[G.R. No. 73765.

August 26, 1991]
HANG LUNG BANK, LTD., petitioner, vs. HON. FELINTRIYE G.
SAULOG, Presiding Judge, Regional Trial Court, National Capital
Judicial Region, Branch CXLII,Makati, Metro Manila and
CORDOVA CHIN SAN, respondents.
D E C I S I O N
FERNAN, C.J .:
Challenged in this petition for certiorari which is anchored on grave abuse
of discretion, are two orders of the Regional Trial Court, Branch CXLII
at Makati, Metro Manila dismissing the complaint for collection of a sum of
money and denying the motion for reconsideration of the dismissal order on
the ground that petitioner, a Hongkong-based bank, is barred by the General
Banking Act frommaintaining a suit in this jurisdiction.
The records show that on July 18, 1979, petitioner Hang Lung Bank, Ltd.,
which was not doing business in the Philippines, entered into two (2)
continuing guarantee agreements with Cordova Chin San
in Hongkong whereby the latter agreed to pay on demand all sums of money
which may be due the bank from Worlder Enterprises to the extent of the total
amount of two hundred fifty thousand Hongkong dollars (HK $250,000).
[1]

Worlder Enterprises having defaulted in its payment, petitioner filed in the
Supreme Court of Hongkong a collection suit against Worlder Enterprises and
Chin San. Summonses were allegedly served upon Worlder Enterprises and
Chin San at their addresses in Hongkong but they failed to respond thereto.
Consequently, the Supreme Court of Hongkong issued the following:
"JUDGMENT
"THE 14th DAY OF JUNE, 1984
"No notice of intention to defend having been given by the 1st and 2nd Defendants
herein, IT IS THIS DAY ADJUDGED that: -
"(1) the 1st Defendant (Ko Ching Chong Trading otherwise known as
the Worlder Enterprises) do pay the Plaintiff the sum of
HK$1,117,968.36 together with interest on the respective principal sums
of HK$196,591.38, HK$200,216.29, HK$526,557.63, HK$49,350.00 and
HK$3,965.50 at the rates of 1.7% per month (or HK$111.40 per day),
18.5% per annum (or HK$101.48 per day), 1.85% per month (or
HK$324.71 per day), 1.55% per month (or HK$25.50 per day) and 1.7%
per month (or HK$2.25 per day) respectively from 4th May 1984 up to
the date of payment; and
"(2) the 2nd Defendant (Cordova Chin San) do pay the Plaintiff the sum of
HK$279,325.00 together with interest on the principal sum of
HK$250,000.00 at the rate of 1.7% per month (or HK$141.67 per day)
from 4th May 1984 up to the date of payment.
"AND IT IS ADJUDGED that the 1st and 2nd Defendants do pay the Plaintiff
the sum of HK$970.00 fixed costs.
"
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Thereafter, petitioner through counsel sent a demand letter to Chin San at
his Philippine address but again, no response was made thereto. Hence, on
October 18, 1984, petitioner instituted in the court below an action seeking
"the enforcement of its just and valid claims against private respondent, who is
a local resident, for a sum of money based on a transaction which was
perfected, executed and consummated abroad".
[2]

In his answer to the complaint, Chin San raised as affirmative defenses:
lack of cause of action, incapacity to sue and improper venue.
[3]

Pre-trial of the case was set for June 17, 1985 but it was postponed to July
12, 1985. However, a day before the latter pre-trial date, Chin San filed a
motion to dismiss the case and to set the same for hearing the next day. The
motion to dismiss was based on the grounds that petitioner had no legal
capacity to sue and that venue was improperly laid.
Acting on said motion to dismiss, on December 20, 1985, the lower
court
[4]
issued the following order:
"On defendant Chin San Cordova's motion to dismiss, dated July 10, 1985; plaintiff's
opposition, dated July 12, 1985; defendant's reply, dated July 22, 1985; plaintiff's
supplemental opposition, dated September 13, 1985; and defendant's rejoinder filed
on September 23, 1985, said motion to dismiss is granted.
"Section 14, General Banking Act provides:
`No foreign bank or banking corporation formed, organized or existing under any
laws other than those of the Republic of the Philippines, shall be permitted to transact
business in the Philippines, or maintain by itself any suit for the recovery of any debt,
claims or demands whatsoever until after it shall have obtained, upon order of the
Monetary Board, a license for that purpose.'
"Plaintiff Hang Lung Bank, Ltd. with business and postal address at the 3rd Floor,
United Centre, 95 Queensway, Hongkong, does not do business in the
Philippines. The continuing guarantee, Annexes „A‟ and 'B' appeared to have been
transacted in Hongkong. Plaintiff's Annex 'C' shows that it had already obtained
judgment from the Supreme Court of Hongkong against defendant involving the same
claim on June 14, 1984.
"The cases of Mentholatum Company, Inc. versus Mangaliman, 72 Phil. 524 and
Eastern Seaboard Navigation, Ltd. versus Juan Ysmael & Company, Inc., 102 Phil. 1-
8, relied upon by plaintiff, deal with isolated transaction in the Philippines of foreign
corporation. Such transaction though isolated is the one that conferred jurisdiction to
Philippine courts, but in the instant case, the transaction occurred in Hongkong.
"Case dismissed. The instant complaint not the proper action.
"SO ORDERED."
[5]

Petitioner filed a motion for the reconsideration of said order but it was
denied for lack of merit.
[6]
Hence, the instant petition for certiorari seeking the
reversal of said orders ―so as to allow petitioner to enforce through the court
below its claims against private respondent as recognized by
the Supreme Court of Hongkong".
[7]

Petitioner asserts that the lower court gravely abused its discretion in: (a)
holding that the complaint was not the proper action for purposes of collecting
the amount guaranteed by Chin San "as recognized and adjudged by the
Supreme Court of Hongkong;" (b) interpreting Section 14 of the General
Banking Act as precluding petitioner from maintaining a suit before Philippine
courts because it is a foreign corporation not licensed to do business in the
Philippines despite the fact that it does not do business here, and (c) impliedly
sustaining private respondent's allegation of improper venue.
We need not detain ourselves on the issue of improper venue. Suffice it to
state that private respondent waived his right to invoke it when he forthwith
filed his answer to the complaint thereby necessarily implying submission to
the jurisdiction of the court.
[8]

The resolution of this petition hinges on a determination of whether
petitioner foreign banking corporation has the capacity to file the action below.
Private respondent correctly contends that since petitioner is a bank, its
capacity to file an action in this jurisdiction is governed by the General
Banking Act (Republic Act No. 337), particularly Section 14 thereof which
provides:
"SEC. 14. No foreign bank or banking corporation formed, organized or existing
under any laws other than those of the Republic of the Philippines shall be permitted
to transact business in the Philippines, or maintain by itself or assignee any suit for the
recovery of any debt, claims, or demand whatsoever, until after it shall have obtained,
upon order of the Monetary Board, a license for that purpose from the Securities and
Exchange Commissioner. Any officer, director or agent of any such corporation who
transacts business in the Philippines without the said license shall be punished by
imprisonment for not less than one year nor more than ten years and by a fine of not
les than one thousand pesos nor more than ten thousand pesos." (45 O.G. No. 4, 1647,
1649-1650)
In construing this provision, we adhere to the interpretation given by this
Court to the almost identical Section 69 of the old Corporation Law (Act No.
1459) which reads:
"SEC. 69. No foreign corporation or corporation formed, organized, or existing under
any laws other than those of the Philippines shall be permitted to transact business in
the Philippines or maintain by itself or assignee any suit for the recovery of any debt,
claim, or demand whatever, unless it shall have the license prescribed in the section
immediately preceding. Any officer, director or agent of the corporation or any person
transacting business for any foreign corporation not having the license prescribed
shall be punished by imprisonment for not less than six months nor more than two
years or by a fine of not less than two hundred pesos nor more than one thousand
pesos, or by both such imprisonment and fine, in the discretion of the Court."
In a long line of cases, this Court has interpreted this last quoted provision
as not altogether prohibiting a foreign corporation not licensed to do business
in the Philippines from suing or maintaining an action in Philippine
courts.
[9]
What it seeks to prevent is a foreign corporation doing business in
the Philippines without a license from gaining access to Philippine courts. As
elucidated in Marshall-Wells Co. vs. Elser & Co., 46 Phil. 70,
"The object of the statute was to subject the foreign corporation doing business in
the Philippines to the jurisdiction of its courts. The object of the statute was not to
prevent it from performing single acts but to prevent itfrom acquiring a domicile for
the purpose of business without taking the steps necessary to render it amenable to
suit in the local courts. The implication of the law is that it was never the purpose of
the Legislature to exclude a foreign corporation which happens to obtain an isolated
order for business from the Philippines from securing redress from Philippine courts,
and thus, in effect, to permit persons to avoid their contract made with such foreign
corporation. The effect of the statute preventing foreign corporations from doing
business and from bringing actions in the local courts, except on compliance with
elaborate requirements, must not be unduly extended or improperly applied. It should
not be contrued to extend beyond the plain meaning of its terms, considered in
connection with its object, and in connection with the spirit of the entire law."
The fairly recent case
of Universal Shipping Lines vs. Intermediate Appellate Court,
[10]
although
dealing with the amended version of Section 69 of the old Corporation Code,
Section 133 of the Corporation Code (Batas Pambansa Blg. 68), but which is
nonetheless apropos, states the rule succinctly: ―it is not the lack of the
prescribed license (to do business in the Philippines) but doing business
without license, which bars a foreign corporation from access to our courts".
Thus, we have ruled that a foreign corporation not licensed to do business
in the Philippines may file a suit in this country due to the collision
of two vessels at the harbor of Manila
[11]
and for the loss of goods bound
for Hongkong but erroneously discharged in Manila.
[12]

Indeed, the phraseologies of Section 14 of the General Banking Act and
its almost identical counterpart Section 69 of the old Corporation Code are
misleading in that they seem to require a foreign corporation, including a
foreign bank or banking corporation, not licensed to do business and
not doing business in the Philippines to secure a license from the Securities
and Exchange Commission before it can bring or maintain an action in
Philippine courts. To avert such misimpression, Section 133 of
the Corporation Code is now more plainly worded thus:
"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."
Under this provision, we have ruled that a foreign corporation may sue in
this jurisdiction for infringement of trademark and unfair competition although
it is not doing business in the Philippines
[13]
because the Philippines was a party
to the Convention of the Union of Paris for the Protection of Industrial
Property.
[14]

We even went further to say that a foreign corporation not licensed to do
business in the Philippines may not be denied the right to file an action in our
courts for an isolated transaction in this country.
[15]

Since petitioner foreign banking corporation was not doing business in
the Philippines, it may not be denied the privilege of pursuing its claims
against private respondent for a contract which was entered into and
consummated outside the Philippines. Otherwise we will be hampering the
growth and development of business relations between Filipino citizens and
foreign nationals. Worse, we will be allowing the law to serve as a protective
shield for unscrupulous Filipino citizens who have business relationships
abroad.
In its pleadings before the court, petitioner appears to be in a quandary as
to whether the suit below is one for enforcement or recognition of
the Hongkong judgment. Its complaint states:
"COMES NOW Plaintiff, by undersigned counsel, and to this Honorable Court, most
respectfully alleges that:
"1. Plaintiff is a corporation duly organized and existing under and by virtue
of the laws of Hongkong with business and postal address at the 3rd
Floor, United Centre, 95 Queensway, Hongkong, not doing business in
the Philippines, but is suing for this isolated transaction, but for purposes
of this complaint may be served with summons and legal processes of this
Honorable Court, at the 6th Floor, CibelesBuilding, 6780 Ayala
Avenue, Makati, Metro Manila, while defendant Cordova Chin San, may
be served with summons and other legal processes of this Honorable
Court at the Municipality of Moncada, Province of Tarlac, Philippines;
“2. On July 18, 1979 and July 25, 1980, the defendant executed Continuing
Guarantees, in consideration of plaintiff's from time to time making
advances, or coming to liability or discounting bills or otherwise giving
credit or granting banking facilities from time to time to, or on account of
the Wolder Enterprises (sic), photocopies of the Contract of Continuing
Guarantees are hereto attached as Annexes 'A' and 'B', respectively, and
made parts hereof;
“3. In June 1984, a complaint was filed by plaintiff against
the Wolder Enterprises (sic) and defendant Cordova Chin San, in The
Supreme Court of Hongkong, under Case No. 3176, and pursuant to
which complaint, a judgment dated 14th day of July, 1984 was rendered
by The Supreme Court of Hongkong ordering to (sic) defendant Cordova
Chin San to pay the plaintiff the sum of HK$279,325.00 together with
interest on the principal sum of HK$250,000.00 at the rate of HK$1.7%
per month or (HK$141.67) per day from 4th May, 1984 up to the date the
said amount is paid in full, and to pay the sum of HK$970.00 as fixed
cost, a photocopy of the Judgment rendered by The Supreme Court
of Hongkong is hereto attached as Annex 'C' and made an integral part
hereof;
“4. Plaintiff has made demands upon the defendant in this case to pay the
aforesaid amount the last of which is by letter dated July 16, 1984 sent by
undersigned counsel, a photocopy of the letter of demand is hereto
attached as Annex 'D' and the Registry Return Card hereto attached as
Annex „E‟ respectively, and made parts hereof. However, this notwith-
standing, defendant failed and refused and still continue to fail and
refuse to make any payment to plaintiff on the aforesaid amount
of HK$279,325.00 plus interest on the principal sum
of HK$250,000.00 at the rate of (HK$141.67) per day from May 4, 1984
up to the date of payment;
“5. In order to protect and safeguard the rights and interests of herein
plaintiff, it has engaged the services of undersigned counsel, to file the
suit at bar, and for whose services it has agreed to pay an amount
equivalent to 25% of the total amount due and owing, as of and by way of
attorney's fees plus costs of suit.
"WHEREFORE, premises considered, it is most respectfully prayed of this Honorable
Court that judgment be rendered ordering the defendant:
“a) To pay plaintiff the sum of HK$279,325.00 together with interest on the
principal sum of HK$250,000.00 at the rate of HK$1.7% (sic) per month
(or HK$141.67 per day) from May 4, 1984 until the aforesaid amount is
paid in full;
“b) To pay an amount equivalent to 25% of the total amount due and
demandable as of and by way of attorney's fees, and
“c) To pay costs of suit, and
"Plaintiff prays for such other and further reliefs, to which it may by law and equity,
be entitled."
[16]

The complaint therefore appears to be one for the enforcement of
the Hongkong judgment because it prays for the grant of the affirmative relief
given by said foreign judgment.
[17]
Although petitioner asserts that it is merely
seeking the recognition of its claims based on the contract sued upon and not
the enforcement of the Hongkong judgment,
[18]
it should be noted that in the
prayer of the complaint, petitioner simply copied the Hongkong judgment with
respect to private respondent's liability.
However, a foreign judgment may not be enforced if it is not recognized in
the jurisdiction where affirmative relief is being sought. Hence, in the interest
of justice, the complaint should be considered as a petition for the recognition
of the Hongkong judgment under Section 50 (b), Rule 39 of the Rules of
Court in order that the defendant, private respondent herein, may present
evidence of lack of jurisdiction, notice, collusion, fraud or clear mistake of fact
and law, if applicable.
WHEREFORE, the questioned orders of the lower court are hereby set
aside. Civil Case No. 8762 is reinstated and the lower court is directed to
proceed with dispatch in the disposition of said case. This decision is
immediately executory. No costs.
SO ORDERED.
Gutierrez, Jr., Bidin, and Davide, Jr., JJ., concur.
Feliciano, J., on leave.

G.R. No. 73722 February 26, 1990
THE COMMISSIONER OF CUSTOMS, petitioner,
vs.
K.M.K. GANI, INDRAPAL & CO., and the HONORABLE COURT OF TAX
APPEALS, respondents.
Armando S. Padilla for private respondent.

SARMIENTO, J .:
This is a review of the decision of the Court of Tax Appeals disposing as follows:
WHEREFORE. the subject ten (10) cartons of articles are hereby released to the
carrying airline for immediate transshipment to the country of destination under the
terms of the contract of carriage. No costs.
SO ORDERED.
1

The pertinent facts may be summarized thus:
On September 11, 1982, two (2,) containers loaded with 103 cartons of merchandise covered by
eleven (11) airway bills of several supposedly Singapore-based consignees arrived at the Manila
International Airport on board Philippine Air Lines (PAL) Flight PR 311 from Hongkong. The cargoes
were consigned to these different entities: K.M.K. Gani (hereafter referred to as K.M.K.) and Indrapal
and Company (hereafter referred to as INDRAPAL), the private respondents in the petition before
us; and Sin Hong Lee Trading Co., Ltd., AAR TEE Enterprises, and C. Ratilal all purportedly based
in Singapore.
While the cargoes were at the Manila International Airport, a "reliable source" tipped off the Bureau
of customs that the said cargoes were going to be unloaded in Manila. Forthwith, the Bureau's
agency on such matters, the Suspected Cargo and Anti-Narcotics (SCAN), dispatched an agent to
verify the information. Upon arriving at the airport, the SCAN agent saw an empty PAL van parked
directly alongside the plane's belly from which cargoes were being unloaded. When the SCAN agent
asked the van's driver why he was at the site, the driver drove away in his vehicle. The SCAN agent
then sequestered the unloaded cargoes.
The seized cargoes consisted of 103 cartons "containing Mogadon and Mandrax tablets, Sony T.V.
sets 1546R/176R kw, Sony Betamax SL5800, and SL5000, Cassette Stereos with Headphone (ala
walkman), Casio Calculators, Pioneer Car Stereos, Yamaha Watches, Eyeglass Frames,
Sunglasses, Plastic Utility Bags, Perfumes, etc." These goods were transferred to the International
Cargo Terminal under Warrant of Seizure and Detention and thereafter subjected to Seizure and
Forfeiture proceedings for "technical smuggling."
At the hearing, Atty. Armando S. Padilla entered his appearance for the consignees K.M.K. and
INDRAPAL. The records of the case do not show any appearance of the consignees in person.
Atty. Padilla moved for the transshipment of the cargoes consigned to his clients. On the other
hand, the Solicitor General avers that K.M.K. and INDRAPAL did not present any testimonial or
documentary evidence. The, collector of Customs at the then Manila International Airport (MIA),
now Ninoy Aquino International Airport (NAIA), ruled for the forfeiture of all the cargoes in the
said containers (Seizure Identification No. 4993-82, dated July 14, 1983). Consequently, Atty.
Padilla, ostensibly on behalf of his two clients, K.M.K. and INDRAPAL, appealed the order to the
Commissioner. of Customs.
2

The Commissioner of Customs affirmed the finding of the Collector of Customs (Customs Case
No. 83-85, January, 1984), of the presence of the intention to import the said goods in violation
of the Dangerous Drugs Act
3
and Central Bank Circular No. 808 in relation to the Tariff and
Customs Code.
4

The Commissioner added the following findings of fact:
5

1. There is a direct flight from Hongkong to Singapore, thus making the transit
through Manila more expensive, tedious, and circuitous.
2. The articles were grossly misdeclared, considering that Singapore is a free port.
3. The television sets and betamax units seized were of the American standard
which is popularly used in Manila, and not of the European standard which is used in
Singapore.
4. One of the shippers is a Filipino national with no business connection with her
alleged consignee in Singapore.
5. The alleged consignee of the prohibited drugs confiscated has no authority to
import Mogadon or Mandrax.
Upon these findings, the Commissioner concluded that there was an "intent to unlade" in Manila,
thus, an attempt to smuggle goods into the country.
Taking exception to these findings, Atty. Armando S. Padilla, again as counsel of the
consignees K.M.K. and Indrapal, appealed to the respondent Court of Tax Appeals (CTA). He
argued in the CTA that K.M.K. and INDRAPAL were "entitled to the release of their cargoes for
transshipment to Singapore so manifested and covered by the Airway bills as in transit, ...
contending that the goods were never intended importations into the Philippines and the same
suffer none of any affiliating breaches allegedly found attributable to the other shipments under
the Customs and related laws."
6

The CTA reversed the decision of the Commissioner of Customs. Hence this petition.
The petitioner raises the following errors:
1. THE COURT OF TAX APPEALS ERRED IN ENTERTAINING THE
PETITION FOR REVIEW NOTWITHSTANDING HEREIN PRIVATE
RESPONDENTS' FAILURE TO ESTABLISH THEIR PERSONALITY
TO SUE IN A REPRESENTATIVE CAPACITY.
2. THE COURT OF TAX APPEALS ERRED IN RULING THAT THE
SUBJECT GOODS WERE IMPORTATIONS NOT INTENDED FOR
THE PHILIPPINES BUT FOR SINGAPORE, THUS, NOT
VIOLATING THE LAW ON TECHNICAL SMUGGLING UNDER THE
TARIFF AND CUSTOMS CODE.
The issues before us are therefore: (1) whether or not the private respondents failed to establish
their personality to sue in a representative capacity, hence making their action dismissable, and (2)
whether or not the subject goods were importations intended for the Philippines in violation of the
Tariff and Customs Code.
We answer both questions in the affirmative.
The law is clear: "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."
7

However, the Court in a long line of cases has held that a foreign corporation not engaged in
business in the Philippines may not be denied the right to file an action in the Philippine courts
for an isolated transaction.
8

Therefore, the issue on whether or not a foreign corporation which does not have a license to
engage in business in this country can seek redress in Philippine courts boils down as to whether it
is doing business or merely entered into an isolated transaction in the Philippines.
The fact that a foreign corporation is not doing business in the Philippines must be disclosed if it
desires to sue in Philippine courts under the "isolated transaction rule." Without this disclosure,
the court may choose to deny it the right to sue.
9

In the case at bar, the private respondents K.M.K. and INDRAPAL aver that they are "suing upon a
singular and isolated transaction." But they failed to prove their legal existence or juridical personality
as foreign corporations. Their unverified petition before the respondent Court of Tax Appeals merely
stated:
1. That petitioner "K.M.K. Gani" is a single proprietorship doing
business in accordance with the laws of Singapore with address at 99
Greenfield Drive, Singapore, Rep. of Singapore, while Petitioner
INDRAPAL and COMPANY" is a firm doing business in accordance
with the laws of Singapore with office address at 97 High Street,
Singapore 0641, Republic of Singapore, and summons as well as
other Court process may be served to the undersigned lawyer;
2. That the Petitioner's (sic) are sueing (sic) upon a singular and isolated
transaction.
10

We are cognizant of the fact that under the "isolated transaction rule," only foreign corporations and
not just any business organization or entity can avail themselves of the privilege of suing before
Philippine courts even without a license. Counsel Armando S. Padilla stated before the respondent
Court of Tax Appeals that his clients are "suing upon a singular and isolated transaction." But there
is no proof to show that K.M.K. and INDRAPAL are indeed what they are represented to be. It has
been simply stated by Attorney Padilla that K.M.K. Gani is "a single proprietorship," while INDRAPAL
is "a firm," and both are "doing business in accordance with the laws of Singapore ... ," with specified
addresses in Singapore. In cases of this nature, these allegations are not sufficient to clothe a
claimant of suspected smuggled goods of juridical personality and existence. The "isolated
transaction rule" refers only to foreign corporations. Here the petitioners are not foreign corporations.
They do not even pretend to be so. The first paragraph of their petition before the Court, containing
the allegation of their identities, does not even aver their corporate character. On the contrary,
K.M.K. alleges that it is a "single proprietorship" while INDRAPAL hides under the vague
identification as a "firm," although both describe themselves with the phrase "doing business in
accordance with the laws of Singapore."
Absent such proof that the private respondents are corporations (foreign or not), the respondent
Court of Tax Appeals should have barred their invocation of the right to sue within Philippine
jurisdiction under the "isolated transaction rule" since they do not qualify for the availment of such
right.
As we had stated before:
But merely to say that a foreign corporation not doing business in the Philippines does
not need a license in order to sue in our courts does not completely resolve the issue in
the present case. The proposition as stated, refers to the right to sue; the question here
refers to pleading and procedure. It should be noted that insofar as the allegations in the
complaint have a bearing on appellant's capacity to sue, all that is averred is that they are
both foreign corporations existing under the laws of the United States. This averment
conjures two alternative possibilities: either they are engaged in business in the
Philippines or they are not so engaged. If the first, they must have been duly licensed in
order to maintain this suit; if the second, if (sic) the transaction sued upon is singular and
isolated, no such license is required. In either case, the qualifying circumstance is an
essential part of the element of plaintiffs capacity to sue and must be affirmatively
pleaded.
11

In this connection, we note also a fatal defect in the pleadings of the private respondents. There is
no allegation as to who is the duly authorized representative or resident agent in our jurisdiction. All
we have on record are the pleadings filed by Attorney Armando S. Padilla who represents himself as
the counsel for the private respondents.
xxx xxx xxx
It is incumbent on plaintiff to allege sufficient facts to show that he is concerned with
the cause of action averred, and is the party who has suffered injury by reason of the
acts of defendant; in other words, it is not enough that he alleges a cause of action
existing in favor of someone, but he must show that it exists in favor of himself. The
burden should not be placed on defendant to show that plaintiff is not the aggrieved
person and that he has sustained no damages. It is also necessary for plaintiff to
allege facts showing that the causes of action alleged accrued to him in the capacity
in which he sues, and for this purpose it is necessary for someone for one who sues
otherwise than in his individual capacity to allege his authority.
xxx xxx xxx
The plaintiff must show, in his pleading, his right and interest in the subject matter of the
suit; and a complaint which does not show that plaintiff has the requisite interest to
enable him to maintain his action should be dismissed for insufficiency ...
12

xxx xxx xxx
The appearance of Atty, Armando S. Padilla as counsel for the two claimants would not suffice.
Generally, a "lawyer is presumed to be properly authorized to represent any cause in which he
appears, and no written power of attorney is required to authorize him to appear in court for his
client."
13
Nevertheless, although the authority of an attorney to appear for and on behalf of a
party may be assumed, it can still be questioned or challenged by the adverse party
concerned.
14

The presumption established under the provision of Section 21, Rule 138 of the Revised Rules
of Court is disputable.
15
The requirement for the production of authority is essential because the
client will be bound by his acquiescence resulting from his knowledge that he was being
represented by said attorney.
16

The Solicitor General, representing the petitioner-appellant, not only questions the authority of Atty.
Armando S. Padilla to represent the private respondents but also the latter's capacity to sue:
... While it is alleged that the summons and court processes may be served to herein
private respondents' counsel who filed the unverified petition before the Court of Tax
Appeals, the allegation would be insufficient for the purpose of binding foreign
corporations as in the instant case. To be sure, the admitted absence of special
power of attorney in favor of their counsel, the relationship with the latter, if at all, is
merely that of a lawyer-client relationship and definitely not one of a principal agent.
Such being the case, said counsel cannot bind nor compromise the interest of private
respondents as it is possible that the latter may disown the former's representation to
avoid civil or criminal liability. In this respect, the Court cannot assume jurisdiction
over the person of private respondents, notwithstanding the filing of the unverified
petition in question.
Apart from the foregoing, Section 4, Rule 8, Revised Rules of Court mandates that facts
showing the capacity of a party to sue or be sued; or the authority of a party to sue or be
sued in a representative capacity; or the legal existence of an organized association of
person (sic) that is made a party, must be averred. In like manner, the rule is settled that
in case where the law denies a foreign corporation to maintain a suit unless it has
previously complied with certain requirements, then such compliance or exemption
therefrom, becomes a necessary averment in the complaint (Atlantic Mutual Inc. Co. v.
Cebu Stevedoring Co., Inc. 17 SCRA 1037; vide; Sec. 4, Rule 8, Revised Rules of
Court). In the case at bar, apart from merely alleging that private respondents are foreign
corporation (sic) and that summons may be served to their counsel, their petition in the
Court of Tax Appeals is bereft of any other factual allegation to show their capacity to sue
or be sued in a representative capacity in his jurisdiction.
17

The representation and the extent of the authority of Atty. Padilla have thus been expressly
challenged. But he ignored such challenge which leads us to the only conclusion that he has no
authority to appear for such clients if they exist, which we even doubt. In cases like this, it is the duty
of the government officials concerned to require competent proof of the representation and authority
of any claimant of any goods coming from abroad and seized by our customs authorities or
otherwise appearing to be illegally imported. This desired meticulousness, strictness if you may,
should extend to their representatives and counsel. Our government has lost considerable sums of
money due to such dubious claims or claimants.
Apropos the second issue, suffice it to state that we agree with the findings, already enumerated and
discussed at the outset, made by the Collector of Customs in his decision, dated July 14, 1983,
which was affirmed and amplified by the decision of the Commissioner of Customs, that those
constitute sufficient evidence to support the conclusion that there was an intention to unlade the
seized goods in the Philippines instead of its supposed destination, Singapore. There is no need of
belaboring them anymore.
WHEREFORE, the petition is GRANTED; the decision of the Court of Tax Appeals is SET ASIDE,
and the decision of the petitioner is hereby REINSTATED.
No costs.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Padilla and Regalado, JJ., concur.
G.R. No. L-27906 January 8, 1987
CONVERSE RUBBER CORPORATION, petitioner,
vs.
UNIVERSAL RUBBER PRODUCTS, INC. and TIBURCIO S. EVALLE, DIRECTOR OF
PATENTS,respondents.
Parades, Poblador, Nazareno, Azada & Tomacruz for petitioner.
R E S O L U T I O N

FERNAN, J.:
The undisputed facts of the case are as follows:
Respondent Universal Rubber Products, Inc. filed an application with the Philippine Patent office for
registration of the trademark "UNIVERSAL CONVERSE AND DEVICE" used on rubber shoes and
rubber slippers.
Petitioner Converse Rubber Corporation filed its opposition to the application for registration on
grounds that:
a] The trademark sought to be registered is confusingly similar to the word
"CONVERSE" which is part of petitioner's corporate name "CONVERSE RUBBER
CORPORATION" as to likely deceive purchasers of products on which it is to be
used to an extent that said products may be mistaken by the unwary public to be
manufactured by the petitioner; and,
b] The registration of respondent's trademark will cause great and irreparable injury
to the business reputation and goodwill of petitioner in the Philippines and would
cause damage to said petitioner within the, meaning of Section 8, R.A. No. 166, as
amended.
Thereafter, respondent filed its answer and at the pre-trial, the parties submitted the following partial
stipulation of facts:
1] The petitioner's corporate name is "CONVERSE RUBBER CORPORATION" and
has been in existence since July 31, 1946; it is duly organized under the laws of
Massachusetts, USA and doing business at 392 Pearl St., Malden, County of Middle
sex, Massachusetts;
2] Petitioner is not licensed to do business in the Philippines and it is not doing
business on its own in the Philippines; and,
3] Petitioner manufacturers rubber shoes and uses thereon the trademarks "CHUCK
TAYLOR "and "ALL STAR AND DEVICE". 1
At the trial, petitioner's lone witness, Mrs. Carmen B. Pacquing, a duly licensed private merchant
with stores at the Sta. Mesa Market and in Davao City, testified that she had been selling
CONVERSE rubber shoes in the local market since 1956 and that sales of petitioner's rubber shoes
in her stores averaged twelve to twenty pairs a month purchased mostly by basketball players of
local private educational institutions like Ateneo, La Salle and San Beda.
Mrs. Pacquing, further stated that she knew petitioner's rubber shoes came from the United
States "because it says there in the trademark Converse Chuck Taylor with star red or blue and
is a round figure and made in U.S.A. "
2
In the invoices issued by her store, the rubber shoes
were described as "Converse Chuck Taylor",
3
"Converse All Star,"
4
"All Star Converse Chuck
Taylor,"
5
or "Converse Shoes Chuck Taylor."
6
She also affirmed that she had no business
connection with the petitioner.
Respondent, on the other hand, presented as its lone witness the secretary of said corporation who
testified that respondent has been selling on wholesale basis "Universal Converse" sandals since
1962 and "Universal Converse" rubber shoes since 1963. Invoices were submitted as evidence of
such sales. The witness also testified that she had no Idea why respondent chose "Universal
Converse" as a trademark and that she was unaware of the name "Converse" prior to her
corporation's sale of "Universal Converse" rubber shoes and rubber sandals.
Eventually, the Director of Patents dismissed the opposition of the petitioner and gave due course to
respondent's application. His decision reads in part:
... the only question for determination is whether or not the applicant's partial
appropriation of the Opposer's [petitioner'] corporate name is of such character that
in this particular case, it is calculated to deceive or confuse the public to the injury of
the corporation to which the name belongs ...
I cannot find anything that will prevent registration of the word 'UNIVERSAL
CONVERSE' in favor of the respondent. In arriving at this conclusion, I am guided by
the fact that the opposer failed to present proof that the single word "CONVERSE' in
its corporate name has become so Identified with the corporation that whenever
used, it designates to the mind of the public that particular corporation.
The proofs herein are sales made by a single witness who had never dealt with the
petitioner . . . the entry of Opposer's [petitioner's] goods in the Philippines were not
only effected in a very insignificant quantity but without the opposer [petitioner]
having a direct or indirect hand in the transaction so as to be made the basis for
trademark pre- exemption.
Opposer's proof of its corporate personality cannot establish the use of the word
"CONVERSE" in any sense, as it is already stipulated that it is not licensed to do
business in the Philippines, and is not doing business of its own in the Philippines. If
so, it will be futile for it to establish that "CONVERSE" as part of its corporate name
Identifies its rubber shoes. Besides, it was also stipulated that opposer [petitioner], in
manufacturing rubber shoes uses thereon the trademark "CHUCK TAYLOR" and
"ALL STAR and DEVICE" and none other.
Furthermore, inasmuch as the Opposer never presented any label herein, or
specimen of its shoes, whereon the label may be seen, notwithstanding its witness'
testimony touching upon her Identification of the rubber shoes sold in her stores, no
determination can be made as to whether the word 'CONVERSE' appears thereon.
. . .the record is wanting in proof to establish likelihood of confusion so as to cause
probable damage to the Opposer.
7

Its motion for reconsideration having been denied by the respondent Director of Patents, petitioner
instituted the instant petition for review.
As correctly phrased by public respondent Director of Patents, the basic issue presented for our
consideration is whether or not the respondent's partial appropriation of petitioner's corporate name
is of such character that it is calculated to deceive or confuse the public to the injury of the petitioner
to which the name belongs.
A trade name is any individual name or surname, firm name, device or word used by
manufacturers, industrialists, merchants and others to Identify their businesses, vocations
or occupations.
8
As the trade name refers to the business and its goodwill ... the
trademark refers to the goods."
9
The ownership of a trademark or tradename is a
property right which the owner is entitled to protect "since there is damage to him from
confusion or reputation or goodwill in the mind of the public as well as from confusion of
goods. The modern trend is to give emphasis to the unfairness of the acts and to classify
and treat the issue as fraud. 10
From a cursory appreciation of the petitioner's corporate name "CONVERSE RUBBER
CORPORATION,' it is evident that the word "CONVERSE" is the dominant word which Identifies
petitioner from other corporations engaged in similar business. Respondent, in the stipulation of
facts, admitted petitioner's existence since 1946 as a duly organized foreign corporation engaged in
the manufacture of rubber shoes. This admission necessarily betrays its knowledge of the reputation
and business of petitioner even before it applied for registration of the trademark in question.
Knowing, therefore, that the word "CONVERSE" belongs to and is being used by petitioner, and is in
fact the dominant word in petitioner's corporate name, respondent has no right to appropriate the
same for use on its products which are similar to those being produced by petitioner.
A corporation is entitled to the cancellation of a mark that is confusingly similar to its
corporate name."11"Appropriation by another of the dominant part of a corporate name is
an infringement."12
Respondent's witness had no Idea why respondent chose "UNIVERSAL CONVERSE" as trademark
and the record discloses no reasonable explanation for respondent's use of the word "CONVERSE"
in its trademark. Such unexplained use by respondent of the dominant word of petitioner's corporate
name lends itself open to the suspicion of fraudulent motive to trade upon petitioner's reputation,
thus:
A boundless choice of words, phrases and symbols is available to one who wishes a
trademark sufficient unto itself to distinguish his product from those of others. When,
however, there is no reasonable explanation for the defendant's choice of such a mark
though the field for his selection was so broad, the inference is inevitable that it was
chosen deliberately to deceive. 13
The testimony of petitioner's witness, who is a legitimate trader as well as the invoices
evidencing sales of petitioner's products in the Philippines, give credence to petitioner's claim
that it has earned a business reputation and goodwill in this country. The sales invoices
submitted by petitioner's lone witness show that it is the word "CONVERSE" that mainly
Identifies petitioner's products, i.e. "CONVERSE CHUCK TAYLOR, 14"CONVERSE ALL
STAR," 15 ALL STAR CONVERSE CHUCK TAYLOR," 16 or "CONVERSE SHOES CHUCK and
TAYLOR." 17 Thus, contrary to the determination of the respondent Director of Patents, the word
"CONVERSE" has grown to be Identified with petitioner's products, and in this sense, has
acquired a second meaning within the context of trademark and tradename laws.
Furthermore, said sales invoices provide the best proof that there were actual sales of
petitioner's products in the country and that there was actual use for a protracted period of
petitioner's trademark or part thereof through these sales. "The most convincing proof of use of
a mark in commerce is testimony of such witnesses as customers, or the orders of buyers
during a certain period. 18 Petitioner's witness, having affirmed her lack of business connections
with petitioner, has testified as such customer, supporting strongly petitioner's move for
trademark pre-emption.
The sales of 12 to 20 pairs a month of petitioner's rubber shoes cannot be considered insignificant,
considering that they appear to be of high expensive quality, which not too many basketball players
can afford to buy. Any sale made by a legitimate trader from his store is a commercial act
establishing trademark rights since such sales are made in due course of business to the general
public, not only to limited individuals. It is a matter of public knowledge that all brands of goods filter
into the market, indiscriminately sold by jobbers dealers and merchants not necessarily with the
knowledge or consent of the manufacturer. Such actual sale of goods in the local market establishes
trademark use which serves as the basis for any action aimed at trademark pre- exemption. It is a
corollary logical deduction that while Converse Rubber Corporation is not licensed to do business in
the country and is not actually doing business here, it does not mean that its goods are not being
sold here or that it has not earned a reputation or goodwill as regards its products. The Director of
Patents was, therefore, remiss in ruling that the proofs of sales presented "was made by a single
witness who had never dealt with nor had never known opposer [petitioner] x x x without Opposer
having a direct or indirect hand in the transaction to be the basis of trademark pre- exemption."
Another factor why respondent's applications should be denied is the confusing similarity between its
trademark "UNIVERSAL CONVERSE AND DEVICE" and petitioner's corporate name and/or its
trademarks "CHUCK TAYLOR" and "ALL STAR DEVICE" which could confuse the purchasing public
to the prejudice of petitioner,
The trademark of respondent "UNIVERSAL CONVERSE and DEVICE" is imprinted in a circular
manner on the side of its rubber shoes. In the same manner, the trademark of petitioner which
reads "CONVERSE CHUCK TAYLOR" is imprinted on a circular base attached to the side of its
rubber shoes. The deteminative factor in ascertaining whether or not marks are confusingly
similar to each other "is not whether the challenged mark would actually cause confusion or
deception of the purchasers but whether the use of such mark would likely cause confusion or
mistake on the part of the buying public. It would be sufficient, for purposes of the law, that the
similarity between the two labels is such that there is a possibility or likelihood of the purchaser
of the older brand mistaking the new brand for it." 19 Even if not an the details just mentioned
were identical, with the general appearance alone of the two products, any ordinary, or even
perhaps even [sic] a not too perceptive and discriminating customer could be deceived ... "
20

When the law speaks co-purchaser," the reference is to ordinary average purchaser.
21
It is not
necessary in either case that the resemblance be sufficient to deceive experts, dealers, or other
persons specially familiar with the trademark or goods involve."
22

The similarity y in the general appearance of respondent's trademark and that of petitioner
would evidently create a likelihood of confusion among the purchasing public. But even
assuming, arguendo, that the trademark sought to be registered by respondent is distinctively
dissimilar from those of the petitioner, the likelihood of confusion would still subsists, not on the
purchaser's perception of the goods but on the origins thereof. By appropriating the word
"CONVERSE," respondent's products are likely to be mistaken as having been produced by
petitioner. "The risk of damage is not limited to a possible confusion of goods but also includes
confusion of reputation if the public could reasonably assume that the goods of the parties
originated from the same source.
23

It is unfortunate that respondent Director of Patents has concluded that since the petitioner is not
licensed to do business in the country and is actually not doing business on its own in the
Philippines, it has no name to protect iN the forum and thus, it is futile for it to establish that
"CONVERSE" as part of its corporate name identifies its rubber shoes. That a foreign corporation
has a right to maintain an action in the forum even if it is not licensed to do business and is not
actually doing business on its own therein has been enunciated many times by this Court. In La
Chemise Lacoste, S.A. vs. Fernandez, 129 SCRA 373, this Court, reiterating Western Equipment
and Supply Co. vs. Reyes, 51 Phil. 115, stated that:
... a foreign corporation which has never done any business in the Philippines and
which is unlicensed and unregistered to do business here, but is widely and favorably
known in the Philippines through the use therein of its products bearing its corporate
and tradename, has a legal right to maintain an action in the Philippines to restrain
the residents and inhabitants thereof from organizing a corporation therein bearing
the same name as the foreign corporation, when it appears that they have personal
knowledge of the existence of such a foreign corporation, and it is apparent that the
purpose of the proposed domestic corporation is to deal and trade in the same goods
as those of the foreign corporation.
We further held:
xxx xxx xxx
That company is not here seeking to enforce any legal or control
rights arising from or growing out of, any business which it has
transacted in the Philippine Islands. The sole purpose of the action:
Is to protect its reputation, its corporate name, its goodwill whenever
that reputation, corporate name or goodwill have, through the natural
development of its trade, established themselves.' And it contends
that its rights to the use of its corporate and trade name:
Is a property right, a right in recess which it may assert and protect
against all the world, in any of the courts of the world even in
jurisdictions where it does not transact business-just the same as it
may protect its tangible property, real or personal against trespass, or
conversion. Citing sec. 10, Nims on Unfair Competition and
Trademarks and cases cited; secs. 21-22, Hopkins on Trademarks,
Trade Names and Unfair Competition and cases cited That point is
sustained by the authorities, and is well stated in Hanover Star Milling
Co. vs. Allen and Wheeler Co. [208 Fed., 5131, in which the syllabus
says:
Since it is the trade and not the mark that is to be protected, a
trademark acknowledges no territorial boundaries of municipalities or
states or nations, but extends to every market where the trader's
goods have become known and Identified by the use of the mark.
The ruling in the aforecited case is in consonance with the Convention of the Union of Paris for the
Protection of Industrial Property to which the Philippines became a party on September 27, 1965.
Article 8 thereof provides that "a trade name [corporate name] shall be protected in all the countries
of the Union without the obligation of filing or registration, whether or not it forms part of the
trademark. " [emphasis supplied]
The object of the Convention is to accord a national of a member nation extensive protection
"against infringement and other types of unfair competition" [Vanitary Fair Mills, Inc. vs. T. Eaton Co.,
234 F. 2d 6331.
The mandate of the aforementioned Convention finds implementation in Sec. 37 of RA No. 166,
otherwise known as the Trademark Law:
Sec. 37. Rights of Foreign Registrants-Persons who are nationals of, domiciled or
have a bona fide or effective business or commercial establishment in any foreign
country, which is a party to an international convention or treaty relating to marks or
tradenames on the repression of unfair competition to which the Philippines may be a
party, shall be entitled to the benefits and subject to the provisions of this Act . . . ...
Tradenames of persons described in the first paragraph of this section shall be
protected without the obligation of filing or registration whether or not they form parts
of marks. [emphasis supplied]
WHEREFORE, the decision of the Director of Patents is hereby set aside and a new one entered
denying Respondent Universal Rubber Products, Inc.'s application for registration of the trademark
"UNIVERSAL CONVERSE AND DEVICE" on its rubber shoes and slippers.
SO ORDERED.
Feria (Chairman), Alampay, Gutierrez, Jr. and Paras, JJ., concur.
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."
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.:
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 representativesor 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 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 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.
Padilla, Regalado and Nocon, JJ., concur.
Paras, J., Retired as of July 4, 1992.
G.R. No. L-55687 July 30, 1982
JUASING HARDWARE, petitioner,
vs.
THE HONORABLE RAFAEL T. MENDOZA, Judge of the Court of First Instance of Cebu, and
PILAR DOLLA, respondents.
Luis V. Diones, Paulito Y. Cabrera and Victor C. Laborte for petitioner.
Amadeo D. Seno for respondents.

GUERRERO, J .:
In this special civil action for certiorari, petitioner Juasing Hardware seeks to annul the Orders of
respondent Judge dated September 5, 1980 and October 21, 1980 issued in Civil Case No. R-
18386.
Records show the pertinent factual and procedural antecedents of the instant Petition to be as
follows:
On August 17, 1979, Juasing Hardware, alleging to be a single proprietorship duly organized
and existing under and by virtue of the laws of the Philippines and represented by its manager
Ong Bon Yong, filed a complaint for the collection of a sum of money against Pilar Dolla.
1
The
complaint charged that defendant Dolla failed and refused to pay, despite repeated demands,
the purchase price of items, materials and merchandise which she bought from the plaintiff.
2
In
her Answer, defendant stated, among others, that she "has no knowledge about plaintiff's legal
personality and capacity to sue as alleged in ... the complaint."
3
The case proceeded to pre-trial
and trial. After plaintiff had completed the presentation of its evidence and rested its case,
defendant filed a Motion for Dismissal of Action (Demurrer to Evidence)
4
praying that the action
be dismissed for plaintiff's lack of legal capacity to sue. Defendant in said Motion contended that
plaintiff Juasing Hardware is a single proprietorship, not a corporation or a partnership duly
registered in accordance with law, and therefore is not a juridical person with legal capacity to
bring an action in court. Plaintiff filed an Opposition and moved for the admission of an
Amended Complaint.
5

Resolving the foregoing controversy, respondent Judge issued the Order dated September 5, 1980
dismissing the case and denying admission of the Amended Complaint. Pertinent portions of said
Order follow:
The Answer of the defendant to the complaint alleged the lack of legal capacity to
sue of the plaintiff as contained in its affirmative defense. inspite of the allegation that
plaintiff has no legal capacity to sue, the plaintiff insisted in proceeding to trial instead
of amending the Complaint. During the trial, it was found out that the affirmative
defense of defendant of plaintiff's lack of legal capacity to sue is very evident for
plaintiff Juasing Hardware is a single proprietorship which is neither a partnership nor
a corporation. The amendment therefore ' is now too late it being substantial.
In view of all the foregoing, this case is hereby DISMISSED with costs de oficio.
6

Plaintiff's Motion for Reconsideration of the above Order was denied in another Order issued by
respondent Judge on October 21, 1980.
7

The sole issue in this case is whether or not the lower court committed a grave abuse of discretion
when it dismissed the case below and refused to admit the Amended Complaint filed by therein
plaintiff, now herein petitioner, Juasing Hardware.
Rule 3 of the Revised Rules of Court provides as follows:
Sec. 1. Who may be parties.-Only natural or juridical persons or entities authorized
by law may be parties in a civil action.
Petitioner is definitely not a natural person; nor is it a juridical person as defined in the New Civil
Code of the Philippines thus:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose, created
by law; their personality begins as soon as they have been constituted according to
law;
(3) Corporations, partnerships and associations for private interest or purpose to
which the law grants a juridical personality, separate and distinct from that of each
shareholder, partner or member.
Finally, there is no law authorizing sole proprietorships like petitioner to bring suit in court. 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 the proprietor or owner thereof to secure
licenses and permits, register the business name, and pay taxes to the national government. It does
not vest juridical or legal personality upon the sole proprietorship nor empower it to file or defend an
action in court.
Thus, the complaint in the court below should have been filed in the name of the owner of Juasing
Hardware. The allegations in the body of the complaint would show that the suit is brought by such
person AS proprietor or owner of the business conducted under the name and style Juasing
Hardware". The descriptive words "doing business as Juasing Hardware' " may be added in the title
of the case, as is customarily done.
Be that as it may, petitioner's contention that respondent Judge erred in not allowing the amendment
of the complaint to correct the designation of the party plaintiff in the lower court, is impressed with
merit. Such an amendment is authorized by Rule 10 of the Revised Rules of Court which provides
thus:
Sec. 4. Formal Amendments. — A defect in the designation of the parties may be
summarily corrected at any stage of the action provided no prejudice is caused
thereby to the adverse party. (Emphasis supplied.)
Contrary to the ruling of respondent Judge, the defect of the complaint in the instant case is merely
formal, not substantial. Substitution of the party plaintiff would not constitute a change in the Identity
of the parties. No unfairness or surprise to private respondent Dolla, defendant in the court a quo,
would result by allowing the amendment, the purpose of which is merely to conform to procedural
rules or to correct a technical error.
In point is the case of Alonzo vs. Villamor, et al.
8
which applied Sec. 110 of the Code of Civil
Procedure authorizing the court "in furtherance of justice ... (to) allow a party to amend any
pleading or proceeding and at any stage of the action, in either the Court of First Instance or the
Supreme Court, by adding or striking out the name of any party, either plaintiff or defendant, or
by correcting a mistake in the name of a party ..." In theAlonzo case, Fr. Eladio Alonzo, a priest
of the Roman Catholic Church, brought an action to recover from therein defendants the value
of certain properties taken from the Church. The defendants contended that Fr. Alonzo was not
the real party in interest. This Court, speaking through Justice Moreland, ordered the
substitution of the Roman Catholic Apostolic Church in the place and stead of Eladio Alonzo as
party plaintiff, and aptly held in this wise:
... Defect in form cannot possibly prejudice so long as the substantial is clearly
evident. ...
No one has been misled by the error in the name of the party plaintiff. If we should by
reason of this error send this case back for amendment and new trial, there would be
on the retrial the same complaint, the same answer, the same defense, the same
interests, the same witnesses, and the same evidence. The name of the plaintiff
would constitute the only difference between the old trial and the new. In our
judgment there is not enough in a name to justify such action.
There is nothing sacred about processes or pleadings, their forms or contents. Their
sole purpose is to facilitate the application of justice to the rival claims of contending
parties. They were created, not to hinder and delay, but to facilitate and promote, the
administration of justice. They do not constitute the thing itself, which courts are
always striving to secure to litigants. They are designed as the means best adapted
to obtain that thing. In other words, they are a means to an end. When they lose the
character of the one and become the other, the administration of justice is at fault
and courts are correspondingly remiss in the performance of their obvious duty.
The error in this case is purely technical. To take advantage of it for other purposes than
to cure it, does not appeal to a fair sense of justice. Its presentation as fatal to the
plaintiff's case smacks of skill rather than right. A litigation is not a game of technicalities
in which one, more deeply schooled and skilled in the subtle art of movement and
position, entraps and destroys the other. It is, rather, a contest in which each contending
party fully and fairly lays before the court the facts in issue and then, brushing aside as
wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks
that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a
rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant consideration from courts.
There should be no vested rights in technicalities. No litigant should be permitted to
challenge a record of a court ... for defect of form when his substantial rights have not
been prejudiced thereby.
9

We reiterate what this Court had stated in the more recent case of Shaffer vs. Palma
10
that
"(t)he courts should be liberal in allowing amendments to pleadings to avoid multiplicity of suits
and in order that t he real controversies between the parties are presented and the case
decided on the merits without unnecessary delay."
11
This rule applies with more reason and
with greater force when, as in the case at bar, the amendment sought to be made refers to a
mere matter of form and no substantial rights are prejudiced.
12

WHEREFORE, the Petition is hereby granted. The Orders dated September 5, 1980 and October
21, 1980 are hereby annulled and the lower court is hereby ordered to admit the Amended
Complaint in conformity with the pronouncements in this Decision. No costs.
SO ORDERED.
Barredo (Chairman), Concepcion, Jr., Abad Santos, and De Castro, JJ., concur.
Escolin, J., concur in the result.


Separate Opinions

AQUINO, J ., concurring:
I concur. It should appear in the amended complaint (a copy which was not attached to the petition)
that the plaintiff is Ong Hua or Huat, doing business under the tradename, Juasing Hardware, and in
the body of the complaint the personal circumstances of Ong Hua should be stated.
G.R. No. L-58028 April 18, 1989
CHIANG KAI SHEK SCHOOL, petitioner,
vs.
COURT OF APPEALS and FAUSTINA FRANCO OH, respondents.

CRUZ, J .:
An unpleasant surprise awaited Fausta F. Oh when she reported for work at the Chiang Kai Shek
School in Sorsogon on the first week of July, 1968. She was told she had no assignment for the next
semester. Oh was shocked. She had been teaching in the school since 1932 for a continuous period
of almost 33 years. And now, out of the blue, and for no apparent or given reason, this abrupt
dismissal.
Oh sued. She demanded separation pay, social security benefits, salary differentials, maternity
benefits and moral and exemplary damages. 1 The original defendant was the Chiang Kai Shek
School but when it filed a motion to dismiss on the ground that it could not be sued, the
complaint was amended. 2 Certain officials of the school were also impleaded to make them
solidarily liable with the school.
The Court of First Instance of Sorsogon dismissed the complaint. 3 On appeal, its decision was
set aside by the respondent court, which held the school suable and liable while absolving the
other defendants. 4 The motion for reconsideration having been denied, 5 the school then came
to this Court in this petition for review on certiorari.
The issues raised in the petition are:
1. Whether or not a school that has not been incorporated may be sued by reason alone of its long
continued existence and recognition by the government,
2. Whether or not a complaint filed against persons associated under a common name will justify a
judgment against the association itself and not its individual members.
3. Whether or not the collection of tuition fees and book rentals will make a school profit-making and
not charitable.
4. Whether or not the Termination Pay Law then in force was available to the private respondent
who was employed on a year-to-year basis.
5. Whether or not the awards made by the respondent court were warranted.
We hold against the petitioner on the first question. It is true that Rule 3, Section 1, of the Rules of
Court clearly provides that "only natural or juridical persons may be parties in a civil action." It is also
not denied that the school has not been incorporated. However, this omission should not prejudice
the private respondent in the assertion of her claims against the school.
As a school, the petitioner was governed by Act No. 2706 as amended by C.A. No. 180, which
provided as follows:
Unless exempted for special reasons by the Secretary of Public Instruction, any
private school or college recognized by the government shall be incorporated under
the provisions of Act No. 1459 known as the Corporation Law, within 90 days after
the date of recognition, and shall file with the Secretary of Public Instruction a copy of
its incorporation papers and by-laws.
Having been recognized by the government, it was under obligation to incorporate under the
Corporation Law within 90 days from such recognition. It appears that it had not done so at the time
the complaint was filed notwithstanding that it had been in existence even earlier than 1932. The
petitioner cannot now invoke its own non-compliance with the law to immunize it from the private
respondent's complaint.
There should also be no question that having contracted with the private respondent every year for
thirty two years and thus represented itself as possessed of juridical personality to do so, the
petitioner is now estopped from denying such personality to defeat her claim against it. According to
Article 1431 of the Civil Code, "through estoppel an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as against the person
relying on it."
As the school itself may be sued in its own name, there is no need to apply Rule 3, Section 15,
under which the persons joined in an association without any juridical personality may be sued
with such association. Besides, it has been shown that the individual members of the board of
trustees are not liable, having been appointed only after the private respondent's dismissal. 6
It is clear now that a charitable institution is covered by the labor laws 7 although the question
was still unsettled when this case arose in 1968. At any rate, there was no law even
then exempting such institutions from the operation of the labor laws (although they were
exempted by the Constitution from ad valorem taxes). Hence, even assuming that the petitioner
was a charitable institution as it claims, the private respondent was nonetheless still entitled to
the protection of the Termination Pay Law, which was then in force.
While it may be that the petitioner was engaged in charitable works, it would not necessarily follow
that those in its employ were as generously motivated. Obviously, most of them would not have the
means for such charity. The private respondent herself was only a humble school teacher receiving
a meager salary of Pl80. 00 per month.
At that, it has not been established that the petitioner is a charitable institution, considering
especially that it charges tuition fees and collects book rentals from its students. 8 While this
alone may not indicate that it is profit-making, it does weaken its claim that it is a non-profit
entity.
The petitioner says the private respondent had not been illegally dismissed because her teaching
contract was on a yearly basis and the school was not required to rehire her in 1968. The argument
is that her services were terminable at the end of each year at the discretion of the school.
Significantly, no explanation was given by the petitioner, and no advance notice either, of her relief
after teaching year in and year out for all of thirty-two years, the private respondent was simply told
she could not teach any more.
The Court holds, after considering the particular circumstance of Oh's employment, that she had
become a permanent employee of the school and entitled to security of tenure at the time of her
dismissal. Since no cause was shown and established at an appropriate hearing, and the notice then
required by law had not been given, such dismissal was invalid.
The private respondent's position is no different from that of the rank-and-file employees
involved in Gregorio Araneta University Foundation v. NLRC, 9 of whom the Court had the
following to say:
Undoubtedly, the private respondents' positions as deans and department heads of
the petitioner university are necessary in its usual business. Moreover, all the private
respondents have been serving the university from 18 to 28 years. All of them rose
from the ranks starting as instructors until they became deans and department heads
of the university. A person who has served the University for 28 years and who
occupies a high administrative position in addition to teaching duties could not
possibly be a temporary employee or a casual.
The applicable law is the Termination Pay Law, which provided:
SECTION 1. In cases of employment, without a definite period, in a commercial,
industrial, or agricultural establishment or enterprise, the employer or the employee
may terminate at any time the employment with just cause; or without just cause in
the case of an employee by serving written notice on the employer at least one
month in advance, or in the case of an employer, by serving such notice to the
employee at least one month in advance or one-half month for every year of service
of the employee, whichever, is longer, a fraction of at least six months being
considered as one whole year.
The employer, upon whom no such notice was served in case of termination of
employment without just cause may hold the employee liable for damages.
The employee, upon whom no such notice was served in case of termination of
employment without just cause shall be entitled to compensation from the date of
termination of his employment in an I amount equivalent to his salaries or wages
correspond to the required period of notice. ... .
The respondent court erred, however, in awarding her one month pay instead of only one-half month
salary for every year of service. The law is quite clear on this matter. Accordingly, the separation pay
should be computed at P90.00 times 32 months, for a total of P2,880.00.
Parenthetically, R.A. No. 4670, otherwise known as the Magna Carta for Public School
Teachers, confers security of tenure on the teacher upon appointment as long as he possesses
the required qualification. 10 And under the present policy of the Department of Education,
Culture and Sports, a teacher becomes permanent and automatically acquires security of tenure
upon completion of three years in the service. 11
While admittedly not applicable to the case at bar, these I rules nevertheless reflect the attitude
of the government on the protection of the worker's security of tenure, which is now guaranteed
by no less than the Constitution itself. 12
We find that the private respondent was arbitrarily treated by the petitioner, which has shown no
cause for her removal nor had it given her the notice required by the Termination Pay Law. As
the respondent court said, the contention that she could not report one week before the start of
classes is a flimsy justification for replacing her. 13 She had been in its employ for all of thirty-two
years. Her record was apparently unblemished. There is no showing of any previous strained
relations between her and the petitioner. Oh had every reason to assume, as she had done in
previous years, that she would continue teaching as usual.
It is easy to imagine the astonishment and hurt she felt when she was flatly and without warning told
she was dismissed. There was not even the amenity of a formal notice of her replacement, with
perhaps a graceful expression of thanks for her past services. She was simply informed she was no
longer in the teaching staff. To put it bluntly, she was fired.
For the wrongful act of the petitioner, the private respondent is entitled to moral damages. 14 As
a proximate result of her illegal dismissal, she suffered mental anguish, serious anxiety,
wounded feelings and even besmirched reputation as an experienced teacher for more than
three decades. We also find that the respondent court did not err in awarding her exemplary
damages because the petitioner acted in a wanton and oppressive manner when it dismissed
her. 15
The Court takes this opportunity to pay a sincere tribute to the grade school teachers, who are
always at the forefront in the battle against illiteracy and ignorance. If only because it is they who
open the minds of their pupils to an unexplored world awash with the magic of letters and numbers,
which is an extraordinary feat indeed, these humble mentors deserve all our respect and
appreciation.
WHEREFORE, the petition is DENIED. The appealed decision is AFFIRMED except for the award of
separation pay, which is reduced to P2,880.00. All the other awards are approved. Costs against the
petitioner.
This decision is immediately executory.
SO ORDERED.
Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
G.R. No. 78646 July 23, 1991
PABLO RALLA, substituted by his wife and co-defendant CARMEN MUÑOZ-RALLA, and his
legal heirs, HILDA RALLA-ALMINE, BELISTA, RENE RALLA-BELISTA and GERARDO M.
RALLA, petitioners,
vs.
PEDRO RALLA, substituted by his legal heirs, LEONI, PETER, and MARINELA all surnamed
RALLA, and COURT OF APPEALS, respondents.
Rafael Triunfante and Teodorico C. Almine, Jr. for petitioners.
Ruben R. Basa for private respondents.

CRUZ, J .:p
Rosendo Ralla had two sons, Pablo and Pedro. The father apparently loved the former but not the
latter, Pablo and his family lived with Rosendo, who took care of all the household expenses. Pablo
administered part of the family properties and received a monthly salary of P250.00 plus part of the
produce of the land. Pedro lived with his mother, Paz Escarella, in another town. He was not on
good terms with his father.
Paz Escarella died in 1957 and the two brothers partitioned 63 parcels of land she left as her
paraphernalia property. The partition was sustained by this Court in G.R. Nos. 63253-54 on
April 27, 1989.
1
Meanwhile, on December 22, 1958, Rosendo executed a will disinheriting
Pedro and leaving everything he owned to Pablo, to whom he said he had earlier sold a part of
his property for P10,000.00. Rosendo himself filed for the probate of the will but pendente
lite died on October 1, 1960.
On November 3, 1966, the probate judge converted SP 564 into an intestate proceeding. On
February 28, 1978, a creditor of the deceased filed a petition for the probate of Rosendo's will in SP
1106, which was heard jointly with SP 564. On August 3, 1979, the order of November 3, 1966, was
set aside.
The last will and testament of Rosendo Ralla was allowed on June 7, 1982
2
but on October 20,
1982, the disinheritance of Pedro was disapproved.
3
This order was elevated to the Court of
Appeals in AC-G.R. Nos. 00472, 00489.
In a decision dated July 25, 1986, the Court of Appeals
4
reversed the trial court and reinstated
the disinheritance clause after finding that the requisites of a valid disinheritance had been
complied with in the will. The appellate court noted that Pedro had threatened to kill his father,
who was afraid of him and had earlier sued him for slander and grave oral defamation.
The decision was assailed before this Court in G.R. Nos. 76657-58, which was dismissed in our
resolution of August 26, 1987, reading as follows:
. . . Assuming that, as claimed, the petitioners' counsel received a copy of the
questioned decision only on August 15, 1986 (although it should have been earlier
because it was mailed to him at his address of record on July 28, 1986), they had 15
days, or until August 30, 1986, within which to move for its reconsideration or appeal
therefrom by certiorari to this Court. Instead, they filed on August 28, 1986, a motion
for extension of time to file a motion for reconsideration, which was not allowed under
our ruling in Habaluyas Enterprises, Inc. v. Japson, 142 SCRA 208, and so did not
interrupt the running of the reglementary period. Indeed, even if the period were to be
counted from October 7, 1986, when notice of the denial of the motion for extension
was received by the petitioners, the petition would still be 30 days late, having been
filed on December 8, 1986. Moreover, the petitioners have not shown that the
questioned decision is tainted with grave abuse of discretion or that it is not in accord
with law and jurisprudence. For these reasons, the Court Resolved to DISMISS the
petition.
The motion for reconsideration was denied with finality in the following resolution dated October 26,
1987:
. . . The Court, after deliberation, Resolved to DENY with finality the motion for
reconsideration, wherein the petitioners pray that they be relieved from the effects of
our ruling in Habaluyas Enterprises, Inc. v. Japson, 142 SCRA 208, under which the
petition was denied for tardiness. Counsel are expected to be abreast of current
developments in law and jurisprudence and cannot plead ignorance thereof as an
excuse for non-compliance with the same. As earlier observed, the petition was filed
extremely late, and, moreover, it was inadequate even on the merits, same having
failed to show that the questioned decision was tainted with grave abuse of discretion
or reversible error.
What is involved in the present petition is the correctness of the decision of the respondent court
annulling the deed of sale executed by Rosendo Ralla in favor of Pablo over 149 parcels of
land. Pedro had filed on May 19, 1972, a complaint to annul the transaction on the ground that it
was simulated.
5
The original decision of the trial court declared the sale null and void.
6
In the
resolution of the motion for reconsideration, however, Judge Jose F. Madara completely
reversed himself and held the deed of sale to be valid.
7
This order was in turn set aside by the
respondent court, which reinstated the original decision invalidating the deed of sale.
It is indeed intriguing that the trial judge should, in resolving the motion for reconsideration, make a
complete turnabout on the basis of the same evidence and jurisprudence that he considered in
rendering the original decision. It is no less noteworthy that the respondent court, after studying the
two conclusions reached by him, saw fit to sustain his original findings as the correct appreciation of
the evidence and the applicable law.
But we find that, regardless of these curious resolutions, the petition must nevertheless be sustained
albeit not on the ground that the deed of sale was indeed valid. The Court is inclined to support the
findings of the respondent court. However, we do not and cannot make any decision on this matter
because of one insuperable obstacle. That obstacle is the proper party personality of Pedro Ralla to
question the transaction.
The decision of the Court of Appeals in AC-G.R. Nos. 00472, 00489 approved the disinheritance of
Pedro Ralla. That decision was appealed to this Court, but the petition for review was dismissed as
above related. The decision has long since become final. Since then, Pedro Ralla no longer had the
legal standing to question the validity of the sale executed by Rosendo in favor of his other son
Pablo.
The real party-in-interest is the party who stands to be benefited or injured by the judgment or the
party entitled to the avails of the suit. "Interest" within the meaning of the rule means material
interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in
the question involved, or a mere incidental interest. As a general rule, one having no right or interest
to protect cannot invoke the jurisdiction of the court as a party-plaintiff in an action.
As the sole heir, Pablo Ralla had the right to inherit the totality of his father's estate after payment of
all its debts. Even if it be assumed that the deed of sale was indeed invalid, the subject-matter
thereof nevertheless devolved upon Pablo as the universal successor of his father Rosendo. In his
wig, Rosendo claimed the 149 parcels as "part of my property" –– as distinguished from the conjugal
estate –– which he had earlier sold to Pablo. Significantly, Pedro did not deny this description of the
property in his Comment to the present petition, confining himself to assailing the validity of the sale.
The Court must note the lackadaisical attitude of the heirs of Pedro Ralla, who substituted him
upon his death. They seem to have lost interest in this litigation, probably because of the
approval of their father's disinheritance by the respondent court. When the parties were required
to submit their respective memoranda after we gave due course to this petition, the petitioners
did but not the private respondents. Although the period to do so had already expired, the Court
relaxed its rules to give the private respondents another opportunity to comply with the
requirement. When the resolution of August 22, 1990, could not be served upon the private
respondents' counsel, we directed that it be served on the private respondents themselves.
9
On
January 18, 1991, the heirs of Pedro Ralla informed the Court that they were retaining another
counsel and asked that they be furnished a copy of the petition and given 30 days within which
to file their memorandum.
10
This motion was granted. The records show that they received a
copy of the petition on February 26, 1991, but their memorandum was never filed. On May 29,
1991, the Court, noting this omission, finally resolved to dispense with the memorandum and to
decide this case on the basis of the available records.
Our decision is that as a validly disinherited heir, and not claiming to be a creditor of his deceased
father, Pedro Ralla had no legal personality to question the deed of sale dated November 29, 1957,
between Rosendo Ralla and his son Pablo. Legally speaking, Pedro Ralla was a stranger to the
transaction as he did not stand to benefit from its annulment. His disinheritance had rendered
him hors de combat.
WHEREFORE, the decision of the respondent court dated January 23, 1987, is set aside and
another judgment is hereby rendered dismissing Civil Case 194 (originally Civil Case 4624) in this
Regional Trial Court of Ligao, Albay, Branch 5.
SO ORDERED.
Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
[G.R. NO. 121159. December 16, 2002]
VSC COMMERCIAL ENTERPRISES, INC., petitioner, vs. COURT OF
APPEALS, OSCAR ESTOPACE and JOSE
SILAPAN, respondents.
D E C I S I O N
AUSTRIA-MARTINEZ, J .:
The present petition for review on certiorari brought before us by VSC Commercial
Enterprises, Inc. (VSC) seeks the reversal of the decision of the Court of Appeals
promulgated on June 16, 1994 reversing and setting aside the order of dismissal, dated
March 15, 1991, of Civil Case No. 90-55411 issued by the Regional Trial Court of
Manila (Branch 21) and the resolution of the appellate court, dated July 7, 1995,
denying petitioner’s motion for reconsideration.
The facts of the case are as follows:
On December 12, 1990, herein private respondents Oscar Estopace and Jose
Silapan filed with the Regional Trial Court of Manila a complaint against the Register of
Deeds of Manila and petitioner VSC alleging:
“3. x x x that they are bona-fide stallholders inside the „Pamilihang Sentral ng Sta.
Mesa‟, for about ten (10) years or so prior to the institution of this action;
“4. As such stallholders, plaintiffs have been paying their market fees to defendant
VSC Commercial Enterprises, Inc. under the latter‟s claim that he (sic) was the
registered owner of the lot and building known as the „Pamilihang Sentral ng Sta.
Mesa;‟
“5. Of late, the plaintiffs came into possession of certain documents which would
indicate that TCT No. 153406 of the Register of Deeds of Manila (which is in the
name of VSC Commercial Enterprises, Inc.),
[1]
originating as it did after several
transfers of titles, from O.C.T. No. 2863 covers lands not in Sta. Mesa, Manila but
lands situated either in Caloocan, Mariquina Estate or in San Juan, Metro Manila;”
[2]

In support thereof, private respondents cited several documents annexed to their
complaint showing that TCT No. 153406 is ―fraudulent, spurious and highly
questionable.‖ They pray for the cancellation of defendant VSC’s title over the subject
property claiming that:
“13. As a consequence of the cancellation of said title of land, the land thereunder
(sic) remains with or reverts to the estate (sic) disposable to qualified applicants to
buy the said land in accordance with law;
“14. As stallholders, the plaintiffs together with the other several stallholders on this
land would have pre-emptive rights over this government property.”
[3]

Instead of filing an Answer, petitioner VSC filed a Motion to Dismiss on the following
grounds:
“PLAINTIFFS ARE NOT THE REAL PARTIES IN INTEREST. AS SUCH, THEY
HAVE NO CAUSE OF ACTION AGAINST THE HEREIN DEFENDANT.
“THE COMPLAINT STATES NO CAUSE OF ACTION CONSIDERING THAT
PLAINTIFFS ARE ESTOPPED FROM ASSERTING TITLE OF THE PROPERTY
LEASED BY THEM FROM THE HEREIN DEFENDANT.
“AND ASSUMING BUT WITHOUT ADMITTING THAT PLAINTIFFS ARE THE
REAL PARTIES IN INTEREST AND HAVE CAUSE OF ACTION AGAINST
DEFENDANT, THE CLAIM OR DEMAND SET FORTH IN THE PLAINTIFFS‟
COMPLAINT HAS ALREADY PRESCRIBED OR OTHERWISE
EXTINGUISHED.”
[4]

On March 15, 1991, the lower court issued an order dismissing the complaint.
[5]

Private respondents appealed the said order to the Court of Appeals.
On June 16, 1994, the appellate court rendered the assailed decision, the
dispositive portion of which reads:
“ACCORDINGLY, the order of dismissal of Civil Case No. 90-55411 is hereby
REVERSED and SET ASIDE. The records of the case are ordered remanded to the
Court of origin or the Regional Trial Court of Manila, Branch 21 for appropriate
hearing and/or for further proceedings. We make no pronouncement as to costs.
“SO ORDERED.”
[6]

Petitioner VSC filed a Motion for Reconsideration but the appellate court, in a
Resolution issued on July 7, 1995, denied the same.
[7]

Hence, herein petition raising the following Assignment of Errors:
I
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
ORDERING THE TRIAL COURT FOR FURTHER PROCEEDING/TRIAL OF
THE RESPONDENTS‟ COMPLAINT DESPITE ITS FINDINGS THAT
RESPONDENTS ARE MERE LESSEES OR TENANTS OF THE PETITIONER‟S
PROPERTY COVERED BY TRANSFER CERTIFICATE OF TITLE NO. 153406
WHICH RESPONDENTS SEEK TO ANNUL IN THE SAID COMPLAINT. IN SO
DOING, THE COURT OF APPEALS PATENTLY VIOLATED ARTICLE 1436 OF
THE CIVIL CODE OF THE PHILIPPINES AS WELL AS SECTION 3(b), RULE
131 OF THE RULES OF COURT AND OTHER JURISPRUDENCE ON THE
MATTER.
II
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
IN ALLOWING THE RESPONDENTS TO PROSECUTE THE SAID COMPLAINT
DESPITE THE CLEAR ALLEGATIONS THEREIN THAT RESPONDENTS ARE
NOT THE REAL PARTY IN INTEREST TO PROSECUTE THE SAME. IN SO
DOING, THE COURT OF APPEALS VIOLATED SECTION 2, RULE 3 OF THE
RULES OF COURT.
III
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
ORDERING THE TRIAL COURT TO CONTINUE FURTHER PROCEEDINGS OF
THE SAID RESPONDENTS‟ COMPLAINT DESPITE THE PARTIES CLEAR
ADMISSION OF FACTS AND EVIDENCE ON RECORD THAT THE CAUSE OF
ACTION STATED IN THE SAID COMPLAINT HAS ALREADY
PRESCRIBED. IN SO DOING, THE COURT OF APPEALS VIOLATED
SECTION 32 OF PRES. DECREE NO. 1529 AS WELL AS SEVERAL
JURISPRUDENCE ON THE MATTER.
The petition is impressed with merit.
Private respondents do not directly assert title to the thing leased as against
petitioner. Instead, they contend that petitioner’s title over the subject property is void,
praying that the same should be cancelled and the disputed property should be reverted
back to the State.
We agree with the petitioner that private respondents are barred from questioning
the former’s title over the subject property. In a long line of cases, this Court has
consistently held that the private respondents, as lessees, who had undisturbed
possession for the entire term under the lease, are estopped to deny their landlord’s
title, or to assert a better title not only in themselves, but also in some third person,
including the State, while they remain in possession of the leased premises and until
they surrender possession to the landlord.
[8]
In the present case, it is undisputed that
there exists a lessor-lessee relationship between petitioner and private respondents, the
latter being among the persons who lease a portion of the subject property owned by
herein petitioner. Clearly, therefore, private respondents, as lessees, are estopped from
questioning petitioner’s title, even on the ground that the subject property properly
belongs to the State.
Moreover, we also agree with petitioner that private respondents are not the real
parties in interest.
Under Rule 3, Section 2 of the Revised Rules of Court, a real party in interest is
defined as ―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.‖ ―Interest‖ within the meaning of the rule
means material interest, an interest in issue and to be affected by the decree, as
distinguished from mere interest in the question involved, or a mere incidental
interest.
[9]
The interest of the party must also be personal and not one based on a desire
to vindicate the constitutional right of some third and unrelated party.
[10]
Real interest, on
the other hand, means a present substantial interest, as distinguished from a mere
expectancy or a future, contingent, subordinate, or consequential interest.
[11]

In the case at bar, the private respondents are mere lessees of the property in
question. As such, they have no present substantial and personal interest with respect
to issues involving ownership of the disputed property. The only interest they have, in
the event that petitioner’s title over the subject property is cancelled and ownership
reverts to the State, is the hope that they become qualified buyers of the subject parcel
of land. Undoubtedly, such interest is a mere expectancy. Even the private respondents
themselves claim that in case of reversion of ownership to the State, they only have
―pre-emptive rights‖ to buy the subject property;
[12]
that their real interest over the said
property is contingent upon the government’s consideration of their application as
buyers of the same.
[13]
It is settled that a suit filed by a person who is not a party in
interest must be dismissed.
[14]

It is only the government that has the personality to bring an action for the
cancellation of petitioner’s title and reversion of ownership of the subject property to the
State. Section 101 of the Public Land Act categorically declares that only the
government may institute an action to recover ownership of a public land. The principle
enunciated in Sumail vs. CFI
[15]
is applicable in the resolution of the present
controversy. In the said case, this Court held:
“Under Section 101 above reproduced, only the Solicitor General or the officer acting
in his stead may bring the action for reversion. Consequently, Sumail may not bring
such action or any action which would have the effect of canceling a free patent and
the corresponding certificate of title issued on the basis thereof, with the result that the
land covered thereby will again form part of the public domain. Furthermore, there is
another reason for withholding legal personality from Sumail. He does not claim the
land to be his private property. x x x Consequently, even if the parcel were declared
reverted to the public domain, Sumail does not automatically become owner
thereof. He is a mere public land applicant like others who might apply for the same.”
The same principle was reiterated in Lucas vs. Durian
[16]
and in Nebrada vs. Heirs of
Alivio.
[17]

Considering that private respondents have no valid cause of action against herein
petitioners, the issue on prescription has perforce been rendered off-tangent and
therefore there is no longer any need to resolve the same.
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of
the Court of Appeals, dated June 16, 1994 and July 7, 1995 are REVERSED and SET
ASIDE. The Order of the Regional Trial Court of Manila (Branch 21) dated March 15,
1991, dismissing the complaint in Civil Case No. 90-55411, is REINSTATED.
Let copy of herein decision be furnished the Office of the Solicitor General for
proper information and guidance.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Callejo, Sr., JJ., concur.









G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA,
INC., plaintiff-appellee,
vs.
QUIRINO BOLAÑOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J .:
This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to
recover possesion of registered land situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and description of the
land sought to be recovered. The original complaint described the land as a portion of a lot
registered in plaintiff's name under Transfer Certificate of Title No. 37686 of the land record of
Rizal Province and as containing an area of 13 hectares more or less. But the complaint was
amended by reducing the area of 6 hectares, more or less, after the defendant had indicated the
plaintiff's surveyors the portion of land claimed and occupied by him. The second amendment
became necessary and was allowed following the testimony of plaintiff's surveyors that a portion
of the area was embraced in another certificate of title, which was plaintiff's Transfer Certificate
of Title No. 37677. And still later, in the course of trial, after defendant's surveyor and witness,
Quirino Feria, had testified that the area occupied and claimed by defendant was about 13
hectares, as shown in his Exhibit 1, plaintiff again, with the leave of court, amended its
complaint to make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous,
exclusive and public and notorious possession (of land in dispute) under claim of ownership,
adverse to the entire world by defendant and his predecessor in interest" from "time in-
memorial". The answer further alleges that registration of the land in dispute was obtained by
plaintiff or its predecessors in interest thru "fraud or error and without knowledge (of) or interest
either personal or thru publication to defendant and/or predecessors in interest." The answer
therefore prays that the complaint be dismissed with costs and plaintiff required to reconvey the
land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any
right to the land in question and ordering him to restore possession thereof to plaintiff and to pay
the latter a monthly rent of P132.62 from January, 1940, until he vacates the land, and also to
pay the costs.
Appealing directly to this court because of the value of the property involved, defendant makes
the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the case was not brought
by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the litigation.
V. The trial court erred in holding that the land in dispute is covered by transfer certificates of
Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and lawful owner of the
land.
VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount
of P132.62 monthly from January, 1940, until he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the
defendant.
As to the first assigned error, there is nothing to the contention that the present action is not
brought by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of
Court require is that an action be brought in the name of, but not necessarily by, the real party in
interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that
is to file the complaint, in the name of the plaintiff. That practice appears to have been followed
in this case, since the complaint is signed by the law firm of Araneta and Araneta, "counsel for
plaintiff" and commences with the statement "comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the plaintiff is "represented herein by its
Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against one
corporation being represented by another person, natural or juridical, in a suit in court. The
contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the theory
that it is illegal for two corporations to enter into a partnership is without merit, for the true rule is
that "though a corporation has no power to enter into a partnership, it may nevertheless enter
into a joint venture with another where the nature of that venture is in line with the business
authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2
Fletcher Cyc. of Corp., 1082.) There is nothing in the record to indicate that the venture in which
plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is not in line with the
corporate business of either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may be
answered by mere reference to section 4 of Rule 17, Rules of Court, which sanctions such
amendment. It reads:
Sec. 4. Amendment to conform to evidence. — When issues not raised by the pleadings are
tried by express or implied consent of the parties, they shall be treated in all respects, as if
they had been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be made
upon motion of any party at my time, even of the trial of these issues. If evidence is objected
to at the trial on the ground that it is not within the issues made by the pleadings, the court
may allow the pleadings to be amended and shall be so freely when the presentation of the
merits of the action will be subserved thereby and the objecting party fails to satisfy the court
that the admission of such evidence would prejudice him in maintaining his action or defense
upon the merits. The court may grant a continuance to enable the objecting party to meet
such evidence.
Under this provision amendment is not even necessary for the purpose of rendering judgment
on issues proved though not alleged. Thus, commenting on the provision, Chief Justice Moran
says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of Civil Procedure,
ruled that where the facts shown entitled plaintiff to relief other than that asked for, no
amendment to the complaint is necessary, especially where defendant has himself raised the
point on which recovery is based, and that the appellate court treat the pleadings as
amended to conform to the evidence, although the pleadings were not actually amended. (I
Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage of the
trial, that the land in dispute "is that described or represented in Exhibit A and in Exhibit B
enclosed in red pencil with the name Quirino Bolaños," defendant later changed his lawyer and
also his theory and tried to prove that the land in dispute was not covered by plaintiff's certificate
of title. The evidence, however, is against defendant, for it clearly establishes that plaintiff is the
registered owner of lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of
5,297,429.3 square meters, more or less, covered by transfer certificate of title No. 37686 of the
land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio, having an area
of 74,789 square meters, more or less, covered by transfer certificate of title No. 37677 of the
land records of the same province, both lots having been originally registered on July 8, 1914
under original certificate of title No. 735. The identity of the lots was established by the
testimony of Antonio Manahan and Magno Faustino, witnesses for plaintiff, and the identity of
the portion thereof claimed by defendant was established by the testimony of his own witness,
Quirico Feria. The combined testimony of these three witnesses clearly shows that the portion
claimed by defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and
is well within the area covered by the two transfer certificates of title already mentioned. This
fact also appears admitted in defendant's answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in
1914, the decree of registration can no longer be impugned on the ground of fraud, error or lack
of notice to defendant, as more than one year has already elapsed from the issuance and entry
of the decree. Neither court the decree be collaterally attacked by any person claiming title to, or
interest in, the land prior to the registration proceedings. (Soroñgonvs. Makalintal,
1
45 Off. Gaz.,
3819.) Nor could title to that land in derogation of that of plaintiff, the registered owner, be
acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse, notorious
and continuous possession under claim of ownership for the period fixed by law is ineffective
against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,
2
etc., 45 Off. Gaz., Supp. 9, p. 43.)
And it is likewise settled that the right to secure possession under a decree of registration does
not prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this
Court on this point is that rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92
Phil., 796. This disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant
should be sentenced to pay plaintiff P132.62 monthly from January, 1940, until he vacates the
premises.' But it appears from the record that that reasonable compensation for the use and
occupation of the premises, as stipulated at the hearing was P10 a month for each hectare and
that the area occupied by defendant was 13.2619 hectares. The total rent to be paid for the area
occupied should therefore be P132.62 a month. It is appears from the testimony of J. A. Araneta
and witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already been
filed against defendant. And it cannot be supposed that defendant has been paying rents, for he
has been asserting all along that the premises in question 'have always been since time
immemorial in open, continuous, exclusive and public and notorious possession and under
claim of ownership adverse to the entire world by defendant and his predecessors in interest.'
This assignment of error is thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed a motion
to dismiss alleging that there is pending before the Court of First Instance of Rizal another
action between the same parties and for the same cause and seeking to sustain that allegation
with a copy of the complaint filed in said action. But an examination of that complaint reveals
that appellant's allegation is not correct, for the pretended identity of parties and cause of action
in the two suits does not appear. That other case is one for recovery of ownership, while the
present one is for recovery of possession. And while appellant claims that he is also involved in
that order action because it is a class suit, the complaint does not show that such is really the
case. On the contrary, it appears that the action seeks relief for each individual plaintiff and not
relief for and on behalf of others. The motion for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.
Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion,
JJ., concur.
April 26, 1957
G.R. No. L-9782
HILARION CORTEZ, plaintiff-appellant,
vs.
JUAN AVILA, defendant-appellee.
Amado D. Aquino, Jose D. Bacolor and Godofredo Aquino, Jr., for appellant.
Meliton Pajarillaga for appellee.
Concepcion (Pedro), J .:
This is an appeal, taken by plaintiff Hilarion Cortez, from an order granting a motion to dismiss of
defendant, Juan Avila, and dismissing the former’s complaint, without pronouncement as to costs.
Plaintiff, Hilarion Cortez, alleges in said complaint that since 1935, he has continuously, publicly and
adversely occupied a parcel of land, of about sixteen (16) hectares, situated in the Barrio of
Conversion, Municipality of Pantabangan, Province of Nueva Ecija, more particularly described in said
pleading, and included within the land “described in the Original Certificate of Title No. P-1318 in the
name (now) of Juan Avila, the herein defendant; that in November, 1946, Cortez applied for a
homestead patent on said 16-hectare lot, the same being a public land; that his homestead
application was duly approved by the Director of Lands, on June 25, 1947; that, having complied with
all the conditions essential to the issuance of a patent, he filed his final proof thereon in May, 1952;
that; as a result, the issuance of a homestead patent in his favor was recommended by the
investigating public lands inspector as well as by the District Land Officer of Nueva Ecija, in an
indorsement to the Director of Lands, dated June 6, 1952; that for reasons unknown to plaintiff, said
homestead patent has not been issued to him, although he has already become the “equitable owner”
of the lot aforementioned; that defendant Avila had filed a free patent application for the same lot,
knowing that it had been in continuous and actual possession of the plaintiff since 1935, and despite
his (Avila’s) knowledge, actual or presumed, of the submission of plaintiff’s aforementioned final
proof; that through threat, intimidation and force, Avila succeeded in occupying said lot, in or about
June, 1953, to the exclusion of the plaintiff; that on October 15, 1954, Avila secured a free patent on
said lot, by alleging falsely, in his free patent application, that he and his predecessors in interest were
in possession of said lot, continuously, since July 4, 1925, and by misrepresenting to the “table” public
lands inspector who allegedly made the investigation relative to said free patent application of Avila,
that he had complied with the legal requirements therefore; that less than a year has elapsed, since
the issuance of said original certificate of title in favor of Avila; and that, in consequence of the
aforementioned acts of Avila, plaintiff has suffered damages amounting to P6,400 a year, apart from
the sum of P5,000 by way of attorney’s fees. Plaintiff prays the Court to:
1. Order the cancellation of the free patent of the defendant and the Certificate of Title issued to him
and to register the same in the name of the plaintiff;
2. Restore possession of the premises to the herein plaintiff;
3. Order defendant to pay the plaintiff the amount of P6400 for each year that he is in possession until
it is returned to plaintiff, and further, to order defendant to pay the amount of P5000.00 as attorneys’
fees;
4. Issue such order and remedies as may be equitable in the premises.
As above stated, Avila filed a motion to dismiss alleging that plaintiff has no legal capacity to sue,
because the land in dispute is part of the public domain, and, hence, an action to recover the same
may be instituted exclusively by the Government, through the Solicitor-General. Appellant now
maintains that the lower court erred in granting said motion, upon the ground that, having complied
with the conditions essential to be entitled to a patent, he is the equitable owner of the lot, in
question, and that the Government could not have maintained the present action, the same being for
the benefit of the plaintiff, in his private capacity.
Obviously, plaintiff herein has “legal capacity” to sue, which is independent of the public or private
character of the lot in controversy. This does not mean, however, that he has a cause of action, or
that his appeal should prosper.
To begin with, an indispensable party is lacking. The complaint is predicated upon the major premise
that plaintiff is the equitable owner of said lot, for he has fully satisfied the prerequisites to the
issuance of a homestead patent in his favor. This pretense implies that said lot was a public land; that
the legal, as well as the equitable, title thereto used to be in the State; and that, although still its legal
owner, the State has already been divested of its equitable title, and plaintiff has acquired it, he
having fulfilled all the conditions essential for the issuance of a patent in his name. Thus, the issue
raised cannot be determined without affecting the interest of the State, which is not a party in this
proceeding, and, hence, cannot protect and defend therein such interest.
Ordinarily, when a complaint is defective by reason of failure to include an indispensable party,
reasonable opportunity to amend said pleading must be given, and the action should not be
dismissed, except when plaintiff fails or refuses to include said party, or the latter cannot be sued. In
the case at bar, such policy need not be followed, for plaintiff has not exhausted the administrative
remedies available to him. Indeed, he seeks, in effect a review of the decision of the Director of Lands
in causing a patent to be issued to defendant Avila. Yet, plaintiff does not appear to have asked the
Director of Lands to reconsider said decision, or to have appealed therefrom to the Secretary of
Agriculture and Natural Resources, who controls said official and is the “officer charged with carrying
out the provisions” of our revised public land law (C. A. 141, sec. 3). It is well settled that, before the
decision of administrative bodies can be brought to courts for review, all administrative remedies must
first be exhausted, especially in disputes concerning public lands, where the finding of said
administrative bodies, as to questions of fact, are declared by statute to be “conclusive” (C. A. 141,
sec. 4; Lamb vs. Phipps., 22 Phil. 456; Arnedo vs. Aldanese, 63 Phil. 768; R. Lopez vs. Court of Tax
Appeals, 100, Phil. 850).
A party aggrieved by an erroneous decision of the federal land department must exhaust his remedies
in that department before he can resort to the courts, and where one instituting a contest in a local
land office against a homestead entry did not to the general land office or the secretary of the interior
from an order dismissing the contest because not sufficiently regular to constitute a valid contest, he
was bound thereby, and he could not resort to the courts. Kendall vs. Long, 66 Wash. 62, 119 p. 9
(Footnote 98 a, 50 C. J. 1093, 1094.)
As we held in Eloy Miguel vs. Anacleta M. Vda. de Reyes, 93 Phil. 542, having failed to exhaust his
remedy in the administrative branch of the Government, plaintiff cannot now seek relief in the courts
of justice.”
Wherefore, the order appealed from is hereby affirmed. with costs against plaintiff-appellant. It is so
ordered.
Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Reyes, J.B.L., Endencia and
Felix, JJ., concur.
[G.R. No. 110048. November 19, 1999]
SERVICEWIDE SPECIALISTS, INC. petitioner, vs. COURT OF APPEALS,
HILDA TEE, & ALBERTO M. VILLAFRANCA, respondents.
D E C I S I O N
PURISIMA, J .:
This is a petition for review on certiorari under Rule 45 of the Decision of the
Court of Appeals
[1]
in CA-G.R. CV No. 19571, affirming the judgment of the Regional
Trial Court of Manila, Branch XX, dismissing Civil Case No. 84-25763 for replevin
and damages.
The litigation involves a motor vehicle, a Colt Galant, 4-door Sedan automobile,
with Motor No. 2E-08927, Serial No. A112A-5297, Model No. 1976.
The appellate court culled the facts that matter as follows:
[2]

"On May 14, 1976, Leticia L. Laus of Quezon City purchased on credit a Colt Galant
xxx from Fortune Motors (Phils.) Corporation. On the same date, she executed a
promissory note for the amount of P56,028.00, inclusive of interest at 12% per
annum, payable within a period of 48 months starting August, 1976 at a monthly
installment of P1,167.25 due and demandable on the 17th day of each month (Exhibit
“A”, pp. 144, Orig. Records,). It was agreed upon, among others, that in case of
default in the payment of any installment the total principal sum, together with the
interest, shall become immediately due and payable (Exhibit “A”; p. 144, Orig.
Records). As a security for the promissory note, a chattel mortgage was constituted
over the said motor vehicle (Exhibit “B”, ibid.), with a deed of assignment
incorporated therein such that the credit and mortgage rights were assigned by Fortune
Motors Corp. in favor of Filinvest Credit Corporation with the consent of the
mortgagor-debtor Leticia Laus (Exhibits “B-1” and “B-2”; p. 147, ibid.). The vehicle
was then registered in the name of Leticia L. Laus with the chattel mortgage annotated
on said certificate. (Exhibit "H"; p. 154, ibid.)
On September 25, 1978, Filinvest Credit Corporation in turn assigned the credit in
favor of Servicewide Specialists, Inc. (Servicewide, for brevity) transferring unto the
latter all its rights under the promissory note and the chattel mortgage (Exhibit “B-3”;
p. 149, ibid.) with the corresponding notice of assignment sent to the registered car
owner (Exhibit “C”; p. 150, Ibid.).
On April 18, 1977, Leticia Laus failed to pay the monthly installment for that
month. The installments for the succeeding 17 months were not likewise fully paid,
hence on September 25, 1978, pursuant to the provisions of the promissory note,
Servicewide demanded payment of the entire outstanding balance of P46,775.24
inclusive of interests (Exhibits “D” and “E”; pp. 151-152, ibid.). Despite said formal
demand, Leticia Laus failed to pay all the monthly installments due until July 18,
1980.
On July 25, 1984, Servicewide sent a statement of account to Leticia Laus and
demanded payment of the amount of P86,613.32 representing the outstanding balance
plus interests up to July 25, 1985, attorney‟s fees, liquidated damages, estimated
repossession expense, and bonding fee (Exhibit “F”; p. 153, ibid.)
As a result of the failure of Leticia Laus to settle her obligation, or at least to surrender
possession of the motor vehicle for the purpose of foreclosure, Servicewide instituted
a complaint for replevin, impleading Hilda Tee and John Dee in whose custody the
vehicle was believed to be at the time of the filing of the suit.
In its complaint, plaintiff alleged that it had superior lien over the mortgaged vehicle;
that it is lawfully entitled to the possession of the same together with all its
accessories and equipments; (sic) that Hilda Tee was wrongfully detaining the motor
vehicle for the purpose of defeating its mortgage lien; and that a sufficient bond had
been filed in court. (Complaint with Annexes, pp. 1-13, ibid.). On July 30, 1984, the
court approved the replevin bond (p. 20, ibid.)
On August 1, 1984, Alberto Villafranca filed a third party claim contending that he is
the absolute owner of the subject motor vehicle duly evidenced by the Bureau of Land
Transportation‟s Certificate of Registration issued in his name on June 22, 1984; that
he acquired the said mother vehicle from a certain Remedios D. Yang under a Deed of
Sale dated May 16, 1984; that he acquired the same free from all lien and
emcumbrances; and that on July 30, 1984, the said automobile was taken from his
residence by Deputy Sheriff Bernardo Bernabe pursuant to the seizure order issued by
the court a quo.
Upon motion of the plaintiff below, Alberto Villafranca was substituted as
defendant. Summons was served upon him. (pp. 55-56, ibid).
On March 20, 1985, Alberto Villafranca moved for the dismissal of the complaint on
the ground that there is another action pending between the same parties before the
Regional Trial Court of Makati, Branch 140, docketed as Civil Case No. 8310,
involving the seizure of subject motor vehicle and the indemnity bond posted by
Servicewide (Motion to Dismiss with Annexes; pp. 57-110, ibid.) On March 28, 1985,
the court granted the aforesaid motion (p. 122, ibid.), but subsequently the order of
dismissal was reconsidered and set aside (pp. 135-136, ibid.). For failure to file his
Answer as required by the court a quo, Alberto Villafranca was declared in default
and plaintiff‟s evidence was received ex parte.
On December 27, 1985, the lower court rendered a decision dismissing the complaint
for insufficiency of evidence. Its motion for reconsideration of said decision having
been denied, xxx.”
In its appeal to the Court of Appeals, petitioner theorized that a suit for replevin
aimed at the foreclosure of a chattel is an action quasi in rem, and does not require the
inclusion of the principal obligor in the Complaint. However, the appellate court
affirmed the decision of the lower Court; ratiocinating, thus:
“A cursory reading, however, of the Promissory Note dated May 14, 1976 in favor of
Fortune Motors (Phils.) Corp. in the sum of P56,028.00 (Annex “A” of Complaint, p.
7, Original Records) and the Chattel Mortgage of the same date (Annex “B” of
Complaint; pp. 8-9, ibid.) will disclose that the maker and mortgagor respectively are
one and the same person: Leticia Laus. In fact, plaintiff-appellant admits in
paragraphs (sic) nos. 2 and 3 of its Complaint that the aforesaid public documents
(Annexes “A” and “B” thereof) were executed by Leticia Laus, who, for reasons not
explained, was never impleaded. In the case under consideration, plaintiff-appellant‟s
main case is for judicial foreclosure of the chattel mortgage against Hilda Tee and
John Doe who was later substituted by appellee Alberto Villafranca. But as there is
no privity of contract, not even a causal link, between plaintiff-appellant Servicewide
Specialists, Inc. and defendant-appellee Alberto Villafranca, the
court a quo committed no reversible error when it dismissed the case for insufficiency
of evidence against Hilda Tee and Alberto Villafranca since the evidence adduced
pointed to Leticia Laus as the party liable for the obligation sued upon (p. 2, RTC
Decision).”
[3]

Petitioner presented a Motion for Reconsideration but in its Resolution
[4]
of May
10, 1993, the Court of Appeals denied the same, taking notice of another case
“pending between the same parties xxx relating to the very chattel mortgage of the
motor vehicle in litigation.”
Hence, the present petition for review on certiorari under Rule 45. Essentially,
the sole issue here is: Whether or not a case for replevin may be pursued against the
defendant, Alberto Villafranca, without impleading the absconding debtor-mortgagor?
Rule 60 of the Revised Rules of Court requires that an applicant for replevin must
show that he “is the owner of the property claimed, particularly describing it, or is
entitled to the possession thereof.”
[5]
Where the right of the plaintiff to the possession
of the specified property is so conceded or evident, the action need only be maintained
against him who so possesses the property. In rem action est per quam rem nostram
quae ab alio possidetur petimus, et semper adversus eum est qui rem possidet.
[6]

Citing Northern Motors, Inc. vs. Herrera,
[7]
the Court said in the case of BA
Finance (which is of similar import with the present case):
“There can be no question that persons having a special right of property in the goods
the recovery of which is sought, such as a chattel mortgagee, may maintain an action
for replevin therefor. Where the mortgage authorizes the mortgagee to take
possession of the property on default, he may maintain an action to recover possession
of the mortgaged chattels from the mortgagor or from any person in whose hands he
may find them.”
[8]

Thus, in default of the mortgagor, the mortgagee is thereby constituted as
attorney-in-fact of the mortgagor, enabling such mortgagee to act for and in behalf of
the owner. That the defendant is not privy to the chattel mortgage should be
inconsequential. By the fact that the object of replevin is traced to his possession, one
properly can be a defendant in an action for replevin. It is here assumed that the
plaintiff’s right to possess the thing is not or cannot be disputed.
[9]
(Italics supplied)
However, in case the right of possession on the part of the plaintiff, or his
authority to claim such possession or that of his principal, is put to great doubt (a
contending party may contest the legal bases for plaintiff‟s cause of action or an
adverse and independent claim of ownership or right of possession may be raised by
that party), it could become essential to have other persons involved and impleaded
for a complete determination and resolution of the controversy.
[10]
In the case under
scrutiny, it is not disputed that there is an adverse and independent claim of ownership
by the respondent as evinced by the existence of a pending case before the Court of
Appeals involving subject motor vehicle between the same parties herein.
[11]
Its
resolution is a factual matter, the province of which properly lies in the lower Court
and not in the Supreme Court, in the guise of a petition for review on certiorari. For
it is basic that under Rule 45, this Court only entertains questions of law, and rare are
the exceptions and the present case does not appear to be one of them.
In a suit for replevin, a clear right of possession must be established. (Italics
supplied) 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 this case has been resorted to in order to pave the way for
the foreclosure of what is covered by the chattel mortgage. The conditions essential
for such foreclosure would be to show, firstly, the existence of the chattel mortgage
and, secondly, the default of the mortgagor. These requirements must be shown
because the validity of the plaintiff‟s exercise of the right of foreclosure is inevitably
dependent thereon.
[12]

Since the mortgagee‟s right of possession is conditioned upon the actual fact of
default which itself may be controverted, the inclusion of other parties, like the debtor
or the mortgagor himself, may be required in order to allow a full and conclusive
determination of the case. When the mortgagee seeks a replevin in order to effect the
eventual foreclosure of the mortgage, it is not only the existence of, but also the
mortgagor‟s default on, the chattel mortgage that, among other things, can properly
uphold the right to replevy the property. The burden to establish a valid justification
for such action lies with the plaintiff. An adverse possessor, who is not the
mortgagor, cannot just be deprived of his possession, let alone be bound by the terms
of the chattel mortgage contract, simply because the mortgagee brings up an action for
replevin.”
[13]

Leticia Laus, being an indispensable party, should have been impleaded in the
complaint for replevin and damages. 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
complete relief between him and those already parties to the action or will simply
avoid multiple litigation.
[14]
Without the presence of indispensable parties to a suit or
proceeding, a judgment of a Court cannot attain real finality.
[15]

That petitioner could not locate the mortgagor, Leticia Laus, is no excuse for
resorting to a procedural short-cut. It could have properly availed of substituted
service of summons under the Revised Rules of Court.
[16]
If it deemed such a mode to
be unavailing, it could have proceeded in accordance with Section 14 of the same
Rule.
[17]
Indeed, petitioner had other proper remedies, it could have resorted to but
failed to avail of. For instance, it could have properly impleaded the mortgagor. Such
failure is fatal to petitioner‟s cause.
With the foregoing disquisition and conclusion, the other issues raised by
petitioner need not be passed upon.
WHEREFORE, the Petition is DENIED and the Decision of the Court of
Appeals in CA-G.R. CV No. 19571 AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.

G.R. No. L-41107 February 28, 1979
AMANDA L. VDA. DE DELA CRUZ, ET AL., petitioners,
vs.
HON. COURT OF APPEALS, MARCELO ABAGA MARGARITA D. JOSE, MARGARITA D, JOSE,
QUIRINO D, JOSE, TEOFILO D. JOSE, ET AL. respondents.
Angel C Ungson Jr. for petitioner.
Juan J. de Dios and Simplicio M. Sevilleja for private respondents.

DE CASTRO, J .:
This is a petition for certiorari king to review the decision of the Court of Appeals in case CA-G.R.
No. 47331-R entitled "Amanda L. Vda. de dela Cruz, et al, plaintiffs-appellees, versus Marcelo
Abaga Margarita D. Jose, et al., defendants." The questioned decision ordered the setting aside of
the decision rendered by the Court of Agrarian Relations in CAR Case No. 115-TP-59 and 116-TP-
59 and proceedings subsequent thereto insofar as it affected the deceased defendant Felix Jose or
his heirs, the private respondents in this petition.
As narrated by the Court of Appeals in its decision, it appears that plaintiffs (herein petitioners)
filed an action for ejectment and collection of unpaid rentals against Felix Jose and 114 other
tenants on November 23, 1959 in the Court of Agrarian Relations, Tayug, Pangasinan. Their
complaint alleged that Felix Jose is a tenant over a 4.5 ha. landholding in plaintiffs' hacienda in
Tayug Pangasinan, paying a fixed rental of 850 kilos of palay per hectare per agricultural year,
that he failed to pay in full his rentals and despite plaintiffs' repeated demands, Felix Jose to
vacate the land-holding and to pay his obligation.
1
In a join answer through their counsel Atty.
Fausto G. Cabotaje, defendant Felix Jose and his 114 co-defendants denied the material
averments of the complaint, alleging payment of all the rentals of their respective landholdings.
Thereafter, trial was commenced. However, as found by the Court of Appeals, "before
termination thereof, or on June 5, 1961, Felix Jose died at the Eastern Pangasinan Provincial
General Hospital in Tayug, Pangasinan (Record, Vol. 1, p. 509). It appears that Jose's demise,
no substitution of defendant was effected.
2

Then on March 29, 1962, the trial court rendered judgment against Felix Jose together with the other
defendants holding him liable to plaintiffs for 6,432 kilos of palay as unpaid rentals. Some of his co-
defendants then brought the case to the Supreme Court for review on certiorari where it was
docketed as G. R. No. L-19930-19935. However, the petition was dismissed on November 30, 1962
due to the petitioners' failure to file their brief (Appellee's Brief, pp. 2-8). Thereafter, on plaintiffs'
motion, the Court of Agrarian Relations issued an order of execution (Appendix B of Appellant's
Brief, pp. 54-60). On May 3, 1963, a writ of execution to effect ejectment was entered (Appendix C,
Appellants' Brief, pp. 60-69). To satisfy the award of damages under the decision of the Court of
Agrarian Relations, the conjugal properties of the deceased Felix Jose and his wife were sold at
public auction. A certificate of sale dated July 31, 1969 was later issued in favor of plaintiff Amanda
L. Vda. de dela Cruz as highest bidder. The sheriff's final deed of sale followed on August 17, 1970.
On October 27, 1970, the heirs of the deceased defendant, through their new counsel, Atty. Juan V.
Landingin, filed a motion to substitute the deceased and to set aside as null and void the decisions,
orders, writ of execution and sale at public auction made and entered against the latter. The trial
court allowed the substitution "for the purposes of whatever proceedings may still be allowed in this
case" (p. 23, rollo) but denied the motion to set aside the decision, orders, writ of execution and the
public auction sale. The motion for reconsideration was likewise denied. The substituted defendants
then appealed to the Court of Appeals, raising mainly the question of the validity of the lower court's
decision on the ground that despite it's awareness of the death of said defendant, no substitution
was ordered before decision was rendered on March 29, 1962.
The Court of Appeals found the appeal meritorious. Against its decision, a motion for
reconsideration was filed but was denied. Hence, this petition for review on certiorari, alleging
mainly that the Court of Appeals erred:
3

1. in entertaining an appeal from the order of the Court of Agrarian Relations, in
reversing the decision of the Court of Agrarian Relations of March 29, 1962, setting
aside the same and the auction sale of July 2, 1969, the certificate of sale dated July
31, 1969, and the final deed of sale of August 17, 1979," with respect to Felix Jose,
considering that a period of more than eight (8) years had elapsed from the rendition
of the decision of the trial court to the filing of the motion for substitution:
2. in not considering the decision of the Supreme Court in cases G.R. Nos. L-19930-
19935 as having the effect of res judicata, based not only on the general application
of the Rule but on the basis of the agreement of the parties before the Court of
Agrarian Relations that the cases be heard jointly and one decision for all the cases
is sufficient;
3. in finding that the trial was still going on and not yet terminated when Felix Jose
died on June 5, 1961, and that the continuance of the trial after the death of
defendant, without each party having been substituted in accordance with the
aforesaid Rule amounts to lack of jurisdiction.
To begin with, the Court of Appeals found that the defendant Felix Jose died before the termination
of the trial, contrary to petitioner's claim that when d defendant died, the trial was already terminated
(p. 11, rollo) and hence, there was no denial of due process. Whether defendant died before or after
termination of trial is not all that important because one thing is certain; that he died before the
rendition of judgment. This fact was known to the judge of the Court of Agrarian Relations
(Appellant's Brief, pp. 48-49), who in his decision placed the word "dead" in parenthesis beside the
name of Felix Jose (Appendix A, Appellants' Brief, p. 49). The Court of Appeals took this into
consideration when it held that the decision of said court was a "patent nullity" insofar as Felix Jose
was concerned. As stated by the Appellate Court, no substitution of the deceased was ordered by
the trial court, in disregard of the provisions of Rule 3, Sec. 17, Rules of Court which reed thus:
SEC. 17. Death of a party. After a party dies and the claim is not thereby
extinguished, the court shall order, upon proper notice, the legal representative of the
deceased to appear and to be substituted for the deceased within a period of thirty
(30) days, or within such time as may be granted. If the legal representative fails to
appear within said time, the court may order the opposing party to procure the
appointment of a legal representative of the deceased within a time to be specified
by the court, and the representative shall immediately appear for and on behalf of the
interest of the deceased. The court charges involved in procuring such appointment,
if defrayed by the opposing party, may be recovered as costs. The heirs of the
deceased may be allowed to be substituted for the deceased, without requiring the
appointment of an executor or a administrator and the court may be appoint guardian
ad litem for the minor heirs.
In Caseñas vs. Resales (19 SCRA 466). Caisip vs. Cabangon (109 Phil. 154) and Bonilla vs.
Barcena (71 SCRA 495), this Court held that in case of the death of a party and due notice is
given to the trial court, it is the duty of the court to order the legal representative of the deceased
to appear for him in the manner outlined in the aforementioned Rule. Considering that the
complaint was for ejectment of the tenants, (defendant, being one of them) the provisions of
said section and the rulings in the aforementioned cases are indeed applicable to the present
case, where the action or the claim is not extinguished on account of Section 9, RA 1199, (now
RA 6389, Code of Agrarian Reforms) which provides in effect that in case of death or
permanent incapacity of the agricultural lessee, the leasehold shall continue between the lessor
and the persons enumerated in said Section which include the descendants of the deceased.
But as noted by the Court of Appeal:
4
it appears that no legal representative was ever
summoned to appear in court; that no legal representative appeared to be substituted, and that
plaintiffs did not procures the appointment of such legal representatives." As a result the
"continuance of a proceeding during the pendency of which a party thereto dies, without such
having been validly substituted in accordance with the rules, amounts to lacks of
jurisdiction."
5
The same ruling was given in the earlier case ofFerreria vs. Gonzales (104 Phil
143), where this Court set aside the decision of the Court of Agrarian Relations because "no
valid substitution was effected, consequently, the court never acquired jurisdiction over
appellant for the purpose of making the decision binding upon her either personally or as legal
representative of the estate of her deceased mother." Assuming that jurisdiction was ever
acquired at the outset over defendant Felix Jose, it was:
inevitably impaired on 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 on 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.
6

The need therefore for substitution is based on the right of a party to due process. Summing up
then the previous ruling of this Court in the afore-cited cases, and noting that Rule 3, Sec. 17,
Revised Rules of Court uses the word "shall", one infers that substitution is indeed a mandatory
requirement in actions surviving the deceased. It has been held that in "statutes relating to
procedure ... every act which is jurisdictional or of the essence of the proceedings or is
prescribed for the protection or benefit of the party affected, is mandatory."
7
The petitioners,
however, take the contrary view, pointing to the case of Lota vs. Tolentino (90 Phil. 831) to
argue that the said section involves only a procedural requirement (Petitioners' Brief, p. 16). A
reading of the said case shows that the nature of the action filed by the plaintiff was purely
personal since it was for accounting and liquidation of the partnership, and on defendant's
death, the claim was extinguished.
In any case, substitution should be ordered even after judgment has been rendered since
proceedings may still be taken as was done in this case — like an execution; and the legal
representative must appear to protect the interests of the deceased and in all such
proceedings.
8
In this instance, however, the Court of Appeals found that there is "no showing
that the appellant's were notified of the decision dated March 29, 1962 or of the auction sale
held thereafter.
9
Petitioners take issue with the Appellate Court on this point. But since the
present petition is for review on certiorari, where "only questions of law may be raised," (R. 45,
Sec. 2, Revised Rules of Court), this Court has held in a number of cases that findings of facts
by the Court of Appeals are; in general, final and conclusive (Chan vs. Court of Appeals, 33
SCRA 737; Ramirez Te. Corp. vs. Bank of America, 32 SCRA 191; Castro vs. Tamporong 78
Phil. 804 to name a few), except when:
10

1 the conclusion is a finding grounded entirely on speculation,
2 the inference made is manifestly mistaken, absurd or impossible;
3 there is a grave abuse of discretion
4 the judgment is based on a misapprehension of facts;
5 the Court of Appeals is making its findings, went beyond the issues of the case and
the same are contrary to the submission of both appellant and appellee.
None of the above exceptions however applies to the case at bar, so there is no reason to disturb
the findings of the Court of Appeals.
Petitioners also contend that since two of the private respondents were co-respondents with their
father in the complaint before the Court of Agrarian Relations, petitioners "believe that they were
supposed to have represented their father in the appeal to the Supreme Court. "Likewise, they
maintain that the decision of the Court in the said appeal operated as res judicata on all matters
which might have been litigated and decided before the judgment became final (pp. 79, rollo).
With reference to the first objection, it is worthy to note that the herein private respondents were
sued in their individual capacity for their separate and respective obligations. The dismiss of he
appeal by the Supreme Court for failure of the petitioners to file their brief or memorandum
within the prescribed period could not, therefore, bar the heirs of the deceased from questioning
all the proceedings particularly if the fact is considered that there could not have been a final
judgment on the merits since in the first place, jurisdiction over the deceased defendant was
lacking in the lower court, as heretofore shown. Accordingly there can be no res judicata as
contended by petitioner.
11

IN VIEW OF THE FOREGOING, We hereby affirm the decision of the Court of Appeals, No
pronouncement as to costs.
SO ORDERED.
G.R. No. L-45809 December 12, 1986
SOCORRO SEPULVEDA LAWAS, petitioner,
vs.
COURT OF APPEALS, HON. BERNARDO LL. SALAS, [as Judge, CFI, Cebu, Branch VIII], and
PACIFICO PELAEZ, respondents.
Jesus Yray for petitioner.
Teodoro Almase for respondents.

FERIA, J .:
This is an appeal by certiorari under Rule 45 of the Revised Rules of Court from the decision of the
Court of Appeals which dismissed the petition for certiorari under, Rule 65 of said Rules against
respondent Judge Bernardo L. Salas of the Court of First Instance of Cebu. The antecedent facts
are briefly as follows:
Private respondent Pacifico Pelaez filed a Complaint on December 6, 1972 against petitioner's
father, Pedro Sepulveda, for ownership and partition of certain parcels of land. Defendant Pedro
Sepulveda filed his Answer dated December 31, 1972 resisting the claim and raising the special
defenses of laches, prescription and failure to ventilate in a previous special proceeding. During the
presentation of evidence for the plaintiff, the defendant died on March 25, 1975. On May 21, 1975,
counsels for the deceased defendant filed a notice of death wherein were enumerated the thirteen
children and surviving spouse of the deceased.
On May 5, 1975, petitioner filed a petition for letters of administration and she was appointed judicial
administratrix of the estate of her late father in July, 1976.
At the hearing of the case on November 27, 1975, Attys. Domingo Antigua and Serafin Branzuela,
former counsels for the deceased defendant, manifested in open court that with the death of their
client, their contract with him was also terminated and none of the thirteen children nor the surviving
spouse had renewed the contract, but instead they had engaged the services of other lawyers in the
intestate proceedings.
Notwithstanding the manifestation of the former counsels of the deceased defendant, the respondent
trial judge set the case for hearing on January 13, 1976 and sent the notice of hearing to said
counsels.
On January 13, 1976, the respondent trial judge issued three orders. The first order substituted the
heirs of the deceased defendant, namely, his thirteen children and surviving spouse, as defendants;
the second order authorized Atty. Teodoro Almase, counsel for the plaintiff, to present his evidence
in the absence of Attys. Antigua and Branzuela and the third order treated the case submitted for
decision, after the plaintiff had presented his evidence and rested his case, and directed that said
counsels and the fourteen heirs of the deceased defendant be furnished copies thereof.
On January 28, 1976, the respondent trial judge rendered a decision against the heirs of the
deceased defendant.
On February 19, 1976, ten of the children of the deceased defendant, who apparently did not know
that a decision had already been rendered, filed an Answer in-substitution of the deceased
defendant through their counsel Atty. Jesus Yray. This was denied admission by the respondent trial
judge for being already moot and academic because of the earlier decision.
On March 9, 1976, the widow and two other children of the deceased defendant, through their
counsel Atty. Delfin Quijano, filed a motion for substitution and for reconsideration of the decision
dated January 28, 1976. On April 7, 1976, the respondent trial judge issued an order setting aside
his decision and setting the case in the calendar for cross-examination of the plaintiff, Pacifico
Pelaez, with a proviso that said order was applicable only to the three heirs who had filed the motion.
On July 14, 1976, the respondent trial judge lifted the order setting aside his decision, despite the
verbal petition for postponement of the hearing made by one of the three heirs on the ground of the
absence of their counsel.
On July 9, 1976, petitioner, who had been appointed judicial administratrix of the estate of the
deceased defendant and who was one of the heirs who had filed an Answer on February 19, 1976,
filed a motion to intervene and/or substitute the deceased defendant. On August 25, 1976, the
respondent trial judge denied the motion for the reason that the decision had already become final.
Petitioner then filed a special civil action of certiorari with the Court of Appeals to annul the
proceedings in the respondent trial court. However, the Court of Appeals dismissed the petition for
certiorari. Hence, the present appeal.
The appeal is meritorious.
Section 16 of Rule 3 provides as follows:
Duty of attorney upon death, incapacity, or incompetency of party. — Whenever a party to a
pending case dies, becomes incapacitated or incompetent, it shall be the duty of his attorney
to inform the court promptly of such death, incapacity or incompetency, and to give the name
and residence of his executor, administrator, guardian or other legal representative.
The former counsels for the deceased defendant, Pedro Sepulveda, complied with this rule by filing
a notice of death on May 21, 1975. They also correctly manifested in open court at the hearing of the
case on November 27, 1975, that with the death of their client their contract with him was also
terminated and none of the heirs of the deceased had renewed the contract, and the heirs had
instead engaged the services of other lawyers in the intestate proceedings.
Both the respondent trial judge and the Court of Appeals erred in considering the former counsels of
the deceased defendant as counsels for the heirs of the deceased. The statement in the decision of
the Court of Appeals that "the appearance of the lawyers of their deceased father in court on
January 13, 1976 (Annex K) carries the presumption that they were authorized by the heirs of the
deceased defendant" is erroneous. As this Court held in People vs. Florendo (77 Phil. 16), "the
attorneys for the offended party ceased to be the attorneys for the deceased upon the death of the
latter, the principal. " Moreover, such a presumption was not warranted in view of the manifestation
of said lawyers in open court on November 27, 1975 that they were not representing the heirs of the
deceased defendant.
Consequently, when on the same date, November 27, 1975, the respondent trial judge issued an
order setting the continuation of the trial of the case on January 13, 1976, with notices sent to Atty.
Almase for the plaintiff and Attys. Antigua and Branzuela for the deceased defendant, he acted with
grave abuse of discretion amounting to excess of jurisdiction.
It was only at the hearing on January 13, 1976 that the respondent trial judge issued an order
substituting the deceased defendant with his fourteen heirs. This was followed with an order
authorizing counsel for the plaintiff to present his evidence in the absence of Attys. Antigua and
Branzuela, and lastly, an order treating the case as submitted for decision.
In the order of the respondent trial judge dated November 10, 1976, denying petitioner's motion for
reconsideration of the order denying her motion for intervention (Annex 1 of the Comment), mention
was made of the delayed arrival of Attys. Antigua and Branzuela at the hearing on January 13, 1976
and of their being allowed to cross-examine the plaintiff himself.
The refusal of said former counsels of the deceased defendant to cross-examine the plaintiff was
justified —
... in view of the intervening event of appellant's death and the interposition of the equally
established principle that the relationship of attorney and client is terminated by the death of
the client, as acknowledged by respondent court itself as well as respondents. In the
absence of a retainer from the heirs or authorized representatives of his deceased defendant
the attorney would have no further power or authority to appear or take any further action in
the case, save to inform the court of the client's death and take the necessary steps to
safeguard the decedent's rights in the case. (Vda. de Haberer vs. Court of Appeals, May 26,
1981, 104 SCRA 534, 540)
Moreover, as above stated, petitioner had as early as May 5, 1975 filed a petition for letters of
administration, and the same was granted in July, 1975.
Section 17 of Rule 3 provides as follows:
Death of party. After a party dies and the claim is not thereby extinguished, the court shag
order, upon proper notice, the legal representative of the deceased to appear and to be
substituted for the deceased, within a period of thirty (30) days, or within such time as may
be granted. If the legal representative fails to appear within said time, the court may order the
opposing party to procure the appointment of a legal representative of the deceased within a
time to be specified by the court, and the representative shall immediately appear for and on
behalf of the interest of the deceased. The court charges involved in procuring such
appointment, if defrayed by the opposing party, may be recovered as costs. The heirs of the
de ceased may be allowed to be substituted for the deceased, without requiring the
appointment of an executor or administrator and the court may appoint guardian ad litem for
the minor heirs.
As this Court has held:
... Under the Rule, it is the court that is called upon, after notice of a party's death and the
claim is not thereby extinguished, to order upon proper notice the legal representative of the
deceased to appear within a period of 30 days or such time as it may grant. Since no
administrator of the estate of the deceased appellant had yet been appointed as the same
was still pending determination in the Court of First Instance of Quezon City, the motion of
the deceased's counsel for the suspension of the running of the period within which to file
appellant's brief was well-taken. More, under the Rule, it should have set a period for the
substitution of the deceased party with her legal representative or heirs, failing which, the
court is called upon to order the opposing party to procure the appointment of a legal
representative of the deceased at the cost of the deceased's estate, and such representative
shall then 'immediately appear for and on behalf of the interest of the deceased.
Respondent court gravely erred in not following the Rule and requiring the appearance of the
legal representative of the deceased and instead dismissing the appeal of the deceased who
yet had to be substituted in the pending appeal Thus, it has been held that when a party dies
in an action that survives, and no order is issued by the court for the appearance of the legal
representative or of the heirs of the deceased in substitution of the deceased, and as a
matter of fact no such substitution has ever been effected, the trial held by the court without
such legal representatives or heirs and the judgment rendered after such trial are null and
void because the court acquired no jurisdiction over the persons of the legal representatives
or of the heirs upon whom the trial and the judgment would be binding. (Ordoveza vs.
Raymundo, 63 Phil 275 [1936]; Obut vs. Court of Appeals, et al., 70 SCRA 546) (Vda. de
Haberer vs. Court of Appeals, supra, p. 541.
Under the said Rule, priority is given to the legal representative of the deceased, that is, the executor
or administrator of his estate. It is only in cases of unreasonable delay in the appointment of an
executor or administrator, or in cases where the heirs resort to an extrajudicial settlement of the
estate, that the court may adopt the alternative of allowing the heirs of the deceased to be
substituted for the deceased.
In the case at bar, in view of the pendency of Special Proceeding No. 37-SF Intestate Estate of
Pedro Sepulveda, and the pending application of petitioner to be appointed judicial administratrix of
the estate, the respondent trial judge should have awaited the appointment of petitioner and granted
her motion to substitute the deceased defendant.
While the lower courts correctly held that the death of Pedro Sepulveda did not obliterate his verified
Answer to the Complaint filed by private respondent and that the Answer filed by the ten heirs and
the Answer filed by the Administratrix were both unnecessary, the said heirs or the administratrix
could, with leave of court, file an Amended Answer.
In view of the foregoing, the Court rules that the proceedings conducted by the respondent trial
judge after the death of the deceased defendant are null and void.
WHEREFORE, the decision of the Court of Appeals is reversed; the petition for certiorari is granted;
petitioner is ordered substituted for the deceased defendant, Pedro Sepulveda; and the proceedings
conducted by the respondent trial judge after the death of the deceased defendant, including the
decision rendered by him on January 28, 1976, are set aside; with costs against private respondent.
G.R. No. L-55322 February 16, 1989
MOISES JOCSON, petitioner,
vs.
HON. COURT OF APPEALS, AGUSTINA JOCSON-VASQUEZ, ERNESTO
VASQUEZ, respondents.
Dolorfino and Dominguez Law Officers for petitioner.
Gabriel G. Mascardo for private respondents.
MEDIALDEA, J .:
This is a petition for review on certiorari under Rule 45 of the Rules of Court of the decision of the
Court of Appeals in CA- G.R. No. 63474, promulgated on April 30, 1980, entitled "MOISES
JOCSON, plaintiff-appellee, versus AGUSTINA JOCSON-VASQUEZ and ERNESTO VASQUEZ,
defendant-appellants," upholding the validity of three (3) documents questioned by Moises Jocson,
in total reversal of the decision of the then Court of First Instance of Cavite, Branch I, which declared
them as null and void; and of its resolution, dated September 30, 1980, denying therein appellee's
motion for reconsideration.
Petitioner Moises Jocson and respondent Agustina Jocson-Vasquez are the only surviving offsprings
of the spouses Emilio Jocson and Alejandra Poblete, while respondent Ernesto Vasquez is the
husband of Agustina. Alejandra Poblete predeceased her husband without her intestate estate being
settled. Subsequently, Emilio Jocson also died intestate on April 1, 1972.
As adverted to above, the present controversy concerns the validity of three (3) documents executed
by Emilio Jocson during his lifetime. These documents purportedly conveyed, by sale, to Agustina
Jocson-Vasquez what apparently covers almost all of his properties, including his one-third (1/3)
share in the estate of his wife. Petitioner Moises Jocson assails these documents and prays that
they be declared null and void and the properties subject matter therein be partitioned between him
and Agustina as the only heirs of their deceased parents.
The documents, which were presented as evidence not by Moises Jocson, as the party assailing its
validity, but rather by herein respondents, are the following:
1) "Kasulatan ng Bilihan ng Lupa," marked as Exhibit 3 (pp. 12-13, Records) for the
defendant in the court a quo, dated July 27, 1968. By this document Emilio Jocson
sold to Agustina Jocson-Vasquez six (6) parcels of land, all located at Naic, Cavite,
for the sum of ten thousand P10,000.00 pesos. On the same document Emilio
Jocson acknowledged receipt of the purchase price, thus:
Na ngayon, alang-alang sa halagang SAMPUNG LIBONG PISO (P10,000) salaping
Pilipino na aking tinanggap ng buong kasiyahan loob at ang pagkakatanggap ay
aking hayagang inaamin sa pamamagitan ng kasulatang ito, sa aking anak na si
Agustina Jocson, na may sapat na gulang, mamamayang Pilipino, asawa ni Ernesto
Vasquez, at naninirahan sa Poblacion, Naic, Cavite, ay aking ipinagbile ng lubusan
at kagyat at walang ano mang pasubali ang nabanggit na anim na pirasong lupa na
nasa unang dahon ng dokumentong ito, sa nabanggit na Agustina Jocson, at sa
kaniyang tagapagmana o makakahalili at gayon din nais kong banggitin na kahit na
may kamurahan ang ginawa kong pagbibile ay dahilan sa ang nakabile ay aking
anak na sa akin at mapaglingkod, madamayin at ma-alalahanin, na tulad din ng isa
ko pang anak na lalaki. Ang kuartang tinanggap ko na P10,000.00, ay gagamitin ko
sa aking katandaan at mga huling araw at sa aking mga ibang mahahalagang
pangangailangan. [Emphasis supplied]
Na nais ko ring banggitin na ang ginawa kong ito ay hindi labag sa ano mang batas o
kautusan, sapagkat ang aking pinagbile ay akin at nasa aking pangalan. Ang mga
lupang nasa pangalan ng aking nasirang asawa ay hindi ko ginagalaw ni
pinakikialaman at iyon ay dapat na hatiin ng dalawa kong anak alinsunod sa umiiral
na batas (p. 13, Records.)
2) "Kasulatan ng Ganap na Bilihan,"dated July 27,1968, marked as Exhibit 4 (p. 14,
Records). On the face of this document, Emilio Jocson purportedly sold to Agustina
Jocson-Vasquez, for the sum of FIVE THOUSAND (P5,000.00) PESOS, two rice
mills and a camarin (camalig) located at Naic, Cavite. As in the first document,
Moises Jocson acknowledged receipt of the purchase price:
'Na alang-alang sa halagang LIMANG LIBONG PISO (P5,000.00) salaping Pilipino
na aking tinanggap ng buong kasiyahan loob sa aking anak na Agustina Jocson ....
Na ang halagang ibinayad sa akin ay may kamurahan ng kaunti ngunit dahil sa
malaking pagtingin ko sa kaniya ... kaya at pinagbile ko sa kaniya ang mga
nabanggit na pagaari kahit na hindi malaking halaga ... (p. 14, Records).
3) Lastly, the "Deed of Extrajudicial Partition and Adjudication with Sale, "dated
March 9, 1969, marked as Exhibit 2 (p. 10-11, Records), whereby Emilio Jocson and
Agustina Jocson-Vasquez, without the participation and intervention of Moises
Jocson, extrajudicially partitioned the unsettled estate of Alejandra Poblete, dividing
the same into three parts, one-third (1/3) each for the heirs of Alejandra Poblete,
namely: Emilio Jocson, Agustina Jocson-Vasquez and Moises Jocson. By the same
instrument, Emilio sold his one- third (1/3) share to Agustin for the sum of EIGHT
THOUSAND (P8,000.00) PESOS. As in the preceding documents, Emilio Jocson
acknowledged receipt of the purchase price:
Now for and in consideration of the sum of only eight thousand (P8,000.00) pesos,
which I, the herein Emilio Jocson had received from my daughter Agustina Jocson,
do hereby sell, cede, convey and transfer, unto the said Agustina Jocson, her heirs
and assigns, administrators and successors in interests, in the nature of absolute
and irrevocable sale, all my rights, interest, shares and participation, which is
equivalent to one third (1/3) share in the properties herein mentioned and described
the one third being adjudicated unto Agustina Jocson and the other third (1/3) portion
being the share of Moises Jocson. (p. 11, Records).
These documents were executed before a notary public. Exhibits 3 and 4 were registered with the
Office of the Register of Deeds of Cavite on July 29, 1968 and the transfer certificates of title
covering the properties therein in the name of Emilio Jocson, married to Alejandra Poblete," were
cancelled and new certificates of title were issued in the name of Agustina Jocson-Vasquez. Exhibit
2 was not registered with the Office of the Register of Deeds.
Herein petitioner filed his original complaint (Record on Appeal, p. 27, Rollo) on June 20,1973 with
the then Court of First Instance of Naic, Cavite (docketed as Civil Case No. TM- 531), and which
was twice amended. In his Second Amended Complaint (pp. 47-58, Record on Appeal), herein
petitioner assailed the above documents, as aforementioned, for being null and void.
It is necessary to partly quote the allegation of petitioner in his complaint for the reason that the
nature of his causes of action is at issue, thus:
8. [With regard the first document, that] the defendants, through fraud, deceit, undue
pressure and influence and other illegal machinations, were able to induce, led, and
procured their father ... to sign [the] contract of sale ..., for the simulated price of
P10,000.00, which is a consideration that is shocking to the conscience of ordinary
man and despite the fact that said defendants have no work or livelihood of their own
...; that the sale is null and void, also, because it is fictitious, simulated and fabricated
contract x x x (pp. 52-53, Record on Appeal). [Emphasis supplied]
xxx xxx xxx
12. [With regards the second and third document, that they] are null and void
because the consent of the father, Emilio Jocson, was obtained with fraud, deceit,
undue pressure, misrepresentation and unlawful machinations and trickeries
committed by the defendant on him; and that the said contracts are simulated,
fabricated and fictitious, having been made deliberately to exclude the plaintiff from
participating and with the dishonest and selfish motive on the part of the defendants
to defraud him of his legitimate share on said properties [subject matter thereof]; and
that without any other business or employment or any other source of income,
defendants who were just employed in the management and administration of the
business of their parents, would not have the sufficient and ample means to
purchase the said properties except by getting the earnings of the business or by
simulated consideration ... (pp. 54-55, Record on Appeal). [Emphasis supplied]
Petitioner explained that there could be no real sale between a father and daughter who are living
under the same roof, especially so when the father has no need of money as the properties
supposedly sold were all income-producing. Further, petitioner claimed that the properties
mentioned in Exhibits 3 and 4 are the unliquidated conjugal properties of Emilio Jocson and
Alejandra Poblete which the former, therefore, cannot validly sell (pp. 53, 57, Record on Appeal). As
far as Exhibit 2 is concerned, petitioner questions not the extrajudicial partition but only the sale by
his father to Agustina of the former's 1/3 share (p. 13, Rollo).
The trial court sustained the foregoing contentions of petitioner (pp. 59-81, Record on Appeal). It
declared that the considerations mentioned in the documents were merely simulated and fictitious
because: 1) there was no showing that Agustina Jocson-Vasquez paid for the properties; 2) the
prices were grossly inadequate which is tantamount to lack of consideration at all; and 3) the
improbability of the sale between Emilio Jocson and Agustina Jocson-Vasquez, taking into
consideration the circumstances obtaining between the parties; and that the real intention of the
parties were donations designed to exclude Moises Jocson from participating in the estate of his
parents. It further declared the properties mentioned in Exhibits 3 and 4 as conjugal properties of
Emilio Jocson and Alejandra Poblete, because they were registered in the name of "Emilio Jocson,
married to Alejandra Poblete" and ordered that the properties subject matter of all the documents be
registered in the name of herein petitioners and private respondents.
On appeal, the Court of Appeals in CA-G.R. No. 63474-R rendered a decision (pp. 29-42, Rollo) and
reversed that of the trial court's and ruled that:
1. That insofar as Exhibits 3 and 4 are concerned the appellee's complaint for
annulment, which is indisputably based on fraud, and undue influence, is now barred
by prescription, pursuant to the settled rule that an action for annulment of a contract
based on fraud must be filed within four (4) years, from the discovery of the fraud, ...
which in legal contemplation is deemed to be the date of the registration of said
document with the Register of Deeds ... and the records admittedly show that both
Exhibits 3 and 4, were all registered on July 29, 1968, while on the other hand, the
appellee's complaint was filed on June 20, 1973, clearly beyond the aforesaid four-
year prescriptive period provided by law;
2. That the aforesaid contracts, Exhibits 2, 3, and 4, are decisively not simulated or
fictitious contracts, since Emilio Jocson actually and really intended them to be
effective and binding against him, as to divest him of the full dominion and ownership
over the properties subject of said assailed contracts, as in fact all his titles over the
same were all cancelled and new ones issued to appellant Agustina Jocson-Vasquez
...;
3. That in regard to Exhibit 2, the same is valid and subsisting, and the partition with
sale therein made by and between Emilio Jocson and Agustina Jocson-Vasquez,
affecting the 2/3 portion of the subject properties described therein have all been
made in accordance with Article 996 of the New Civil Code on intestate succession,
and the appellee's (herein petitioner) remaining 1/3 has not been prejudiced (pp. 41-
42, Rollo).
In this petition for review, Moises Jocson raised the following assignments of errors:
1. HAS THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING
THAT THE SUIT FOR THE ANNULMENT OF CONTRACTS FILED BY
PETITIONERS WITH THE TRIAL COURT IS "BASED ON FRAUD" AND NOT ON
ITS INEXISTENCE AND NULLITY BECAUSE OF IT'S BEING SIMULATED OR
FICTITIOUS OR WHOSE CAUSE IS CONTRARY TO LAW, MORALS AND GOOD
CUSTOMS?
II. HAS THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING
THAT THE COMPLAINT FILED BY PETITIONER IN THE TRIAL COURT IS
BARRED BY PRESCRIPTION?
III. HAS THE RESPONDENT COURT OF APPEALS ERRED IN NOT DECLARING
AS INEXISTENT AND NULL AND VOID THE CONTRACTS IN QUESTION AND IN
REVERSING THE DECLARING DECISION OF THE TRIAL COURT? (p. 2, Rollo)
I.
The first and second assignments of errors are related and shall be jointly discussed.
According to the Court of Appeals, herein petitioner's causes of action were based on fraud. Under
Article 1330 of the Civil Code, a contract tainted by vitiated consent, as when consent was obtained
through fraud, is voidable; and the action for annulment must be brought within four years from the
time of the discovery of the fraud (Article 1391, par. 4, Civil Code), otherwise the contract may no
longer be contested. Under present jurisprudence, discovery of fraud is deemed to have taken place
at the time the convenant was registered with the Register of Deeds (Gerona vs. De Guzman, No. L-
19060, May 29,1964, 11 SCRA 153). Since Exhibits 3 and 4 were registered on July 29, 1968 but
Moises Jocson filed his complaint only on June 20, 1973, the Court of Appeals ruled that insofar as
these documents were concerned, petitioner's "annulment suit" had prescribed.
If fraud were the only ground relied upon by Moises Jocson in assailing the questioned documents,
We would have sustained the above pronouncement. But it is not so. As pointed out by petitioner, he
further assailed the deeds of conveyance on the ground that they were without consideration since
the amounts appearing thereon as paid were in fact merely simulated.
According to Article 1352 of the Civil Code, contracts without cause produce no effect whatsoever. A
contract of sale with a simulated price is void (Article 1471; also Article 1409 [3]]), and an action for
the declaration of its nullity does not prescribe (Article 1410, Civil Code; See also, Castillo v. Galvan,
No. L-27841, October 20, l978, 85 SCRA 526). Moises Jocsons saction, therefore, being for the
judicial declaration of nullity of Exhibits 3 and 4 on the ground of simulated price, is imprescriptible.
II.
For petitioner, however, the above discussion may be purely academic. The burden of proof in
showing that contracts lack consideration rests on he who alleged it. The degree of proof becomes
more stringent where the documents themselves show that the vendor acknowledged receipt of the
price, and more so where the documents were notarized, as in the case at bar. Upon consideration
of the records of this case, We are of the opinion that petitioner has not sufficiently proven that the
questioned documents are without consideration.
Firstly, Moises Jocson's claim that Agustina Jocson-Vasquez had no other source of income other
than what she derives from helping in the management of the family business (ricefields and
ricemills), and which was insufficient to pay for the purchase price, was contradicted by his own
witness, Isaac Bagnas, who testified that Agustina and her husband were engaged in the buy and
sell of palay and rice (p. 10, t.s.n., January 14, 1975). Amazingly, petitioner himself and his wife
testified that they did not know whether or not Agustina was involved in some other business (p. 40,
t.s.n., July 30, 1974; p. 36, t.s.n., May 24, 1974).
On the other hand, Agustina testified that she was engaged in the business of buying and selling
palay and rice even before her marriage to Ernesto Vasquez sometime in 1948 and continued doing
so thereafter (p. 4, t.s.n., March 15, 1976). Considering the foregoing and the presumption that a
contract is with a consideration (Article 1354, Civil Code), it is clear that petitioner miserably failed to
prove his allegation.
Secondly, neither may the contract be declared void because of alleged inadequacy of price. To
begin with, there was no showing that the prices were grossly inadequate. In fact, the total purchase
price paid by Agustina Jocson-Vasquez is above the total assessed value of the properties alleged
by petitioner. In his Second Amended Complaint, petitioner alleged that the total assessed value of
the properties mentioned in Exhibit 3 was P8,920; Exhibit 4, P3,500; and Exhibit 2, P 24,840, while
the purchase price paid was P10,000, P5,000, and P8,000, respectively, the latter for the 1/3 share
of Emilio Jocson from the paraphernal properties of his wife, Alejandra Poblete. And any difference
between the market value and the purchase price, which as admitted by Emilio Jocson was only
slight, may not be so shocking considering that the sales were effected by a father to her daughter in
which case filial love must be taken into consideration (Alsua-Betts vs. Court of Appeals, No. L-
46430-31, April 30, 1979, 92 SCRA 332).
Further, gross inadequacy of price alone does not affect a contract of sale, except that it may
indicate a defect in the consent, or that the parties really intended a donation or some other act or
contract (Article 1470, Civil Code) and there is nothing in the records at all to indicate any defect in
Emilio Jocson's consent.
Thirdly, any discussion as to the improbability of a sale between a father and his daughter is purely
speculative which has no relevance to a contract where all the essential requisites of consent, object
and cause are clearly present.
There is another ground relied upon by petitioner in assailing Exhibits 3 and 4, that the properties
subject matter therein are conjugal properties of Emilio Jocson and Alejandra Poblete. It is the
position of petitioner that since the properties sold to Agustina Jocson-Vasquez under Exhibit 3 were
registered in the name of "Emilio Jocson, married to Alejandra Poblete," the certificates of title he
presented as evidence (Exhibits "E', to "J', pp. 4-9, Records) were enough proof to show that the
properties covered therein were acquired during the marriage of their parents, and, therefore, under
Article 160 of the Civil Code, presumed to be conjugal properties.
Article 160 of the Civil Code provides that:
All property of the marriage is presumed to belong to the conjugal partnership, unless
it be proved that it pertains exclusively to the husband or to the wife.
In Cobb-Perez vs. Hon. Gregorio Lantin, No. L-22320, May 22, 1968, 23 SCRA 637, 644, We held
that:
Anent their claim that the shares in question are conjugal assets, the spouses Perez
adduced not a modicum of evidence, although they repeatedly invoked article 160 of
the New Civil Code which provides that ... . As interpreted by this Court, the party
who invokes this presumption must first prove that the property in controversy was
acquired during the marriage. In other words, proof of acquisition during the
coverture is a condition sine qua non for the operation of the presumption in favor of
conjugal ownership. Thus in Camia de Reyes vs. Reyes de Ilano [62 Phil. 629, 639],
it was held that "according to law and jurisprudence, it is sufficient to prove that the
Property was acquired during the marriage in order that the same may be deemed
conjugal property." In the recent case ofMaramba vs. Lozano, et. al. [L-21533, June
29, 1967, 20 SCRA 474], this Court, thru Mr. Justice Makalintal, reiterated that "the
presumption under Article 160 of the Civil Code refers to property acquired during the
marriage," and then concluded that since "there is no showing as to when the
property in question was acquired...the fact that the title is in the wife's name alone is
determinative." Similarly, in the case at bar, since there is no evidence as to when
the shares of stock were acquired, the fact that they are registered in the name of the
husband alone is an indication that the shares belong exclusively to said spouse.'
This pronouncement was reiterated in the case of Ponce de Leon vs. Rehabilitation Finance
Corporation, No. L-24571, December 18, 1970, 36 SCRA 289, and later in Torela vs. Torela, No.
1,27843, October 11, 1979, 93 SCRA 391.
It is thus clear that before Moises Jocson may validly invoke the presumption under Article 160 he
must first present proof that the disputed properties were acquired during the marriage of Emilio
Jocson and Alejandra Poblete. The certificates of title, however, upon which petitioner rests his claim
is insufficient. The fact that the properties were registered in the name of "Emilio Jocson, married to
Alejandra Poblete" is no proof that the properties were acquired during the spouses' coverture.
Acquisition of title and registration thereof are two different acts. It is well settled that registration
does not confer title but merely confirms one already existing (See Torela vs. Torela, supra). It may
be that the properties under dispute were acquired by Emilio Jocson when he was still a bachelor
but were registered only after his marriage to Alejandra Poblete, which explains why he was
described in the certificates of title as married to the latter.
Contrary to petitioner's position, the certificates of title show, on their face, that the properties were
exclusively Emilio Jocson's, the registered owner. This is so because the words "married to'
preceding "Alejandra Poblete' are merely descriptive of the civil status of Emilio Jocson Litam v.
Rivera, 100 Phil. 354; Stuart v. Yatco, No. L-16467, April 27, 1962, 4 SCRA 1143; Magallon v.
Montejo, G.R. No. L-73733, December 16, 1986, 146 SCRA 282). In other words, the import from
the certificates of title is that Emilio Jocson is the owner of the properties, the same having been
registered in his name alone, and that he is married to Alejandra Poblete.
We are not unmindful that in numerous cases We consistently held that registration of the property in
the name of only one spouse does not negate the possibility of it being conjugal (See Bucoy vs.
Paulino, No. L-25775, April 26, 1968, 23 SCRA 248). But this ruling is not inconsistent with the
above pronouncement for in those cases there was proof that the properties, though registered in
the name of only one spouse, were indeed conjugal properties, or that they have been acquired
during the marriage of the spouses, and therefore, presumed conjugal, without the adverse party
having presented proof to rebut the presumption (See Mendoza vs- Reyes, No. L-31618, August 17,
1983, 124 SCRA 154).
In the instant case, had petitioner, Moises Jocson, presented sufficient proof to show that the
disputed properties were acquired during his parents' coverture. We would have ruled that the
properties, though registered in the name of Emilio Jocson alone, are conjugal properties in view of
the presumption under Article 160. There being no such proof, the condition sine qua non for the
application of the presumption does not exist. Necessarily, We rule that the properties under Exhibit
3 are the exclusive properties of Emilio Jocson.
There being no showing also that the camarin and the two ricemills, which are the subject of Exhibit
4, were conjugal properties of the spouses Emilio Jocson and Alejandra Poblete, they should be
considered, likewise, as the exclusive properties of Emilio Jocson, the burden of proof being on
petitioner.