to the lessee and all other prospective buyers and a contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible.

However, we must remember that general propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis of isolated clinical classroom principles.41 Analysis and construction should not be limited to the words used in the contract, as they may not accurately reflect the parties’ true intent.42 The court must read a contract as the average person would read it and should not give it a strained or forced construction.43











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In the case at bar, the Court finds relevant and significant the cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration and in case of doubt, their contemporaneous and subsequent acts shall be principally considered.44 Where the parties to a contract have given it a practical construction by their conduct as by acts in partial performance, such construction may be considered by the court in construing the contract, determining its meaning and ascertaining the mutual intention of the parties at the time for contracting. The parties’ practical construction of their contract has been characterized as a clue or index to, or as evidence of, their intention or meaning and as an important, significant, convincing, persuasive, or influential factor in determining the proper construction of the contract.45

An examination of the attendant particulars of the case do not persuade us to uphold Riviera’s view. As clearly shown by the records and transcripts of the case, the actions of the parties to the contract of lease, Reyes and Riviera, shaped their understanding and interpretation of the lease provision "right of first refusal" to mean simply that should the lessor Reyes decide to sell the leased property during the term of the lease, such sale should first be offered to the lessee Riviera. And that is what exactly ensued between Reyes and Riviera, a series of negotiations on the price per square meter of the subject property with neither party, especially Riviera, unwilling to budge from his offer, as evidenced by the exchange of letters between the two contenders.

It can clearly be discerned from Riviera’s letters dated December 2, 1988 and February 4, 1989 that Riviera was so intractable in its position and took obvious advantage of the knowledge of the time element in its negotiations with Reyes as the redemption period of the subject foreclosed property drew near. Riviera strongly exhibited a "take-it or leave-it" attitude in its negotiations with Reyes. It quoted its "fixed and final" price as Five Thousand Pesos (P5,000.00) and not any peso more. It voiced out that it had other properties to consider so Reyes should decide and make known its decision "within fifteen days." Riviera, in its letter dated February 4, 1989, admittedly, even downgraded its offer when Reyes offered anew the property to it, such that whatever amount Reyes initially receives from Riviera would absolutely be insufficient to pay off the redemption price of the subject property. Naturally, Reyes had to disagree with Riviera’s highly disadvantageous offer.

Nary a howl of protest or shout of defiance spewed forth from Riviera’s lips, as it were, but a seemingly whimper of acceptance when the counsel of Reyes strongly expressed in a letter dated December 5, 1989 that Riviera had lost its right of first refusal. Riviera cannot now be heard that had it been informed of the offer of Five Thousand Three Hundred Pesos (P5,300.00) of Cypress and Cornhill it would have matched said price. Its stubborn approach in its negotiations with Reyes showed crystal-clear that there was never any need to disclose such information and doing so would be just a futile effort on the part of Reyes. Reyes was under no obligation to disclose the same. Pursuant to Article 133946 of the New Civil Code, silence or concealment, by itself, does not constitute fraud, unless there is a special duty to disclose certain facts, or unless according to good faith and the usages of commerce the communication should be made.47 We apply the general rule in the case at bar

since Riviera failed to convincingly show that either of the exceptions are relevant to the case at bar.

In sum, the Court finds that in the interpretation of the right of first refusal as understood by the parties herein, the question as to what is to be included therein or what is meant by the same, as in all other provisions of the contract, is for the parties and not for the court to determine, and this question may not be resolved by what the parties might have provided had they thought about it, which is evident from Riviera claims, or by what the court might conclude regarding abstract fairness.48

The Court would be rewriting the contract of Reyes and Riviera under the guise of construction were we to interpret the right of first refusal as Riviera propounds it, despite a contrary construction as exhibited by its actions. A court, even the Supreme Court, has no right to make new contracts for the parties or ignore those already made by them, simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal construction justifies the creation of a contract for the parties which they did not make themselves or the imposition upon one party to a contract of an obligation not assumed.49

On the last error attributed to the Court of Appeals which is the effect on the jurisdiction of the appellate court of the non-substitution of Reyes, who died during the pendency of the appeal, the Court notes that when Riviera filed its petition with this Court and assigned this error, it later filed on October 27, 1994 a Manifestation50 with the Court of Appeals stating that it has discovered that Reyes is already dead, in view of which the appellate court issued a Resolution dated December 16, 1994 which noted the manifestation of Riviera and directed the counsel of Reyes to submit a copy of the latter’s death certificate and to file the proper motion for substitution of party.51Complying therewith, the necessary motion for substitution of deceased Reyes, who died on January 7, 1994, was filed by the heirs, namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes.52 Acting on the motion for substitution, the Court of Appeals granted the same.53

Notwithstanding the foregoing, Section 1654 and 1755 of Rule 3 of the Revised Rules of Court, upon which Riviera anchors its argument, has already been amended by the 1997 Rules of Civil Procedure.56 Even applying the old Rules, the failure of a counsel to comply with his duty under Section 16 of Rule 3 of the Revised Rules of Court, to inform the court of the death of his client and no substitution of such is effected, will not invalidate the proceedings and the judgment thereon if the action survives the death of such party,57 as this case does, since the death of Reyes did not extinguish his civil personality. The appellate court was well within its jurisdiction to proceed as it did with the case since the death of a party is not subject to its judicial notice. Needless to stress, the purpose behind the rule on substitution of parties is the protection of the right of every party to due process. This purpose has been adequately met in this case since both parties argued their respective positions through their pleadings in the trial court and the appellate court. Besides, the Court has already acquired jurisdiction over the heirs of Reyes by voluntarily submitting themselves to our jurisdiction.58
















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In view of all the foregoing, the Court is convinced that the appellate court committed no reversible error in its challenged Decision.1âwphi1.nêt

WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court of Appeals dated June 6, 1994 in CA-G.R. CV No. 26513 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

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G.R. No. 186993 August 22, 2012

THEODORE and NANCY ANG, represented by ELDRIGE MARVIN B. ACERON, Petitioners, vs.SPOUSES ALAN and EM ANG, Respondents.

VELASCO, JR.,*

LEONARDO-DE CASTRO, **

D E C I S I O N

REYES, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the Decision1 dated August 28, 2008 and the Resolution2 dated February 20, 2009 rendered by the Court of Appeals (CA) in CA-G.R. SP No. 101159. The assailed decision annulled and set aside the Orders dated April 12, 20073 and August 27, 20074 issued by the Regional Trial Court (RTC) of Quezon City, Branch 81 in Civil Case No. Q-06-58834.

The Antecedent Facts

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

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

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

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

The RTC Orders

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

Attached to the complaint is the Special Power of Attorney x x x which clearly states that plaintiff Nancy Ang constituted Atty. Eldrige Marvin Aceron as her duly appointed attorney-in-fact to prosecute her claim against herein defendants. Considering that the address given by Atty. Aceron is in Quezon City, hence, being the plaintiff, venue of the action may lie where he resides as provided in Section 2, Rule 4 of the 1997 Rules of Civil Procedure.10

The respondents sought reconsideration of the RTC Order dated April 12, 2007, asserting that there is no law which allows the filing of a complaint in the court of the place where the representative, who was appointed as such by the plaintiffs through a Special Power of Attorney, resides.11

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

The respondents then filed with the CA a petition for certiorari13 alleging in the main that, pursuant to Section 2, Rule 4 of the Rules of Court, the petitioners’ complaint may only be filed in the court of the place where they or the petitioners reside. Considering that the petitioners reside in Los Angeles, California, USA, the respondents assert that the complaint below may only be filed in the RTC of Bacolod City, the court of the place where they reside in the Philippines.

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

The CA Decision

http://www.lawphil.net/judjuris/juri2012/aug2012/gr_186993_2012.html#fnt13













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

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

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

Hence, the instant petition.

Issue

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

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

The Court’s Ruling

The petition is denied.

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

On the other hand, the respondents in their Comment18 assert that the petitioners are proscribed from filing their complaint in the RTC of Quezon City. They assert that the

residence of Atty. Aceron, being merely a representative, is immaterial to the determination of the venue of the petitioners’ complaint.

The petitioners’ complaint shouldhave been filed in the RTC ofBacolod City, the court of the placewhere the respondents reside, andnot in RTC of Quezon City.

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

The petitioners’ complaint for collection of sum of money against the respondents is a personal action as it primarily seeks the enforcement of a contract. The Rules give the plaintiff the option of choosing where to file his complaint. He can file it in the place (1) where he himself or any of them resides, or (2) where the defendant or any of the defendants resides or may be found. The plaintiff or the defendant must be residents of the place where the action has been instituted at the time the action is commenced.20

However, if the plaintiff does not reside in the Philippines, the complaint in such case may only be filed in the court of the place where the defendant resides. In Cohen and Cohen v. Benguet Commercial Co., Ltd.,21 this Court held that there can be no election as to the venue of the filing of a complaint when the plaintiff has no residence in the Philippines. In such case, the complaint may only be filed in the court of the place where the defendant resides. Thus:

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

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

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










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

Atty. Aceron is not a real party ininterest in the case below; thus, hisresidence is immaterial to the venueof the filing of the complaint.

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

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

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

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

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

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

Sec. 3. Representatives as parties. – Where the action is allowed to be prosecuted and defended by a representative or someone acting in a fiduciary capacity, the beneficiary shall be included in the title of the case and shall be deemed to be the real

property in interest. A representative may be a trustee of an expert trust, a guardian, an executor or administrator, or a party authorized by law or these Rules. An agent acting in his own name and for the benefit of an undisclosed principal may sue or be sued without joining the principal except when the contract involves things belonging to the principal. (Emphasis ours)

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

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

On this score, the CA aptly observed that:

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

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

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

SO ORDERED.









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G. R. No. 76431 October 16, 1989

FORTUNE MOTORS, (PHILS.) INC., petitioner, vs.THE HONORABLE COURT OF APPEALS, METROPOLITAN BANK and TRUST COMPANY, respondents.

Quirante & Associates Law Office for petitioner.

Bautista, Cruz & Associates Law Offices for private respondent.

PARAS, J.:

This is a petition for review on certiorari seeking the reversal of: (a) the July 30, 1986 decision of the Court of Appeals in AC-G.R. SP No. 09255 entitled "Metropolitan Bank & Trust Co. v. Hon. Herminio C. Mariano, et al."dismissing Civil Case No. 8533218 entitled "Fortune Motors (Phils.) Inc. v. Metropolitan Bank & Trust Co." filed in the Regional Trial Court of Manila, Branch IV for improper venue and (b) the resolution dated October 30, 1986 denying petitioner's motion for reconsideration.

The undisputed facts of the case are as follows:

On March 29,1982 up to January 6,1984, private respondent Metropolitan Bank extended various loans to petitioner Fortune Motors in the total sum of P32,500,000.00 (according to the borrower; or P34,150,000.00 according to the Bank) which loan was secured by a real estate mortgage on the Fortune building and lot in Makati, Rizal. (Rollo, pp. 60-62)

Due to financial difficulties and the onslaught of economic recession, the petitioner was not able to pay the loan which became due. (Rollo, p. 62)

For failure of the petitioner to pay the loans, the respondent bank initiated extrajudicial foreclosure proceedings. After notices were served, posted, and published, the mortgaged property was sold at public auction for the price of P47,899,264.91 to mortgagee Bank as the highest bidder. (Rollo, p. 11)

The sheriff's certificate of sale was registered on October 24, 1984 with the one-year redemption period to expire on October 24,1985. (Rollo, p. 12)

On October 21, 1985, three days before the expiration of the redemption period, petitioner Fortune Motors filed a complaint for annulment of the extrajudicial foreclosure sale alleging that the foreclosure was premature because its obligation to the Bank was not yet due, the publication of the notice of sale was incomplete, there

was no public auction, and the price for which the property was sold was "shockingly low". (Rollo, pp. 60-68)

Before summons could be served private respondent Bank filed a motion to dismiss the complaint on the ground that the venue of the action was improperly laid in Manila for the realty covered by the real estate mortgage is situated in Makati, therefore the action to annul the foreclosure sale should be filed in the Regional Trial Court of Makati. (Rollo, pp. 67-71-A )

The motion was opposed by petitioner Fortune Motors alleging that its action "is a personal action" and that "the issue is the validity of the extrajudicial foreclosure proceedings" so that it may have a new one year period to redeem. (Rollo, pp. 72-73)

On January 8, 1986 an order was issued by the lower court reserving the resolution of the Bank's motion to dismiss until after the trial on the merits as the grounds relied upon by the defendant were not clear and indubitable. (Rollo, p. 81)

The Bank filed a motion for reconsideration of the order dated January 8, 1986 but it was denied by the lower court in its order dated May 28, 1986. (Rollo, Annex "L" pp. 93-96; Annex "N" p. 99)

On June 11, 1986 the respondent Bank filed a petition for certiorari and prohibition in the Court of Appeals. (Rollo, Annex "O" pp. 100-115)

And on July 30, 1986, a decision was issued by the Court of Appeals, the dispositive part of which reads as follows:

WHEREFORE, the petition for certiorari and prohibition is granted. The complaint in the Civil Case No. 85-33218 is dismissed without prejudice to its being filed in the proper venue. Costs against the private respondent.

SO ORDERED. (Rollo, p. 15)

A motion for reconsideration was filed on August 11, 1986 on the said decision and on October 30, 1986 a resolution was issued denying such motion for reconsideration. (Rollo, Annex "O" pp. 121-123; Annex "S" p. 129)

Hence, the petition for review on certiorari.

On June 10, 1987 the Court gave due course to the petition, required the parties to file their respective memoranda within twenty (20) days from the notice hereof, and pay deposit for costs in the amount of P80.40.

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Both parties have filed their respective memoranda, and the case was submitted for Court's resolution in the resolution dated December 14, 1987. (Rollo,Metrobank's Memorandum pp. 45-59; petitioner's memorandum pp.130-136; Res. p. 138)

The only issue in this case is whether petitioner's action for annulment of the real estate mortgage extrajudicial foreclosure sale of Fortune Building is a personal action or a real action for venue purposes.

In a real action, the plaintiff seeks the recovery of real property, or as indicated in Sec. 2 (a) of Rule 4, a real action is an action affecting title to real property, or for the recovery of possession, or for the partition or condemnation of, or foreclosure of a mortgage on real property. (Comments on the Rules of Court by Moran, Vol. 1, p. 122)

Real actions or actions affecting title to, or for the recovery of possession, or for the partition or condemnation of, or foreclosure of mortgage on real property, must be instituted in the Court of First Instance of the province where the property or any part thereof lies. (Enriquez v. Macadaeg, 84 Phil. 674,1949; Garchitorena v. Register of Deeds, 101 Phil. 1207, 1957)

Personal actions upon the other hand, may be instituted in the Court of First Instance where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff (Sec. 1, Rule 4, Revised Rules of Court).

A prayer for annulment or rescission of contract does not operate to efface the true objectives and nature of the action which is to recover real property. (Inton, et al., v. Quintan, 81 Phil. 97, 1948)

An action for the annulment or rescission of a sale of real property is a real action. Its prime objective is to recover said real property. (Gavieres v. Sanchez, 94 Phil. 760,1954)

An action to annul a real estate mortgage foreclosure sale is no different from an action to annul a private sale of real property. (Munoz v. Llamas, 87 Phil. 737,1950)

While it is true that petitioner does not directly seek the recovery of title or possession of the property in question, his action for annulment of sale and his claim for damages are closely intertwined with the issue of ownership of the building which, under the law, is considered immovable property, the recovery of which is petitioner's primary objective. The prevalent doctrine is that an action for the annulment or rescission of a sale of real property does not operate to efface the fundamental and prime objective and nature of the case, which is to recover said real property. It is a real action. Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue (Sec. 2, Rule 4) which was timely raised (Sec. 1, Rule 16). (Punzalan, Jr. v. Vda. de Lacsamana, 121 SCRA 336, [1983]).

Thus, as aptly decided by the Court of Appeals in a decision penned by then Court of Appeals Associate Justice now Associate Justice of the Supreme Court Carolina C. Griño-Aquino, the pertinent portion reads: "Since an extrajudicial foreclosure of real property results in a conveyance of the title of the property sold to the highest bidder at the sale, an action to annul the foreclosure sale is necessarily an action affecting the title of the property sold. It is therefore a real action which should be commenced and tried in the province where the property or part thereof lies."

PREMISES CONSIDERED, the instant petition is DENIED for lack of merit and the assailed decision of the respondent Court of Appeals is AFFIRMED.

SO ORDERED.

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G.R. No. L-22238 February 18, 1967

CLAVECILLIA RADIO SYSTEM, petitioner-appellant, vs.HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court of Cagayan de Oro City and NEW CAGAYAN GROCERY, respondents-appellees.

B. C. Padua for petitioner and appellant.Pablo S. Reyes for respondents and appellees.

REGALA, J.:

This is an appeal from an order of the Court of First Instance of Misamis Oriental dismissing the petition of the Clavecilla Radio System to prohibit the City Judge of Cagayan de Oro from taking cognizance of Civil Case No. 1048 for damages.

It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the Clavecilla Radio System alleging, in effect, that on March 12, 1963, the following message, addressed to the former, was filed at the latter's Bacolod Branch Office for transmittal thru its branch office at Cagayan de Oro:

NECAGRO CAGAYAN DE ORO (CLAVECILLA)

REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER REPLY POHANG

The Cagayan de Oro branch office having received the said message omitted, in delivering the same to the New Cagayan Grocery, the word "NOT" between the words "WASHED" and "AVAILABLE," thus changing entirely the contents and purport of the same and causing the said addressee to suffer damages. After service of summons, the Clavecilla Radio System filed a motion to dismiss the complaint on the grounds that it states no cause of action and that the venue is improperly laid. The New Cagayan Grocery interposed an opposition to which the Clavecilla Radio System filed its rejoinder. Thereafter, the City Judge, on September 18, 1963, denied the motion to dismiss for lack of merit and set the case for hearing.1äwphï1.ñët

Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction with the Court of First Instance praying that the City Judge, Honorable Agustin Antillon, be enjoined from further proceeding with the case on the ground of improper venue. The respondents filed a motion to dismiss the petition but this was opposed by the petitioner. Later, the motion was submitted for resolution on the pleadings.

In dismissing the case, the lower court held that the Clavecilla Radio System may be sued either in Manila where it has its principal office or in Cagayan de Oro City where it may be served, as in fact it was served, with summons through the Manager of its branch office in said city. In other words, the court upheld the authority of the city court to take cognizance of the case.1äwphï1.ñët

In appealing, the Clavecilla Radio System contends that the suit against it should be filed in Manila where it holds its principal office.

It is clear that the case for damages filed with the city court is based upon tort and not upon a written contract. Section 1 of Rule 4 of the New Rules of Court, governing venue of actions in inferior courts, provides in its paragraph (b) (3) that when "the action is not upon a written contract, then in the municipality where the defendant or any of the defendants resides or may be served with summons." (Emphasis supplied)

Settled is the principle in corporation law that the residence of a corporation is the place where its principal office is established. Since it is not disputed that the Clavecilla Radio System has its principal office in Manila, it follows that the suit against it may properly be filed in the City of Manila.

The appellee maintain, however, that with the filing of the action in Cagayan de Oro City, venue was properly laid on the principle that the appellant may also be served with summons in that city where it maintains a branch office. This Court has already held in the case of Cohen vs. Benguet Commercial Co., Ltd., 34 Phil. 526; that the term "may be served with summons" does not apply when the defendant resides in the Philippines for, in such case, he may be sued only in the municipality of his residence, regardless of the place where he may be found and served with summons. As any other corporation, the Clavecilla Radio System maintains a residence which is Manila in this case, and a person can have only one residence at a time (See Alcantara vs. Secretary of the Interior, 61 Phil. 459; Evangelists vs. Santos, 86 Phil. 387). The fact that it maintains branch offices in some parts of the country does not mean that it can be sued in any of these places. To allow an action to be instituted in any place where a corporate entity has its branch offices would create confusion and work untold inconvenience to the corporation.

It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al., supra, that the laying of the venue of an action is not left to plaintiff's caprice because the matter is regulated by the Rules of Court. Applying the provision of the Rules of Court, the venue in this case was improperly laid.

The order appealed from is therefore reversed, but without prejudice to the filing of the action in Which the venue shall be laid properly. With costs against the respondents-appellees.

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G.R. No. 104175 June 25, 1993

YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners, vs.THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND GEORGE CHIONG ROXAS,respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioners.

Antonio Nuyles for private respondent.

QUIASON, J.:

Petitioners seek to set aside the decision of respondent Court of Appeals in CA-G.R. SP No. 25237, which reversed the Order dated February 8, 1991 issued by the Regional Trial Court, Branch 11, Cebu City in Civil Case No. CEB 6967. The order of the trial court denied the motion to dismiss filed by respondent George C. Roxas of the complaint for collection filed by petitioners.

It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in Consolidated Marketing & Development Corporation (CMDC) to Roxas. The purchase price was P8,000,000.00 payable as follows: a downpayment of P4,000,000.00 and the balance of P4,000,000.00 in four post dated checks of P1,000,000.00 each.

Immediately after the execution of the agreement, Roxas took full control of the four markets of CMDC. However, the vendors held on to the stock certificates of CMDC as security pending full payment of the balance of the purchase price.

The first check of P4,000,000.00, representing the down-payment, was honored by the drawee bank but the four other checks representing the balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO received P600,000.00, leaving a balance of P3,400,000.00 (Rollo, p. 176).

Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the sale of the CMDC shares to Nemesio Garcia.

On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court, Branch 11, Cebu City, praying that Roxas be ordered to pay petitioners the sum of P3,400,00.00 or that full control of the three markets be turned over to YASCO and Garcia. The complaint also prayed for the forfeiture of the partial payment of P4,600,000.00 and the payment of attorney's fees and costs (Rollo, p. 290).

Roxas filed two motions for extension of time to submit his answer. But despite said motion, he failed to do so causing petitioners to file a motion to have him declared in default. Roxas then filed, through a new counsel, a third motion for extension of time to submit a responsive pleading.

On August 19, 1988, the trial court declared Roxas in default. The order of default was, however, lifted upon motion of Roxas.

On August 22, 1988, Roxas filed a motion to dismiss on the grounds that:

1. The complaint did not state a cause of action due to non-joinder of indispensable parties;

2. The claim or demand set forth in the complaint had been waived, abandoned or otherwise extinguished; and

3. The venue was improperly laid (Rollo, p. 299).

After a hearing, wherein testimonial and documentary evidence were presented by both parties, the trial court in an Order dated February 8, 1991 denied Roxas' motion to dismiss. After receiving said order, Roxas filed another motion for extension of time to submit his answer. He also filed a motion for reconsideration, which the trial court denied in its Order dated April 10, 1991 for being pro-forma (Rollo, p. 17). Roxas was again declared in default, on the ground that his motion for reconsideration did not toll the running of the period to file his answer.

On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not accompanied with the required affidavit or merit. But without waiting for the resolution of the motion, he filed a petition for certiorari with the Court of Appeals.

The Court of Appeals sustained the findings of the trial court with regard to the first two grounds raised in the motion to dismiss but ordered the dismissal of the complaint on the ground of improper venue (Rollo, p. 49).

A subsequent motion for reconsideration by petitioner was to no avail.

Petitioners now come before us, alleging that the Court of Appealserred in:

1. holding the venue should be in Pasay City, and not in Cebu City (where both petitioners/plaintiffs are residents;

2. not finding that Roxas is estopped from questioning the choice of venue (Rollo, p. 19).

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The petition is meritorious.

In holding that the venue was improperly laid in Cebu City, the Court of Appeals relied on the address of YASCO, as appearing in the Deed of Sale dated October 28, 1987, which is "No. 1708 Dominga Street, Pasay City." This was the same address written in YASCO's letters and several commercial documents in the possession of Roxas (Decision, p. 12; Rollo, p. 48).

In the case of Garcia, the Court of Appeals said that he gave Pasay City as his address in three letters which he sent to Roxas' brothers and sisters (Decision, p. 12; Rollo, p. 47). The appellate court held that Roxas was led by petitioners to believe that their residence is in Pasay City and that he had relied upon those representations (Decision, p. 12, Rollo, p. 47).

The Court of Appeals erred in holding that the venue was improperly laid in Cebu City.

In the Regional Trial Courts, all personal actions are commenced and tried in the province or city where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff [Sec. 2(b) Rule 4, Revised Rules of Court].

There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both plaintiffs aver in their complaint that they are residents of Cebu City, thus:

1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a domestic corporation duly organized and existing under Philippine laws with principal place of business at M. J. Cuenco Avenue, Cebu City. It also has a branch office at 1708 Dominga Street, Pasay City, Metro Manila.

Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen and with business address at Young Auto Supply Co., Inc., M. J. Cuenco Avenue, Cebu City. . . . (Complaint, p. 1; Rollo, p. 81).

The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:

THIRD That the place where the principal office of the corporation is to be established or located is at Cebu City, Philippines (as amended on December 20, 1980 and further amended on December 20, 1984) (Rollo, p. 273).

A corporation has no residence in the same sense in which this term is applied to a natural person. But for practical purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as stated in the articles of

incorporation (Cohen v. Benguet Commercial Co., Ltd., 34 Phil. 256 [1916] Clavecilla Radio System v. Antillon, 19 SCRA 379 [1967]). The Corporation Code precisely requires each corporation to specify in its articles of incorporation the "place where the principal office of the corporation is to be located which must be within the Philippines" (Sec. 14 [3]). The purpose of this requirement is to fix the residence of a corporation in a definite place, instead of allowing it to be ambulatory.

In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why actions cannot be filed against a corporation in any place where the corporation maintains its branch offices. The Court ruled that to allow an action to be instituted in any place where the corporation has branch offices, would create confusion and work untold inconvenience to said entity. By the same token, a corporation cannot be allowed to file personal actions in a place other than its principal place of business unless such a place is also the residence of a co-plaintiff or a defendant.

If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the ground that its principal place of business was in Cebu City, Roxas could argue that YASCO was in estoppel because it misled Roxas to believe that Pasay City was its principal place of business. But this is not the case before us.

With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal place of business is located, it becomes unnecessary to decide whether Garcia is also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice of Cebu City as the venue.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed from is SET ASIDE and the Order dated February 8, 1991 of the Regional Trial Court is REINSTATED.

SO ORDERED

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G.R. No. L-17699 March 30, 1962

DR. ANTONIO A. LIZARES, INC., petitioner, vs.HON. HERMOGENES CALUAG, as Judge of the Court of First Instance of Quezon City, and FLAVIANO CACNIO, respondents.

Ramon C. Aquino for petitioner.Paulino Carreon for respondents.

CONCEPCION, J.:

Appeal by certiorari from a decision of the Court of Appeals dismissing the petition of Dr. Antonio A. Lizares & Co., Inc., for a writ of prohibition, with costs against said petitioner.

On or about June 14, 1960, Flaviano Cacnio instituted Civil Case No. Q-5197 of the Court of First Instance of Rizal, Quezon City Branch, against said petitioner. In his complaint, Cacnio alleged that on April 20, 1955, he bought from petitioner, on installment, Lot 4, Block 1 of the Sinkang Subdivision in Bacolod City, making therefor a downpayment of P1,206, the balance of P10,858 to be paid in ten (10) yearly installments of P1,085.80 each, with interest thereon at the rate of 6% per annum; that on March 25, 1960, Cacnio received from petitioner a letter demanding payment of P7,324.69, representing arrears in the payment of installments up to April 20, 1960, plus "regular and overdue" interest, as well as "land taxes up to 70% of 1960"; that the sum then due from Cacnio by way of arrears amounted only to P5,824.69, he having paid P1,500 to petitioner "sometime in 1958"; that in view of the aforementioned demand of petitioner, Cacnio sent thereto a check for P5,824.69, dated May 26, 1960, drawn by one Antonino Bernardo in favor of said petitioner, in payment of the amount due from Cacnio by way of arrears; that "without legal and equitable grounds" therefor, petitioner returned said check and "refused the tender of payment" aforementioned; that by reason of said illegal act of petitioner, Cacnio is entitled to compensatory damages in the sum of P5,000, plus P2,000 by way of attorney's fees, Cacnio having been constrained to engage the services of counsel and bring the action; and that petitioner "is doing threatens, or is about to do, or is procuring or suffering to be done some act in violation of" Cacnio's rights respecting the subject of the action, viz. the repossession of the lot bought by" the latter, who, accordingly, prayed that petitioner be ordered "to accept the payment being made" by him (Cacnio) and to pay him P5,000 as compensatory damages and P2,000 as attorney's fees, and that, upon the filing of a bond to be fixed by the court, a writ of preliminary injunction enjoining petitioner and its agents or representatives from repossessing the lot adverted to above be issued. Said writ of preliminary injunction was issued on June 16, 1960.

On July 5, 1960, petitioner moved to dismiss the complaint upon the ground that "venue is improperly laid," for the action affects the title to or possession of real property located in Bacolod City, which was the subject matter of a contract, between

petitioner and Cacnio, made in said City. The motion having been denied by the Court of First Instance of Rizal, Quezon City Branch, by an order of July 9, 1960, upon the ground that the action was in personam, petitioner filed with the Court of Appeals a petition, which was docketed as Civil Case CA-G.R. No. 28013-R, praying that said order be set aside and that a writ of prohibition be issued commanding respondent Hon. Hermogenes Caluag, as Judge of said Court, to desist from taking cognizance of said Civil Case No. Q-5197. In due course, the Court of Appeals rendered a decision on October 27, 1960, dismissing said petition. Hence, this appeal by certiorari taken by petitioner herein.

The issue is whether or not the main case falls under section 3 of Rule 5 of the Rules of Court, reading:

"Actions affecting title to, or for recovery of possession, or for partition or condemnation of, or foreclosure of mortgage on, real property, shall be commenced and tried in the province where the property or any part thereof lies."

The Court of Appeals and the Court of First Instance of Rizal, Quezon City Branch, held that Civil Case No. Q-5197 of the latter court is an action in personam, and that, as such, it does not fall within the purview of said section 3, and was properly instituted in the court of first instance of the province in which Cacnio, as plaintiff in said case, resided, pursuant to section 1 of said rule 5.

We are unable to share such view. Although the immediate remedy sought by Cacnio is to compel petitioner to accept the tender of payment allegedly made by the former, it is obvious that this relief is merely the first step to establish Cacnio's title to the real property adverted to above. Moreover, Cacnio's complaint is a means resorted to by him in order that he could retain the possession of said property. In short, venue in the main case was improperly laid and the Court of First Instance of Rizal, Quezon City Branch, should have granted the motion to dismiss. 1äwphï1.ñët

WHEREFORE, the decision appealed from is hereby reversed and another one shall be entered directing respondent Judge to desist from taking further cognizance of Civil Case No. Q-5197 of said court, with costs against respondent Flaviano Cacnio. It is so ordered.

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G.R. No. L-53485 February 6, 1991

PATRIA ESUERTE and HERMINIA JAYME, petitioners, vs.HON. COURT OF APPEALS (Eleventh Division), HON. RAFAEL T. MENDOZA, Judge, Branch VI, Court of First Instance of Cebu and MA. BEVERLY TAN, respondents.

Romeo B. Esuerte for petitioners.Eleno V. Andales & Sisinio M. Andales for private respondent.

MEDIALDEA, J.:

This petition for certiorari with a prayer for preliminary injunction seeks to set aside the decision of the Court of Appeals in CA G.R. No. SP-08999-R, involving the same parties.

An action for damages was filed by private respondent Beverly Tan against herein petitioners Patria Esuerte and Herminia Jayme with the Court of First Instance (now Regional Trial Court) of Cebu and docketed as Civil Case No. R-17584. The claim for damages arose from an incident involving the parties and summarized by the Court of Appeals, as follows:

. . . that on September 22, 23 and 27, 1978, private respondent Ma. Beverly Tan, a Junior Resident Physician of Corazon Locsin-Montelibano Memorial Hospital, Bacolod City, without any justifiable reason shouted at, humiliated and insulted the petitioner, Patria Esuerte, Head Nurse, Medicare Department of the said hospital and as a result of the said incident, said petitioner complained to the Chief of the Hospital, Dr. Teodoro P. Motus, in writing. The other petitioner, Herminia Jayme, who was one of those who were present at the time of the incident also sent a letter to the Chief of the Hospital, Dr. Teodoro Motus, informing the latter of what she had witnessed. As a result thereof, private respondent was advised to explain in writing by the Chief of the Hospital, but private respondent instead of explaining only her side of the incident also complained against the petitioners. The Discipline and Grievance Committee, Corazon Locsin-Montelibano Memorial Hospital, conducted a fact-finding investigation and later, the Chief of the Hospital, Dr. Teodoro P. Motus, issued a resolution dated November 8, 1978, transmitting the records of the case to the Regional Health Office, No. 6, Jaro, Iloilo City for appropriate action; . . . . (pp. 91-92, Rollo)

Esuerte and Jayme filed a motion to dismiss the complaint on the ground of improper venue and for being premature for failure of Tan to exhaust administrative remedies.

On January 2, 1979, the trial court denied the motion to dismiss. The motion for reconsideration of the denial was likewise denied by the court on February 16, 1979.

Esuerte and Jayme filed a petition for certiorari and prohibition with a prayer for preliminary injunction with the Court of Appeals. On September 18, 1979, the petition was dismissed without pronouncement as to costs. The motion for reconsideration of the decision was likewise denied for lack of merit on February 18, 1980.

The following reasons were advanced by petitioners for the allowance of this petition:

1) The Court of Appeals committed gross error and grave abuse of discretion when it dismissed the petition despite petitioners' overwhelming evidence showing that the venue of private respondent's action (Civil Case No. R-17584) was improperly laid.

2) The Court of Appeals committed gross error and grave abuse of discretion when it dismissed the petition despite petitioners' overwhelming evidence showing that the filing of Civil Case No. R-17584 is premature due to non-exhaustion of administrative remedies.

It is the contention of petitioners that the proper venue of the action filed by Tan should be Bacolod City and not Cebu City. At the time of the filing of her action in court, Tan was actually residing and may be found in Bacolod City. In fact, in her "Statement of Assets and Liabilities," submitted by Tan to her employer, the Corazon Locsin Montelibano Memorial Hospital, she declared that she is a resident of FRAYU INTERIOR, 6th Street, Bacolod City.

Section 2(b), Rule 4 of the Rules of Court provides:

Sec. 2. Venue in Courts of First Instance. —

x x x x x x x x x

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

The choice of venue for personal actions cognizable by the Regional Trial Court is given to the plaintiff but not to the plaintiff's caprice because the matter is regulated by the Rules of Court (see Clavecilla Radio System v. Antillon, 19 SCRA 379). The rule on venue, like other procedural rules, are designed to insure a just and orderly administration of justice or the impartial and evenhanded determination of every action and proceeding (Sy v. Tyson Enterprises Inc., 19 SCRA 367). The option of the plaintiff in personal actions cognizable by the Regional Trial Court is either the place

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where the defendant resides or may be found or the place where the plaintiff resides. If plaintiff opts for the latter, he is limited to that place.

"Resides" in the rules on venue on personal actions means the place of abode, whether permanent or temporary, of the plaintiff or defendants as distinguished from "domicile" which denotes a fixed permanent residence (Dangwa Transportation Co., Inc. v. Sarmiento, G.R. No. L-22795, January 31, 1977, 75 SCRA 124). And, in Hernandez v. Rural Bank of Lucena, Inc., G.R. No. L-29791, January 10, 1978, 81 SCRA 75), venue of personal actions should be at the place of abode or place where plaintiffs actually reside, not in domicile or legal residence.

In Koh v. CA, L-40428, December 17, 1975, 70 SCRA 298; 305, We ruled:

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

As perspicaciously observed by Justice Moreland, the purpose of procedure is not to restrict the court's jurisdiction over the subject matter but to give it effective facility "in righteous action," "to facilitate and promote the administration of justice" or to insure "just judgments" by means of a fair hearing. If the objective is not achieved, then "the administration of justice becomes incomplete and unsatisfactory and lays itself open to criticism." (Manila Railroad Co. v. Attorney General, 20 Phil. 523, 530).

There is no question that private respondent as plaintiff in the Civil Case is a legal resident of Cebu City.1âwphi1 Her parents live there. However, it cannot also be denied that at the time of her filing of the complaint against petitioners, she was a temporary resident of Bacolod City. She was then employed with the Corazon Locsin Montelibano Memorial Hospital, Bacolod City, as resident physician. Moreover, the acts complained of were committed in Bacolod City. The private respondents were all residents of Bacolod City at the time of the bringing of the action. Though Tan's employment was only temporary there was no showing when this employment will end. Justice would be better served if the complaint were heard and tried in Bacolod City where all the parties resided.

The second ground raised by petitioners is devoid of merit. The alleged need by private respondent Tan to exhaust administrative remedies before filing the complaint for damages does not apply to the instant case. Private respondent as plaintiff in the civil Case for damages has no administrative remedy available to her. It is true that the same incident complained of in the administrative case filed by petitioners against Tan is the subject of the action for damages filed by Tan against the petitioners in the trial court. However, the cause of action in the administrative case is different from

that of the civil case for damages. While the complainant in the administrative case may be a private person, it is the government who is the aggrieved party and no award for damages may be granted in favor of private persons. In the civil action for damages, the trial court's concern is whether or not damages, personal to the plaintiff, were caused by the acts of the defendants. The civil action for damages can proceed notwithstanding the pendency of the administrative action.

WHEREFORE, the position is GRANTED. The questioned decision of the Court of Appeals is SET ASIDE. Civil Case No. R-17584 is DISMISSED for improper venue.

SO ORDERED.

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G.R. No. L-28742 April 30, 1982

VIRGILIO CAPATI, plaintiff-appellant, vs.DR. JESUS P. OCAMPO, defendant-appellee.

ESCOLIN, J.:

We set aside the order of the Court of First Instance of Pampanga in Civil Case No. 3188 which dismissed the plaintiff's complaint on ground of improper venue.

Plaintiff Virgilio Capati a resident of Bacolor, Pampanga, was the contractor of the Feati Bank for the construction of its building in Iriga, Camarines Sur. On May 23, 1967, plaintiff entered into a sub-contract with the defendant Dr. Jesus Ocampo, a resident of Naga City, whereby the latter, in consideration of the amount of P2,200.00, undertook to construct the vault walls, exterior walls and columns of the said Feati building in accordance with the specifications indicated therein. Defendant further bound himself to complete said construction on or before June 5, 1967 and, to emphasize this time frame for the completion of the construction job, defendant affixed his signature below the following stipulation written in bold letters in the sub-contract: "TIME IS ESSENTIAL, TO BE FINISHED 5 JUNE' 67."

Claiming that defendant finished the construction in question only on June 20, 1967, plaintiff filed in the Court of First Instance of Pampanga an action for recovery of consequential damages in the sum of P85,000.00 with interest, plus attorney's fees and costs. The complaint alleged inter alia that "due to the long unjustified delay committed by defendant, in open violation of his express written agreement with plaintiff, the latter has suffered great irreparable loss and damage ... "

Defendant filed a motion to dismiss the complaint on the ground that venue of action was improperly laid. The motion was premised on the stipulation printed at the back of the contract which reads:

14. That all actions arising out, or relating to this contract may be instituted in the Court of First Instance of the City of Naga.

Plaintiff filed an opposition to the motion, claiming that their agreement to hold the venue in the Court of First Instance of Naga City was merely optional to both contracting parties. In support thereof, plaintiff cited the use of the word "may " in relation with the institution of any action arising out of the contract.

The lower court, in resolving the motion to dismiss, ruled that "there was no sense in providing the aforequoted stipulation, pursuant to Sec. 3 of Rule 4 of the Revised Rules of Court, if after all, the parties are given the discretion or option of filing the

action in their respective residences," and thereby ordered the dismissal of the complaint.

Hence, this appeal.

The rule on venue of personal actions cognizable by the courts of first instance is found in Section 2 (b), Rule 4 of the Rules of Court, which provides that such "actions may be commenced and tried where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff." The said section is qualified by the following provisions of Section 3 of the same rule:

By written agreement of the parties the venue of an action may be changed or transferred from one province to another.

Defendant stands firm on his contention that because of the aforequoted covenant contained in par. 14 of the contract, he cannot be sued in any court except the Court of First Instance of Naga City. We are thus called upon to rule on the issue as to whether the stipulation of the parties on venue is restrictive in the sense that any litigation arising from the contract can be filed only in the court of Naga City, or merely permissive in that the parties may submit their disputes not only in Naga City but also in the court where the defendant or the plaintiff resides, at the election of the plaintiff, as provided for by Section 2 (b) Rule 4 of the Rules of Court.

It is well settled that the word "may" is merely permissive and operates to confer discretion upon a party. Under ordinary circumstances, the term "may be" connotes possibility; it does not connote certainty. "May" is an auxillary verb indicating liberty, opportunity, permission or possibility. 1

In Nicolas vs. Reparations Commission 2, a case involving the interpretation of a stipulation as to venue along lines similar to the present one, it was held that the agreement of the parties which provided that "all legal actions arising out of this contract ... may be brought in and submitted to the jurisdiction of the proper courts in the City of Manila," is not mandatory.

We hold that the stipulation as to venue in the contract in question is simply permissive. By the said stipulation, the parties did not agree to file their suits solely and exclusively with the Court of First Instance of Naga. They merely agreed to submit their disputes to the said court, without waiving their right to seek recourse in the court specifically indicated in Section 2 (b), Rule 4 of the Rules of Court.

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Since the complaint has been filed in the Court of First Instance of Pampanga, where the plaintiff resides, the venue of action is properly laid in accordance with Section 2 (b), Rule 4 of the Rules of Court.

WHEREFORE, the order appealed from is hereby set aside. Let the records be returned to the court of origin for further proceedings. Costs against defendant-appellee.

SO ORDERED.

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G.R. No. 119657 February 7, 1997

UNIMASTERS CONGLOMERATION, INC., petitioner, vs.COURT OF APPEALS and KUBOTA AGRI MACHINERY PHILIPPINES, INC., respondents.

NARVASA, C.J.:

The appellate proceeding at bar turns upon the interpretation of a stipulation in a contract governing venue of actions thereunder arising.

On October 8, 1988 Kubota Agri-Machinery Philippines, Inc. (hereafter, simply KUBOTA) and Unimasters Conglomeration, Inc. (hereafter, simply UNIMASTERS) entered into a "Dealership Agreement for Sales and Services" of the former's products in Samar and Leyte Provinces. 1 The contract contained, among others:

1) a stipulation reading: ". . . All suits arising out of this Agreement shall be filed with/in the proper Courts of Quezon City," and

2) a provision binding UNIMASTERS to obtain (as it did in fact obtain) a credit line with Metropolitan Bank and Trust Co.-Tacloban Branch in the amount of P2,000,000.00 to answer for its obligations to KUBOTA.

Some five years later, or more precisely on December 24, 1993, UNIMASTERS filed an action in the Regional Trial Court of Tacloban City against KUBOTA, a certain Reynaldo Go, and Metropolitan Bank and Trust Company-Tacloban Branch (hereafter, simply METROBANK) for damages for breach of contract, and injunction with prayer for temporary restraining order. The action was docketed as Civil Case No. 93-12-241 and assigned to Branch 6.

On the same day the Trial Court issued a restraining order enjoining METROBANK from "authorizing or effecting payment of any alleged obligation of . . (UNIMASTERS) to defendant . . KUBOTA arising out of or in connection with purchases made by defendant Go against the credit line caused to be established by . . (UNIMASTERS) for and in the amount of P2 million covered by defendant METROBANK . . or by way of charging . . (UNIMASTERS) for any amount paid and released to defendant . . (KUBOTA) by the Head Office of METROBANK in Makati, Metro-Manila . . ." The Court also set the application for preliminary injunction for hearing on January 10, 1994 at 8:30 o'clock in the morning.

On January 4, 1994 KUBOTA filed-two motions. One prayed for dismissal of the case on the ground of improper venue (said motion being set for hearing on January 11, 1994). The other prayed for the transfer of the injunction hearing to January 11, 1994

because its counsel was not available on January 10 due to a prior commitment before another court.

KUBOTA claims that notwithstanding that its motion to transfer hearing had been granted, the Trial Court went ahead with the hearing on the injunction incident on January 10, 1994 during which it received the direct testimony of UNIMASTERS' general manager, Wilford Chan; that KUBOTA's counsel was "shocked" when he learned of this on the morning of the 11th, but was nonetheless instructed to proceed to cross-examine the witness; that when said counsel remonstrated that this was unfair, the Court reset the hearing to the afternoon of that same day, at which time Wilford Chan was recalled to the stand to repeat his direct testimony. It appears that cross-examination of Chan was then undertaken by KUBOTA's lawyer with the "express reservation that . . (KUBOTA was) not (thereby) waiving and/or abandoning its motion to dismiss;" and that in the course of the cross-examination, exhibits (numbered from 1 to 20) were presented by said attorney who afterwards submitted a memorandum in lieu of testimonial evidence. 2

On January 13, 1994, the Trial Court handed down an Order authorizing the issuance of the preliminary injunction prayed for, upon a bond of P2,000,000.00. 3 And on February 3, 1994, the same Court promulgated an Order denying KUBOTA's motion to dismiss. Said the Court:

The plaintiff UNIMASTERS Conglomeration is holding its principal place of business in the City of Tacloban while the defendant . . (KUBOTA) is holding its principal place of business in Quezon City. The proper venue therefore pursuant to Rules of Court would either be Quezon City or Tacloban City at the election of the plaintiff. Quezon City and Manila (sic), as agreed upon by the parties in the Dealership Agreement, are additional places other than the place stated in the Rules of Court. The filing, therefore, of this complaint in the Regional Trial Court in Tacloban City is proper.

Both orders were challenged as having been issued with grave abuse of discretion by KUBOTA in a special civil action of certiorari and prohibition filed with the Court of Appeals, docketed as CA-G.R. SP No. 33234. It contended, more particularly, that (1) the RTC had "no jurisdiction to take cognizance of . . (UNIMASTERS') action considering that venue was improperly laid," (2) UNIMASTERS had in truth "failed to prove that it is entitled to the . . writ of preliminary injunction;" and (3) the RTC gravely erred "in denying the motion to dismiss." 4

The Appellate Court agreed with KUBOTA that — in line with the Rules of Court 5 and this Court's relevant rulings 6— the stipulation respecting venue in its Dealership Agreement with UNIMASTERS did in truth limit the venue of all suits arising thereunder only and exclusively to "the proper courts of Quezon City." 7 The Court also held that the participation of KUBOTA's counsel at the hearing on the injunction incident did not in the premises operate as a waiver or abandonment of its objection to venue; that assuming that KUBOTA's standard printed invoices provided that the venue of actions thereunder should be laid at the Court of the City of Manila, this was

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inconsequential since such provision would govern "suits or legal actions between petitioner and its buyers" but not actions under the Dealership Agreement between KUBOTA and UNIMASTERS, the venue of which was controlled by paragraph No. 7 thereof; and that no impediment precludes issuance of a TRO or injunctive writ by the Quezon City RTC against METROBANK-Tacloban since the same "may be served on the principal office of METROBANK in Makati and would be binding on and enforceable against, METROBANK branch in Tacloban."

After its motion for reconsideration of that decision was turned down by the Court of Appeals, UNIMASTERS appealed to this Court. Here, it ascribes to the Court of Appeals several errors which it believes warrant reversal of the verdict, namely: 8

1) "in concluding, contrary to decisions of this . . Court, that the agreement on venue between petitioner (UNIMASTERS) and private respondent (KUBOTA) limited to the proper courts of Quezon City the venue of any complaint filed arising from the dealership agreement between . . (them);"

2) "in ignoring the rule settled in Philippine Banking Corporation vs. Tensuan, 9 that 'in the absence of qualifying or restrictive words, venue stipulations in a contract should be considered merely as agreement on additional forum, not as limiting venue to the specified place;" and in concluding, contrariwise, that the agreement in the case at bar "was the same as the agreement on venue in the Gesmundo case," and therefore, the Gesmundo case was controlling; and

3) "in concluding, based solely on the self-serving narration of . . (KUBOTA that its) participation in the hearing for the issuance of a . . preliminary injunction did not constitute waiver of its objection to venue."

The issue last mentioned, of whether or not the participation by the lawyer of KUBOTA at the injunction hearing operated as a waiver of its objection to venue, need not occupy the Court too long. The record shows that when KUBOTA's counsel appeared before the Trial Court in the morning of January 11, 1994 and was then informed that he should cross-examine UNIMASTERS' witness, who had testified the day before, said counsel drew attention to the motion to dismiss on the ground of improper venue and insistently attempted to argue the matter and have it ruled upon at the time; and when the Court made known its intention (a) "to (resolve first the) issue (of) the injunction then rule on the motion to dismiss," and (b) consequently its desire to forthwith conclude the examination of the witness on the injunction incident, and for that purpose reset the hearing in the afternoon of that day, the 11th, so that the matter might be resolved before the lapse of the temporary restraining order on the 13th, KUBOTA's lawyer told the Court: "Your Honor, we are not waiving our right to submit the Motion to Dismiss."10 It is plain that under these circumstances, no waiver or abandonment can be imputed to KUBOTA.

The essential question really is that posed in the first and second assigned errors, i.e., what construction should be placed on the stipulation in the Dealership Agreement that" (a)ll suits arising out of this Agreement shall be filed with/in the proper Courts of Quezon City."

Rule 4 of the Rules of Court sets forth the principles generally governing the venue of actions, whether real or personal, or involving persons who neither reside nor are found in the Philippines or otherwise. Agreements on venue are explicitly allowed. "By written agreement of the parties the venue of an action may be changed or transferred from one province to another." 11 Parties may by stipulation waive the legal venue and such waiver is valid and effective being merely a personal privilege, which is not contrary to public policy or prejudicial to third persons. It is a general principle that a person may renounce any right which the law gives unless such renunciation would be against public policy. 12

Written stipulations as to venue may be restrictive in the sense that the suit may be filed only in the place agreed upon, or merely permissive in that the parties may file their suit not only in the place agreed upon but also in the places fixed by law (Rule 4, specifically). As in any other agreement, what is essential is the ascertainment of the intention of the parties respecting the matter.

Since convenience is the raison d'etre of the rules of venue, 13 it is easy to accept the proposition that normally, venue stipulations should be deemed permissive merely, and that interpretation should be adopted which most serves the parties' convenience. In other words, stipulations designating venues other than those assigned by Rule 4 should be interpreted as designed to make it more convenient for the parties to institute actions arising from or in relation to their agreements; that is to say, as simply adding to or expanding the venues indicated in said Rule 4.

On the other hand, because restrictive stipulations are in derogation of this general policy, the language of the parties must be so clear and categorical as to leave no doubt of their intention to limit the place or places, or to fix places other than those indicated in Rule 4, for their actions. This is easier said than done, however, as an examination of precedents involving venue covenants will immediately disclose.

In at least thirteen (13) cases, this Court construed the venue stipulations involved as merely permissive. These are:

1. Polytrade Corporation v. Blanco, decided in 1969. 14 In this case, the venue stipulation was as follows:

The parties agree to sue and be sued in the Courts of Manila.

This Court ruled that such a provision "does not preclude the filing of suits in the residence of the plaintiff or the defendant. The plain meaning is that the parties merely consented to be sued in Manila. Qualifying or restrictive words which would indicate that Manila and Manila alone is the venue are totally absent therefrom. It simply is permissive. The parties solely agreed to add the courts of Manila as tribunals to which they may resort. They did not waive their right to pursue remedy in the courts specifically mentioned in Section 2(b) of Rule 4."

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The Polytrade doctrine was reiterated expressly or implicitly in subsequent cases, numbering at least ten (10).

2. Nicolas v. Reparations Commission, decided in 1975. 15 In this case, the stipulation on venue read:

. . . (A)ll legal actions arising out of this contract . . may be brought in and submitted to the jurisdiction of the proper courts in the City of Manila.

This Court declared that the stipulation does not clearly show the intention of the parties to limit the venue of the action to the City of Manila only. "It must be noted that the venue in personal actions is fixed for the convenience of the plaintiff and his witnesses and to promote the ends of justice. We cannot conceive how the interest of justice may be served by confining the situs of the action to Manila, considering that the residences or offices of all the parties, including the situs of the acts sought to be restrained or required to be done, are all within the territorial jurisdiction of Rizal. . . Such agreements should be construed reasonably and should not be applied in such a manner that it would work more to the inconvenience of the parties without promoting the ends of justice.

3. Lamis Ents. v. Lagamon, decided in 1981. 16 Here, the stipulation in the promissory note and the chattel mortgage specified Davao City as the venue.

The Court, again citing Polytrade, stated that the provision "does not preclude the filing of suits in the residence of plaintiff or defendant under Section 2(b), Rule 4, Rules of Court, in the absence of qualifying or restrictive words in the agreement which would indicate that the place named is the only venue agreed upon by the parties. The stipulation did not deprive . . (the affected party) of his right to pursue remedy in the court specifically mentioned in Section 2(b) of Rule 4, Rules of Court. Renuntiato non praesumitur."

4. Capati v. Ocampo, decided in 1982 17 In this case, the provision of the contract relative to venue was as follows:

. . . (A)ll actions arising out, or relating to this contract may be instituted in the Court of First Instance of the City of Naga.

The Court ruled that the parties "did not agree to file their suits solely and exclusively with the Court of First Instance of Naga;" they "merely agreed to submit their disputes to the said court without waiving their right to seek recourse in the court specifically indicated in Section 2 (b), Rule 4 of the Rules of Court."

5. Western Minolco v. Court of Appeals, decided in 1988. 18 Here, the provision governing venue read:

The parties stipulate that the venue of the actions referred to in Section 12.01 shall be in the City of Manila.

The court restated the doctrine that a stipulation in a contract fixing a definite place for the institution of an action arising in connection therewith, does not ordinarily supersede the general rules set out in Rule 4, and should be construed merely as an agreement on an additional forum, not as limiting venue to the specified place.

6. Moles v. Intermediate Appellate Court, decided in 1989. 19 In this proceeding, the Sales Invoice of a linotype machine stated that the proper venue should be Iloilo.

This Court held that such an invoice was not the contract of sale of the linotype machine in question; consequently the printed provisions of the invoice could not have been intended by the parties to govern the sale of the machine, especially since said invoice was used for other types of transactions. This Court said: "It is obvious that a venue stipulation, in order to bind the parties, must have been intelligently and deliberately intended by them to exclude their case from the reglementary rules on venue. Yet, even such intended variance may not necessarily be given judicial approval, as, for instance, where there are no restrictive or qualifying words in the agreement indicating that venue cannot be laid in any place other than that agreed upon by the parties, and in contracts of adhesion."

7. Hongkong and Shanghai Banking Corp. v. Sherman, decided in 1989. 20 Here the stipulation on venue read:

. . (T)his guarantee and all rights, obligations and liabilities arising hereunder shall be construed and determined under and may be enforced in accordance with the laws of the Republic of Singapore. We hereby agree that the Courts in Singapore shall have jurisdiction over all disputes arising under this guarantee. . .

This Court held that due process dictates that the stipulation be liberally construed. The parties did not thereby stipulate that only the courts of Singapore, to the exclusion of all the others, had jurisdiction. The clause in question did not operate to divest Philippine courts of jurisdiction.

8. Nasser v. Court of Appeals, decided in 1990, 21 in which the venue stipulation in the promissory notes in question read:

. . (A)ny action involving the enforcement of this contract shall be brought within the City of Manila, Philippines.

The Court's verdict was that such a provision does not as a rule supersede the general rule set out in Rule 4 of the Rules of Court, and should be construed merely as an agreement on an additional forum, not as limiting venue to the specified place.

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9. Surigao Century Sawmill Co., Inc. v. Court of Appeals, decided in 1993: 22 In this case, the provision concerning venue was contained in a contract of lease of a barge, and read as follows:

. . . (A)ny disagreement or dispute arising out of the lease shall be settled by the parties in the proper court in the province of Surigao del Norte.

The venue provision was invoked in an action filed in the Regional Trial Court of Manila to recover damages arising out of marine subrogation based on a bill of lading. This Court declared that since the action did not refer to any disagreement or dispute arising out of the contract of lease of the barge, the venue stipulation in the latter did not apply; but that even assuming the contract of lease to be applicable, a statement in a contract as to venue does not preclude the filing of suits at the election of the plaintiff where no qualifying or restrictive words indicate that the agreed place alone was the chosen venue.

10. Philippine Banking Corporation, v. Hon. Salvador Tensuan, etc., Circle Financial Corporation, at al., decided in 1993. 23 Here, the stipulation on venue was contained in promissory notes and read as follows:

I/We hereby expressly submit to the jurisdiction of the courts of Valenzuela any legal action which may arise out of this promissory note.

This Court held the stipulation to be merely permissive since it did not lay the venue in Valenzuela exclusively or mandatorily. The plain or ordinary import of the stipulation is the grant of authority or permission to bring suit in Valenzuela; but there is not the slightest indication of an intent to bar suit in other competent courts. The Court stated that there is no necessary or customary connection between the words "any legal action" and an intent strictly to limit permissible venue to the Valenzuela courts. Moreover, since the venue stipulations include no qualifying or exclusionary terms, express reservation of the right to elect venue under the ordinary rules was unnecessary in the case at bar. The Court made clear that "to the extent Bautista and Hoechst Philippines are inconsistent with Polytrade (an en banc decision later in time than Bautista) and subsequent cases reiteratingPolytrade, Bautista and Hoechst Philippines have been rendered obsolete by the Polytrade line of cases."

11. Philippine Banking Corporation v. Hon. Salvador Tensuan, etc., Brinell Metal Works Corp., et al., decided in 1994: 24 In this case the subject promissory notes commonly contained a stipulation reading:

I/we expressly submit to the jurisdiction of the courts of Manila, any legal action which may arise out of this promissory note.

the Court restated the rule in Polytrade that venue stipulations in a contract, absent any qualifying or restrictive words, should be considered merely as

an agreement on additional forum, not limiting venue to the specified place. They are not exclusive, but rather, permissive. For to restrict venue only to that place stipulated in the agreement is a construction purely based on technicality; on the contrary, the stipulation should be liberally construed. The Court stated: "The later cases of Lamis Ents v. Lagamon [108 SCRA 1981], Capati v. Ocampo [113 SCRA 794 [1982], Western Minolco v. Court of Appeals [167 SCRA 592 [1988], Moles v. Intermediate Appellate Court [169 SCRA 777 [1989], Hongkong and Shanghai Banking Corporation v. Sherman [176 SCRA 331], Nasser v. Court of Appeals [191 SCRA 783 [1990] and just recently, Surigao Century Sawmill Co. v. Court of Appeals [218 SCRA 619 [1993], all treaded the path blazed by Polytrade. The conclusion to be drawn from all these is that the more recent jurisprudence shall properly be deemed modificatory of the old ones."

The lone dissent observed: "There is hardly any question that a stipulation of contracts of adhesion, fixing venue to a specified place only, is void for, in such cases, there would appear to be no valid and free waiver of the venue fixed by the Rules of Courts. However, in cases where both parties freely and voluntarily agree on a specified place to be the venue of actions, if any, between them, then the only considerations should be whether the waiver (of the venue fixed by the Rules of Court) is against public policy and whether the parties would suffer, by reason of such waiver, undue hardship and inconvenience; otherwise, such waiver of venue should be upheld as binding on the parties. The waiver of venue in such cases is sanctioned by the rules on jurisdiction."

Still other precedents adhered to the same principle.

12. Tantoco v. Court of Appeals, decided in 1977. 25 Here, the parties agreed in their sales contracts that the courts of Manila shall have jurisdiction over any legal action arising out of their transaction. This Court held that the parties agreed merely to add the courts of Manila as tribunals to which they may resort in the event of suit, to those indicated by the law: the courts either of Rizal, of which private respondent was a resident, or of Bulacan, where petitioner resided.

13. Sweet Lines, Inc. v. Teves, promulgated in 1987. 26 In this case, a similar stipulation on venue, contained in the shipping ticket issued by Sweet Lines, Inc. (as Condition 14) —

. . that any and all actions arising out or the condition and provisions of this ticket, irrespective of where it is issued, shall be filed in the competent courts in the City of Cebu

— was declared unenforceable, being subversive of public policy. The Court explained that the philosophy on transfer of venue of actions is the convenience of the plaintiffs as well as his witnesses and to promote the ends of justice; and considering the expense and trouble a passenger residing outside of Cebu City would incur to prosecute a claim in the City of Cebu, he would most probably decide not to file the action at all.

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On the other hand, in the cases hereunder mentioned, stipulations on venue were held to be restrictive, or mandatory.

1. Bautista vs. De Borja, decided in 1966. 27 In this case, the contract provided that in case of any litigation arising therefrom or in connection therewith, the venue of the action shall be in the City of Manila. This Court held that without either party reserving the right to choose the venue of action as fixed by law, it can reasonably be inferred that the parties intended to definitely fix the venue of the action, in connection with the contract sued upon in the proper courts of the City of Manila only, notwithstanding that neither party is a resident of Manila.

2. Gesmundo v. JRB Realty Corporation, decided in 1994. 28 Here the lease contract declared that

. . (V)enue for all suits, whether for breach hereof or damages or any cause between the LESSOR and LESSEE, and persons claiming under each, . . (shall be) the courts of appropriate jurisdiction in Pasay City. . .

This Court held that: "(t)he language used leaves no room for interpretation. It clearly evinces the parties' intent to limit to the 'courts of appropriate jurisdiction of Pasay City' the venue for all suits between the lessor and the lessee and those between parties claiming under them. This means a waiver of their right to institute action in the courts provided for in Rule 4, sec. 2(b)."

3. Hoechst Philippines, Inc. v. Torres, 29 decided much earlier, in 1978, involved a strikingly similar stipulation, which read:

. . (I)n case of any litigation arising out of this agreement, the venue of any action shall be in the competent courts of the Province of Rizal.

This Court held: "No further stipulations are necessary to elicit the thought that both parties agreed that any action by either of them would be filed only in the competent courts of Rizal province exclusively."

4. Villanueva v. Mosqueda, decided in 1982. 30 In this case, it was stipulated that if the lessor violated the contract of lease he could be sued in Manila, while if it was the lessee who violated the contract, the lessee could be sued in Masantol, Pampanga. This Court held that there was an agreement concerning venue of action and the parties were bound by their agreement. "The agreement as to venue was not permissive but mandatory."

5. Arquero v. Flojo, decided in 1988. 31 The condition respecting venue — that any action against RCPI relative to the transmittal of a telegram must be brought in the courts of Quezon City alone — was printed clearly in the upper front portion of the form to be filled in by the sender. This Court held that since neither party reserved the

right to choose the venue of action as fixed by Section 2 [b], Rule 4, as is usually done if the parties mean to retain the right of election so granted by Rule 4, it can reasonably be inferred that the parties intended to definitely fix the venue of action, in connection with the written contract sued upon, in the courts of Quezon City only.

An analysis of these precedents reaffirms and emphasizes the soundness of the Polytrade principle. Of the essence is the ascertainment of the parties' intention in their agreement governing the venue of actions between them. That ascertainment must be done keeping in mind that convenience is the foundation of venue regulations, and that construction should be adopted which most conduces thereto. Hence, the invariable construction placed on venue stipulations is that they do not negate but merely complement or add to the codal standards of Rule 4 of the Rules of Court. In other words, unless the parties make very clear, by employing categorical and suitably limiting language, that they wish the venue of actions between them to be laid only and exclusively at a definite place, and to disregard the prescriptions of Rule 4, agreements on venue are not to be regarded as mandatory or restrictive, but merely permissive, or complementary of said rule. The fact that in their agreement the parties specify only one of the venues mentioned in Rule 4, or fix a place for their actions different from those specified by said rule, does not, without more, suffice to characterize the agreement as a restrictive one. There must, to repeat, be accompanying language clearly and categorically expressing their purpose and design that actions between them be litigated only at the place named by them, 32 regardless of the general precepts of Rule 4; and any doubt or uncertainty as to the parties' intentions must be resolved against giving their agreement a restrictive or mandatory aspect. Any other rule would permit of individual, subjective judicial interpretations without stable standards, which could well result in precedents in hopeless inconsistency.

The record of the case at bar discloses that UNIMASTERS has its principal place of business in Tacloban City, and KUBOTA, in Quezon City. Under Rule 4, the venue of any personal action between them is "where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff." 33 In other words, Rule 4 gives UNIMASTERS the option to sue KUBOTA for breach of contract in the Regional Trial Court of either Tacloban City or Quezon City.

But the contract between them provides that " . . All suits arising out of this Agreement shall be filed with / in the proper Courts of Quezon City," without mention of Tacloban City. The question is whether this stipulation had the effect of effectively eliminating the latter as an optional venue and limiting litigation between UNIMASTERS and KUBOTA only and exclusively to Quezon City.

In light of all the cases above surveyed, and the general postulates distilled therefrom, the question should receive a negative answer. Absent additional words and expressions definitely and unmistakably denoting the parties' desire and intention that actions between them should be ventilated only at the place selected by them, Quezon City — or other contractual provisions clearly evincing the same desire and intention — the stipulation should be construed, not as confining suits between the

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parties only to that one place, Quezon City, but as allowing suits either in Quezon City or Tacloban City, at the option of the plaintiff (UNIMASTERS in this case).

One last word, respecting KUBOTA's theory that the Regional Trial Court had "no jurisdiction to take cognizance of . . (UNIMASTERS') action considering that venue was improperly laid." This is not an accurate statement of legal principle. It equates venue with jurisdiction; but venue has nothing to do with jurisdiction, except in criminal actions. This is fundamental. 34 The action at bar, for the recovery of damages in an amount considerably in excess of P20,000,00, is assuredly within the jurisdiction of a Regional Trial Court. 35 Assuming that venue were improperly laid in the Court where the action was instituted, the Tacloban City RTC, that would be a procedural, not a jurisdictional impediment — precluding ventilation of the case before that Court of wrong venue notwitstanding that the subject matter is within its jurisdiction. However, if the objection to venue is waived by the failure to set it up in a motion to dismiss, 36 the RTC would proceed in perfectly regular fashion if it then tried and decided the action.

This is true also of real actions. Thus, even if a case "affecting title to, or for recovery of possession, or for partition or condemnation of, or foreclosure of mortgage on, real property" 37 were commenced in a province or city other than that "where the property or any part thereof lies," 38 if no objection is seasonably made in a motion to dismiss, the objection is deemed waived, and the Regional Trial Court would be acting entirely within its competence and authority in proceeding to try and decide the suit. 39

WHEREFORE, the appealed judgment of the Court of Appeals is REVERSED, the Order of the Regional Trial Court of Tacloban City, Branch 6, dated February 3, 1994, is REINSTATED and AFFIRMED, and said Court is DIRECTED to forthwith proceed with Civil Case No. 93-12-241 in due course.

SO ORDERED.

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G.R. No. 74854 April 2, 1991

JESUS DACOYCOY, petitioner, vs.HON. INTERMEDIATE APPELLATE COURT, HON. ANTONIO V. BENEDICTO, Executive Judge, Regional Trial Court, Branch LXXI, Antipolo, Rizal, and RUFINO DE GUZMAN, respondents.

Ramon V. Sison for petitioner.Public Attorney's Office for private respondent.

FERNAN, C.J.:

May the trial court motu proprio dismiss a complaint on the ground of improper venue? This is the issue confronting the Court in the case at bar.

On March 22, 1983, petitioner Jesus Dacoycoy, a resident of Balanti, Cainta, Rizal, filed before the Regional Trial Court, Branch LXXI, Antipolo, Rizal, a complaint against private respondent Rufino de Guzman praying for the annulment of two (2) deeds of sale involving a parcel of riceland situated in Barrio Estanza, Lingayen, Pangasinan, the surrender of the produce thereof and damages for private respondent's refusal to have said deeds of sale set aside upon petitioner's demand.

On May 25, 1983, before summons could be served on private respondent as defendant therein, the RTC Executive Judge issued an order requiring counsel for petitioner to confer with respondent trial judge on the matter of venue. After said conference, the trial court dismissed the complaint on the ground of improper venue. It found, based on the allegations of the complaint, that petitioner's action is a real action as it sought not only the annulment of the aforestated deeds of sale but also the recovery of ownership of the subject parcel of riceland located in Estanza, Lingayen, Pangasinan, which is outside the territorial jurisdiction of the trial court.

Petitioner appealed to the Intermediate Appellate Court, now Court of Appeals, which in its decision of April 11, 1986,1 affirmed the order of dismissal of his complaint.

In this petition for review, petitioner faults the appellate court in affirming what he calls an equally erroneous finding of the trial court that the venue was improperly laid when the defendant, now private respondent, has not even answered the complaint nor waived the venue.2

Petitioner claims that the right to question the venue of an action belongs solely to the defendant and that the court or its magistrate does not possess the authority to confront the plaintiff and tell him that the venue was improperly laid, as venue is

waivable. In other words, petitioner asserts, without the defendant objecting that the venue was improperly laid, the trial court is powerless to dismiss the case motu proprio.

Private respondent, on the other hand, maintains that the dismissal of petitioner's complaint is proper because the same can "readily be assessed as (a) real action." He asserts that "every court of justice before whom a civil case is lodged is not even obliged to wait for the defendant to raise that venue was improperly laid. The court can take judicial notice and motu proprio dismiss a suit clearly denominated as real action and improperly filed before it. . . . the location of the subject parcel of land is controlling pursuant to Sec. 2, par. (a), Rule 4 of the New Rules of Court . . .3

We grant the petition.

The motu proprio dismissal of petitioner's complaint by respondent trial court on the ground of improper venue is plain error, obviously attributable to its inability to distinguish between jurisdiction and venue.

Questions or issues relating to venue of actions are basically governed by Rule 4 of the Revised Rules of Court. It is said that the laying of venue is procedural rather than substantive. It relates to the jurisdiction of the court over the person rather than the subject matter. Provisions relating to venue establish a relation between the plaintiff and the defendant and not between the court and the subject matter. Venue relates to trial not to jurisdiction, touches more of the convenience of the parties rather than the substance of the case.4

Jurisdiction treats of the power of the court to decide a case on the merits; while venue deals on the locality, the place where the suit may be had.5

In Luna vs. Carandang,6 involving an action instituted before the then Court of First Instance of Batangas for rescission of a lease contract over a parcel of agricultural land located in Calapan, Oriental Mindoro, which complaint said trial court dismissed for lack of jurisdiction over the leased land, we emphasized:

(1) A Court of First Instance has jurisdiction over suits involving title to, or possession of, real estate wherever situated in the Philippines, subject to the rules on venue of actions (Manila Railroad Company vs. Attorney General, etc., et al., 20 Phil. 523; Central Azucarera de Tarlac vs. De Leon, et al., 56 Phil. 169; Navarro vs. Aguila, et al., 66 Phil. 604; Lim Cay, et al. vs. Del Rosario, etc., et al., 55 Phil. 692);

(2) Rule 4, Section 2, of the Rules of Court requiring that an action involving real property shall be brought in the Court of First Instance of the province where the land lies is a rule on venue of actions, which may be waived expressly or by implication.

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In the instant case, even granting for a moment that the action of petitioner is a real action, respondent trial court would still have jurisdiction over the case, it being a regional trial court vested with the exclusive original jurisdiction over "all civil actions which involve the title to, or possession of, real property, or any interest therein . . ." in accordance with Section 19 (2) of Batas Pambansa Blg. 129. With respect to the parties, there is no dispute that it acquired jurisdiction over the plaintiff Jesus Dacoycoy, now petitioner, the moment he filed his complaint for annulment and damages. Respondent trial court could have acquired jurisdiction over the defendant, now private respondent, either by his voluntary appearance in court and his submission to its authority, or by the coercive power of legal process exercised over his person.7

Although petitioner contends that on April 28, 1963, he requested the City Sheriff of Olongapo City or his deputy to serve the summons on defendant Rufino de Guzman at his residence at 117 Irving St., Tapinac, Olongapo City,8 it does not appear that said service had been properly effected or that private respondent had appeared voluntarily in court9 or filed his answer to the complaint.10 At this stage, respondent trial court should have required petitioner to exhaust the various alternative modes of service of summons under Rule 14 of the Rules of Court, i.e., personal service under Section 7, substituted service under Section 8, or service by publication under Section 16 when the address of the defendant is unknown and cannot be ascertained by diligent inquiry.

Dismissing the complaint on the ground of improper venue is certainly not the appropriate course of action at this stage of the proceeding, particularly as venue, in inferior courts as well as in the courts of first instance (now RTC), may be waived expressly or impliedly. Where defendant fails to challenge timely the venue in a motion to dismiss as provided by Section 4 of Rule 4 of the Rules of Court, and allows the trial to be held and a decision to be rendered, he cannot on appeal or in a special action be permitted to challenge belatedly the wrong venue, which is deemed waived.11

Thus, unless and until the defendant objects to the venue in a motion to dismiss, the venue cannot be truly said to have been improperly laid, as for all practical intents and purposes, the venue, though technically wrong, may be acceptable to the parties for whose convenience the rules on venue had been devised. The trial court cannot pre-empt the defendant's prerogative to object to the improper laying of the venue by motu proprio dismissing the case.

Indeed, it was grossly erroneous for the trial court to have taken a procedural short-cut by dismissing motu proprio the complaint on the ground of improper venue without first allowing the procedure outlined in the Rules of Court to take its proper course. Although we are for the speedy and expeditious resolution of cases, justice and fairness take primary importance. The ends of justice require that respondent trial court faithfully adhere to the rules of procedure to afford not only the defendant, but the plaintiff as well, the right to be heard on his cause.

WHEREFORE, in view of the foregoing, the decision of the Intermediate Appellate Court, now Court of Appeals, dated April 11, 1986, is hereby nullified and set aside. The complaint filed by petitioner before the Regional Trial Court of Antipolo, Branch LXXI is revived and reinstated. Respondent court is enjoined to proceed therein in accordance with law.

SO ORDERED.

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G.R. No. 106847. March 5, 1993.

PATRICIO P. DIAZ, petitioner, vs. JUDGE SANTOS B. ADIONG, RTC, Br. 8, Marawi City, SULTAN MACORRO L. MACUMBAL, SULTAN LINOG M. INDOL, MACABANGKIT LANTO and MOHAMADALI ABEDIN, respondents.

Rex J.M.A. Fernandez for petitioner.

Mangurun B. Batuampar for respondents.

SYLLABUS

1. REMEDIAL LAW; ACTIONS; VENUE OF LIBEL CASE WHERE OFFENDED PARTY IS AN PUBLIC OFFICIAL. — From the provision of Article 360, third paragraph of the Revised Penal Code as amended by R.A. 4363, it is clear that an offended party who is at the same time a public official can only institute an action arising from libel in two (2) venues: the place where he holds office, and the place where the alleged libelous articles were printed and first published.

2. ID.; ID.; IMPROPER VENUE; MUST BE RAISED IN A NOTION TO DISMISS PRIOR TO A RESPONSIVE PLEADING. — Unless and until the defendant objects to the venue in a motion to dismiss prior to a responsive pleading, the venue cannot truly be said to have been improperly laid since, for all practical intents and purposes, the venue though technically wrong may yet be considered acceptable to the parties for whose convenience the rules on venue had been devised.

3. ID.; ID.; ID.; WAIVED IN CASE AT BAR BY FILING ANSWER. — Petitioner Diaz then, as defendant in the court below, should have timely challenged the venue laid in Marawi City in a motion to dismiss, pursuant to Sec. 4, Rule 4, of the Rules of Court. Unfortunately, petitioner had already submitted himself to the jurisdiction of the trial court when he filed his Answer to the Complaint with Counterclaim. His motion to dismiss was therefore belatedly filed and could no longer deprive the trial court of jurisdiction to hear and decide the instant civil action for damages. Well-settled is the rule that improper venue may be waived and such waiver may occur by laches. Sec. 1 of Rule 16 provides that objections to improper venue must be made in a motion to dismiss before any responsive pleading is filed. Responsive pleadings are those which seek affirmative relief and set up defenses. Consequently, having already submitted his person to the jurisdiction of the trial court, petitioner may no longer object to the venue which, although mandatory in the instant case, is nevertheless waivable. As such, improper venue must be seasonably raised, otherwise, it may be deemed waived.

4. ID.; ID.; ID.; RELATES TO TRIAL AND NOT TO JURISDICTION. — Indeed, the laying of venue is procedural rather than substantive, relating as it does to jurisdiction of the court over the person rather than the subject matter. Venue relates to trial and not to jurisdiction.

D E C I S I O N

BELLOSILLO, J p:

VENUE in the instant civil action for damages arising from libel was improperly laid; nonetheless, the trial court refused to dismiss the complaint. Hence, this Petition for Certiorari, with prayer for the issuance of a temporary restraining order, assailing that order of denial 1 as well as the order denying reconsideration. 2

The facts: On 16 July 1991, the Mindanao Kris, a newspaper of general circulation in Cotabato City, published in its front page the news article captioned "6-Point Complaint Filed vs. Macumbal," and in its Publisher's Notes the editorial, "Toll of Corruption," which exposed alleged anomalies by key officials in the Regional Office of the Department of Environment and Natural Resources. 3

On 22 July 1991, the public officers alluded to, namely, private respondents Sultan Macorro L. Macumbal, Sultan Linog M. Indol, Atty. Macabangkit M. Lanto and Atty. Mohamadali Abedin, instituted separate criminal and civil complaints arising from the libel before the City Prosecutor's Office and the Regional Trial Court in Marawi City. The publisher-editor of the Mindanao Kris, petitioner Patricio P. Diaz, and Mamala B. Pagandaman, who executed a sworn statement attesting to the alleged corruption, were named respondents in both complaints. 4

On 2 September 1991, the City Prosecutor's Office dismissed the criminal case thus 5 —

"WHEREFORE . . . this investigation in the light of Agbayani vs. Sayo case finds that it has no jurisdiction to handle this case and that the same be filed or instituted in Cotabato City where complainant is officially holding office at the time respondents caused the publication of the complained news item in the Mindanao Kris in Cotabato City, for which reason it is recommended that this charge be dropped for lack of jurisdiction."

In the interim, the civil complaint for damages, docketed as Civil Case No. 385-91 and raffled to Branch 10 of the Regional Trial Court in Marawi City, was set for Pre-Trial Conference. The defendants therein had already filed their respective Answers with Counterclaim.

On 18 November 1991, petitioner Diaz moved for the dismissal of the action for damages on the ground that the trial court did not have jurisdiction over the subject matter. He vehemently argued that the complaint should have been filed in Cotabato City and not in Marawi City. 6

Pending action on the motion, the presiding judge of Branch 10 inhibited himself from the case which was thereafter reraffled to the sala of respondent judge.

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On 15 June 1991, respondent judge denied petitioner's Motion to Dismiss for lack of merit. Diaz thereafter moved for reconsideration of the order of denial. The motion was also denied in the Order of 27 August 1991, prompting petitioner to seek relief therefrom.

Petitioner Diaz contends that the civil action for damages could not be rightfully filed in Marawi City as none of the private respondents, who are all public officers, held office in Marawi City; neither were the alleged libelous news items published in that city. Consequently, it is petitioner's view that the Regional Trial Court in Marawi City has no jurisdiction to entertain the civil action for damages.

The petitioner is correct. Not one of the respondents then held office in Marawi City: respondent Macumbal was the Regional Director for Region XII of the DENR and held office in Cotabato City; respondent Indol was the Provincial Environment and Natural Resources Officer of Lanao del Norte and held office in that province; respondent Lanto was a consultant of the Secretary of the DENR and, as averred in the complaint, was temporarily residing in Quezon City; and, respondent Abedin was the Chief of the Legal Division of the DENR Regional Office in Cotabato City. 7 Indeed, private respondents do not deny that their main place of work was not in Marawi City, although they had sub-offices therein.

Apparently, the claim of private respondents that they maintained sub-offices in Marawi City is a mere afterthought, considering that it was made following the dismissal of their criminal complaint by the City Prosecutor of Marawi City. Significantly, in their complaint in civil Case No. 385-91 respondents simply alleged that they were residents of Marawi City, except for respondent Lanto who was then temporarily residing in Quezon City, and that they were public officers, nothing more. This averment is not enough to vest jurisdiction upon the Regional Trial Court of Marawi City and may be properly assailed in a motion to dismiss.

The Comment of private respondents that Lanto was at the time of the commission of the offense actually holding office in Marawi City as consultant of LASURECO can neither be given credence because this is inconsistent with their allegation in their complaint that respondent Lanto, as consultant of the Secretary of the DENR, was temporarily residing in Quezon City.

Moreover, it is admitted that the libelous articles were published and printed in Cotabato City. Thus, respondents were limited in their choice of venue for their action for damages only to Cotabato City where Macumbal, Lanto and Abedin had their office and Lanao del Norte where Indol worked. Marawi City is not among those where venue can be laid.

The third paragraph of Art. 360 of the Revised Penal Code, as amended by R.A. No. 4363, specifically requires that —

"The criminal and civil action for damages in cases of written defamations as provided for in this chapter, shall be filed simultaneously or separately with the Court of First

Instance (now Regional Trial Court) of the province or city where the libelous article is printed and first published or where any of the offended parties actually resides at the time of the commission of the offense: Provided, however, that where one of the offended parties is a public officer . . . (who) does not hold office in the City of Manila, the action shall be filed in the Court of First Instance (Regional Trial Court) of the province or city where he held office at the time of the commission of the offense or where the libelous article is printed and first published and in case one of the the offended parties is a private individual, the action shall be filed in the Court of First Instance of the province or city where he actually resides at the time of the commission of the offense or where the libelous matter is printed and first published . . . . " (emphasis supplied)

From the foregoing provision, it is clear that an offended party who is at the same time a public official can only institute an action arising from libel in two (2) venues: the place where he holds office, and the place where the alleged libelous articles were printed and first published.

Private respondents thus appear to have misread the provisions of Art. 360 of the Revised Penal Code, as amended, when they filed their criminal and civil complaints in Marawi City. They deemed as sufficient to vest jurisdiction upon the Regional Trial Court of Marawi City the allegation that "plaintiffs are all of legal age, all married, Government officials by occupation and residents of Marawi City." 8 But they are wrong.

Consequently, it is indubitable that venue was improperly laid. However, unless and until the defendant objects to the venue in a motion to dismiss prior to a responsive pleading, the venue cannot truly be said to have been improperly laid since, for all practical intents and purposes, the venue though technically wrong may yet be considered acceptable to the parties for whose convenience the rules on venue had been devised. 9

Petitioner Diaz then, as defendant in the court below, should have timely challenged the venue laid in Marawi City in a motion to dismiss, pursuant to Sec. 4, Rule 4, of the Rules of Court. Unfortunately, petitioner had already submitted himself to the jurisdiction of the trial court when he filed his Answer to the Complaint with Counterclaim. 10

His motion to dismiss was therefore belatedly filed and could no longer deprive the trial court of jurisdiction to hear and decide the instant civil action for damages. Well-settled is the rule that improper venue may be waived and such waiver may occur by laches. 11

Petitioner was obviously aware of this rule when he anchored his motion to dismiss on lack of cause of action over the subject matter, relying on this Court's ruling in Time, Inc. v. Reyes. 12 Therein, We declared that the Court of First Instance of Rizal was without jurisdiction to take cognizance of Civil Case No. 10403 because the complainants held office in Manila, not in Rizal, while the alleged libelous articles were published abroad.

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It may be noted that in Time, Inc. v. Reyes, the defendant therein moved to dismiss the case without first submitting to the jurisdiction of the lower court, which is not the case before Us. More, venue in an action arising from libel is only mandatory if it is not waived by defendant. Thus —

"The rule is that where a statute creates a right and provides a remedy for its enforcement, the remedy is exclusive; and where it confers jurisdiction upon a particular court, that jurisdiction is likewise exclusive, unless otherwise provided. Hence, the venue provisions of Republic Act No. 4363 should be deemed mandatory for the party bringing the action, unless the question of venue should be waived by the defendant . . . . " 13

Withal, objections to venue in civil actions arising from libel may be waived; it does not, after all, involve a question of jurisdiction. Indeed, the laying of venue is procedural rather than substantive, relating as it does to jurisdiction of the court over the person rather than the subject matter. 14 Venue relates to trial and not to jurisdiction.

Finally, Sec. 1 of Rule 16 provides that objections to improper venue must be made in a motion to dismiss before any responsive pleading is filed. Responsive pleadings are those which seek affirmative relief and set up defenses. Consequently, having already submitted his person to the jurisdiction of the trial court, petitioner may no longer object to the venue which, although mandatory in the instant case, is nevertheless waivable. As such, improper venue must be seasonably raised, otherwise, it may be deemed waived.

WHEREFORE, for lack of merit, the Petition for Certiorari is DISMISSED and the Temporary Restraining Order heretofore issued is LIFTED.

This case is remanded to the court of origin for further proceedings.

SO ORDERED.

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G.R. No. 111685 August 20, 2001

DAVAO LIGHT & POWER CO., INC., petitioner, vs.THE HON. COURT OF APPEALS, HON. RODOLFO M. BELLAFLOR, Presiding Judge of Branch 11, RTC-Cebu and FRANCISCO TESORERO, respondents.

DE LEON, JR., J.:

Before us is a petition for review on certiorari assailing the Decision dated August 31, 1993 rendered by the Sixteenth Division1 of the Court of Appeals in CA-G.R. SP No. 29996, the dispositive portion of which states:

WHEREFORE, the petition for review filed by Davao Light & Power Co., Inc. is hereby DENIED DUE COURSE and the same is DISMISSED.

IT IS SO ORDERED.

The antecedent facts are:

On April 10, 1992, petitioner Davao Light & Power Co., Inc. filed a complaint for damages2 against private respondent Francisco Tesorero before the Regional Trial Court of Cebu City, Branch 11. Docketed as CEB-11578, the complaint prayed for damages in the amount of P11,000,000.00.

In lieu of an answer, private respondent filed a motion to dismiss3 claiming that: (a) the complaint did not state a cause of action; (b) the plaintiff's claim has been extinguished or otherwise rendered moot and academic; (c) there was non-joinder of indispensable parties; and (d) venue was improperly laid. Of these four (4) grounds, the last mentioned is most material in this case at bar.

On August 3, 1992, the trial court issued a Resolution4 dismissing petitioner's complaint on the ground of improper venue. The trial court stated that:

The plaintiff being a private corporation undoubtedly Banilad, Cebu City is the plaintiff's principal place of business as alleged in the complaint and which for purposes of venue is considered as its residence. x x x.

However, in defendant's motion to dismiss, it is alleged and submitted that the principal office of plaintiff is at "163-165 P. Reyes Street, Davao City as borne out by the Contract of Lease (Annex 2 of the motion) and another Contract of Lease of Generating Equipment (Annex 3 of the motion) executed by the plaintiff with the NAPOCOR.

The representation made by the plaintiff in the 2 aforementioned Lease Contracts stating that its principal office is at "163-165 P. Reyes Street, Davao City" bars the plaintiff from denying the same.

The choice of venue should not be left to plaintiff's whim or caprises [sic]. He may be impelled by some ulterior motivation in choosing to file a case in a court even if not allowed by the rules of venue.

Another factor considered by the Courts in deciding controversies regarding venue are considerations of judicial economy and administration, as well as the convenience of the parties for which the rules of procedure and venue were formulated x x x.

Considering the foregoing, the Court is of the opinion that the principal office of plaintiff is at Davao City which for purposes of venue is the residence of plaintiff.

Hence, the case should be filed in Davao City.

The motion on the ground of improper venue is granted and the complaint DISMISSED on that ground.

SO ORDERED.

Petitioner's motion for reconsideration5 was denied in an Order6 dated October 1, 1992.

From the aforesaid resolution and order, petitioner originally filed before this Court on November 20, 1992 a petition for review on certiorari docketed as G.R. No. 107381.7 We declined to take immediate cognizance of the case, and in a Resolution dated January 11, 1993,8 referred the same to the Court of Appeals for resolution. The petition was docketed in the appellate court as CA-G.R. SP No. 29996.

On August 31, 1993, the Court of Appeals rendered the assailed judgment 9 denying due course and dismissing the petition. Counsel for petitioner received a copy of the decision on September 6, 1993.10 Without filing a motion for reconsideration, petitioner filed the instant petition, assailing the judgment of the Court of Appeals on the following grounds:

5.01. Respondent Court of Appeals denied petitioner procedural due process by failing to resolve the third of the above-stated issues.

5.02. Petitioner's right to file its action for damages against private respondent in Cebu City where its principal office is located, and for which it paid P55,398.50 in docket fees, may not be negated by a supposed estoppel absent the essential elements of the false statement having been made to











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private respondent and his reliance on good faith on the truth thereof, and private respondent's action or inaction based thereon of such character as to change his position or status to his injury, detriment or prejudice.

The principal issue in the case at bar involves a question of venue. It is to be distinguished from jurisdiction, as follows:

Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by consent or waiver upon a court which otherwise would have no jurisdiction over the subject-matter of an action; but the venue of an action as fixed by statute may be changed by the consent of the parties and an objection that the plaintiff brought his suit in the wrong county may be waived by the failure of the defendant to make a timely objection. In either case, the court may render a valid judgment. Rules as to jurisdiction can never be left to the consent or agreement of the parties, whether or not a prohibition exists against their alteration.11

It is private respondent's contention that the proper venue is Davao City, and not Cebu City where petitioner filed Civil Case No. CEB-11578. Private respondent argues that petitioner is estopped from claiming that its residence is in Cebu City, in view of contradictory statements made by petitioner prior to the filing of the action for damages. First, private respondent adverts to several contracts12 entered into by petitioner with the National Power Corporation (NAPOCOR) where in the description of personal circumstances, the former states that its principal office is at "163-165 P. Reyes St., Davao City." According to private respondent the petitioner's address in Davao City, as given in the contracts, is an admission which should bind petitioner.

In addition, private respondent points out that petitioner made several judicial admissions as to its principal office in Davao City consisting principally of allegations in pleadings filed by petitioner in a number of civil cases pending before the Regional Trial Court of Davao in which it was either a plaintiff or a defendant.13

Practically the same issue was addressed in Young Auto Supply Co. v. Court of Appeals.14 In the aforesaid case, the defendant therein sought the dismissal of an action filed by the plaintiff, a corporation, before the Regional Trial Court of Cebu City, on the ground of improper venue. The trial court denied the motion to dismiss; on certiorari before the Court of Appeals, the denial was reversed and the case was dismissed. According to the appellate tribunal, venue was improperly laid since the address of the plaintiff was supposedly in Pasay City, as evidenced by a contract of sale, letters and several commercial documents sent by the plaintiff to the defendant, even though the plaintiff's articles of incorporation stated that its principal office was in Cebu City. On appeal, we reversed the Court of Appeals. We reasoned out thus:

In the Regional Trial Courts, all personal actions are commenced and tried in the province or city where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff x x x.

There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both plaintiffs aver in their complaint that they are residents of Cebu City, thus:

xxx xxx xxx

The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:

"THIRD. That the place where the principal office of the corporation is to be established or located is at Cebu City, Philippines (as amended on December 20, 1980 and further amended on December 20, 1984)" x x x.

A corporation has no residence in the same sense in which this term is applied to a natural person. But for practical purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as stated in the articles of incorporation (Cohen v. Benguet Commercial Co., Ltd., 34 Phil. 526 [1916] Clavecilla Radio System v. Antillo, 19 SCRA 379 [1967]). The Corporation Code precisely requires each corporation to specify in its articles of incorporation the "place where the principal office of the corporation is to be located which must be within the Philippines" (Sec. 14[3]). The purpose of this requirement is to fix the residence of a corporation in a definite place, instead of allowing it to be ambulatory.

In Clavecilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why actions cannot be filed against a corporation in any place where the corporation maintains its branch offices. The Court ruled that to allow an action to be instituted in any place where the corporation has branch offices, would create confusion and work untold inconvenience to said entity. By the same token, a corporation cannot be allowed to file personal actions in a place other than its principal place of business unless such a place is also the residence of a co-plaintiff or a defendant.

If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the ground that its principal place of business was in Cebu City, Roxas could argue that YASCO was in estoppel because it misled Roxas to believe that Pasay City was its principal place of business. But this is not the case before us.

With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal place of business is located, it becomes unnecessary to decide whether Garcia is also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice of Cebu City as the venue. [emphasis supplied]

The same considerations apply to the instant case. It cannot be disputed that petitioner's principal office is in Cebu City, per its amended articles of





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incorporation15 and by-laws.16 An action for damages being a personal action,17 venue is determined pursuant to Rule 4, section 2 of the Rules of Court, to wit:

Venue of personal actions. — All other actions may be commenced and tied where the plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the principal defendants resides, or in the case of a non-resident defendant where he may be found, at the election of the plaintiff.18

Private respondent is not a party to any of the contracts presented before us. He is a complete stranger to the covenants executed between petitioner and NAPOCOR, despite his protestations that he is privy thereto, on the rather flimsy ground that he is a member of the public for whose benefit the electric generating equipment subject of the contracts were leased or acquired. We are likewise not persuaded by his argument that the allegation or representation made by petitioner in either the complaints or answers it filed in several civil cases that its residence is in Davao City should estop it from filing the damage suit before the Cebu courts. Besides there is no showing that private respondent is a party in those civil cases or that he relied on such representation by petitioner.

WHEREFORE, the instant petition is hereby GRANTED. The appealed decision is hereby REVERSED and SET ASIDE. The Regional Trial Court of Cebu City, Branch 11 is hereby directed to proceed with Civil Case No. CEB-11578 with all deliberate dispatch. No pronouncement as to costs.

WE CONCUR:

SO ORDERED.

G.R. No. 125027 August 12, 2002





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ANITA MANGILA, petitioner, vs.COURT OF APPEALS and LORETA GUINA, respondents.

CARPIO, J.:

The Case

This is a petition fore review on certiorari under Rule 45 of the Rules of Court, seeking to set aside the Decision1of the Court of Appeals affirming the Decision2 of the Regional Trial Court, Branch 108, Pasay City. The trial court upheld the writ of attachment and the declaration of default on petitioner while ordering her to pay private respondent P109,376.95 plus 18 percent interest per annum, 25 percent attorney’s fees and costs of suit.

The Facts

Petitioner Anita Mangila ("petitioner" for brevity) is an exporter of sea foods and doing business under the name and style of Seafoods Products. Private respondent Loreta Guina ("private respondent" for brevity) is the President and General Manager of Air Swift International, a single registered proprietorship engaged in the freight forwarding business.

Sometime in January 1988, petitioner contracted the freight forwarding services of private respondent for shipment of petitioner’s products, such as crabs, prawns and assorted fishes, to Guam (USA) where petitioner maintains an outlet. Petitioner agreed to pay private respondent cash on delivery. Private respondent’s invoice stipulates a charge of 18 percent interest per annum on all overdue accounts. In case of suit, the same invoice stipulates attorney’s fees equivalent to 25 percent of the amount due plus costs of suit.3

On the first shipment, petitioner requested for seven days within which to pay private respondent. However, for the next three shipments, March 17, 24 and 31, 1988, petitioner failed to pay private respondent shipping charges amounting to P109, 376.95.4

Despite several demands, petitioner never paid private respondent. Thus, on June 10, 1988, private respondent filed Civil Case No. 5875 before the Regional Trial Court of Pasay City for collection of sum of money.

On August 1, 1988, the sheriff filed his Sheriff’s Return showing that summons was not served on petitioner. A woman found at petitioner’s house informed the sheriff that petitioner transferred her residence to Sto. Niño, Guagua, Pampanga. The sheriff found out further that petitioner had left the Philippines for Guam.5

Thus, on September 13, 1988, construing petitioner’s departure from the Philippines as done with intent to defraud her creditors, private respondent filed a Motion for Preliminary Attachment. On September 26, 1988, the trial court issued an Order of Preliminary Attachment6 against petitioner. The following day, the trial court issued a Writ of Preliminary Attachment.

The trial court granted the request of its sheriff for assistance from their counterparts in RTC, Pampanga. Thus, on October 28, 1988, Sheriff Alfredo San Miguel of RTC Pampanga served on petitioner’s household help in San Fernando, Pampanga, the Notice of Levy with the Order, Affidavit and Bond.7

On November 7, 1988, petitioner filed an Urgent Motion to Discharge Attachment8 without submitting herself to the jurisdiction of the trial court. She pointed out that up to then, she had not been served a copy of the Complaint and the summons. Hence, petitioner claimed the court had not acquired jurisdiction over her person.9

In the hearing of the Urgent Motion to Discharge Attachment on November 11, 1988, private respondent sought and was granted a re-setting to December 9, 1988. On that date, private respondent’s counsel did not appear, so the Urgent Motion to Discharge Attachment was deemed submitted for resolution.10

The trial court granted the Motion to Discharge Attachment on January 13, 1989 upon filing of petitioner’s counter-bond. The trial court, however, did not rule on the question of jurisdiction and on the validity of the writ of preliminary attachment.

On December 26, 1988, private respondent applied for an alias summons, which the trial court issued on January 19, 1989.11 It was only on January 26, 1989 that summons was finally served on petitioner.12

On February 9, 1989, petitioner filed a Motion to Dismiss the Complaint on the ground of improper venue. Private respondent’s invoice for the freight forwarding service stipulates that "if court litigation becomes necessary to enforce collection xxx the agreed venue for such action is Makati, Metro Manila."13 Private respondent filed an Opposition asserting that although "Makati" appears as the stipulated venue, the same was merely an inadvertence by the printing press whose general manager executed an affidavit14 admitting such inadvertence. Moreover, private respondent claimed that petitioner knew that private respondent was holding office in Pasay City and not in Makati.15 The lower court, finding credence in private respondent’s assertion, denied the Motion to Dismiss and gave petitioner five days to file her Answer. Petitioner filed a Motion for Reconsideration but this too was denied.

Petitioner filed her Answer16 on June 16, 1989, maintaining her contention that the venue was improperly laid.

On June 26, 1989, the trial court issued an Order setting the pre-trial for July 18, 1989 at 8:30 a.m. and requiring the parties to submit their pre-trial briefs. Meanwhile,

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private respondent filed a Motion to Sell Attached Properties but the trial court denied the motion.

On motion of petitioner, the trial court issued an Order resetting the pre-trial from July 18, 1989 to August 24, 1989 at 8:30 a.m..

On August 24, 1989, the day of the pre-trial, the trial court issued an Order17 terminating the pre-trial and allowing the private respondent to present evidence ex-parte on September 12, 1989 at 8:30 a.m.. The Order stated that when the case was called for pre-trial at 8:31 a.m., only the counsel for private respondent appeared. Upon the trial court’s second call 20 minutes later, petitioner’s counsel was still nowhere to be found. Thus, upon motion of private respondent, the pre-trial was considered terminated.

On September 12, 1989, petitioner filed her Motion for Reconsideration of the Order terminating the pre-trial. Petitioner explained that her counsel arrived 5 minutes after the second call, as shown by the transcript of stenographic notes, and was late because of heavy traffic. Petitioner claims that the lower court erred in allowing private respondent to present evidence ex-parte since there was no Order considering the petitioner as in default. Petitioner contends that the Order of August 24, 1989 did not state that petitioner was declared as in default but still the court allowed private respondent to present evidence ex-parte.18

On October 6, 1989, the trial court denied the Motion for Reconsideration and scheduled the presentation of private respondent’s evidence ex-parte on October 10, 1989.1âwphi1.nêt

On October 10, 1989, petitioner filed an Omnibus Motion stating that the presentation of evidence ex-parte should be suspended because there was no declaration of petitioner as in default and petitioner’s counsel was not absent, but merely late.

On October 18, 1989, the trial court denied the Omnibus Motion.19

On November 20, 1989, the petitioner received a copy of the Decision of November 10, 1989, ordering petitioner to pay respondent P109,376.95 plus 18 percent interest per annum, 25 percent attorney’s fees and costs of suit. Private respondent filed a Motion for Execution Pending Appeal but the trial court denied the same.

The Ruling of the Court of Appeals

On December 15, 1995, the Court of Appeals rendered a decision affirming the decision of the trial court. The Court of Appeals upheld the validity of the issuance of the writ of attachment and sustained the filing of the action in the RTC of Pasay. The Court of Appeals also affirmed the declaration of default on petitioner and concluded that the trial court did not commit any reversible error.

Petitioner filed a Motion for Reconsideration on January 5, 1996 but the Court of Appeals denied the same in a Resolution dated May 20, 1996.

Hence, this petition.

The Issues

The issues raised by petitioner may be re-stated as follows:

I.

WHETHER RESPONDENT COURT ERRED IN NOT HOLDING THAT THE WRIT OF ATTACHMENT WAS IMPROPERLY ISSUED AND SERVED;

II.

WHETHER THERE WAS A VALID DECLARATION OF DEFAULT;

III.

WHETHER THERE WAS IMPROPER VENUE.

IV.

WHETHER RESPONDENT COURT ERRED IN DECLARING THAT PETITIONER IS OBLIGED TO PAY P109, 376.95, PLUS ATTORNEY’S FEES.20

The Ruling of the Court

Improper Issuance and Service of Writ of Attachment

Petitioner ascribes several errors to the issuance and implementation of the writ of attachment. Among petitioner’s arguments are: first, there was no ground for the issuance of the writ since the intent to defraud her creditors had not been established; second, the value of the properties levied exceeded the value of private respondent’s claim. However, the crux of petitioner’s arguments rests on the question of the validity of the writ of attachment. Because of failure to serve summons on her before or simultaneously with the writ’s implementation, petitioner claims that the trial court had not acquired jurisdiction over her person and thus the service of the writ is void.

As a preliminary note, a distinction should be made between issuance and implementation of the writ of attachment. It is necessary to distinguish between the two to determine when jurisdiction over the person of the defendant should be

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acquired to validly implement the writ. This distinction is crucial in resolving whether there is merit in petitioner’s argument.

This Court has long settled the issue of when jurisdiction over the person of the defendant should be acquired in cases where a party resorts to provisional remedies. A party to a suit may, at any time after filing the complaint, avail of the provisional remedies under the Rules of Court. Specifically, Rule 57 on preliminary attachment speaks of the grant of the remedy "at the commencement of the action or at any time thereafter."21 This phrase refers to the date of filing of the complaint which is the moment that marks "the commencement of the action." The reference plainly is to a time before summons is served on the defendant, or even before summons issues.

In Davao Light & Power Co., Inc. v. Court of Appeals,22 this Court clarified the actual time when jurisdiction should be had:

"It goes without saying that whatever be the acts done by the Court prior to the acquisition of jurisdiction over the person of defendant - issuance of summons, order of attachment and writ of attachment - these do not and cannot bind and affect the defendant until and unless jurisdiction over his person is eventually obtained by the court, either by service on him of summons or other coercive process or his voluntary submission to the court’s authority. Hence, when the sheriff or other proper officer commences implementation of the writ of attachment, it is essential that he serve on the defendant not only a copy of the applicant’s affidavit and attachment bond, and of the order of attachment, as explicitly required by Section 5 of Rule 57, but also the summons addressed to said defendant as well as a copy of the complaint xxx." (Emphasis supplied.)

Furthermore, we have held that the grant of the provisional remedy of attachment involves three stages: first, the court issues the order granting the application; second, the writ of attachment issues pursuant to the order granting the writ; and third, the writ is implemented. For the initial two stages, it is not necessary that jurisdiction over the person of the defendant be first obtained. However, once the implementation of the writ commences, the court must have acquired jurisdiction over the defendant for without such jurisdiction, the court has no power and authority to act in any manner against the defendant. Any order issuing from the Court will not bind the defendant.23

In the instant case, the Writ of Preliminary Attachment was issued on September 27, 1988 and implemented on October 28, 1988. However, the alias summons was served only on January 26, 1989 or almost three months after the implementation of the writ of attachment.

The trial court had the authority to issue the Writ of Attachment on September 27 since a motion for its issuance can be filed "at the commencement of the action." However, on the day the writ was implemented, the trial court should have, previously or simultaneously with the implementation of the writ, acquired jurisdiction over the

petitioner. Yet, as was shown in the records of the case, the summons was actually served on petitioner several months after the writ had been implemented.

Private respondent, nevertheless, claims that the prior or contemporaneous service of summons contemplated in Section 5 of Rule 57 provides for exceptions. Among such exceptions are "where the summons could not be served personally or by substituted service despite diligent efforts or where the defendant is a resident temporarily absent therefrom x x x." Private respondent asserts that when she commenced this action, she tried to serve summons on petitioner but the latter could not be located at her customary address in Kamuning, Quezon City or at her new address in Guagua, Pampanga.24 Furthermore, respondent claims that petitioner was not even in Pampanga; rather, she was in Guam purportedly on a business trip.

Private respondent never showed that she effected substituted service on petitioner after her personal service failed. Likewise, if it were true that private respondent could not ascertain the whereabouts of petitioner after a diligent inquiry, still she had some other recourse under the Rules of Civil Procedure.

The rules provide for certain remedies in cases where personal service could not be effected on a party. Section 14, Rule 14 of the Rules of Court provides that whenever the defendant’s "whereabouts are unknown and cannot be ascertained by diligent inquiry, service may, by leave of court, be effected upon him by publication in a newspaper of general circulation x x x." Thus, if petitioner’s whereabouts could not be ascertained after the sheriff had served the summons at her given address, then respondent could have immediately asked the court for service of summons by publication on petitioner.25

Moreover, as private respondent also claims that petitioner was abroad at the time of the service of summons, this made petitioner a resident who is temporarily out of the country. This is the exact situation contemplated in Section 16,26 Rule 14 of the Rules of Civil Procedure, providing for service of summons by publication.

In conclusion, we hold that the alias summons belatedly served on petitioner cannot be deemed to have cured the fatal defect in the enforcement of the writ. The trial court cannot enforce such a coercive process on petitioner without first obtaining jurisdiction over her person. The preliminary writ of attachment must be served after or simultaneous with the service of summons on the defendant whether by personal service, substituted service or by publication as warranted by the circumstances of the case.27 The subsequent service of summons does not confer a retroactive acquisition of jurisdiction over her person because the law does not allow for retroactivity of a belated service.

Improper Venue

Petitioner assails the filing of this case in the RTC of Pasay and points to a provision in private respondent’s invoice which contains the following:

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"3. If court litigation becomes necessary to enforce collection, an additional equivalent (sic) to 25% of the principal amount will be charged. The agreed venue for such action is Makati, Metro Manila, Philippines."28

Based on this provision, petitioner contends that the action should have been instituted in the RTC of Makati and to do otherwise would be a ground for the dismissal of the case.

We resolve to dismiss the case on the ground of improper venue but not for the reason stated by petitioner.

The Rules of Court provide that parties to an action may agree in writing on the venue on which an action should be brought.29 However, a mere stipulation on the venue of an action is not enough to preclude parties from bringing a case in other venues.30 The parties must be able to show that such stipulation is exclusive. Thus, absent words that show the parties’ intention to restrict the filing of a suit in a particular place, courts will allow the filing of a case in any venue, as long as jurisdictional requirements are followed. Venue stipulations in a contract, while considered valid and enforceable, do not as a rule supersede the general rule set forth in Rule 4 of the Revised Rules of Court.31 In the absence of qualifying or restrictive words, they should be considered merely as an agreement on additional forum, not as limiting venue to the specified place.32

In the instant case, the stipulation does not limit the venue exclusively to Makati. There are no qualifying or restrictive words in the invoice that would evince the intention of the parties that Makati is the "only or exclusive" venue where the action could be instituted. We therefore agree with private respondent that Makati is not the only venue where this case could be filed.

Nevertheless, we hold that Pasay is not the proper venue for this case.

Under the 1997 Rules of Civil Procedure, the general rule is venue in personal actions is "where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff."33 The exception to this rule is when the parties agree on an exclusive venue other than the places mentioned in the rules. But, as we have discussed, this exception is not applicable in this case. Hence, following the general rule, the instant case may be brought in the place of residence of the plaintiff or defendant, at the election of the plaintiff (private respondent herein).

In the instant case, the residence of private respondent (plaintiff in the lower court) was not alleged in the complaint. Rather, what was alleged was the postal address of her sole proprietorship, Air Swift International. It was only when private respondent testified in court, after petitioner was declared in default, that she mentioned her residence to be in Better Living Subdivision, Parañaque City.

In the earlier case of Sy v. Tyson Enterprises, Inc.,34 the reverse happened. The plaintiff in that case was Tyson Enterprises, Inc., a corporation owned and managed by Dominador Ti. The complaint, however, did not allege the office or place of business of the corporation, which was in Binondo, Manila. What was alleged was the residence of Dominador Ti, who lived in San Juan, Rizal. The case was filed in the Court of First Instance of Rizal, Pasig. The Court there held that the evident purpose of alleging the address of the corporation’s president and manager was to justify the filing of the suit in Rizal, Pasig instead of in Manila. Thus, the Court ruled that there was no question that venue was improperly laid in that case and held that the place of business of Tyson Enterpises, Inc. is considered as its residence for purposes of venue. Furthermore, the Court held that the residence of its president is not the residence of the corporation because a corporation has a personality separate and distinct from that of its officers and stockholders.

In the instant case, it was established in the lower court that petitioner resides in San Fernando, Pampanga35while private respondent resides in Parañaque City.36 However, this case was brought in Pasay City, where the business of private respondent is found. This would have been permissible had private respondent’s business been a corporation, just like the case in Sy v. Tyson Enterprises, Inc. However, as admitted by private respondent in her Complaint37 in the lower court, her business is a sole proprietorship, and as such, does not have a separate juridical personality that could enable it to file a suit in court.38 In fact, there is no law authorizing sole proprietorships to file a suit in court.39

A sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the enterprise.40 The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual and requires its proprietor or owner to secure licenses and permits, register its business name, and pay taxes to the national government.41 The law does not vest a separate legal personality on the sole proprietorship or empower it to file or defend an action in court.42

Thus, not being vested with legal personality to file this case, the sole proprietorship is not the plaintiff in this case but rather Loreta Guina in her personal capacity. In fact, the complaint in the lower court acknowledges in its caption that the plaintiff and defendant are Loreta Guina and Anita Mangila, respectively. The title of the petition before us does not state, and rightly so, Anita Mangila v. Air Swift International, but rather Anita Mangila v. Loreta Guina. Logically then, it is the residence of private respondent Guina, the proprietor with the juridical personality, which should be considered as one of the proper venues for this case.

All these considered, private respondent should have filed this case either in San Fernando, Pampanga (petitioner’s residence) or Parañaque (private respondent’s residence). Since private respondent (complainant below) filed this case in Pasay, we hold that the case should be dismissed on the ground of improper venue.

Although petitioner filed an Urgent Motion to Discharge Attachment in the lower court, petitioner expressly stated that she was filing the motion without submitting to the

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jurisdiction of the court. At that time, petitioner had not been served the summons and a copy of the complaint.43 Thereafter, petitioner timely filed a Motion to Dismiss44on the ground of improper venue. Rule 16, Section 1 of the Rules of Court provides that a motion to dismiss may be filed "[W]ithin the time for but before filing the answer to the complaint or pleading asserting a claim." Petitioner even raised the issue of improper venue in his Answer45 as a special and affirmative defense. Petitioner also continued to raise the issue of improper venue in her Petition for Review 46 before this Court. We thus hold that the dismissal of this case on the ground of improper venue is warranted.

The rules on venue, like other procedural rules, are designed to insure a just and orderly administration of justice or the impartial and evenhanded determination of every action and proceeding. Obviously, this objective will not be attained if the plaintiff is given unrestricted freedom to choose where to file the complaint or petition.47

We find no reason to rule on the other issues raised by petitioner.1âwphi1.nêt

WHEREFORE, the petition is GRANTED on the grounds of improper venue and invalidity of the service of the writ of attachment. The decision of the Court of Appeals and the order of respondent judge denying the motion to dismiss are REVERSED and SET ASIDE. Civil Case No. 5875 is hereby dismissed without prejudice to refiling it in the proper venue. The attached properties of petitioner are ordered returned to her immediately.

SO ORDERED.

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G.R. No. 152808 September 30, 2005

ANTONIO T. CHUA, Petitioners, vs.TOTAL OFFICE PRODUCTS AND SERVICES (TOPROS), INC., Respondent.

D E C I S I O N

QUISUMBING, J.:

For review on certiorari is the decision1 dated November 28, 2001 of the Court of Appeals and its resolution2 of April 1, 2002 in CA-G.R. SP No. 62592. The assailed decision and resolution dismissed the special civil action forcertiorari against the orders of August 9, 20003 and October 6, 20004 issued by Judge Lorifel Lacap Pahimna in Civil Case No. 67736.

The pertinent facts, based on the records, are as follows:

On December 28, 1999, respondent Total Office Products and Services, Inc., (TOPROS) lodged a complaint for annulment of contracts of loan and real estate mortgage against herein petitioner Antonio T. Chua before the Regional Trial Court of Pasig City. The case was docketed as Civil Case No. 67736 and was raffled to the sala of Judge Lorifel Lacap Pahimna.

The said suit sought to annul a loan contract allegedly extended by petitioner to respondent TOPROS in the amount of ten million four hundred thousand pesos (P10,400,000) and the accessory real estate mortgage contract covering two parcels of land situated in Quezon City as collateral.

It appeared on the face of the subject contracts that TOPROS was represented by its president John Charles Chang, Jr. However, TOPROS alleged that the purported loan and real estate mortgage contracts were fictitious, since it never authorized anybody, not even its president, to enter into said transaction.

On February 28, 2000, petitioner filed a motion to dismiss on the ground of improper venue. He contended that the action filed by TOPROS affects title to or possession of the parcels of land subject of the real estate mortgage. He argued that it should thus have been filed in the Regional Trial Court of Quezon City where the encumbered real properties are located, instead of Pasig City where the parties reside.

On August 9, 2000, Judge Pahimna issued an order denying the motion to dismiss. She reasoned that the action to annul the loan and mortgage contracts is a personal action and thus, the venue was properly laid in the RTC of Pasig City where the parties reside.

Petitioner moved for a reconsideration of the said order, which Judge Pahimna denied in its order of October 6, 2000. Hence, petitioner filed with the Court of Appeals a special civil action for certiorari alleging:

THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION IN DISREGARDING THE RULING OF THE SUPREME COURT IN PASCUAL VS. PASCUAL REGARDING THE RULE ON PROPER VENUE, AND CONSEQUENTLY ADJUDGING TO BE A PERSONAL ACTION A CIVIL COMPLAINT FOR THE ANNULMENT OF AN ALLEGEDLY FICTITIOUS CONTRACT.5

The Court of Appeals dismissed said petition in its decision dated November 28, 2001. It held that the authorities relied upon by petitioner, namely Pascual v. Pascual6 and Banco Español-Filipino v. Palanca,7 are inapplicable in the instant case. The appellate court instead applied Hernandez v. Rural Bank of Lucena, Inc.8 wherein we ruled that an action for the cancellation of a real estate mortgage is a personal action if the mortgagee has not foreclosed the mortgage and the mortgagor is in possession of the premises, as neither the mortgagor’s title to nor possession of the property is disputed.

Dissatisfied, petitioner filed a motion for reconsideration, which the Court of Appeals denied for lack of merit in its resolution of April 1, 2002.

Undeterred, petitioner now comes to us on a petition for review raising the following issues:

WHETHER AN ACTION TO ANNUL A LOAN AND MORTGAGE CONTRACT DULY ALLEGED AS ‘FICTITIOUS’FOR BEING WITH ABSOLUTELY NO CONSIDERATION IS A PERSONAL ACTION OR REAL ACTION?

WHETHER IN AN ACTION TO ANNUL A LOAN AND MORTGAGE CONTRACT DULY ALLEGED AS ‘FICTITIOUS’FOR BEING WITH ABSOLUTELY NO CONSIDERATION, THE PERSON ALLEGED TO HAVE ‘[LACKED] AUTHORITY’ TO ENTER INTO SAID CONTRACTS IS AN INDISPENSABLE PARTY?9

Petitioner contends that Hernandez should not be applied here because in the said case: (1) venue was improperly laid at the outset; (2) the complaint recognized the validity of the principal contract involved; and (3) the plaintiff sought to compel acceptance by the defendant of plaintiff’s payment of the latter’s mortgage debt. He insists that the Pascual case should be applied instead. He invokes our pronouncement in Pascual, to wit:

… It appearing, however, that the sale is alleged to be fictitious, with absolutely no consideration, it should be regarded as a non-existent, not merely null, contract…. And there being no contract between the deceased and the defendants, there is in truth nothing to annul by action. The action brought cannot thus be for annulment of contract, but is one for recovery of a fishpond, a real action that should be, as it has been, brought in Pampanga, where the property is located….10

http://www.lawphil.net/judjuris/juri2005/sep2005/gr_152808_2005.html#fnt10










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Petitioner likewise cites the Banco Español-Filipino case, thus:

Where the defendant in a mortgage foreclosure lives out of the Islands and refuses to appear or otherwise submit himself to the authority of the court, the jurisdiction of the latter is limited to the mortgaged property, with respect to which the jurisdiction of the court is based upon the fact that the property is located within the district and that the court, under the provisions of law applicable in such cases, is vested with the power to subject the property to the obligation created by the mortgage. In such case personal jurisdiction over the nonresident defendant is nonessential and in fact cannot be acquired.11

Petitioner also alleges that John Charles Chang, Jr., the president of TOPROS, who allegedly entered into the questioned loan and real estate mortgage contracts, is an indispensable party who has not been properly impleaded.

TOPROS, however, maintains that the appellate court correctly sustained the lower court’s finding that the instant complaint for annulment of loan and real estate mortgage contracts is a personal action. TOPROS points out that a complaint for the declaration of nullity of a loan contract for lack of consent and consideration remains a personal action even if the said action will necessarily affect the accessory real estate mortgage.

TOPROS argues that Pascual is inapplicable because the subject contract therein was a contract of sale of a parcel of land where title and possession were already transferred to the defendant. TOPROS further contends that Banco Español-Filipino is also inapplicable since the personal action filed therein was one which affected the personal status of a nonresident defendant.

Considering the facts and the submission of the parties, we find the petition bereft of merit.

Well-settled is the rule that an action to annul a contract of loan and its accessory real estate mortgage is a personal action. In a personal action, the plaintiff seeks the recovery of personal property, the enforcement of a contract or the recovery of damages.12 In contrast, in a real action, the plaintiff seeks the recovery of real property, or, as indicated in Section 2 (a), Rule 4 of the then Rules of Court, a real action is an action affecting title to real property or for the recovery of possession, or for partition or condemnation of, or foreclosure of mortgage on, real property.13

In the Pascual case, relied upon by petitioner, the contract of sale of the fishpond was assailed as fictitious for lack of consideration. We held that there being no contract to begin with, there is nothing to annul. Hence, we deemed the action for annulment of the said fictitious contract therein as one constituting a real action for the recovery of the fishpond subject thereof.

We cannot, however, apply the foregoing doctrine to the instant case. Note that in Pascual, title to and possession of the subject fishpond had already passed to the

vendee. There was, therefore, a need to recover the said fishpond. But in the instant case, ownership of the parcels of land subject of the questioned real estate mortgage was never transferred to petitioner, but remained with TOPROS. Thus, no real action for the recovery of real property is involved. This being the case, TOPROS’ action for annulment of the contracts of loan and real estate mortgage remains a personal action.

Petitioner’s reliance on the Banco Español-Filipino case is likewise misplaced. That case involved a foreclosure of real estate mortgage against a nonresident. We held therein that jurisdiction is determined by the place where the real property is located and that personal jurisdiction over the nonresident defendant is nonessential and, in fact, cannot be acquired.

Needless to stress, the instant case bears no resemblance to the Banco Español-Filipino case. In the first place, this is not an action involving foreclosure of real estate mortgage. In the second place, none of the parties here is a nonresident. We find no reason to apply here our ruling in Banco Español-Filipino.

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

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

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

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

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

SEC. 2. Venue of personal actions. – All other actions may be commenced and tried where the plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the principal defendants resides, or in the case of a non-resident defendant where he may be found, at the election of the plaintiff.14





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

Anent the second issue, Section 7, Rule 3 of the Revised Rules of Court provides:

SEC. 7. 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. (Emphasis ours)

The presence of indispensable parties is necessary to vest the court with jurisdiction. The absence of an indispensable party renders all subsequent actuations of the court null and void, because of that court’s want of authority to act, not only as to the absent parties but even as to those present.15 Thus, 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.16

A person is not an indispensable party, however, if his interest in the controversy or subject matter is separable from the interest of the other parties, so that it will not necessarily be directly or injuriously affected by a decree which does complete justice between them.17

Is John Charles Chang, Jr., the president of TOPROS who allegedly entered into the disputed contracts of loan and real estate mortgage, an indispensable party in this case?

We note that although it is Chang’s signature that appears on the assailed real estate mortgage contract, his participation is limited to being a representative of TOPROS, allegedly without authority. The document18 which constitutes as the contract of real estate mortgage clearly points to petitioner and TOPROS as the sole parties-in-interest to the agreement as mortgagee and mortgagor therein, respectively. Any rights or liabilities arising from the said contract would therefore bind only the petitioner and TOPROS as principal parties. Chang, acting as mere representative of TOPROS, acquires no rights whatsoever, nor does he incur any liabilities, arising from the said contract between petitioner and TOPROS. Certainly, in our view, the only indispensable parties to the mortgage contract are petitioner and TOPROS alone.

We thus hold that John Charles Chang, Jr., is not an indispensable party in Civil Case No. 67736. This is without prejudice to any separate action TOPROS may institute against Chang, Jr., in a proper proceeding.

WHEREFORE, the petition is DENIED. The assailed decision dated November 28, 2001 and resolution dated April 1, 2002 of the Court of Appeals upholding the Orders of Judge Lorifel Lacap Pahimna are AFFIRMED.

No pronouncement as to costs.

SO ORDERED.





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G.R. No. 107356 March 31, 1995

SINGAPORE AIRLINES LIMITED, petitioner, vs.THE COURT OF APPEALS and PHILIPPINE AIRLINES, respondents.

ROMERO, J.:

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

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

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

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

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant Singapore Airlines Limited, sentencing the latter to pay the former the following:

1. The sum of Four Hundred Thirty Thousand Nine Hundred Pesos and Eighty Centavos (P430,900.80) as actual damages, with interest at the legal rate from the date of the filing of the complaint until fully paid.

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

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

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

5. The cost of suit.

The defendant's counterclaim is hereby dismissed.

ON THE THIRD PARTY COMPLAINT, the third-party defendant PAL is ordered to pay defendant and third-party plaintiff SIA whatever the latter has paid the plaintiffs.

SO ORDERED.

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

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

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

The appellate court disagreed with SIA's contention that PAL could no longer raise the issue of SIA's liability to the Rayoses and opined "that SIA's answer to the complaint should inure to the benefit of PAL, and the latter may challenge the lower court's findings against SIA in favor of plaintiffs-appellees (the Rayos spouses) for the

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purpose of defeating SIA's claim against it, and not for the purpose of altering in any way the executed judgment against SIA." In its answer to the main complaint, SIA set up the defense that the excess baggage ticket was indeed tampered with but it was committed by PAL's personnel. On September 21, 1992, the appellate court granted PAL's appeal and absolved it from any liability to SIA.

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

The instant appeal is impressed with merit.

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

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

It must be noted that in the proceedings below, PAL disclaimed any liability to the Rayoses and imputed the alleged tampering to SIA's personnel. On appeal, however,

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

Surprisingly, the appellate court ignored the Court's pronouncements in Firestone and declared:

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

There is no question that a third-party defendant is allowed to set up in his answer the defenses which the third-party plaintiff (original defendant) has or may have to the plaintiff's claim. There are, however, special circumstances present in this case which preclude third-party defendant PAL from benefiting from the said principle.

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

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

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

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

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

The appellate court was in error when it opined that SIA's answer inured to the benefit of PAL for the simple reason that the complaint and the third-party complaint are actually two separate cases involving the same set of facts which is allowed by the court to be resolved in a single proceeding only to avoid a multiplicity of actions. Such a proceeding obviates the need of trying two cases, receiving the same or similar evidence for both, and enforcing separate judgments therefor. This situation is not, as claimed by the appellate court, analogous to a case where there are several defendants against whom a complaint is filed stating a common cause of action, where the answer of some of the defendants inures to the benefit of those who did not file an answer. While such a complaint speaks of a single suit, a third-party complaint involves an action separate and distinct from, although related to the main complaint. A third-party defendant who feels aggrieved by some allegations in the main complaint should, aside from answering the third-party complaint, also answer the main complaint.

We do not, however, agree with the petitioner that PAL is solely liable for the satisfaction of the judgment. While the trial court found, and this has not been adequately rebutted by PAL, that the proximate cause of the non-renewal of Rayos' employment contract with Aramco was the tampering of his excess baggage ticket by PAL's personnel, it failed to consider that the immediate cause of such non-renewal was SIA's delayed transmittal of the certification needed by Rayos to prove his innocence to his employer.

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

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

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

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

SO ORDERED.

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G.R. No. 138822 January 23, 2001

EVANGELINE ALDAY, petitioner, vs.FGU INSURANCE CORPORATION, respondent.

GONZAGA-REYES, J.:

On 5 May 1989, respondent FGU Insurance Corporation filed a complaint with the Regional Trial Court of Makati1alleging that petitioner Evangeline K. Alday owed it P114,650.76, representing unliquidated cash advances, unremitted costs of premiums and other charges incurred by petitioner in the course of her work as an insurance agent for respondent.2 Respondent also prayed for exemplary damages, attorney's fees, and costs of suit.3Petitioner filed her answer and by way of counterclaim, asserted her right for the payment of P104,893.45, representing direct commissions, profit commissions and contingent bonuses earned from 1 July 1986 to 7 December 1986, and for accumulated premium reserves amounting to P500,000.00. In addition, petitioner prayed for attorney's fees, litigation expenses, moral damages and exemplary damages for the allegedly unfounded action filed by respondent.4 On 23 August 1989, respondent filed a "Motion to Strike Out Answer With Compulsory Counterclaim And To Declare Defendant In Default" because petitioner's answer was allegedly filed out of time.5 However, the trial court denied the motion on 25 August 1989 and similarly rejected respondent's motion for reconsideration on 12 March 1990.6 A few weeks later, on 11 April 1990, respondent filed a motion to dismiss petitioner's counterclaim, contending that the trial court never acquired jurisdiction over the same because of the non-payment of docket fees by petitoner.7 In response, petitioner asked the trial court to declare her counterclaim as exempt from payment of docket fees since it is compulsory and that respondent be declared in default for having failed to answer such counterclaim.8

In its 18 September 1990 Order, the trial court9 granted respondent's motion to dismiss petitioner's counterclaim and consequently, denied petitioner's motion. The court found petitioner's counterclaim to be merely permissive in nature and held that petitioner's failure to pay docket fees prevented the court from acquiring jurisdiction over the same.10 The trial court similar denied petitioner's motion for reconsideration on 28 February 1991.1âwphi1.nêt

On 23 December 1998, the Court of Appeals11 sustained the trial court, finding that petitioner's own admissions, as contained in her answer, show that her counterclaim is merely permissive. The relevant portion of the appellate court's decision12 is quoted herewith -

Contrary to the protestations of appellant, mere reading of the allegations in the answer a quo will readily show that her counterclaim can in no way be compulsory. Take note of the following numbered paragraphs in her answer:

"(14) That, indeed, FGU's cause of action which is not supported by any document other than the self-serving 'Statement of Account' dated March 28, 1988 x x x

(15) That it should be noted that the cause of action of FGU is not the enforcement of the Special Agent's Contract but the alleged 'cash accountabilities which are not based on written agreement x x x.

x x x x

(19) x x x A careful analysis of FGU's three-page complaint will show that its cause of action is not for specific performance or enforcement of the Special Agent's Contract rather, it is for the payment of the alleged cash accountabilities incurred by defendant during the period form [sic] 1975 to 1986 which claim is executory and has not been ratified. It is the established rule that unenforceable contracts, like this purported money claim of FGU, cannot be sued upon or enforced unless ratified, thus it is as if they have no effect. x x x."

To support the heading "Compulsory Counterclaim" in her answer and give the impression that the counterclaim is compulsory appellant alleged that "FGU has unjustifiably failed to remit to defendant despite repeated demands in gross violation of their Special Agent's Contract x x x." The reference to said contract was included purposely to mislead. While on one hand appellant alleged that appellee's cause of action had nothing to do with the Special Agent's Contract, on the other hand, she claim that FGU violated said contract which gives rise of [sic] her cause of action. Clearly, appellant's cash accountabilities cannot be the offshoot of appellee's alleged violation of the aforesaid contract.

On 19 May 1999, the appellate court denied petitioner's motion for reconsideration,13 giving rise to the present petition.

Before going into the substantive issues, the Court shall first dispose of some procedural matters raised by the parties. Petitioner claims that respondent is estopped from questioning her non-payment of docket fees because it did not raise this particular issue when it filed its motion - the "Motion to Strike out Answer With Compulsory Counterclaim And To Declare Defendant In Default" - with the trial court; rather, it was only nine months after receiving petitioner's answer that respondent assailed the trial court's lack of jurisdiction over petitioner's counterclaims based on the latter's failure to pay docket fees.14 Petitioner's position is unmeritorious. Estoppel by laches arises from the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it.15 In the case at bar, respondent cannot be considered as estopped from assailing the trial court's jurisdiction over petitioner's counterclaim since this issue was raised by respondent with the trial court itself - the

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body where the action is pending - even before the presentation of any evidence by the parties and definitely, way before any judgment could be rendered by the trial court.

Meanwhile, respondent questions the jurisdiction of the Court of Appeals over the appeal filed by petitioner from the 18 September 1990 and 28 February 1991 orders of the trial court. It is significant to note that this objection to the appellate court's jurisdiction is raised for the first time before this Court; respondent never having raised this issue before the appellate court. Although the lack of jurisdiction of a court may be raised at any stage of the action, a party may be estopped from raising such questions if he has actively taken part in the very proceedings which he questions, belatedly objecting to the court's jurisdiction in the event that the judgment or order subsequently rendered is adverse to him.16 In this case, respondent actively took part in the proceedings before the Court of Appeals by filing its appellee's brief with the same.17 Its participation, when taken together with its failure to object to the appellate court's jurisdiction during the entire duration of the proceedings before such court, demonstrates a willingness to abide by the resolution of the case by such tribunal and accordingly, respondent is now most decidedly estopped from objecting to the Court of Appeals' assumption of jurisdiction over petitioner's appeal.18

The basic issue for resolution in this case is whether or not the counterclaim of petitioner is compulsory or permissive in nature. A compulsory counterclaim is one which, being cognizable by the regular courts of justice, arises out of or is connected with the transaction or occurrence constituting the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.19

In Valencia v. Court of Appeals,20 this Court capsulized the criteria or tests that may be used in determining whether a counterclaim is compulsory or permissive, summarized as follows:

1. Are the issues of fact and law raised by the claim and counterclaim largely the same?

2. Would res judicata bar a subsequent suit on defendant's claim absent the compulsory counterclaim rule?

3. Will substantially the same evidence support or refute plaintiff's claim as well s defendant's counterclaim?

4. Is there any logical relation between the claim and the counterclaim?

Another test, applied in the more recent case of Quintanilla v. Court of Appeals,21 is the "compelling test of compulsoriness" which requires "a logical relationship between the claim and counterclaim, that is, where conducting separate trials of the respective claims of the parties would entail a substantial duplication of effort and time by the parties and the court."

As contained in her answer, petitioner's counterclaims are as follows:

(20) That defendant incorporates and repleads by reference all the foregoing allegations as may be material to her Counterclaim against FGU.

(21) That FGU is liable to pay the following just, valid and legitimate claims of defendant:

(a) the sum of at least P104,893.45 plus maximum interest thereon representing, among others, direct commissions, profit commissions and contingent bonuses legally due to defendant; and

(b) the minimum amount of P500,000.00 plus the maximum allowable interest representing defendant's accumulated premium reserve for 1985 and previous years,

which FGU has unjustifiably failed to remit to defendant despite repeated demands in gross violation of their Special Agent's Contract and in contravention of the principle of law that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith."

(22) That as a result of the filing of this patently baseless, malicious and unjustified Complaint, and FGU's unlawful, illegal and vindictive termination of their Special Agent's Contract, defendant was unnecessarily dragged into this litigation and to defense [sic] her side and assert her rights and claims against FGU, she was compelled to hire the services of counsel with whom she agreed to pay the amount of P30,000.00 as and for attorney's fees and stands to incur litigation expenses in the amount estimated to at least P20,000.00 and for which FGU should be assessed and made liable to pay defendant.

(23) That considering further the malicious and unwarranted action of defendant in filing this grossly unfounded action, defendant has suffered and continues to suffer from serious anxiety, mental anguish, fright and humiliation. In addition to this, defendant's name, good reputation and business standing in the insurance business as well as in the community have been besmirched and for which FGU should be adjudged and made liable to pay moral damages to defendant in the amount of P300,000.00 as minimum.

(24) That in order to discourage the filing of groundless and malicious suits like FGU's Complaint, and by way of serving [as] an example for the public good, FGU should be penalized and assessed exemplary damages in the sum of P100,000.00 or such amount as the Honorable Court may deem warranted under the circumstances.22

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Tested against the abovementioned standards, petitioner's counterclaim for commissions, bonuses, and accumulated premium reserves is merely permissive. The evidence required to prove petitioner's claims differs from that needed to establish respondent's demands for the recovery of cash accountabilities from petitioner, such as cash advances and costs of premiums. The recovery of respondent's claims is not contingent or dependent upon establishing petitioner's counterclaim, such that conducting separate trials will not result in the substantial duplication of the time and effort of the court and the parties. One would search the records in vain for a logical connection between the parties' claims. This conclusion is further reinforced by petitioner's own admissions since she declared in her answer that respondent's cause of action, unlike her own, was not based upon the Special Agent's Contract.23 However, petitioner's claims for damages, allegedly suffered as a result of the filing by respondent of its complaint, are compulsory.24

There is no need for need for petitioner to pay docket fees for her compulsory counterclaim.25 On the other hand, in order for the trial court to acquire jurisdiction over her permissive counterclaim, petitioner is bound to pay the prescribed docket fees.26 The rule on the payment of filing fees has been laid down by the Court in the case ofSun Insurance Office, Ltd. V. Hon. Maximiano Asuncion27-

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

2. The same rule applies to permissive counterclaims, third-party claims and similar pleadings, which shall not be considered filed until and unless the filing fee prescribed therefor is paid. The court may allow payment of said fee within a reasonable time but also in no case beyond its applicable prescriptive or reglementary period.

3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a claim not specified in the pleading, or if specified the same has been left for determination by the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess and collect the additional fee.

The above mentioned ruling in Sun Insurance has been reiterated in the recent case of Susan v. Court of Appeals.28 In Suson, the Court explained that although the payment of the prescribed docket fees is a jurisdictional requirement, its non-payment does not result in the automatic dismissal of the case provided the docket fees are paid within the applicable prescriptive or reglementary period. Coming now to the case at bar, it has not been alleged by respondent and there is nothing in the records to show that petitioner has attempted to evade the payment of the proper docket fees

for her permissive counterclaim. As a matter of fact, after respondent filed its motion to dismiss petitioner's counterclaim based on her failure to pay docket fees, petitioner immediately filed a motion with the trial court, asking it to declare her counterclaim as compulsory in nature and therefore exempt from docket fees and, in addition, to declare that respondent was in default for its failure to answer her counterclaim.29 However, the trial court dismissed petitioner's counterclaim. Pursuant to this Court's ruling in Sun Insurance, the trial court should have instead given petitioner a reasonable time, but in no case beyond the applicable prescriptive or reglementary period, to pay the filing fees for her permissive counterclaim.

Petitioner asserts that the trial court should have declared respondent in default for having failed to answer her counterclaim.30 Insofar as the permissive counterclaim of petitioner is concerned, there is obviously no need to file an answer until petitioner has paid the prescribed docket fees for only then shall the court acquire jurisdiction over such claim.31 Meanwhile, the compulsory counterclaim of petitioner for damages based on the filing by respondent of an allegedly unfounded and malicious suit need not be answered since it is inseparable from the claims of respondent. If respondent were to answer the compulsory counterclaim of petitioner, it would merely result in the former pleading the same facts raised in its complaint.32

WHEREFORE, the assailed Decision of the Court of Appeals promulgated on 23 December 1998 and its 19 May 1999 Resolution are hereby MODIFIED. The compulsory counterclaim of petitioner for damages filed in Civil Case No. 89-3816 is ordered REINSTATED. Meanwhile, the Regional Trial Court of Makati (Branch 134) is ordered to require petitioner to pay the prescribed docket fees for her permissive counterclaim (direct commissions, profit commissions, contingent bonuses and accumulated premium reserves), after ascertaining that the applicable prescriptive period has not yet set in.33

SO ORDERED.

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G.R. No. 146019 June 8, 2004

ARMANDO M. LASCANO, petitioner, vs.UNIVERSAL STEEL SMELTING CO., INC., REYNALDO U. LIM and HON. REGIONAL TRIAL COURT OF QUEZON CITY, respondents.

D E C I S I O N

QUISUMBING, J.:

For review are (1) the resolution1 dated August 7, 2000 of the Court of Appeals in CA-G.R. SP No. 59972, which dismissed petitioner’s special civil action for certiorari because of late filing; and (2) the resolution2 of November 15, 2000, denying petitioner’s motion for reconsideration. In the interest of the speedy administration of justice, we shall also inquire into the merits of said special civil action.

The antecedent facts are as follows:

Sometime in 1990, petitioner Armando Lascano had a construction project at No. 18 Dalsol Street, GSIS Village, Project 8, Quezon City. This project required a number of steel bars of various grades, which petitioner ordered from private respondent Universal Steel Smelting Co., Inc. (USSCI). On August 30, 1990, the steel bars valued at P104,268 were received by petitioner’s representative, Rolando Nanquil. When the amount due thereon was not paid, USSCI demanded payment. Instead of complying, petitioner denied that he ordered the steel bars from USSCI.

Upon advice of its lawyer, USSCI filed a criminal complaint for estafa against petitioner with the Quezon City Prosecutor’s Office. The complaint was dismissed on September 5, 1991. USSCI’s motion for reconsideration was denied on November 14, 1991 and its petition for review filed with the Department of Justice was also dismissedper resolution dated June 19, 1992.

In the meantime, the Manila Bulletin in its August 23, 1991 issue, published a news item entitled "School Owner in QC Sued." On August 27, 1991, another news item, "School Owner Faces Rap," was published, this time byTempo. In both news items, the school owner referred to was petitioner Armando Lascano.

Hence, on August 25, 1992, petitioner filed with public respondent Regional Trial Court of Quezon City, Branch 93, a complaint for damages against private respondents USSCI and its Vice-President Reynaldo Lim, for alleged malicious prosecution and allegedly causing the publication in two (2) newspapers of general circulation, that he was being sued for estafa.

The case was docketed as Civil Case No. Q-92-13212 and on December 27, 1994, the trial court dismissed the complaint, thus:

WHEREFORE, premises considered, the Court hereby dismisses the complaint for failure of plaintiff to establish his causes of action by preponderant evidence.

On the counterclaim, the Court orders plaintiff to pay the defendants the following:

1. P104,268.00 with interest thereon at 14% per annum from

August 30, 1990 until fully paid;

2. P100,000.00 for moral damages;

3. P50,000.00 for exemplary damages;

4. P35,000.00 as and for reasonable attorney’s fees; and

5. Costs of suit.

SO ORDERED.3

Petitioner received said Decision on January 16, 1995. Petitioner’s counsel then filed a Notice of Appeal on January 20, 1995, which was approved by the trial court in an Order dated January 25, 1995. However, the Court of Appeals dismissed the appeal in its Resolution dated August 13, 1998, in this wise:

Pursuant to Section 1 (c), Rule 50 in relation to Section 4 of Rule 41 of the 1997 Rules of Civil Procedure, as amended, the instant appeal is hereby DISMISSED for failure of the appellant to pay the docket and other lawful fees.

SO ORDERED.4

On September 5, 1998, said Resolution became final and executory and the Court of Appeals issued an entry of judgment thereon. Private respondents then promptly filed on January 10, 2000 a motion for execution of the December 27, 1994 judgment, which the court a quo granted on February 9, 2000. On March 15, 2000, petitioner filed a motion for reconsideration of the trial court’s Order granting the motion for execution, but the same was denied on April 28, 2000.

Thus, on July 31, 2000, petitioner filed a special civil action for certiorari with the Court of Appeals. However, the Court of Appeals, in its Resolution of August 7, 2000,

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dismissed said petition on the ground of late filing. Petitioner then filed a motion for reconsideration, which was denied in the appellate court’s Resolution dated November 15, 2000.

Hence, the instant petition ascribing to the appellate court the following errors:

I

THE COURT OF APPEALS GRAVELY ERRED IN STRICTLY APPLYING THE RULES IN THE FILING OF PETITION FOR CERTIORARI CONTRARY TO THE LIBERAL CONSTRUCTION RULE AS ECHOED IN SEVERAL SUPREME COURT DECISIONS.

II

THE COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE RULE ON INTEREST OF JUSTICE AND EQUITY IN FAVOR OF TECHNICALITY WHERE THE RTC DECISION SUBJECT OF EXECUTION WAS UNJUST AND VOID HAVING BEEN RENDERED ON PURE SPECULATION AND CONJECTURE WITHOUT CITATION OF SPECIFIC EVIDENCE.5

On the procedural aspect, we find merit in the petition.

In finding that the special civil action for certiorari was filed out of time, the Court of Appeals applied Supreme Court Circular No. 39-98,6 which took effect on September 1, 1998. Said circular amended Section 4, Rule 65 of the 1997 Rules of Civil Procedure as follows:

Sec. 4. Where and when petition to be filed. – The petition may be filed not later than sixty (60) days from notice of the judgment, order or resolution sought to be assailed in the Supreme Court or, if it relates to the acts or omissions of a lower court or of a corporation, board, officer or person, in the Regional Trial Court exercising jurisdiction over the territorial area as defined by the Supreme Court. It may also be filed in the Court of Appeals whether or not the same is in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of its jurisdiction. If it involves the acts or omissions of a quasi-judicial agency, and unless otherwise provided by law or these Rules, the petition shall be filed in and cognizable only by the Court of Appeals.

If the petitioner had filed a motion for new trial or reconsideration in due time after notice of said judgment, order or resolution, the period herein fixed shall be interrupted. If the motion is denied, the aggrieved party may file the petition within the remaining period, but which shall not be less than five (5) days in any event, reckoned from notice of such denial. No extension of time

to file petition shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days. (Underscoring ours).

Records show that petitioner received on March 3, 2000 a copy of respondent trial court’s February 9, 2000 Order granting the motion for execution of the December 27, 1994 judgment. He filed the motion for reconsideration on March 15, 2000 or twelve (12) days after notice of the assailed Order. Thus, consistent with SC Circular No. 39-98, the original 60-day period was interrupted when petitioner filed a motion for reconsideration. Since the motion was denied, petitioner had the remaining period of forty-eight (48) days within which to file the special civil action for certiorari with the Court of Appeals.

Evidence on record shows petitioner received on June 1, 2000 a copy of the trial court’s April 28, 2000 Order denying his motion for reconsideration. Therefore, conformably with SC Circular No. 39-98, the filing of the special civil action for certiorari with the Court of Appeals on July 31, 2000, or on the 60th day, was twelve (12) days beyond the reglementary period.

We must point out, however, that Supreme Court Circular No. 56-2000,7 which took effect on September 1, 2000 further amended Section 4 of Rule 65 as follows:

Sec 4. When and where petition filed. - The petition shall be filed not later than sixty (60) days from notice of the judgment, order or resolution. In case a motion for reconsideration or new trial is timely filed, whether such motion is required or not, the sixty (60) day period shall be counted from notice of the denial of the said motion. (Underscoring ours).

Under the second amendment, the 60-day period within which to file the special civil action for certiorari starts to run from receipt of notice of the denial of the motion for reconsideration. However, it bears stressing, at the time of petitioner’s filing of the special civil action for certiorari with the Court of Appeals on July 31, 2000, SC Circular No. 56-2000 was not yet in effect. Therefore, the sole issue for our consideration in this case is whether or not said circular may be applied retroactively.

The present question does not pose a novel issue. In an analogous case, San Luis v. Court of Appeals,8 the Court of Appeals likewise reckoned the counting of the 60-day period from petitioner’s receipt of a copy of the assailed Order, considered the interruption of the running of the period by the filing of the motion for reconsideration, and held that the remaining period resumed to run on the date petitioner received the Order denying his motion for reconsideration.

In said case of San Luis, petitioner’s special civil action for certiorari was filed with the Court of Appeals on January 7, 2000, long before SC Circular No. 56-2000 took effect. Nonetheless, we applied the circular retroactively and held that the appellate court erred in dismissing the special civil action for certiorari on the ground of late filing. We said therein:

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Settled is the rule that remedial statutes or statutes relating to remedies or modes of procedure, which do not create new rights or take away vested rights but only operate in furtherance of the remedy or confirmation of rights already existing, do not come within the purview of the general rule against the retroactive operation of statutes. Procedural laws are construed to be applicable to actions pending and undetermined at the time of their passage, and are deemed retroactive in that sense and to that extent. As a general rule, the retroactive application of procedural laws cannot be considered violative of any personal rights because no vested right may attach to nor arise therefrom.9

We see no reason why we should treat the instant case differently. Thus, pursuant to SC Circular No. 56-2000, petitioner’s 60-day period to file the special civil action for certiorari should be counted from his receipt on June 1, 2000 of the Order of April 28, 2000, denying his motion for reconsideration. Hence, the special civil action for certiorari having been filed on July 31, 2000, or the last day before the reglementary period expired, the Court of Appeals should not have dismissed the same on the ground of late filing.

Considering the circumstances in this case, we could direct the Court of Appeals to decide on the merits the issues raised in petitioner’s special civil action for certiorari. However, that would only result in further delay before the resolution of this case. In our view, it is preferable to settle the entire controversy now in a single proceeding, leaving no root or branch to bear the seeds of future litigation. Following the San Luis decision, if based on the records including the pleadings and the evidence, the dispute could be resolved by us, we will do so to serve the ends of justice, instead of remanding the case to the lower court for further proceedings.10

In the petition for certiorari, petitioner assigns the following errors to the trial court:

I

THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION IN GRANTING THE ISSUANCE OF WRIT OF EXECUTION.

II

THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION IN UPHOLDING THAT IT IS THE MINISTERIAL DUTY THE (sic) COURT TO ISSUE THE WRIT OF EXECUTION.

III

THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION IN UPHOLDING THAT THE EXECUTION OF WHATEVER JUDGMENT THAT MAY HAVE BEEN RENDERED WILL PUT THE (SIC) REST THE CONTROVERSY BETWEEN PARTY LITIGANTS.

IV

THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION IN DISREGARDING THE RULE THAT A WRIT OF EXECUTION MAY BE DISALLOWED ON EQUITABLE GROUNDS.11

Petitioner contends that the December 27, 1994 judgment is devoid of factual and legal bases. He protests the order to pay private respondents P104,268 representing the value of the steel bars delivered to him. According to petitioner, he transacted business with LNG Marketing, not with private respondents. He claims that LNG Marketing was a dealer of private respondents, but that both could not compete for one client.12

In our view, that petitioner transacted with LNG Marketing for the purchase of steel bars might well be true, but it did not preclude the fact that private respondents had delivered steel bars to petitioner. The fact of delivery to petitioner of the subject steel bars is evidenced by delivery receipts signed by one Rolando Nanquil acting as petitioner’s agent. While petitioner denied knowing said Rolando Nanquil, the delivery receipts of LNG Marketing were signed by the same Rolando Nanquil, as duly authorized agent of petitioner. Delivery of subject steel bars to petitioner having been established by preponderance of evidence, we could not conclude that the trial court erred when it ordered petitioner to pay private respondents the value of said steel bars.

Petitioner questions the trial court’s order to pay private respondents P100,000 and P50,000 as moral and exemplary damages, respectively. He maintains that he filed the complaint in good faith, which is inconsistent with the order to pay moral damages; and that there was no proof he acted in a wanton, fraudulent, reckless, oppressive and malevolent manner, as to justify exemplary damages.

Petitioner misses the point that the court a quo ordered the payment of moral damages not because he filed the complaint in bad faith, but because of his unjustified refusal to pay a just debt. Article 2220 of the Civil Code provides:

ART. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. (Underscoring ours).

When payment on the delivered steel bars was demanded, petitioner, instead of complying with his obligation, denied having transacted with private respondents. Such cold refusal to pay a just debt amounts to a breach of contract in bad faith, as contemplated by the aforecited provision. Hence, the order to pay moral damages is in accordance with law, but only with regard to respondent individual (Reynaldo Lim) and not to respondent corporation (USSCI). A corporation cannot suffer nor be entitled to moral damages.13

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As to exemplary damages, although the same cannot be recovered as a matter of right, they need not be proved. But before considering whether exemplary damages should be awarded, it must first be shown that an award of moral, temperate or compensatory damages obtains.14 In the instant case, as the order to pay moral damages to private individual respondent is proper, it follows that the adjudication of exemplary damages on that basis is also in order.

As to the amount of damages, the court a quo ordered payment of P100,000 for moral damages and P50,000 for exemplary damages. However, considering the amount of the unpaid debt at issue in this case, we are of the considered view that P10,000 as moral damages and P5,000 in exemplary damages would suffice under the circumstances.

Finally, petitioner argues private respondents’ counterclaims are merely permissive, which require payment of docket fees. Indeed, before the trial court may acquire jurisdiction over permissive counterclaims, docket fees thereon must first be paid.15 However, we find that the counterclaims herein are not permissive, but compulsory.16 On this point, Section 7, Rule 6 of the Revised Rules of Civil Procedure is pertinent:

SEC. 7. Compulsory counterclaim. – A compulsory counterclaim is one which, being cognizable by the regular courts of justice, arises out of or is connected with the transaction or occurrence constituting the subject matter of the opposing party’s claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction. Such a counterclaim must be within the jurisdiction of the court both as to the amount and the nature thereof, except that in an original action before the Regional Trial Court, the counterclaim may be considered compulsory regardless of the amount.

The alleged malicious filing of estafa against petitioner is necessarily connected with the non-payment of the value of steel bars delivered to petitioner. The resolution of the latter issue does not require the presence of third parties of whom the court a quo cannot acquire jurisdiction. Therefore, the counterclaims raised by private respondents are clearly compulsory in nature. Thus, non-payment of docket fees does not affect the jurisdiction of the trial court to rule thereon.

In sum, we find no error nor grave abuse of discretion on the part of public respondent in rendering the assailed judgment dismissing the complaint. But the award to private respondents of damages as part of their counterclaims against the petitioner, particularly with regard to damages as herein elucidated, ought to be modified accordingly.

WHEREFORE, the resolutions of the appellate court dated August 7, 2000 and November 15, 2000 in CA-G.R. SP No. 59972 are SET ASIDE. The assailed decision of the Regional Trial Court of Quezon City, Branch 93, in Civil Case No. Q-92-13212, dated December 27, 1994, is AFFIRMED, except as to the amounts of moral and

exemplary damages, which are MODIFIED and reduced to only P10,000.00 and P5,000.00, respectively. No pronouncement as to costs.

SO ORDERED.

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G.R. No. 155173 November 23, 2004

LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON CONTINENTAL LAND CORPORATION, CONTINENTAL OPERATING CORPORATION and PHILIP ROSEBERG, petitioners, vs.CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and ANTHONY A. MARIANO, respondents.

D E C I S I O N

PANGANIBAN, J.:

May defendants in civil cases implead in their counterclaims persons who were not parties to the original complaints? This is the main question to be answered in this controversy.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the May 22, 20022 and the September 3, 2002 Orders3 of the Regional Trial Court (RTC) of Quezon City (Branch 80) in Civil Case No. Q-00-41103. The decretal portion of the first assailed Order reads:

"WHEREFORE, in the light of the foregoing as earlier stated, the plaintiff's motion to dismiss claims is granted. Accordingly, the defendants' claims against Mr. Lim and Mr. Mariano captioned as their counterclaims are dismissed."4

The second challenged Order denied petitioners' Motion for Reconsideration.

The Facts

Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI) executed by both parties on August 11, 1998, whereby Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on behalf of its affiliates and other qualified entities, including Petitioner Luzon Continental Land Corporation (LCLC) -- agreed to purchase the cement business of Respondent Continental Cement Corporation (CCC). On October 21, 1998, both parties entered into a Sale and Purchase

Agreement (SPA). At the time of the foregoing transactions, petitioners were well aware that CCC had a case pending with the Supreme Court. The case was docketed as GR No. 119712, entitled Asset Privatization Trust (APT) v. Court of Appeals and Continental Cement Corporation.

In anticipation of the liability that the High Tribunal might adjudge against CCC, the parties, under Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase price a portion of the contract price in the amount of P117,020,846.84 -- the equivalent of US$2,799,140. This amount was to be deposited in an interest-bearing account in the First National City Bank of New York (Citibank) for payment to APT, the petitioner in GR No. 119712.

However, petitioners allegedly refused to apply the sum to the payment to APT, despite the subsequent finality of the Decision in GR No. 119712 in favor of the latter and the repeated instructions of Respondent CCC. Fearful that nonpayment to APT would result in the foreclosure, not just of its properties covered by the SPA with Lafarge but of several other properties as well, CCC filed before the Regional Trial Court of Quezon City on June 20, 2000, a "Complaint with Application for Preliminary Attachment" against petitioners. Docketed as Civil Case No. Q-00-41103, the Complaint prayed, among others, that petitioners be directed to pay the "APT Retained Amount" referred to in Clause 2 (c) of the SPA.

Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on forum-shopping. Respondent CCC had allegedly made the same claim it was raising in Civil Case No. Q-00-41103 in another action, which involved the same parties and which was filed earlier before the International Chamber of Commerce. After the trial court denied the Motion to Dismiss in its November 14, 2000 Order, petitioners elevated the matter before the Court of Appeals in CA-GR SP No. 68688.

In the meantime, to avoid being in default and without prejudice to the outcome of their appeal, petitioners filed their Answer and Compulsory Counterclaims ad Cautelam before the trial court in Civil Case No. Q-00-41103. In their Answer, they denied the allegations in the Complaint. They prayed -- by way of compulsory counterclaims against Respondent CCC, its majority stockholder and president Gregory T. Lim, and its corporate secretary Anthony A. Mariano -- for the sums of (a) P2,700,000 each as actual damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000 each as moral damages, and (d) P5,000,000 each as attorney's fees plus costs of suit.

Petitioners alleged that CCC, through Lim and Mariano, had filed the "baseless" Complaint in Civil Case No. Q-00-41103 and procured the Writ of Attachment in bad faith. Relying on this Court's pronouncement in Sapugay v. CA,5 petitioners prayed that both Lim and Mariano be held "jointly and solidarily" liable with Respondent CCC.

On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved to dismiss petitioners' compulsory counterclaims on grounds that essentially constituted the very issues for resolution in the instant Petition.

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Ruling of the Trial Court

On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80) dismissed petitioners' counterclaims for several reasons, among which were the following: a) the counterclaims against Respondents Lim and Mariano were not compulsory; b) the ruling in Sapugay was not applicable; and c) petitioners' Answer with Counterclaims violated procedural rules on the proper joinder of causes of action.6

Acting on the Motion for Reconsideration filed by petitioners, the trial court -- in an Amended Order dated September 3, 20027 -- admitted some errors in its May 22, 2002 Order, particularly in its pronouncement that their counterclaim had been pleaded against Lim and Mariano only. However, the RTC clarified that it was dismissing the counterclaim insofar as it impleaded Respondents Lim and Mariano, even if it included CCC.

Hence this Petition.8

Issues

In their Memorandum, petitioners raise the following issues for our consideration:

"[a] Whether or not the RTC gravely erred in refusing to rule that Respondent CCC has no personality to move to dismiss petitioners' compulsory counterclaims on Respondents Lim and Mariano's behalf.

"[b] Whether or not the RTC gravely erred in ruling that (i) petitioners' counterclaims against Respondents Lim and Mariano are not compulsory; (ii) Sapugay v. Court of Appeals is inapplicable here; and (iii) petitioners violated the rule on joinder of causes of action."9

For clarity and coherence, the Court will resolve the foregoing in reverse order.

The Court's Ruling

The Petition is meritorious.

First Issue:

Counterclaims and Joinder of Causes of Action.

Petitioners' Counterclaims Compulsory

Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as "any claim which a defending party may have against an opposing party." They are generally allowed in order to avoid a multiplicity of suits and to facilitate the

disposition of the whole controversy in a single action, such that the defendant's demand may be adjudged by a counterclaim rather than by an independent suit. The only limitations to this principle are (1) that the court should have jurisdiction over the subject matter of the counterclaim, and (2) that it could acquire jurisdiction over third parties whose presence is essential for its adjudication.10

A counterclaim may either be permissive or compulsory. It is permissive "if it does not arise out of or is not necessarily connected with the subject matter of the opposing party's claim."11 A permissive counterclaim is essentially an independent claim that may be filed separately in another case.

A counterclaim is compulsory when its object "arises out of or is necessarily connected with the transaction or occurrence constituting the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction."12

Unlike permissive counterclaims, compulsory counterclaims should be set up in the same action; otherwise, they would be barred forever. NAMARCO v. Federation of United Namarco Distributors13 laid down the following criteria to determine whether a counterclaim is compulsory or permissive: 1) Are issues of fact and law raised by the claim and by the counterclaim largely the same? 2) Would res judicata bar a subsequent suit on defendant's claim, absent the compulsory counterclaim rule? 3) Will substantially the same evidence support or refute plaintiff's claim as well as defendant's counterclaim? 4) Is there any logical relation between the claim and the counterclaim? A positive answer to all four questions would indicate that the counterclaim is compulsory.

Adopted in Quintanilla v. CA14 and reiterated in Alday v. FGU Insurance Corporation,15 the "compelling test of compulsoriness" characterizes a counterclaim as compulsory if there should exist a "logical relationship" between the main claim and the counterclaim. There exists such a relationship when conducting separate trials of the respective claims of the parties would entail substantial duplication of time and effort by the parties and the court; when the multiple claims involve the same factual and legal issues; or when the claims are offshoots of the same basic controversy between the parties.

We shall now examine the nature of petitioners' counterclaims against respondents with the use of the foregoing parameters.

Petitioners base their counterclaim on the following allegations:

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"Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the bad faith decisions for, and causing plaintiff to file this baseless suit and to procure an unwarranted writ of attachment, notwithstanding their knowledge that plaintiff has no right to bring it or to secure the writ. In taking such bad faith actions, Gregory T. Lim was motivated by his personal interests as one of the owners of plaintiff while Anthony A. Mariano was motivated by his sense of personal loyalty to Gregory T. Lim, for which reason he disregarded the fact that plaintiff is without any valid cause.

"Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiff's co-joint tortfeasors in the commission of the acts complained of in this answer and in the compulsory counterclaims pleaded below. As such they should be held jointly and solidarily liable as plaintiff's co-defendants to those compulsory counterclaims pursuant to the Supreme Court's decision in Sapugay v. Mobil.

x x x x x x x x x

"The plaintiff's, Gregory T. Lim and Anthony A. Mariano's bad faith filing of this baseless case has compelled the defendants to engage the services of counsel for a fee and to incur costs of litigation, in amounts to be proved at trial, but in no case less than P5 million for each of them and for which plaintiff Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily liable.

"The plaintiff's, Gregory T. Lim's and Anthony A. Mariano's actions have damaged the reputations of the defendants and they should be held jointly and solidarily liable to them for moral damages of P100 million each.

"In order to serve as an example for the public good and to deter similar baseless, bad faith litigation, the plaintiff, Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily liable to the defendants for exemplary damages of P100 million each." 16

The above allegations show that petitioners' counterclaims for damages were the result of respondents' (Lim and Mariano) act of filing the Complaint and securing the Writ of Attachment in bad faith. Tiu Po v. Bautista17 involved the issue of whether the counterclaim that sought moral, actual and exemplary damages and attorney's fees against respondents on account of their "malicious and unfounded" complaint was compulsory. In that case, we held as follows:

"Petitioners' counterclaim for damages fulfills the necessary requisites of a compulsory counterclaim. They are damages claimed to have been suffered by petitioners as a consequence of the action filed against them. They have to be pleaded in the same action; otherwise, petitioners would be precluded by the judgment from invoking the same in an independent action. The pronouncement in Papa vs. Banaag (17 SCRA 1081) (1966) is in point:

"Compensatory, moral and exemplary damages, allegedly suffered by the creditor in consequence of the debtor's action, are also compulsory counterclaim barred by the dismissal of the debtor's action. They cannot be claimed in a subsequent action by the creditor against the debtor."

"Aside from the fact that petitioners' counterclaim for damages cannot be the subject of an independent action, it is the same evidence that sustains petitioners' counterclaim that will refute private respondent's own claim for damages. This is an additional factor that characterizes petitioners' counterclaim as compulsory."18

Moreover, using the "compelling test of compulsoriness," we find that, clearly, the recovery of petitioners' counterclaims is contingent upon the case filed by respondents; thus, conducting separate trials thereon will result in a substantial duplication of the time and effort of the court and the parties.

Since the counterclaim for damages is compulsory, it must be set up in the same action; otherwise, it would be barred forever. If it is filed concurrently with the main action but in a different proceeding, it would be abated on the ground of litis pendentia; if filed subsequently, it would meet the same fate on the ground of res judicata.19

Sapugay v. Court of Appeals Applicable to the Case at Bar

Sapugay v. Court of Appeals finds application in the present case. In Sapugay, Respondent Mobil Philippines filed before the trial court of Pasig an action for replevin against Spouses Marino and Lina Joel Sapugay. The Complaint arose from the supposed failure of the couple to keep their end of their Dealership Agreement. In their Answer with Counterclaim, petitioners alleged that after incurring expenses in anticipation of the Dealership Agreement, they requested the plaintiff to allow them to get gas, but that it had refused. It claimed that they still had to post a surety bond which, initially fixed at P200,000, was later raised to P700,000.

The spouses exerted all efforts to secure a bond, but the bonding companies required a copy of the Dealership Agreement, which respondent continued to withhold from them. Later, petitioners discovered that respondent and its manager, Ricardo P. Cardenas, had intended all along to award the dealership to Island Air Product Corporation.

In their Answer, petitioners impleaded in the counterclaim Mobil Philippines and its manager -- Ricardo P. Cardenas -- as defendants. They prayed that judgment be rendered, holding both jointly and severally liable for pre-operation expenses, rental, storage, guarding fees, and unrealized profit including damages. After both Mobil and Cardenas failed to respond to their Answer to the Counterclaim, petitioners filed a "Motion to Declare Plaintiff and its Manager Ricardo P. Cardenas in Default on Defendant's Counterclaim."

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Among the issues raised in Sapugay was whether Cardenas, who was not a party to the original action, might nevertheless be impleaded in the counterclaim. We disposed of this issue as follows:

"A counterclaim is defined as any claim for money or other relief which a defending party may have against an opposing party. However, the general rule that a defendant cannot by a counterclaim bring into the action any claim against persons other than the plaintiff admits of an exception under Section 14, Rule 6 which provides that 'when the presence of parties other than those to the original action is required for the granting of complete relief in the determination of a counterclaim or cross-claim, the court shall order them to be brought in as defendants, if jurisdiction over them can be obtained.' The inclusion, therefore, of Cardenas in petitioners' counterclaim is sanctioned by the rules."20

The prerogative of bringing in new parties to the action at any stage before judgment is intended to accord complete relief to all of them in a single action and to avert a duplicity and even a multiplicity of suits thereby.

In insisting on the inapplicability of Sapugay, respondents argue that new parties cannot be included in a counterclaim, except when no complete relief can be had. They add that "[i]n the present case, Messrs. Lim and Mariano are not necessary for petitioners to obtain complete relief from Respondent CCC as plaintiff in the lower court. This is because Respondent CCC as a corporation with a separate [legal personality] has the juridical capacity to indemnify petitioners even without Messrs. Lim and Mariano."21

We disagree. The inclusion of a corporate officer or stockholder -- Cardenas in Sapugay or Lim and Mariano in the instant case -- is not premised on the assumption that the plaintiff corporation does not have the financial ability to answer for damages, such that it has to share its liability with individual defendants. Rather, such inclusion is based on the allegations of fraud and bad faith on the part of the corporate officer or stockholder. These allegations may warrant the piercing of the veil of corporate fiction, so that the said individual may not seek refuge therein, but may be held individually and personally liable for his or her actions.

In Tramat Mercantile v. Court of Appeals,22 the Court held that generally, it should only be the corporation that could properly be held liable. However, circumstances may warrant the inclusion of the personal liability of a corporate director, trustee, or officer, if the said individual is found guilty of bad faith or gross negligence in directing corporate affairs.

Remo Jr. v. IAC23 has stressed that while a corporation is an entity separate and distinct from its stockholders, the corporate fiction may be disregarded if "used to defeat public convenience, justify a wrong, protect fraud, or defend crime." In these instances, "the law will regard the corporation as an association of persons, or in case of two corporations, will merge them into one." Thus, there is no debate on whether, in alleging bad faith on the part of Lim and Mariano the counterclaims had in effect

made them "indispensable parties" thereto; based on the alleged facts, both are clearly parties in interest to the counterclaim.24

Respondents further assert that "Messrs. Lim and Mariano cannot be held personally liable [because their assailed acts] are within the powers granted to them by the proper board resolutions; therefore, it is not a personal decision but rather that of the corporation as represented by its board of directors."25 The foregoing assertion, however, is a matter of defense that should be threshed out during the trial; whether or not "fraud" is extant under the circumstances is an issue that must be established by convincing evidence.26

Suability and liability are two distinct matters. While the Court does rule that the counterclaims against Respondent CCC's president and manager may be properly filed, the determination of whether both can in fact be held jointly and severally liable with respondent corporation is entirely another issue that should be ruled upon by the trial court.

However, while a compulsory counterclaim may implead persons not parties to the original complaint, the general rule -- a defendant in a compulsory counterclaim need not file any responsive pleading, as it is deemed to have adopted the allegations in the complaint as its answer -- does not apply. The filing of a responsive pleading is deemed a voluntary submission to the jurisdiction of the court; a new party impleaded by the plaintiff in a compulsory counterclaim cannot be considered to have automatically and unknowingly submitted to the jurisdiction of the court. A contrary ruling would result in mischievous consequences whereby a party may be indiscriminately impleaded as a defendant in a compulsory counterclaim; and judgment rendered against it without its knowledge, much less participation in the proceedings, in blatant disregard of rudimentary due process requirements.

The correct procedure in instances such as this is for the trial court, per Section 12 of Rule 6 of the Rules of Court, to "order [such impleaded parties] to be brought in as defendants, if jurisdiction over them can be obtained," by directing that summons be served on them. In this manner, they can be properly appraised of and answer the charges against them. Only upon service of summons can the trial court obtain jurisdiction over them.

In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but he did not file any responsive pleading to the counterclaim leveled against him. Nevertheless, the Court gave due consideration to certain factual circumstances, particularly the trial court's treatment of the Complaint as the Answer of Cardenas to the compulsory counterclaim and of his seeming acquiescence thereto, as evidenced by his failure to make any objection despite his active participation in the proceedings. It was held thus:

"It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim against him on the ground of lack of jurisdiction. While it is a settled rule that the issue of jurisdiction may be raised even for the first time on appeal, this does not obtain in the instant case. Although it was only

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Mobil which filed an opposition to the motion to declare in default, the fact that the trial court denied said motion, both as to Mobil and Cardenas on the ground that Mobil's complaint should be considered as the answer to petitioners' compulsory counterclaim, leads us to the inescapable conclusion that the trial court treated the opposition as having been filed in behalf of both Mobil and Cardenas and that the latter had adopted as his answer the allegations raised in the complaint of Mobil. Obviously, it was this ratiocination which led the trial court to deny the motion to declare Mobil and Cardenas in default. Furthermore, Cardenas was not unaware of said incidents and the proceedings therein as he testified and was present during trial, not to speak of the fact that as manager of Mobil he would necessarily be interested in the case and could readily have access to the records and the pleadings filed therein.

"By adopting as his answer the allegations in the complaint which seeks affirmative relief, Cardenas is deemed to have recognized the jurisdiction of the trial court over his person and submitted thereto. He may not now be heard to repudiate or question that jurisdiction."27

Such factual circumstances are unavailing in the instant case. The records do not show that Respondents Lim and Mariano are either aware of the counterclaims filed against them, or that they have actively participated in the proceedings involving them. Further, in dismissing the counterclaims against the individual respondents, the court a quo -- unlike in Sapugay -- cannot be said to have treated Respondent CCC's Motion to Dismiss as having been filed on their behalf.

Rules on Permissive Joinder of Causesof Action or Parties Not Applicable

Respondent CCC contends that petitioners' counterclaims violated the rule on joinder of causes of action. It argues that while the original Complaint was a suit for specific performance based on a contract, the counterclaim for damages was based on the tortuous acts of respondents.28 In its Motion to Dismiss, CCC cites Section 5 of Rule 2 and Section 6 of Rule 3 of the Rules of Civil Procedure, which we quote:

"Section 5. Joinder of causes of action. – A party may in one pleading assert, in the alternative or otherwise, as many causes of action as he may have against an opposing party, subject to the following conditions:

(a) The party joining the causes of action shall comply with the rules on joinder of parties; x x x"

Section 6. Permissive joinder of parties. – All persons in whom or against whom any right to relief in respect to or arising out of the same transaction or series of transactions is alleged to exist whether jointly, severally, or in the alternative, may, except as otherwise provided in these Rules, join as

plaintiffs or be joined as defendants in one complaint, where any question of law or fact common to all such plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any proceedings in which he may have no interest."

The foregoing procedural rules are founded on practicality and convenience. They are meant to discourage duplicity and multiplicity of suits. This objective is negated by insisting -- as the court a quo has done -- that the compulsory counterclaim for damages be dismissed, only to have it possibly re-filed in a separate proceeding. More important, as we have stated earlier, Respondents Lim and Mariano are real parties in interest to the compulsory counterclaim; it is imperative that they be joined therein. Section 7 of Rule 3 provides:

"Compulsory joinder of indispensable parties. – Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants."

Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners are being consistent with the solidary nature of the liability alleged therein.

Second Issue:

CCC's Personality to Move to Dismiss the Compulsory Counterclaims

Characterizing their counterclaim for damages against Respondents CCC, Lim and Mariano as "joint and solidary," petitioners prayed:

"WHEREFORE, it is respectfully prayed that after trial judgment be rendered:

"1. Dismissing the complaint in its entirety;

"2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and solidarily to pay defendant actual damages in the sum of at least P2,700,000.00;

"3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano jointly and solidarily to pay the defendants LPI, LCLC, COC and Roseberg:

"a. Exemplary damages of P100 million each;

"b. Moral damages of P100 million each; and

"c. Attorney's fees and costs of suit of at least P5 million each.

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Other reliefs just and equitable are likewise prayed for."29

Obligations may be classified as either joint or solidary. "Joint" or "jointly" or "conjoint" means mancum or mancomunada or pro rata obligation; on the other hand, "solidary obligations" may be used interchangeably with "joint and several" or "several." Thus, petitioners' usage of the term "joint and solidary" is confusing and ambiguous.

The ambiguity in petitioners' counterclaims notwithstanding, respondents' liability, if proven, is solidary. This characterization finds basis in Article 1207 of the Civil Code, which provides that obligations are generally considered joint, except when otherwise expressly stated or when the law or the nature of the obligation requires solidarity. However, obligations arising from tort are, by their nature, always solidary. We have assiduously maintained this legal principle as early as 1912 in Worcester v. Ocampo,30 in which we held:

"x x x The difficulty in the contention of the appellants is that they fail to recognize that the basis of the present action is tort. They fail to recognize the universal doctrine that each joint tort feasor is not only individually liable for the tort in which he participates, but is also jointly liable with his tort feasors. x x x

"It may be stated as a general rule that joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit. They are each liable as principals, to the same extent and in the same manner as if they had performed the wrongful act themselves. x x x

"Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may sue all of them or any number less than all. Each is liable for the whole damages caused by all, and all together are jointly liable for the whole damage. It is no defense for one sued alone, that the others who participated in the wrongful act are not joined with him as defendants; nor is it any excuse for him that his participation in the tort was insignificant as compared to that of the others. x x x

"Joint tort feasors are not liable pro rata. The damages can not be apportioned among them, except among themselves. They cannot insist upon an apportionment, for the purpose of each paying an aliquot part. They are jointly and severally liable for the whole amount. x x x

"A payment in full for the damage done, by one of the joint tort feasors, of course satisfies any claim which might exist against the others. There can be but satisfaction. The release of one of the joint tort feasors by agreement generally operates to discharge all. x x x

"Of course the court during trial may find that some of the alleged tort feasors are liable and that others are not liable. The courts may release some for lack of evidence while condemning others of the alleged tort feasors. And this is true even though they are charged jointly and severally."

In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or "joint and several" obligation, the relationship between the active and the passive subjects is so close that each of them must comply with or demand the fulfillment of the whole obligation.31 The fact that the liability sought against the CCC is for specific performance and tort, while that sought against the individual respondents is based solely on tort does not negate the solidary nature of their liability for tortuous acts alleged in the counterclaims. Article 1211 of the Civil Code is explicit on this point:

"Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions."

The solidary character of respondents' alleged liability is precisely why credence cannot be given to petitioners' assertion. According to such assertion, Respondent CCC cannot move to dismiss the counterclaims on grounds that pertain solely to its individual co-debtors.32 In cases filed by the creditor, a solidary debtor may invoke defenses arising from the nature of the obligation, from circumstances personal to it, or even from those personal to its co-debtors. Article 1222 of the Civil Code provides:

"A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible." (Emphasis supplied).

The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss the counterclaim on grounds that pertain only to its individual co-debtors -- is therefore allowed.

However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent CCC filed it on behalf of Co-respondents Lim and Mariano; it did not pray that the counterclaim against it be dismissed. Be that as it may, Respondent CCC cannot be declared in default. Jurisprudence teaches that if the issues raised in the compulsory counterclaim are so intertwined with the allegations in the complaint, such issues are deemed automatically joined.33 Counterclaims that are only for damages and attorney's fees and that arise from the filing of the complaint shall be considered as special defenses and need not be answered.34

CCC's Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano Not Allowed

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While Respondent CCC can move to dismiss the counterclaims against it by raising grounds that pertain to individual defendants Lim and Mariano, it cannot file the same Motion on their behalf for the simple reason that it lacks the requisite authority to do so. A corporation has a legal personality entirely separate and distinct from that of its officers and cannot act for and on their behalf, without being so authorized. Thus, unless expressly adopted by Lim and Mariano, the Motion to Dismiss the compulsory counterclaim filed by Respondent CCC has no force and effect as to them.

In summary, we make the following pronouncements:

1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A. Mariano are compulsory.

2. The counterclaims may properly implead Respondents Gregory T. Lim and Anthony A. Mariano, even if both were not parties in the original Complaint.

3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano) may include, in a Motion to Dismiss, defenses available to their co-defendants; nevertheless, the same Motion cannot be deemed to have been filed on behalf of the said co-defendants.

4. Summons must be served on Respondents Lim and Mariano before the trial court can obtain jurisdiction over them.

WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The court of origin is hereby ORDERED to take cognizance of the counterclaims pleaded in petitioners' Answer with Compulsory Counterclaims and to cause the service of summons on Respondents Gregory T. Lim and Anthony A. Mariano. No costs.

SO ORDERED.

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G.R. No. 129718 August 17, 1998

SANTO TOMAS UNIVERSITY HOSPITAL, petitioner, vs.CESAR ANTONIO Y. SURLA and EVANGELINE SURLA, respondents.

VITUG, J.:

Can a compulsory counterclaim pleaded in an Answer be dismissed on the ground of a failure to accompany it with a certificate of non-forum shopping? This question is the core issue presented for resolution in the instant petition.

First, a factual background.

On 26 December 1995, respondent spouses filed a complaint for damages against petitioner Santo Tomas University Hospital with the Regional Trial Court of Quezon City predicated on an allegation by the spouses that their son, Emmanuel Cesar Surla, while confined at the said hospital for having been born prematurely, had accidentally fallen from his incubator on 16 April 1995 possibly causing serious harm on the child. The case was raffled and assigned to Branch 226 of the Regional Trial Court of Quezon City, presided over by the Hon. Leah S. Domingo-Regala, and there docketed Civil Case No. Q-95-25977.

On 28 February 1996, petitioner hospital filed its Answer with "Compulsory Counterclaim" asserting that respondents still owed to it the amount of P82,632.10 representing hospital bills for Emmanuel's confinement at the hospital and making a claim for moral and exemplary damages, plus attorney's fees, by reason of the supposed unfounded and malicious suit filed against it.

On 21 March 1996, petitioner received a copy of respondents' Reply to Counterclaim, dated 12 March 1996, that sought, inter alia, the dismissal of petitioner's counterclaim for its non-compliance with Supreme Court Administrative Circular No. 04-94 requiring that a complaint and other initiatory pleadings, such as a counterclaim, cross-claim, third (fourth, etc.) party complaint, be accompanied with a certificate of non-forum shopping.

In its Rejoinder to respondents' Reply to Counterclaim, petitioner contended that the subject circular should be held to refer only to a permissive counterclaim, an initiatory pleading not arising out of, nor necessarily connected with, the subject matter of the plaintiffs claim but not to a compulsory counterclaim spawned by the filing of a complaint and so intertwined therewith and logically related thereto that it verily could not stand for independent adjudication. Petitioner concluded that, since its

counterclaim was compulsory in nature, the subject circular did not perforce apply to it. 1

In its Order of 22 March 1996, the trial court dismissed petitioner's counterclaim; it held:

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

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

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

WHEREFORE, the counterclaim of defendant is hereby DISMISSED. Let the pre-trial of this case be set on May 14, 1996 at 2:00 o'clock in the afternoon . . . . 2

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

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

xxx xxx xxx

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

SO ORDERED.

The Motion for Reconsideration of this Court's Order dated March 22, 1996 is hereby DENIED. The pre-trial conference set on May 14, 1998 will go on as scheduled. 4

Petitioner forthwith elevated the matter to the Court of Appeals by way of a special civil action for certiorari under Rule 65, Revised Rules of Court,

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asseverating grave abuse of discretion by public respondent in dismissing the compulsory counterclaim and in espousing the view that Administrative Circular No. 04-94 should apply even to compulsory counterclaims.

The Court of Appeals, in its Decision promulgated on 12 March 1997, dismissed the petition for certiorari; it opined:

. . . the Supreme Court circular aforequoted requires without equivocation that to the original civil complaint, counterclaim, crossclaim, third (fourth, etc.) party complaint, or complaint-in-intervention, petition, or application wherein a party asserts his claim for relief to be filed in all courts and agencies other than the Supreme Court and the Court of Appeals must be annexed and simultaneously filed therewith the required certification under oath to avoid forum shopping or multiple filing of petitions and complaints. Non-compliance therewith is a cause for the dismissal of the complaint, petition, application or other initiatory pleading. Included in such initiatory pleading is the defendant's counterclaim, permissive or compulsory.

A counterclaim partakes of the nature of a complaint and/or a cause of action against the plaintiff in a case . . ., only this time it is the original defendant who becomes the plaintiff. It stands on the same footing and is tested by the same rules as if it were an independent action. 5

In its present recourse, petitioner contends that —

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

5.1 THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER RULE 65 OF THE REVISED RULES OF COURT IS UNAVAILING. THE DISMISSAL OF THE COMPULSORY COUNTERCLAIM BEING A FINAL ORDER, THE PETITIONER SHOULD HAVE TAKEN AN APPEAL THEREFROM; AND

5.2 ADMINISTRATIVE CIRCULAR NO. 04-94 OF THIS HONORABLE COURT LIKEWISE APPLIES TO BOTH KINDS OF COUNTERCLAIMS, PERMISSIVE AND COMPULSORY. 6

The petition is partly meritorious.

The appellate court ruled that the dismissal of the counterclaim, being a final order, petitioner's remedy was to appeal therefrom and, such appeal being then available, the special civil action of certiorari had been improperly filed.

The concept of a final judgment or order, distinguished from an interlocutory issuance, is that the former decisively puts to a close, or disposes of, a case or a disputed issue leaving nothing else to be done by the court in respect thereto. Once that judgment or order is rendered, the adjudicative task of the court is likewise ended on the particular matter involved. 7 An order is interlocutory, upon the other hand, if its effects would only be provisional in character and would still leave substantial proceedings to be further had by the issuing court in order to put the controversy to rest. 8

The order of the trial court dismissing petitioner's counterclaim was a final order since the dismissal, although based on a technicality, would require nothing else to be done by the court with respect to that specific subject except only to await the possible filing during the reglementary period of a motion for reconsideration or the taking of an appeal therefrom.

As a rule, errors of judgment, as well as of procedure, neither relating to the jurisdiction of the court nor involving grave abuse of discretion, are not reviewable by the extraordinary remedy of certiorari. 9 As long as a court acts within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any supposed error committed by it will amount to nothing more than an error of judgment reviewable by a timely appeal and not assailable by a special civil action of certiorari. 10 This rule, however, is not a rigid and inflexible technicality. This Court has not too infrequently given due course to a petition for certiorari, even when the proper remedy would have been an appeal, where valid and compelling considerations could warrant such a recourse. 11 Certiorari has been deemed to be justified, for instance, in order to prevent irreparable damage and injury to a party where the trial judge has capriciously and whimsically exercised his judgment, or where there may be danger of clear failure of justice, or where an ordinary appeal would simply be inadequate to relieve a party from the injurious effects of the judgment complained of. 12

In the case at bar, an appeal from the dismissal of the counterclaim, although not totally unavailable, could have well been ineffective, if not futile, as far as petitioner is concerned since no single piece of evidence has yet been presented by it, that opportunity having been foreclosed by the trial court, on the dismissed counterclaim which could form part of the records to be reviewed by the appellate court. The object of procedural law is not to cause an undue protraction of the litigation, but to facilitate the adjudication of conflicting claims and to serve, rather than to defeat, the ends of justice. 13

The opinion of this Court on the next issue persuades it to accept, tested by the foregoing disquisition, the instant petition for its consideration.

The pertinent provisions of Administrative Circular No. 04-94 provide:

1. The plaintiff, petitioner, applicant or principal party seeking relief in the complaint, petition, application or other initiatory pleading shall certify under oath in such original pleading, or in a sworn certification annexed thereto and simultaneously filed therewith, to

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

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

It bears stressing, once again, that the real office of Administrative Circular No. 04-94, made effective on 01 April 1994, is to curb the malpractice commonly referred to also as forum-shopping. It is an act of a party against whom an adverse judgment has been rendered in one forum of seeking and possibly getting a favorable opinion in another forum, other than by appeal or the special civil action of certiorari, or the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court would make a favorable disposition. 14 The language of the circular distinctly suggests that it is primarily intended to cover an initiatory pleading or an incipient application of a party asserting a claim for relief. 15

It should not be too difficult, the foregoing rationale of the circular aptly taken, to sustain the view that the circular in question has not, in fact, been contemplated to include a kind of claim which, by its very nature as being auxiliary to the proceedings in the suit and as deriving its substantive and jurisdictional support therefrom, can only be appropriately pleaded in the answer and not remain outstanding for independent resolution except by the court where the main case pends. Prescinding from the foregoing, the proviso in the second paragraph of Section 5, Rule 8, of the 1997 Rules of Civil Procedure, i.e., that the violation of the anti-forum shopping rule "shall not be curable by mere amendment . . . but shall be cause for the dismissal of the case without prejudice," being predicated on the applicability of the need for a certification against forum shopping, obviously does not include a claim which cannot be independently set up.

Petitioner, nevertheless, is entitled to a mere partial relief. The so-called "counterclaim" of petitioner really consists of two segregative parts: (1) for unpaid hospital bills of respondents' son, Emmanuel Surla, in the total amount of P82,032.10; and (2) for damages, moral and exemplary, plus attorney's fees by reason of the

alleged malicious and unfounded suit filed against it. 16 It is the second, not the first, claim that the Court here refers to as not being initiatory in character and thereby not covered by the provisions of Administrative Circular No. 04-94.

WHEREFORE, the appealed decision is hereby modified in that the claim for moral, exemplary damages and attorney's fees in Civil Case No. Q-95-25977 of petitioner is ordered reinstated. The temporary restraining order priorly issued by this Court is lifted. No costs.

SO ORDERED.

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NOVELTY PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS; PANEL OF VOLUNTARY ARBITRATORS, Represented by Its Chairman, RAMON T. JIMENEZ; and REFORM THE UNION MOVEMENT IN NOVELTY (RUMN), respondents.

D E C I S I O N

PANGANIBAN, J.:

As much as practicable, litigations should be decided on their merits and not on procedural technicalities. This statement holds true especially in labor cases like the present one, in which the defect has been cured by the motion for reconsideration.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the July 12, 2000[2] and the November 21, 2000[3] Resolutions of the Court of Appeals (CA) in CA-GR SP No. 59544. The first Resolution dismissed petitioners original action for certiorari as follows:

This instant petition is hereby DISMISSED outright:

a.) For failure to comply with Sec. 1, Rule 65 in relation to Sec. 3, Rule 46 of the 1997 Rules of Civil Procedure.

Mr. Steven Young,[4] allegedly the personnel officer of petitioner, who signed the petition did not attach the alleged authority from petitioner to institute the same.

b.) For failure to comply with Sec. 13, Rule 13 of the same Rules, there being no attachment of the required affidavit proof of service.[5]

Petitioners Motion for Reconsideration was denied in the second assailed Resolution, pertinent portions of which are reproduced hereunder:

In the case at bench, petitioner failed to attach the required authority to file the instant petition. It was only submitted when the instant motion was filed and the Special Power of Attorney was executed only on July 26, 2000 while the instant petition was filed on July 6, 2000. Sadly, at the time the case was filed, no authority was given to Mr. Ventura when the petition was filed. Hence, we had to dismiss the instant petition.

Anent the issue of failure to attach the required affidavit of proof of service, a close scrutiny of the records reveal that the affidavit of service was attached after the annexes x x x. Nevertheless, despite such compliance, the instant motion must still be denied for reasons above-stated.

WHEREFORE, in view of the foregoing, the instant motion for reconsideration is hereby DENIED for lack of merit. Our resolution dated July 18, 2000 is REITERATED.[6]

The Facts

The dispute between Novelty Philippines, Inc. (Novelty) and Reform the Union Movement in Novelty (RUMN) arose when the latter started assessing penalties against its erring members. On June 26, 1997, RUMNs executive board adopted a Resolution[7] sanctioning union officers and members who had failed to join big rallies, with a penalty equivalent to their salary for one day.

On November 19, 1997, petitioner issued a Memorandum announcing that, for the payroll period November 16 to 22, 1997, it would deduct from the salaries of union members who had failed to attend the mobilization on July 28, 1997, amounts equivalent to their one-day salary. According to it, the checkoff was being done pursuant to the Resolution of the RUMN executive board and existing individual checkoff authorizations.

When some members of the union allegedly complained of the salary deduction, petitioner temporarily held in abeyance the implementation of the checkoff on the special assessment made by RUMN. Petitioner also requested from the Office of the Secretary of the Department of Labor and Employment (DOLE) its opinion on the matter.

This move notwithstanding, RUMN continued to insist on the implementation of the checkoff on the special assessments. Nevertheless, citing an Opinion rendered by the legal office of the DOLE, petitioner rejected RUMNs persistent demand for a checkoff. Consequently, RUMN raised the matter for grievance. Since no settlement was reached during the grievance procedure, the case was elevated to the National Conciliation and Mediation Board, which referred the controversy to voluntary arbitration.

After the submission of the necessary pleadings by the parties, the Panel of Voluntary Arbitrators rendered a Decision[8] dated April 26, 2000, the dispositive portion of which reads:

WHEREFORE, the Panel hereby declares that there has been sufficient compliance [with] the provisions of the Labor Code, the CBA provisions between the parties and the check-off authorization form executed by the Union members or, more specifically, special assessments effected by authority of the Unions resolution duly adopted and approved by the majority of the Union in a general membership meeting. The Panel therefore confirms the right of the Union to demand from

http://sc.judiciary.gov.ph/jurisprudence/2003/sep2003/146125.htm#_ftn8








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Management the check-off of one days pay against erring members who had violated the Union directive for members to attend and participate in the protest rally during the [State of the Nation Address] SONA of July 1997.[9]

Petitioner filed with the Panel of Voluntary Arbitrators a Motion for Reconsideration, which was denied in a Resolution[10] dated June 19, 2000. Thereafter, the former elevated the matter to the CA by way of a Petition for Certiorari under Rule 65.

Ruling of the Court of Appeals

The CA denied due course to the Petition for failure of the personnel officer of petitioner to attach (1) his authority to institute the action and (2) the required proof of service. The Motion for Reconsideration was likewise denied by the appellate court, because the required authority to file it had been executed only after 20 days from its filing.

Hence, this recourse.[11]

Issues

Petitioner submits the following issues for our consideration:

I. The Honorable Respondent Court of Appeals committed grave abuse of discretion when it dismissed the Petition for Certiorari despite petitioners substantial compliance with the requirements of the rules.

II. The Panel of Voluntary Arbitrators committed grave abuse of discretion when it rendered the assailed majority Decision and assailed Resolution without factual or legal basis and patently contrary to law.[12]

The Courts Ruling

The Petition is meritorious.

Main Issue:Substantial Compliancewith the Procedural Requirements

Petitioner avers that it has substantially complied with the requirements of Section 1 of Rule 65 in relation to Section 3 of Rule 46 of the 1997 Rules of Civil Procedure. It has allegedly done so particularly with regard to the authority of Ventura,[13] its personnel officer, to file the Petition for Certiorari before the CA. According to petitioner, when Ventura represented the company at the voluntary arbitration level, his authority to act for and on its behalf was never questioned.

It further claims that the pertinent provisions of the aforementioned rules do not specify any requirement pertaining to the authority of the representative of the company to file the Petition. Moreover, it contends that its subsequent submission of a Special Power of Attorney constituted substantial compliance with the subject rules and, in effect, ratified Venturas authority to file the Petition for and on behalf of the company.

On the other hand, private respondent counters that Ventura had no authority to file the Petition before the CA or to sign the Verification and Certificate of Non-Forum Shopping. It argues that such authority should have been conferred to him through an appropriate board resolution of Novelty or a special power of attorney, since he was neither the president nor a corporate officer of the company. Moreover, private respondent insists that the authority to verify and certify is an essential requirement in the filing of a petition for certiorari, especially when petitioner is a corporation that can act only through its president or any other officer authorized by a board resolution.

Finally, respondent claims that petitioners subsequent submission of a Special Power of Attorney was still defective, because the document had been executed by the general manager and not by the president of Novelty.

Based on the second assailed Resolution, the alleged lack of authority of petitioners personnel officer to sign the Verification and Certificate of Non-Forum Shopping became the CAs sole basis for dismissing the certiorari action. The appellate court refused to give due course to the Petition, even after petitioner had submitted a Special Power of Attorney granting such authority to Ventura. The CA reasoned that this authorization should have been submitted together with the initiatory pleading, not as an annex or attachment to the Motion for Reconsideration.

The policy of our judicial system is to encourage full adjudication of the merits of an appeal. In the exercise of its equity jurisdiction, this Court may reverse the dismissal of appeals that are grounded merely on technicalities. [14] Moreover, procedural niceties should be avoided in labor cases in which the provisions of the Rules of Court are applied only in a suppletory manner.[15] Indeed, rules of procedure may be relaxed to relieve a part of an injustice not commensurate with the degree of noncompliance with the process required.[16]

The foregoing judicial policy acquires greater significance where there has been subsequent compliance with the requirements of the rules, as in this case in which petitioner has submitted the Special Power of Attorney together with its Motion for Reconsideration.

In Jaro v. Court of Appeals,[17] this Court held that the subsequent submission of requisite documents constituted substantial compliance with procedural rules. It explained:










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There is ample jurisprudence holding that the subsequent and substantial compliance of an appellant may call for the relaxation of the rules of procedure. In Cusi-Hernandez vs. Diaz and Piglas-Kamao vs. National Labor Relations Commission, we ruled that the subsequent submission of the missing documents with the motion for reconsideration amounts to substantial compliance. The reasons behind the failure of the petitioners in these two cases to comply with the required attachments were no longer scrutinized. What we found noteworthy in each case was the fact that the petitioners therein substantially complied with the formal requirements. We ordered the remand of the petitions in these cases to the Court of Appeals, stressing the ruling that by precipitately dismissing the petitions the appellate court clearly put a premium on technicalities at the expense of a just resolution of the case.[18]

We find equally untenable private respondents argument that the Special Power of Attorney authorizing Ventura to file the Petition was still defective, since it had been signed by the general manager and not by the president of petitioner company. This Court, in Mactan-Cebu International Airport Authority v. Court of Appeals,[19] recognized the authority not only of a general manager but even of an acting general manager to sign a verification and certificate against non-forum shopping.

We are not persuaded by CHIONGBIANs claim that the Verification and Certification against forum shopping accompanying MCIAAs petition was insufficient for allegedly having been signed by one who was not qualified to do so. As pointed out by the MCIAA, Colonel Cordova signed the Verification and Certification against forum shopping as Acting General Manager of the MCIAA, pursuant to Office Order No. 5322-99 dated September 10, 1999 issued by the General Manager of MCIAA, Alfonso Allere. x x x.[20]

The authority of the general manager to sue on behalf of the corporation and to sign the requisite verification and certification of non-forum shopping may be delegated to any other officer of the company through a board resolution or a special power of attorney. In this case, it was Ventura, the personnel officer of petitioner company, who was authorized to file the Petition through a Special Power of Attorney. This was a logical and practical decision of management, considering that the person who was in the best position to ascertain the truthfulness and the correctness of the allegations in the Petition was its personnel officer, who knew the status of any personnel and any labor-related suit of the company.

In Pfizer v. Galan,[21] this Court, speaking through Chief Justice Hilario G. Davide Jr., explained the nature and purpose of a verification. It then upheld the validity of a verification signed by an employment specialist who had not even presented any proof of her authority to represent the petitioner company.

Verification is intended to assure that the allegations in the pleading have been prepared in good faith or are true and correct, not mere speculations. Generally, lack of verification is merely a formal defect that is neither jurisdictional nor fatal. The court may order the correction of the pleading or act on the unverified pleading if the attending circumstances are such that strict compliance with the rule may be dispensed with in order to serve the ends of justice.

We firmly believe that the purpose of verification was served in the instant case wherein the verification of the petition filed with the Court of Appeals was done by Ms. Cleofe R. Legaspi. It remains undisputed that Ms. Legaspi was an Employment Specialist of petitioner Pfizer, Inc., who coordinated and actually took part in the investigation of the administrative charges against respondent Galan. As such, she was in a position to verify the truthfulness and correctness of the allegations in the petition. Besides, as pointed out by petitioners, Pfizer, being a corporate entity, can only act through an officer. Ms. Legaspi, who was an officer having personal knowledge of the case, was, therefore, merely acting for and in behalf of petitioner Pfizer when she signed the verification. Thus, the disputed verification is in compliance with the Rules.[22]

Likewise, in Shipside v. Court of Appeals,[23] we elucidated on the necessity of a certificate of non-forum shopping. We then ruled that the subsequent submission of a proof of authority to act on behalf of petitioner corporation justified the relaxation of the Rules for the purpose of allowing its Petition to be given due course.

On the other hand, the lack of certification against forum shopping is generally not curable by the submission thereof after the filing of the petition. Section 5, Rule 45 of the 1997 Rules of Civil Procedure provides that the failure of the petitioner to submit the required documents that should accompany the petition, including the certification against forum shopping, shall be sufficient ground for the dismissal thereof. The same rule applies to certifications against forum shopping signed by a person on behalf of a corporation which are unaccompanied by proof that said signatory is authorized to file a petition on behalf of the corporation.

x x x x x x x x x

In the instant case, the merits of petitioners case should be considered special circumstances or compelling reasons that justify tempering the requirement in regard to the certificate of non-forum shopping.Moreover, in Loyola, Roadway, and Uy, the Court excused non-compliance with the requirement as to the certificate of non-forum shopping. With more reason should we allow the instant petition since petitioner herein did submit a certification on non-forum shopping, failing only to show proof that the signatory was authorized to do so. That petitioner subsequently submitted a secretarys certificate attesting that Balbin was authorized to file an action on behalf of petitioner likewise mitigates this oversight.

It must also be kept in mind that while the requirement of the certificate of non-forum shopping is mandatory, nonetheless the requirements must not be interpreted too literally and thus defeat the objective of preventing the undesirable practice of forum-shopping. Lastly, technical rules of procedure should be used to promote, not frustrate justice. While the swift unclogging of court dockets is a laudable objective, the granting of substantial justice is an even more urgent ideal.[24]

Indeed, while the right to appeal is a statutory and not a natural right, it is nonetheless an essential part of our judicial system. Courts are therefore advised to proceed with caution, so as not to deprive a party of the right to appeal. Litigants








http://sc.judiciary.gov.ph/jurisprudence/2001/feb2001/143377.htm

http://sc.judiciary.gov.ph/jurisprudence/2001/may2001/143389.htm

http://sc.judiciary.gov.ph/jurisprudence/2000/nov2000/139495.htm

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should have the amplest opportunity for a proper and just disposition of their cause -- free, as much as possible, from the constraints of procedural technicalities.[25]

WHEREFORE, the Petition is hereby GRANTED and the assailed Resolutions SET ASIDE. The case is REMANDED to the Court of Appeals for further proceedings on the merits. No pronouncement as to costs.

SO ORDERED.


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G.R. No. 147394 August 11, 2004

SPOUSES MANUEL and ROSEMARIE WEE, petitioners, vs.ROSARIO D. GALVEZ, respondent.

D E C I S I O N

QUISUMBING, J.:

For review is the Decision1 dated December 4, 2000 of the Court of Appeals in CA-G.R. SP No. 55415, which denied special civil action for certiorari, prohibition, and mandamus filed by petitioners Manuel and Rosemarie Wee. In said petition, the Wees sought to (1) annul and set aside the Order dated July 29, 1999 of the Regional Trial Court (RTC) of Quezon City, Branch 80, denying their prayer to dismiss Civil Case No. Q-99-37372, as well as the Order of September 20, 1999 denying their motion for reconsideration; (2) order the trial court to desist from further proceedings in Civil Case No. Q-99-37372; and (3) order the trial court to dismiss the said action. Also assailed by the Wees is the Resolution2 of the Court of Appeals, promulgated March 7, 2001, denying their motion for reconsideration.

The antecedent facts in this case are not complicated.

Petitioner Rosemarie Wee and respondent Rosario D. Galvez are sisters.3 Rosemarie lives with her husband, petitioner Manuel Wee, in Balanga, Bataan, while Rosario resides in New York, U.S.A. The present controversy stemmed from an investment agreement between the two sisters, which had gone sour along the way.

On April 20, 1999, Rosario, represented by Grace Galvez as her attorney-in-fact, filed a complaint before the RTC of Quezon City to collect a sum of money from Manuel and Rosemarie Wee. The amount for collection was US$20,000 at the exchange rate of P38.30 per dollar. The complaint, which was docketed as Civil Case No. Q-99-37372, alleged that Rosario and Rosemarie entered into an agreement whereby Rosario would send Rosemarie US$20,000, half of said amount to be deposited in a savings account while the balance could be invested in the money market. The interest to be earned therefrom would be given to Rosario's son, Manolito Galvez, as his allowance.

Rosario claimed that pursuant to their agreement, she sent to Rosemarie on various dates in 1993 and 1994, five (5) Chemical Bank checks, namely:

CHECK No. DATE AMOUNT

CB No. 97 5/24/93 US$1,550.00

CB No. 101 6/11/93 10,000.00

CB No. 104 11/12/93 5,500.00

CB No. 105 2/1/94 2,000.00

CB No. 123 3/3/94 1,000.00

TOTAL US$20,050.004

Rosario further alleged that all of the aforementioned checks were deposited and encashed by Rosemarie, except for the first check, Chemical Bank Check No. 97, which was issued to one Zenedes Mariano, who gave the cash equivalent of US$2,000 to Rosemarie.

In accordance with her agreement with Rosario, Rosemarie gave Manolito his monthly allowance ranging fromP2,000 to P4,000 a month from 1993 to January 1999. However, sometime in 1995, Rosario asked for the return of the US$20,000 and for an accounting. Rosemarie promised to comply with the demand but failed to do so.

In January 1999, Rosario, through her attorney-in-fact, Grace Galvez, sent Rosemarie a written demand for her US$20,000 and an accounting. Again, Rosemarie ignored the demand, thus causing Rosario to file suit.

On May 18, 1999, the Wees moved to dismiss Civil Case No. Q-99-37372 on the following grounds: (1) the lack of allegation in the complaint that earnest efforts toward a compromise had been made in accordance with Article 1515 of the Family Code; (2) failure to state a valid cause of action, the action being premature in the absence of previous earnest efforts toward a compromise; and (3) the certification against forum shopping was defective, having been executed by an attorney-in-fact and not the plaintiff, as required by Rule 7, Section 56 of the 1997 Rules of Civil Procedure.

Conformably with Rule 10, Sections 17 and 38 of the 1997 Rules of Civil Procedure, Rosario amended her complaint with the addition of the following paragraph:

9-A. Earnest efforts towards (sic) have been made but the same have failed. As a matter of fact, plaintiff thru her daughter as Attorney-In-Fact caused the sending of a Demand Letter dated January 4, 1999 and the last paragraph of which reads as follows:

. . .

Trusting this will merit your utmost preferential attention and consideration in as much as you and our client are sisters and in

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order that [earnest] efforts toward a compromise could be obtained.9

The Wees opposed Rosario's motion to have the Amended Complaint admitted. They contended that said motion was a mere scrap of paper for being in violation of the three-day notice requirement of Rule 15, Section 410 of the 1997 Rules of Civil Procedure and for having the notice of hearing addressed to the Clerk of Court and not to the adverse party as required by Section 511 of the same Rule.

On July 29, 1999, the trial court came out with an Order denying the Wees' motion to dismiss for being "moot and academic," thus:

WHEREFORE, premises considered, the amended complaint is hereby admitted. Defendant-spouses are hereby directed to file their Answer within the reglementary period provided by the Rules of Court.

SO ORDERED.12

The Wees duly moved for reconsideration, but the motion was denied on September 20, 1999, for lack of merit.

On October 18, 1999, the Wee couple brought the matter to the Court of Appeals via a special civil action for certiorari, prohibition, and mandamus, docketed as CA-G.R. SP No. 55415. The petition assailed the trial court for having acted with grave abuse of discretion amounting to lack or excess of jurisdiction for issuing the interlocutory orders of July 29, 1999 and September 20, 1999, instead of dismissing Civil Case No. Q-99-37372 outright.

On December 4, 2000, the appellate court decided CA-G.R. SP No. 55415 in this wise:

WHEREFORE, the instant petition for certiorari, prohibition and mandamus is DENIED.

SO ORDERED.13

The Court of Appeals held that the complaint in Civil Case No. Q-99-37372, as amended, sufficiently stated a cause of action. It likewise held that the questioned certification against forum shopping appended thereto was not so defective as to warrant the dismissal of the complaint.

On January 9, 2001, the petitioners herein moved for reconsideration of the appellate court's decision, but this was denied on March 7, 2001.

Hence, the instant petition, raising the following issues:

1. WHETHER OR NOT THE INSTANT PETITION FOR REVIEW ON CERTIORARI UNDER RULE 45 OF THE REVISED RULES OF COURT IS THE PROPER REMEDY FOR PETITIONERS UPON THE DENIAL OF THEIR PETITION FOR CERTIORARI, PROHIBITION AND MANDAMUS BY THE COURT OF APPEALS;

2. WHETHER OR NOT THE CERTIFICATION OF NON-FORUM SHOPPING EXECUTED BY THE PLAINTIFF'S ATTORNEY-IN-FACT IS DEFECTIVE; AND

3. WHETHER OR NOT THE AMENDED COMPLAINT BEFORE THE REGIONAL TRIAL COURT SUFFICIENTLY STATES A CAUSE OF ACTION AGAINST THE DEFENDANTS.14

We shall now resolve these issues seriatim.

On the first issue, the petitioners argue that the present appeal by certiorari filed with this Court assailing the dismissal of their special civil action for certiorari, prohibition, and mandamus by the appellate court is meritorious. After all, according to petitioners, a petition for review under Rule 45, Section 1,15 of the 1997 Rules of Civil Procedure could be brought before us, regardless of whether the assailed decision of the appellate court involves an appeal on the merits from the trial court's judgment or the dismissal of a special civil action questioning an interlocutory order of the trial court. What is important under Rule 45, Section 1, is that the assailed decision of the appellate court is final and that the petition before this Court should raise only questions of law.

Respondent, in turn, point out that the dismissal by the Court of Appeals of herein petitioners' special civil action for certiorari, prohibition, and mandamus in CA-G.R. SP No. 55415 is not the final judgment or order, which could be the subject of an appeal by certiorari under Rule 45. This is because, according to respondent, certiorari as a mode of appeal involves the review of a judgment, final order, or award on the merits. Respondent contends that the appellate court's ruling in CA-G.R. SP No. 55415 did not dispose of the case on the merits, as the orders of the trial court subject of CA-G.R. SP No. 55415 were all interlocutory. In other words, the ruling of the appellate court did not put an end to Civil Case No. Q-99-37372, which is still pending before the trial court. Hence, a petition for review on certiorari will not lie to assail the judgment of the Court of Appeals in CA-G.R. SP No. 55415, according to respondent.

We find no basis for respondent's contention that the decision of the Court of Appeals in CA-G.R. SP No. 55415, dismissing the petitioners' special civil action for certiorari, prohibition, and mandamus is interlocutory in nature. The CA's decision on said petition is final for it disposes of the original action for certiorari, prohibition, and mandamus directed against the interlocutory orders of the trial court in Civil Case No. Q-99-37372. In other words, having dismissed the said action, there is nothing more left to be done in CA-G.R. SP No. 55415 as far as the appellate court is concerned.

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Nor can we sustain respondent's argument that the appellate court's decision in CA-G.R. SP No. 55415 is not on the merits. In special civil actions for certiorari, such as CA-G.R. SP No. 55415, the only issue before the appellate court is whether the lower court acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction. Stated differently, in a certiorari petition the appellate court is not tasked to adjudicate the merits of the respondent's claims before the trial court. Resolving such claims on the merits remains the proper province of the trial court in Civil Case No. Q-99-37372. The appellate court properly ruled in CA-G.R. SP No. 55415 that the trial court committed no grave abuse of discretion amounting to lack or excess of jurisdiction so as to warrant the issuance of writs of certiorari, prohibition, and mandamus that petitioners sought. In so limiting itself to and addressing squarely only the issue of grave abuse of discretion or lack or excess of jurisdiction, the Court of Appeals, in CA-G.R. SP No. 55415, precisely decided the matter on the merits. In other words, it found that the special civil action of petitioners before it had no merit.

Now, as to whether the Court of Appeals decided the matter in CA-G.R. SP No. 55415 in a manner contrary to law or established jurisprudence remains precisely for us to determine in this review on certiorari. Considering the factual and procedural circumstances of this case, the present petition is petitioners' proper remedy to challenge the appellate court's judgment in CA-G.R. SP No. 55415 now.

Anent the second issue, the petitioners aver that the Court of Appeals gravely erred in finding that the certification against forum shopping in Civil Case No. Q-99-37372 was valid, notwithstanding that it was not the plaintiff below, Rosario D. Galvez, who executed and signed the same, but her attorney-in-fact, Grace Galvez. Petitioners insist that there was nothing in the special power of attorney executed by Rosario D. Galvez in favor of Grace Galvez, which expressly conferred upon the latter the authority to execute and sign, on behalf of the former, the certificate of non-forum shopping. Petitioners point out that under Rule 7, Section 5 of the 1997 Rules of Civil Procedure, it is the "plaintiff" or "principal party" who must sign the certification. They rely on our ruling in BA Savings Bank v. Sia,16 that where the parties in an action are natural persons, the party himself is required to sign the certification, and where a representative is allowed in case of artificial persons, he must be specifically authorized to execute and sign the certification. The petitioners stress that Rosario D. Galvez failed to show any justifiable reason why her attorney-in-fact should be the one to sign the certification against forum shopping, instead of herself as the party, as required by Santos v. Court of Appeals.17

Respondent counters that petitioners' contention has no basis. The Special Power of Attorney executed by her in favor of Grace Galvez, if subjected to careful scrutiny would clearly show that the authority given to the latter is not only broad but also all encompassing, according to respondent. By virtue of said document, Grace Galvez is given the power and authority to institute both civil and criminal actions against any person, natural or juridical, who may be obliged or answerable to the respondent. Corollary with this power is the authority to sign all papers, documents, and pleadings necessary for the accomplishment of the said purpose. Respondent likewise stresses that since Grace Galvez is the one authorized to file any action in the Philippines on behalf of her principal, she is in the best position to know whether there are other

cases involving the same parties and the same subject matter instituted with or pending before any other court or tribunal in this jurisdiction. Moreover, as an attorney-in-fact, Grace Galvez is deemed to be a party, pursuant to Rule 3, Section 318 of the 1997 Rules of Civil Procedure. Hence, petitioners' argument that Grace Galvez is not specifically authorized to execute and sign the certification of non-forum shopping deserves scant consideration.

We find for the respondent. Noteworthy, respondent in the instant case is already a resident of the United States, and not of the Philippines. Hence, it was proper for her to appoint her daughter, Grace Galvez, to act as her attorney-in-fact in the Philippines. The Special Power of Attorney granted by the respondent to her attorney-in-fact, Grace Galvez, categorically and clearly authorizes the latter to do the following:

1. To ask, demand and claim any sum of money that is duly [due] from any person natural, juridical and/or corporation in the Philippines;

2. To file criminal and/or civil complaints before the courts of justice in the Philippines to enforce my rights and interest[s];

3. To attend hearings and/or Preliminary Conference[s], to make stipulations, adjust claims, to settle and/or enter into Compromise Agreement[s], to litigate and to terminate such proceedings; [and]

4. To sign all papers, documents and pleadings necessary for the accomplishment of the above purposes.19

From the foregoing, it is indisputable that Grace Galvez, as attorney-in-fact of the respondent, was duly authorized and empowered not just to initiate complaints, whether criminal or civil, to enforce and protect the respondent's rights, claims, and interests in this jurisdiction, but is specifically authorized to sign all "papers, documents, and pleadings" necessarily connected with the filing of a complaint. Pursuant to Administrative Circular No. 04-94,20 which extended the requirement of a certification on non-forum shopping to all initiatory pleadings filed in all courts and quasi-judicial agencies,21 as well as Rule 7, Section 5 of the 1997 Rules of Civil procedure, the aforementioned papers and documents, which Grace Galvez was authorized and empowered to sign, must necessarily include the certification on non-forum shopping. To conclude otherwise would render nugatory the Special Power of Attorney and also render respondent's constitution of an attorney-in-fact inutile.

Forum shopping "occurs when a party attempts to have his action tried in a particular court or jurisdiction where he feels he will receive the most favorable judgment or verdict."22 In our jurisdiction, it has taken the form of filing multiple petitions or complaints involving the same issues before two or more tribunals or agencies in the hope that one or the other court would make a favorable disposition.23 There is also forum shopping when, because of an adverse decision in one forum, a party seeks a favorable opinion (other than by appeal or certiorari) in another.24 The rationale

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against forum shopping is that a party should not be allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or complaints constitutes abuse of court processes,25 which tends to degrade the administration of justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets of the courts.26 Thus, the rule proscribing forum shopping seeks to promote candor and transparency among lawyers and their clients in the pursuit of their cases before the courts to promote the orderly administration of justice, prevent undue inconvenience upon the other party, and save the precious time of the courts. It also aims to prevent the embarrassing situation of two or more courts or agencies rendering conflicting resolutions or decisions upon the same issue.27 It is in this light that we must look at the propriety and correctness of the Certificate of Non-Forum Shopping signed by Grace Galvez on the respondent's behalf. We have examined said Certificate28 and find that under the circumstances, it does not negate but instead serves the purpose of the rule against forum shopping, namely to promote and facilitate the orderly administration of justice.

Rule 7, Section 5 of the Rules of Court, requires that the certification should be signed by the "petitioner or principal party" himself. The rationale behind this is "because only the petitioner himself has actual knowledge of whether or not he has initiated similar actions or proceedings in different courts or agencies."29 However, the rationale does not apply where, as in this case, it is the attorney-in-fact who instituted the action. The Special Power of Attorney in this instance was constituted precisely to authorize Grace Galvez to file and prosecute suits on behalf of respondent, who was no longer resident of the Philippines but of New York, U.S.A. As respondent points out, it is Grace Galvez, as attorney-in-fact for her, who has actual and personal knowledge whether she initiated similar actions or proceedings before various courts on the same issue on respondent's behalf. Said circumstance constitutes reasonable cause to allow the attorney-in-fact, and not the respondent, as plaintiff in Civil Case No. Q-99-37372 to personally sign the Certificate of Non-Forum Shopping. Under the circumstances of this case, we hold that there has been proper compliance with the rule proscribing forum shopping. As we previously held concerning Administrative Circular No. 04-94:

The fact that the Circular requires that it be strictly complied with merely underscores its mandatory nature in that it cannot be dispensed with or its requirements altogether disregarded, but it does not thereby interdict substantial compliance with its provisions under justifiable circumstances.30

Administrative Circular No. 04-94 is now incorporated in the 1997 Rules of Civil Procedure, as Rule 7, Section 5. It is basic that the Rules "shall be liberally construed in order to promote their objective of securing a just, speedy and inexpensive disposition of every action and proceeding."31 Otherwise put, the rule requiring a certification of forum shopping to accompany every initiatory pleading, "should not be interpreted with such absolute literalness as to subvert its own ultimate and legitimate objective or the goal of all rules of procedure – which is to achieve substantial justice as expeditiously as possible."32

On the third issue, petitioners submit that the amended complaint in Civil Case No. Q-99-37372 violates Rule 8, Section 133 of the 1997 Rules of Civil Procedure, as there is no plain and direct statement of the ultimate facts on which the plaintiff relies for her claim. Specifically, petitioners contend that the allegation in paragraph 9-A34 of the amended complaint that "Earnest efforts towards have been made but the same have failed" is clearly insufficient. The sentence is incomplete, thus requires the reader of the pleading to engage in deductions or inferences in order to get a complete sense of the cause of action, according to petitioners.

Respondent rebuts petitioners' contention by stating that the amended complaint as well as the annexes attached to the pleadings should be taken in their entirety in determining whether a cause of action was validly stated in the complaint. Thus taken together, in their entirety, the amended complaint and the attachments to the original complaint, clearly show that a sufficient cause of action as it is shown and stated that earnest efforts towards a compromise have been made, according to respondent.

Under Article 151 of the Family Code, a suit between members of the same family shall not be entertained, unless it is alleged in the complaint or petition that the disputants have made earnest efforts to resolve their differences through compromise, but these efforts have not succeeded. The attempt to compromise as well as its failure or inability to succeed is a condition precedent to the filing of a suit between members of the same family.35 Rule 8, Section 336 of the 1997 Rules of Civil Procedure provides that conditions precedent may be generally averred in the pleadings. Applying the foregoing to the instant case, we have to ask: Is there a sufficient general averment of the condition precedent required by the Family Code in the Amended Complaint in Civil Case No. Q-99-37372?

We find in the affirmative. Our examination of paragraph 9-A of the Amended Complaint shows that respondent has complied with this requirement of a general averment. It is true that the lead sentence of paragraph 9-A, which reads "Earnest efforts towards have been made but the same have failed" may be incomplete or even grammatically incorrect as there might be a missing word or phrase, but to our mind, a lacking word like "compromise" could be supplied by the rest of the paragraph. A paragraph is "a distinct section or subdivision of a written or printed composition that consists of from one to many sentences, forms a rhetorical unit (as by dealing with a particular point of the subject or by comprising the words of a distinct speaker)."37 As a "short composition consisting of a group of sentences dealing with a single topic,"38 a paragraph must necessarily be construed in its entirety in order to properly derive the message sought to be conveyed. In the instant case, paragraph 9-A of the Amended Complaint deals with the topic of efforts made by the respondent to reach a compromise between the parties. Hence, it is in this light that the defective lead sentence must be understood or construed. Contrary to what petitioners claim, there is no need for guesswork or complicated deductions in order to derive the point sought to be made by respondent in paragraph 9-A of the Amended Complaint, that earnest efforts to compromise the differences between the disputants were made but to no avail. The petitioners' stance that the defective sentence in paragraph 9-A of the Amended Complaint fails to state a cause of action, thus, has no leg to stand on. Having examined the Amended Complaint in its entirety as well as the documents attached thereto, following the rule that documents

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attached to a pleading are considered both as evidence and as part of the pleading,39 we find that the respondent has properly set out her cause of action in Civil Case No. Q-99-37372.

WHEREFORE, the instant petition is DENIED for lack of merit. The Decision dated December 4, 2000 of the Court of Appeals in CA-G.R. SP No. 55415, as well as its Resolution dated March 7, 2001, are hereby AFFIRMED. Costs against the petitioners.

SO ORDERED.

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G.R. No. 163039 April 6, 2011

HEIRS OF FRANCISCO RETUYA, FELICITAS R. PINTOR, HEIRS OF EPIFANIA R. SEMBLANTE, namely, PREMILINO SEMBLANTE, LUCIFINA S. TAGALOG, URSULINA S. ALMACEN; HEIRS OF JUAN RETUYA, namely, BALBINA R. RODRIGUEZ, DOLORES R. RELACION, SINFOROSA R. BASUBAS, TEOPISTA R. BASUBAS, FERNANDO RETUYA, BALDOMERO RETUYA, TEOFILO RETUYA, LEONA COLINA, FIDELA R. RAMIREZ, MARTINA R. ALBAñO, SEVERINA R. CABAHUG; HEIRS OF RAFAELA VILLAMOR; ELIzABETH V. ALESNA; HEIRS OF QUINTIN RETUYA, namely, FELIMON RETUYA, SOFIA RETUYA, RUDOLFA RETUYA and ELISA RETUYA, Petitioners, vs.HONORABLE COURT OF APPEALS, HON. ULRIC CAÑETE as Presiding Judge of REGIONAL TRIAL COURT Branch 55, Mandaue City, NICOLAS RETUYA; HEIRS OF EULOGIO RETUYA, namely, MIGUEL RETUYA, RAMON RETUYA, GIL RETUYA, PIO RETUYA, MELANIO RETUYA, NICANOR RETUYA, LEONILA RETUYA, AQUILINA RETUYA, LUTGARDA RETUYA and PROCOPIO VILLANUEVA, Respondents.

D E C I S I O N

PERALTA, J.:

Assailed in this petition for review on certiorari are the Resolutions dated November 28, 20031 and March 3, 20042 of the Court of Appeals (CA) in CA-G.R. SP No. 76235, which dismissed petitioners' Petition for Annulment of Judgment and their Motion for Reconsideration, respectively.

Severo Retuya (Severo) and Maxima Mayol Retuya (Maxima) were husband and wife without any children. Severo left several parcels of land registered under his name which are located in Mandaue City, to wit:

A parcel of land situated in Barangay Tipolo, City of Mandaue, known as Lot No. 113-U of the Subdivision Plan, Psd -07-016382 being a portion of Lot No. 113, II-5121 Amd. (Hacienda Mandaue) LRC Rec. 4030, containing an area of Two Hundred and Eighty-One (281) sq. meters described in the Transfer Certificate of Title No. 26728 in the Office of the Registry of Land Title and Deeds of Mandaue City.

A parcel of land located in Barangay Tipolo, Mandaue City, known as Lot No. 5 of the consolidation of Lot No. 122-Q, 122–R, 122-S, 122-T, 122-U, 122-V, 122-W, 122-X, 122-U, 122-AA, Psd 07-05-12450, LRC Rec. No. 4030, containing an area of Five Hundred Seventy-Four (574) sq. meters, described in the Transfer Certificate of Title No. 25213 of the Office of the Registry of Land Title and Deeds of Mandaue City.

A parcel of land located in Barangay Tipolo, Mandaue City, known as Lot No. 10 of the consolidation of Lot No. 122-Q, 122-R, 122-S, 122-T, 122-U, 122-V, 122-W, 122-X, 122-Y and 122-AA, Psd 07-05-12450, LRC Rec. No. 4030, containing an area of

Four Hundred Forty-Two (442) sq. meters, described in the Transfer Certificate of Title No. 25218 of the Office of the Registry of Land Title and Deeds of Mandaue City.

A parcel of land, Lot No. 121-1-10 of the subdivision plan, Psd 07-023191, being a portion of Lot 121-1, LRC Psd. 262374, LRC Rec. No. 4030 located in Banilad, Mandaue City, containing an area of One Thousand Five Hundred (1,500) sq. meters described under TCT 32718 of the Registry of Land Title and Deeds of Mandaue City.

A parcel of land, Lot No. 47-L of the subdivision plan Psd. 07-05-012479, being a portion of Lot 47-11-5121 Amd Hacienda Mandaue LRC Rec. No. 4030, situated in Barangay Banilad, Mandaue City, covered by TCT 21687 in the Registry of Land Titles and Deeds for the City of Mandaue.3

Some of these parcels of land were covered by a lease contract, the rentals of which were received by respondents Nicolas Retuya and Procopio Villanueva, while Lot No. 47-L, covered by TCT No. 21687, was previously sold by the Heirs of Severo and Maxima Retuya to third persons.

On June 14, 1961, Severo died intestate, survived by his wife Maxima and by Severo's full blood brothers and sisters, namely, Nicolas, Francisco, Quintin, Eulogio, Ruperto, Epifania, Georgia and the Heirs of Juan Retuya (Severo’s brother who had died earlier), as well as Severo's half-blood siblings, namely, Romeo, Leona, Rafaela, Fidela, Severina and Martina.

Sometime in 1971, Maxima also died intestate, survived by her siblings, namely, Fructuoso, Daniel, Benjamin, Lorenzo, Concepcion and Teofila.

In 1996, Severo and Maxima's siblings and their nephews and nieces, herein petitioners, filed with the Regional Trial Court (RTC) of Mandaue City, an action4 for judicial partition of the above-mentioned real properties registered under the names of Severo and Maxima, and the accounting of the rentals derived therefrom against Severo's two other brothers, respondents Nicolas and his son Procopio Villanueva, and Eulogio, who was represented by the latter's heirs.

Respondents Heirs of Eulogio filed their Answer5 claiming that Severo had already sold the subject lands to their father Eulogio by virtue of a notarized Deed of Absolute Sale of Interests and Pro Indiviso Shares to Lands dated March 29, 1961; thus, petitioners have no right to ask for the partition of the subject properties, as respondents heirs are the owners of the same. On the other hand, respondents Nicolas and his son Procopio filed their Answer6 admitting to have collected rentals on some of the subject properties and that such rentals were still intact and ready for partition; and that they were willing to partition the properties but were opposed by their co-respondents.

After trial, the RTC rendered a Decision7 dated August 9, 2001, the dispositive portion of which reads as follows:








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WHEREFORE, premises considered, judgment is rendered declaring the heirs of Eulogio Retuya as owners of the 1/16 share of Severo Retuya to ½ of the subject properties representing the shares of the late Severo Retuya which he inherited from his deceased father, Esteban Retuya and which he sold to Eulogio Retuya as follows:

Lot 113-U - 48.78 sq. meters

Lot 5 - 99.65 sq. meters

Lot 121-1-10-260 - 42 sq. meters.

and that the remaining areas of these properties, which have not been sold to defendants Heirs of Eulogio Retuya, as well as the rental, be partitioned among the herein parties in accordance with law.

Lot No. 10 is a road right of way and should not be partitioned.8

Respondents Heirs of Eulogio filed a Motion for Correction9 of Mathematical Computation of their share in Lot 121-1-10 alleging that their correct share should be 255 sq. meters, instead of 42 sq. meters.

Petitioners, through their then counsel, Atty. Ernesto B. Mayol, filed a Comment10 manifesting that they will submit and abide by whatever resolution the RTC may adopt or render in relation to the Motion for Correction of Mathematical Computation. The other respondents, represented by Atty. Basilio Duaban, did not file any comment despite receipt of the Order11 to do so.

On October 23, 2001, the RTC issued an Order,12 the dispositive portion of which reads:

WHEREFORE, the decision dated August 9, 2001 is amended by changing the area of 42 sq. meters to 255 sq. meters, and the dispositive portion of said decision will now read as follows:

WHEREFORE, premises considered, judgment is rendered declaring the Heirs of Eulogio Retuya as owners of the 1/16 share of Severo Retuya to the ½ of the subject properties representing the shares of the late Severo Retuya, which he inherited from his deceased father, Esteban Retuya and which he sold to Eulogio Retuya as follows:

Lot 113-U 48.78 sq. meters

Lot 5 99.65 sq. meters

Lot 121-1-10-260 255 sq. meters

and that the remaining areas of these properties, which have not been sold to defendants Heirs of Eulogio Retuya as well as the rental be partitioned among the herein parties in accordance with law.

Lot No. 10 is a road right of way and should not be partitioned.

Furnish parties, through counsels, copy of this Order for their information.13

The RTC decision became final and executory.14

Respondents Heirs of Eulogio filed a Motion for the Issuance of a Writ of Execution, which the RTC granted in its Order15 dated March 15, 2002.

Petitioners, through Atty. Norberto Luna, Jr., as collaborating counsel, filed a Motion to Hold in Abeyance the Implementation of the Writ of Execution with Motion for Clarification and Precautionary Reservation to File Pertinent Pleadings and Legal Remedies.16 Respondents Heirs of Eulogio filed their Opposition17 thereto.

In an Order18 dated June 14, 2002, the RTC denied the motion, and the Writ of Execution19 was issued.

Respondents Heirs of Eulogio filed a Motion to Authorize the Branch Clerk of Court to Enforce the Amended Decision.20 Petitioners were ordered by the RTC to file their Comment thereto. 21

Petitioners filed their Comment with Prayer for the Issuance of a Clarificatory Order22 as to how the RTC arrived at the new computation of 255 sq. meters from the original award of 42 sq. meters for Lot No. 121-1-10-260.

In an Order23 dated February 17, 2003, the RTC, after finding that what was at issue was just the matter of mathematical computation of the area adjudicated to the parties, and in the interest of substantial justice, set a conference to settle once and for all the exact computation of the parties' respective shares.

On February 24, 2003, petitioners filed with the CA a Petition for Annulment of Judgment of the RTC Order dated October 23, 2001, amending the decision dated August 9, 2001, claiming that the questioned Order was a patent nullity for want of jurisdiction and utter lack of due process.

On April 30, 2003, petitioners filed with the RTC a Manifestation24 submitting the mathematical computation and/or mode of partitioning the shares of the opposing parties.

As the RTC was in receipt of a copy of the Petition for Annulment of Judgment filed with the CA, it issued an Order25 holding in abeyance the resolution of respondents’



















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Motion to Authorize the Branch Clerk of Court to enforce the RTC decision pending such petition.

In a Resolution26 dated April 24, 2003, the CA outrightly dismissed the Petition for Annulment of Judgment. It found that three of the petitioners, namely, Promilino Semblante, Salome Retuya and Fernando Retuya, did not sign the certification of non-forum shopping; and that the payment of the docket fee was short of P480.00.

Petitioners filed their Motion for Reconsideration, which the CA granted in a Resolution27 dated July 3, 2003 and reinstated the petition.

On July 22, 2003, respondents Heirs of Eulogio filed a Motion for Reconsideration of the July 3, 2003 Resolution,28 on the ground that it was made to appear in the Petition for Annulment of Judgment that Quintin Retuya, one of the petitioners, had signed the certification against forum shopping on March 18, 2003, when he had already died on July 29, 1996; that the signature of co-petitioner Romeo Retuya in the certification against forum shopping was not his, as compared to his signature in the letter which respondents attached to the motion for reconsideration; and that Romeo suffered a stroke in January 2003 and was bedridden until he died on April 28, 2003.

In a Resolution dated November 28, 2003, the CA granted respondents’ Motion for Reconsideration and dismissed the petition, as no Comment was filed by petitioners. The CA said that Section 5, Rule 7 of the Rules of Court provides that the principal party shall sign the certification against forum shopping, as the attestation requires personal knowledge by the party who executed the same, otherwise, it would cause the dismissal of the petition. Considering that Quintin, one of the parties to the petition, died on July 29, 1996, it could have been impossible for him to sign the Petition dated March 18, 2003.1avvphi1

A Motion for Reconsideration29 was filed by Atty. Renante dela Cerna as counsel for petitioners, contending that there was substantial compliance with the rule on certification against forum shopping when majority of the principal parties were able to sign the verification and certification against forum shopping. Attached in the motion for reconsideration was the affidavit of the Heirs of Quintin acknowledging said mistake and submitted a verification and certification duly signed by the heirs.

On March 3, 2004, the CA issued a Resolution denying petitioners' motion for reconsideration. In so ruling, the CA said:

While it may be true that when majority of the parties have signed the certification against non-forum shopping would constitute "substantial compliance," this Court cannot apply the same rule to petitioners. First, petitioners' counsel failed to explain why a dead person/party was able to sign the certification against non-forum shopping. The issue is not the parties' substantial compliance, but the dishonesty committed by the parties and/or their counsel when they made it appear that one of the listed parties signed the certification when in fact he died long before the petition was filed. Under Circular No. 28-91 of the Supreme Court and Section 5, Rule 7 of

the Rules of Court, the attestation contained in the certification on non-forum shopping requires personal knowledge by the party who executed the same. The liberal interpretation of the rules cannot be accorded to parties who commit dishonesty and falsehood in court.

Second, records reveal that this Motion for reconsideration was signed by a certain Atty. Renante A. Dela Cerna as counsel for the petitioners without the counsel of record, Atty. Norberto A. Luna's formal withdrawal. No notice of substitution of counsel was filed by the petitioners and Atty. Dela Cerna never entered his appearance as counsel for petitioner.

x x x x

There being no formal withdrawal or substitution of counsel made, Atty. Norberto A. Luna remains the counsel of record for petitioners. Atty. Luna may not be presumed substituted by Atty. Renante Dela Cerna merely by the latter's filing or signing of the motion for reconsideration. In the absence of compliance with the essential requirements for valid substitution of counsel of record, the court can presume that Atty. Luna continuously represents the petitioners. Hence, Atty. Renante Dela Cerna has no right to represent the petitioners in this case.30

Hence, this petition wherein petitioners raise the sole ground that:

THE RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN DISMISSING THE PETITIONERS’ PETITION BY RULING AGAINST THE PETITIONERS' SUBSTANTIAL COMPLIANCE TO THE CERTIFICATION AGAINST NON-FORUM SHOPPING FOR THE ALLEGED DISHONESTY COMMITTED BY THE PARTIES AND/OR THEIR COUNSEL WHEN THEY MADE IT APPEAR THAT ONE OF THE LISTED PARTIES SIGNED THE CERTIFICATION, WHEN IN FACT HE DIED BEFORE THE PETITION WAS FILED.31

The CA dismissed the Petition for Annulment of Judgment after it found that Quintin, one of the parties to the petition, had already died on July 29, 1996, thus, it was impossible for him to have signed the verification and certification of non-forum shopping attached to the petition filed on March 18, 2003. The CA found petitioners to have committed dishonesty and falsehood to the court, thus, it could not apply the liberal interpretation of the rule on certification against forum shopping.

We found no reversible error committed by the CA.

As correctly observed by the CA, while we have in a number of cases32 applied the substantial compliance rule on the filing of the certification of non-forum shopping, specially when majority of the principal parties had signed the same and who shared a common interest, We agree with the CA that such leniency finds no applicability in this case because of petitioners’ dishonesty committed against the appellate court. A perusal of the verification and certification against forum shopping attached to the petition for annulment of judgment filed in the CA would show that there was a








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signature above the typewritten name of Quintin. In fact, written below the signature of Quintin was Community Tax Certificate (CTC) No. 06570132, issued on January 8, 2003 in Mandaue City. Thus, it would appear that Quintin, who was already dead at the time the petition was filed, had signed the verification and certification of non-forum shopping and he was even in possession of a CTC. Petitioners’ actuation showed their lack of forthrightness to the CA which the latter correctly found to be a dishonest act committed against it.

Petitioners allege that the explanation of their former counsel on record, Atty. Luna, to the show cause order issued by the CA to him that: (1) he had no intention to make it appear that a dead man in the person of Quintin was able to sign the verification and certification against forum shopping; (2) when he entered his appearance as counsel for petitioners before the RTC, he, the RTC, the co-petitioners and the other respondents, as well as their counsel, knew of the fact of Quintin’s death and the status of Felimon Retuya who immediately substituted his father, and in behalf of his siblings; (3) that in his entry of appearance filed before the RTC, it was Felimon, one of Quintin's heirs, who signed in the above typewritten name of Quintin, were found by the CA to be meritorious and noted the same. Thus, petitioners claim that they also have no intention of deceiving respondents, since as explained by Atty. Luna, all the parties and counsels knew of the death of Quintin.

We are not persuaded.

Notwithstanding that the CA had found the explanation of Atty. Luna to be meritorious, the CA did not err when it dismissed the petition. Notably, there was a signature above the typewritten name of Quintin without any showing that it was signed by another person for or in behalf of Quintin. In the absence of such qualification, it appeared before the CA that Quintin was the one who signed the same, especially since the CA did not know of the fact of Quintin’s death. There was nothing in the petition for annulment of judgment which alleged such information. In fact, we do not find any sufficient explanation given by petitioners as to why there was a signature of Quintin appearing in the verification and certification against forum shopping.

We also find that the CA correctly denied the motion for reconsideration on the ground that Atty. Renante dela Cerna, the lawyer who filed the motion for reconsideration, had no right to represent petitioners.

Under Section 26, Rule 138 of the Rules of Court and established jurisprudence, a valid substitution of counsel has the following requirements: (1) the filing of a written application for substitution; (2) the client’s written consent; (3) the consent of the substituted lawyer if such consent can be obtained; and, in case such written consent cannot be procured, (4) a proof of service of notice of such motion on the attorney to be substituted in the manner required by the Rules.33 In this case, petitioners failed to comply with the above requirements.

Atty. Dela Cerna, as counsel for petitioners, filed the motion for reconsideration on December 22, 2003. However, he is not the counsel on record of petitioners, but Atty.

Luna. Petitioners did not file a motion for substitution of counsel on record before the filing of the motion for reconsideration. It is worthy to mention that Atty. Dela Cerna did not even file a notice of appearance. If it has been held that courts may not presume that the counsel of record has been substituted by a second counsel merely from the filing of a formal appearance by the latter,34then with more reason that Atty. Dela Cerna could not be considered to have substituted Atty. Luna as there was no notice of his entry of appearance at all.

The fact that Atty. Luna was still the counsel on record at the time Atty. Dela Cerna filed his motion for reconsideration was established in Atty. Luna's Explanation dated March 19, 2004 to the CA's Show Cause Order to him wherein he prayed therein that an Order be issued relieving him of his legal obligations to petitioners. Moreover, on April 30, 2004, petitioners through their counsel on record, Atty. Luna, filed a motion for substitution of counsels wherein they alleged that they engaged the services of Atty. Jorge Esparagosa as their new counsel and relieved Atty. Luna of all his legal obligations to them. Notably, there was no mention at all of Atty. Dela Cerna. Indeed, there was no showing of the authority of Atty. Dela Cerna to file the motion for reconsideration for petitioners. Thus, the CA correctly found that Atty. Dela Cerna has no personality to represent petitioners and file the motion for reconsideration.

WHEREFORE, the petition is DENIED. The Resolutions dated November 28, 2003 and March 3, 2004 of the Court of Appeals are AFFIRMED.

SO ORDERED.



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G.R. No. L-18401 April 27, 1963

PERFECTO JABALDE, plaintiff-appellant, vs.PHILIPPINE NATIONAL BANK, defendant-appellee.

Cecilio de la Victoria and L. de la Victoria for plaintiff-appellant.Ramon B. de los Reyes, Conrado E. Medina and Felisitas C. Diaz for defendant-appellee.

REYES, J.B.L., J.:

Appeal from a decision of the Court of First Instance of Cebu to the Court of Appeals, elevated by the latter to the Supreme Court as a case involving a constitutional question under Section 17 of the Judiciary Act of 1948.

Plaintiff-appellant Perfecto Jabalde seeks recovery of P10,000.00 allegedly deposited by him with the defendant-appellee Philippine National Bank, P5,000.00 in genuine Philippine currency on 21 July 1941 and another P5,000.00 on 30 August 1943 in mixed genuine Philippine currency and Japanese military notes. The complaint recites the printed wording of plaintiff's passbook, and allegedly reproduces page one thereof, reciting it to be as follows:

Philippine National Bank Manila, Philippines in account with July 21, 1941 P5,000.00AUG. 30, 1943 5,000.00

The defendant's answer was not under oath, and admits the making of the foregoing deposits, but denies the dates of deposit, alleging as the true dates 21 July 1944 and 30 August 1944, and avers that the entries in the passbook as to the deposit dates were "knowingly, unlawfully and maliciously" altered by the plaintiff; and that the deposits were all in Japanese military notes.

Both parties adduced evidence in support of their allegations, and after trial, the Court of First Instance of Cebu dismissed the case.

Appellant insists that the dates of deposit were really 21 July 1941 and 30 August 1943, and were made in Philippine money and mixed Philippine money and Japanese military notes, respectively. The evidence preponderantly militates against the contention. That the date entries in the passbook, Exhibit "A", were tampered with is clear to the naked eyed. The years of both entries are obscured with a blot of black ink. Photographic enlargements (Exhibits 3-A and 3-B), however, discernibly show that the year of the first entry is "1944", and not "1941". While the year of the second entry is badly obliterated, for obvious reasons it could not be earlier than the first entry. The testimony of the expert witness as to the last two numerals of the first date

year, that it is "1944", is logical, and eliminates whatever doubt exists by means of enlarged photographs. He explained how both the slant (diagonal) and the vertical lines in both figures are parallel to each other, and the angles created by the slant and horizontal lines are congruent; the bases of the two "4's" are on the same plane. Therefore, we agree that no other conclusion is possible than that the two last digits are both "4".

Plaintiff's counsel avers that if there was any tampering, it should be attributed to the bank that issued the passbook. On this point, the trial court correctly observed that it would be puerile for any of the bank's officials to do this since the act would be against the bank's interest.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1äwphï1.ñët

Defendant's witnesses have also shown, by their testimonies and business sheets of account during the war years (Exhibits 5, 6, and 7), that appellant Perfecto Jabalde did not have a pre-war, or "controlled", account with the defendant bank, although he did open a wartime, or "free", account. The passbook states on its face that it is a "Free Account". The difference between the two kinds of accounts, as instituted by the bank, has been well explained. The business sheets of war-time accounts in the Cebu bank branch also show that Perfecto Jabalde, along with several clients, deposited money in Japanese military notes only and on the dates alleged by the bank. The conclusion drawn from this array of evidence is inevitably that the deposits were made on 21 July 1944 and on 30 August 1944, and all in military notes.

The first legal issue is whether the bank's failure to deny under oath the entries in the passbook as "copied" in the complaint constitutes an admission of the genuineness and due execution of the document. Ordinarily, such failure is an admission. However, this rule cannot apply in the present case because the plaintiff introduced evidence purporting to support his allegations of deposit on the dates he wanted the court to believe, and offered no objection during the trial to the testimonies of defendant's witnesses and documentary evidence showing different dates of deposit.1 By these acts, the plaintiff waived the defendant's technical admission through failure to deny under oath the genuineness and due execution of the document (Cf. Legarda Koh vs. Ongsiako, 36 Phil. 185; Yu Chuck vs. Kong Li Po, 46 Phil. 608, both cited in 1 Moran 232, 233, 1957 ed.). It has, likewise, been ruled that —

Where written instrument set forth in answer is not denied by affidavit, yet if evidence in respect to that matter, and tending to show that instrument is not genuine, or was not delivered, is introduced by plaintiff without objection on part of defendant, or motion to strike out, and is met by counter-evidence on part of defendant, the latter ought not to be permitted to claim that genuineness and due execution of instrument are admitted. (Francisco,

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Rules of Court, Anno. & Commented, Vol. I, Part I, Rev. Ed., pp. 734-735, citing the case of Clark v. Child, 66 Cal. 87)

The court of first instance held that the appellant's wartime deposits were not reimbursable under Executive Order No. 49, Series of 1945, issued by President Osmeña in the exercise of the authority conferred by the Emergency Powers Act (Comm. Act No. 671). The Executive Order provides that:.

All deposits made with banking institutions during enemy occupation, and all deposit liabilities incurred by banking the same period are declared null and void, except as provided in this section.

The appellant does not contest that under said Executive Order his wartime deposits are void; but he vigorously assails the validity and constitutionality of the order as impairing the obligation of contracts and depriving him of property without due process of law.

This is no longer an open issue. It was passed upon and decided in Hilado vs. De la Costa, 83 Phil. 471, wherein it was ruled:

We are of the considered opinion, and therefore hold, that the provisions of Executive Order No. 49, do not deprive the plaintiff of his property without due process of law or impair the obligation of contract entered into between him and the defendant bank; because they are but the logical corollary and application to bank deposits in Japanese war notes of Executive Order No. 25, in so far as it declares that said notes are not legal tender in territories of the Philippines liberated from Japanese occupation, the validity of which is not, and cannot seriously be, questioned.

The promulgation of Executive Order No. 49 was a valid exercise of the extraordinary powers invested by the legislature unto the President by Commonwealth Act No. 671. This Act, enacted pursuant to Article VI, Section 16 of the Constitution, after declaring the necessity for granting extraordinary powers to the President in Section 1 thereof, granted him in Section 2 the power —

to promulgate such rules and regulations as he may deem necessary to carry out the national policy declared in Section 1 hereof. Accordingly, he is, among other things, empowered (a) ...; (i) to exercise such other powers as he may deem necessary to enable the Government to fulfill its responsibilities and to maintain and enforce its authority. (Emphasis supplied)

The argument that the rule of Hilado vs. De la Costa, supra, should not apply because the complaint herein was filed in 1956 when there was no more emergency is impertinent, since Executive Order No. 49 is clearly intended for permanent application, and its operation was not limited to the period of emergency.

Assuming, arguendo, that the bank promised later to pay the plaintiff-depositor when it would be indemnified by either the United States or the Japanese government, said promise could not be considered a novation of the contract of deposit, because there was no contract to novate in the first place, for lack of one of the essential elements of a contract: object. The object of the supposed contract (in this case the deposited military notes) was declared null and void, and, therefore, non-existing.

FOR THE FOREGOING REASONS, the decision appealed from is hereby affirmed, with costs against the appellant. Let the case be referred to the City Fiscal, through the Department of Justice, for investigation and prosecution as the facts may warrant.

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G.R. No. L-28633 March 30, 1971

CENTRAL SURETY and INSURANCE COMPANY, petitioner, vs.C. N. HODGES and THE COURT OF APPEALS, respondents.

Pelaez, Jalandoni and Jamir for petitioner.

Leon P. Gellada for respondent C. N. Hodges.

CONCEPCION, C.J.:

Appeal by certiorari from a decision of the Court of Appeals, the dispositive part of which reads as follows:

WHEREFORE, in view of the foregoing considerations, the decision appealed from is modified and judgment is hereby rendered against Central Surety & Insurance Company:

(a) To pay plaintiff C. N. Hodges the sum of P17,826.08 with interest thereon at the rate of 12% per annum from October 24, 1955 until fully paid;

(b) To pay plaintiff C. N. Hodges the sum of P1,551.60 as attorney's fees; and

(c) To pay the costs.

The main facts are not disputed. Prior to January 15, 1954, lots Nos. 1226 and 1182 of the Cadastral Survey of Talisay, Negros Occidental, had been sold by C. N. Hodges to Vicente M. Layson, for the sum of P43,000.90, payable on installments. As of January 15, 1954, the outstanding balance of Layson's debt, after deducting the installments paid by him prior thereto, amounted to P15,516.00. In order that he could use said lots as security for a loan he intended to apply from a bank, Layson persuaded Hodges to execute in his (Layson's) favor a deed of absolute sale over the properties, with the understanding that he would put up a surety bond to guarantee the payment of said balance. Accordingly, on the date above-mentioned, Layson executed, in favor of Hodges, a promissory note for P15,516.00, with interest thereon at the rate of 1% per month, and the sum of P1,551.60, for attorney's fees and costs, in case of default in the payment of the principal or interest of said note. To guarantee the same, on January 23, 1954, the Central Surety and Insurance Company — hereinafter referred to as petitioner — through the manager of its branch office in Iloilo, Mrs. Rosita Mesa, executed in favor of Hodges the surety bond Annex B, which was good for twelve (12) months from the date thereof.

When Layson defaulted in the discharge of his aforesaid obligation, Hodges demanded payment from the petitioner, which, despite repeated extensions of time granted thereto, at its request, failed to honor its commitments under the surety bond. On October 24, 1955, Hodges commenced, therefore. the present action, in the Court of First Instance of Iloilo, against Layson and petitioner herein, to recover from them, jointly and severally, the sums of P17,826.08, representing the principal and interest due up to said date, and P1,551.60, as attorney's fees. In his answer to the complaint, Layson admitted the formal allegations and denied the other allegations thereof.

Having failed to file its answer within the reglementary period, the petitioner was, on January 18, 1956, declared in default. When the case was called for trial, insofar as Layson was concerned, the latter did not appear, and Hodges was allowed to introduce his evidence. Then the trial court rendered a partial decision against Layson, petitioner having, in the meantime, filed a motion to set aside the order of default, which motion was still pending resolution.lâwphî1.ñèt Thereafter, said motion was denied, and upon presentation of the evidence of Hodges against herein petitioner, judgment was rendered against the latter as prayed for in the complaint. Thereupon, petitioner filled a motion for reconsideration and a motion for relief under Rule 38. Acting thereon, His Honor, the trial Judge, later set aside its decision against the petitioner and admitted its answer, attached to the motion to set aside the order of default.

In its answer, petitioner disclaimed liability under the surety bond in question, upon the ground (a) that the same is null and void, it having been issued by Mrs. Rosita Mesa after her authority therefor had been withdrawn on March 15, 1952; (b) that even under her original authority Mrs. Mesa could not issue surety bonds in excess of P8,000.00 without the approval of petitioner's main office which was not given to the surety bond in favor of Hodges; and (c) that the present action is barred by the provision in the surety bond to the effect that all claims and actions thereon should be filed within three (3) months from the date of its expiration on January 23, 1955. Petitioner, moreover, set up a counterclaim for damages.

In due course, thereafter, the trial court rendered a decision:

a) Condenando a la demandada Central Surety & Insurance Co. que pague al demandante la desde la P8,000.00 con intereses legales a contar desde la fecha de la demanda — 24 de Octubre de 1955;

b) Condenando a la misma demandada que pague al de mindante la suma de P600.00 en concepto de honorarios de abogado; y

c) Condenindo ademas a la misma demandada que pague las costas del juicio.

Hodges appealed to the Court of Appeals (CA-G.R. No. L-24684-R) from this decision, insofar as it limited petitioners liability to P8,000.00. Petitioner, also, appealed to said Court upon the ground that the trial court had erred: (a) in holding

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petitioner liable under a contract entered into by its agent in excess of her authority; (b) in sentencing petitioner to pay Hodges the sum of P8,000.00 with interest thereon, in addition to attorney's fees and the costs; and (c) in "not awarding" petitioner's counterclaim.

After appropriate proceedings, the Court of Appeals rendered the decision above referred to, from which petitioner has appealed to this Court, alleging that the Court of Appeals has erred: (1) in finding that petitioner "was liable on a bond issued by an agent whose authority ... had already been withdrawn and revoked"; (2) "in applying the rule on implied admission by reason of failure to deny under oath the authenticity of a pleaded document"; and (3) "in not considering the legal effect of the waiver contained in the disputed bond and in not disposing of this case under the light of such waiver."

The first assignment of error is predicated upon the fact that prior to January 23, 1954, when the surety bond involved in this case was executed, or on March 15, 1952, petitioner herein had withdrawn the authority of its branch manager in the City of Iloilo, Mrs. Rosita Mesa, to issue, inter alia, surety bonds and that, accordingly, the surety bond, copy of which was attached to the complaint as Annex B, is null and void. On this point, the Court of Appeals had the following to say:

... we are of the opinion that said surety bond is valid. In the first place, there appears to be no showing that the revocation of authority was made known to the public in general by publication, nor was Hodges notified of such revocation despite the fact that he was a regular client of the firm. And even if Hodges would have inquired from Mrs. Mesa as to her authority to issue said bond, we doubt if she would disclose the contents of the letter of March 15, 1952 in view of Central Surety's claim that she was committing irregularities in her remittances to the main office. Secondly, some surety bonds issued by Mrs. Mesa in favor of Hodges after her authority had allegedly been curtailed, were honored by the Central Surety despite the fact that these were not reported to the main office at the time of their issuance. These accounts were paid on January 31, 1957, to wit: Felicito and Libertad Parra issued on August 16, 1952; Estrella Auayan issued on November 16, 1953; Dominador Jordan issued on August 26, 1953; and Ladislao Lachica issued on February 28, 1953. (Exhs. F, G, H, I and J). By these acts Central Surety ratified Mrs. Mesa's unauthorized acts and as such it is now estopped from setting forth Mrs. Mesa's lack of authority to issue surety bonds after March 15, 1952. It has been held that although the agent may have acted beyond the scope of his authority, or may have acted without authority at all, the principal may yet subsequently see fit to recognize and adopt the act as his own. Ratification being a matter of assent to and approval of the act as done on account of the person ratifying any words or acts which show such assent and approval are ordinarily sufficient. (Sta. Catalina vs. Espitero, CA-G.R. No. 27075-R, April 28, 1964, citing IV Padilla, CIVIL CODE. 1959 ed., pp. 478-479;

Roxas vs. Villanueva, CA-G.R. No. 18928-R, June 20, 1958). Moreover, the relocation of agency does not prejudice third persons who acted in good faith without knowledge of the revocation. (Joson vs. Garcia, CA-G.R. No. 29336-R. Nov. 19, 1962).

Indeed, Article 1922 of our Civil Code provides:

If the agent had general powers, revocation of the agency does not prejudice third persons who acted in good faith and without knowledge of the revocation. Notice of the revocation in a newspaper of general circulation is a sufficient warning to third persons.

It is not disputed that petitioner has not caused to be published any notice of the revocation of Mrs. Mesa's authority to issue surety bonds on its behalf, notwithstanding the fact that the powers of Mrs. Mesa, as its branch manager in Iloilo, were of a general nature, for she had exclusive authority, in the City of Iloilo, to represent petitioner herein, not with a particular person, but with the public in general, "in all the negotiations, transactions, and business in wherein the Company may lawfully transact or engage on subject only to the restrictions specified in their agreement, copy of which was attached to petitioner's answer as Annex 3. 1 Contrary to petitioner's claim, Article 1922 applies whenever an agent has general powers, not merely when the principal has published the same, apart from the fact that the opening of petitioner's branch office amounted to a publication of the grant of powers to the manager of said office. Then, again, by honoring several surety bonds issued in its behalf by Mrs. Mesa subsequently to March 15, 1952, petitioner induced the public to believe that she had authority to issue such bonds. As a consequence, petitioner is now estopped from pleading, particularly against a regular customer thereof, like Hodges, the absence of said authority.

Let us now take up the third assignment of error and defer, until after the same has been disposed of, the consideration of the second assignment of error. Under the third assignment of error, petitioner maintains that, having been instituted on October 24, 1955 — or nine (9) months after the expiration of petitioner's surety bond on January 23, 1955 — the present action is barred by the provision in said bond to the effect that it:

...will not be liable for any claim not discovered and presented to the Company within three (3) months from the expiration of this bond and that the obligee hereby waives his right to file any court action against the surety after the termination of the period of three months above-mentioned.

Interpreting an identical provision, 2 court has, however, held "that the three-month period" prescribed therein "established only a condition precedent, — not a limitation of action," and that, when a claim has been presented within said period, the action to enforce the claim may be "filed within the statutory time of prescription." This view was clarified in a subsequent case, 3 in the sense that the above-quoted provision

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was "... merely interpreted to mean that presentation of the claim within three months was a condition precedent to the filing of a court action. Since the obligee in said case presented his claim seasonably although it did not file the action within the same period, this Court ruled that the stipulation in the bond concerning the limitation being ambiguous, the ambiguity should be resolved against the surety, which drafted the agreement, and that the action could be filed within the statutory period of prescription." 4

In the case at bar, it is not contended that Hodges had not presented his claim within three (3) months from January 23, 1955. In fact, he had repeatedly demanded from petitioner herein compliance with its obligations under the surety bond in question, and, in reply to such demands, petitioner asked extensions of time, on January 29, February 16, March 15, May 3, June 16, July 1 and 15, and October 15, 1955. 5 After thus securing extensions of time, even beyond three (3) months from January 23, 1955, petitioner cannot plead the lapse of said period to bar the present action.

The second assignment of error assails the finding of the Court of Appeals to the effect that the petitioner is liable for the full amount of surety bond — despite the fact that it exceeded the sum of P8,000.00 and hence, required, for its validity and binding effect as against petitioner herein, the express approval and confirmation of its Manila office, which were not secured — in view of petitioner's failure to deny under oath the genuineness and due execution of said bond, copy of which was attached to the complaint. It is true that, pursuant to section 8 of Rule 8 of the Rules of Court:

When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but this provision does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused.

We have however, held that:

... where a case has been tried in complete disregard of the rule and the plaintiff having pleaded a document by copy, presents oral evidence to prove the due execution of the document as well as the agent's authority and no objections are made to the defendant's evidence in refutation, the rule will be considered waived. 6

The reason for such view was explained by this Court as follows:

Before entering upon a discussion of the questions raised by the assignments of error, we may draw attention to a matter which has not been mentioned either by counsel or by the court below, but

which, to prevent misunderstanding, should be briefly explained: It is averred in the complaint that it is accompanied by a copy of the contract between the parties (Exhibit A) which copy, by the terms of the complaint, is made a part thereof. The copy is not set forth in the bill of exceptions and aside from said averment, there is no indication that the copy actually accompanied the complaint, but an examination of the record of the case in the Court of First Instance shows that a translation of the contract was attached to the complaint and served upon the defendant. As this translation may be considered a copy and as the defendant failed to deny its authenticity under oath, it will perhaps be said that under section 103 of the Code of Civil Procedure the omission to so deny it constitutes an admission of the genuineness and due execution of the document as well as of the agent's authority to bind the defendant. (Merchant vs. International Banking Corporation, 6 Phil. 314.)

In ordinary circumstances that would be true. But this case appears to have been tried upon the theory that the rule did not apply; at least, it was wholly overlooked or disregarded by both parties.lâwphî1.ñètThe plaintiffs at the beginning of the trial presented a number of witnesses to prove the due execution of the document as well as the agent's authority; no objection were made to the defendant's evidence in refutation; all no exceptions taken; and the matter is not mentioned in the decision of the trial court.

The object of the rule is 'to relieve a party of the trouble and expense of proving in the first instance an alleged fact, the existence or nonexistence of which is necessarily within the knowledge of the adverse party, and of the necessity (to his opponent's case) of establishing which such adverse party is notified by his opponent's pleading.' (Nery Lim-Chingco vs. Terariray, 5 Phil., at p. 124.)

The plaintiff may, of course, waive the rule and that is what he must be considered to have done in the present case by introducing evidence as to the execution of the document and failing to object to the defendant's evidence in refutation; all this evidence is now competent and the case must be decided thereupon. .... Nothing of what has here been said is in conflict with former decisions of this court; it will be found upon examination that in all cases where the applicability of the rule has been sustained the party invoking it has relied on it in the court below and conducted his case accordingly."7

In the case at bar, the parties acted in complete disregard of or wholly overlooked the rule above-quoted. Hodges had neither objected to the evidence introduced by petitioner herein in order to prove that Mrs. Mesa had no authority to issue a surety bond, much less one in excess of P8,000.00, and took no exception to the admission

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of said evidence. Hence, Hodges must be deemed to have waived the benefits of said rule and petitioner herein cannot be held liable in excess of the sum of P8,000.00.

WHEREFORE, with the modification that petitioner's liability to Hodges is limited to said sum of P8,000.00 the period, the petitioner was, on January 18, 1956, declared it is hereby affirmed in all other respects, without costs. It is so ordered.

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G.R. No. L-28140 March 19, 1970

CAPITOL MOTORS CORPORATIONS, plaintiff-appellee, vs.NEMESIO I. YABUT, defendant-appellant.

Jose A. David, Jr. for plaintiff-appellee.

R. Correa for defendant-appellant.

VILLAMOR, J.:

Appeal on a question of law from the judgment of the Court of First Instance of Rizal in its Civil Case. No. Q-9869.

On March 1, 1966, Capitol Motors Corporations filed a complaint against Nemesio I. Yabut. It was therein averred that on April 24, 1965, the defendant executed in favor of the plaintiff a promissory note (copy of which was attached to the complaint) for the sum of P30,134.25, payable in eighteen (18) equal monthly installments with interest at 12% per annum, the first installment to become due on June 10, 1965, that it was stipulated in the promissory note that should the defendant fail to pay two (2) successive installments, the principal sum remaining unpaid would immediately become due and demandable and the defendant would, by way of attorney's fees and costs of collection, be obligated to the plaintiff for an additional sum equivalent to 25% of the principal and interest due; that as of February 23, 1966, the sum remaining unpaid on the promissory note was P30,754.79, including accrued interest; that the defendant defaulted in the payment of two (2) successive installments, and likewise failed to pay the interest due on the promissory note; and that in spite of demands by the plaintiff, the defendant failed and refused to pay the said principal sum and interest due. Prayer was made that the defendant be ordered to pay the plaintiff the sum of P30,754.79, as well as the interest due thereon from February 23, 1966, and an additional sum equivalent to 25% of the amount due, plus costs.

On April 27, 1966, and within the reglementary period, the defendant, through his counsel, filed an answer which reads:

DEFENDANT through counsel alleges:

1. Paragraph 1 of the complaint is admitted.

2. Paragraphs 2, 3, 4, 5, 6 and 7 of the complaint are specifically denied for lack of knowledge sufficient to form a belief as to the truth thereof.

WHEREFORE, it is respectfully prayed that the Complaint be dismissed with costs against the plaintiff.

On June 16, 1966, the plaintiff filed a motion for judgment on the pleadings, on the ground that the defendant, not having set forth in his answer the substance of the matters relied upon by him to support his denial, had failed to deny specifically the material allegations of the complaint, hence, must be deemed to have admitted them. The defendant did not file an opposition to the motion. On September 13, 1966, after hearing on the motion, the court issued an order granting the said motion and considering the case submitted for decision on the basis of the pleadings; and on January 9, 1967, the court rendered judgment granting in toto the plaintiff's prayer in its complaint.

In this appeal, defendant-appellant contends that the court a quo erred in considering him as having failed to deny specifically the material allegations of the complaint, and, consequently, in deciding the case on the basis of the pleadings. Citing Moran, Comments on the Rules of Court, Vol. I, 1963 Ed., p. 281, he argues that since Section 10, Rule 8 of the Revised Rules of Court, recognizes three (3) modes of specific denial, namely: (1) by specifying each material allegation of fact in the complaint the truth of which the defendant does not admit, and, whenever practicable, setting forth the substance of the matters which he will rely upon to support his denial or (2) by specifying so much of an averment in the complaint as is true and material and denying only the remainder or (3) by stating that the defendant is without knowledge or information sufficient to form a belief as to the truth of a material averment in the complaint, which has the effect of a denial, and he has adopted the third mode of specific denial, his answer tendered an issue, and, consequently the court a quo could not render a valid judgment on the pleadings.

This appeal is without merit.

We agree with defendant-appellant that one of the modes of specific denial contemplated in Section 10, Rule 8, is a denial by stating that the defendant is without knowledge or information sufficient to form a belief as to the truth of a material averment in the complaint. The question, however, is whether paragraph 2 of defendant-appellant's answer constitutes a specific denial under the said rule. We do not think so. In Warner Barnes & Co., Ltd. vs. Reyes, et al., G.R. No. L-9531, May 14, 1958 (103 Phil., 662), this Court said that the rule authorizing an answer to the effect that the defendant has no knowledge or information sufficient to form a belief as to the truth of an averment and giving such answer the effect of a denial, does not apply where the fact as to which want of knowledge is asserted, is so plainly and necessarily within the defendant's knowledge that his averment of ignorance must be palpably untrue. In said case the suit was one for foreclosure of mortgage, and a copy of the deed of mortgage was attached to the complaint; thus, according to this Court, it would have been easy for the defendants to specifically allege in their answer whether or not they had executed the alleged mortgage. The same thing can be said in the present case, where a copy of the promissory note sued upon was attached to the complaint. The doctrine in Warner Barnes & Co., Ltd. was reiterated in J. P. Juan & Sons, Inc. vs. Lianga Industries, Inc., G.R. No. L-25137, July 28, 1969 (28 SCRA

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807). And in Sy-quia vs. Marsman, G.R. No. L-23426, March 1, 1968 (22 SCRA 927), this Court said:

With regard to the plea of lack of knowledge or information set up in paragraph 3 of the answer, this Court's decision in Warner Barnes vs. Reyes, 103 Phil. 662, 665, is authority for the proposition that this form of denial must be availed of with sincerity and good faith, not for the purpose of confusing the other party, nor for purposes of delay. Yet, so lacking in sincerity and good faith is this part of the answer that defendants-appellants go to the limit of denying knowledge or information as to whether they (defendants) were in the premises (Marsman Bldg.) on January 4, 1961, as averred in paragraph 4 of the complaint. Yet whether such a fact was or was not true could not be unknown to these defendants.

In National Marketing Corporation vs. De Castro, 106 Phil. 803 (1959), this Court held:

Furthermore, in his answer to the appellee's complaint, he merely alleged that 'he has no knowledge or information sufficient to form a belief as to the truth of the matters contained in paragraphs 3, 4, 5 and 6 so much so that he denies specifically said allegations.' A denial is not specific simply because it is so qualified. (Sections 6 and 7, Rule 9; El Hogar Filipino vs. Santos Investments, Inc., 74 Phil. 79; Baetamo vs. Amador, 74 Phil. 735; Dacanay vs. Lucero, 76 Phil. 139; Lagrimas vs. Lagrimas, 95 Phil. 113). Material averments in a complaint, other than those as to the amount of damage, are deemed admitted when not specifically denied. (Section 8, Rule 9,) The court may render judgment upon the pleadings if material averments in the complaint are admitted. (Section 10, Rule 35; Baetamo vs. Amador, supra, Lichauco vs. Guash, 76 Phil. 5; Lati vs. Valmores, G.R. No. L-6877, 30 March 1954.)

It becomes evident from all the above doctrines that a mere allegation of ignorance of the facts alleged in the complaint, is insufficient to raise an issue; the defendant must aver positively or state how it is that he is ignorant of the facts so alleged. (Francisco, The Revised Rules of Court in the Philippines, Vol. I, p. 417, citing Wood vs. Staniels, 3 Code Rep. 152 and Vassalt vs. Austin, 32 Cal. 597.)

Thus, in at least two (2) cases where this Court ruled that judgment on the pleadings was not proper, it will be seen that the reason was that in each case the defendants did something more than merely alleging lack of knowledge or information sufficient to form a belief. In Arrojo vs. Caldoza, et al., G.R. No. L-17454, July 31, 1963 (8 SCRA 547), the defendants, in their answer to the complaint for recovery of possession of a parcel of land, did not merely allege that they had no knowledge or information sufficient to form a belief as to the truth of the material allegations in the complaint, but added the following: "The truth of the matter is that the defendants have not

occupied or taken any property belonging to the plaintiff. They took possession and ownership only of the land belonging to them, which properties were possessed and owned originally by their predecessors-in-interest, who were the parents of the defendants ...." In Benavides vs. Alabastro, G.R. No. L-19762, December 23, 1964 (12 SCRA 553), the defendant's answer did not only deny the material allegations of the complaints but also set up certain special and affirmative defenses the nature of which called for presentation of evidence.

There are two other reasons why the present appeal must fail. First. The present action is founded upon a written instrument attached to the complaint, but defendant-appellant failed to deny under oath the genuineness and due execution of the instrument; hence, the same are deemed admitted. (Section 8, Rule 8 of the Revised Rules of Court; Songo vs. Sellner, 37 Phil. 254; Philippine Commercial & Industrial Bank vs. ELRO Development Corporation, et al., G.R. No. L-30830, August 22, 1969 [29, SCRA 38]; J. P. Juan & Sons, Inc. vs. Lianga Industries, Inc., supra.) Second. Defendant-appellant did not oppose the motion for judgment on the pleadings filed by plaintiff appellee; neither has he filed a motion for reconsideration of the order of September 13, 1966, which deemed the case submitted for decision on the pleadings, or of the decision rendered on January 9, 1967. In Santiago vs. Basilan Lumber Company, G.R. No. L-15532, October 31, 1963 (9 SCRA 349), this Court said:

It appears that when the plaintiff moved to have the case decided on the pleadings, the defendant interposed no objection and has practically assented thereto. The defendant, therefore, is deemed to have admitted the allegations of the complaint, so that there was no necessity for the plaintiff to submit evidence of his claim.

PREMISES CONSIDERED, the judgment appealed from is affirmed, with cost against defendant-appellant.

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G.R. No. 159648 July 27, 2007

FLUOR DANIEL, INC.-PHILIPPINES, Petitioner, vs.E.B. VILLAROSA & PARTNERS CO., LTD., Respondent.

D E C I S I O N

QUISUMBING, J.:

For review on certiorari are the Decision1 dated October 24, 2002 and the Resolution2 dated August 25, 2003 of the Court of Appeals in CA-G.R. SP No. 52897, which had affirmed the November 19, 19983 and March 24, 19994 Orders of the Regional Trial Court of Makati City, Branch 58, in Civil Case No. 98-1342.

The pertinent facts, borne by the records, are as follows.

Petitioner Fluor Daniel, Inc.-Philippines is a domestic corporation providing construction and program management services. Sometime in 1996, petitioner entered into an agreement with Fil-Estate Properties, Inc. (Fil-Estate) for the construction of the Fairways & Bluewater, Newcoast Island Resort in Boracay Island. Respondent E.B. Villarosa & Partners Co., Ltd. was one of the contractors engaged by petitioner to provide services for the said project.

On May 6, 1997, petitioner and respondent executed a separate contract for civil structure and architecture, for plumbing and fire protection, and for millworks. However, Fil-Estate failed to satisfy petitioner’s monthly progress billing. Hence, petitioner did not pay respondent.

Petitioner apprised Fil-Estate that the project would have to be suspended. Petitioner likewise issued a notice of suspension of work to all its contractors, including respondent. In response, respondent informed petitioner that it deemed the contracts between them good as terminated. Thus, respondent demanded payment for suspension cost and for work so far performed.

Believing that petitioner was in bad faith, respondent also filed with the Regional Trial Court of Makati City, Branch 58, a complaint5 for a sum of money and damages, docketed as Civil Case No. 98-1342.

Petitioner filed a motion to dismiss6 on the ground that the complaint failed to state a cause of action. The trial court denied the motion in its first assailed Order, to wit:

WHEREFORE, foregoing considered, defendant’s motion to dismiss is hereby DENIED.

Pursuant to Section 4 of Rule 16, 1997 Rules of Civil Procedure, defendant-movant shall file its answer within the balance of the period prescribed by Rule 11, same Rules, to which defendant was entitled at the time of serving its motion, but not less than five (5) days in any event, computed from receipt of this order.

SO ORDERED.7

Petitioner’s motion for reconsideration was likewise denied in the trial court’s second impugned Order, thus:

WHEREFORE, foregoing considered, defendant’s Motion for Reconsideration is hereby DENIED.

The filing of the last pleading and the consequent joinder of issues has ripened this case for pre-trial which is hereby set…

Let notices of pre-trial be sent to the parties and their counsel.

SO ORDERED.8

Respondent subsequently filed a motion to amend its complaint followed by its amended complaint. Petitioner, on the other hand, filed a motion to suspend proceedings. The trial court granted respondent’s, but denied petitioner’s motion, to wit:

WHEREFORE, in view of the foregoing:

1) Plaintiff’s Urgent Motion to Amend Complaint With Leave of Court is hereby GRANTED. Accordingly, plaintiff’s Amended Complaint filed on May 07, 1999 is hereby admitted in lieu of the original complaint which is hereby deemed withdrawn for all intents and purposes. Consequently, defendant is given fifteen (15) days after receipt of this Order within which to file its Amended Answer to plaintiff’s Amended Complaint.

2) Defendant’s Motion to Suspend Proceedings is hereby DENIED.

SO ORDERED.9

Petitioner filed with the Court of Appeals a special civil action for certiorari assailing the November 19, 1998 and March 24, 1999 Orders of the court a quo and praying for a temporary restraining order and/or writ of preliminary injunction. The appellate court decreed:

WHEREFORE, the Order dated 19 November 1998 issued by the Regional Trial Court of Makati, Branch 58 in Civil Case No. 98-1342 entitled "E.B. Villarosa &

http://www.lawphil.net/judjuris/juri2007/jul2007/gr_159648_2007.html#fnt9









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Partners Co., Inc. vs. Fluor Daniel, Inc. –Philippines" denying petitioner’s Motion To Dismiss as well as its order of 24 March 1999 denying reconsideration thereof, are bothaffirmed.

Accordingly, the temporary restraining order issued by the Ninth Division of this Court as contained in Resolution dated 25 May 2000 … is hereby lifted.

Costs against petitioner.

SO ORDERED.10

Hence, the instant petition, raising the following issues:

I.

Whether or not the Complaint sufficiently states a cause of action against FDIP [PETITIONER] in light of the jurisprudential tests and guidelines laid down by this Honorable Court.

II.

Whether or not the annexes attached to the Complaint should be considered in determining whether or not VILLAROSA’s [RESPONDENT’S] Complaint sufficiently stated a cause of action against FDIP in light of jurisprudential tests and guidelines laid down by this Honorable Court.

III.

Whether or not the Court of Appeals, in refusing to consider the annexes to the Complaint, erred in failing to appreciate the clear admission of VILLAROSA [RESPONDENT] that payment of its billings was subject to the condition of timely receipt of similar payments from FIL-ESTATE.

IV.

Whether or not the Court of Appeals, in refusing to consider the annexes to the Complaint, failed to appreciate the significance of VILLAROSA’s [RESPONDENT’S] failure to satisfy the required criteria to justify payment under its monthly progress billings.11

Petitioner contends that the complaint utterly and miserably failed to state the operative facts which would give rise to a cause of action against it. Petitioner insists that the annexes attached to respondent’s complaint and other pleadings should be considered in determining respondent’s cause of action, or lack of it, against petitioner. Petitioner maintains that the Court of Appeals committed manifest error

when it refused to consider the annexes to the complaint, showing respondent’s admission that payment of its billings was subject to the condition of timely receipt of similar payments from petitioner.

Respondent, however, counters that its complaint sufficiently stated a cause of action against petitioner and that the annexes attached to the complaint bear no relevance, not having been admitted by stipulation. Respondent asserts that the three elements of a cause of action are all present in this case, namely: (i) legal right of respondent to demand payment from petitioner; (ii) obligation of petitioner to pay respondent; and (iii) failure of petitioner to pay respondent. Respondent stresses that petitioner cannot evade its liability to pay by claiming that payments to respondent are subject to timely receipt of similar payments from Fil-Estate.

The petition is impressed with merit.

Section 2, Rule 2 of the Rules of Civil Procedure provides:

SEC. 2. Cause of action, defined. – A cause of action is the act or omission by which a party violates a right of another.

The essential elements of a cause of action are as follows: 1) A right in favor of the plaintiff by whatever means and under whatever law it arises or is created; 2) An obligation on the part of the defendant not to violate such right; and 3) An act or omission on the part of the defendant in violation of the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of damages or other relief.12

It is, thus, only upon the occurrence of the last element that a cause of action arises, giving the plaintiff a right to file an action in court for recovery of damages or other relief.13 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 the complaint.14 That in determining sufficiency of cause of action, the court takes into account only the material allegations of the complaint and no other, is not a hard and fast rule. In some cases, the court considers the documents attached to the complaint to truly determine sufficiency of cause of action.15

We have ruled that a complaint should not be dismissed for insufficiency of cause of action if it appears clearly from the complaint and its attachments that the plaintiff is entitled to relief.16 The converse is also true. The complaint may be dismissed for lack of cause of action if it is obvious from the complaint and its annexes that the plaintiff is not entitled to any relief.

In this case, we note that annexed to the subject complaint are the three contracts governing the rights and obligations between petitioner and respondent, namely the contract for civil structure and architecture, the contract for plumbing and fire protection, and the contract for millworks. Records show that recurring in each of the








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said contracts is the provision that payment by petitioner shall be subject to its timely receipt of similar payments from Fil-Estate. The said provision, found in each of the aforesaid contracts, is quoted below:

2.0 PRICING BASIS

The Contract Price set forth herein is firm for the duration of the Work and includes all Contractor’s costs, expenses, overhead and profit for complete performance of the Work.

x x x x

…Payment of the billings shall be subject to the timely receipt of similar payments from the client by Fluor Daniel. Any prolonged delay in payment by Fluor Daniel is subject to a suspension of activities by EBV within five (5) work days after proper written notice is provided by contractor to Fluor Daniel.17 (Emphasis supplied.)

On their face, the said attached contracts, which define and delimit the rights and obligations of the parties, clearly require a specific condition before petitioner may be held liable for payment. The complaint, however, failed to state that the said condition had been fulfilled. Without the said condition having taken place, petitioner cannot be said to have breached its obligation to pay.

We thus hold that respondent’s complaint, taken with the contracts annexed to it, failed to pass the test of sufficiency of cause of action. Thus, the said complaint should have been dismissed on the ground of failure to state a cause of action.

WHEREFORE, the petition is GRANTED. The assailed Decision dated October 24, 2002 and the Resolution dated August 25, 2003 of the Court of Appeals in CA-G.R. SP No. 52897, which affirmed the November 19, 1998 and March 24, 1999 Orders of the Regional Trial Court of Makati City, Branch 58 in Civil Case No. 98-1342, areREVERSED AND SET ASIDE.

Costs against respondent.

SO ORDERED.


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