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REMEDIAL LAW REV I : CEAC : ATTY.

DELA PENA [RULES 1-5]


G.R. No. 138822

January 23, 2001

EVANGELINE ALDAY, petitioner,


vs.
FGU INSURANCE CORPORATION, respondent.
GONZAGA-REYES, J.:
On 5 May 1989, respondent FGU Insurance Corporation filed a complaint with the Regional Trial
Court of Makati1alleging that petitioner Evangeline K. Alday owed it P114,650.76, representing
unliquidated cash advances, unremitted costs of premiums and other charges incurred by petitioner in
the course of her work as an insurance agent for respondent. 2 Respondent also prayed for exemplary
damages, attorney's fees, and costs of suit.3Petitioner filed her answer and by way of counterclaim,
asserted her right for the payment of P104,893.45, representing direct commissions, profit
commissions and contingent bonuses earned from 1 July 1986 to 7 December 1986, and for
accumulated premium reserves amounting to P500,000.00. In addition, petitioner prayed for
attorney's fees, litigation expenses, moral damages and exemplary damages for the allegedly
unfounded action filed by respondent.4 On 23 August 1989, respondent filed a "Motion to Strike Out
Answer With Compulsory Counterclaim And To Declare Defendant In Default" because petitioner's
answer was allegedly filed out of time. 5However, the trial court denied the motion on 25 August 1989
and similarly rejected respondent's motion for reconsideration on 12 March 1990. 6 A few weeks later,
on 11 April 1990, respondent filed a motion to dismiss petitioner's counterclaim, contending that the
trial court never acquired jurisdiction over the same because of the non-payment of docket fees by
petitoner.7 In response, petitioner asked the trial court to declare her counterclaim as exempt from
payment of docket fees since it is compulsory and that respondent be declared in default for having
failed to answer such counterclaim.8
In its 18 September 1990 Order, the trial court9 granted respondent's motion to dismiss petitioner's
counterclaim and consequently, denied petitioner's motion. The court found petitioner's counterclaim
to be merely permissive in nature and held that petitioner's failure to pay docket fees prevented the
court from acquiring jurisdiction over the same. 10The trial court similar denied petitioner's motion for
reconsideration on 28 February 1991.1wphi1.nt
On 23 December 1998, the Court of Appeals11 sustained the trial court, finding that petitioner's own
admissions, as contained in her answer, show that her counterclaim is merely permissive. The
relevant portion of the appellate court's decision12 is quoted herewith Contrary to the protestations of appellant, mere reading of the allegations in the answer a
quo will readily show that her counterclaim can in no way be compulsory. Take note of the
following numbered paragraphs in her answer:

"(14) That, indeed, FGU's cause of action which is not supported by any
document other than the self-serving 'Statement of Account' dated March 28,
1988 x x x
(15) That it should be noted that the cause of action of FGU is not the
enforcement of the Special Agent's Contract but the alleged 'cash accountabilities
which are not based on written agreement x x x.
x

(19) x x x A careful analysis of FGU's three-page complaint will show that its
cause of action is not for specific performance or enforcement of the Special
Agent's Contract rather, it is for the payment of the alleged cash accountabilities
incurred by defendant during the period form [sic] 1975 to 1986 which claim is
executory and has not been ratified. It is the established rule that unenforceable
contracts, like this purported money claim of FGU, cannot be sued upon or
enforced unless ratified, thus it is as if they have no effect. x x x."
To support the heading "Compulsory Counterclaim" in her answer and give the impression
that the counterclaim is compulsory appellant alleged that "FGU has unjustifiably failed to
remit to defendant despite repeated demands in gross violation of their Special Agent's
Contract x x x." The reference to said contract was included purposely to mislead. While on
one hand appellant alleged that appellee's cause of action had nothing to do with the Special
Agent's Contract, on the other hand, she claim that FGU violated said contract which gives
rise of [sic] her cause of action. Clearly, appellant's cash accountabilities cannot be the
offshoot of appellee's alleged violation of the aforesaid contract.
On 19 May 1999, the appellate court denied petitioner's motion for reconsideration, 13 giving rise to
the present petition.
Before going into the substantive issues, the Court shall first dispose of some procedural matters
raised by the parties. Petitioner claims that respondent is estopped from questioning her non-payment
of docket fees because it did not raise this particular issue when it filed its motion - the "Motion to
Strike out Answer With Compulsory Counterclaim And To Declare Defendant In Default" - with the
trial court; rather, it was only nine months after receiving petitioner's answer that respondent assailed
the trial court's lack of jurisdiction over petitioner's counterclaims based on the latter's failure to pay
docket fees.14 Petitioner's position is unmeritorious. Estoppel by laches arises from the negligence or
omission to assert a right within a reasonable time, warranting a presumption that the party entitled to
assert it either has abandoned or declined to assert it. 15 In the case at bar, respondent cannot be
considered as estopped from assailing the trial court's jurisdiction over petitioner's counterclaim since
this issue was raised by respondent with the trial court itself - the body where the action is pending even before the presentation of any evidence by the parties and definitely, way before any judgment
could be rendered by the trial court.

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


Meanwhile, respondent questions the jurisdiction of the Court of Appeals over the appeal filed by
petitioner from the 18 September 1990 and 28 February 1991 orders of the trial court. It is significant
to note that this objection to the appellate court's jurisdiction is raised for the first time before this
Court; respondent never having raised this issue before the appellate court. Although the lack of
jurisdiction of a court may be raised at any stage of the action, a party may be estopped from raising
such questions if he has actively taken part in the very proceedings which he questions, belatedly
objecting to the court's jurisdiction in the event that the judgment or order subsequently rendered is
adverse to him.16 In this case, respondent actively took part in the proceedings before the Court of
Appeals by filing its appellee's brief with the same. 17 Its participation, when taken together with its
failure to object to the appellate court's jurisdiction during the entire duration of the proceedings
before such court, demonstrates a willingness to abide by the resolution of the case by such tribunal
and accordingly, respondent is now most decidedly estopped from objecting to the Court of Appeals'
assumption of jurisdiction over petitioner's appeal. 18
The basic issue for resolution in this case is whether or not the counterclaim of petitioner is
compulsory or permissive in nature. A compulsory counterclaim is one which, being cognizable by
the regular courts of justice, arises out of or is connected with the transaction or occurrence
constituting the subject matter of the opposing party's claim and does not require for its adjudication
the presence of third parties of whom the court cannot acquire jurisdiction. 19
In Valencia v. Court of Appeals,20 this Court capsulized the criteria or tests that may be used in
determining whether a counterclaim is compulsory or permissive, summarized as follows:
1. Are the issues of fact and law raised by the claim and counterclaim largely the same?
2. Would res judicata bar a subsequent suit on defendant's claim absent the compulsory
counterclaim rule?
3. Will substantially the same evidence support or refute plaintiff's claim as well s
defendant's counterclaim?
4. Is there any logical relation between the claim and the counterclaim?
Another test, applied in the more recent case of Quintanilla v. Court of Appeals,21 is the "compelling
test of compulsoriness" which requires "a logical relationship between the claim and counterclaim,
that is, where conducting separate trials of the respective claims of the parties would entail a
substantial duplication of effort and time by the parties and the court."
As contained in her answer, petitioner's counterclaims are as follows:
(20) That defendant incorporates and repleads by reference all the foregoing allegations as
may be material to her Counterclaim against FGU.

(21) That FGU is liable to pay the following just, valid and legitimate claims of defendant:
(a) the sum of at least P104,893.45 plus maximum interest thereon representing,
among others, direct commissions, profit commissions and contingent bonuses
legally due to defendant; and
(b) the minimum amount of P500,000.00 plus the maximum allowable interest
representing defendant's accumulated premium reserve for 1985 and previous
years,
which FGU has unjustifiably failed to remit to defendant despite repeated demands in gross
violation of their Special Agent's Contract and in contravention of the principle of law that
"every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith."
(22) That as a result of the filing of this patently baseless, malicious and unjustified
Complaint, and FGU's unlawful, illegal and vindictive termination of their Special Agent's
Contract, defendant was unnecessarily dragged into this litigation and to defense [sic] her
side and assert her rights and claims against FGU, she was compelled to hire the services of
counsel with whom she agreed to pay the amount of P30,000.00 as and for attorney's fees
and stands to incur litigation expenses in the amount estimated to at least P20,000.00 and
for which FGU should be assessed and made liable to pay defendant.
(23) That considering further the malicious and unwarranted action of defendant in filing
this grossly unfounded action, defendant has suffered and continues to suffer from serious
anxiety, mental anguish, fright and humiliation. In addition to this, defendant's name, good
reputation and business standing in the insurance business as well as in the community
have been besmirched and for which FGU should be adjudged and made liable to pay
moral damages to defendant in the amount of P300,000.00 as minimum.
(24) That in order to discourage the filing of groundless and malicious suits like FGU's
Complaint, and by way of serving [as] an example for the public good, FGU should be
penalized and assessed exemplary damages in the sum of P100,000.00 or such amount as
the Honorable Court may deem warranted under the circumstances. 22
Tested against the abovementioned standards, petitioner's counterclaim for commissions, bonuses,
and accumulated premium reserves is merely permissive. The evidence required to prove petitioner's
claims differs from that needed to establish respondent's demands for the recovery of cash
accountabilities from petitioner, such as cash advances and costs of premiums. The recovery of
respondent's claims is not contingent or dependent upon establishing petitioner's counterclaim, such
that conducting separate trials will not result in the substantial duplication of the time and effort of
the court and the parties. One would search the records in vain for a logical connection between the

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


parties' claims. This conclusion is further reinforced by petitioner's own admissions since she
declared in her answer that respondent's cause of action, unlike her own, was not based upon the
Special Agent's Contract.23 However, petitioner's claims for damages, allegedly suffered as a result of
the filing by respondent of its complaint, are compulsory.24
There is no need for need for petitioner to pay docket fees for her compulsory counterclaim. 25 On the
other hand, in order for the trial court to acquire jurisdiction over her permissive counterclaim,
petitioner is bound to pay the prescribed docket fees. 26 The rule on the payment of filing fees has
been laid down by the Court in the case of Sun Insurance Office, Ltd. V. Hon. Maximiano Asuncion271. It is not simply the filing of the complaint or appropriate initiatory pleading, but the
payment of the prescribed docket fee, that vests a trial court with jurisdiction over the
subject-matter or nature of the action. Where the filing of the initiatory pleading is not
accompanied by payment of the docket fee, the court may allow payment of the fee within
a reasonable time but in no case beyond the applicable prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims and similar
pleadings, which shall not be considered filed until and unless the filing fee prescribed
therefor is paid. The court may allow payment of said fee within a reasonable time but also
in no case beyond its applicable prescriptive or reglementary period.

Petitioner asserts that the trial court should have declared respondent in default for having failed to
answer her counterclaim.30 Insofar as the permissive counterclaim of petitioner is concerned, there is
obviously no need to file an answer until petitioner has paid the prescribed docket fees for only then
shall the court acquire jurisdiction over such claim. 31 Meanwhile, the compulsory counterclaim of
petitioner for damages based on the filing by respondent of an allegedly unfounded and malicious suit
need not be answered since it is inseparable from the claims of respondent. If respondent were to
answer the compulsory counterclaim of petitioner, it would merely result in the former pleading the
same facts raised in its complaint.32
WHEREFORE, the assailed Decision of the Court of Appeals promulgated on 23 December 1998
and its 19 May 1999 Resolution are hereby MODIFIED. The compulsory counterclaim of petitioner
for damages filed in Civil Case No. 89-3816 is ordered REINSTATED. Meanwhile, the Regional
Trial Court of Makati (Branch 134) is ordered to require petitioner to pay the prescribed docket fees
for her permissive counterclaim (direct commissions, profit commissions, contingent bonuses and
accumulated premium reserves), after ascertaining that the applicable prescriptive period has not yet
set in.33
SO ORDERED.

3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate
pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a
claim not specified in the pleading, or if specified the same has been left for determination
by the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall
be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien
and assess and collect the additional fee.
The above mentioned ruling in Sun Insurance has been reiterated in the recent case of Susan v. Court
of Appeals.28In Suson, the Court explained that although the payment of the prescribed docket fees is
a jurisdictional requirement, its non-payment does not result in the automatic dismissal of the case
provided the docket fees are paid within the applicable prescriptive or reglementary period. Coming
now to the case at bar, it has not been alleged by respondent and there is nothing in the records to
show that petitioner has attempted to evade the payment of the proper docket fees for her permissive
counterclaim. As a matter of fact, after respondent filed its motion to dismiss petitioner's
counterclaim based on her failure to pay docket fees, petitioner immediately filed a motion with the
trial court, asking it to declare her counterclaim as compulsory in nature and therefore exempt from
docket fees and, in addition, to declare that respondent was in default for its failure to answer her
counterclaim.29However, the trial court dismissed petitioner's counterclaim. Pursuant to this Court's
ruling in Sun Insurance, the trial court should have instead given petitioner a reasonable time, but in
no case beyond the applicable prescriptive or reglementary period, to pay the filing fees for her
permissive counterclaim.

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


]G.R. No. 143581

January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,


vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional
Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING
CORPORATION, respondents.
DECISION
VELASCO, JR., J.:
In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in
civil and commercial disputes. Arbitration along with mediation, conciliation, and negotiation, being
inexpensive, speedy and less hostile methods have long been favored by this Court. The petition
before us puts at issue an arbitration clause in a contract mutually agreed upon by the parties
stipulating that they would submit themselves to arbitration in a foreign country. Regrettably, instead
of hastening the resolution of their dispute, the parties wittingly or unwittingly prolonged the
controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the
supply and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while
private respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract1 whereby KOGIES would set up an
LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines.
On April 7, 1997, the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated
March 5, 19972 amending the terms of payment. The contract and its amendment stipulated that
KOGIES will ship the machinery and facilities necessary for manufacturing LPG cylinders for which
PGSMC would pay USD 1,224,000. KOGIES would install and initiate the operation of the plant for
which PGSMC bound itself to pay USD 306,000 upon the plants production of the 11-kg. LPG
cylinder samples. Thus, the total contract price amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of Lease 3 with Worth Properties, Inc. (Worth)
for use of Worths 5,079-square meter property with a 4,032-square meter warehouse building to
house the LPG manufacturing plant. The monthly rental was PhP 322,560 commencing on January 1,
1998 with a 10% annual increment clause. Subsequently, the machineries, equipment, and facilities
for the manufacture of LPG cylinders were shipped, delivered, and installed in the Carmona plant.
PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate 4 executed by the parties on January 22, 1998, after the
installation of the plant, the initial operation could not be conducted as PGSMC encountered financial

difficulties affecting the supply of materials, thus forcing the parties to agree that KOGIES would be
deemed to have completely complied with the terms and conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and initial operation of the plant,
PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP
4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000. 5
When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT STOPPED."
Thus, on May 8, 1998, KOGIES sent a demand letter6 to PGSMC threatening criminal action for
violation of Batas Pambansa Blg.22 in case of nonpayment. On the same date, the wife of PGSMCs
President faxed a letter dated May 7, 1998 to KOGIES President who was then staying at a Makati
City hotel. She complained that not only did KOGIES deliver a different brand of hydraulic press
from that agreed upon but it had not delivered several equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but the
payments were stopped for reasons previously made known to KOGIES. 7
On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated March
5, 1997 on the ground that KOGIES had altered the quantity and lowered the quality of the
machineries and equipment it delivered to PGSMC, and that PGSMC would dismantle and transfer
the machineries, equipment, and facilities installed in the Carmona plant. Five days later, PGSMC
filed before the Office of the Public Prosecutor an Affidavit-Complaint forEstafa docketed as I.S. No.
98-03813 against Mr. Dae Hyun Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally
rescind their contract nor dismantle and transfer the machineries and equipment on mere imagined
violations by KOGIES. It also insisted that their disputes should be settled by arbitration as agreed
upon in Article 15, the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998 letter
threatening that the machineries, equipment, and facilities installed in the plant would be dismantled
and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an Application for
Arbitration before the Korean Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to
Art. 15 of the Contract as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case No.
98-1178 against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC granted a
temporary restraining order (TRO) on July 4, 1998, which was subsequently extended until July 22,
1998. In its complaint, KOGIES alleged that PGSMC had initially admitted that the checks that were
stopped were not funded but later on claimed that it stopped payment of the checks for the reason that
"their value was not received" as the former allegedly breached their contract by "altering the
quantity and lowering the quality of the machinery and equipment" installed in the plant and failed to

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make the plant operational although it earlier certified to the contrary as shown in a January 22, 1998
Certificate. Likewise, KOGIES averred that PGSMC violated Art. 15 of their Contract, as amended,
by unilaterally rescinding the contract without resorting to arbitration. KOGIES also asked that
PGSMC be restrained from dismantling and transferring the machinery and equipment installed in the
plant which the latter threatened to do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the
TRO since Art. 15, the arbitration clause, was null and void for being against public policy as it ousts
the local courts of jurisdiction over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim9 asserting that it had the
full right to dismantle and transfer the machineries and equipment because it had paid for them in full
as stipulated in the contract; that KOGIES was not entitled to the PhP 9,000,000 covered by the
checks for failing to completely install and make the plant operational; and that KOGIES was liable
for damages amounting to PhP 4,500,000 for altering the quantity and lowering the quality of the
machineries and equipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in rent
(covering January to July 1998) to Worth and it was not willing to further shoulder the cost of renting
the premises of the plant considering that the LPG cylinder manufacturing plant never became
operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying the
application for a writ of preliminary injunction, reasoning that PGSMC had paid KOGIES USD
1,224,000, the value of the machineries and equipment as shown in the contract such that KOGIES
no longer had proprietary rights over them. And finally, the RTC held that Art. 15 of the Contract as
amended was invalid as it tended to oust the trial court or any other court jurisdiction over any
dispute that may arise between the parties. KOGIES prayer for an injunctive writ was denied. 10 The
dispositive portion of the Order stated:
WHEREFORE, in view of the foregoing consideration, this Court believes and so holds
that no cogent reason exists for this Court to grant the writ of preliminary injunction to
restrain and refrain defendant from dismantling the machineries and facilities at the lot and
building of Worth Properties, Incorporated at Carmona, Cavite and transfer the same to
another site: and therefore denies plaintiffs application for a writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim. 11 KOGIES denied
it had altered the quantity and lowered the quality of the machinery, equipment, and facilities it
delivered to the plant. It claimed that it had performed all the undertakings under the contract and had
already produced certified samples of LPG cylinders. It averred that whatever was unfinished was
PGSMCs fault since it failed to procure raw materials due to lack of funds. KOGIES, relying
on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,12 insisted that the arbitration clause was
without question valid.

After KOGIES filed a Supplemental Memorandum with Motion to Dismiss 13 answering PGSMCs
memorandum of July 22, 1998 and seeking dismissal of PGSMCs counterclaims, KOGIES, on
August 4, 1998, filed its Motion for Reconsideration14 of the July 23, 1998 Order denying its
application for an injunctive writ claiming that the contract was not merely for machinery and
facilities worth USD 1,224,000 but was for the sale of an "LPG manufacturing plant" consisting of
"supply of all the machinery and facilities" and "transfer of technology" for a total contract price of
USD 1,530,000 such that the dismantling and transfer of the machinery and facilities would result in
the dismantling and transfer of the very plant itself to the great prejudice of KOGIES as the still
unpaid owner/seller of the plant. Moreover, KOGIES points out that the arbitration clause under Art.
15 of the Contract as amended was a valid arbitration stipulation under Art. 2044 of the Civil Code
and as held by this Court in Chung Fu Industries (Phils.), Inc.15
In the meantime, PGSMC filed a Motion for Inspection of Things16 to determine whether there was
indeed alteration of the quantity and lowering of quality of the machineries and equipment, and
whether these were properly installed. KOGIES opposed the motion positing that the queries and
issues raised in the motion for inspection fell under the coverage of the arbitration clause in their
contract.
On September 21, 1998, the trial court issued an Order (1) granting PGSMCs motion for inspection;
(2) denying KOGIES motion for reconsideration of the July 23, 1998 RTC Order; and (3) denying
KOGIES motion to dismiss PGSMCs compulsory counterclaims as these counterclaims fell within
the requisites of compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration 17 of the September 21,
1998 RTC Order granting inspection of the plant and denying dismissal of PGSMCs compulsory
counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998 urgent
motion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for
certiorari18 docketed as CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and
September 21, 1998 RTC Orders and praying for the issuance of writs of prohibition, mandamus, and
preliminary injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and transferring
the machineries and equipment in the Carmona plant, and to direct the RTC to enforce the specific
agreement on arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES urgent motion for reconsideration
and directed the Branch Sheriff to proceed with the inspection of the machineries and equipment in
the plant on October 28, 1998.19
Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249 informing the CA
about the October 19, 1998 RTC Order. It also reiterated its prayer for the issuance of the writs of
prohibition, mandamus and preliminary injunction which was not acted upon by the CA. KOGIES
asserted that the Branch Sheriff did not have the technical expertise to ascertain whether or not the

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machineries and equipment conformed to the specifications in the contract and were properly
installed.
On November 11, 1998, the Branch Sheriff filed his Sheriffs Report21 finding that the enumerated
machineries and equipment were not fully and properly installed.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC Orders and dismissing
the petition for certiorari filed by KOGIES. The CA found that the RTC did not gravely abuse its
discretion in issuing the assailed July 23, 1998 and September 21, 1998 Orders. Moreover, the CA
reasoned that KOGIES contention that the total contract price for USD 1,530,000 was for the whole
plant and had not been fully paid was contrary to the finding of the RTC that PGSMC fully paid the
price of USD 1,224,000, which was for all the machineries and equipment. According to the CA, this
determination by the RTC was a factual finding beyond the ambit of a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an
arbitration clause which provided for a final determination of the legal rights of the parties to the
contract by arbitration was against public policy.
On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum shopping
by PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones and payment of
docket fees was not required since the Answer with counterclaim was not an initiatory pleading. For
the same reason, the CA said a certificate of non-forum shopping was also not required.
Furthermore, the CA held that the petition for certiorari had been filed prematurely since KOGIES
did not wait for the resolution of its urgent motion for reconsideration of the September 21, 1998
RTC Order which was the plain, speedy, and adequate remedy available. According to the CA, the
RTC must be given the opportunity to correct any alleged error it has committed, and that since the
assailed orders were interlocutory, these cannot be the subject of a petition for certiorari.
Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following errors:
a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY
AND FACILITIES AS "A QUESTION OF FACT" "BEYOND THE AMBIT OF A
PETITION FOR CERTIORARI" INTENDED ONLY FOR CORRECTION OF ERRORS

OF JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK


OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE TRIAL
COURTS FINDING ON THE SAME QUESTION WAS IMPROPERLY RAISED IN
THE PETITION BELOW;
b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15
OF THE CONTRACT BETWEEN THE PARTIES FOR BEING "CONTRARY TO
PUBLIC POLICY" AND FOR OUSTING THE COURTS OF JURISDICTION;
c. DECREEING PRIVATE RESPONDENTS COUNTERCLAIMS TO BE ALL
COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;
d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT WAITING
FOR THE RESOLUTION OF THE MOTION FOR RECONSIDERATION OF THE
ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT GIVING THE TRIAL COURT
AN OPPORTUNITY TO CORRECT ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21, 1998
NOT TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION FOR BEING
"INTERLOCUTORY IN NATURE;"
f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC)
PETITION AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT
MERIT."23
The Courts Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first tackle the procedural issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket fees
and filed a certificate of non-forum shopping, and that its failure to do so was a fatal defect.
We disagree with KOGIES.

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As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with
Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of Rule 11, 1997
Revised Rules of Civil Procedure, the rule that was effective at the time the Answer with
Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim states, "A compulsory
counterclaim or a cross-claim that a defending party has at the time he files his answer shall be
contained therein."

The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in the
issuance of the two assailed orders coupled with the fact that there is no plain, speedy, and adequate
remedy in the ordinary course of law amply provides the basis for allowing the resort to a petition for
certiorari under Rule 65.

On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against
KOGIES, it was not liable to pay filing fees for said counterclaims being compulsory in nature. We
stress, however, that effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No. 042-04-SC, docket fees are now required to be paid in compulsory counterclaim or cross-claims.

Neither do we think that KOGIES was guilty of forum shopping in filing the petition for certiorari.
Note that KOGIES motion for reconsideration of the July 23, 1998 RTC Order which denied the
issuance of the injunctive writ had already been denied. Thus, KOGIES only remedy was to assail
the RTCs interlocutory order via a petition for certiorari under Rule 65.

As to the failure to submit a certificate of forum shopping, PGSMCs Answer is not an initiatory
pleading which requires a certification against forum shopping under Sec. 5 24 of Rule 7, 1997
Revised Rules of Civil Procedure. It is a responsive pleading, hence, the courts a quo did not commit
reversible error in denying KOGIES motion to dismiss PGSMCs compulsory counterclaims.

While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998 RTC
Order relating to the inspection of things, and the allowance of the compulsory counterclaims has not
yet been resolved, the circumstances in this case would allow an exception to the rule that before
certiorari may be availed of, the petitioner must have filed a motion for reconsideration and said
motion should have been first resolved by the court a quo. The reason behind the rule is "to enable
the lower court, in the first instance, to pass upon and correct its mistakes without the intervention of
the higher court."30

Interlocutory orders proper subject of certiorari


Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are neither the
remedies to question the propriety of an interlocutory order of the trial court." 26 The CA erred on its
reliance on Gamboa.Gamboa involved the denial of a motion to acquit in a criminal case which was
not assailable in an action for certiorari since the denial of a motion to quash required the accused to
plead and to continue with the trial, and whatever objections the accused had in his motion to quash
can then be used as part of his defense and subsequently can be raised as errors on his appeal if the
judgment of the trial court is adverse to him. The general rule is that interlocutory orders cannot be
challenged by an appeal.27 Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we held:
The proper remedy in such cases is an ordinary appeal from an adverse
judgment on the merits, incorporating in said appeal the grounds for assailing the
interlocutory orders. Allowing appeals from interlocutory orders would result in the sorry
spectacle of a case being subject of a counterproductive ping-pong to and from the
appellate court as often as a trial court is perceived to have made an error in any of its
interlocutory rulings. However, where the assailed interlocutory order was issued with
grave abuse of discretion or patently erroneous and the remedy of appeal would not afford
adequate and expeditious relief, the Court allows certiorari as a mode of redress. 28
Also, appeals from interlocutory orders would open the floodgates to endless occasions for dilatory
motions. Thus, where the interlocutory order was issued without or in excess of jurisdiction or with
grave abuse of discretion, the remedy is certiorari. 29

Prematurity of the petition before the CA

The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment, and
facilities when he is not competent and knowledgeable on said matters is evidently flawed and devoid
of any legal support. Moreover, there is an urgent necessity to resolve the issue on the dismantling of
the facilities and any further delay would prejudice the interests of KOGIES. Indeed, there is real and
imminent threat of irreparable destruction or substantial damage to KOGIES equipment and
machineries. We find the resort to certiorari based on the gravely abusive orders of the trial court sans
the ruling on the October 2, 1998 motion for reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It
provides:
Article 15. Arbitration.All disputes, controversies, or differences which may arise
between the parties, out of or in relation to or in connection with this Contract or for the
breach thereof, shall finally be settled by arbitration in Seoul, Korea in accordance with the
Commercial Arbitration Rules of the Korean Commercial Arbitration Board. The award
rendered by the arbitration(s) shall be final and binding upon both parties concerned.
(Emphasis supplied.)
Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.

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Petitioner is correct.
Established in this jurisdiction is the rule that the law of the place where the contract is made
governs. Lex loci contractus. The contract in this case was perfected here in the Philippines.
Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the validity
of mutually agreed arbitral clause or the finality and binding effect of an arbitral award. Art. 2044
provides, "Any stipulation that the arbitrators award or decision shall be final, is valid, without
prejudice to Articles 2038, 2039 and 2040." (Emphasis supplied.)
Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or an arbitral
award, as applied to Art. 2044 pursuant to Art. 2043,34 may be voided, rescinded, or annulled, but
these would not denigrate the finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown
to be contrary to any law, or against morals, good customs, public order, or public policy. There has
been no showing that the parties have not dealt with each other on equal footing. We find no reason
why the arbitration clause should not be respected and complied with by both parties. In Gonzales v.
Climax Mining Ltd.,35 we held that submission to arbitration is a contract and that a clause in a
contract providing that all matters in dispute between the parties shall be referred to arbitration is a
contract.36 Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled that "[t]he
provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is
part of that contract and is itself a contract."37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in
accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is final
and binding, is not contrary to public policy. This Court has sanctioned the validity of arbitration
clauses in a catena of cases. In the 1957 case ofEastboard Navigation Ltd. v. Juan Ysmael and Co.,
Inc.,38 this Court had occasion to rule that an arbitration clause to resolve differences and breaches of
mutually agreed contractual terms is valid. In BF Corporation v. Court of Appeals, we held that "[i]n
this jurisdiction, arbitration has been held valid and constitutional. Even before the approval on June
19, 1953 of Republic Act No. 876, this Court has countenanced the settlement of disputes through
arbitration. Republic Act No. 876 was adopted to supplement the New Civil Codes provisions on
arbitration."39 And in LM Power Engineering Corporation v. Capitol Industrial Construction Groups,
Inc., we declared that:
Being an inexpensive, speedy and amicable method of settling disputes, arbitrationalong
with mediation, conciliation and negotiationis encouraged by the Supreme Court. Aside
from unclogging judicial dockets, arbitration also hastens the resolution of disputes,
especially of the commercial kind. It is thus regarded as the "wave of the future" in
international civil and commercial disputes. Brushing aside a contractual agreement calling
for arbitration between the parties would be a step backward.

Consistent with the above-mentioned policy of encouraging alternative dispute resolution


methods, courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should
be granted. Any doubt should be resolved in favor of arbitration. 40
Having said that the instant arbitration clause is not against public policy, we come to the question on
what governs an arbitration clause specifying that in case of any dispute arising from the contract, an
arbitral panel will be constituted in a foreign country and the arbitration rules of the foreign country
would govern and its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising from
contractual relations. In case a foreign arbitral body is chosen by the parties, the arbitration rules of
our domestic arbitration bodies would not be applied. As signatory to the Arbitration Rules of the
UNCITRAL Model Law on International Commercial Arbitration 41 of the United Nations
Commission on International Trade Law (UNCITRAL) in the New York Convention on June 21,
1985, the Philippines committed itself to be bound by the Model Law. We have even incorporated the
Model Law in Republic Act No. (RA) 9285, otherwise known as the Alternative Dispute Resolution
Act of 2004 entitled An Act to Institutionalize the Use of an Alternative Dispute Resolution System in
the Philippines and to Establish the Office for Alternative Dispute Resolution, and for Other
Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model Law are the
pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model Law on International Commercial Arbitration.
International commercial arbitration shall be governed by the Model Law on International
Commercial Arbitration (the "Model Law") adopted by the United Nations Commission on
International Trade Law on June 21, 1985 (United Nations Document A/40/17) and
recommended for enactment by the General Assembly in Resolution No. 40/72 approved
on December 11, 1985, copy of which is hereto attached as Appendix "A".
SEC. 20. Interpretation of Model Law.In interpreting the Model Law, regard shall be had
to its international origin and to the need for uniformity in its interpretation and resort may
be made to the travaux preparatoriesand the report of the Secretary General of the United
Nations Commission on International Trade Law dated March 25, 1985 entitled,
"International Commercial Arbitration: Analytical Commentary on Draft Trade identified
by reference number A/CN. 9/264."

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While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a
procedural law which has a retroactive effect. Likewise, KOGIES filed its application for arbitration
before the KCAB on July 1, 1998 and it is still pending because no arbitral award has yet been
rendered. Thus, RA 9285 is applicable to the instant case. Well-settled is the rule that procedural laws
are construed to be applicable to actions pending and undetermined at the time of their passage, and
are deemed retroactive in that sense and to that extent. As a general rule, the retroactive application of
procedural laws does not violate any personal rights because no vested right has yet attached nor
arisen from them.42

languages, the party shall supply a duly certified translation thereof into any of such
languages.

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law are
the following:
(1) The RTC must refer to arbitration in proper cases

SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the
New York Convention.The recognition and enforcement of foreign arbitral awards not
covered by the New York Convention shall be done in accordance with procedural rules to
be promulgated by the Supreme Court. The Court may, on grounds of comity and
reciprocity, recognize and enforce a non-convention award as a convention award.

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of
arbitration pursuant to an arbitration clause, and mandates the referral to arbitration in such cases,
thus:

SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A foreign arbitral award when
confirmed by a court of a foreign country, shall be recognized and enforced as a foreign
arbitral award and not as a judgment of a foreign court.

SEC. 24. Referral to Arbitration.A court before which an action is brought in a matter
which is the subject matter of an arbitration agreement shall, if at least one party so requests
not later than the pre-trial conference, or upon the request of both parties thereafter, refer
the parties to arbitration unless it finds that the arbitration agreement is null and void,
inoperative or incapable of being performed.
(2) Foreign arbitral awards must be confirmed by the RTC
Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be final
and binding are not immediately enforceable or cannot be implemented immediately. Sec. 35 43 of the
UNCITRAL Model Law stipulates the requirement for the arbitral award to be recognized by a
competent court for enforcement, which court under Sec. 36 of the UNCITRAL Model Law may
refuse recognition or enforcement on the grounds provided for. RA 9285 incorporated these provisos
to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention.The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed with the Regional
Trial Court in accordance with the rules of procedure to be promulgated by the Supreme
Court. Said procedural rules shall provide that the party relying on the award or applying
for its enforcement shall file with the court the original or authenticated copy of the award
and the arbitration agreement. If the award or agreement is not made in any of the official

The applicant shall establish that the country in which foreign arbitration award was made
in party to the New York Convention.
xxxx

A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced in
the same manner as final and executory decisions of courts of law of the Philippines
xxxx
SEC. 47. Venue and Jurisdiction.Proceedings for recognition and enforcement of an
arbitration agreement or for vacations, setting aside, correction or modification of an
arbitral award, and any application with a court for arbitration assistance and supervision
shall be deemed as special proceedings and shall be filed with the Regional Trial Court (i)
where arbitration proceedings are conducted; (ii) where the asset to be attached or levied
upon, or the act to be enjoined is located; (iii) where any of the parties to the dispute resides
or has his place of business; or (iv) in the National Judicial Capital Region, at the option of
the applicant.
SEC. 48. Notice of Proceeding to Parties.In a special proceeding for recognition and
enforcement of an arbitral award, the Court shall send notice to the parties at their address
of record in the arbitration, or if any part cannot be served notice at such address, at such
partys last known address. The notice shall be sent al least fifteen (15) days before the date
set for the initial hearing of the application.
It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a judgment
of a foreign court but as a foreign arbitral award, and when confirmed, are enforced as final and
executory decisions of our courts of law.

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments
or awards given by some of our quasi-judicial bodies, like the National Labor Relations Commission
and Mines Adjudication Board, whose final judgments are stipulated to be final and binding, but not
immediately executory in the sense that they may still be judicially reviewed, upon the instance of
any party. Therefore, the final foreign arbitral awards are similarly situated in that they need first to
be confirmed by the RTC.

set aside, reject, or vacate it. In this sense, what this Court held in Chung Fu Industries (Phils.), Inc.
relied upon by KOGIES is applicable insofar as the foreign arbitral awards, while final and binding,
do not oust courts of jurisdiction since these arbitral awards are not absolute and without exceptions
as they are still judicially reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards,
whether domestic or foreign, are subject to judicial review on specific grounds provided for.
(4) Grounds for judicial review different in domestic and foreign arbitral awards

(3) The RTC has jurisdiction to review foreign arbitral awards


Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority and
jurisdiction to set aside, reject, or vacate a foreign arbitral award on grounds provided under Art.
34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide:
SEC. 42. Application of the New York Convention.The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed with the Regional
Trial Court in accordance with the rules of procedure to be promulgated by the Supreme
Court. Said procedural rules shall provide that the party relying on the award or applying
for its enforcement shall file with the court the original or authenticated copy of the award
and the arbitration agreement. If the award or agreement is not made in any of the official
languages, the party shall supply a duly certified translation thereof into any of such
languages.
The applicant shall establish that the country in which foreign arbitration award was made
is party to the New York Convention.
If the application for rejection or suspension of enforcement of an award has been made,
the Regional Trial Court may, if it considers it proper, vacate its decision and may also, on
the application of the party claiming recognition or enforcement of the award, order the
party to provide appropriate security.
xxxx
SEC. 45. Rejection of a Foreign Arbitral Award.A party to a foreign arbitration
proceeding may oppose an application for recognition and enforcement of the arbitral
award in accordance with the procedures and rules to be promulgated by the Supreme
Court only on those grounds enumerated under Article V of the New York Convention. Any
other ground raised shall be disregarded by the Regional Trial Court.

The differences between a final arbitral award from an international or foreign arbitral tribunal and an
award given by a local arbitral tribunal are the specific grounds or conditions that vest jurisdiction
over our courts to review the awards.
For foreign or international arbitral awards which must first be confirmed by the RTC, the grounds
for setting aside, rejecting or vacating the award by the RTC are provided under Art. 34(2) of the
UNCITRAL Model Law.
For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23 of
RA 87644 and shall be recognized as final and executory decisions of the RTC, 45 they may only be
assailed before the RTC and vacated on the grounds provided under Sec. 25 of RA 876. 46
(5) RTC decision of assailed foreign arbitral award appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in
cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of the Regional
Trial Court confirming, vacating, setting aside, modifying or correcting an arbitral award
may be appealed to the Court of Appeals in accordance with the rules and procedure to be
promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court confirming an arbitral award
shall be required by the appellate court to post a counterbond executed in favor of the
prevailing party equal to the amount of the award in accordance with the rules to be
promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition
for review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests

Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually agreed
upon by the parties, still the foreign arbitral award is subject to judicial review by the RTC which can

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Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as
it bound itself through the subject contract. While it may have misgivings on the foreign arbitration
done in Korea by the KCAB, it has available remedies under RA 9285. Its interests are duly protected
by the law which requires that the arbitral award that may be rendered by KCAB must be confirmed
here by the RTC before it can be enforced.
With our disquisition above, petitioner is correct in its contention that an arbitration clause,
stipulating that the arbitral award is final and binding, does not oust our courts of jurisdiction as the
international arbitral award, the award of which is not absolute and without exceptions, is still
judicially reviewable under certain conditions provided for by the UNCITRAL Model Law on ICA as
applied and incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject Contract which provides that the parties
may dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid and binding on the parties, and
not contrary to public policy; consequently, being bound to the contract of arbitration, a party may
not unilaterally rescind or terminate the contract for whatever cause without first resorting to
arbitration.
47

What this Court held in University of the Philippines v. De Los Angeles and reiterated in succeeding
cases,48 that the act of treating a contract as rescinded on account of infractions by the other
contracting party is valid albeit provisional as it can be judicially assailed, is not applicable to the
instant case on account of a valid stipulation on arbitration. Where an arbitration clause in a contract
is availing, neither of the parties can unilaterally treat the contract as rescinded since whatever
infractions or breaches by a party or differences arising from the contract must be brought first and
resolved by arbitration, and not through an extrajudicial rescission or judicial action.
The issues arising from the contract between PGSMC and KOGIES on whether the equipment and
machineries delivered and installed were properly installed and operational in the plant in Carmona,
Cavite; the ownership of equipment and payment of the contract price; and whether there was
substantial compliance by KOGIES in the production of the samples, given the alleged fact that
PGSMC could not supply the raw materials required to produce the sample LPG cylinders, are
matters proper for arbitration. Indeed, we note that on July 1, 1998, KOGIES instituted an
Application for Arbitration before the KCAB in Seoul, Korea pursuant to Art. 15 of the Contract as
amended. Thus, it is incumbent upon PGSMC to abide by its commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in granting PGSMCs Motion for Inspection
of Things on September 21, 1998, as the subject matter of the motion is under the primary
jurisdiction of the mutually agreed arbitral body, the KCAB in Korea.

In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the inspection
made on October 28, 1998, as ordered by the trial court on October 19, 1998, is of no worth as said
Sheriff is not technically competent to ascertain the actual status of the equipment and machineries as
installed in the plant.
For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the grant
of the inspection of the equipment and machineries have to be recalled and nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price of
USD 1,530,000 was for the whole plant and its installation is beyond the ambit of a Petition for
Certiorari.
Petitioners position is untenable.
It is settled that questions of fact cannot be raised in an original action for certiorari. 49 Whether or not
there was full payment for the machineries and equipment and installation is indeed a factual issue
prohibited by Rule 65.
However, what appears to constitute a grave abuse of discretion is the order of the RTC in resolving
the issue on the ownership of the plant when it is the arbitral body (KCAB) and not the RTC which
has jurisdiction and authority over the said issue. The RTCs determination of such factual issue
constitutes grave abuse of discretion and must be reversed and set aside.
RTC has interim jurisdiction to protect the rights of the parties
Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for
PGSMC to dismantle and transfer the equipment and machineries, we find it to be in order
considering the factual milieu of the instant case.
Firstly, while the issue of the proper installation of the equipment and machineries might well be
under the primary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285
has jurisdiction to hear and grant interim measures to protect vested rights of the parties. Sec. 28
pertinently provides:
SEC. 28. Grant of interim Measure of Protection.(a) It is not incompatible with an
arbitration agreement for a party to request, before constitution of the tribunal, from
a Court to grant such measure. After constitution of the arbitral tribunal and during
arbitral proceedings, a request for an interim measure of protection, or modification thereof,
may be made with the arbitral or to the extent that the arbitral tribunal has no power to

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act or is unable to act effectivity, the request may be made with the Court. The arbitral
tribunal is deemed constituted when the sole arbitrator or the third arbitrator, who has been
nominated, has accepted the nomination and written communication of said nomination and
acceptance has been received by the party making the request.

xxx xxx xxx


(2) An interim measure is any temporary measure, whether in the form of an award or in
another form, by which, at any time prior to the issuance of the award by which the dispute
is finally decided, the arbitral tribunal orders a party to:

(b) The following rules on interim or provisional relief shall be observed:


(a) Maintain or restore the status quo pending determination of the dispute;
Any party may request that provisional relief be granted against the adverse party.
Such relief may be granted:
(i) to prevent irreparable loss or injury;

(b) Take action that would prevent, or refrain from taking action that is likely to cause,
current or imminent harm or prejudice to the arbitral process itself;
(c) Provide a means of preserving assets out of which a subsequent award may be satisfied;
or

(ii) to provide security for the performance of any obligation;


(d) Preserve evidence that may be relevant and material to the resolution of the dispute.
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
(c) The order granting provisional relief may be conditioned upon the provision of security
or any act or omission specified in the order.
(d) Interim or provisional relief is requested by written application transmitted by
reasonable means to the Court or arbitral tribunal as the case may be and the party against
whom the relief is sought, describing in appropriate detail the precise relief, the party
against whom the relief is requested, the grounds for the relief, and the evidence supporting
the request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance in implementing or enforcing an
interim measure ordered by an arbitral tribunal.
(g) A party who does not comply with the order shall be liable for all damages resulting
from noncompliance, including all expenses, and reasonable attorney's fees, paid in
obtaining the orders judicial enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of protection as:

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue interim
measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an interim measure in relation to arbitration
proceedings, irrespective of whether their place is in the territory of this State, as it has in
relation to proceedings in courts. The court shall exercise such power in accordance with its
own procedures in consideration of the specific features of international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we were explicit
that even "the pendency of an arbitral proceeding does not foreclose resort to the courts for
provisional reliefs." We explicated this way:
As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to
the courts for provisional reliefs. The Rules of the ICC, which governs the parties arbitral
dispute, allows the application of a party to a judicial authority for interim or conservatory
measures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law)
recognizes the rights of any party to petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute in arbitration. In addition, R.A.
9285, otherwise known as the "Alternative Dispute Resolution Act of 2004," allows the
filing of provisional or interim measures with the regular courts whenever the arbitral
tribunal has no power to act or to act effectively.50

Article 17. Power of arbitral tribunal to order interim measures

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It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of
protection.

(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute and
differences arising from the subject Contract before the KCAB; and

Secondly, considering that the equipment and machineries are in the possession of PGSMC, it has the
right to protect and preserve the equipment and machineries in the best way it can. Considering that
the LPG plant was non-operational, PGSMC has the right to dismantle and transfer the equipment
and machineries either for their protection and preservation or for the better way to make good use of
them which is ineluctably within the management discretion of PGSMC.

(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it had
not done so, and ORDERED to preserve and maintain them until the finality of whatever arbitral
award is given in the arbitration proceedings.

Thirdly, and of greater import is the reason that maintaining the equipment and machineries in
Worths property is not to the best interest of PGSMC due to the prohibitive rent while the LPG plant
as set-up is not operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for
1998 alone without considering the 10% annual rent increment in maintaining the plant.

SO ORDERED.

No pronouncement as to costs.

Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the
preservation or transfer of the equipment and machineries as an interim measure, yet on hindsight, the
July 23, 1998 Order of the RTC allowing the transfer of the equipment and machineries given the
non-recognition by the lower courts of the arbitral clause, has accorded an interim measure of
protection to PGSMC which would otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based on
the contract. Moreover, KOGIES is amply protected by the arbitral action it has instituted before the
KCAB, the award of which can be enforced in our jurisdiction through the RTC. Besides, by our
decision, PGSMC is compelled to submit to arbitration pursuant to the valid arbitration clause of its
contract with KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to dismantle and transfer the subject
equipment and machineries, it does not have the right to convey or dispose of the same considering
the pending arbitral proceedings to settle the differences of the parties. PGSMC therefore must
preserve and maintain the subject equipment and machineries with the diligence of a good father of a
family51 until final resolution of the arbitral proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117
are REVERSED and SET ASIDE;
G.R. No. 150241

November 4, 2004

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EDUARDO S. MERCADO, herein represented by his counsel, ATTY. ENRICO M.
UYEHARA, petitioner,
vs.
THE COURT OF APPEALS, the Honorable LETICIA P. MORALES, in her capacity as
Presiding Judge of Branch 140 of the Regional Trial Court of Makati City, ESTATE OF
CONCEPCION CLAUDIO GATMAITAN, CARMELIE C. GATMAITAN and ARMANDO V.
GATMAITAN, respondents.
RESOLUTION
QUISUMBING, J.:
This special civil action for certiorari seeks to annul the Court of Appeals Resolutions dated
February 23, 20011 and July 31, 2001,2 in CA-G.R. SP No. 62678, dismissing Eduardo S. Mercados
petition for certiorari for late payment of docket fees and denying his Motion for Reconsideration.
The facts and antecedent proceedings, as culled from records, are as follows:
On various dates from January to August 1988, private respondent Armando V. Gatmaitan obtained a
series of loans from petitioner Eduardo S. Mercado totaling P850,000, to renovate and repair two
houses located at 1827 Santan St., Dasmarias Village, Makati City. Said houses were the conjugal
properties of Armando and Concepcion Gatmaitan. The loan agreement was in writing.
The agreement stipulated that Armando was to lease the aforementioned houses and deliver all the
rentals collected to Eduardo. Despite repeated demands, Armando did not pay any amount to
Eduardo.
Sometime in 1989, Eduardo learned that Concepcion had filed a Complaint docketed as Civil Case
No. 89-4506 against Armando for the separation and liquidation of their conjugal properties before
the Regional Trial Court (RTC) of Makati City, Branch 149. 3 Eduardo immediately filed a Motion for
Leave to File Complaint in Intervention, claiming that he had an interest as a creditor in the unpaid
loans he extended to Armando for the renovation of the conjugal properties subject of said civil case.
For failure to file his Answer, Armando was declared in default and Concepcion was allowed to
present evidence ex parte. Petitioner then filed a Manifestation and Motion praying that the trial court
hold in abeyance the resolution of the case pending resolution of his Motion for Leave to File
Complaint in Intervention. Meanwhile, Armando moved to lift the Order of Default and sought to
have his Answer admitted.

File Complaint in Intervention.4 However, Eduardo allegedly did not immediately learn of the denial
of his motion to intervene.
On January 7, 1994, the trial court handed down its Decision in Civil Case No. 89-4506. Again,
Eduardo allegedly had no knowledge about the judgment or the subsequent appeal of said ruling.
On February 22, 1999, Eduardo, thru a different counsel, filed a Motion for Early Resolution of the
Motion for Leave to File Complaint in Intervention, which was raffled to Branch 140 of the Makati
City RTC. During the hearing of the motion, the trial court informed Eduardo that a Decision had
already been rendered in Civil Case No. 89-4506 by Branch 149 and the appeal from said judgment
had already been resolved by the Court of Appeals. Nonetheless, it directed the parties to file their
respective position papers. Concepcion filed an Opposition with Motion for Issuance of Writ of
Execution but she died on May 15, 1999, before her motion could be resolved.
In an Order5 dated September 27, 1999, Branch 140, denied Eduardos motion for want of merit,
pointing out that his Motion for Leave to File Complaint in Intervention had been dismissed
previously by Branch 149 in its Order dated February 19, 1990, without any Motion for
Reconsideration being filed from the aforesaid order of dismissal.
On September 30, 1999, the trial court granted the Motion for Writ of Execution.
Eduardo moved for reconsideration but this was denied on October 27, 1999. He then filed a Petition
for Relief dated January 30, 2000, raising denial of due process and fraud as his grounds since he
allegedly never received a copy of the Order of September 19, 1990, thus preventing him from
moving for reconsideration. In paragraphs 14 and 15 of the Petition for Relief, however, petitioner
admits he did receive an Order dated February 19, 1990.
In an Order dated April 6, 2000, the Regional Trial Court of Makati City, Branch 140, ruled on the
petition, as follows:
Finding no cogent reasons to reverse or set aside the [O]rders dated September 27, 1999
and October 27, 1999, the petition for relief filed by petitioner-intervenor Eduardo S.
Mercado praying that he be allowed to file complaint in intervention is hereby DENIED.
SO ORDERED.6
On May 18, 2000, petitioner moved for reconsideration of the foregoing Order but this was denied in
an Order dated September 26, 2000, a copy of which was received by petitioner on November 17,
2000.

In two separate Orders, both dated February 19, 1990, the trial court denied Armandos Motion to Lift
Order of Default and Motion for Admission of Answer as well as petitioners Motion for Leave to

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Petitioner then filed a petition for certiorari with the Court of Appeals, which was dismissed for lack
of jurisdiction due to late payment of docket fees. The appellate court found that while Eduardo filed
his petition for certiorari by registered mail on January 16, 2001, the sixtieth (60th) day from the
receipt of the Order of Denial of Motion for Reconsideration, the docket and other lawful fees were
paid only on January 17, 2001, one day after the expiration of the reglementary period for filing his
petition. The Court of Appeals applied Rule 46, Section 3 of the 1997 Rules of Civil
Procedure7 which allows payment of docket fees within a reasonable time if it was not paid during
the filing of the initiatory pleading, but in no case beyond the applicable prescriptive period. It held
that while the rule on the payment of docket fees may be liberally construed if only to secure a just
and speedy disposition of every action and proceeding, nonetheless, it should not be ignored or
belittled, lest it scathes and prejudices the other partys substantive rights. 8 Petitioner then filed a
Motion for Reconsideration but was denied.

petitioner received the Order denying the Motion for Reconsideration from the RTC on November
17, 2000. Instead of filing a petition for review with the appellate court within 15 days thereof or
until December 2, 2000, he filed a petition for certiorari by registered mail on January 16, 2001, but
belatedly made the payment of docket fees only on January 17, 2001. Noteworthy, petitioner did not
even attempt to explain why he was unable to file a petition for review within the reglementary
period.
Indeed, not infrequently, litigants and parties to a petition have invoked liberal construction of the
Rules of Court to justify lapses in its observance. Hopefully, it is not simply a cover-up of their own
neglect or sheer ignorance of procedure. While indeed this Court has on occasion set aside procedural
irregularities in the interest of justice, it must be stressed that liberality of construction of the rules
should not be a panacea for all procedural maladies. For this Court will not tolerate wanton disregard
of the procedural rules under the guise of liberal construction.

Dissatisfied, petitioner now comes to this Court on the grounds that:


1. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED
THE PETITION, SOLELY ON PROCEDURAL GROUNDS.
2. PETITIONER HAS A GOOD AND MERITORIOUS CAUSE OF ACTION AS THE
PUBLIC RESPONDENT REGIONAL TRIAL COURT, BRANCH 140, MAKATI CITY
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION WHEN IT DENIED THE PETITION FOR RELIEF FILED
BY THE HEREIN PETITIONER.9
Petitioners arguments lack persuasiveness. It bears stressing that this case must be dismissed outright
as the petitioner adopted the wrong remedy in bringing this case before this Court. Petitioner should
have filed a petition for review under Rule 45 of the 1997 Rules of Civil Procedure instead of a
special civil action for certiorari under Rule 65. The proper remedy of a party aggrieved by a decision
of the Court of Appeals is a petition for review under Rule 45, which is not identical to a petition for
certiorari under Rule 65. Under Rule 45, decisions, final orders or resolutions of the Court of Appeals
in any case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to us
by filing a petition for review, which would be but a continuation of the appellate process over the
original case. On the other hand, a special civil action under Rule 65 is an independent action based
on the specific grounds therein provided and, as a general rule, cannot be availed of as a substitute for
the lost remedy of an ordinary appeal, including that to be taken under Rule 45. Accordingly, when a
party adopts an improper remedy, as in this case, his petition may be dismissed outright. 10

In any event, even if we were to disregard the procedural defects, we find that this petition must still
be dismissed as the appellate court did not commit any grave abuse of discretion amounting to want
or excess of jurisdiction in dismissing the petition for late payment of filing fees. Petitioner
undeniably paid his docket fees beyond the reglementary period of 60 days for filing a petition for
certiorari. Well settled is the rule that the court cannot acquire jurisdiction over the subject matter of a
case, unless the docket fees are paid.12 And where the filing of the initiatory pleading is not
accompanied by payment of the docket fees, the court may allow payment of the fee within a
reasonable time but in no case beyond the applicable prescriptive or reglementary period. 13
Thus, the Court of Appeals correctly dismissed the petition for certiorari pursuant to Rule 46, Section
314 in relation to Rule 65, Section 6 (2)15 of the 1997 Rules of Civil Procedure.
WHEREFORE, the instant petition is DISMISSED for lack of merit. The assailed Resolutions dated
February 23, 2001 and July 31, 2001 of the Court of Appeals are hereby AFFIRMED.
SO ORDERED.

Petitioner should have availed of the ordinary appeal process such as a petition for review under Rule
45, within 15 days after notice of denial of his Motion for Reconsideration. Undoubtedly, petitioner
had already lost this remedy when he filed this special civil action on January 16, 2001. A Petition for
Certiorari cannot be a substitute for the lost or lapsed remedy of appeal, where such loss is
occasioned by the petitioners own neglect or error in the choice of remedies. 11 By his own account,

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G.R. No. 165697

August 4, 2009

ANTONIO NAVARRO, Petitioner,


vs.
METROPOLITAN BANK & TRUST COMPANY, Respondent,
x - - - - - - - - - - - - - - - - - - - - - - -x

docketed as Civil Case No. 99-177, named as defendants Antonio, MBTC, the Sheriff of Makati City
and the Register of Deeds of Makati City. In it, Clarita alleged that the properties involved belonged
to her and Antonios conjugal partnership property as the same were acquired during their marriage
and that Antonio, with the connivance of a certain Belen G. Belen, had secured the registration
thereof in their names without her knowledge. She pointed out that Antonio and Belen then
mortgaged the properties to MBTC in 1993 likewise without her knowledge. She ascribed fault and
negligence to MBTC because it failed to consider that the properties given to it as security belonged
to her and Antonios conjugal partnership property. Accordingly, she prayed for reconveyance as well
as for payment of damages.8

G.R. No. 166481


CLARITA P. NAVARRO, Petitioner,
vs.
METROPOLITAN BANK & TRUST COMPANY, Respondent.
DECISION
PERALTA, J.:
The tendency of the law must always be to narrow down the field of uncertainty. Judicial process was
conceived in this light to bring about a just termination of legal disputes. Although various
mechanisms are in place to realize this fundamental objective, all of them emanate from the essential
precept of immutability of final judgments.

MBTC filed a motion to dismiss the complaint on the ground, inter alia, of laches. With the denial of
its motion, MBTC filed a petition for certiorari before the Court of Appeals which was docketed as
CA-G.R. SP No. 55780. The Court of Appeals found merit in the petition and ordered the dismissal of
the complaint on the ground that the same was already barred by laches, pointing out that it had taken
Clarita 11 long years since the issuance of the TCTs on May 27, 1988 before she actually sought to
annul the mortgage contract.9 The decision had attained finality without a motion for reconsideration
being filed or an appeal being taken therefrom.
Subsequently, on April 17, 2002, Clarita instituted another action also before the RTC of Muntinlupa
City, Branch 25610 but this time for the declaration of nullity of the TCTs covering the same
properties and for reconveyance and damages. The complaint was docketed as Civil Case No. 02-079
and it impleaded Antonio, Belen, MBTC and the Registers of Deeds of Makati City and Muntinlupa
City as defendants. This constitutes the root of the two petitions at bar.

These two petitions for review on certiorari under Rule 45 separately filed by petitioners Antonio
Navarro and Clarita Navarro, respectively docketed as G.R. No. 165697 1 and G.R. No.
166481,2 assail the July 8, 2004 Decision3 of the Court of Appeals in CA-G.R. SP No. 76872 which
ordered the dismissal of the complaint filed by petitioner Clarita Navarro in Civil Case No. 02-079 -a case for declaration of nullity of title and for reconveyance and damages.

The said complaint was basically a reiteration of Claritas allegations in Civil Case No. 99-177.
Specifically, it alleged that the conjugal properties involved were fraudulently registered in the name
"Antonio N. Navarromarried to Belen B. Navarro" and that the mortgage on the properties were
likewise fraudulently secured by Antonio and Belen to acquire a loan from MBTC the proceeds of
which, however, did not inure to the benefit of the conjugal partnership. Accordingly, she prayed that
at least her one-half conjugal share in the properties be reconveyed to her without prejudice to
MBTCs rights against Antonio and Belen.11

Petitioners Antonio Navarro and Clarita Navarro were married on December 7, 1968. 4 During their
union, they acquired three parcels of land in Alabang, Muntinlupa City on which they built their
home. These pieces of land were covered by Transfer Certificate of Title (TCT) Nos. 155256, 155257
and 155258 issued by the Register of Deeds of Makati City. The TCTs, however, are registered in the
name of "Antonio N. Navarro married to Belen B. Navarro."5 Sometime in 1998, respondent
Metropolitan Bank and Trust Company (MBTC) had caused the judicial foreclosure of the real estate
mortgage which Antonio had earlier constituted on the subject properties as security for a loan he
allegedly obtained from MBTC. In December of that year, the properties were sold at public auction
where MBTC, as the lone bidder, 6 was issued a certificate of sale.7

MBTC moved to dismiss the complaint on the ground that it was already barred by the prior
judgment in Civil Case No. 99-177, and that Claritas claim had already been waived, abandoned and
extinguished.12 The trial court denied the motion to dismiss in its November 8, 2002 Order, noting
that the dismissal of Civil Case No. 99-177 did not constitute res judicata because a dismissal on
laches and failure to implead an indispensable party could never be a dismissal on the
merits.13 MBTC filed a motion for reconsideration, but it was denied for lack of merit in the trial
courts April 21, 2002 Order.14

Clarita brought before the Regional Trial Court (RTC) of Muntinlupa City, Branch 256 an action for
the declaration of nullity of the real estate mortgage and the foreclosure sale. The complaint,

Aggrieved, MBTC elevated the case to the Court of Appeals via a petition for certiorari and
prohibition with an application for temporary restraining order and writ of preliminary injunction,
attributing grave abuse of discretion to the trial court in denying its motion to dismiss. 15

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In the meantime, a compromise agreement was executed by Antonio and Clarita in which the latter
waived and condoned her claims against the former, who in turn acknowledged his wifes share in the
properties subject of the case. Antonio likewise stipulated therein that he had not availed of any
mortgage loan from MBTC and that it was the bank manager, Danilo Meneses, who facilitated the
manipulation of his account with the bank which led to the constitution of the mortgage and the
eventual foreclosure thereof.16 The trial court approved the compromise on November 5,
2003,17 thereby leaving the case to proceed against MBTC.
On July 8, 2004, the Court of Appeals, finding merit in MBTCs petition, rendered the assailed
Decision.18 It held that the dismissal of Civil Case No. 99-177 on the ground of laches should
preclude the filing of Civil Case No. 02-079 because the former had the effect of an adjudication on
the merits. Also, it pointed out that inasmuch as the two cases presented identical issues and causes of
action and prayed for the same relief, the second complaint must likewise suffer the effect of laches.
Citing Section 3,19 Rule 17 of the Rules of Court, it emphasized Claritas neglect to prosecute her
claim since it took her another two years since the dismissal of Civil Case No. 99-177 to file Civil
Case No. 02-079. In conclusion, it held that the trial court indeed gravely abused its discretion when
it denied MBTCs motion to dismiss and, accordingly, it ordered the dismissal of the complaint as
follows:
WHEREFORE, the petition for certiorari and prohibition is hereby GRANTED. The assailed Order
dated November 8, 2002 issued by the Regional trial Court of Muntinlupa City, Branch 256 is
REVERSED. Civil Case No. 02-079 is ordered DISMISSED.
SO ORDERED.

20

Antonio and Clarita are now before this Court assailing the adverse decision of the Court of Appeals.
They believe that the Court of Appeals committed a reversible error in directing the dismissal of the
complaint in Civil Case No. 02-079.
Both Antonio and Clarita advance that it was error for the Court of Appeals to direct the dismissal of
the complaint in the present cases despite the fact that the prior dismissal of the complaint for
declaration of nullity of mortgage and foreclosure in Civil Case No. 99-177 was predicated on
Claritas failure to implead Belen as an indispensable party therein which, in effect, amounted to the
courts lack or jurisdiction to act on the parties present and absent. 21Additionally, Clarita posits that
the principle of laches is not applicable because an action to declare the nullity of a mortgage contract
is imprescriptible.22
MBTC, for its part, argues that because the decision of the Court of Appeals in CA-G.R. SP No.
55780 ordering the dismissal of Civil Case No. 99-177 had already become final, then the same
should bar the filing of Civil Case No. 02-079 inasmuch as the two cases raised identical causes of
action and issues and prayed for the same relief. 23 In particular, it also notes that Clarita had failed to
timely file a motion for reconsideration of the assailed decision and that the motion for

reconsideration filed by Antonio himself should not be considered to redound to Claritas benefit
since Antonio, in the complaint filed before the trial court, was impleaded as one of the defendants. 24
The petitions are utterly unmeritorious.
A perusal of the Court of Appeals decision in CA-G.R. SP No. 55780, which ordered the dismissal of
Civil Case No. 99-177, tells that the complaint therein was dismissed not on the ground of nonjoinder of Belen as an indispensable party, but rather on the ground of laches. Indeed, what is clear
from the said decision is that the dismissal of the case was due to Claritas unjustifiable neglect to
timely initiate the prosecution of her claim in court -- a conduct that warranted the presumption that
she, although entitled to assert a right, had resolved to abandon or declined to assert the same. 25
While the Court agrees that an action to declare the nullity of contracts is not barred by the statute of
limitations, the fact that Clarita was barred by laches from bringing such action at the first instance
has already been settled by the Court of Appeals in CA-G.R. SP No. 55780. At this point in the
proceedings, the Court can no longer rule on the applicability of the principle of laches vis--vis the
imprescriptibility of Claritas cause of action because the said decision is not the one on appeal before
us. But more importantly, the Court takes notice that the decision rendered in that case had already
become final without any motion for reconsideration being filed or an appeal being taken therefrom.
Thus, we are left with no other recourse than to uphold the immutability of the said decision.
No other procedural law principle is indeed more settled than that once a judgment becomes final, it
is no longer subject to change, revision, amendment or reversal, except only for correction of clerical
errors, or the making of nunc pro tunc entries which cause no prejudice to any party, or where the
judgment itself is void.26 The underlying reason for the rule is two-fold: (1) to avoid delay in the
administration of justice and thus make orderly the discharge of judicial business, and (2) to put
judicial controversies to an end, at the risk of occasional errors, inasmuch as controversies cannot be
allowed to drag on indefinitely and the rights and obligations of every litigant must not hang in
suspense for an indefinite period of time.27 As the Court declared in Yau v. Silverio,28
Litigation must end and terminate sometime and somewhere, and it is essential to an effective and
efficient administration of justice that, once a judgment has become final, the winning party be, not
through a mere subterfuge, deprived of the fruits of the verdict. Courts must therefore guard against
any scheme calculated to bring about that result. Constituted as they are to put an end to
controversies, courts should frown upon any attempt to prolong them.
Indeed, just as a losing party has the right to file an appeal within the prescribed period, the winning
party also has the correlative right to enjoy the finality of the resolution of his case by the execution
and satisfaction of the judgment. Any attempt to thwart this rigid rule and deny the prevailing litigant
his right to savor the fruit of his victory must immediately be struck down. 29 Thus, in Heirs of
Wenceslao Samper v. Reciproco-Noble,30 we had occasion to emphasize the significance of this rule,
to wit:

17

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It is an important fundamental principle in our Judicial system that every litigation must come to an
end x x x Access to the courts is guaranteed. But there must be a limit thereto. Once a litigants rights
have been adjudicated in a valid final judgment of a competent court, he should not be granted an
unbridled license to come back for another try. The prevailing party should not be harassed by
subsequent suits. For, if endless litigations were to be encouraged, then unscrupulous litigants will
multiply in number to the detriment of the administration of justice.
Moreover, laches, or what is known as the doctrine of stale claim or demand, is the neglect or
omission to assert a right, taken in conjunction with lapse of time and other circumstances causing
prejudice to an adverse party, as will operate as a bar in equity. It is a delay in the assertion of a right
which works disadvantage to another because of the inequity founded on some change in the
condition of the property involved or in the relations of the parties. 31 It is based on public policy
which, for the peace of society, ordains that relief will be denied to a stale demand which otherwise
could be a valid claim.32
As a ground for the dismissal of a complaint, the doctrine of laches is embraced in the broad
provision in Section 133 of Rule 16 of the Rules of Court, which enumerates the various grounds on
which a motion to dismiss may be based. Paragraph (h) thereof states that the fact that the claim or
demand set forth in the plaintiffs pleading has been paid, waived, abandoned, or otherwise
extinguished, may be raised in a motion to dismiss. The language of the rule, particularly on the
relation of the words "abandoned" and "otherwise extinguished" to the phrase "claim or demand set
forth in the plaintiffs pleading" is broad enough to include within its ambit the defense of bar by
laches.34
Moreover, what is striking is that a reading of the two complaints filed by Clarita one after the
dismissal of the other discloses that apart from the nature of the actions, the allegations in support of
the claims and the reliefs prayed for in both complaints were but the same. In her complaint in Civil
Case No. 99-177, denominated as an action for "declaration of nullity of mortgage and foreclosure
and sale of real property and reconveyance with damages," Clarita principally demanded the
reconveyance of at least her conjugal share in the subject property, while claiming that the
registration of the properties as well as the mortgage thereof in favor of MBTC had been made
without her knowledge and consent.35 Yet in the complaint in Civil Case No. 02-079, denominated as
one for "declaration of nullity of TCT Nos. 155256, 155257, 155258 and for reconveyance with
damages," Clarita relied on the same allegations embodied in her first complaint and prayed for the
same relief of reconveyance of at least her conjugal share in the property, while additionally seeking
the declaration of nullity of the TCTs registered in the name of Antonio and Belen. 36
Verily, we find no reason not to adhere to the finding of the Court of Appeals that inasmuch as the
two cases successively instituted by Clarita were founded on the same claim and would have called
for the same set of or similar evidence to support them, then Civil Case No. 02-079 which is the
subject of the present petitions may well be deemed already barred by the dismissal of Civil Case No.
99-177.

Section 5 of Rule 16 of the Rules of Court materially provides:


Section 5. Effect of dismissal.Subject to the right of appeal, an order granting a motion to dismiss
based on paragraphs (f), (h) and (i) of Section 1 hereof shall bar the refiling of the same action or
claim.
In United Coconut Planters Bank v. Belus37 and Strongworld Construction Corporation v.
Perello,38 the Court held that where the complaint is dismissed on the ground that the cause of action
is barred by a prior judgment or by the statute of limitations; or that the claim or demand set forth in
the plaintiffs pleading has been paid, waived, abandoned, or otherwise extinguished; or that the
claim on which the action is founded is unenforceable under the provisions of the statute of frauds,
such dismissal operates as one with prejudice and which therefore precludes the filing of another
action based on the same claim. Hence, according to Madrigal v. Transport, Inc. v. Lapanday
Holdings Corporation,39 such dismissal already constitutes res judicata.
The principle of res judicata denotes that a final judgment or decree on the merits by a court of
competent jurisdiction is conclusive of the rights of the parties or their privies in all later suits on all
points and matters determined in their former suit. 40 It obtains where a court of competent jurisdiction
has rendered a final judgment or order on the merits of the case, which operates as an absolute bar
against a subsequent action for the same cause. 41 A substantial identity is necessary to warrant the
application of the rule, and the addition or elimination of some parties or the difference in form and
nature of the two actions would not alter the situation. 42 In other words, when material facts or
questions in issue in a former action were conclusively settled by a judgment rendered therein, such
facts or questions constitute res judicata and may not be again litigated in a subsequent action
between the same parties or their privies regardless of the form of the latter.431avvphi1
Petitioners furthermore raise that the constitution of the mortgage was the result of the fraudulent act
committed by MBTCs branch manager and Belen, and for that reason the proceeds derived from it
did not redound to the benefit of their conjugal partnership. 44 But because this issue is factual in
nature and hence, not appropriately cognizable in a Rule 45 petition where only questions of law may
generally be raised, the Court is left with no other option than to decline to rule on the same. Anent
the question raised by MBTC of whether Clarita had timely filed a motion for reconsideration of the
assailed decision of the Court of Appeals, we find no necessity to expound on the matter since in
view of the foregoing, the petitions at bar must be denied in any event.
As a final word, it needs no elucidation that the solemn and deliberate sentence of the law,
pronounced by its appointed organs, should be regarded as a final and conclusive determination of the
question litigated, and should forever set the controversy at rest. Public policy and sound practice
demand that, at the risk of occasional errors, judgments of courts should become final at some
definite time fixed by law. For, after all, the very object for which courts were constituted was to put
an end to controversies. 45 All told, we find this basic rule decisive of the present controversy.
WHEREFORE, the petitions in G.R. Nos. 165697 and 166481 are DENIED. CA Affirmed.

18

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


G.R. No. 151242

June 15, 2005

Third Cause of Action

PROTON PILIPINAS CORPORATION, AUTOMOTIVE PHILIPPINES, ASEA ONE


CORPORATION and AUTOCORP, Petitioners,
vs.
BANQUE NATIONALE DE PARIS,1 Respondent.

529,189.80
$1,544,984.40

5% as Attorney's Fees

$ 77,249.22
TOTAL ..

DECISION

Conversion rate to peso

CARPIO MORALES, J.:

$1,622,233.62
x 43_

TOTAL ..

It appears that sometime in 1995, petitioner Proton Pilipinas Corporation (Proton) availed of the
credit facilities of herein respondent, Banque Nationale de Paris (BNP). To guarantee the payment of
its obligation, its co-petitioners Automotive Corporation Philippines (Automotive), Asea One
Corporation (Asea) and Autocorp Group (Autocorp) executed a corporate guarantee 2 to the extent of
US$2,000,000.00. BNP and Proton subsequently entered into three trust receipt agreements dated
June 4, 1996,3 January 14, 1997,4 and April 24, 1997.5

Computation based on Rule 141:

COURT

Under the terms of the trust receipt agreements, Proton would receive imported passenger motor
vehicles and hold them in trust for BNP. Proton would be free to sell the vehicles subject to the
condition that it would deliver the proceeds of the sale to BNP, to be applied to its obligations to it. In
case the vehicles are not sold, Proton would return them to BNP, together with all the accompanying
documents of title.
Allegedly, Proton failed to deliver the proceeds of the sale and return the unsold motor vehicles.
Pursuant to the corporate guarantee, BNP demanded from Automotive, Asea and Autocorp the
payment of the amount of US$1,544,984.406 representing Proton's total outstanding obligations.
These guarantors refused to pay, however. Hence, BNP filed on September 7, 1998 before the Makati
Regional Trial Court (RTC) a complaint against petitioners praying that they be ordered to pay (1)
US$1,544,984.40 plus accrued interest and other related charges thereon subsequent to August 15,
1998 until fully paid and (2) an amount equivalent to 5% of all sums due from petitioners as
attorney's fees.
7

The Makati RTC Clerk of Court assessed the docket fees which BNP paid at P352,116.30 which was
computed as follows:8

P69,756,000.00
(roundoff)

JDF

P 69,756,000.00

P 69.606.000.00

- 150,000.00

x .003

69,606,000.00

208,818.00

x .002

+ 450.00

139,212.00

P 209,268.00

+ 150.00
P 139,362.00
LEGAL :

P139,362.00
+ 209,268.00
P348,630.00

x 1% = P3,486.30

P 139,362.00
First Cause of Action
Second Cause of Action

$ 844,674.07
171,120.53

+ 209,268.00
3,486.00

19

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


P 352,116.30

- Total fees paid by the plaintiff

To the complaint, the defendants-herein petitioners filed on October 12, 1998 a Motion to
Dismiss9 on the ground that BNP failed to pay the correct docket fees to thus prevent the trial court
from acquiring jurisdiction over the case.10 As additional ground, petitioners raised prematurity of the
complaint, BNP not having priorly sent any demand letter.11
By Order12 of August 3, 1999, Branch 148 of the Makati RTC denied petitioners' Motion to Dismiss,
viz:
Resolving the first ground relied upon by the defendant, this court believes and so hold that
the docket fees were properly paid. It is the Office of the Clerk of Court of this station that computes
the correct docket fees, and it is their duty to assess the docket fees correctly, which they
did.1avvphi1.zw+
Even granting arguendo that the docket fees were not properly paid, the court cannot just dismiss the
case. The Court has not yet ordered (and it will not in this case) to pay the correct docket fees, thus
the Motion to dismiss is premature, aside from being without any legal basis.
As held in the case of National Steel Corporation vs. CA, G.R. No. 123215, February 2, 1999, the
Supreme Court said:
xxx
Although the payment of the proper docket fees is a jurisdictional requirement, the trial court may
allow the plaintiff in an action to pay the same within a reasonable time within the expiration of
applicable prescription or reglementary period. If the plaintiff fails to comply with this requirement,
the defendant should timely raise the issue of jurisdiction or else he would be considered in estoppel.
In the latter case, the balance between appropriate docket fees and the amount actually paid by the
plaintiff will be considered a lien or (sic) any award he may obtain in his favor.
As to the second ground relied upon by the defendants, in that a review of all annexes to the
complaint of the plaintiff reveals that there is not a single formal demand letter for defendants to
fulfill the terms and conditions of the three (3) trust agreements.
In this regard, the court cannot sustain the submission of defendant. As correctly pointed out by the
plaintiff, failure to make a formal demand for the debtor to pay the plaintiff is not among the legal
grounds for the dismissal of the case. Anyway, in the appreciation of the court, this is simply
evidentiary.
xxx

WHEREFORE, for lack of merit, the Motion to Dismiss interposed by the defendants is hereby
DENIED.13(Underscoring supplied)
Petitioners filed a motion for reconsideration14 of the denial of their Motion to Dismiss, but it was
denied by the trial court by Order15 of October 3, 2000.
Petitioners thereupon brought the case on certiorari and mandamus 16 to the Court of Appeals which,
by Decision17of July 25, 2001, denied it in this wise:
Section 7(a) of Rule 141 of the Rules of Court excludes interest accruing from the principal
amount being claimed in the pleading in the computation of the prescribed filing fees. The complaint
was submitted for the computation of the filing fee to the Office of the Clerk of Court of the Regional
Trial Court of Makati City which made an assessment that respondent paid accordingly. What the
Office of the Clerk of Court did and the ruling of the respondent Judge find support in the decisions
of the Supreme Court in Ng Soon vs. Alday and Tacay vs. RTC of Tagum, Davao del Norte. In the
latter case, the Supreme Court explicitly ruled that "where the action is purely for recovery of money
or damages, the docket fees are assessed on the basis of the aggregate amount claimed, exclusive
only of interests and costs."
Assuming arguendo that the correct filing fees was not made, the rule is that the court may allow a
reasonable time for the payment of the prescribed fees, or the balance thereof, and upon such
payment, the defect is cured and the court may properly take cognizance of the action unless in the
meantime prescription has set in and consequently barred the right of action. Here respondent Judge
did not make any finding, and rightly so, that the filing fee paid by private respondent was
insufficient.
On the issue of the correct dollar-peso rate of exchange, the Office of the Clerk of Court of the RTC
of Makati pegged it at P 43.21 to US$1. In the absence of any office guide of the rate of exchange
which said court functionary was duty bound to follow, the rate he applied is presumptively correct.
Respondent Judge correctly ruled that the matter of demand letter is evidentiary and does not form
part of the required allegations in a complaint. Section 1, Rule 8 of the 1997 Rules of Civil Procedure
pertinently provides:
"Every pleading shall contain in a methodical and logical form, a plain, concise and direct statement
of the ultimate facts on which the party pleading relies for his claim or defense, as the case may be,
omitted the statement of mere evidentiary facts."
Judging from the allegations of the complaint particularly paragraphs 6, 12, 18, and 23 where
allegations of imputed demands were made upon the defendants to fulfill their respective obligations,
annexing the demand letters for the purpose of putting up a sufficient cause of action is not required.

20

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


In fine, respondent Judge committed no grave abuse of discretion amounting to lack or excess of
jurisdiction to warrant certiorari and mandamus. 18 (Underscoring supplied)
Their Motion for Reconsideration19 having been denied by the Court of Appeals,20 petitioners filed the
present petition for review on certiorari21 and pray for the following reliefs:
WHEREFORE, in view of all the foregoing, it is most respectfully prayed of this Honorable Court to
grant the instant petition by REVERSING and SETTING ASIDE the questioned Decision of July 25,
2001 and the Resolution of December 18, 2001 for being contrary to law, to Administrative Circular
No. 11-94 and Circular No. 7 and instead direct the court a quo to require Private Respondent Banque
to pay the correct docket fee pursuant to the correct exchange rate of the dollar to the peso on
September 7, 1998 and to quantify its claims for interests on the principal obligations in the first,
second and third causes of actions in its Complaint in Civil Case No. 98-2180. 22(Underscoring
supplied)
Citing Administrative Circular No. 11-94,23 petitioners argue that BNP failed to pay the correct
docket fees as the said circular provides that in the assessment thereof, interest claimed should be
included. There being an underpayment of the docket fees, petitioners conclude, the trial court did not
acquire jurisdiction over the case.
Additionally, petitioners point out that the clerk of court, in converting BNP's claims from US dollars
to Philippine pesos, applied the wrong exchange rate of US $1 = P43.00, the exchange rate on
September 7, 1998 when the complaint was filed having been pegged at US $1 = P43.21. Thus, by
petitioners' computation, BNP's claim as of August 15, 1998 was
actually P70,096,714.72,24 not P69,756,045.66.
Furthermore, petitioners submit that pursuant to Supreme Court Circular No. 7, 25 the complaint
should have been dismissed for failure to specify the amount of interest in the prayer.
Circular No. 7 reads:
TO: JUDGES AND CLERKS OF COURT OF THE COURT OF TAX APPEALS, REGIONAL
TRIAL COURTS, METROPOLITAN TRIAL COURTS IN CITIES, MUNICIPAL TRIAL COURTS,
MUNICIPAL CIRCUIT TRIAL COURTS, SHARI'A DISTRICT COURTS;AND THE
INTEGRATED BAR OF THE PHILIPPINES
SUBJECT: ALL COMPLAINTS MUST SPECIFY AMOUNT OF DAMAGES SOUGHT NOT
ONLY IN THE BODY OF THE PLEADING, BUT ALSO IN THE PRAYER IN ORDER TO BE
ACCEPTED AND ADMITTED FOR FILING. THE AMOUNT OF DAMAGES SO SPECIFIED
IN THE COMPLAINT SHALL BE THE BASIS FOR ASSESSING THE AMOUNT OF THE
FILING FEES.

In Manchester Development Corporation vs. Court of Appeals, No. L-75919, May 7, 1987, 149
SCRA 562, this Court condemned the practice of counsel who in filing the original complaint omitted
from the prayer any specification of the amount of damages although the amount of over P78 million
is alleged in the body of the complaint. This Court observed that "(T)his is clearly intended for no
other purpose than to evade the payment of the correct filing fees if not to mislead the docket clerk, in
the assessment of the filing fee. This fraudulent practice was compounded when, even as this Court
had taken cognizance of the anomaly and ordered an investigation, petitioner through another counsel
filed an amended complaint, deleting all mention of the amount of damages being asked for in the
body of the complaint. xxx"
For the guidance of all concerned, the WARNING given by the court in the afore-cited case is
reproduced hereunder:
"The Court serves warning that it will take drastic action upon a repetition of this unethical practice.
To put a stop to this irregularity, henceforth all complaints, petitions, answers and other similar
pleadings should specify the amount of damages being prayed for not only in the body of the
pleading but also in the prayer, and said damages shall be considered in the assessment of the
filing fees in any case. Any pleading that fails to comply with this requirement shall not be
accepted nor admitted, or shall otherwise be expunged from the record.
The Court acquires jurisdiction over any case only upon the payment of the prescribed docket fee. An
amendment of the complaint or similar pleading will not thereby vest jurisdiction in the Court, much
less the payment of the docket fee based on the amount sought in the amended pleading. The ruling in
the Magaspi case (115 SCRA 193) in so far as it is inconsistent with this pronouncement is
overturned and reversed."
Strict compliance with this Circular is hereby enjoined.
Let this be circularized to all the courts hereinabove named and to the President and Board of
Governors of the Integrated Bar of the Philippines, which is hereby directed to disseminate this
Circular to all its members.
March 24, 1988.
(Sgd). CLAUDIO TEEHANKEE
Chief Justice
(Emphasis and underscoring supplied)

21

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


On the other hand, respondent maintains that it had paid the filing fee which was assessed by the
clerk of court, and that there was no violation of Supreme Court Circular No. 7 because the amount
of damages was clearly specified in the prayer, to wit:

Where the action is purely for the recovery of money or damages, the docket fees are assessed on the
basis of the aggregate amount claimed, exclusive only of interests and costs.28 (Emphasis and
underscoring supplied),

2. On the FIRST CAUSE OF ACTION -

it made an overpayment.

(c) Defendant PROTON be ordered to pay the sum of (i) US DOLLARS EIGHT HUNDRED
FORTY FOUR THOUSAND SIX HUNDRED SEVENTY FOUR AND SEVEN CENTS (US$
844,674.07), plus accrued interests and other related charges thereon subsequent to August 15, 1998,
until fully paid; and (ii) an amount equivalent to 5% of all sums due from said Defendant, as and for
attorney's fees;

When Tacay was decided in 1989, the pertinent rule applicable was Section 5 (a) of Rule 141 which
provided for the following:

3. On the SECOND CAUSE OF ACTION -

SEC. 5. Clerks of Regional Trial Courts. - (a) For filing an action or proceeding, or a permissive
counter-claim or cross-claim not arising out of the same transaction subject of the complaint, a thirdparty complaint and a complaint in intervention and for all services in the same, if the sum
claimed, exclusive of interest, of the value of the property in litigation, or the value of the estate,
is:

(d) Defendant PROTON be ordered to pay the sum of (i) US DOLLARS ONE HUNDRED
TWENTY AND FIFTY THREE CENTS (US$171,120.53), plus accrued interests and other related
charges thereon subsequent to August 15, 1998 until fully paid; and (ii) an amount equivalent to 5%
of all sums due from said Defendant, as and for attorney's fees;

1.

Less than P 5,000.00 .

2.

P 5,000.00 or more but less than P 10,000.00

48.00

4. On the THIRD CAUSE OF ACTION -

3.

P 10,000.00 or more but less than P 20,000.00 ..

64.00

(e) Defendant PROTON be ordered to pay the sum of (i) US DOLLARS FIVE HUNDRED
TWENTY NINE THOUSAND ONE HUNDRED EIGHTY NINE AND EIGHTY CENTS
(US$529,189.80), plus accrued interests and other related charges thereon subsequent to August 15,
1998 until fully paid; and (ii) an amount equivalent to 5% or all sums due from said Defendant, as
and for attorney's fees;

4.

P 20,000.00 or more but less than P 40,000.00 ..

80.00

5.

P 40,000.00 or more but less than P 60,000.00 ..

120.00

6.

P 60,000.00 or more but less than P 80,000.00 .

160.00

7.

P 80,000.00 or more but less than P 150,000.00

200.00

8.

And for each P 1,000.00 in excess of P 150,000.00 .....

9.

When the value of the case cannot be estimated

400.00

10.

When the case does not concern property


(naturalization, adoption, legal separation, etc.) .....

64.00

In forcible entry and illegal detainer cases


appealed from inferior courts .

40.00

5. On ALL THE CAUSES OF ACTION Defendants AUTOMOTIVE CORPORATION PHILIPPINES, ASEA ONE CORPORATION and
AUTOCORP GROUP to be ordered to pay Plaintiff BNP the aggregate sum of (i) US DOLLARS
ONE MILLION FIVE HUNDRED FORTY FOUR THOUSAND NINE HUNDRED EIGHTY
FOUR AND FORTY CENTS (US$1,544,984.40) (First through Third Causes of Action), plus
accrued interest and other related charges thereon subsequent to August 15, 1998 until fully paid; and
(ii) an amount equivalent to 5% of all sums due from said Defendants, as and for attorney's fees. 26
Moreover, respondent posits that the amount of US$1,544,984.40 represents not only the principal
but also interest and other related charges which had accrued as of August 15, 1998. Respondent goes
even further by suggesting that in light of Tacay v. Regional Trial Court of Tagum, Davao del
Norte27 where the Supreme Court held,

11.

P 32.00

4.00

If the case concerns real estate, the assessed value thereof shall be considered in computing the fees.
In case the value of the property or estate or the sum claim is less or more in accordance with the
appraisal of the court, the difference of fees shall be refunded or paid as the case may be.

22

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


When the complaint in this case was filed in 1998, however, as correctly pointed out by petitioners,
Rule 141 had been amended by Administrative Circular No. 11-9429 which provides:

The clerk of court should thus have assessed the filing fee by taking into consideration "the total sum
claimed,inclusive of interest, damages of whatever kind, attorney's fees, litigation expenses, and
costs, or the stated value of the property in litigation." Respondent's and the Court of Appeals'
reliance then on Tacay was not in order.

BY RESOLUTION OF THE COURT, DATED JUNE 28, 1994, PURSUANT TO SECTION 5 (5) OF
ARTICLE VIII OF THE CONSTITUTION, RULE 141, SECTION 7 (a) AND (d), and SECTION 8
(a) and (b) OF THE RULES OF COURT ARE HEREBY AMENDED TO READ AS FOLLOWS:

Neither was, for the same reason, the Court of Appeals' reliance on the 1989 case of Ng Soon v.
Alday,30 where this Court held:

RULE 141
LEGAL FEES

The failure to state the rate of interest demanded was not fatal not only because it is the Courts
which ultimately fix the same, but also because Rule 141, Section 5(a) of the Rules of Court,
itemizing the filing fees, speaks of "the sum claimed, exclusive of interest." This clearly implies
that the specification of the interest rate is not that indispensable.

xxx
Sec. 7. Clerks of Regional Trial Courts

Factually, therefore, not everything was left to "guesswork" as respondent Judge has opined. The
sums claimed were ascertainable, sufficient enough to allow a computation pursuant to Rule 141,
section 5(a).

(a) For filing an action or a permissive counterclaim or money claim against an estate not based on
judgment, or for filing with leave of court a third-party, fourth-party, etc. complaint, or a complaint in
intervention, and for all clerical services in the same, if the total sum claimed, inclusive of interest,
damages of whatever kind, attorney's fees, litigation expenses, and costs, or the stated value of
the property in litigation, is:

Furthermore, contrary to the position taken by respondent Judge, the amounts claimed need not be
initially stated with mathematical precision. The same Rule 141, section 5(a) (3rd paragraph),
allows an appraisal "more or less."31 Thus:

1.

Not more than P 100,000.00

P 400.00

2.

P 100,000.00, or more but not more than P 150,000.00

600.00

3.

For each P 1,000.00 in excess of P 150,000.00 .

5.00

xxx

"In case the value of the property or estate or the sum claimed is less or more in accordance with the
appraisal of the court, the difference of fee shall be refunded or paid as the case may be."
In other words, a final determination is still to be made by the Court, and the fees ultimately found to
be payable will either be additionally paid by the party concerned or refunded to him, as the case may
be. The above provision clearly allows an initial payment of the filing fees corresponding to the
estimated amount of the claim subject to adjustment as to what later may be proved.

Sec. 8. Clerks of Metropolitan and Municipal Trial Courts


". . . there is merit in petitioner's claim that the third paragraph of Rule 141, Section 5(a) clearly
contemplates a situation where an amount is alleged or claimed in the complaint but is less or more
than what is later proved. If what is proved is less than what was claimed, then a refund will be made;
if more, additional fees will be exacted. Otherwise stated, what is subject to adjustment is the
difference in the fee and not the whole amount" (Pilipinas Shell Petroleum Corp., et als., vs. Court of
Appeals, et als., G.R. No. 76119, April 10, 1989).32 (Emphasis and underscoring supplied)

(a) For each civil action or proceeding, where the value of the subject matter involved, or
the amount of the demand, inclusive of interest, damages or whatever kind, attorney's
fees, litigation expenses, and costs, is:
1.

Not more than P 20,000.00 ...

2.

More than P 20,000.00 but not more than P 100,000.00 .

400.00

3.

More than P 100,000.00 but not more than P 200,000.00

850.00

(Emphasis and underscoring supplied)

P 120.00
Respecting the Court of Appeals' conclusion that the clerk of court did not err when he applied the
exchange rate of US $1 = P43.00 "[i]n the absence of any office guide of the rate of exchange which
said court functionary was duty bound to follow,[hence,] the rate he applied is presumptively
correct," the same does not lie. The presumption of regularity of the clerk of court's application of the
exchange rate is not conclusive.33 It is disputable.34 As such, the presumption may be overturned by
the requisite rebutting evidence.35 In the case at bar, petitioners have adequately proven with

23

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


documentary evidence36 that the exchange rate when the complaint was filed on September 7, 1998
was US $1 = P43.21.
In fine, the docket fees paid by respondent were insufficient.
With respect to petitioner's argument that the trial court did not acquire jurisdiction over the case in
light of the insufficient docket fees, the same does not lie.
True, in Manchester Development Corporation v. Court of Appeals,37 this Court held that the court
acquires jurisdiction over any case only upon the payment of the prescribed docket fees, 38 hence, it
concluded that the trial court did not acquire jurisdiction over the case.
It bears emphasis, however, that the ruling in Manchester was clarified in Sun Insurance Office, Ltd.
(SIOL) v. Asuncion39 when this Court held that in the former there was clearly an effort to defraud the
government in avoiding to pay the correct docket fees, whereas in the latter the plaintiff demonstrated
his willingness to abide by paying the additional fees as required.

1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the
payment of the prescribed docket fee, that vests a trial court with jurisdiction over the
subject-matter or nature of the action. Where the filing of the initiatory pleading is not
accompanied by payment of the docket fee, the court may allow payment of the fee within
a reasonable time but in no case beyond the applicable prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims and similar
pleadings, which shall not be considered filed until and unless the filing fee prescribed
therefor is paid. The court may also allow payment of said fee within a reasonable time but
also in no case beyond its applicable prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate
pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a
claim not specified in the pleading, or if specified the same has been left for determination
by the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall
be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien
and assess and collect the additional fee. 40 (Emphasis and underscoring supplied)

The principle in Manchester could very well be applied in the present case. The pattern and the intent
to defraud the government of the docket fee due it is obvious not only in the filing of the original
complaint but also in the filing of the second amended complaint.

The ruling in Sun Insurance Office was echoed in the 2005 case of Heirs of Bertuldo Hinog v. Hon.
Achilles Melicor:41

However, in Manchester, petitioner did not pay any additional docket fee until the case was decided
by this Court on May 7, 1987. Thus, in Manchester, due to the fraud committed on the
government, this Court held that the court a quo did not acquire jurisdiction over the case and
that the amended complaint could not have been admitted inasmuch as the original complaint
was null and void.

Plainly, while the payment of the prescribed docket fee is a jurisdictional requirement, even its nonpayment at the time of filing does not automatically cause the dismissal of the case, as long as the fee
is paid within the applicable prescriptive or reglementary period, more so when the party involved
demonstrates a willingness to abide by the rules prescribing such payment. Thus, when insufficient
filing fees were initially paid by the plaintiffs andthere was no intention to defraud the
government, the Manchester rule does not apply. (Emphasis and underscoring supplied; citations
omitted)

In the present case, a more liberal interpretation of the rules is called for considering
that, unlikeManchester, private respondent demonstrated his willingness to abide by the rules
by paying the additional docket fees as required. The promulgation of the decision
in Manchester must have had that sobering influence on private respondent who thus paid the
additional docket fee as ordered by the respondent court. It triggered his change of stance by
manifesting his willingness to pay such additional docket fee as may be ordered.

In the case at bar, respondent merely relied on the assessment made by the clerk of court which
turned out to be incorrect. Under the circumstances, the clerk of court has the responsibility of
reassessing what respondent must pay within the prescriptive period, failing which the complaint
merits dismissal.

Nevertheless, petitioners contend that the docket fee that was paid is still insufficient considering the
total amount of the claim. This is a matter which the clerk of court of the lower court and/or his duly
authorized docket clerk or clerk in charge should determine and, thereafter, if any amount is found
due, he must require the private respondent to pay the same.
Thus, the Court rules as follows:

Parenthetically, in the complaint, respondent prayed for "accrued interest subsequent to August 15,
1998 until fully paid." The complaint having been filed on September 7, 1998, respondent's claim
includes the interest from August 16, 1998 until such date of filing.
Respondent did not, however, pay the filing fee corresponding to its claim for interest from August
16, 1998 until the filing of the complaint on September 7, 1998. As priorly discussed, this is required
under Rule 141, as amended by Administrative Circular No. 11-94, which was the rule applicable at
the time. Thus, as the complaint currently stands, respondent cannot claim the interest from August

24

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


16, 1998 until September 7, 1998, unless respondent is allowed by motion to amend its complaint
within a reasonable time and specify the precise amount of interest petitioners owe from August 16,
1998 to September 7, 199842 and pay the corresponding docket fee therefor.
With respect to the interest accruing after the filing of the complaint, the same can only be
determined after a final judgment has been handed down. Respondent cannot thus be made to pay the
corresponding docket fee therefor. Pursuant, however, to Section 2, Rule 141, as amended by
Administrative Circular No. 11-94, respondent should be made to pay additional fees which shall
constitute a lien in the event the trial court adjudges that it is entitled to interest accruing after the
filing of the complaint.
Sec. 2. Fees as lien. - Where the court in its final judgment awards a claim not alleged, or a relief
different or more than that claimed in the pleading, the party concerned shall pay the additional fees
which shall constitute a lien on the judgment in satisfaction of said lien. The clerk of court shall
assess and collect the corresponding fees.
In Ayala Corporation v. Madayag,43 in interpreting the third rule laid down in Sun
Insurance regarding awards of claims not specified in the pleading, this Court held that the
same refers only to damages arising after the filing of the complaint or similar pleading as to
which the additional filing fee therefor shall constitute a lien on the judgment.
The amount of any claim for damages, therefore, arising on or before the filing of the complaint or
any pleading should be specified. While it is true that the determination of certain damages as
exemplary or corrective damages is left to the sound discretion of the court, it is the duty of the
parties claiming such damages to specify the amount sought on the basis of which the court may
make a proper determination, and for the proper assessment of the appropriate docket fees. The
exception contemplated as to claims not specified or to claims although specified are left for
determination of the court is limited only to any damages that may arise after the filing of the
complaint or similar pleading for then it will not be possible for the claimant to specify nor
speculate as to the amount thereof.44 (Emphasis and underscoring supplied; citation
omitted)1avvphi1.zw+
WHEREFORE, the petition is GRANTED in part. The July 25, 2001 Decision and the December
18, 2001 Resolution of the Court Appeals are hereby MODIFIED. The Clerk of Court of the Regional
Trial Court of Makati City is ordered to reassess and determine the docket fees that should be paid by
respondent, BNP, in accordance with the Decision of this Court, and direct respondent to pay the
same within fifteen (15) days, provided the applicable prescriptive or reglementary period has not yet
expired. Thereafter, the trial court is ordered to proceed with the case with utmost dispatch.
SO ORDERED.

G.R. No. 175914

February 10, 2009

RUBY SHELTER BUILDERS AND REALTY DEVELOPMENT CORPORATION, Petitioner,


vs.
HON. PABLO C. FORMARAN III, Presiding Judge of Regional Trial Court Branch 21, Naga
City, as Pairing Judge for Regional Trial Court Branch 22, Formerly Presided By HON.
NOVELITA VILLEGAS-LLAGUNO (Retired 01 May 2006), ROMEO Y. TAN, ROBERTO L.
OBIEDO and ATTY. TOMAS A. REYES, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking
the reversal of the Decision1 dated 22 November 2006 of the Court of Appeals in CA-G.R. SP No.
94800. The Court of Appeals, in its assailed Decision, affirmed the Order 2 dated 24 March 2006 of
the Regional Trial Court (RTC), Branch 22, of Naga City, in Civil Case No. RTC-2006-0030,

25

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


ordering petitioner Ruby Shelter Builders and Realty Development Corporation to pay additional
docket/filing fees, computed based on Section 7(a) of Rule 141 of the Rules of Court, as amended.
The present Petition arose from the following facts:
Petitioner obtained a loan3 in the total amount of P95,700,620.00 from respondents Romeo Y. Tan
(Tan) and Roberto L. Obiedo (Obiedo), secured by real estate mortgages over five parcels of land, all
located in Triangulo, Naga City, covered by Transfer Certificates of Title (TCTs) No. 38376, 4 No.
29918,5 No. 38374,6 No. 39232,7 and No. 39225,8 issued by the Registry of Deeds for Naga City, in
the name of petitioner. When petitioner was unable to pay the loan when it became due and
demandable, respondents Tan and Obiedo agreed to an extension of the same.
In a Memorandum of Agreement9 dated 17 March 2005, respondents Tan and Obiedo granted
petitioner until 31 December 2005 to settle its indebtedness, and condoned the interests, penalties and
surcharges accruing thereon from 1 October 2004 to 31 December 2005 which amounted
to P74,678,647.00. The Memorandum of Agreement required, in turn, that petitioner execute
simultaneously with the said Memorandum, "by way of dacion en pago," Deeds of Absolute Sale in
favor of respondents Tan and Obiedo, covering the same parcels of land subject of the mortgages.
The Deeds of Absolute Sale would be uniformly dated 2 January 2006, and state that petitioner sold
to respondents Tan and Obiedo the parcels of land for the following purchase prices:
TCT No.

Purchase Price

38376

P 9,340,000.00

29918

P 28,000,000.00

38374

P 12,000,000.00

39232

P 1,600,000.00

39225

P 1,600,000.00

Petitioner could choose to pay off its indebtedness with individual or all five parcels of land; or it
could redeem said properties by paying respondents Tan and Obiedo the following prices for the
same, inclusive of interest and penalties:
TCT No.

Redemption Price

38376

P 25,328,939.00

29918

P 35,660,800.00

38374

P 28,477,600.00

39232

P 6,233,381.00

39225

P 6,233,381.00

In the event that petitioner is able to redeem any of the afore-mentioned parcels of land, the Deed of
Absolute Sale covering the said property shall be nullified and have no force and effect; and
respondents Tan and Obiedo shall then return the owners duplicate of the corresponding TCT to
petitioner and also execute a Deed of Discharge of Mortgage. However, if petitioner is unable to
redeem the parcels of land within the period agreed upon, respondents Tan and Obiedo could already
present the Deeds of Absolute Sale covering the same to the Office of the Register of Deeds for Naga
City so respondents Tan and Obiedo could acquire TCTs to the said properties in their names.
The Memorandum of Agreement further provided that should petitioner contest, judicially or
otherwise, any act, transaction, or event related to or necessarily connected with the said
Memorandum and the Deeds of Absolute Sale involving the five parcels of land, it would pay
respondents Tan and Obiedo P10,000,000.00 as liquidated damages inclusive of costs and attorneys
fees. Petitioner would likewise pay respondents Tan and Obiedo the condoned interests, surcharges
and penalties.10 Finally, should a contest arise from the Memorandum of Agreement, Mr. Ruben Sia
(Sia), President of petitioner corporation, personally assumes, jointly and severally with petitioner,
the latters monetary obligation to respondent Tan and Obiedo.
Respondent Atty. Tomas A. Reyes (Reyes) was the Notary Public who notarized the Memorandum of
Agreement dated 17 March 2005 between respondent Tan and Obiedo, on one hand, and petitioner,
on the other.
Pursuant to the Memorandum of Agreement, petitioner, represented by Mr. Sia, executed separate
Deeds of Absolute Sale,11 over the five parcels of land, in favor of respondents Tan and Obiedo. On
the blank spaces provided for in the said Deeds, somebody wrote the 3 rd of January 2006 as the date
of their execution. The Deeds were again notarized by respondent Atty. Reyes also on 3 January
2006.
Without payment having been made by petitioner on 31 December 2005, respondents Tan and Obiedo
presented the Deeds of Absolute Sale dated 3 January 2006 before the Register of Deeds of Naga City
on 8 March 2006, as a result of which, they were able to secure TCTs over the five parcels of land in
their names.
On 16 March 2006, petitioner filed before the RTC a Complaint 12 against respondents Tan, Obiedo,
and Atty. Reyes, for declaration of nullity of deeds of sales and damages, with prayer for the issuance
of a writ of preliminary injunction and/or temporary restraining order (TRO). The Complaint was
docketed as Civil Case No. 2006-0030.

26

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


On the basis of the facts already recounted above, petitioner raised two causes of action in its
Complaint.
As for the first cause of action, petitioner alleged that as early as 27 December 2005, its President
already wrote a letter informing respondents Tan and Obiedo of the intention of petitioner to pay its
loan and requesting a meeting to compute the final amount due. The parties held meetings on 3 and 4
January 2006 but they failed to arrive at a mutually acceptable computation of the final amount of
loan payable. Respondents Tan and Obiedo then refused the request of petitioner for further
dialogues. Unbeknownst to petitioner, despite the ongoing meetings, respondents Tan and Obiedo, in
evident bad faith, already had the pre-executed Deeds of Absolute Sale notarized on 3 January 2006
by respondent Atty. Reyes. Atty. Reyes, in connivance with respondents Tan and Obiedo, falsely
made it appear in the Deeds of Absolute Sale that Mr. Sia had personally acknowledged/ratified the
said Deeds before Atty. Reyes.
Asserting that the Deeds of Absolute Sale over the five parcels of land were executed merely as
security for the payment of its loan to respondents Tan and Obiedo; that the Deeds of Absolute Sale,
executed in accordance with the Memorandum of Agreement, constituted pactum commisorium and
as such, were null and void; and that the acknowledgment in the Deeds of Absolute Sale were
falsified, petitioner averred:
13. That by reason of the fraudulent actions by the [herein respondents], [herein petitioner] is
prejudiced and is now in danger of being deprived, physically and legally, of the mortgaged
properties without benefit of legal processes such as the remedy of foreclosure and its attendant
procedures, solemnities and remedies available to a mortgagor, while [petitioner] is desirous and
willing to pay its obligation and have the mortgaged properties released. 13
In support of its second cause of action, petitioner narrated in its Complaint that on 18 January 2006,
respondents Tan and Obiedo forcibly took over, with the use of armed men, possession of the five
parcels of land subject of the falsified Deeds of Absolute Sale and fenced the said properties with
barbed wire. Beginning 3 March 2006, respondents Tan and Obiedo started demolishing some of the
commercial spaces standing on the parcels of land in question which were being rented out by
petitioner. Respondents Tan and Obiedo were also about to tear down a principal improvement on the
properties consisting of a steel-and-concrete structure housing a motor vehicle terminal operated by
petitioner. The actions of respondents Tan and Obiedo were to the damage and prejudice of petitioner
and its tenants/lessees. Petitioner, alone, claimed to have suffered at least P300,000.00 in actual
damages by reason of the physical invasion by respondents Tan and Obiedo and their armed goons of
the five parcels of land.
Ultimately, petitioners prayer in its Complaint reads:

(a) Restraining [herein respondents] Tan and Obiedo, their agents, privies or
representatives, from committing act/s tending to alienate the mortgaged properties from
the [herein petitioner] pending the resolution of the case, including but not limited to the
acts complained of in paragraph "14", above;
(b) Restraining the Register of Deeds of Naga City from entertaining moves by the
[respondents] to have [petitioners] certificates of title to the mortgaged properties
cancelled and changed/registered in [respondents] Tans and Obiedos names, and/or
released to them;
(c) After notice and hearing, that a writ of preliminary injunction be issued imposing the
same restraints indicated in the next preceding two paragraphs of this prayer; and
(d) After trial, judgment be rendered:
1. Making the injunction permanent;
2. Declaring the provision in the Memorandum of Agreement requiring the
[petitioner] to execute deed of sales (sic) in favor of the [respondents Tan and
Obiedo] as dacion en pago in the event of non-payment of the debt as pactum
commissorium;
3. Annulling the Deed[s] of Sale for TCT Nos. 29918, 38374, 38376, 39225 and
39232, all dated January 3, 2006, the same being in contravention of law;
4. Ordering the [respondents] jointly and solidarily to pay the [petitioner] actual
damages of at leastP300,000.00; attorneys fees in the amount of P100,000.00
plus P1,000.00 per court attendance of counsel as appearance fee; litigation
expenses in the amount of at least P10,000.00 and exemplary damages in the
amount of P300,000.00, plus the costs.
[Petitioner] further prays for such other reliefs as may be proper, just and equitable under the
premises.14
Upon filing its Complaint with the RTC on 16 March 2006, petitioner paid the sum of P13,644.25 for
docket and other legal fees, as assessed by the Office of the Clerk of Court. The Clerk of Court
initially considered Civil Case No. 2006-0030 as an action incapable of pecuniary estimation and
computed the docket and other legal fees due thereon according to Section 7(b)(1), Rule 141 of the
Rules of Court.

WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court that upon
the filing of this complaint, a 72-hour temporary restraining order be forthwith issued ex parte:

27

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


Only respondent Tan filed an Answer15 to the Complaint of petitioner. Respondent Tan did admit that
meetings were held with Mr. Sia, as the representative of petitioner, to thresh out Mr. Sias charge that
the computation by respondents Tan and Obiedo of the interests, surcharges and penalties accruing on
the loan of petitioner was replete with errors and uncertainties. However, Mr. Sia failed to back up his
accusation of errors and uncertainties and to present his own final computation of the amount due.
Disappointed and exasperated, respondents Tan and Obiedo informed Mr. Sia that they had already
asked respondent Atty. Reyes to come over to notarize the Deeds of Absolute Sale. Respondent Atty.
Reyes asked Mr. Sia whether it was his signature appearing above his printed name on the Deeds of
Absolute Sale, to which Mr. Sia replied yes. On 4 January 2006, Mr. Sia still failed to establish his
claim of errors and uncertainties in the computation of the total amount which petitioner must pay
respondent Tan and Obiedo. Mr. Sia, instead, sought a nine-month extension for paying the loan
obligation of petitioner and the reduction of the interest rate thereon to only one percent (1%) per
month. Respondents Tan and Obiedo rejected both demands.
Respondent Tan maintained that the Deeds of Absolute Sale were not executed merely as securities
for the loan of petitioner. The Deeds of Absolute Sale over the five parcels of land were the
consideration for the payment of the total indebtedness of petitioner to respondents Tan and Obiedo,
and the condonation of the 15-month interest which already accrued on the loan, while providing
petitioner with the golden opportunity to still redeem all or even portions of the properties covered by
said Deeds. Unfortunately, petitioner failed to exercise its right to redeem any of the said properties.
Belying that they forcibly took possession of the five parcels of land, respondent Tan alleged that it
was Mr. Sia who, with the aid of armed men, on board a Sports Utility Vehicle and a truck, rammed
into the personnel of respondents Tan and Obiedo causing melee and disturbance. Moreover, by the
execution of the Deeds of Absolute Sale, the properties subject thereof were, ipso jure, delivered to
respondents Tan and Obiedo. The demolition of the existing structures on the properties was nothing
but an exercise of dominion by respondents Tan and Obiedo.
Respondent Tan, thus, sought not just the dismissal of the Complaint of petitioner, but also the grant
of his counterclaim. The prayer in his Answer is faithfully reproduced below:
Wherefore, premises considered, it is most respectfully prayed that, after due hearing, judgment be
rendered dismissing the complaint, and on the counterclaim, [herein petitioner] and Ruben Sia, be
ordered to indemnify, jointly and severally [herein respondents Tan and Obiedo] the amounts of not
less than P10,000,000.00 as liquidated damages and the further sum of not less than P500,000.00 as
attorneys fees. In the alternative, and should it become necessary, it is hereby prayed that [petitioner]
be ordered to pay herein [respondents Tan and Obiedo] the entire principal loan of P95,700,620.00,
plus interests, surcharges and penalties computed from March 17, 2005 until the entire sum is fully
paid, including the amount of P74,678,647.00 foregone interest covering the period from October 1,
2004 to December 31, 2005 or for a total of fifteen (15) months, plus incidental expenses as may be
proved in court, in the event that Annexes "G" to "L" be nullified. Other relief and remedies as are
just and equitable under the premises are hereby prayed for.16

Thereafter, respondent Tan filed before the RTC an Omnibus Motion in which he contended that Civil
Case No. 2006-0030 involved real properties, the docket fees for which should be computed in
accordance with Section 7(a), not Section 7(b)(1), of Rule 141 of the Rules of Court, as amended by
A.M. No. 04-2-04-SC which took effect on 16 August 2004. Since petitioner did not pay the
appropriate docket fees for Civil Case No. 2006-0030, the RTC did not acquire jurisdiction over the
said case. Hence, respondent Tan asked the RTC to issue an order requiring petitioner to pay the
correct and accurate docket fees pursuant to Section 7(a), Rule 141 of the Rules of Court, as
amended; and should petitioner fail to do so, to deny and dismiss the prayer of petitioner for the
annulment of the Deeds of Absolute Sale for having been executed in contravention of the law or of
the Memorandum of Agreement as pactum commisorium.
As required by the RTC, the parties submitted their Position Papers on the matter. On 24 March 2006,
the RTC issued an Order17 granting respondent Tans Omnibus Motion. In holding that both petitioner
and respondent Tan must pay docket fees in accordance with Section 7(a), Rule 141 of the Rules of
Court, as amended, the RTC reasoned:
It must be noted that under paragraph (b) 2. of the said Section 7, it is provided that QUIETING OF
TITLE which is an action classified as beyond pecuniary estimation "shall be governed by paragraph
(a)". Hence, the filing fee in an action for Declaration of Nullity of Deed which is also classified as
beyond pecuniary estimation, must be computed based on the provision of Section 7(A) hereinabove, in part, quoted.
Since [herein respondent], Romeo Tan in his Answer has a counterclaim against the plaintiff, the
former must likewise pay the necessary filling (sic) fees as provided for under Section 7 (A) of
Amended Administrative Circular No. 35-2004 issued by the Supreme Court. 18
Consequently, the RTC decreed on the matter of docket/filing fees:
WHEREFORE, premises considered, the [herein petitioner] is hereby ordered to pay additional filing
fee and the [herein respondent], Romeo Tan is also ordered to pay docket and filing fees on his
counterclaim, both computed based on Section 7(a) of the Supreme Court Amended Administrative
Circular No. 35-2004 within fifteen (15) days from receipt of this Order to the Clerk of Court,
Regional Trial Court, Naga City and for the latter to compute and to collect the said fees
accordingly.19
Petitioner moved20 for the partial reconsideration of the 24 March 2006 Order of the RTC, arguing
that Civil Case No. 2006-0030 was principally for the annulment of the Deeds of Absolute Sale and,
as such, incapable of pecuniary estimation. Petitioner submitted that the RTC erred in applying
Section 7(a), Rule 141 of the Rules of Court, as amended, to petitioners first cause of action in its
Complaint in Civil Case No. 2006-0030.

28

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In its Order21 dated 29 March 2006, the RTC refused to reconsider its 24 March 2006 Order, based on
the following ratiocination:
Analyzing, the action herein pertains to real property, for as admitted by the [herein petitioner], "the
deeds of sale in question pertain to real property" x x x. The Deeds of Sale subject of the instant case
have already been transferred in the name of the [herein respondents Tan and Obiedo].
Compared with Quieting of Title, the latter action is brought when there is cloud on the title to real
property or any interest therein or to prevent a cloud from being cast upon title to the real property
(Art. 476, Civil Code of the Philippines) and the plaintiff must have legal or equitable title to or
interest in the real property which is the subject matter of the action (Art. 447, ibid.), and yet plaintiff
in QUIETING OF TITLE is required to pay the fees in accordance with paragraph (a) of Section 7 of
the said Amended Administrative Circular No. 35-2004, hence, with more reason that the [petitioner]
who no longer has title to the real properties subject of the instant case must be required to pay the
required fees in accordance with Section 7(a) of the Amended Administrative Circular No. 35-2004
afore-mentioned.
Furthermore, while [petitioner] claims that the action for declaration of nullity of deed of sale and
memorandum of agreement is one incapable of pecuniary estimation, however, as argued by the
[respondent Tan], the issue as to how much filing and docket fees should be paid was never raised as
an issue in the case of Russell vs. Vestil, 304 SCRA 738.
xxxx
WHEREFORE, the Motion for Partial Reconsideration is hereby DENIED. 22
In a letter dated 19 April 2006, the RTC Clerk of Court computed, upon the request of counsel for the
petitioner, the additional docket fees petitioner must pay for in Civil Case No. 2006-0030 as directed
in the afore-mentioned RTC Orders. Per the computation of the RTC Clerk of Court, after excluding
the amount petitioner previously paid on 16 March 2006, petitioner must still pay the amount
of P720,392.60 as docket fees.23
Petitioner, however, had not yet conceded, and it filed a Petition for Certiorari with the Court of
Appeals; the petition was docketed as CA-G.R. SP No. 94800. According to petitioner, the
RTC24 acted with grave abuse of discretion, amounting to lack or excess of jurisdiction, when it
issued its Orders dated 24 March 2006 and 29 March 2006 mandating that the docket/filing fees for
Civil Case No. 2006-0030, an action for annulment of deeds of sale, be assessed under Section 7(a),
Rule 141 of the Rules of Court, as amended. If the Orders would not be revoked, corrected, or
rectified, petitioner would suffer grave injustice and irreparable damage.
On 22 November 2006, the Court of Appeals promulgated its Decision wherein it held that:

Clearly, the petitioners complaint involves not only the annulment of the deeds of sale, but also the
recovery of the real properties identified in the said documents. In other words, the objectives of the
petitioner in filing the complaint were to cancel the deeds of sale and ultimately, to recover
possession of the same. It is therefore a real action.
Consequently, the additional docket fees that must be paid cannot be assessed in accordance with
Section 7(b). As a real action, Section 7(a) must be applied in the assessment and payment of the
proper docket fee.
Resultantly, there is no grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the court a quo. By grave abuse of discretion is meant capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction, and mere abuse of discretion is not enough it must
be grave. The abuse must be grave and patent, and it must be shown that the discretion was exercised
arbitrarily and despotically.1avvphi1
Such a situation does not exist in this particular case. The evidence is insufficient to prove that the
court a quo acted despotically in rendering the assailed orders. It acted properly and in accordance
with law. Hence, error cannot be attributed to it. 25
Hence, the fallo of the Decision of the appellate court reads:
WHEREFORE, the petition for certiorari is DENIED. The assailed Orders of the court a quo are
AFFIRMED.26
Without seeking reconsideration of the foregoing Decision with the Court of Appeals, petitioner filed
its Petition for Review on Certiorari before this Court, with a lone assignment of error, to wit:
18. The herein petitioner most respectfully submits that the Court of Appeals committed a grave and
serious reversible error in affirming the assailed Orders of the Regional Trial Court which are clearly
contrary to the pronouncement of this Honorable Court in the case of Spouses De Leon v. Court of
Appeals, G.R. No. 104796, March 6, 1998, not to mention the fact that if the said judgment is
allowed to stand and not rectified, the same would result in grave injustice and irreparable damage to
herein petitioner in view of the prohibitive amount assessed as a consequence of said Orders. 27
In Manchester Development Corporation v. Court of Appeals, 28 the Court explicitly pronounced that
"[t]he court acquires jurisdiction over any case only upon the payment of the prescribed docket fee."
Hence, the payment of docket fees is not only mandatory, but also jurisdictional.
In Sun Insurance Office, Ltd. (SIOL) v. Asuncion,29 the Court laid down guidelines for the
implementation of its previous pronouncement in Manchester under particular circumstances, to wit:

29

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the
payment of the prescribed docket fee, that vests a trial court with jurisdiction over the
subject matter or nature of the action. Where the filing of the initiatory pleading is not
accompanied by payment of the docket fee, the court may allow payment of the fee within
a reasonable time but in no case beyond the applicable prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims and similar
pleadings, which shall not be considered filed until and unless the filing fee prescribed
therefor is paid. The court may also allow payment of said fee within a reasonable time but
also in no case beyond its applicable prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate
pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a
claim not specified in the pleading, or if specified the same has been left for determination
by the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall
be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien
and assess and collect the additional fee.

VALUE OF THE PERSONAL PROPERTY IN LITIGATION AS ALLEGED BY THE CLAIMANT,


is:
[Table of fees omitted.]
If the action involves both a money claim and relief pertaining to property, then THE fees will be
charged on both the amounts claimed and value of property based on the formula prescribed in this
paragraph a.
(b) For filing:
1. Actions where the value of the subject matter cannot be estimated
2. Special civil actions, except judicial foreclosure of mortgage, EXPROPRIATION
PROCEEDINGS, PARTITION AND QUIETING OF TITLE which will
3. All other actions not involving property

In the Petition at bar, the RTC found, and the Court of Appeals affirmed, that petitioner did not pay
the correct amount of docket fees for Civil Case No. 2006-0030. According to both the trial and
appellate courts, petitioner should pay docket fees in accordance with Section 7(a), Rule 141 of the
Rules of Court, as amended. Consistent with the liberal tenor of Sun Insurance, the RTC, instead of
dismissing outright petitioners Complaint in Civil Case No. 2006-0030, granted petitioner time to
pay the additional docket fees. Despite the seeming munificence of the RTC, petitioner refused to pay
the additional docket fees assessed against it, believing that it had already paid the correct amount
before, pursuant to Section 7(b)(1), Rule 141 of the Rules of Court, as amended.
Relevant to the present controversy are the following provisions under Rule 141 of the Rules of
Court, as amended by A.M. No. 04-2-04-SC30 and Supreme Court Amended Administrative Circular
No. 35-200431 :
SEC. 7. Clerks of Regional Trial Courts.
(a) For filing an action or a permissive OR COMPULSORY counterclaim, CROSS-CLAIM, or
money claim against an estate not based on judgment, or for filing a third-party, fourth-party, etc.
complaint, or a complaint-in-intervention, if the total sum claimed, INCLUSIVE OF INTERESTS,
PENALTIES, SURCHARGES, DAMAGES OF WHATEVER KIND, AND ATTORNEYS FEES,
LITIGATIO NEXPENSES AND COSTS and/or in cases involving property, the FAIR MARKET
value of the REAL property in litigation STATED IN THE CURRENT TAX DECLARATION OR
CURRENT ZONAL VALUATION OF THE BUREAU OF INTERNAL REVENUE, WHICHEVER
IS HIGHER, OR IF THERE IS NONE, THE STATED VALUE OF THE PROPERTY IN
LITIGATION OR THE VALUE OF THE PERSONAL PROPERTY IN LITIGATION OR THE

[Table of fees omitted.]


The docket fees under Section 7(a), Rule 141, in cases involving real property depend on the fair
market value of the same: the higher the value of the real property, the higher the docket fees due. In
contrast, Section 7(b)(1), Rule 141 imposes a fixed or flat rate of docket fees on actions incapable of
pecuniary estimation.
In order to resolve the issue of whether petitioner paid the correct amount of docket fees, it is
necessary to determine the true nature of its Complaint. The dictum adhered to in this jurisdiction is
that the nature of an action is determined by the allegations in the body of the pleading or Complaint
itself, rather than by its title or heading. 32However, the Court finds it necessary, in ascertaining the
true nature of Civil Case No. 2006-0030, to take into account significant facts and circumstances
beyond the Complaint of petitioner, facts and circumstances which petitioner failed to state in its
Complaint but were disclosed in the preliminary proceedings before the court a quo.
Petitioner persistently avers that its Complaint in Civil Case No. 2006-0030 is primarily for the
annulment of the Deeds of Absolute Sale. Based on the allegations and reliefs in the Complaint alone,
one would get the impression that the titles to the subject real properties still rest with petitioner; and
that the interest of respondents Tan and Obiedo in the same lies only in the Deeds of Absolute Sale
sought to be annulled.
What petitioner failed to mention in its Complaint was that respondents Tan and Obiedo already had
the Memorandum of Agreement, which clearly provided for the execution of the Deeds of Absolute

30

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


Sale, registered on the TCTs over the five parcels of land, then still in the name of petitioner. After
respondents Tan and Obiedo had the Deeds of Absolute Sale notarized on 3 January 2006 and
presented the same to Register of Deeds for Naga City on 8 March 2006, they were already issued
TCTs over the real properties in question, in their own names. Respondents Tan and Obiedo have also
acquired possession of the said properties, enabling them, by petitioners own admission, to demolish
the improvements thereon.
It is, thus, suspect that petitioner kept mum about the afore-mentioned facts and circumstances when
they had already taken place before it filed its Complaint before the RTC on 16 March 2006.
Petitioner never expressed surprise when such facts and circumstances were established before the
RTC, nor moved to amend its Complaint accordingly.1avvphi1.zw+ Even though the Memorandum
of Agreement was supposed to have long been registered on its TCTs over the five parcels of land,
petitioner did not pray for the removal of the same as a cloud on its title. In the same vein, although
petitioner alleged that respondents Tan and Obiedo forcibly took physical possession of the subject
real properties, petitioner did not seek the restoration of such possession to itself. And despite
learning that respondents Tan and Obiedo already secured TCTs over the subject properties in their
names, petitioner did not ask for the cancellation of said titles. The only logical and reasonable
explanation is that petitioner is reluctant to bring to the attention of the Court certain facts and
circumstances, keeping its Complaint safely worded, so as to institute only an action for annulment of
Deeds of Absolute Sale. Petitioner deliberately avoided raising issues on the title and possession of
the real properties that may lead the Court to classify its case as a real action.
No matter how fastidiously petitioner attempts to conceal them, the allegations and reliefs it sought in
its Complaint in Civil Case No. 2006-0030 appears to be ultimately a real action, involving as they do
the recovery by petitioner of its title to and possession of the five parcels of land from respondents
Tan and Obiedo.
A real action is one in which the plaintiff seeks the recovery of real property; or, as indicated in what
is now Section 1, Rule 4 of the Rules of Court, a real action is an action affecting title to or recovery
of possession of real property.33
Section 7, Rule 141 of the Rules of Court, prior to its amendment by A.M. No. 04-2-04-SC, had a
specific paragraph governing the assessment of the docket fees for real action, to wit:
In a real action, the assessed value of the property, or if there is none, the estimated value thereof
shall be alleged by the claimant and shall be the basis in computing the fees.
It was in accordance with the afore-quoted provision that the Court, in Gochan v. Gochan, 34 held that
although the caption of the complaint filed by therein respondents Mercedes Gochan, et al. with the
RTC was denominated as one for "specific performance and damages," the relief sought was the
conveyance or transfer of real property, or ultimately, the execution of deeds of conveyance in their
favor of the real properties enumerated in the provisional memorandum of agreement. Under these
circumstances, the case before the RTC was actually a real action, affecting as it did title to or

possession of real property. Consequently, the basis for determining the correct docket fees shall be
the assessed value of the property, or the estimated value thereof as alleged in the complaint. But
since Mercedes Gochan failed to allege in their complaint the value of the real properties, the Court
found that the RTC did not acquire jurisdiction over the same for non-payment of the correct docket
fees.
Likewise, in Siapno v. Manalo,35 the Court disregarded the title/denomination of therein plaintiff
Manalos amended petition as one for Mandamus with Revocation of Title and Damages; and
adjudged the same to be a real action, the filing fees for which should have been computed based on
the assessed value of the subject property or, if there was none, the estimated value thereof. The
Court expounded in Siapno that:
In his amended petition, respondent Manalo prayed that NTAs sale of the property in dispute to
Standford East Realty Corporation and the title issued to the latter on the basis thereof, be declared
null and void. In a very real sense, albeit the amended petition is styled as one for "Mandamus with
Revocation of Title and Damages," it is, at bottom, a suit to recover from Standford the realty in
question and to vest in respondent the ownership and possession thereof. In short, the amended
petition is in reality an action in res or a real action. Our pronouncement in Fortune Motors (Phils.),
Inc. vs. Court of Appeals is instructive. There, we said:
A prayer for annulment or rescission of contract does not operate to efface the true objectives and
nature of the action which is to recover real property. (Inton, et al., v. Quintan, 81 Phil. 97, 1948)
An action for the annulment or rescission of a sale of real property is a real action. Its prime objective
is to recover said real property. (Gavieres v. Sanchez, 94 Phil. 760, 1954)
An action to annul a real estate mortgage foreclosure sale is no different from an action to annul a
private sale of real property. (Muoz v. Llamas, 87 Phil. 737, 1950).
While it is true that petitioner does not directly seek the recovery of title or possession of the property
in question, his action for annulment of sale and his claim for damages are closely intertwined with
the issue of ownership of the building which, under the law, is considered immovable property, the
recovery of which is petitioner's primary objective. The prevalent doctrine is that an action for the
annulment or rescission of a sale of real property does not operate to efface the fundamental and
prime objective and nature of the case, which is to recover said real property. It is a real action.
Unfortunately, and evidently to evade payment of the correct amount of filing fee, respondent Manalo
never alleged in the body of his amended petition, much less in the prayer portion thereof, the
assessed value of the subject res, or, if there is none, the estimated value thereof, to serve as basis for
the receiving clerk in computing and arriving at the proper amount of filing fee due thereon, as
required under Section 7 of this Courts en banc resolution of 04 September 1990 (Re: Proposed
Amendments to Rule 141 on Legal Fees).

31

REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


Even the amended petition, therefore, should have been expunged from the records.
In fine, we rule and so hold that the trial court never acquired jurisdiction over its Civil Case No. Q95-24791.36
It was in Serrano v. Delica,37 however, that the Court dealt with a complaint that bore the most
similarity to the one at bar. Therein respondent Delica averred that undue influence, coercion, and
intimidation were exerted upon him by therein petitioners Serrano, et al. to effect transfer of his
properties. Thus, Delica filed a complaint before the RTC against Serrano, et al., praying that the
special power of attorney, the affidavit, the new titles issued in the names of Serrano, et al., and the
contracts of sale of the disputed properties be cancelled; that Serrano, et al. be ordered to pay Delica,
jointly and severally, actual, moral and exemplary damages in the amount of P200,000.00, as well as
attorneys fee of P200,000.00 and costs of litigation; that a TRO and a writ of preliminary injunction
be issued ordering Serrano, et al. to immediately restore him to his possession of the parcels of land
in question; and that after trial, the writ of injunction be made permanent. The Court dismissed
Delicas complaint for the following reasons:
A careful examination of respondents complaint is that it is a real action. In Paderanga vs. Buissan,
we held that "in a real action, the plaintiff seeks the recovery of real property, or, as stated in Section
2(a), Rule 4 of the Revised Rules of Court, a real action is one affecting title to real property or for
the recovery of possession of, or for partition or condemnation of, or foreclosure of a mortgage on a
real property."

Brushing aside the significance of Serrano, petitioner argues that said decision, rendered by the Third
Division of the Court, and not by the Court en banc, cannot modify or reverse the doctrine laid down
in Spouses De Leon v. Court of Appeals.39 Petitioner relies heavily on the declaration of this Court in
Spouses De Leon that an action for annulment or rescission of a contract of sale of real property is
incapable of pecuniary estimation.
The Court, however, does not perceive a contradiction between Serrano and the Spouses De Leon.
The Court calls attention to the following statement in Spouses De Leon: "A review of the
jurisprudence of this Court indicates that in determining whether an action is one the subject matter
of which is not capable of pecuniary estimation, this Court has adopted the criterion of first
ascertaining the nature of the principal action or remedy sought." Necessarily, the determination must
be done on a case-to-case basis, depending on the facts and circumstances of each. What petitioner
conveniently ignores is that in Spouses De Leon, the action therein that private respondents instituted
before the RTC was "solely for annulment or rescission" of the contract of sale over a real
property.40 There appeared to be no transfer of title or possession to the adverse party. Their complaint
simply prayed for:
1. Ordering the nullification or rescission of the Contract of Conditional Sale
(Supplementary Agreement) for having violated the rights of plaintiffs (private
respondents) guaranteed to them under Article 886 of the Civil Code and/or violation of the
terms and conditions of the said contract.
2. Declaring void ab initio the Deed of Absolute Sale for being absolutely simulated; and

Obviously, respondents complaint is a real action involving not only the recovery of real properties,
but likewise the cancellation of the titles thereto.
Considering that respondents complaint is a real action, the Rule requires that "the assessed value of
the property, or if there is none, the estimated value thereof shall be alleged by the claimant and shall
be the basis in computing the fees."
We note, however, that neither the "assessed value" nor the "estimated value" of the questioned
parcels of land were alleged by respondent in both his original and amended complaint. What he
stated in his amended complaint is that the disputed realties have a "BIR zonal valuation"
of P1,200.00 per square meter. However, the alleged "BIR zonal valuation" is not the kind of
valuation required by the Rule. It is the assessed value of the realty. Having utterly failed to comply
with the requirement of the Rule that he shall allege in his complaint the assessed value of his real
properties in controversy, the correct docket fee cannot be computed. As such, his complaint should
not have been accepted by the trial court. We thus rule that it has not acquired jurisdiction over the
present case for failure of herein respondent to pay the required docket fee. On this ground alone,
respondents complaint is vulnerable to dismissal.38

3. Ordering defendants (petitioners) to pay plaintiffs (private respondents) attorney's fees in


the amount ofP100,000.00.41
As this Court has previously discussed herein, the nature of Civil Case No. 2006-0030 instituted by
petitioner before the RTC is closer to that of Serrano, rather than of Spouses De Leon, hence, calling
for the application of the ruling of the Court in the former, rather than in the latter.
It is also important to note that, with the amendments introduced by A.M. No. 04-2-04-SC, which
became effective on 16 August 2004, the paragraph in Section 7, Rule 141 of the Rules of Court,
pertaining specifically to the basis for computation of docket fees for real actions was deleted.
Instead, Section 7(1) of Rule 141, as amended, provides that "in cases involving real property, the
FAIR MARKET value of the REAL property in litigation STATED IN THE CURRENT TAX
DECLARATION OR CURRENT ZONAL VALUATION OF THE BUREAU OF INTERNAL
REVENUE, WHICH IS HIGHER, OR IF THERE IS NONE, THE STATED VALUE OF THE
PROPERTY IN LITIGATION x x x" shall be the basis for the computation of the docket fees. Would
such an amendment have an impact on Gochan, Siapno, and Serrano? The Court rules in the negative.

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A real action indisputably involves real property. The docket fees for a real action would still be
determined in accordance with the value of the real property involved therein; the only difference is
in what constitutes the acceptable value. In computing the docket fees for cases involving real
properties, the courts, instead of relying on the assessed or estimated value, would now be using the
fair market value of the real properties (as stated in the Tax Declaration or the Zonal Valuation of the
Bureau of Internal Revenue, whichever is higher) or, in the absence thereof, the stated value of the
same.
In sum, the Court finds that the true nature of the action instituted by petitioner against respondents is
the recovery of title to and possession of real property. It is a real action necessarily involving real
property, the docket fees for which must be computed in accordance with Section 7(1), Rule 141 of
the Rules of Court, as amended. The Court of Appeals, therefore, did not commit any error in
affirming the RTC Orders requiring petitioner to pay additional docket fees for its Complaint in Civil
Case No. 2006-0030.
The Court does not give much credence to the allegation of petitioner that if the judgment of the
Court of Appeals is allowed to stand and not rectified, it would result in grave injustice and
irreparable injury to petitioner in view of the prohibitive amount assessed against it. It is a sweeping
assertion which lacks evidentiary support. Undeniably, before the Court can conclude that the amount
of docket fees is indeed prohibitive for a party, it would have to look into the financial capacity of
said party. It baffles this Court that herein petitioner, having the capacity to enter into multi-million
transactions, now stalls at paying P720,392.60 additional docket fees so it could champion before the
courts its rights over the disputed real properties. Moreover, even though the Court exempts
individuals, as indigent or pauper litigants, from paying docket fees, it has never extended such an
exemption to a corporate entity.
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED. The
Decision, dated 22 November 2006, of the Court of Appeals in CA-G.R. SP No. 94800, which
affirmed the Orders dated 24 March 2006 and 29 March 2006 of the RTC, Branch 22, of Naga City,
in Civil Case No. RTC-2006-0030, ordering petitioner Ruby Shelter Builders and Realty
Development Corporation to pay additional docket/filing fees, computed based on Section 7(a), Rule
141 of the Rules of Court, as amended, is hereby AFFIRMED. Costs against the petitioner.
SO ORDERED.

G.R. No. 187104

August 3, 2010

SAINT LOUIS UNIVERSITY, INC., Petitioner,


vs.
EVANGELINE C. COBARRUBIAS, Respondent.
DECISION
BRION, J.:
We resolve the present petition for review on certiorari1 filed by petitioner Saint Louis University,
Inc. (SLU), to challenge the decision2 and the resolution3 of the Court of Appeals (CA) in CA-G.R.
SP No. 101708.4

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The Factual Background
The facts of the case, gathered from the records, are briefly summarized below.
Respondent Evangeline C. Cobarrubias is an associate professor of the petitioners College of Human
Sciences. She is an active member of the Union of Faculty and Employees of Saint Louis University
(UFESLU).
The 2001-20065 and 2006-20116 Collective Bargaining Agreements (CBAs) between SLU and
UFESLU contain the following common provision on forced leave:
Section 7.7. For teaching employees in college who fail the yearly evaluation, the following
provisions shall apply:

On October 26, 2007, VA Daniel T. Farias dismissed the case. 12 He found that the CA decision in
CA-G.R. SP No. 90596 is not yet final because of the pending appeal with this Court. He noted that
the CBA clearly authorized SLU to place its teaching employees on forced leave when they fail in the
evaluation for three (3) years within a five-year period, without a distinction on whether the three
years fall within one or two CBA periods. Cobarrubias received the VAs decision on November 20,
2007.13
On December 5, 2007, Cobarrubias filed with the CA a petition for review under Rule 43 of the Rules
of Court, but failed to pay the required filing fees and to attach to the petition copies of the material
portions of the record.14
Thus, on January 14, 2008, the CA dismissed the petition outright for Cobarrubias procedural
lapses.15Cobarrubias received the CA resolution, dismissing her petition, on January 31, 2008. 16

(a) Teaching employees who are retained for three (3) cumulative years in five (5) years shall be on
forced leave for one (1) regular semester during which period all benefits due them shall be
suspended.7

On February 15, 2008, Cobarrubias filed her motion for reconsideration, arguing that the ground cited
is technical. She, nonetheless, attached to her motion copies of the material portions of the record and
the postal money orders for P4,230.00. She maintained that the ends of justice and fair play are better
served if the case is decided on its merits. 17

SLU placed Cobarrubias on forced leave for the first semester of School Year (SY) 2007-2008 when
she failed the evaluation for SY 2002-2003, SY 2005-2006, and SY 2006-2007, with the rating of 85,
77, and 72.9 points, respectively, below the required rating of 87 points.

On July 30, 2008, the CA reinstated the petition. It found that Cobarrubias substantially complied
with the rules by paying the appeal fee in full and attaching the proper documents in her motion for
reconsideration.18

To reverse the imposed forced leave, Cobarrubias sought recourse from the CBAs grievance
machinery. Despite the conferences held, the parties still failed to settle their dispute, prompting
Cobarrubias to file a case for illegal forced leave or illegal suspension with the National Conciliation
and Mediation Board of the Department of Labor and Employment, Cordillera Administrative
Region, Baguio City. When circulation and mediation again failed, the parties submitted the issues
between them for voluntary arbitration before Voluntary Arbitrator (VA) Daniel T. Farias.

SLU insisted that the VA decision had already attained finality for Cobarrubias failure to pay the
docket fees on time.

Cobarrubias argued that the CA already resolved the forced leave issue in a prior case between the
parties, CA-G.R. SP No. 90596,8 ruling that the forced leave for teachers who fail their evaluation for
three (3) times within a five-year period should be coterminous with the CBA in force during the
same five-year period.9
SLU, for its part, countered that the CA decision in CA-G.R. SP No. 90596 cannot be considered in
deciding the present case since it is presently on appeal with this Court (G.R. No. 176717) 10 and, thus,
is not yet final. It argued that the forced leave provision applies irrespective of which CBA is
applicable, provided the employee fails her evaluation three (3) times in five (5) years. 11
The Voluntary Arbitrator Decision

The CA Decision
The CA brushed aside SLUs insistence on the finality of the VA decision and annulled it, declaring
that the "three (3) cumulative years in five (5) years" phrase in Section 7.7(a) of the 2006-2011 CBA
means within the five-year effectivity of the CBA. Thus, the CA ordered SLU to pay all the benefits
due Cobarrubias for the first semester of SY 2007-2008, when she was placed on forced leave. 19
When the CA denied20 the motion for reconsideration that followed,21 SLU filed the present petition
for review on certiorari.22
The Petition
SLU argues that the CA should not have reinstated the appeal since Cobarrubias failed to pay the
docket fees within the prescribed period, and rendered the VA decision final and executory. Even if

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Cobarrubias procedural lapse is disregarded, SLU submits that Section 7.7(a) of the 2006-2011 CBA
should apply irrespective of the five-year effectivity of each CBA. 23
The Case for Cobarrubias
Cobarrubias insists that the CA settled the appeal fee issue, in its July 30, 2008 resolution, when it
found that she had substantially complied with the rules by subsequently paying the docket fees in
full. She submits that the CAs interpretation of Section 7.7(a) of the 2006-2011 CBA is more in
accord with law and jurisprudence.24
The Issues
The core issues boil down to whether the CA erred in reinstating Cobarrubias petition despite her
failure to pay the appeal fee within the reglementary period, and in reversing the VA decision. To
state the obvious, the appeal fee is a threshold issue that renders all other issues unnecessary if SLUs
position on this issue is correct.
The Courts Ruling
We find the petition meritorious.
Payment of Appellate Court Docket Fees
Appeal is not a natural right but a mere statutory privilege, thus, appeal must be made strictly in
accordance with the provision set by law.25 Rule 43 of the Rules of Court provides that appeals from
the judgment of the VA shall be taken to the CA, by filing a petition for review within fifteen (15)
days from the receipt of the notice of judgment. 26Furthermore, upon the filing of the petition, the
petitioner shall pay to the CA clerk of court the docketing and other lawful fees; 27 non-compliance
with the procedural requirements shall be a sufficient ground for the petitions dismissal. 28 Thus,
payment in full of docket fees within the prescribed period is not only mandatory, but also
jurisdictional.29 It is an essential requirement, without which, the decision appealed from would
become final and executory as if no appeal has been filed. 30
As early as the 1932 case of Lazaro v. Endencia and Andres, 31 we stressed that the payment of the full
amount of the docket fee is an indispensable step for the perfection of an appeal. In Lee v.
Republic,32 we decided that even though half of the appellate court docket fee was deposited, no
appeal was deemed perfected where the other half was tendered after the period within which
payment should have been made. In Aranas v. Endona,33 we reiterated that the appeal is not perfected
if only a part of the docket fee is deposited within the reglementary period and the remainder is
tendered after the expiration of the period.

The rulings in these cases have been consistently reiterated in subsequent cases: Guevarra v. Court of
Appeals,34Pedrosa v. Spouses Hill,35 Gegare v. Court of Appeals,36 Lazaro v. Court of Appeals,37 Sps.
Manalili v. Sps. de Leon,38 La Salette College v. Pilotin,39 Saint Louis University v. Spouses
Cordero,40 M.A. Santander Construction, Inc. v. Villanueva,41 Far Corporation v.
Magdaluyo,42 Meatmasters Intl. Corp. v. Lelis Integrated Devt. Corp., 43Tamayo v. Tamayo,
Jr.,44 Enriquez v. Enriquez,45 KLT Fruits, Inc. v. WSR Fruits, Inc.,46 Tan v. Link,47 Ilusorio v. IlusorioYap,48 and most recently in Tabigue v. International Copra Export Corporation (INTERCO), 49 and
continues to be the controlling doctrine.
In the present case, Cobarrubias filed her petition for review on December 5, 2007, fifteen (15) days
from receipt of the VA decision on November 20, 2007, but paid her docket fees in full only after
seventy-two (72) days, when she filed her motion for reconsideration on February 15, 2008 and
attached the postal money orders for P4,230.00. Undeniably, the docket fees were paid late, and
without payment of the full docket fees, Cobarrubias appeal was not perfected within the
reglementary period.
Exceptions to the Rule on Payment of Appellate Court Docket Fees not applicable
Procedural rules do not exist for the convenience of the litigants; the rules were established primarily
to provide order to and enhance the efficiency of our judicial system. 50 While procedural rules are
liberally construed, the provisions on reglementary periods are strictly applied, indispensable as they
are to the prevention of needless delays, and are necessary to the orderly and speedy discharge of
judicial business.51
Viewed in this light, procedural rules are not to be belittled or dismissed simply because their nonobservance may have prejudiced a party's substantive rights; like all rules, they are required to be
followed. However, there are recognized exceptions to their strict observance, such as: (1) most
persuasive and weighty reasons; (2) to relieve a litigant from an injustice not commensurate with his
failure to comply with the prescribed procedure; (3) good faith of the defaulting party by immediately
paying within a reasonable time from the time of the default; (4) the existence of special or
compelling circumstances; (5) the merits of the case; (6) a cause not entirely attributable to the fault
or negligence of the party favored by the suspension of the rules; (7) a lack of any showing that the
review sought is merely frivolous and dilatory; (8) the other party will not be unjustly prejudiced
thereby; (9) fraud, accident, mistake or excusable negligence without the appellant's fault; (10)
peculiar, legal and equitable circumstances attendant to each case; (11) in the name of substantial
justice and fair play; (12) importance of the issues involved; and (13) exercise of sound discretion by
the judge, guided by all the attendant circumstances. 52 Thus, there should be an effort, on the part of
the party invoking liberality, to advance a reasonable or meritorious explanation for his/her failure to
comply with the rules.1avvphi1
In Cobarrubias' case, no such explanation has been advanced. Other than insisting that the ends
of justice and fair play are better served if the case is decided on its merits, Cobarrubias offered no

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excuse for her failure to pay the docket fees in full when she filed her petition for review. To us,
Cobarrubias omission is fatal to her cause.
We, thus, find that the CA erred in reinstating Cobarrubias petition for review despite the
nonpayment of the requisite docket fees within the reglementary period. The VA decision had lapsed
to finality when the docket fees were paid; hence, the CA had no jurisdiction to entertain the appeal
except to order its dismissal.
WHEREFORE, the present petition is GRANTED. The assailed decision and resolution of the
Court of Appeals in CA-G.R. SP No. 101708 are hereby DECLARED VOID and are
consequently SET ASIDE. The decision of the voluntary arbitrator, that the voided Court of Appeals
decision and resolution nullified, stands. No pronouncement as to costs.
SO ORDERED.

G.R. No.177425

June 18, 2014

ALONZO GIPA, IMELDA MARO LLANO, JUANITO LUDOVICE, VIRGILIO GOJIT,


DEMAR BIT ANGCOR, FELIPE MONTALBAN AND DAISY M. PLACER,1 Petitioners,
vs.
SOUTHERN LUZON INSTITUTE as represented by its Vice-President For Operations and
Corporate Secretary, RUBEN G. ASUNCION, Respondent.
DECISION
DEL CASTILLO, J.:

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Suffice it to say that "[ c ]oncomitant to the liberal interpretation of the rules of procedure should be
an effort on the part of the party invoking liberality to adequately explain his failure to abide by the
rules."2 Those who seek exemption from the application of the rule have the burden of proving the
existence of exceptionally meritorious reasons warranting such departure. 3 Assailed in this Petition
for Review on Certiorari is the December 20, 2006 Resolution 4 of the Court of Appeals (CA) in CAG.R. CV No. 85215 which dismissed for non-perfection herein petitioners' appeal from the January 5,
2005 Decision' of the Regional Trial Court (RTC), Branch 65, Sorsogon City in Civil Case No. 54737. Likewise questioned is the CA Resolution6 dated March 30, 2007 which denied the Motion for
Reconsideration thereto.

the Supervising Draftsman of the National Housing Authority (NHA) who categorically stated that
the houses occupied by petitioners and their co-defendants were within the property of SLI per
NHAs survey. It rejected, on the other hand, petitioners and their co-defendants claim of title to the
property. For one, the fact that SLI had an existing MSA over the property as far back as 1969 could
not have been unknown to them. This is because several of the petitioners and their codefendants
filed Revocable Permit Applications over the same property which were denied on March 4, 1964,
precisely because the areas applied for were already included in SLIs MSA. For another, the
documentary evidence submitted by them consisted mostly of tax declarations and other documents
which were self-serving and could not be considered as conclusive evidence of ownership. Hence, the
RTC ruled:

Factual Antecedents
WHEREFORE, premises considered, judgment is hereby rendered
On February 26, 1996, respondent Southern Luzon Institute (SLI), an educational institution in
Bulan, Sorsogon, filed a Complaint7 for Recovery of Ownership and Possession with Damages
against petitioners Alonzo Gipa, Imelda Marollano, Juanito Ludovice, Demar Bitangcor, Virgilio
Gojit, Felipe Montalban and four others namely, Arturo Rogacion, Virgilio Gracela, Rosemarie
Alvarez and Rosita Montalban (Rosita). During trial, defendant Rosita executed a Special Power of
Attorney8 in favor of her sister Daisy M. Placer (Placer) authorizing the latter to represent her in the
case and to sign any and all papers in relation thereto.
SLI alleged that it is the absolute owner of a 7,516-squaremeter parcel of land situated in Brgy.
Poblacion, Bulan, Sorsogon covered by Original Certificate of Title (OCT) No. P-28928. However,
petitioners and their co-defendants who had been informally occupying a portion of the said property
refused to vacate the same despite demand. Hence, SLI sought that they be ordered to immediately
vacate the premises, turn over the same to SLI, and pay compensatory damages, attorneys fees and
cost of suit.

a) Declaring plaintiff-SLI as absolute owner of that portion of Lot 4705 containing an area
of SEVEN THOUSAND FIVE HUNDRED SIXTEEN (7,516) SQUARE METERS
covered by "Katibayan ng Orihinal na Titulo Blg. P-28928".
b) Ordering herein defendants to vacate and relinquish the portions of lot 4705 belonging to
the SLI that they are presently occupying illegally and to demolish the residential houses
existing thereon at their own expense.
c) To pay attorneys fee in the amount of Php10,000.00 jointly.
d) And to pay the costs.
SO ORDERED.11

In their Answer with Counterclaim, petitioners and their co-defendants asserted that they did not
heed SLIs demand to vacate as they believed that they have the right to stay on the said property.
They relied on their occupation thereof and that of their predecessors-in-interest which, according to
them, dates back to as early as 1950. Impugning SLIs claims, petitioners and their co-defendants
averred that SLI had not even for a single moment taken possession of the subject property and was
merely able to procure a title over the same thru fraud, bad faith and misrepresentation. By way of
counterclaim, they prayed that they be declared the lawful possessors of the property; that OCT No.
P-28928 be declared null and void; and, that SLI be ordered to pay them moral damages and
litigation expenses.
Ruling of the Regional Trial Court
Finding SLI to have proven its ownership of the property by preponderance of evidence, the RTC
rendered a Decision10 in its favor on January 5, 2005. The said court gave weight to SLIs
documentary evidence showing the grant of its Miscellaneous Sales Application (MSA) over the
subject property which became the basis for the issuance of title under its name, and the testimony of

Petitioners and their co-defendants filed a Notice of Appeal 12 which was granted by the RTC in its
Order13 of January 27, 2005.
Ruling of the Court of Appeals
The CA, however, dismissed the appeal in its Resolution14 of August 26, 2005 since it was not shown
that the appellate court docket fees and other lawful fees were paid. 15 Petitioners and their codefendants promptly filed a Motion for Reconsideration16 to which they attached a
Certification17 from the RTC that they paid the appeal fee in the amount ofP3,000.00 under Official
Receipt No. 18091130 dated January 25, 2005. In view of this, the CA granted the said motion and
consequently reinstated the appeal through a Resolution18 dated November 2, 2005.
Subsequently, however, the CA further required petitioners and their codefendants, through a Minute
Resolution19dated March 1, 2006,to remit within ten days from notice the amount of P30.00 for legal

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research fund, which apparently was not included in the P3,000.00 appeal fee previously paid by
them. Copy of the said resolution was received on March 13,2006 by petitioners counsel, Atty. Jose
G. Gojar of the Public Attorneys Office.20

Issue

Despite the lapse of nine months from their counsels receipt of the said resolution, petitioners and
their co-defendants, however, failed to comply with the CAs directive. Hence, the said court
dismissed the appeal through its Resolution21 of December 20, 2006in this wise:

WHETHER THE COURT OF APPEALS GRAVELY ERRED IN DISMISSING THE APPEAL


FILED BY THE PETITIONERS FOR FAILURE TO REMIT THE MEAGERAMOUNT OF
THIRTY PESOS (P30.00) AFTER HAVING ADVANCED A SUBSTANTIAL PORTION OF THE
DOCKET FEES.26

Jurisprudence is replete that the nonpayment of the docket and other lawful fees within the
reglementary period as provided under Section 4 of Rule 41 of the Revised Rules of [C]ourt is a
ground for the dismissal of an appeal, as provided for under Section 1(c)[,] Rule 50 of the same Rule.
We quote:
SECTION 1. Grounds for dismissal of appeal. An appeal may be dismissed by the Court of
Appeals, on its own motion or on that of the appellee, on the following grounds:
xxx

xxx

xxx

c. Failure of the appellant to pay the docket and other lawful fees as provided in Section 4 of Rule 41;
xxx
xxxx
In the instant case, appellants were given sufficient time to complete the payment of the appeal fees.
Unfortunately, appellants still failed to comply with the said directive [despite the fact] that the
amount of P30.00 involved is very little. Hence, appellants failed to perfect their appeal for failure to
fully pay the appeal fees. They are deemed to have lost interest over the instant appeal. x x x x
WHEREFORE, premises considered, the instant Appeal is hereby DISMISSED.
SO ORDERED.22
Petitioners and their co-defendants filed a Motion for Reconsideration 23 invoking the principle of
liberality in the application of technical rules considering that they have paid the substantial amount
of P3,000.00 for docket and other legal fees and fell short only by the meager amount of P30.00.
Ascompliance, they attached to the said motion a postal money order in the sum of P30.00 payable to
the Clerk of Court of the CA.24
The CA, however, was not swayed, hence, the denial of the Motion for Reconsideration in its
Resolution25 of March 30, 2007.

Petitioners and Placer now file this Petition for Review on Certiorari raising the lone issue of:

It must, however, be noted at the outset that the caption of the present Petition includes Placer as one
of the petitioners. In fact, the other petitioners even authorized her to sign the verification and
certification of non-forum shopping in their behalf. 27 A review of the records, however, shows that
she was not one of the defendants before the RTC. Her only participation therein was that she
represented her sister Rosita as one of the defendants by virtue of a Special Power of Attorney which
the latter executed in her favor.28 Notably in the present Petition, Placer appears to have been
impleaded in her personal capacity and not as Rositas representative. This cannot be done. It bears
emphasizing that an appeal on certiorari, as in this case, is a continuation of the original suit. 29 Hence,
the parties in the original suit must also be the parties in such an appeal. 30 Placer, therefore, not being
a party in the complaint before the RTC has no personality to continue the same on appeal and cannot
be considered as a petitioner. At the most, her only role in this Petition was to sign the verification
and certification of non-forum shopping for and in behalf of petitioners.
The Parties Arguments
Initially, petitioners invoke the liberal application of technical rules 31 and contend that the fact that
only the amount ofP30.00 was not paid justifies relaxation of the same. Later in their
Reply,32 however, petitioners concede that the payment of docket fees is not a mere technicality.
Nevertheless, they point out that while full payment of docket fees is indispensable in the perfection
of an appeal, the same admits of exceptions.33 Their case falls under one of the exceptions, that is, in
the name of substantial justice and fair play. According to petitioners, the dismissal of their appeal for
failure to pay P30.00 runs counter to substantial justice and fair play as the same would deprive them
of their right to justice and render ineffective the amount of P3,000.00, which despite being indigents,
they undertook to pay. To support their case, petitioners cited Andrea Camposagrado v. Pablo
Camposagrado34 and Spouses Gutierrez v. Spouses Valiente35 wherein the Court excused the
insufficient payment of docket fees.1wphi1 Moreover, petitioners raise in the said Reply, albeit for
the first time, the argument that while Republic Act (RA) No. 9406 36 was still in existent at the time
their appeal was filed before the CA, Section 637 thereof which exempts PAO clients like themselves
from the payment of docket and other fees should be given retroactive application.
For its part, SLI argues that since petitioners appeal was not perfected due to insufficient payment of
docket and other legal fees, the January 5, 2005 Decision of the RTC had already become final and
executory. Further, the CA correctly dismissed petitioners appeal because aside from the fact that
petitioners failed to comply with the CAs directive to pay the lacking amount of P30.00 for a period

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of more than nine months from their counsels receipt of notice, no plausible explanation was
tendered by them for such failure.
Our Ruling

Here, petitioners concede that payment of the full amount of docket fees within the prescribed period
is not a mere technicality of law or procedure but a jurisdictional requirement. Nevertheless, they
want this Court to relax the application of the rule on the payment of the appeal fee in the name of
substantial justice and equity.

The Petition fails.

The Court is not persuaded.

Payment of the full amount of appellate


court docket and lawful fees is
mandatory and jurisdictional;
Relaxation of the rule on payment of
appeal fee is unwarranted in this case.

The liberality which petitioners pray for has already been granted to them by the CA at the outset. It
may be recalled that while petitioners paid a substantial part of the docket fees, they still failed to pay
the full amount thereof since their payment was short of P30.00.Based on the premise that the
questioned Decision of the RTC has already become final and executory due to non-perfection, the
CA could have dismissed the appeal outright. But owing to the fact that only the meager amount
of P30.00 was lacking and considering that the CA may opt not to proceed with the case until the
docket fees are paid,40 it still required petitioners, even if it was already beyond the reglementary
period, to complete their payment of the appeal fee within 10 days from notice. Clearly, the CA acted
conformably with the pronouncement made in Camposagrado, a case cited by petitioners, that "[a]
partys failure to pay the appellate docket fee within the reglementary period confers only a
discretionary and not a mandatory power to dismiss the proposed appeal. Such discretionary power
should be used in the exercise of the courts sound judgment in accordance with the tenets of justice
and fair play with great deal of circumspection, considering all attendant circumstances and must be
exercised wisely and prudently, never capriciously, with a view to substantial justice." 41

Section 4, Rule 41 of the Rules of Court provides:


Sec. 4. Appellate court docket and other lawful fees. Within the period for taking an appeal, the
appellant shall pay to the clerk of court which rendered the judgment or final order appealed from,
the full amount of the appellate court docket and other lawful fees. Proof of payment of said fees
shall be transmitted to the appellate court together with the original record or the record on appeal.
(Emphases supplied)
In Gonzales v. Pe,38 the Courts explanation anent the requirement of full payment of docket and other
lawful fees under the above-quoted provision was iterated, viz:
In Far Corporation v. Magdaluyo, as with other subsequent cases of the same ruling, the Court
explained that the procedural requirement under Section 4 of Rule 41 is not merely directory, as the
payment of the docket and other legal fees within the prescribed period is both mandatory and
jurisdictional. It bears stressing that an appeal is not a right, but a mere statutory privilege. An
ordinary appeal from a decision or final order of the RTC to the CA must be made within 15 days
from notice. And within this period, the full amount of the appellate court docket and other lawful
fees must be paid to the clerk of the court which rendered the judgment or final order appealed from.
The requirement of paying the full amount of the appellate docket fees within the prescribed period is
not a mere technicality of law or procedure. The payment of docket fees within the prescribed period
is mandatory for the perfection of an appeal. Without such payment, the appeal is not perfected. The
appellate court does not acquire jurisdiction over the subject matter of the action and the Decision
sought to be appealed from becomes final and executory. Further, under Section 1 (c), Rule 50, an
appeal may be dismissed by the CA, on its own motion or on that of the appellee, on the ground of
the non-payment of the docket and other lawful fees within the reglementary period as provided
under Section 4 of Rule 41. The payment of the full amount of the docket fee is an indispensable step
for the perfection of an appeal. In both original and appellate cases, the court acquires jurisdiction
over the case only upon the payment of the prescribed docket fees. 39

The CAs leniency over petitioners cause did not end there. Although they were given only 10 days
to remit theP30.00 deficiency, the said court allowed an even longer period of nine months to lapse,
apparently in the hope that petitioners compliance would be on its way. But as no payment was
remitted, it was constrained to finally dismiss the appeal for non-perfection. Surprisingly, petitioners
were again heard of when they filed a Motion for Reconsideration to which they attached a postal
money order of P30.00. Nevertheless, they did not offer any plausible explanation either as to why
they, at the start, failed to pay the correct docket fees or why they failed to comply with the CAs
directive for them to remit the P30.00-deficiency. Instead, they focused on begging the CA for
leniency, arguing that the meager amount of the deficiency involved justifies relaxation of the rules.
What is worse is that even if the CA already took note of the lack of such explanation in its
Resolution denying petitioners motion for reconsideration, petitioners, up to now, have not attempted
to tender one in this Petition and instead continue to capitalize on substantial justice, fair play and
equity to secure a reversal of the dismissal of their appeal. The Court cannot, therefore, help but
conclude that there is really no plausible reason behind the said omission.
Suffice it to say that "[c]oncomitant to the liberal interpretation of the rules of procedure should be an
effort on the part of the party invoking liberality to adequately explain his failure to abide by the
rules."42 Those who seek exemption from the application of the rule have the burden of proving the
existence of exceptionally meritorious reason warranting such departure. 43 Petitioners failure to
advance any explanation as to why they failed to pay the correct docket fees or to complete payment
of the same within the period allowed by the CA is thus fatal to their cause. Hence, a departure from

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the rule on the payment of the appeal fee is unwarranted. Neither do the cases cited by petitioners
help because they are not in point. Unlike in this case, the CA in Camposagrado no longer required
the petitioners therein to complete the payment of the appeal fee by remitting the P5.00 deficiency
but just dismissed the appeal outright. Moreover, a justifiable reason for the insufficient payment was
tendered by petitioners in the said case, i.e., that they relied on the assessment made by the collection
officer of the court and honestly believed that the amount collected from them was that which is
mandated by the Rules.1wphi1
The same thing goes true with Gutierrez. In fact, the pronouncement made in Sun Insurance Office,
Ltd. v. Asuncion,44 as cited in Gutierrez, even militates against petitioners. It was reiterated therein
that the rule that "a court acquires jurisdiction over any case only upon payment of the prescribed
docket fees does not apply where the party does not deliberately intend to defraud the court in
payment of docket fees, and manifests its willingness to abide by the rules by paying additional
docket fees when required by the court."45 As may be recalled, petitioners in this case did not
immediately remit the deficient amount of P30.00 when required by the CA and only did so after the
lapse of more than nine months when their appeal was already dismissed.
The Court need not belabor the issue
of the retroactive application of Section 6
of RA 9406.
"The purpose of a reply is to deny or allege facts in denial of new matters alleged by way of defense
in the answer,"46 or in this case, in the comment to the petition. "It is not the office or function of a
reply to set up or introduce a new [issue] or to amend or amplify the [Petition]."47 The issue of
whether Section 6 of RA 9406 should be given retroactive application in order to exempt petitioners
from payment of docket fees was therefore improperly introduced in petitioners Reply. Moreover,
"[t]he rule in pleadings and practice is that no new issue in a case can be raised in a pleading which
by due diligence could have been raised in previous pleadings."48 Here, petitioners at the outset could
have very well raised the said issue in the Petition since at the time of its filing on June 7, 2007, RA
9406 was already in effect.49 However, they failed to do so. Besides, for this Court to take cognizance
of the same is to offend the basic rules of fair play, justice and due process since SLI had no chance to
propound its argument in connection thereto. This is because even if it wanted to, SLI could not
anymore do so in its Memorandum as no new issues or arguments may be raised in the said pleading,
it being only the summation of the parties previous pleadings. 50 For these reasons, the Court sees no
need to belabor the issue of the retroactive application of Section 6 of RA 9406.
All told, the Court finds the CAs dismissal of the appeal interposed by petitioners in order.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The assailed Resolutions dated
December 20, 2006 and March 30, 2007 of the Court of Appeals in CA-G.R. CV No. 85215 are
AFFIRMED.
SO ORDERED.

G.R. No. 138497

January 16, 2002

IMELDA RELUCIO, petitioner,


vs.
ANGELINA MEJIA LOPEZ, respondent.
PARDO, J.:
The Case
The case is a petition for review on certiorari1 seeking to set aside the decision2 of the Court of
Appeals that denied a petition for certiorari assailing the trial court's order denying petitioner's motion
to dismiss the case against her inclusion as party defendant therein.

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The Facts
The facts, as found by the Court of Appeals, are as follows:
"On September 15, 1993, herein private respondent Angelina Mejia Lopez (plaintiff below)
filed a petition for "APPOINTMENT AS SOLE ADMINISTRATIX OF CONJUGAL
PARTNERSHIP OF PROPERTIES, FORFEITURE, ETC.," against defendant Alberto
Lopez and petition Imelda Relucio, docketed as Spec. Proc. M-3630, in the Regional Trial
Court of Makati, Branch 141. In the petition, private-respondent alleged that sometime in
1968, defendant Lopez, who is legally married to the private respondent, abandoned the
latter and their four legitimate children; that he arrogated unto himself full and exclusive
control and administration of the conjugal properties, spending and using the same for his
sole gain and benefit to the total exclusion of the private respondent and their four children;
that defendant Lopez, after abandoning his family, maintained an illicit relationship and
cohabited with herein petitioner since 1976.
"It was further alleged that defendant Lopez and petitioner Relucio, during their period of
cohabitation since 1976, have amassed a fortune consisting mainly of stockholdings in
Lopez-owned or controlled corporations, residential, agricultural, commercial lots, houses,
apartments and buildings, cars and other motor vehicles, bank accounts and jewelry. These
properties, which are in the names of defendant Lopez and petitioner Relucio singly or
jointly or their dummies and proxies, have been acquired principally if not solely through
the actual contribution of money, property and industry of defendant Lopez with minimal,
if not nil, actual contribution from petitioner Relucio.
"In order to avoid defendant Lopez obligations as a father and husband, he excluded the
private respondent and their four children from sharing or benefiting from the conjugal
properties and the income or fruits there from. As such, defendant Lopez either did not
place them in his name or otherwise removed, transferred, stashed away or concealed them
from the private-respondent. He placed substantial portions of these conjugal properties in
the name of petitioner Relucio.1wphi1.nt
"It was also averred that in the past twenty five years since defendant Lopez abandoned the
private-respondent, he has sold, disposed of, alienated, transferred, assigned, canceled,
removed or stashed away properties, assets and income belonging to the conjugal
partnership with the private-respondent and either spent the proceeds thereof for his sole
benefit and that of petitioner Relucio and their two illegitimate children or permanently and
fraudulently placed them beyond the reach of the private-respondent and their four
children.
"On December 8, 1993, a Motion to Dismiss the Petition was filed by herein petitioner on
the ground that private respondent has no cause of action against her.

"An Order dated February 10, 1994 was issued by herein respondent Judge denying
petitioner Relucio's Motion to Dismiss on the ground that she is impleaded as a necessary
or indispensable party because some of the subject properties are registered in her name
and defendant Lopez, or solely in her name.
"Subsequently thereafter, petitioner Relucio filed a Motion for Reconsideration to the Order
of the respondent Judge dated February 10, 1994 but the same was likewise denied in the
Order dated May 31, 1994."3
On June 21, 1994, petitioner filed with the Court of Appeals a petition for certiorari assailing the trial
court's denial of her motion to dismiss.4
On May 31, 1996, the Court of Appeals promulgated a decision denying the petition. 5 On June 26,
1996, petitioner filed a motion for reconsideration. 6 However, on April 6, 1996, the Court of Appeals
denied petitioner's motion for reconsideration. 7
Hence, this appeal.8
The Issues
1. Whether respondent's petition for appointment as sole administratrix of the conjugal
property, accounting, etc. against her husband Alberto J. Lopez established a cause of
action against petitioner.
2. Whether petitioner's inclusion as party defendant is essential in the proceedings for a
complete adjudication of the controversy.9
The Court's Ruling
We grant the petition. We resolve the issues in seriatim.
First issue: whether a cause of action exists against petitioner in the proceedings below. "A cause of
action is an act or omission of one party the defendant in violation of the legal right of the
other."10 The elements of a cause of action are:
(1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is
created;
(2) an obligation on the part of the named defendant to respect or not to violate such right;
and

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(3) an act or omission on the part of such defendant in violation of the right of the plaintiff
or constituting a breach of the obligation of the defendant to the plaintiff for which the
latter may maintain an action for recovery of damages. 11
A cause of action is sufficient if a valid judgment may be rendered thereon if the alleged facts were
admitted or proved.12
In order to sustain a motion to dismiss for lack of cause of action, the complaint must show that the
claim for relief does not exist, rather than that a claim has been merely defectively stated or is
ambiguous, indefinite or uncertain.13
Hence, to determine the sufficiency of the cause of action alleged in Special Proceedings M-3630, we
assays its allegations.
In Part Two on the "Nature of [the] Complaint," respondent Angelina Mejia Lopez summarized the
causes of action alleged in the complaint below.
The complaint is by an aggrieved wife against her husband.
Nowhere in the allegations does it appear that relief is sought against petitioner. Respondent's causes
of action were all against her husband.
The first cause of action is for judicial appointment of respondent as administratrix of the conjugal
partnership or absolute community property arising from her marriage to Alberto J. Lopez. Petitioner
is a complete stranger to this cause of action. Article 128 of the Family Code refers only to spouses,
to wit:
"If a spouse without just cause abandons the other or fails to comply with his or her
obligations to the family, the aggrieved spouse may petition the court for receivership, for
judicial separation of property, or for authority to be the sole administrator of the conjugal
partnership property xxx"
The administration of the property of the marriage is entirely between them, to the exclusion of all
other persons. Respondent alleges that Alberto J. Lopez is her husband. Therefore, her first cause of
action is against Alberto J. Lopez. There is no right-duty relation between petitioner and respondent
that can possibly support a cause of action. In fact, none of the three elements of a cause of action
exists.
The second cause of action is for an accounting "by respondent husband."14 The accounting of
conjugal partnership arises from or is an incident of marriage.

Petitioner has nothing to do with the marriage between respondent Alberto J. Lopez. Hence, no cause
of action can exist against petitioner on this ground.
Respondent's alternative cause of action is for forfeiture of Alberto J. Lopez' share in the co-owned
property "acquired during his illicit relationship and cohabitation with [petitioner]" 15 and for the
"dissolution of the conjugal partnership of gains between him [Alberto J. Lopez] and the
[respondent]."
The third cause of action is essentially for forfeiture of Alberto J. Lopez' share in property co-owned
by him and petitioner. It does not involve the issue of validity of the co-ownership between Alberto J.
Lopez and petitioner. The issue is whether there is basis in law to forfeit Alberto J. Lopez' share, if
any there be, in property co-owned by him with petitioner.
Respondent's asserted right to forfeit extends to Alberto J. Lopez' share alone. Failure of Alberto J.
Lopez to surrender such share, assuming the trial court finds in respondent's favor, results in a breach
of an obligation to respondent and gives rise to a cause of action. 16 Such cause of action, however,
pertains to Alberto J. Lopez, not petitioner.
The respondent also sought support. Support cannot be compelled from a stranger.
The action in Special Proceedings M-3630 is, to use respondent Angelina M. Lopez' own words, one
by "an aggrieved wife against her husband."17 References to petitioner in the common and specific
allegations of fact in the complaint are merely incidental, to set forth facts and circumstances that
prove the causes of action alleged against Alberto J. Lopez.
Finally, as to the moral damages, respondent's claim for moral damages is against Alberto J. Lopez,
not petitioner.
To sustain a cause of action for moral damages, the complaint must have the character of an action
for interference with marital or family relations under the Civil Code.
A real party in interest is one who stands "to be benefited or injured by the judgment of the suit." 18 In
this case, petitioner would not be affected by any judgment in Special Proceedings M-3630.
If petitioner is not a real party in interest, she cannot be an indispensable party. An indispensable
party is one without whom there can be no final determination of an action. 19 Petitioner's participation
in Special Proceedings M-36-30 is not indispensable. Certainly, the trial court can issue a judgment
ordering Alberto J. Lopez to make an accounting of his conjugal partnership with respondent, and
give support to respondent and their children, and dissolve Alberto J. Lopez' conjugal partnership
with respondent, and forfeit Alberto J. Lopez' share in property co-owned by him and petitioner. Such
judgment would be perfectly valid and enforceable against Alberto J. Lopez.

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Nor can petitioner be a necessary party in Special Proceedings M-3630. A necessary party as one who
is not indispensable but who ought to be joined as party if complete relief is to be accorded those
already parties, or for a complete determination or settlement of the claim subject of the action. 20 In
the context of her petition in the lower court, respondent would be accorded complete relief if Alberto
J. Lopez were ordered to account for his alleged conjugal partnership property with respondent, give
support to respondent and her children, turn over his share in the co-ownership with petitioner and
dissolve his conjugal partnership or absolute community property with respondent.
The Judgment
WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the Court of
Appeals.21 The Court DISMISSES Special Proceedings M-3630 of the Regional Trial Court, Makati,
Branch 141 as against petitioner.1wphi1.nt
No costs.
SO ORDERED.

G.R. No. 115838

July 18, 2002

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners,


vs.
COURT OF APPEALS and FRANCISCO ARTIGO, respondents.
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari1 seeking to annul the Decision of the Court of
Appeals2 dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the decision3 of the

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Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-2631. The trial court
disposed as follows:
"WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly
and solidarily liable to plaintiff the sum of:
a) P303,606.24 representing unpaid commission;
b) P25,000.00 for and by way of moral damages;
c) P45,000.00 for and by way of attorney's fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20, 1991."
The Antecedent Facts
On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued petitioners
Constante A. De Castro ("Constante" for brevity) and Corazon A. De Castro ("Corazon" for brevity)
to collect the unpaid balance of his broker's commission from the De Castros. 4 The Court of Appeals
summarized the facts in this wise:
"x x x. Appellants5 were co-owners of four (4) lots located at EDSA corner New York and
Denver Streets in Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit "A-1, p.
144, Records), appellee6 was authorized by appellants to act as real estate broker in the sale
of these properties for the amount ofP23,000,000.00, five percent (5%) of which will be
given to the agent as commission. It was appellee who first found Times Transit
Corporation, represented by its president Mr. Rondaris, as prospective buyer which desired
to buy two (2) lots only, specifically lots 14 and 15. Eventually, sometime in May of 1985,
the sale of lots 14 and 15 was consummated. Appellee received from appellants P48,893.76
as commission.
It was then that the rift between the contending parties soon emerged. Appellee apparently
felt short changed because according to him, his total commission should be P352,500.00
which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit
Corporation to appellants for the two (2) lots, and that it was he who introduced the buyer
to appellants and unceasingly facilitated the negotiation which ultimately led to the
consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after
having received P48,893.76 in advance.1wphi1.nt

On the other hand, appellants completely traverse appellee's claims and essentially argue
that appellee is selfishly asking for more than what he truly deserved as commission to the
prejudice of other agents who were more instrumental in the consummation of the sale.
Although appellants readily concede that it was appellee who first introduced Times Transit
Corp. to them, appellee was not designated by them as their exclusive real estate agent but
that in fact there were more or less eighteen (18) others whose collective efforts in the long
run dwarfed those of appellee's, considering that the first negotiation for the sale where
appellee took active participation failed and it was these other agents who successfully
brokered in the second negotiation. But despite this and out of appellants' "pure liberality,
beneficence and magnanimity", appellee nevertheless was given the largest cut in the
commission (P48,893.76), although on the principle ofquantum meruit he would have
certainly been entitled to less. So appellee should not have been heard to complain of
getting only a pittance when he actually got the lion's share of the commission and worse,
he should not have been allowed to get the entire commission. Furthermore, the purchase
price for the two lots was only P3.6 million as appearing in the deed of sale and not P7.05
million as alleged by appellee. Thus, even assuming that appellee is entitled to the entire
commission, he would only be getting 5% of the P3.6 million, or P180,000.00."
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision of the trial court.
First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two
lots in Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly
established a contract of agency between Constante and Artigo. Thus, Artigo sought prospective
buyers and found Times Transit Corporation ("Times Transit" for brevity). Artigo facilitated the
negotiations which eventually led to the sale of the two lots. Therefore, the Court of Appeals decided
that Artigo is entitled to the 5% commission on the purchase price as provided in the contract of
agency.
Second. The Court of Appeals ruled that Artigo's complaint is not dismissible for failure to implead as
indispensable parties the other co-owners of the two lots. The Court of Appeals explained that it is not
necessary to implead the other co-owners since the action is exclusively based on a contract of
agency between Artigo and Constante.
Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol
evidence to prove the true amount paid by Times Transit to the De Castros for the two lots. The Court
of Appeals ruled that evidencealiunde could be presented to prove that the actual purchase price
was P7.05 million and not P3.6 million as appearing in the deed of sale. Evidence aliunde is
admissible considering that Artigo is not a party, but a mere witness in the deed of sale between the
De Castros and Times Transit. The Court of Appeals explained that, "the rule that oral evidence is
inadmissible to vary the terms of written instruments is generally applied only in suits between
parties to the instrument and strangers to the contract are not bound by it." Besides, Artigo was not

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suing under the deed of sale, but solely under the contract of agency. Thus, the Court of Appeals
upheld the trial court's finding that the purchase price was P7.05 million and not P3.6 million.
Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals erred in I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO
IMPLEAD INDISPENSABLE PARTIES-IN-INTEREST;
II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND
THAT ARTIGO'S CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT,
WAIVER, OR ABANDONMENT;

An indispensable party is one whose interest will be affected by the court's action in the litigation,
and without whom no final determination of the case can be had. 7 The joinder of indispensable parties
is mandatory and courts cannot proceed without their presence. 8 Whenever it appears to the court in
the course of a proceeding that an indispensable party has not been joined, it is the duty of the court
to stop the trial and order the inclusion of such party.9
However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case.
There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to
sell the properties of the De Castros for P23 million at a 5 percent commission. The authority was on
a first come, first serve basis. The authority reads in full:

"24 Jan. 84

III. CONSIDERING INCOMPETENT EVIDENCE;


To Whom It May Concern:
IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;
V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES;
VI. NOT AWARDING THE DE CASTRO'S MORAL AND EXEMPLARY DAMAGES,
AND ATTORNEY'S FEES.

This is to state that Mr. Francisco Artigo is authorized as our real estate broker in
connection with the sale of our property located at Edsa Corner New York & Denver,
Cubao, Quezon City.
Asking price P 23,000,000.00 with 5% commission as agent's fee.

The Court's Ruling


The petition is bereft of merit.
First Issue: whether the complaint merits dismissal for failure to implead other co-owners as
indispensable parties
The De Castros argue that Artigo's complaint should have been dismissed for failure to implead all
the co-owners of the two lots. The De Castros claim that Artigo always knew that the two lots were
co-owned by Constante and Corazon with their other siblings Jose and Carmela whom Constante
merely represented. The De Castros contend that failure to implead such indispensable parties is fatal
to the complaint since Artigo, as agent of all the four co-owners, would be paid with funds co-owned
by the four co-owners.
The De Castros' contentions are devoid of legal basis.

C.C. de Castro
owner & representing
co-owners

This authority is on a first-come


First serve basis CAC"
Constante signed the note as owner and as representative of the other co-owners. Under this note, a
contract of agency was clearly constituted between Constante and Artigo. Whether Constante
appointed Artigo as agent, in Constante's individual or representative capacity, or both, the De

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Castros cannot seek the dismissal of the case for failure to implead the other co-owners as
indispensable parties. The De Castros admit that the other co-owners are solidarily liable under the
contract of agency,10 citing Article 1915 of the Civil Code, which reads:
Art. 1915. If two or more persons have appointed an agent for a common transaction or
undertaking, they shall be solidarily liable to the agent for all the consequences of the
agency.
The solidary liability of the four co-owners, however, militates against the De Castros' theory that the
other co-owners should be impleaded as indispensable parties. A noted commentator explained
Article 1915 thus
"The rule in this article applies even when the appointments were made by the principals in
separate acts, provided that they are for the same transaction. The solidarity arises from
the common interest of the principals, and not from the act of constituting the agency.
By virtue of this solidarity, the agent can recover from any principal the whole
compensation and indemnity owing to him by the others. The parties, however, may, by
express agreement, negate this solidary responsibility. The solidarity does not disappear by
the mere partition effected by the principals after the accomplishment of the agency.
If the undertaking is one in which several are interested, but only some create the agency,
only the latter are solidarily liable, without prejudice to the effects of negotiorum
gestio with respect to the others. And if the power granted includes various transactions
some of which are common and others are not, only those interested in each transaction
shall be liable for it."11
When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in
a contract of agency, each obligor may be compelled to pay the entire obligation. 12 The agent may
recover the whole compensation from any one of the co-principals, as in this case.
Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors.
This article reads:

anyone of the solidary debtors or some or all of them simultaneously'." (Emphasis


supplied)
Second Issue: whether Artigo's claim has been extinguished by full payment, waiver or
abandonment
The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given "his
proportionate share and no longer entitled to any balance." According to them, Artigo was just one of
the agents involved in the sale and entitled to a "proportionate share" in the commission. They assert
that Artigo did absolutely nothing during the second negotiation but to sign as a witness in the deed
of sale. He did not even prepare the documents for the transaction as an active real estate broker
usually does.
The De Castros' arguments are flimsy.
A contract of agency which is not contrary to law, public order, public policy, morals or good custom
is a valid contract, and constitutes the law between the parties. 14 The contract of agency entered into
by Constante with Artigo is the law between them and both are bound to comply with its terms and
conditions in good faith.
The mere fact that "other agents" intervened in the consummation of the sale and were paid their
respective commissions cannot vary the terms of the contract of agency granting Artigo a 5 percent
commission based on the selling price. These "other agents" turned out to be employees of Times
Transit, the buyer Artigo introduced to the De Castros. This prompted the trial court to observe:
"The alleged `second group' of agents came into the picture only during the so-called
`second negotiation' and it is amusing to note that these (sic) second group, prominent
among whom are Atty. Del Castillo and Ms. Prudencio, happened to be employees of Times
Transit, the buyer of the properties. And their efforts were limited to convincing Constante
to 'part away' with the properties because the redemption period of the foreclosed properties
is around the corner, so to speak. (tsn. June 6, 1991).
xxx

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all
of them simultaneously. The demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others, so long as the debt has not
been fully collected.
Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.13 that

To accept Constante's version of the story is to open the floodgates of fraud and deceit. A
seller could always pretend rejection of the offer and wait for sometime for others to renew
it who are much willing to accept a commission far less than the original broker. The
immorality in the instant case easily presents itself if one has to consider that the alleged
`second group' are the employees of the buyer, Times Transit and they have not bettered
the offer secured by Mr. Artigo for P7 million.

"x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by
the creditor. Article 1216 of the Civil Code says that the creditor `may proceed against

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It is to be noted also that while Constante was too particular about the unrenewed real
estate broker's license of Mr. Artigo, he did not bother at all to inquire as to the licenses of
Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-40)."15 (Emphasis supplied)
In any event, we find that the 5 percent real estate broker's commission is reasonable and within the
standard practice in the real estate industry for transactions of this nature.
The De Castros also contend that Artigo's inaction as well as failure to protest estops him from
recovering more than what was actually paid him. The De Castros cite Article 1235 of the Civil Code
which reads:
Art. 1235. When the obligee accepts the performance, knowing its incompleteness and
irregularity, and without expressing any protest or objection, the obligation is deemed fully
complied with.
The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's acceptance of
partial payment of his commission neither amounts to a waiver of the balance nor puts him in
estoppel. This is the import of Article 1235 which was explained in this wise:
"The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory
or sufficient, or agree to an incomplete or irregular performance. Hence, the mere receipt
of a partial payment is not equivalent to the required acceptance of performance as
would extinguish the whole obligation."16(Emphasis supplied)
There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that
Artigo merely received the partial payment without waiving the balance. Thus, there is no estoppel to
speak of.
The De Castros further argue that laches should apply because Artigo did not file his complaint in
court until May 29, 1989, or almost four years later. Hence, Artigo's claim for the balance of his
commission is barred by laches.
Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that
which by exercising due diligence could or should have been done earlier. It is negligence or
omission to assert a right within a reasonable time, warranting a presumption that the party entitled to
assert it either has abandoned it or declined to assert it. 17
Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on January
24, 1984. The two lots were finally sold in June 1985. As found by the trial court, Artigo demanded in
April and July of 1985 the payment of his commission by Constante on the basis of the selling price
of P7.05 million but there was no response from Constante.18 After it became clear that his demands
for payment have fallen on deaf ears, Artigo decided to sue on May 29, 1989.

Actions upon a written contract, such as a contract of agency, must be brought within ten years from
the time the right of action accrues.19 The right of action accrues from the moment the breach of right
or duty occurs. From this moment, the creditor can institute the action even as the ten-year
prescriptive period begins to run.20
The De Castros admit that Artigo's claim was filed within the ten-year prescriptive period. The De
Castros, however, still maintain that Artigo's cause of action is barred by laches. Laches does not
apply because only four years had lapsed from the time of the sale in June 1985. Artigo made a
demand in July 1985 and filed the action in court on May 29, 1989, well within the ten-year
prescriptive period. This does not constitute an unreasonable delay in asserting one's right. The Court
has ruled, "a delay within the prescriptive period is sanctioned by law and is not considered to be a
delay that would bar relief."21 In explaining that laches applies only in the absence of a statutory
prescriptive period, the Court has stated "Laches is recourse in equity. Equity, however, is applied only in the absence, never in
contravention, of statutory law. Thus, laches, cannot, as a rule, be used to abate a
collection suit filed within the prescriptive period mandated by the Civil Code." 22
Clearly, the De Castros' defense of laches finds no support in law, equity or jurisprudence.
Third issue: whether the determination of the purchase price was made in violation of the Rules
on Evidence
The De Castros want the Court to re-examine the probative value of the evidence adduced in the trial
court to determine whether the actual selling price of the two lots was P7.05 million and not P3.6
million. The De Castros contend that it is erroneous to base the 5 percent commission on a purchase
price of P7.05 million as ordered by the trial court and the appellate court. The De Castros insist that
the purchase price is P3.6 million as expressly stated in the deed of sale, the due execution and
authenticity of which was admitted during the trial.
The De Castros believe that the trial and appellate courts committed a mistake in considering
incompetent evidence and disregarding the best evidence and parole evidence rules. They claim that
the Court of Appeals erroneously affirmed sub silentio the trial court's reliance on the various
correspondences between Constante and Times Transit which were mere photocopies that do not
satisfy the best evidence rule. Further, these letters covered only the first negotiations between
Constante and Times Transit which failed; hence, these are immaterial in determining the final
purchase price.
The De Castros further argue that if there was an undervaluation, Artigo who signed as witness
benefited therefrom, and being equally guilty, should be left where he presently stands. They likewise
claim that the Court of Appeals erred in relying on evidence which were not offered for the purpose
considered by the trial court. Specifically, Exhibits "B", "C", "D" and "E" were not offered to prove

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that the purchase price was P7.05 Million. Finally, they argue that the courts a quo erred in giving
credence to the perjured testimony of Artigo. They want the entire testimony of Artigo rejected as a
falsehood because he was lying when he claimed at the outset that he was a licensed real estate
broker when he was not.
Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the
Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question of fact and not of law.
Inevitably, this calls for an inquiry into the facts and evidence on record. This we can not do.
It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or
weigh the evidence again.23 This Court is not the proper venue to consider a factual issue as it is not a
trier of facts. In petitions for review on certiorari as a mode of appeal under Rule 45, a petitioner can
only raise questions of law. Our pronouncement in the case of Cormero vs. Court of Appeals24 bears
reiteration:
"At the outset, it is evident from the errors assigned that the petition is anchored on a plea
to review the factual conclusion reached by the respondent court. Such task however is
foreclosed by the rule that in petitions for certiorari as a mode of appeal, like this one, only
questions of law distinctly set forth may be raised. These questions have been defined as
those that do not call for any examination of the probative value of the evidence presented
by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA
751 [1991] citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of
Appeals, 149 SCRA 67). And when this court is asked to go over the proof presented by the
parties, and analyze, assess and weigh them to ascertain if the trial court and the appellate
court were correct in according superior credit to this or that piece of evidence and
eventually, to the totality of the evidence of one party or the other, the court cannot and will
not do the same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in the
absence of any showing that the findings complained of are totally devoid of support in the
record, or that they are so glaringly erroneous as to constitute serious abuse of discretion,
such findings must stand, for this court is not expected or required to examine or contrast
the oral and documentary evidence submitted by the parties. (Morales vs. Court of Appeals,
197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966])."
We find no reason to depart from this principle. The trial and appellate courts are in a much better
position to evaluate properly the evidence. Hence, we find no other recourse but to affirm their
finding on the actual purchase price.1wphi1.nt
Fourth Issue: whether award of moral damages and attorney's fees is proper
The De Castros claim that Artigo failed to prove that he is entitled to moral damages and attorney's
fees. The De Castros, however, cite no concrete reason except to say that they are the ones entitled to
damages since the case was filed to harass and extort money from them.

Law and jurisprudence support the award of moral damages and attorney's fees in favor of Artigo.
The award of damages and attorney's fees is left to the sound discretion of the court, and if such
discretion is well exercised, as in this case, it will not be disturbed on appeal. 25 Moral damages may
be awarded when in a breach of contract the defendant acted in bad faith, or in wanton disregard of
his contractual obligation.26 On the other hand, attorney's fees are awarded in instances where "the
defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just
and demandable claim."27 There is no reason to disturb the trial court's finding that "the defendants'
lack of good faith and unkind treatment of the plaintiff in refusing to give his due commission
deserve censure." This warrants the award of P25,000.00 in moral damages and P 45,000.00 in
attorney's fees. The amounts are, in our view, fair and reasonable. Having found a buyer for the two
lots, Artigo had already performed his part of the bargain under the contract of agency. The De
Castros should have exercised fairness and good judgment in dealing with Artigo by fulfilling their
own part of the bargain - paying Artigo his 5 percent broker's commission based on the actual
purchase price of the two lots.
WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated
May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto.
SO ORDERED.

G.R. No. 141463

August 6, 2002

VICTOR ORQUIOLA and HONORATA ORQUIOLA, petitioners,


vs.
HON. COURT OF APPEALS, HON. VIVENCIO S. BACLIG, Presiding Judge, Regional Trial
Court, Branch 77, Quezon City, THE SHERIFF OF QUEZON CITY and HIS/HER
DEPUTIES and PURA KALAW LEDESMA, substituted by TANDANG SORA
DEVELOPMENT CORPORATION, respondents.

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REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


QUISUMBING, J.:
This petition for review seeks the reversal of the decision 1 of the Court of Appeals dated January 28,
1999 in CA-G.R. SP No. 47422, which dismissed the petition to prohibit Judge Vivencio Baclig of
the Regional Trial Court of Quezon City, Branch 77, from issuing a writ of demolition against
petitioners, and the sheriff and deputy sheriff of the same court from implementing an alias writ of
execution. Also assailed is the resolution2 of the Court of Appeals dated December 29, 1999 which
denied petitioners motion for reconsideration.
The facts are as follows:
Pura Kalaw Ledesma was the registered owner of Lot 689, covered by TCT Nos. 111267 and 111266,
in Tandang Sora, Quezon City. This parcel of land was adjacent to certain portions of Lot 707 of the
Piedad Estates, namely, Lot 707-A and 707-B, registered in the name of Herminigilda Pedro under
TCT Nos. 16951 and 16952, respectively. On October 29, 1964, Herminigilda sold Lot 707-A and
707-B to Mariano Lising who then registered both lots and Lot 707-C in the name of M.B. Lising
Realty and subdivided them into smaller lots.1wphi1.nt
Certain portions of the subdivided lots were sold to third persons including herein petitioners, spouses
Victor and Honorata Orquiola, who purchased a portion of Lot 707-A-2, Lot 5, Block 1 of the
subdivision plan (LRC), Psd-42965. The parcel is now #33 Doa Regina St., Regina Village, Tandang
Sora, Quezon City. The other portions were registered in the name of the heirs of Pedro, heirs of
Lising, and other third persons.
Sometime in 1969, Pura Kalaw Ledesma filed a complaint, docketed as Civil Case No. Q-12918,
with the Regional Trial Court of Quezon City against Herminigilda Pedro and Mariano Lising for
allegedly encroaching upon Lot 689. During the pendency of the action, Tandang Sora Development
Corporation replaced Pura Kalaw Ledesma as plaintiff by virtue of an assignment of Lot 689 made
by Ledesma in favor of said corporation. Trial continued for three decades.
On August 21, 1991, the trial court finally adjudged defendants Pedro and Lising jointly and severally
liable for encroaching on plaintiffs land and ordered them:
(a) to solidarily pay the plaintiff Tandang Sora Dev. Corp. actual damages in the amount of
P20,000 with interest from date of filing of the complaint;
(b) to remove all construction, including barbed wires and fences, illegally constructed by
defendants on plaintiffs property at defendants expense;
(c) to replace the removed concrete monuments removed by defendants, at their own
expense;

(d) to pay attorneys fees in the amount of FIVE THOUSAND PESOS (P5,000.00) with
interest computed from the date of filing of the complaint;
(e) to relocate the boundaries to conform with the Commissioners Report, particularly,
Annexes "A" and "B" thereof, at the expense of the defendants. 3
As a result, in February 1998, the Deputy Sheriff of Quezon City directed petitioners, through
an alias writ of execution, to remove the house they constructed on the land they were occupying.
On April 2, 1998, petitioners received a Special Order dated March 30, 1998, from the trial court
stating as follows:
Before the Court for resolution is the "Ex-Parte Motion For The Issuance of A Writ of
Demolition," filed by plaintiff, through counsel, praying for the issuance of an Order
directing the Deputy Sheriff to cause the removal and/or demolition of the structures on the
plaintiffs property constructed by defendants and/or the present occupants. The
defendants-heirs of Herminigilda Pedro filed their comment on the said Motion.
Considering that the decision rendered in the instant case had become final and executory,
the Court, in its Order of November 14, 1997, directed the issuance of an alias writ of
execution for the enforcement of the said decision. However, despite the service of the said
writ to all the defendants and the present occupants of the subject property, they failed to
comply therewith, as per the Partial Sheriffs Return, dated February 9, 1998, issued by the
Deputy Sheriff of this branch of the Court. Thus, there is now a need to demolish the
structures in order to implement the said decision.
WHEREFORE, the defendants are hereby directed to remove, at their expense, all
constructions, including barbed wires and fences, which defendants constructed on
plaintiffs property, within fifteen (15) days from notice of this Order; otherwise, this Court
will issue a writ of demolition against them.
SO ORDERED.4
To prohibit Judge Vivencio Baclig of the Regional Trial Court of Quezon City from issuing a writ of
demolition and the Quezon City sheriff from implementing the alias writ of execution, petitioners
filed with the Court of Appeals a petition for prohibition with prayer for a restraining order and
preliminary injunction on April 17, 1998.5 Petitioners alleged that they bought the subject parcel of
land in good faith and for value, hence, they were parties in interest. Since they were not impleaded
in Civil Case No. Q-12918, the writ of demolition issued in connection therewith cannot be enforced
against them because to do so would amount to deprivation of property without due process of law.

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The Court of Appeals dismissed the petition on January 28, 1999. It held that as buyers and
successors-in-interest of Mariano Lising, petitioners were considered privies who derived their rights
from Lising by virtue of the sale and could be reached by the execution order in Civil Case No. Q12918. Thus, for lack of merit, the petition was ordered dismissed. 6
Petitioners motion for reconsideration was denied. Hence, this petition, where petitioners aver that:
I.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
DECISION IN CIVIL CASE NO. Q-12918 CAN ALSO BE ENFORCED AGAINST THE
PETITIONERS EVEN IF THEY WERE NOT IMPLEADED AS PARTIES THERETO.

In 1949, Benedicta Mangahas and Francisco Ramos occupied and built houses on the lot without the
PRCs consent. In 1959, PRC sold the lot to Remedios Magbanua. Mangahas and Ramos opposed
and instituted Civil Case No. C-120 to annul the sale and to compel PRC to execute a contract of sale
in their favor. The trial court dismissed the complaint and ordered Mangahas and Ramos to vacate the
lot and surrender possession thereof to Magbanua. The judgment became final and executory. When
Magbanua had paid for the land in full, PRC executed a deed of absolute sale in her favor and a new
title was consequently issued in her name. Magbanua then sought the execution of the judgment in
Civil Case No. C-120. This was opposed by petitioner Medina who alleged that she owned the houses
and lot subject of the dispute. She said that she bought the houses from spouses Ricardo and
Eufrocinia de Guzman, while she purchased the lot from the heirs of the late Don Mariano San Pedro
y Esteban. The latter held the land by virtue of a Titulo de Composicion Con El Estado Num. 4136,
dated April 29, 1894. In opposing the execution, Medina argued that the trial court did not acquire
jurisdiction over her, claiming that she was not a party in Civil Case No. C-120, thus, she could not
be considered as "a person claiming under" Ramos and Mangahas.

II.
THE HONORABLE COURT OF APPEALS ERRED IN NOT UPHOLDING
PETITIONERS TITLE DESPITE THEIR BEING BUILDER IN GOOD FAITH AND
INNOCENT PURCHASER AND FOR VALUE.
III.
PETITIONERS ARE ENTITLED TO INJUNCTIVE RELIEF CONSIDERING THAT
THEY STAND TO SUFFER GRAVE AND IRREPARABLE INJURY IF ALIAS WRIT OF
EXECUTION AND THE SPECIAL ORDER ISSUED BY THE COURT A QUO IN CIVIL
CASE NO. Q-12918 FOR THE DEMOLITION OF ALL THE STRUCTURES ON THE
DISPUTED PROPERTY WERE ENFORCED AGAINST THE PETITIONERS WHO
WERE NOT EVEN GIVEN THEIR DAY IN COURT.7
For our resolution are the following issues: (1) whether the alias writ of execution may be enforced
against petitioners; and (2) whether petitioners were innocent purchasers for value and builders in
good faith.
On the first issue, petitioners claim that the alias writ of execution cannot be enforced against them.
They argue that the appellate court erred when it relied heavily on our ruling in Vda. de Medina vs.
Cruz8 in holding that petitioners are successors-in-interest of Mariano Lising, and as such, they can be
reached by the order of execution in Civil Case No. Q-12918 even though they were not impleaded as
parties thereto. Petitioners submit that Medina is not applicable in this case because the circumstances
therein are different from the circumstances in the present case.
In Medina, the property in dispute was registered under Land Registration Act No. 496 in 1916 and
Original Certificate of Title No. 868 was issued in the name of Philippine Realty Corporation (PRC).

When Medina reached this Court, we held that the decision in Civil Case No. C-120, which had long
become final and executory, could be enforced against petitioner even though she was not a party
thereto. We found that the houses on the subject lot were formerly owned by Mangahas and Ramos
who sold them to spouses de Guzman, who in turn sold them to Medina. Under the circumstances,
petitioner was privy to the two judgment debtors Mangahas and Ramos, and thus Medina could be
reached by the order of execution and writ of demolition issued against the two. As to the lot under
dispute, we sustained Magbanuas ownership over it, she being the holder of a Torrens title. We
declared that a Torrens title is generally conclusive evidence of ownership of the land referred to
therein, and a strong presumption exists that a Torrens title was regularly issued and valid. A Torrens
title is incontrovertible against any informacion possessoria, or other title existing prior to the
issuance thereof not annotated on the Torrens title. Moreover, persons dealing with property covered
by a Torrens certificate of title are not required to go beyond what appears on its face.
Medina markedly differs from the present case on major points. First, the petitioner
in Medina acquired the right over the houses and lot subject of the dispute after the original action
was commenced and became final and executory. In the present case, petitioners acquired the
lot before the commencement of Civil Case No. Q-12918. Second, the right over the disputed land of
the predecessors-in-interest of the petitioner in Medina was based on a title of doubtful authenticity,
allegedly a Titulo de Composicion Con El Estado issued by the Spanish Government in favor of one
Don Mariano San Pedro y Esteban, while the right over the land of the predecessors-in-interest of
herein petitioners is based on a fully recognized Torrens title. Third, petitioners in this case acquired
the registered title in their own names, while the petitioner in Medina merely relied on the title of her
predecessor-in-interest and tax declarations to prove her alleged ownership of the land.
We must stress that where a case like the present one involves a sale of a parcel of land under the
Torrens system, the applicable rule is that a person dealing with the registered property need not go
beyond the certificate of title; he can rely solely on the title and he is charged with notice only of such
burdens and claims as are annotated on the title. 9 It is our view here that the petitioners, spouses

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Victor and Honorata Orquiola, are fully entitled to the legal protection of their lot by the Torrens
system, unlike the petitioner in the Medina case who merely relied on a mereTitulo de Composicion.
Coming now to the second issue, were petitioners purchasers in good faith and for value? A buyer in
good faith is one who buys the property of another without notice that some other person has a right
to or interest in such property. He is a buyer for value if he pays a full and fair price at the time of the
purchase or before he has notice of the claim or interest of some other person in the property.10 The
determination of whether one is a buyer in good faith is a factual issue which generally is outside the
province of this Court to determine in a petition for review. An exception is when the Court of
Appeals failed to take into account certain relevant facts which, if properly considered, would justify
a different conclusion.11 The instant case is covered by this exception to the general rule. As found by
the Court of Appeals and not refuted by private respondent, petitioners purchased the subject land in
1964 from Mariano Lising.12 Civil Case No. Q-12918 was commenced sometime in 1969. The Court
of Appeals overlooked the fact that the purchase of the land took place prior to the institution of Civil
Case No. Q-12918. In other words, the sale to petitioners was made before Pura Kalaw Ledesma
claimed the lot. Petitioners could reasonably rely on Mariano Lisings Certificate of Title which at the
time of purchase was still free from any third party claim. Hence, considering the circumstances of
this case, we conclude that petitioners acquired the land subject of this dispute in good faith and for
value.

the judgment therein and by writs of execution and demolition issued pursuant thereto. 16 In our view,
the spouses Victor and Honorata Orquiola have valid and meritorious cause to resist the demolition of
their house on their own titled lot, which is tantamount to a deprivation of property without due
process of law.1wphi1.nt
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated January 28,
1999, and its resolution dated December 29, 1999, in CA-G.R. SP No. 47422,
are REVERSED and SET ASIDE. Respondents are hereby enjoined from enforcing the decision in
Civil Case No. Q-12918 through a writ of execution and order of demolition issued against
petitioners. Costs against private respondent.
SO ORDERED.

The final question now is: could we consider petitioners builders in good faith? We note that this is
the first time that petitioners have raised this issue. As a general rule, this could not be done. Fair
play, justice, and due process dictate that parties should not raise for the first time on appeal issues
that they could have raised but never did during trial and even during proceedings before the Court of
Appeals.13 Nevertheless, we deem it proper that this issue be resolved now, to avoid circuitous
litigation and further delay in the disposition of this case. On this score, we find that petitioners are
indeed builders in good faith.
A builder in good faith is one who builds with the belief that the land he is building on is his, and is
ignorant of any defect or flaw in his title.14 As earlier discussed, petitioner spouses acquired the land
in question without knowledge of any defect in the title of Mariano Lising. Shortly afterwards, they
built their conjugal home on said land. It was only in 1998, when the sheriff of Quezon City tried to
execute the judgment in Civil Case No. Q-12918, that they had notice of private respondents adverse
claim. The institution of Civil Case No. Q-12918 cannot serve as notice of such adverse claim to
petitioners since they were not impleaded therein as parties.
As builders in good faith and innocent purchasers for value, petitioners have rights over the subject
property and hence they are proper parties in interest in any case thereon. 15 Consequently, private
respondents should have impleaded them in Civil Case No. Q-12918. Since they failed to do so,
petitioners cannot be reached by the decision in said case. No man shall be affected by any
proceeding to which he is a stranger, and strangers to a case are not bound by any judgment rendered
by the court. In the same manner, a writ of execution can be issued only against a party and not
against one who did not have his day in court. Only real parties in interest in an action are bound by

G.R. No. 135796

October 3, 2002

CHINA BANKING CORPORATION, petitioner,


vs.
MERCEDES M. OLIVER, respondent.
RESOLUTION

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REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


QUISUMBING, J.:
This petition for review1 seeks the reversal of the decision dated June 1, 1998, of the Court of
Appeals in CA-G.R. SP No. 43836, dismissing China Banking Corporations petition for certiorari to
annul the two orders of the Regional Trial Court of Muntinlupa City, Branch 276, which earlier
denied petitioners motion to dismiss and then declared the bank in default in Civil Case No. 96-219.
The appellate court also denied petitioners motion for reconsideration in a resolution dated
September 30, 1998.

negligently failed to ascertain the genuineness or not (sic) of the title of the land mortgaged to it upon
the claim of ownership by the mortgagors. Furthermore, the matters alleged in the MOTION TO
DISMISS are all evidentiary which Defendants may substantiate at the appointed hours. 4
On April 7, 1997, Chinabank filed with the Court of Appeals a petition for certiorari with prayer for
the issuance of a writ of preliminary injunction and/or restraining order to enjoin enforcement of the
March 13, 1997 order and further action on the case. The Court of Appeals directed respondent Oliver
Two to file her comment and deferred action on the prayer for the issuance of the preliminary
injunction pending submission of the comment.

The facts of this case are culled from the records.


In August 1995, Pangan Lim, Jr. and a certain Mercedes M. Oliver opened a joint account in China
Banking Corporation (hereinafter Chinabank) at EDSA Balintawak Branch. Lim introduced Oliver to
the banks branch manager as his partner in the rice and palay trading business. Thereafter, Lim and
Oliver applied for a P17 million loan, offering as collateral a 7,782 square meter lot located in
Tunasan, Muntinlupa and covered by TCT No. S-50195 in the name of Oliver. The bank approved the
application. On November 17, 1995, Lim and Oliver executed in favor of Chinabank a promissory
note for P16,650,000, as well as a Real Estate Mortgage on the property. The mortgage was duly
registered and annotated on the original title under the custody of the Registry of Deeds of Makati
and on the owners duplicate copy in the banks possession. The mortgage document showed
Mercedes Olivers address to be No. 95 Malakas Street, Diliman, Quezon City. For brevity, she is
hereafter referred to as "Oliver One."
On November 18, 1996, respondent claiming that she is Mercedes M. Oliver with postal office
address at No. 40 J.P. Rizal St., San Pedro, Laguna, filed an action for annulment of mortgage and
cancellation of title with damages against Chinabank, Register of Deeds Atty. Mila G. Flores, and
Deputy Register of Deeds Atty. Ferdinand P. Ignacio. Respondent, whom we shall call as "Oliver
Two," claimed that she was the registered and lawful owner of the land subject of the real estate
mortgage; that the owners duplicate copy of the title had always been in her possession; and that she
did not apply for a loan or surrender her title to Chinabank. 2 She prayed that: (1) the owners
duplicate copy surrendered to Chinabank as well as the original title with the Registry of Deeds be
cancelled; (2) the mortgage be declared null and void; and (3) the Registry of Deeds be ordered to
issue a new and clean title in her name.3
On January 31, 1997, Chinabank moved to dismiss the case for lack of cause of action and nonjoinder of an indispensable party, the mortgagor.
On March 13, 1997, Judge Norma C. Perello issued an order denying the motion to dismiss, stating
that:
A reading of the COMPLAINT which of course is hypothetically admitted, will show that a valid
judgment can be rendered against defendant. Plaintiff having sufficiently averred that defendants

On June 30, 1997, respondent Oliver Two moved to declare petitioner Chinabank in default. She
pointed out that since petitioner received the order denying the motion to dismiss on March 21, 1997,
it had only until April 7, 1997 to file its answer to the complaint. However, until the filing of the
motion for default, no answer had been filed yet. The trial court granted the motion and declared
petitioner in default in its order dated July 17, 1997, thus:
Acting on the Motion To Declare Defendant Bank in Default, and finding the same to be legally
tenable is granted.
Accordingly, the Defendant Bank is declared in default as summons was served on It as early as
December 16, 1996, but until date they have not filed an Answer nor any responsive pleading and
instead, It filed a Motion to Dismiss, which was denied by this Court on March 13, 1997.
The filing of a CERTIORARI to question the Orders by this Court did not toll the period for
Defendants to answer the complaint.
Therefore, the reglementary period for the filing of responsive pleading has long expired.
Let the case be submitted for Decision based on the complaint.
It is SO ORDERED.5
Consequently, petitioner Chinabank filed a supplemental petition on August 11, 1997, seeking
annulment of the July 17, 1997 order. It argued that the special civil action for certiorari filed in the
Court of Appeals interrupted the proceedings before the trial court, thereby staying the period for
filing the answer.
On June 1, 1998, the Court of Appeals promulgated the assailed decision, finding no grave abuse of
discretion committed by the trial judge in ruling that the Rules of Court provided the manner of
impleading parties to a case and in suggesting that petitioner file an appropriate action to bring the
mortgagor within the courts jurisdiction. The appellate court said that Rule 6, Section 11 of the Rules

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REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


of Court allows petitioner to file a third-party complaint against the mortgagor. As to the judgment by
default, the Court of Appeals said that an order denying the motion to dismiss is interlocutory and
may not be questioned through a special civil action for certiorari. The defendant must proceed with
the case and raise the issues in his motion to dismiss when he appeals to a higher court. In this case,
petitioner Chinabank should have filed its answer when it received the March 13, 1997 order denying
the motion to dismiss. The special civil action for certiorari with the Court of Appeals did not
interrupt the period to file an answer, there being no temporary restraining order or writ of
preliminary injunction issued.

THE OWNERS DUPLICATE COPY OF THE TITLE OF MORTGAGOR MERCEDES M.


OLIVER OWNERS DUPLICATE COPY CANNOT, IN HER ABSENCE, BE DECLARED NULL
AND VOID. CONSEQUENTLY, INASMUCH AS THE MORTGAGE IN FAVOR OF PETITIONER
IS DEPENDENT UPON THE OWNERS DUPLICATE COPY OF THE MORTGAGOR, THE
COMPLAINT IN CIVIL CASE NO. 96-219 CAN NOT RESOLVE THE CONTROVERSY WITH
FINALITY.

The Court of Appeals denied petitioners motion for reconsideration. Hence, this petition anchored on
the following grounds:

THE CASE OF CHURCH OF CHRIST VS. VALLESPIN, G.R. NO. 53726, AUGUST 15, 1988,
DOES NOT APPLY INASMUCH AS THE USE OF TERM "INDISPENSABLE PARTY" IN SAID
CASE WAS LOOSELY USED AND IN TRUTH WAS INTENDED TO MEAN "PARTIES-ININTEREST" AS CONTEMPLATED BY SECTION 2, RULE 3 OF THE RULES OF COURT.

I
SEC. 11, RULE 3, OF THE 1997 RULES OF CIVIL PROCEDURE DOES NOT APPLY WHERE
THE PARTY WHO WAS NOT IMPLEADED IS AN INDISPENSABLE PARTY; INSTEAD,
SECTION 7, RULE 3 THEREOF, APPLIES.
II
THE MORTGAGOR MERCEDES M. OLIVER IS AN INDISPENSABLE PARTY UNDER
SECTION 7, RULE 3, OF THE 1997 RULES OF CIVIL PROCEDURE, AND MUST THEREFORE
INDISPENSABLY BE JOINED AS A PARTY-DEFENDANT.
III
RESPONDENTS CAUSE OF ACTION IS ANCHORED ON HER CLAIM AS THE REGISTERED
AND LAWFUL OWNER OF THE PROPERTY IN QUESTION AND THAT HER OWNERS
DUPLICATE COPY OF THE TITLE (ANNEX "A") IS THE TRUE AND GENUINE TITLE. THUS,
THE ACTION BEFORE THE HONORABLE COURT-A-QUO IS A LAND DISPUTE BETWEEN
TWO (2) PERSONS CLAIMING OWNERSHIP.
IV
THE ANNULMENT OF THE MORTGAGE AND THE CANCELLATION OF ANNEXES "B"
AND "C" AS PRAYED FOR IN THE COMPLAINT IN CIVIL CASE NO. 96-219 ARE
INEXTRICABLY INTERTWINED WITH THE ISSUE OF OWNERSHIP. HENCE, THE LATTER
MUST FIRST BE RESOLVED TO DETERMINE THE FORMER.

VI

VII
THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT SANCTIONED THE
TRIAL COURTS ERROR IN DECLARING DEFENDANT CBC IN DEFAULT FOR FAILURE
TO FILE AN ANSWER, NOTWITHSTANDING THE SETTLED DOCTRINE THAT WHERE AN
INDISPENSABLE PARTY IS NOT IN COURT, THE TRIAL COURT SHOULD NOT PROCEED
BUT INSTEAD SHOULD DISMISS THE CASE.
VIII
THE DISMISSAL/WITHDRAWAL OF THE COMPLAINT AGAINST DEFENDANTS REGISTER
AND DEPUTY REGISTER OF DEEDS NECESSARILY GIVE RISE TO, AND BOLSTERS, THE
CONCLUSION THAT THE OWNERS DUPLICATE COPY OF TCT NO. S-50195 OF
MORTGAGOR MERCEDES M. OLIVER IS THE GENUINE AND AUTHENTIC COPY.6
For a clearer discussion of the issues in this controversy, we may state them as follows:
1. Is the mortgagor who goes by the name of Mercedes M. Oliver, herein called Oliver One,
an indispensable party in Civil Case No. 96219?
2. Should Section 7 Rule 3 of the 1997 Rules of Civil Procedure7 apply in this case?
3. Did the Court of Appeals err when it sustained the trial courts declaration that petitioner
was in default?

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4. Were the withdrawal and consequent dismissal of the complaint against the Registry of
Deeds officials indicative of the authenticity of mortgagor Oliver Ones copy of TCT No.
S-50195?
Petitioner Chinabank alleges that there are two owners duplicate copies of TCT No. S-50195
involved in this case and two persons claiming to be the real "MERCEDES MARAVILLA OLIVER."
One is the mortgagor, Oliver One. The other is the respondent, Oliver Two. Respondents complaint
before the trial court was one for cancellation of the transfer certificate of title in petitioners
possession (Annex B). According to petitioner, the issue below is the genuineness of the titles, which
is intertwined with the issue of ownership. This being the case, said the petitioner, the mortgagor
Oliver One must necessarily be impleaded for she is the registered owner under Annex "B." Petitioner
argues that mortgagor Oliver One is in a better position to defend her title. She stands to suffer if it is
declared fake. Further, petitioner claims that the validity and enforceability of the mortgage entirely
depends on the validity and authenticity of Annex "B." The mortgage cannot be declared a nullity
without the trial court declaring Annex "B" a nullity. Hence, mortgagor Oliver Ones participation in
the suit is indispensable, according to petitioner. In brief, what petitioner Chinabank is saying is that
it was indispensable for respondent Oliver Two to implead mortgagor Oliver One in the case before
the trial court. Failing to do that, the complaint of herein respondent Oliver Two should have been
dismissed.
Petitioners contention is far from tenable. An indispensable party is a party in interest, without whom
no final determination can be had of an action. 8 It is true that mortgagor Oliver One is a party in
interest, for she will be affected by the outcome of the case. She stands to be benefited in case the
mortgage is declared valid, or injured in case her title is declared fake. 9 However, mortgagor Oliver
Ones absence from the case does not hamper the trial court in resolving the dispute between
respondent Oliver Two and petitioner. A perusal of Oliver Twos allegations in the complaint below
shows that it was for annulment of mortgage due to petitioners negligence in not determining the
actual ownership of the property, resulting in the mortgages annotation on TCT No. S-50195 in the
Registry of Deeds custody. To support said allegations, respondent Oliver Two had to prove (1) that
she is the real Mercedes M. Oliver referred to in the TCT, and (2) that she is not the same person
using that name who entered into a deed of mortgage with the petitioner. This, respondent Oliver Two
can do in her complaint without necessarily impleading the mortgagor Oliver One. Hence, Oliver
One is not an indispensable party in the case filed by Oliver Two.
In Noceda vs. Court of Appeals, et al., 313 SCRA 504 (1999), we held that 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. In this case, Chinabank has interest in the loan which,
however, is distinct and divisible from the mortgagors interest, which involves the land used as
collateral for the loan.

raise other defenses pertinent to the two of them. A party is also not indispensable if his presence
would merely permit complete relief between him and those already parties to the action, or will
simply avoid multiple litigation, as in the case of Chinabank and mortgagor Oliver One. 10 The latters
participation in this case will simply enable petitioner Chinabank to make its claim against her in this
case, and hence, avoid the institution of another action. Thus, it was the bank who should have filed a
third-party complaint or other action versus the mortgagor Oliver One.
As to the second issue, since mortgagor Oliver One is not an indispensable party, Section 7, Rule 3 of
the 1997 Rules of Civil Procedure, which requires compulsory joinder of indispensable parties in a
case, does not apply. Instead, it is Section 11, Rule 3, that applies. 11 Non-joinder of parties is not a
ground for dismissal of an action. Parties may be added by order of the court, either on its own
initiative or on motion of the parties.12 Hence, the Court of Appeals committed no error when it found
no abuse of discretion on the part of the trial court for denying Chinabanks motion to dismiss and,
instead, suggested that petitioner file an appropriate action against mortgagor Oliver One. A person
who is not a party to an action may be impleaded by the defendant either on the basis of liability to
himself or on the ground of direct liability to the plaintiff. 13
Now, the third issue, did the Court of Appeals err when it sustained the trial courts ruling that
petitioner Chinabank was in default? As found by the Court of Appeals, petitioner did not file its
answer, although it received the March 13, 1997 order denying the motion to dismiss. Instead,
petitioner filed a petition for certiorari under Rule 65 of the Rules of Court. Said petition, however,
does not interrupt the course of the principal case unless a temporary restraining order or writ of
preliminary injunction is issued.14 No such order or writ was issued in this case. Hence, Chinabank as
defendant below was properly declared in default by the trial court, after the 15-day period to file its
answer or other responsive pleading lapsed.
Lastly, were the withdrawal and consequent dismissal of the complaint against officials of the
Registry of Deeds conclusive of the authenticity of mortgagor Oliver Ones copy of TCT No. S50195? This is a question of fact, which is not a proper subject for review in this petition. Here, we
are limited only to questions of law,15 as a general rule. Petitioner failed to show that this case falls
under any of the exceptions to this rule. We need not tarry on this issue now.
WHEREFORE, the petition is DENIED for lack of merit. The assailed decision dated June 1, 1998
and the resolution dated September 30, 1998 of the Court of Appeals in CA-G.R. SP No. 43836 are
AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 176973

February 25, 2015

Further, a declaration of the mortgages nullity in this case will not necessarily prejudice mortgagor
Oliver One. The bank still needs to initiate proceedings to go after the mortgagor, who in turn can

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DAVID M. DAVID, Petitioner,
vs.
FEDERICO M. PARAGAS, JR., Respondent.

As Paragas alleged, the amount remitted by Olympia to RCBC from September 2001 to May 25,
2002 reachedP82,978,543.00, representing the total net earnings from the pre-need plans, 30% of
which comprised the bonus points earned by the subscribers under the Pares-Pares program. The rest
was to be distributed among the four partners.

DECISION
In 2002, the state of affairs among the partners went sour upon Lobrins discovery that David failed
to remit to PPI the 30% cash equivalent of the bonus points.

MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 seeking to annul and set aside the July 31,
2006 Decision1and the February 23, 2007 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP
No. 80942. The said issuances modified the July 21, 2003 Order3 of the Regional Trial Court, Branch
200, Las Pias City (RTC) in Civil Case No. LP-02-0165, a case for Declaratory Relief and Sum of
Money with Damages filed by petitioner David M. David (David) against Philam Plans Inc. (PPI),
Severo Henry G. Lobrin (Lobrin), respondent Federico M. Paragas, Jr. (Paragas), Rodelio S. Datoy
(Datoy), Rizal Commercial Banking Corporation, Paranaque Branch (RCBC), and Gerald P.S. Agarra
(Agarra).
The RTC Order resolved the Motion to Admit Supplemental Complaint filed by David and the Joint
Omnibus Motion4filed by David, Lobrin and Datoy. In the said Order, the RTC admitted the attached
supplemental complaint and approved the compromise agreement. 5 The questioned CA decision
nullified the approval by the RTC of the compromise agreement.
The Antecedents
Sometime in 1995, David, Paragas and Lobrin agreed to venture into a business in Hong Kong (HK).
They created Olympia International, Ltd. (Olympia)under HK laws. Olympia had offices in HK and
the Philippines. David handled the marketing aspect of the business while Lobrin and Datoy were in
charge of operations. In late1995, Olympia started with "selling, through catalogs, consumer products
such as appliances, furniture and electronic equipment to the OFWs in Hong Kong, to be delivered to
their addresses in the Philippines. They coined the name Kayang-Kaya for the venture." 6
In early 1998, Olympia became the exclusive general agent in HK of PPIs pre-need plans through
the General Agency Agreement. In late 2001, Olympia launched the Pares-Pares program by which
planholders would earn points with cash equivalents for successfully enlisting new subscribers. The
cash equivalents, in turn, would be used for the payment of monthly premiums of the planholders.
PPI authorized Olympia to accept the premium payments, including the cash equivalent of the bonus
points, and to remit the same, net of commissions, to PPI in the Philippines. The money from HK was
to be remitted through Olympias account in RCBC. In turn, Olympia was to pay the planholders
bonuses as well as the share of profits for the directors. 7 David was tasked to personally remit said
amounts to PPI as he was the only signatory authorized to transact on behalf of Olympia regarding
the RCBC accounts.

In a meeting held on June 1, 2002 in HK, David tried to explain his side, but no settlement was
reached.
Later, Lobrin discovered that only P19,302,902.13 remained of the P82,978,543.00 remitted from HK
to the RCBC account. As the Chairperson of Olympias Board of Directors (BOD),he demanded the
return of the entireP82,978,543.00.
On June 17, 2002, the BOD stripped David of his position as a director. It then informed RCBC of his
removal. In another letter, it also instructed RCBC to prohibit any transaction regarding the funds or
their withdrawal therefrom pending the determination of their rightful owner/s. Meanwhile, a WatchList Order was issued against David pursuant to the letter sent by Paragas counsel to the Bureau of
Immigration. As a result, he was prevented from boarding a flight to Singapore on June 29, 2002.
Constrained by these circumstances, David filed a complaint for Declaratory Relief, Sum of Money
and Damages before the RTC. He insisted on his entitlement to the commissions due under the
regular and Pares-Pares programs in his capacity as Principal Agent under the General Agency
Agreement with PPI; that he be allowed to hold the cash deposits of P19,302,902.00 to the extent
of P18,631,900.00 as a trust fund for the benefit of the subscribers of the Pares-Pares program; that
RCBC be ordered to recognize no other signatory relative to the said deposits except him; and that
Paragas, Lobrin and Datoy be held liable in an amount not less than P20,000,000.00, representing the
missing amount and/or unauthorized disbursements from the funds of Olympia, plus the payment of
moral damages, exemplary damages and attorneys fees.
Paragas and Lobrin filed their answers with compulsory Counterclaims 8 against David, to wit:
First Counterclaim - to mandate David to render an accounting of the amounts mentioned;
Second Counterclaim - to require David to turn over such books of accounts and other documents
owned by Olympia as well as all records pertaining to Olympias business transactions in the
Philippines;
Third Counterclaim - to make David pay the amount of P24,893,562.90 to Philam as cash bonuses of
the respective original subscribers;

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Fourth Counterclaim - to make David pay Lobrin and Paragas the amount of P24,521,245.00 each, as
and by way of actual damages, representing (1) Lobrin and Paragas respective shares as co-owners in
the net profit of Olympia from the sale of the Pre-need plan under the pares-pares program in the
amount of P14,521,245.00 and the amount of P10,000,000.00 representing the cost of plane fares,
living allowances and unrealized profit;
Fifth Counterclaim - to hold David liable to pay Lobrin and Paragas the amount of P20,000,000.00
each, as and by way of moral damages;

WHEREAS, Olympia has passed a board resolution during the meeting of its Board of Directors held
in Hong Kong on 21 March 2003 constituting and appointing as such its herein Attorney-in-Fact for
the purposes stated in said resolution, a copy of which is hereto attached as Annex "A"; WHEREAS,
there is a pending case before Branch 200 of the Regional Trial Court of Las Pi[]as City docketed as
Civil Case No. LP-02-0165 ("the Case") and among the defendants in said Case are Henry G. Lobrin,
Federico M. Paragas, Jr. and Roberto S. Datoy who are presently directors of Olympia;

Sixth Counterclaim - to make David pay the amount of P10,000,000.00 as and by way of exemplary
damages; and

WHEREAS, the causes of action in the complaint in said Case against aforesaid Lobrin, Paragas, Jr.
and Datoy are in their capacity as shareholders/directors of Olympia, and likewise concern the
relationship and rights between DMD and Olympia International Ltd., including the status of the
latters operations and financial position;

Seventh Counterclaim - to hold David personally liable to pay Lobrin and Paragas the amount
of P1,000,000.00 as attorneys fees, plus such amount as may be proved during the trial as litigation
expenses and cost of suit.9

WHEREAS, another issue in said case is the respective rights of herein parties DMD and Olympia
under and pursuant to the General Agency Agreement (GAA) with Philam Plans Inc., ("PPI") dated
10 February 1998;

On March 5, 2003, David filed the supplemental complaint, with a manifestation that an amicable
settlement was struck with Lobrin and Datoy whereby they agreed to withdraw the complaint and
counterclaims against each other. On May 6, 2003, Lobrin and Olympia through their counsel,
confirmed that on March 26, 2003, they had arrived at a compromise. 10 The agreement clearly stated
that Lobrin was acting on Olympias behalf, on the basis of a resolution passed during the board
meeting held on March 21, 2003. The settlement reads:

WHEREAS, corollary to the issue of the GAA is the respective obligation of DMD and Olympia to
the planholders of PPI under the regular and pares pares program, specifically the binhing yaman and
pamilyaman benefits due to approximately 12,000 planholders of Philam Plans Inc. ("PPI") as per the
list attached to the complaint in said Case;
WHEREAS, both DMD and Olympia are desirous of settling the Case amicably under mutually
acceptable terms and conditions:

COMPROMISE AGREEMENT
NOW, THEREFORE, parties hereby agree as follows:
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, entered into by and between:
DAVID M. DAVID, of legal age, married, Filipino and with address at 23 Pablo Roman Street, BF
Homes, Paranaque, hereinafter referred to as DMD;
-andOLYMPIA INTERNATIONAL LIMITED, a corporation organized and existing under the laws of
Hong Kong, with principal office at 13/F Li Dong Building, 7-11 Li Yuen Street East, Central, Hong
Kong, and herein represented by its Attorney-in-Fact, Henry G. Lobrin, and herein after referred to as
Olympia;
WITNESSETH: That

1. Olympia hereby waives its rights and interests to the trust fund presently in Account Nos.
1-214-25224-0, 07214108903-003 and 0000005292 with the Rizal Commercial Banking
Corporation ("RCBC") and Account No. 0301-01334-5 with the Equitable PCI Bank
pertaining to the cash benefits of the approximately 12,000 planholders of Philam Plans,
Inc., per the list attached to the complaint in the Case;
2. Olympia further agrees that the same shall be settled exclusively by DMD, subject to the
requirement that it shall be furnished a copy of the Statement of Benefits pertaining to each
planholder;
3. Olympia likewise no longer interposes any objection/opposition to the payment of the
cash benefits to the planholders from said trust funds, and shall make of record in the Case
the withdrawal of its opposition;
4. DMD shall drop as party Defendants from the Case Severo Henry G. Lobrin, Federico
M. Paragas, Jr. and Rodelio S. Datoy;

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5. Olympia shall withdraw its First Compulsory Counterclaim, Second Compulsory
Counterclaim and Third Compulsory Counterclaim as stated in the "Answer with
Compulsory Counterclaims" dated 3 October 2002 filed in said Case, because the subject
matters of said compulsory counterclaims are exclusively the concern of Olympia as a
corporation and are now the subject of this Compromise Agreement;
6. Olympia shall likewise withdraw the Fourth Compulsory Counterclaim, Fifth
Compulsory Counterclaim, Sixth Compulsory Counterclaim and Seventh Compulsory
Counterclaim in so far as they refer to claims to which the claimants will be entitled in their
capacity as shareholder and/or director of Olympia;
7. The Fourth Compulsory Counterclaim, Fifth Compulsory Counterclaim, Sixth
Compulsory Counterclaim and Compulsory Counterclaim (sic) will also be withdrawn by
Henry G. Lobrin in his personal capacity;
8. For this purpose, the following motions shall be filed pursuant to this Agreement;
a. A Joint Motion shall be filed in the case for the dismissal of the complaint and
compulsory counterclaims as above stated;
b. A Motion to Withdraw Opposition to the Motion to Release Benefits and
Supplemental Motion (to Release Benefits) be filed by Olympia through its
Attorney-in-Fact.
IN WITNESS WHEREOF, parties hereto set their hands this ____ day of _________ in
____________________.
1wphi1
DAVID M. DAVID

OLYMPIA
INTERNATIONAL
Ltd.
By:
HENRY G. LOBRIN
Attorney-in Fact
HENRY G. LOBRIN
In his personal capacity

[Emphases supplied]11

On May 15, 2003, David and Lobrin filed the Joint Omnibus Motion to formally inform the RTC of
the compromise agreement. They asserted the following:
2. Said agreement was executed between Plaintiff and Olympia, the latter being represented
by Defendant Lobrin as Olympias Attorney-in-Fact, pursuant to a resolution passed by a
majority vote during the board meeting held in Hong [Kong] on 21 March 2003 wherein
Defendants Lobrin, Paragas, Jr. and Datoy were all present, authorizing said Attorney-inFact to negotiate a compromise settlement regarding instant case, the payment of the
accrued benefits due the planholders of Philam Plan, Inc. under the regular and Pares-Pares
program as well as the disposition of the cash and other deposits with Rizal Commercial
Banking Corporation (RCBC) and other accounts in other banks. Said resolution is
appended to the Agreement as its Annex "A";
3. By virtue of said Agreement, Olympia no longer questions and hereby waives whatever
rights and interest it may have to the deposits constituting the trust fund pertaining to the
cash benefits of the approximately 12,000 planholders of Philam Plans Inc., per the list
attached to the complaint in instant case in Account Nos. 1-214-25224-0, 07214108903-003
and 0000005292 with RCBC and Account No. 0301-01334-5 with the Equitable-PCI Bank;
4. Olympia further withdraws its objection/opposition to the payment of the cash benefits to
the planholders from said trust funds which shall remain to be the sole
responsibility/accountability of Plaintiff, subject to the requirement that Olympia through
its authorized Attorney-in-Fact shall be furnished a copy of the Statement of Benefits
pertaining to each planholder;
5. As a consequence of the above, Defendants Severo Henry G. Lobrin, Federico M.
Paragas, Jr. and Rodelio S. Datoy shall be dropped as party defendants in instant case, to
which no objection will be interposed by Plaintiff, and the motion to declare Defendant
Datoy in default for failure to file his Answer is similarly withdrawn for having been
rendered moot and academic by the Agreement;
6. Olympia hereby withdraw[s] its First, Second and Third Compulsory Counterclaims
against herein Plaintiff considering that the legal and factual bases thereof are matters
which are exclusively the concern of Olympia as a corporation and have been the subject of
the Agreement;
7. Olympia likewise withdraws the Fourth, Fifth, Sixth and Seventh Compulsory
Counterclaim in so far as they refer to the claims pertaining to Defendants Paragas, Lobrin
and Datoy in their capacity as shareholders and/or directors of Olympia;
8. Defendant Lobrin likewise withdraws the Fourth, Fifth, Sixth and Seventh Compulsory
Counterclaim in so far as they refer to claims pertaining to him in his personal capacity;

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9. Plaintiff likewise withdraws his complaint against Defendant Gera[l]d P.S. Algarra based
on the statements contained in the latters Answer, and said Defendant likewise withdraws
his Counterclaims against plaintiff, however, Plaintiff reserves his right to implead the
proper party Defendant; and
10. This motion is without prejudice to the right of Defendant Paragas to join and/or avail
of the benefits of the Agreement and instant Motion hereinafter.12
On May 8, 2003, Paragas questioned the existence of the cited BOD resolution granting Lobrin the
authority to settle the case, as well as the validity of the agreement through an affidavit duly
authenticated by the Philippine Consul, Domingo Lucinario, Jr. He pointed to the fact that Olympia,
as an entity, was never a party in the controversy.
On July 21, 2003, the RTC granted Davids Motion to Admit the Supplemental Complaint and
approved the compromise agreement, to wit:
Further, finding the agreement in the JOINT OMNIBUS MOTION to be well-taken, not contrary to
law, public policy and morals, the same is hereby APPROVED and the motion GRANTED. The
resolution is hereby rendered based thereon, thus, the parties concerned are enjoined to faithfully
comply with all the terms and conditions stated therein. As prayed for by the parties concerned in the
JOINT OMNIBUS MOTION, let Henry G. Lobrin, Rodelio S. Datoy and Gera[l]d PS Algarra BE
DROPPED as party defendants except defendant Federico Paragas, Jr. who filed an Opposition
thereto, and the compulsory counterclaims between defendants Lobrin, Datoy and Algarra and
plaintiff David against each other DISMISSED. The withdrawal of the motion to declare defendant
Datoy is hereby noted.13
On August 15, 2003, Paragas moved for reconsideration,14 claiming that although the parties had the
prerogative to settle their differences amicably, the intrinsic and extrinsic validity of the compromise
agreement, as well as its basis, may be questioned if illicit and unlawful.
In its September 30, 2003 Order,15 the RTC denied the motion of Paragas.
Unperturbed, Paragas elevated the issue to the CA via a petition for certiorari under Rule 65 of the
Rules of Court.
In its July 31, 2006 Decision, the CA reversed the RTCs approval of the compromise agreement. It
explained that the agreement entered into by David, Lobrin and Datoy was invalid for two reasons:
First, the agreement was between David and Olympia, which was not a party in the case; and second,
assuming that Olympia could be considered a party, there was no showing that the signatory had the
authority from Olympia or from the other parties being sued to enter into a compromise.

David moved for reconsideration. In its February 23, 2007 Resolution, the CA denied his motion.
Hence, this petition.
GROUNDS OF THE PETITION
I. RESPONDENT COURT LACKEDAND/OR EXCEEDED ITS JURISDICTION WHEN
IT MODIFIED THE ORDER OF THE TRIAL COURT DATED JULY21, 2003, DESPITE
THE ASSIGNMENT OF ERROR BEINGSPECIFICALLY LIMITED TO THE ORDER
OF THE TRIAL COURT DATED SEPTEMBER 30, 2003 WHICH DENIED THE
MOTION FOR RECONSIDERATION FILED BY HEREIN PRIVATE RESPONDENT
II. OLYMPIA IS NOT A PARTY TO THE CASE BELOW, HENCE, THE DISMISSAL OF
THE COMPLAINT AND COMPULSORY COUNTERCLAIMS ARE PERSONAL IN
NATURE TO THE PARTIES AND IS WITHIN THE PURVIEW OF SECTION 2 OF
RULE 17
III. THERE IS DENIAL OF DUE PROCESS OF LAW WHEN RESPONDENT COURT
ANNULLED THE COMPROMISE AGREEMENT BASED ON UNSUBSTANTIATED
ALLEGATIONS OF FACT CONTAINED IN THE PETITION.16
In his reply,17 David limited his "discussion to the issue that still has a practical bearing on the case
below,"18 that is, whether or not the nullification of the Compromise Agreement similarly nullified the
dismissal of both the complaint as against the defendants xxx. 19
In the Resolution, dated February 16,2011, the Court gave due course to the petition and directed the
parties to file their respective memoranda.20 While Paragas was able to file his memorandum on May
16, 2011, Davids memorandum was dispensed with in a resolution, dated June 19, 2013, for his
failure to file one within the extended period granted by the Court. 21 Position of David
David charges the CA with grave abuse of discretion in dispensing a relief more than what Paragas
prayed for. According to David, the CA exceeded its jurisdiction when it annulled the compromise
agreement despite the fact that the assignment of error in the petition of Paragas before the CA was
limited only to the review of the correctness of the RTCs September 30, 2003 Order denying the
motion for reconsideration and not the July 21, 2003 Order approving the compromise agreement. In
other words, David is of the view that because Paragas did not assail the July 21, 2003 Order, the
same should not have been modified by the CA.
He further insists that the CA should not have annulled the compromise agreement because the July
21, 2003 RTC Order did not refer to the approval of the compromise agreement, but to the agreement
of the parties to dismiss the claims and counterclaims against each other. In support of this position,
David takes refuge in the RTC statement that the parties had the right to "amicably settle their issues
even if subject compromise agreement had not been entered into." To him, it was not the

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"Compromise Agreement" that was approved, but the "underlying agreement between the parties to
withdraw their claims against each other which are personal to them in nature."
Lastly, David submits that he was denied due process of law when the CA annulled the compromise
agreement based on unsubstantiated allegations of fact, that is, the allegation that the board meeting
granting Lobrin the authority to enter into compromise with him on behalf of Olympia and on behalf
of the other parties did not take place. He believes that Paragas failed to prove his allegations and,
therefore, the meeting, as supported by the minutes signed by one Flordeliza Sacapano, must be
respected as a matter of fact.
The Courts Ruling

In this case, while it is true that Paragas petition for certiorari before the CA only assailed the
subsequent order of the RTC denying his August 15, 2003 Motion for Reconsideration, he did pray in
the said motion for reconsideration that it set aside and reverse its approval of the Joint Omnibus
Motion. The prayer reads:
WHEREFORE, it is respectfully prayed of this Honorable Court that the Order dated 21 July 2003 be
MODIFIED to SET ASIDE and REVERSE the approval of the Joint Omnibus Motion dated 15 May
2003 and a new one be issued DENYING said motion.25
Obviously, the resolution of his motion for reconsideration necessarily involved the July 21, 2003
Order of the RTC as it was indispensable and inextricably linked with the September 30, 2003 Order
being assailed.

The Court denies the petition.


The CA did not exceed its
jurisdiction in modifying
the July 21, 2003 RTC Order
In his petition, David claims that the CA exceeded its jurisdiction when it modified the July 21, 2003
Order of the RTC by admitting Davids supplemental complaint and approving the earlier mentioned
compromise agreement even though Paragas petition for certiorari before the CA only questioned the
September 30, 2003 Order of the RTC denying his motion for reconsideration. 22
This Court is unmoved by this position advocated by David.
In countless cases, the Court has allowed the consideration of other grounds or matters not raised or
assigned as errors. In the case of Cordero vs. F.S. Management & Development Corporation, 23 the
Court wrote:
While a party is required to indicate in his brief an assignment of errors and only those assigned shall
be considered by the appellate court in deciding the case, appellate courts have ample authority to
rule on matters not assigned as errors in an appeal if these are indispensable or necessary to the just
resolution of the pleaded issues. Thus this Court has allowed the consideration of other grounds or
matters not raised or assigned as errors, to wit: 1) grounds affecting jurisdiction over the subject
matter; 2) matters which are evidently plain or clerical errors within the contemplation of the law; 3)
matters the consideration of which is necessary in arriving at a just decision and complete resolution
of the case or to serve the interest of justice or to avoid dispensing piecemeal justice; 4) matters of
record which were raised in the trial court and which have some bearing on the issue submitted which
the parties failed to raise or which the lower court ignored; 5) matters closely related to an error
assigned; and 6) matters upon which the determination of a question properly assigned is dependent.
[Emphases supplied]24

The CA did not err in annulling the


compromise agreement.
At the outset, David asserts that the CA based the annulment of the compromise agreement
exclusively on the unsubstantiated allegations of Paragas.
The Court disagrees. A careful reading of the assailed CA decision reveals that it did not merely rely
on the claims of Paragas. What the CA did was to analyze and appreciate the circumstances behind
the compromise agreement. In revisiting and delving deep into the records, the Court indeed agrees
with the CA that the RTC gravely abused its discretion in approving the agreement for the following
reasons:
First, the subject compromise agreement could not be the basis of the withdrawal of the respective
complaint and counterclaims of the parties for it was entered into by David with a non-party in the
proceedings. Even if the Court interprets that the RTC approved the underlying agreement to
withdraw the claims and counterclaims between the parties, the terms and conditions of the subject
compromise agreement cannot cover the interests of Olympia, being a non-party to the suit.
Second, the RTC had no authority to approve the said compromise agreement because Olympia was
not impleaded as a party, although its participation was indispensable to the resolution of the entire
controversy.
A compromise agreement could not be
the basis of dismissal/withdrawal of a
complaint and counterclaims if it was
entered into with a non-party to the
suit.

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REMEDIAL LAW REV I : CEAC : ATTY. DELA PENA [RULES 1-5]


A compromise agreement is a contract whereby the parties make reciprocal concessions in order to
resolve their differences and, thus, avoid or put an end to a lawsuit. They adjust their difficulties in
the manner they have agreed upon, disregarding the possible gain in litigation and keeping in mind
that such gain is balanced by the danger of losing. It must not be contrary to law, morals, good
customs and public policy, and must have been freely and intelligently executed by and between the
parties.26 A compromise agreement may be executed in and out of court. Once a compromise
agreement is given judicial approval, however, it becomes more than a contract binding upon the
parties. Having been sanctioned by the court, it is entered as a determination of a controversy and has
the force and effect of a judgment.27

It is very clear from the order of July 21, 2003 that the agreement being referred to as having been
approved is not the Compromise Agreement but the agreement of the parties to dismiss the claims
and counterclaims against each other. This is obvious when the order stated that it is within the right
of the parties to amicably settle the issues even if subject Compromise Agreement had not been
entered into. Clearly, it was not the Compromise Agreement that was approved, because precisely it
involved Olympia, but the underlying agreement between the parties to withdraw their claims against
each other which are personal to them in nature. As noted by the trial court, even without the
Compromise Agreement, parties could still settle the case amicably and withdraw the claims against
one another which is precisely what the parties did. 29

Verily, a judicially approved compromise agreement, in order to be binding upon the litigants with the
force and effect of a judgment, must have been executed by them. In this case, the compromise
agreement was signed by David in his capacity as the complainant in the civil case, and Olympia,
through Lobrin as its agent. The agreement made plain that the terms and conditions the "parties"
were to follow were agreed upon by David and Olympia. Datoy and Paragas never appeared to have
agreed to such terms for it was Olympia, despite not being a party to the civil case, which was a party
to the agreement. Despite this, David claims that the concessions were made by Olympia on behalf of
the non-signatory parties and such should be binding on them.

His contention is devoid of merit.

David must note that Olympia is a separate being, or at least should be treated as one distinct from
the personalities of its owners, partners or even directors. Under the doctrine of processual
presumption, this Court has to presume that Hong Kong laws is the same as that of the Philippines
particularly with respect to the legal characterization of Olympias legal status as an artificial person.
Elementary is the rule that under Philippine corporate and partnership laws, a corporation or a
partnership possesses a personality separate from that of its incorporators or partners. Olympia
should, thus, be accorded the status of an artificial being at least for the purpose of this controversy.

In his complaint, David raised three causes of action. The first one dealt with the alleged omission on
the part of the other venture partners to respect his right, being Olympias beneficial owner and PPIs
principal agent under the GAA, over the income generated from the sale PPIs pre-need plans. The
second dealt with his right over all amounts that the venture partners disbursed in excess of those
authorized by him, under the premise that he remained Olympias beneficial owner. The third dealt
with the acts of the venture partners in causing undue humiliation and shame when he was prevented
from boarding his Singapore-bound plane pursuant to the Watch-List Order issued by the Bureau of
Immigration at the behest of a letter sent by the counsel of Paragas. Accordingly, David prayed that
the RTC:

On that basis, Olympias interest should be detached from those of directors Paragas, Lobrin, Datoy,
and even David. Their (individual directors) interest are merely indirect, contingent and inchoate.
Because Olympias involvement in the compromise was not the same as that of the other parties who
were, in the first place, never part of it, the compromise agreement could not have the force and effect
of a judgment binding upon the litigants, specifically Datoy and Paragas. Conversely, the judicially
approved withdrawal of the claims on the basis of that compromise could not be given effect for such
agreement did not concern the parties in the civil case.
David, nevertheless, points out that the validity of the dismissal of the claims and counterclaims must
remain on the argument that the compromise agreement was made in their personal capacities
inasmuch as he filed the complaint against Paragas, Lobrin and Datoy also in their personal
capacities. He draws support from the Answer with Compulsory Counterclaims 28 filed by Paragas and
Lobrin. The counterclaims against him did not involve Olympia, save for the demand to render an
accounting as well as to turn over the books of account and records pertaining to the latter. David,
thus, stated:

While David repeatedly claims that his complaint against Paragas, Lobrin and Datoy was personal in
character, a review of the causes of action raised by him in his complaint shows that it primarily
involved Olympia. As defined, a cause of action is an act or omission by which a party violates a
right of another. It requires the existence of a legal right on the part of the plaintiff, a correlative
obligation of the defendant to respect such right and an act or omission of such defendant in violation
of the plaintffss rights.30

a. Declare him as the one entitled to the commission due under the regular and Pares-Pares programs
net of the agents commission in his capacity as Principal Agent under the General Agency
Agreement with Philam Plans, Inc.;
b. Hold the cash deposits of P19,302,902.00 to the extent of P18,631,900.00 as a trust fund for the
benefit of the subscribers of the Pares-Pares Program and validly held in trust by [him];
c. Order Defendant RCBC to recognize no other signatory to said deposits except [him].
x x x x31
Essentially, David was asking for judicial determination of his rights over Olympias revenues, funds
in the RCBC bank accounts and the amounts used and expended by Olympia through the acts of its

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directors/defendants. Nothing therein can be said to be "personal" claims against Paragas, Lobrin and
Datoy, except for his claim for damages resulting from the humiliation he suffered when he was
prevented from boarding his Singapore-bound plane. Obviously, the argument that they executed the
compromise agreement in their personal capacities does not hold water.
For even if the Court looks closer at the concessions made, many provisions deal with Olympias
interests instead of the personal claims they have against one another. A review of the Joint Omnibus
Motion would also show that the compromise agreement dealt more with David and Olympia. Given
this, Olympia did not have the standing in court to enter into a compromise agreement unless
impleaded as a party. The RTC did not have the authority either to determine Olympias rights and
obligations. Furthermore, to allow the compromise agreement to stand is to deprive Olympia of its
properties and interest for it was never shown that the person who signed the agreement on its behalf
had any authority to do so.
More importantly, Lobrin, who signed the compromise agreement, failed to satisfactorily prove his
authority to bind Olympia. The CA observed, and this Court agrees, that the "board resolution"
allegedly granting authority to Lobrin to enter into a compromise agreement on behalf of Olympia
was more of a part of the "minutes" of a board meeting containing a proposal to settle the case with
David or to negotiate a settlement. It should be noted that the said document was not prepared or
issued by the Corporate Secretary of Olympia but by a "Secretary to the Meeting." Moreover, the said
resolution was neither acknowledged before a notarial officer in Hong Kong nor authenticated before
the Philippine Consul in Hong Kong.32 Considering these facts, the RTC should have denied the Joint
Omnibus Motion and disapproved the compromise agreement. In fine, Olympia was not shown to
have properly consented to the agreement, for the rule is, a corporation can only act through its Board
of Directors or anyone with the authority of the latter. To allow the compromise agreement to stand is
to deprive Olympia of its properties and interest for it was never shown that Lobrin had the necessary
authority to sign the agreement on Olympias behalf.
Olympia is an indispensable
Party
In Lotte Phil. Co., Inc. v. Dela Cruz,33 the Court reiterated that an indispensable party is a party-ininterest without whom no final determination can be had of an action, and who shall be joined either
as plaintiffs or defendants. The joinder of indispensable parties is mandatory. The presence of
indispensable parties is necessary to vest the court with jurisdiction, which is "the authority to hear
and determine a cause, the right to act in a case."34
Considering that David was asking for judicial determination of his rights in Olympia, it is without a
doubt, an indispensable party as it stands to be injured or benefited by the outcome of the main
proceeding. It has such an interest in the controversy that a final decree would necessarily affect its
rights. Not having been impleaded, Olympia cannot be prejudiced by any judgment where its
interests and properties are adjudicated in favor of another even if the latter is a beneficial owner. It

cannot be said either to have consented to the judicial approval of the compromise, much less waived
substantial rights, because it was never a party in the proceedings.
Moreover, Olympias absence did not confer upon the RTC the jurisdiction or authority to hear and
resolve the whole controversy.1wphi1 This lack of authority on the part of the RTC which flows
from the absence of Olympia, being an indispensable party, necessarily negates any binding effect of
the subject judicially-approved compromise agreement.
Time and again, the Court has held that the absence of an indispensable party renders all subsequent
actions of the court null and void for want of authority to act, not only as to the absent parties but
even to those present. The failure to implead an indispensable party is not a mere procedural matter.
Rather, it brings to fore the right of a disregarded party to its constitutional rights to due process.
Having Olympia's interest being subjected to a judicially-approved agreement, absent any
participation in the proceeding leading to the same, is procedurally flawed. It is unfair for being
violative of its right to due process. In fine, a holding that is based on a compromise agreement that
springs from a void proceeding for want of jurisdiction over the person of an indispensable party can
never become binding, final nor executory and it may be "ignored wherever and whenever it exhibits
its head."35
Lest it be misunderstood, after the remand of this case to the R TC, the parties can still enter into a
compromise agreement on matters which are personal to them. That is their absolute right. They can
dismiss their claims and counterclaims against each other, but the dismissal should not be dependent
or contingent on a compromise agreement, one signatory to which is not a party. It should not also
involve or affect the rights of Olympia, the non-party, unless it is properly impleaded as one.
Needless to state, a judicial determination of the rights of Olympia, when it is not a party, would
necessarily affect the rights of its shareholders or partners, like Paragas, without due process of law.
WHEREFORE, the petition is DENIED. The July 31, 2006 Decision of the Court of Appeals and its
February 23, 2007 Resolution in CA-G.R. SP No. 80942 are hereby AFFIRMED.
SO ORDERED.

G.R. No. 191667

April 22, 2015

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LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
EDUARDO M. CACAYURAN, Respondent,
MUNICIPALITY OF AGOO, LA UNION, Intervenor.
AM EN DE DD EC IS IO N
PERLAS-BERNABE, J.:

Initially, the municipal officers moved for the outright dismissal of the complaint, which was denied,
thus constraining them to file their respective answers. For its part, LBP asserted, inter alia, that
Cacayuran did not have any cause of action since he was not privy to the loan agreements entered
into by LBP and the Municipality.16
During the pendency of the proceedings, the construction of the Agoo Peoples Center was
completed. Later on, the Sangguniang Bayan passed Municipal Ordinance No. 02-2007 17 declaring
the area where such building stood as patrimonial property of the Municipality.18 The RTC Ruling

Before the Court are the following motions: (a) the Motion for Reconsideration 1 dated May 22, 2013,
filed by petitioner Land Bank of the Philippines (LBP) assailing the Decision 2 dated April 17, 2013 of
the Court (April 17, 2013 Decision), which upheld the Decision3 dated March 26, 2010 of the Court
of Appeals (CA) in CA-G.R. CV. No. 89732 affirming with modification the Decision 4 dated April
10, 2007 of the Regional Trial Court of Agoo, La Union, Branch 31 in Civil Case No. A-2473; (b) the
Motion for Leave to Intervene with Pleading-in-Intervention Attached 5dated July 8, 2013, filed by the
Municipality of Agoo, La Union (Municipality) praying that it be allowed to intervene in this case;
and (c) the Motion for Reconsideration-in-Intervention6 dated July 8, 2013, filed by the Municipality
seeking that the Court set aside its April 17, 2013 Decision and promulgate a new one in its stead
dismissing the case (subject motions).

In a Decision19 dated April 10, 2007, the RTC declared the Subject Loans null and void, finding that
the resolutions approving the procurement of the same were passed in a highly irregular manner and
thus, ultra vires. As such, it pronounced that the Municipality was not bound by the Subject Loans
and that the municipal officers should, instead, be held personally liable for the same. Further, it ruled
that since the Plaza Lot is a property for public use, it cannot be used as collateral for the Subject
Loans.20

The Facts

The CA Ruling

The instant case arose from two (2) loans (Subject Loans) entered into by the Municipality with LBP
in order to finance the Redevelopment Plan of the Agoo Public Plaza (Public Plaza). Through
Resolution Nos. 68-20057 and 139-2005,8 the Sangguniang Bayan of the Municipality (Sangguniang
Bayan) authorized its then-Mayor Eufranio Eriguel (Mayor Eriguel) to enter into a P4,000,000.00loan with LBP, the proceeds of which were used to construct ten (10) kiosks at the Public Plaza.
Around a year later, the SB issued Resolution Nos. 58-20069 and 128-2006,10this time authorizing
Mayor Eriguel to obtain a P28,000,000.00-loan from LBP for the construction of a commercial center
named "Agoo Peoples Center" within the premises of the Public Plaza. In order to secure the Subject
Loans, the Municipality used as collateral, among others, a 2,323.75-square meter lot situated at the
south eastern portion of the Public Plaza (Plaza Lot). 11

In a Decision24 dated March 26, 2010, the CA affirmed the ruling of the RTC, with modification
excluding then-Vice Mayor Antonio Eslao from personal liability arising from the Subject Loans. It
held that: (a) Cacayuran had locus standi to file the instant complaint, considering that he is a resident
of the Municipality and the issue at hand involved public interest of transcendental importance; (b)
Resolution Nos. 68-2005, 138-2005, 58-2006, 126-2006 were invalidly passed due to noncompliance with certain provisions of Republic Act No. 7160, 25 otherwise known as the Local
Government Code of 1991 (LGC); (c) the Plaza Lot is property of public dominion, and thus, cannot
be used as collateral; and (d) the procurement of the Subject Loans were ultra vires acts for having
been entered into without proper authority and that the collaterals used therefor constituted improper
disbursement of public funds.26

However, a group of residents, led by respondent Eduardo M. Cacayuran (Cacayuran), opposed the
redevelopment of the Public Plaza, as well as the funding therefor thru the Subject Loans, claiming
that these were "highly irregular, violative of the law, and detrimental to public interests, and will
result to wanton desecration of the [Public Plaza]."12Further, Cacayuran requested the municipal
officers to furnish him with the various documents relating to the Public Plazas redevelopment,
which, however, went unheeded.13 Thus, Cacayuran, invoking his right as a taxpayer, filed a
Complaint14 against LBP and various officers of the Municipality, including Mayor Eriguel (but
excluding the Municipality itself as party-defendant), assailing the validity of the aforesaid loan
agreements and praying that the commercialization of the Public Plaza be enjoined. 15

Dissatisfied, LBP filed a petition for review on certiorari 27 before this Court.

Aggrieved, LBP and the municipal officers appealed21 to the CA. However, the appeal of the
municipal officers was deemed abandoned and dismissed for their failure to file an appellants brief
despite due notice.22 Thus, only LBPs appeal was given due course by the CA. 23

Proceedings Before the Court


In a Decision28 dated April 17, 2013 the Court denied LBPs petition, and accordingly, affirmed the
ruling of the CA. Agreeing with the CA, the Court held that: (a) Cacayuran had legal standing to
institute a taxpayers suit;29 (b) Resolution Nos. 68-2005, 139-2005, 58-2006, 126-2006 cannot be
relied upon to validate the Subject Loans, as the LGC requires the passing of an ordinance in order
for any loan agreement to be valid;30 and (c) the procurement of the Subject Loans are ultra vires acts

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of the municipal officers who approved the same, and thus, liability therefor shall devolve upon
them.31
Undaunted, LBP moved for reconsideration, basically reiterating its earlier position that Cacayuran
had no legal standing to sue, and that Resolution Nos. 68-2005, 139-2005, 58-2006, and 1262006may be relied upon in validating the Subject Loans. 32
Meanwhile, the Municipality filed a Motion for Leave to Intervene with Pleading-In-Intervention
Attached33 dated July 8, 2013 and a Motion for Reconsideration in-Intervention 34 of even date,
praying that it be included as a party-litigant to the instant case. It contends that as a contracting party
to the Subject Loans, it is an indispensable party to the action filed by Cacayuran. As such, there
cannot be any "real disposition" of the instant suit by reason of its exclusion from the same.
In opposition,35 Cacayuran maintains that LBP did not raise any new matter to warrant
reconsideration of the April 17, 2013 Decision. Anent the Municipalitys motion to intervene,
Cacayuran insists that the Municipality is not a real party-in-interest to the instant case as his
complaint is against the municipal officers in their personal capacity for their ultra vires acts which
are not binding on the Municipality.
Finally, in its Comment on the Motion for Leave to Intervene and Motion for Reconsideration-inIntervention36 dated May 6, 2014, LBP agrees with the Municipality that the latter is an indispensable
party to the instant case and as such, should be included herein.
The Issue Before the Court
The core issue for the Courts resolution is whether or not the Municipality should be deemed as an
indispensable party to the instant case, and thus, be ordered impleaded herein.
The Courts Ruling
The Court rules in the affirmative.
Section 7, Rule 3 of the Rules of Court mandates that all indispensable parties should be joined in a
suit, viz.:
SEC. 7. Compulsory joinder of indispensable parties. Parties-in-interest without whom no final
determination can be had of an action shall be joined either as plaintiffs or defendants.
"An indispensable party is one whose interest will be affected by the courts action in the litigation,
and without whom no final determination of the case can be had. The partys 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."37 Thus, the absence of an indispensable party renders all subsequent actions of the court
null and void, for want of authority to act, not only as to the absent parties but even as to those
present.38
Nevertheless, it must be stressed that the failure to implead any indispensable party to a suit does not
necessarily result in the outright dismissal of the complaint.1wphi1 In Heirs of Mesina v. Heirs of
Fian, Sr.,39 the Court definitively explained that in instances of non-joinder of indispensable parties,
the proper remedy is to implead them and not to dismiss the case:
The non-joinder of indispensable parties is not a ground for the dismissal of an action. At any stage of
a judicial proceeding and/or at such times as are just, parties may be added on the motion of a party
or on the initiative of the tribunal concerned. If the plaintiff refuses to implead an indispensable party
despite the order of the court, that court may dismiss the complaint for the plaintiffs failure to
comply with the order. The remedy is to implead the non-party claimed to be
indispensable.40 (Emphases and underscoring supplied)
In this case, a judicious review of the records reveals that Cacayurans complaint against LBP and the
municipal officers primarily prays that the commercialization of the Public Plaza been joined and
also, that the Subject Loans be declared null and void for having been unlawfully entered into by the
said officers. However, Cacayuran failed to implead in his complaint the Municipality, a real party-ininterest41 and an indispensable party that stands to be directly affected by any judicial resolution on
the case, considering that: (a) the contracting parties to the Subject Loans are LBP and the
Municipality; and (b) the Municipality owns the Public Plaza as well as the improvements
constructed thereon, including the Agoo Peoples Center. As the Municipality aptly points out: 42
3. To recapitulate: The case had its beginnings in the two (2) Loans obtained by [the Municipality]
from [LBP]and by the Board Resolutions passed and adopted by the Sangguniang Bayan of Agoo, La
Union, together with the Mayor and Vice-Mayor of the Municipality.
xxxx
3d. The two (2) Loans were covered and evidenced by separate Loan Agreements and
Mortgage/Assignment Documents. The parties which entered into and executed the covering
documents were [LBP] as lender and [the Municipality] as borrower.
3e. When the construction was about 40% complete, [Cacayuran] as a taxpayer filed the case against
the: (i) Mayor; (ii) Vice-Mayor; and (iii) Ten (10) Members [of] the Sangguniang Bayan [of] Agoo,
La Union, as defendants. [The Municipality] was excluded, and was not impleaded as a defendant in
the case.

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xxxx
Indeed, [the Municipality] [on whose lands stands and is found the Agoo Public Plaza, where the
Kiosks and Commercial Building were under construction and which constructions were sought to be
restrained] stands to be benefited or injured by the judgment in the case so filed or the party entitled
to the avails of the case and is, therefore, the real party-in-interest.

PROCEED with the resolution of the case on the merits WITH DISPATCH.
SO ORDERED.

xxxx
3k. Without having to say so, the RTC dispositions as affirmed with modification by the CA Decision
which, in turn was affirmed by the SC Decision must not be binding upon [the Municipality], the real
party-in-interest, the indispensable party in fact, not impleaded as defendant in this case. 43 (Emphases
and underscoring supplied).
The Court observes that it is only now that the issue of the Municipalitys exclusion from the instant
case, despite its status as an indispensable party, became apparent. This recent finding may be
credited to the fact that the initial parties before the Court, i.e., LBP and Cacayuran, have dissimilar
interests from that of the Municipality, and, hence, had no incentive to raise the issue of the latters
status as an indispensable party. On the one hand, Cacayurans interest to the case is centered on the
declaration of nullity of the Subject Loans, as well as the enjoinment of the commercialization of the
Public Plaza; and on the other hand, LBPs interest to the case is anchored on its capacity as creditor
to the Subject Loans. To the mind of the Court, the municipal officers would have been in the best
position to raise this issue; however, they were unable to do so because their appeal before the CA
was deemed abandoned for their failure to file an appellants brief on time.
Be that as it may, the Court is not precluded from taking cognizance of the Municipalitys status as an
indispensable party even at this stage of the proceedings. Indeed, the presence of indispensable
parties is necessary to vest the court with jurisdiction 44 and, corollarily, the issue on jurisdiction may
be raised at any stage of the proceedings. 45Thus, as it has now come to the fore that any resolution of
this case would not be possible and, hence, not attain any real finality due to the non-joinder of the
Municipality, the Court is constrained to set aside all subsequent actuations of the courts a quo in this
case, including that of the Courts, and remand the case all the way back to the RTC for the inclusion
of all indispensable parties to the case and its immediate disposition on the merits. 46 With this, the
propriety of the Municipalitys present intervention is now mooted.
WHEREFORE, the subject motions are PARTLY GRANTED. The Decision dated April 17, 2013 of
the Court, which upheld the Decision dated March 26, 2010 of the Court of Appeals in CA-G.R. CV.
No. 89732 affirming with modification the Decision dated April 10, 2007 of the Regional Trial Court
of Agoo, La Union, Branch 31 in Civil Case No. A-2473 is hereby SET ASIDE. Accordingly, the
instant case is REMANDED to the court a quo, which is hereby DIRECTED to order respondent
Eduardo M. Cacayuran to implead all indispensable parties and thereafter,

G.R. No. 166302. July 28, 2005

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LOTTE PHIL. CO., INC., Petitioners,
vs.
ERLINDA DELA CRUZ, LEONOR MAMAUAG, LOURDES CAUBA, JOSEPHINE
DOMANAIS, ARLENE CAGAYAT, AMELITA YAM, VIVIAN DOMARAIS, MARILYN
ANTALAN, CHRISTOPHER RAMIREZ, ARNOLD SAN PEDRO, MARISSA SAN PEDRO,
LORELI JIMENEZ, JEFFREY BUENO, CHRISTOPHER CAGAYAT, GERARD CABILES,
JOAN ENRIQUEZ, JOSEPH DE LA CRUZ, NELLY CLERIGO, DULCE NAVARETTE,
ROWENA BELLO, DANIEL RAMIREZ, AILEEN BAUTISTA and BALTAZAR
FERRERA, Respondents.
DECISION

On February 28, 2001, Labor Arbiter Cresencio G. Ramos, Jr., rendered judgment 5 declaring 7J as
employer of respondents.6 The arbiter also found 7J guilty of illegal dismissal7 and ordered to
reinstate respondents,8 pay P2,374,710.00 as backwages, P713,648.00 as 13th month pay and
P117,000.00 as service incentive leave pay.9
Respondents appealed to the National Labor Relations Commission (NLRC) praying that Lotte be
declared as their direct employer because 7J is merely a labor-only contractor. In its decision 10 dated
April 24, 2002, the NLRC found no cogent reason to disturb the findings of the labor arbiter and
affirmed its ruling that 7J is the employer of respondents and solely liable for their claims.
Respondents motion for reconsideration was denied by the NLRC in a resolution dated June 18,
2002.

YNARES-SANTIAGO, J.:
This petition for review on certiorari1 assails the July 9, 2004 decision2 of the Court of Appeals in
CA-G.R. SP No. 72732 and its November 26, 2004 resolution3 denying reconsideration thereof.
The established facts of this case are as follows:
Private respondent (petitioner herein) Lotte Phils., Inc. (Lotte) is a domestic corporation. Petitioners
(respondents herein) are among those who were hired and assigned to the confectionery facility
operated by private respondent.
On December 14, 1995 and yearly thereafter until the year 2000 7J Maintenance and Janitorial
Services ("7J") entered into a contract with private respondent to provide manpower for needed
maintenance, utility, janitorial and other services to the latter. In compliance with the terms and
conditions of the service contract, and to accommodate the needs of private respondent for
personnel/workers to do and perform "piece works," petitioners, among others, were hired and
assigned to private respondent as repackers or sealers.
However, either in October, 1999 or on February 9, 2000, private respondent dispensed with their
services allegedly due to the expiration/termination of the service contract by respondent with 7J.
They were either told "hwag muna kayong pumasok at tatawagan na lang kung may gawa"; or were
asked to wait "pag magrereport sila sa trabaho." Unfortunately, petitioners were never called back to
work again.
Aggrieved, petitioners lodged a labor complaint against both private respondent Lotte and 7J, for
illegal dismissal, regularization, payment of corresponding backwages and related employment
benefits, 13th month pay, service incentive leave, moral and exemplary damages and attorneys fees
based on total judgment award.4

Undaunted, they filed a petition for certiorari in the Court of Appeals11 against the NLRC and Lotte,
insisting that their employer is Lotte and not 7J.
Lotte, however, denied that respondents were its employees. It prayed that the petition be dismissed
for failure to implead 7J who is a party interested in sustaining the proceedings in court, pursuant to
Section 3, Rule 46 of the Revised Rules of Civil Procedure.
On July 9, 2004, the Court of Appeals reversed and set aside the rulings of the Labor Arbiter and the
NLRC. In its decision, the Court of Appeals declared Lotte as the real employer of respondents and
that 7J who engaged in labor-only contracting was merely the agent of Lotte. Respondents who
performed activities directly related to Lottes business were its regular employees under Art. 280 of
the Labor Code. As such, they must be accorded security of tenure and their services terminated only
on "just" and "authorized" causes.
Lottes motion for reconsideration was denied, hence this petition, on the following issues:
8. Whether or not petitioner herein had the burden of proof to establish before the proceedings in the
Court of Appeals that 7J Maintenance and Janitorial Service was not a labor-only contractor.
8.1. Whether or not the Petition in CA-G.R. SP No. 72732 is dismissible for failure to comply with
Section 3, Rule 46 in relation to Section 5, Rule 65 of the 1997 Rules of Civil Procedure. 12
We first resolve the procedural issue raised by petitioner. Lotte asserts that 7J is an indispensable
party and should have been impleaded in respondents petition in the Court of Appeals. It claims that
the petition before the Court of Appeals was dismissible for failure to comply with Section 3, 13 Rule
46 in relation to Section 514 of Rule 65 of the Revised Rules of Civil Procedure.
Petitioners contention is tenable.

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An indispensable party is a party in interest without whom no final determination can be had of an
action,15 and who shall be joined either as plaintiffs or defendants. 16 The joinder of indispensable
parties is mandatory.17 The presence of indispensable parties is necessary to vest the court with
jurisdiction, which is "the authority to hear and determine a cause, the right to act in a case". 18 Thus,
without the presence of indispensable parties to a suit or proceeding, judgment of a court cannot
attain real finality.19 The absence of an indispensable party renders all subsequent actions of the court
null and void for want of authority to act, not only as to the absent parties but even as to those
present.20
In the case at bar, 7J is an indispensable party. It is a party in interest because it will be affected by the
outcome of the case. The Labor Arbiter and the NLRC found 7J to be solely liable as the employer of
respondents. The Court of Appeals however rendered Lotte jointly and severally liable with 7J who
was not impleaded by holding that the former is the real employer of respondents. Plainly, its
decision directly affected 7J.
In Domingo v. Scheer,21 we held that the non-joinder of indispensable parties is not a ground for the
dismissal of an action22 and the remedy is to implead the non-party claimed to be
indispensable.23 Parties may be added by order of the court on motion of the party or on its own
initiative at any stage of the action and/or such times as are just. If the petitioner refuses to implead
an indispensable party despite the order of the court, the latter may dismiss the complaint/petition for
the petitioner/plaintiffs failure to comply therefor.24
Although 7J was a co-party in the case before the Labor Arbiter and the NLRC, respondents failed to
include it in their petition for certiorari in the Court of Appeals. Hence, the Court of Appeals did not
acquire jurisdiction over 7J. No final ruling on this matter can be had without impleading 7J, whose
inclusion is necessary for the effective and complete resolution of the case and in order to accord all
parties with due process and fair play.
In light of the foregoing, the Court sees no need to discuss the second issue raised by petitioner.
WHEREFORE, the July 9, 2004 decision of the Court of Appeals in CA-G.R. SP No. 72732 and the
November 26, 2004 resolution, are SET ASIDE. Let the case be REMANDED to the Court of
Appeals to include 7J Maintenance and Janitorial Services as an indispensable party to the case for
further proceedings.

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G.R. No. 190823

April 4, 2011

to respondents claim, petitioner maintained that they failed to pay the balance of P28,000 on
September 1990 to thus constrain him to accept installment payments totaling P9,100.

DOMINGO CARABEO, Petitioner,


vs.
SPOUSES NORBERTO and SUSAN DINGCO, Respondents.
DECISION

After the case was submitted for decision or on January 31, 2001, 2 petitioner passed away. The
records do not show that petitioners counsel informed Branch 1 of the Bataan RTC, where the
complaint was lodged, of his death and that proper substitution was effected in accordance with
Section 16, Rule 3, Rules of Court.3

CARPIO MORALES, J.:

By Decision of February 25, 2001,4 the trial court ruled in favor of respondents, disposing as follows:

On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract denominated as "Kasunduan
sa Bilihan ng Karapatan sa Lupa"1 (kasunduan) with Spouses Norberto and Susan Dingco
(respondents) whereby petitioner agreed to sell his rights over a 648 square meter parcel of
unregistered land situated in Purok III, Tugatog, Orani, Bataan to respondents for P38,000.

WHEREFORE, premises considered, judgment is hereby rendered ordering:

Respondents tendered their initial payment of P10,000 upon signing of the contract, the remaining
balance to be paid on September 1990.

1. The defendant to sell his right over 648 square meters of land pursuant to the contract
dated July 10, 1990 by executing a Deed of Sale thereof after the payment of P18,900 by
the plaintiffs;
2. The defendant to pay the costs of the suit.

Respondents were later to claim that when they were about to hand in the balance of the purchase
price, petitioner requested them to keep it first as he was yet to settle an on-going "squabble" over the
land.

SO ORDERED.5

Nevertheless, respondents gave petitioner small sums of money from time to time which
totaled P9,100, on petitioners request according to them; due to respondents inability to pay the
amount of the remaining balance in full, according to petitioner.

By the herein challenged Decision dated July 20, 2009, 6 the Court of Appeals affirmed that of the
trial court.

By respondents claim, despite the alleged problem over the land, they insisted on petitioners
acceptance of the remaining balance of P18,900 but petitioner remained firm in his refusal, proffering
as reason therefor that he would register the land first.
Sometime in 1994, respondents learned that the alleged problem over the land had been settled and
that petitioner had caused its registration in his name on December 21, 1993 under Transfer
Certificate of Title No. 161806. They thereupon offered to pay the balance but petitioner declined,
drawing them to file a complaint before the Katarungan Pambarangay. No settlement was reached,
however, hence, respondent filed a complaint for specific performance before the Regional Trial
Court (RTC) of Balanga, Bataan.
Petitioner countered in his Answer to the Complaint that the sale was void for lack of object certain,
the kasunduan not having specified the metes and bounds of the land. In any event, petitioner alleged
that if the validity of the kasunduan is upheld, respondents failure to comply with their reciprocal
obligation to pay the balance of the purchase price would render the action premature. For, contrary

Petitioners counsel filed a Notice of Appeal on March 20, 2001.

Petitioners motion for reconsideration having been denied by Resolution of January 8, 2010, the
present petition for review was filed by Antonio Carabeo, petitioners son, 7 faulting the appellate
court:
(A)
in holding that the element of a contract, i.e., an object certain is present in this case.
(B)
in considering it unfair to expect respondents who are not lawyers to make judicial
consignation after herein petitioner allegedly refused to accept payment of the balance of
the purchase price.
(C)

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in upholding the validity of the contract, "Kasunduan sa Bilihan ng Karapatan sa Lupa,"
despite the lack of spousal consent, (underscoring supplied)
and proffering that
(D)
[t]he death of herein petitioner causes the dismissal of the action filed by
respondents; respondents cause of action being an action in personam. (underscoring
supplied)

In the present case, respondents are pursuing a property right arising from the kasunduan, whereas
petitioner is invoking nullity of the kasunduan to protect his proprietary interest. Assuming arguendo,
however, that the kasunduan is deemed void, there is a corollary obligation of petitioner to return the
money paid by respondents, and since the action involves property rights, 12 it survives.1avvphi1
It bears noting that trial on the merits was already concluded before petitioner died. Since the trial
court was not informed of petitioners death, it may not be faulted for proceeding to render judgment
without ordering his substitution. Its judgment is thus valid and binding upon petitioners legal
representatives or successors-in-interest, insofar as his interest in the property subject of the action is
concerned.13

The pertinent portion of the kasunduan reads:8

In another vein, the death of a client immediately divests the counsel of authority. 14 Thus, in filing a
Notice of Appeal, petitioners counsel of record had no personality to act on behalf of the already
deceased client who, it bears reiteration, had not been substituted as a party after his death. The trial
courts decision had thereby become final and executory, no appeal having been perfected.

xxxx

WHEREFORE, the petition is DENIED.

Na ako ay may isang partial na lupa na matatagpuan sa Purok 111, Tugatog, Orani Bataan, na may
sukat na 27 x 24 metro kuwadrado, ang nasabing lupa ay may sakop na dalawang punong santol at
isang punong mangga, kayat ako ay nakipagkasundo sa mag-asawang Norby Dingco at Susan
Dingco na ipagbili sa kanila ang karapatan ng nasabing lupa sa halagang P38,000.00.

SO ORDERED.

The petition fails.

x x x x (underscoring supplied)
That the kasunduan did not specify the technical boundaries of the property did not render the sale a
nullity. The requirement that a sale must have for its object a determinate thing is satisfied as long as,
at the time the contract is entered into, the object of the sale is capable of being made determinate
without the necessity of a new or further agreement between the parties. 9 As the above-quoted portion
of the kasunduan shows, there is no doubt that the object of the sale is determinate.
Clutching at straws, petitioner proffers lack of spousal consent. This was raised only on appeal,
hence, will not be considered, in the present case, in the interest of fair play, justice and due process. 10
Respecting the argument that petitioners death rendered respondents complaint against him
dismissible, Bonilla v. Barcena11 enlightens:
The question as to whether an action survives or not depends on the nature of the action and the
damage sued for. In the causes of action which survive, the wrong complained [of] affects primarily
and principally property and property rights, the injuries to the person being merely incidental, while
in the causes of action which do not survive, the injury complained of is to the person, the property
and rights of property affected being incidental. (emphasis and underscoring supplied)

G.R. No. 162788. July 28, 2005

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Spouses JULITA DE LA CRUZ and FELIPE DE LA CRUZ, Petitioners,
vs.
PEDRO JOAQUIN, Respondents.
DECISION
PANGANIBAN, J.:
The Rules require the legal representatives of a dead litigant to be substituted as parties to a litigation.
This requirement is necessitated by due process. Thus, when the rights of the legal representatives of
a decedent are actually recognized and protected, noncompliance or belated formal compliance with
the Rules cannot affect the validity of the promulgated decision. After all, due process had thereby
been satisfied.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the August 26, 2003
Decision2 and the March 9, 2004 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 34702.
The challenged Decision disposed as follows:
"WHEREFORE, the foregoing considered, the appeal is DISMISSED and the assailed decision
accordingly AFFIRMED in toto. No costs."4
On the other hand, the trial courts affirmed Decision disposed as follows:

"e) ordering the defendants to pay the plaintiff the amount of P10,000.00 as actual and compensatory
damages; the amount of P5,000[.00] as exemplary damages; the amount of P5,000.00 as expenses of
litigation and the amount ofP5,000.00 by way of attorneys fees."5
The Facts
The case originated from a Complaint for the recovery of possession and ownership, the cancellation
of title, and damages, filed by Pedro Joaquin against petitioners in the Regional Trial Court of Baloc,
Sto. Domingo, Nueva Ecija.6 Respondent alleged that he had obtained a loan from them in the
amount of P9,000 on June 29, 1974, payable after five (5) years; that is, on June 29, 1979. To secure
the payment of the obligation, he supposedly executed a Deed of Sale in favor of petitioners. The
Deed was for a parcel of land in Pinagpanaan, Talavera, Nueva Ecija, covered by TCT No. T-111802.
The parties also executed another document entitled "Kasunduan." 7
Respondent claimed that the Kasunduan showed the Deed of Sale to be actually an equitable
mortgage.8 Spouses De la Cruz contended that this document was merely an accommodation to allow
the repurchase of the property until June 29, 1979, a right that he failed to exercise. 9
On April 23, 1990, the RTC issued a Decision in his favor. The trial court declared that the parties had
entered into a sale with a right of repurchase. 10 It further held that respondent had made a valid tender
of payment on two separate occasions to exercise his right of repurchase. 11 Accordingly, petitioners
were required to reconvey the property upon his payment.12
Ruling of the Court of Appeals

"a) declaring the Deed of Absolute Sale (Exh. D) and Kasunduan (Exhibit B), to be a sale with
right of repurchase;

Sustaining the trial court, the CA noted that petitioners had given respondent the right to repurchase
the property within five (5) years from the date of the sale or until June 29, 1979. Accordingly, the
parties executed theKasunduan to express the terms and conditions of their actual agreement. 13 The
appellate court also found no reason to overturn the finding that respondent had validly exercised his
right to repurchase the land.14

"b) ordering the plaintiff to pay the defendants the sum of P9,000.00 by way of repurchasing the land
in question;

In the March 9, 2004 Resolution, the CA denied reconsideration and ordered a substitution by legal
representatives, in view of respondents death on December 24, 1988. 15

"c) ordering the defendants to execute a deed of reconveyance of said land in favor of the plaintiff
after the latter has paid them the amount of P9,000.00 to repurchase the land in question;

Hence, this Petition.16

"WHEREFORE, judgment is hereby rendered:

The Issues
"d) ordering the defendants to yield possession of the subject land to the plaintiff after the latter has
paid them the amount of P9,000.00 to repurchase the property from them; and

Petitioners assign the following errors for our consideration:

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"I. Public Respondent Twelfth Division of the Honorable Court of Appeals seriously erred in
dismissing the appeal and affirming in toto the Decision of the trial court in Civil Case No. SD-838;
"II. Public Respondent Twelfth Division of the Honorable Court of Appeals likewise erred in denying
[petitioners] Motion for Reconsideration given the facts and the law therein presented." 17
Succinctly, the issues are whether the trial court lost jurisdiction over the case upon the death of
Pedro Joaquin, and whether respondent was guilty of forum shopping. 18
The Courts Ruling
The Petition has no merit.
First Issue:
Jurisdiction
Petitioners assert that the RTCs Decision was invalid for lack of jurisdiction. 19 They claim that
respondent died during the pendency of the case. There being no substitution by the heirs, the trial
court allegedly lacked jurisdiction over the litigation. 20
Rule on Substitution
When a party to a pending action dies and the claim is not extinguished, 21 the Rules of Court require a
substitution of the deceased. The procedure is specifically governed by Section 16 of Rule 3, which
reads thus:
"Section 16. Death of a party; duty of counsel. Whenever a party to a pending action dies, and the
claim is not thereby extinguished, it shall be the duty of his counsel to inform the court within thirty
(30) days after such death of the fact thereof, and to give the name and address of his legal
representative or representatives. Failure of counsel to comply with this duty shall be a ground for
disciplinary action.
"The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the
appointment of an executor or administrator and the court may appoint a guardian ad litem for the
minor heirs.
"The court shall forthwith order said legal representative or representatives to appear and be
substituted within a period of thirty (30) days from notice.

"If no legal representative is named by the counsel for the deceased party, or if the one so named shall
fail to appear within the specified period, the court may order the opposing party, within a specified
time, to procure the appointment of an executor or administrator for the estate of the deceased, and
the latter shall immediately appear for and on behalf of the deceased. The court charges in procuring
such appointment, if defrayed by the opposing party, may be recovered as costs."
The rule on the substitution of parties was crafted to protect every partys right to due process. 22 The
estate of the deceased party will continue to be properly represented in the suit through the duly
appointed legal representative.23 Moreover, no adjudication can be made against the successor of the
deceased if the fundamental right to a day in court is denied. 24
The Court has nullified not only trial proceedings conducted without the appearance of the legal
representatives of the deceased, but also the resulting judgments. 25 In those instances, the courts
acquired no jurisdiction over the persons of the legal representatives or the heirs upon whom no
judgment was binding.26
This general rule notwithstanding, a formal substitution by heirs is not necessary when they
themselves voluntarily appear, participate in the case, and present evidence in defense of the
deceased.27 These actions negate any claim that the right to due process was violated.
The Court is not unaware of Chittick v. Court of Appeals,28 in which the failure of the heirs to
substitute for the original plaintiff upon her death led to the nullification of the trial courts Decision.
The latter had sought to recover support in arrears and her share in the conjugal partnership. The
children who allegedly substituted for her refused to continue the case against their father and
vehemently objected to their inclusion as parties. 29 Moreover, because he died during the pendency of
the case, they were bound to substitute for the defendant also. The substitution effectively merged the
persons of the plaintiff and the defendant and thus extinguished the obligation being sued upon. 30
Clearly, the present case is not similar, much less identical, to the factual milieu of Chittick.
Strictly speaking, the rule on the substitution by heirs is not a matter of jurisdiction, but a requirement
of due process. Thus, when due process is not violated, as when the right of the representative or heir
is recognized and protected, noncompliance or belated formal compliance with the Rules cannot
affect the validity of a promulgated decision. 31 Mere failure to substitute for a deceased plaintiff is not
a sufficient ground to nullify a trial courts decision. The alleging party must prove that there was an
undeniable violation of due process.
Substitution in
the Instant Case

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The records of the present case contain a "Motion for Substitution of Party Plaintiff" dated February
15, 2002, filed before the CA. The prayer states as follows:
"WHEREFORE, it is respectfully prayed that the Heirs of the deceased plaintiff-appellee as
represented by his daughter Lourdes dela Cruz be substituted as party-plaintiff for the said Pedro
Joaquin.
"It is further prayed that henceforth the undersigned counsel32 for the heirs of Pedro Joaquin be
furnished with copies of notices, orders, resolutions and other pleadings at its address below."

Forum shopping trifles with the courts, abuses their processes, degrades the administration of justice,
and congests court dockets.39 Willful and deliberate violation of the rule against it is a ground for the
summary dismissal of the case; it may also constitute direct contempt of court. 40
The test for determining the existence of forum shopping is whether the elements of litis
pendentia are present, or whether a final judgment in one case amounts to res judicata in
another.41 We note, however, petitioners claim that the subject matter of the present case has already
been litigated and decided. Therefore, the applicable doctrine isres judicata.42
Applicability of Res Judicata

Evidently, the heirs of Pedro Joaquin voluntary appeared and participated in the case. We stress that
the appellate court had ordered33 his legal representatives to appear and substitute for him. The
substitution even on appeal had been ordered correctly. In all proceedings, the legal representatives
must appear to protect the interests of the deceased. 34 After the rendition of judgment, further
proceedings may be held, such as a motion for reconsideration or a new trial, an appeal, or an
execution.35
Considering the foregoing circumstances, the Motion for Substitution may be deemed to have been
granted; and the heirs, to have substituted for the deceased, Pedro Joaquin. There being no violation
of due process, the issue of substitution cannot be upheld as a ground to nullify the trial courts
Decision.

Under res judicata, a final judgment or decree on the merits by a court of competent jurisdiction is
conclusive of the rights of the parties or their privies, in all later suits and on all points and matters
determined in the previous suit.43The term literally means a "matter adjudged, judicially acted upon,
or settled by judgment."44 The principle bars a subsequent suit involving the same parties, subject
matter, and cause of action. Public policy requires that controversies must be settled with finality at a
given point in time.
The elements of res judicata are as follows: (1) the former judgment or order must be final; (2) it
must have been rendered on the merits of the controversy; (3) the court that rendered it must have had
jurisdiction over the subject matter and the parties; and (4) there must have been -- between the first
and the second actions -- an identity of parties, subject matter and cause of action. 45

Second Issue:
Failure to Support Allegation
Forum Shopping
Petitioners also claim that respondents were guilty of forum shopping, a fact that should have
compelled the trial court to dismiss the Complaint. 36 They claim that prior to the commencement of
the present suit on July 7, 1981, respondent had filed a civil case against petitioners on June 25, 1979.
Docketed as Civil Case No. SD-742 for the recovery of possession and for damages, it was allegedly
dismissed by the Court of First Instance of Nueva Ecija for lack of interest to prosecute.
Forum Shopping Defined
Forum shopping is the institution of two or more actions or proceedings involving the same parties
for the same cause of action, either simultaneously or successively, on the supposition that one or the
other court would make a favorable disposition.37 Forum shopping may be resorted to by a party
against whom an adverse judgment or order has been issued in one forum, in an attempt to seek a
favorable opinion in another, other than by an appeal or a special civil action for certiorari.38

The onus of proving allegations rests upon the party raising them. 46 As to the matter of forum
shopping and res judicata, petitioners have failed to provide this Court with relevant and clear
specifications that would show the presence of an identity of parties, subject matter, and cause of
action between the present and the earlier suits. They have also failed to show whether the other case
was decided on the merits. Instead, they have made only bare assertions involving its existence
without reference to its facts. In other words, they have alleged conclusions of law without stating
any factual or legal basis. Mere mention of other civil cases without showing the identity of rights
asserted and reliefs sought is not enough basis to claim that respondent is guilty of forum shopping,
or that res judicata exists.47
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED.
Costs against petitioners.
SO ORDERED.

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G.R. No. 153788

November 27, 2009

ROGER V. NAVARRO, Petitioner,


vs.
HON. JOSE L. ESCOBIDO, Presiding Judge, RTC Branch 37, Cagayan de Oro City, and
KAREN T. GO, doing business under the name KARGO ENTERPRISES, Respondents.
DECISION

3. That for the cause of action against defendant ROGER NAVARRO, it is hereby stated
that on August 8, 1997, the said defendant leased [from] plaintiff a certain motor vehicle
which is more particularly described as follows
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-51680
Motor No. 6D15-338735
Plate No. GHK-378

BRION, J.:
1

This is a petition for review on certiorari that seeks to set aside the Court of Appeals (CA)
Decision2 dated October 16, 2001 and Resolution3 dated May 29, 2002 in CA-G.R. SP. No. 64701.
These CA rulings affirmed the July 26, 20004 and March 7, 20015 orders of the Regional Trial Court
(RTC), Misamis Oriental, Cagayan de Oro City, denying petitioner Roger V. Navarros (Navarro)
motion to dismiss.
BACKGROUND FACTS
On September 12, 1998, respondent Karen T. Go filed two complaints, docketed as Civil Case Nos.
98-599 (first complaint)6 and 98-598 (second complaint),7 before the RTC for replevin and/or sum of
money with damages against Navarro. In these complaints, Karen Go prayed that the RTC issue writs
of replevin for the seizure of two (2) motor vehicles in Navarros possession.
The first complaint stated:
1. That plaintiff KAREN T. GO is a Filipino, of legal age, married to GLENN O. GO, a
resident of Cagayan de Oro City and doing business under the trade name KARGO
ENTERPRISES, an entity duly registered and existing under and by virtue of the laws of
the Republic of the Philippines, which has its business address at Bulua, Cagayan de Oro
City; that defendant ROGER NAVARRO is a Filipino, of legal age, a resident of 62
Dolores Street, Nazareth, Cagayan de Oro City, where he may be served with summons and
other processes of the Honorable Court; that defendant "JOHN DOE" whose real name and
address are at present unknown to plaintiff is hereby joined as party defendant as he may be
the person in whose possession and custody the personal property subject matter of this suit
may be found if the same is not in the possession of defendant ROGER NAVARRO;
2. That KARGO ENTERPRISES is in the business of, among others, buying and selling
motor vehicles, including hauling trucks and other heavy equipment;

as evidenced by a LEASE AGREEMENT WITH OPTION TO PURCHASE entered into by and


between KARGO ENTERPRISES, then represented by its Manager, the aforementioned GLENN O.
GO, and defendant ROGER NAVARRO xxx; that in accordance with the provisions of the above
LEASE AGREEMENT WITH OPTION TO PURCHASE, defendant ROGER NAVARRO delivered
unto plaintiff six (6) post-dated checks each in the amount of SIXTY-SIX THOUSAND THREE
HUNDRED THIRTY-THREE & 33/100 PESOS (P66,333.33) which were supposedly in payment of
the agreed rentals; that when the fifth and sixth checks, i.e. PHILIPPINE BANK OF
COMMUNICATIONS CAGAYAN DE ORO BRANCH CHECKS NOS. 017112 and 017113,
respectively dated January 8, 1998 and February 8, 1998, were presented for payment and/or credit,
the same were dishonored and/or returned by the drawee bank for the common reason that the current
deposit account against which the said checks were issued did not have sufficient funds to cover the
amounts thereof; that the total amount of the two (2) checks, i.e. the sum of ONE HUNDRED
THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS (P132,666.66)
therefore represents the principal liability of defendant ROGER NAVARRO unto plaintiff on the
basis of the provisions of the above LEASE AGREEMENT WITH RIGHT TO PURCHASE; that
demands, written and oral, were made of defendant ROGER NAVARRO to pay the amount of ONE
HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS
(P132,666.66), or to return the subject motor vehicle as also provided for in the LEASE
AGREEMENT WITH RIGHT TO PURCHASE, but said demands were, and still are, in vain to the
great damage and injury of herein plaintiff; xxx
4. That the aforedescribed motor vehicle has not been the subject of any tax assessment and/or fine
pursuant to law, or seized under an execution or an attachment as against herein plaintiff;
xxx
8. That plaintiff hereby respectfully applies for an order of the Honorable Court for the immediate
delivery of the above-described motor vehicle from defendants unto plaintiff pending the final
determination of this case on the merits and, for that purpose, there is attached hereto an affidavit
duly executed and bond double the value of the personal property subject matter hereof to answer for
damages and costs which defendants may suffer in the event that the order for replevin prayed for
may be found out to having not been properly issued.

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The second complaint contained essentially the same allegations as the first complaint, except that the
Lease Agreement with Option to Purchase involved is dated October 1, 1997 and the motor vehicle
leased is described as follows:
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-510528
Motor No. 6D14-423403
The second complaint also alleged that Navarro delivered three post-dated checks, each for the
amount ofP100,000.00, to Karen Go in payment of the agreed rentals; however, the third check was
dishonored when presented for payment.8
On October 12, 19989 and October 14, 1998,10 the RTC issued writs of replevin for both cases; as a
result, the Sheriff seized the two vehicles and delivered them to the possession of Karen Go.
In his Answers, Navarro alleged as a special affirmative defense that the two complaints stated no
cause of action, since Karen Go was not a party to the Lease Agreements with Option to Purchase
(collectively, the lease agreements) the actionable documents on which the complaints were based.
On Navarros motion, both cases were duly consolidated on December 13, 1999.
In its May 8, 2000 order, the RTC dismissed the case on the ground that the complaints did not state a
cause of action.
In response to the motion for reconsideration Karen Go filed dated May 26, 2000, 11 the RTC issued
another order dated July 26, 2000 setting aside the order of dismissal. Acting on the presumption that
Glenn Gos leasing business is a conjugal property, the RTC held that Karen Go had sufficient
interest in his leasing business to file the action against Navarro. However, the RTC held that Karen
Go should have included her husband, Glenn Go, in the complaint based on Section 4, Rule 3 of the
Rules of Court (Rules).12 Thus, the lower court ordered Karen Go to file a motion for the inclusion of
Glenn Go as co-plaintiff.1avvphi1
When the RTC denied Navarros motion for reconsideration on March 7, 2001, Navarro filed a
petition for certiorari with the CA, essentially contending that the RTC committed grave abuse of
discretion when it reconsidered the dismissal of the case and directed Karen Go to amend her
complaints by including her husband Glenn Go as co-plaintiff. According to Navarro, a complaint
which failed to state a cause of action could not be converted into one with a cause of action by mere
amendment or supplemental pleading.
On October 16, 2001, the CA denied Navarros petition and affirmed the RTCs order.13 The CA also
denied Navarros motion for reconsideration in its resolution of May 29, 2002, 14 leading to the filing
of the present petition.

THE PETITION
Navarro alleges that even if the lease agreements were in the name of Kargo Enterprises, since it did
not have the requisite juridical personality to sue, the actual parties to the agreement are himself and
Glenn Go. Since it was Karen Go who filed the complaints and not Glenn Go, she was not a real
party-in-interest and the complaints failed to state a cause of action.
Navarro posits that the RTC erred when it ordered the amendment of the complaint to include Glenn
Go as a co-plaintiff, instead of dismissing the complaint outright because a complaint which does not
state a cause of action cannot be converted into one with a cause of action by a mere amendment or a
supplemental pleading. In effect, the lower court created a cause of action for Karen Go when there
was none at the time she filed the complaints.
Even worse, according to Navarro, the inclusion of Glenn Go as co-plaintiff drastically changed the
theory of the complaints, to his great prejudice. Navarro claims that the lower court gravely abused
its discretion when it assumed that the leased vehicles are part of the conjugal property of Glenn and
Karen Go. Since Karen Go is the registered owner of Kargo Enterprises, the vehicles subject of the
complaint are her paraphernal properties and the RTC gravely erred when it ordered the inclusion of
Glenn Go as a co-plaintiff.
Navarro likewise faults the lower court for setting the trial of the case in the same order that required
Karen Go to amend her complaints, claiming that by issuing this order, the trial court violated Rule
10 of the Rules.
Even assuming the complaints stated a cause of action against him, Navarro maintains that the
complaints were premature because no prior demand was made on him to comply with the provisions
of the lease agreements before the complaints for replevin were filed.
Lastly, Navarro posits that since the two writs of replevin were issued based on flawed complaints,
the vehicles were illegally seized from his possession and should be returned to him immediately.
Karen Go, on the other hand, claims that it is misleading for Navarro to state that she has no real
interest in the subject of the complaint, even if the lease agreements were signed only by her husband,
Glenn Go; she is the owner of Kargo Enterprises and Glenn Go signed the lease agreements merely
as the manager of Kargo Enterprises. Moreover, Karen Go maintains that Navarros insistence that
Kargo Enterprises is Karen Gos paraphernal property is without basis. Based on the law and
jurisprudence on the matter, all property acquired during the marriage is presumed to be conjugal
property. Finally, Karen Go insists that her complaints sufficiently established a cause of action
against Navarro. Thus, when the RTC ordered her to include her husband as co-plaintiff, this was
merely to comply with the rule that spouses should sue jointly, and was not meant to cure the
complaints lack of cause of action.

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THE COURTS RULING
We find the petition devoid of merit.

thus, expressly pointing to KARGO ENTERPRISES as the principal that Glenn O. Go represented. In
other words, by the express terms of this Lease Agreement, Glenn Go did sign the agreement only as
the manager of Kargo Enterprises and the latter is clearly the real party to the lease agreements.

Karen Go is the real party-in-interest

As Navarro correctly points out, Kargo Enterprises is a sole proprietorship, which is neither a natural
person, nor a juridical person, as defined by Article 44 of the Civil Code:

The 1997 Rules of Civil Procedure requires that every action must be prosecuted or defended in the
name of the real party-in-interest, i.e., 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. 15

Art. 44. The following are juridical persons:


(1) The State and its political subdivisions;

Interestingly, although Navarro admits that Karen Go is the registered owner of the business name
Kargo Enterprises, he still insists that Karen Go is not a real party-in-interest in the case. According
to Navarro, while the lease contracts were in Kargo Enterprises name, this was merely a trade name
without a juridical personality, so the actual parties to the lease agreements were Navarro and Glenn
Go, to the exclusion of Karen Go.
As a corollary, Navarro contends that the RTC acted with grave abuse of discretion when it ordered
the inclusion of Glenn Go as co-plaintiff, since this in effect created a cause of action for the
complaints when in truth, there was none.
We do not find Navarros arguments persuasive.
The central factor in appreciating the issues presented in this case is the business name Kargo
Enterprises. The name appears in the title of the Complaint where the plaintiff was identified as
"KAREN T. GO doing business under the name KARGO ENTERPRISES," and this identification
was repeated in the first paragraph of the Complaint. Paragraph 2 defined the business KARGO
ENTERPRISES undertakes. Paragraph 3 continued with the allegation that the defendant "leased
from plaintiff a certain motor vehicle" that was thereafter described. Significantly, the Complaint
specifies and attaches as its integral part the Lease Agreement that underlies the transaction between
the plaintiff and the defendant. Again, the name KARGO ENTERPRISES entered the picture as this
Lease Agreement provides:
This agreement, made and entered into by and between:
GLENN O. GO, of legal age, married, with post office address at xxx, herein referred to as the
LESSOR-SELLER; representing KARGO ENTERPRISES as its Manager,
xxx

(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.
Thus, pursuant to Section 1, Rule 3 of the Rules,16 Kargo Enterprises cannot be a party to a civil
action. This legal reality leads to the question: who then is the proper party to file an action based on
a contract in the name of Kargo Enterprises?
We faced a similar question in Juasing Hardware v. Mendoza, 17 where we said:
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 allegation 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 to the title of the case, as
is customarily done.18 [Emphasis supplied.]
This conclusion should be read in relation with Section 2, Rule 3 of the Rules, which states:
SEC. 2. Parties in interest. A real party in interest is the party who stands to be benefited or injured
by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized

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by law or these Rules, every action must be prosecuted or defended in the name of the real party in
interest.
As the registered owner of Kargo Enterprises, Karen Go is the party who will directly benefit from or
be injured by a judgment in this case. Thus, contrary to Navarros contention, Karen Go is the real
party-in-interest, and it is legally incorrect to say that her Complaint does not state a cause of action
because her name did not appear in the Lease Agreement that her husband signed in behalf of Kargo
Enterprises. Whether Glenn Go can legally sign the Lease Agreement in his capacity as a manager of
Kargo Enterprises, a sole proprietorship, is a question we do not decide, as this is a matter for the trial
court to consider in a trial on the merits.

Article 124 of the Family Code, on the administration of the conjugal property, provides:
Art. 124. The administration and enjoyment of the conjugal partnership property shall belong
to both spouses jointly. In case of disagreement, the husbands decision shall prevail, subject to
recourse to the court by the wife for proper remedy, which must be availed of within five years from
the date of the contract implementing such decision.
xxx

Glenn Gos Role in the Case

This provision, by its terms, allows either Karen or Glenn Go to speak and act with authority in
managing their conjugal property, i.e., Kargo Enterprises. No need exists, therefore, for one to obtain
the consent of the other before performing an act of administration or any act that does not dispose of
or encumber their conjugal property.

We find it significant that the business name Kargo Enterprises is in the name of Karen T. Go, 19 who
described herself in the Complaints to be "a Filipino, of legal age, married to GLENN O. GO, a
resident of Cagayan de Oro City, and doing business under the trade name KARGO
ENTERPRISES."20 That Glenn Go and Karen Go are married to each other is a fact never brought in
issue in the case. Thus, the business name KARGO ENTERPRISES is registered in the name of a
married woman, a fact material to the side issue of whether Kargo Enterprises and its properties are
paraphernal or conjugal properties. To restate the parties positions, Navarro alleges that Kargo
Enterprises is Karen Gos paraphernal property, emphasizing the fact that the business is registered
solely in Karen Gos name. On the other hand, Karen Go contends that while the business is
registered in her name, it is in fact part of their conjugal property.

Under Article 108 of the Family Code, the conjugal partnership is governed by the rules on the
contract of partnership in all that is not in conflict with what is expressly determined in this Chapter
or by the spouses in their marriage settlements. In other words, the property relations of the husband
and wife shall be governed primarily by Chapter 4 on Conjugal Partnership of Gains of the Family
Code and, suppletorily, by the spouses marriage settlement and by the rules on partnership under the
Civil Code. In the absence of any evidence of a marriage settlement between the spouses Go, we look
at the Civil Code provision on partnership for guidance.

The registration of the trade name in the name of one person a woman does not necessarily lead
to the conclusion that the trade name as a property is hers alone, particularly when the woman is
married. By law, all property acquired during the marriage, whether the acquisition appears to have
been made, contracted or registered in the name of one or both spouses, is presumed to be conjugal
unless the contrary is proved.21 Our examination of the records of the case does not show any proof
that Kargo Enterprises and the properties or contracts in its name are conjugal. If at all, only the bare
allegation of Navarro to this effect exists in the records of the case. As we emphasized in Castro v.
Miat:22
Petitioners also overlook Article 160 of the New Civil Code. It provides that "all property of the
marriage is presumed to be conjugal partnership, unless it be prove[n] that it pertains exclusively to
the husband or to the wife." This articledoes not require proof that the property was acquired
with funds of the partnership. The presumption applies even when the manner in which the
property was acquired does not appear.23 [Emphasis supplied.]
Thus, for purposes solely of this case and of resolving the issue of whether Kargo Enterprises as a
sole proprietorship is conjugal or paraphernal property, we hold that it is conjugal property.

A rule on partnership applicable to the spouses circumstances is Article 1811 of the Civil Code,
which states:
Art. 1811. A partner is a co-owner with the other partners of specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has an
equal right with his partners to possess specific partnership property for partnership purposes;
xxx
Under this provision, Glenn and Karen Go are effectively co-owners of Kargo Enterprises and the
properties registered under this name; hence, both have an equal right to seek possession of these
properties. Applying Article 484 of the Civil Code, which states that "in default of contracts, or
special provisions, co-ownership shall be governed by the provisions of this Title," we find further
support in Article 487 of the Civil Code that allows any of the co-owners to bring an action in
ejectment with respect to the co-owned property.

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While ejectment is normally associated with actions involving real property, we find that this rule can
be applied to the circumstances of the present case, following our ruling in Carandang v. Heirs of De
Guzman.24 In this case, one spouse filed an action for the recovery of credit, a personal property
considered conjugal property, without including the other spouse in the action. In resolving the issue
of whether the other spouse was required to be included as a co-plaintiff in the action for the recovery
of the credit, we said:
Milagros de Guzman, being presumed to be a co-owner of the credits allegedly extended to the
spouses Carandang, seems to be either an indispensable or a necessary party. If she is an
indispensable party, dismissal would be proper. If she is merely a necessary party, dismissal is not
warranted, whether or not there was an order for her inclusion in the complaint pursuant to Section 9,
Rule 3.

thereto. The other co-owners are not indispensable parties. They are not even necessary parties, for a
complete relief can be accorded in the suit even without their participation, since the suit is presumed
to have been filed for the benefit of all co-owners. 25 [Emphasis supplied.]
Under this ruling, either of the spouses Go may bring an action against Navarro to recover possession
of the Kargo Enterprises-leased vehicles which they co-own. This conclusion is consistent with
Article 124 of the Family Code, supporting as it does the position that either spouse may act on
behalf of the conjugal partnership, so long as they do not dispose of or encumber the property in
question without the other spouses consent.
On this basis, we hold that since Glenn Go is not strictly an indispensable party in the action to
recover possession of the leased vehicles, he only needs to be impleaded as a pro-forma party to the
suit, based on Section 4, Rule 4 of the Rules, which states:

Article 108 of the Family Code provides:


Art. 108. The conjugal partnership shall be governed by the rules on the contract of partnership in all
that is not in conflict with what is expressly determined in this Chapter or by the spouses in their
marriage settlements.
This provision is practically the same as the Civil Code provision it superseded:
Art. 147. The conjugal partnership shall be governed by the rules on the contract of partnership in all
that is not in conflict with what is expressly determined in this Chapter.
In this connection, Article 1811 of the Civil Code provides that "[a] partner is a co-owner with the
other partners of specific partnership property." Taken with the presumption of the conjugal nature of
the funds used to finance the four checks used to pay for petitioners stock subscriptions, and with the
presumption that the credits themselves are part of conjugal funds, Article 1811 makes Quirino and
Milagros de Guzman co-owners of the alleged credit.
Being co-owners of the alleged credit, Quirino and Milagros de Guzman may separately bring an
action for the recovery thereof. In the fairly recent cases of Baloloy v. Hular and Adlawan v. Adlawan,
we held that, in a co-ownership, co-owners may bring actions for the recovery of co-owned property
without the necessity of joining all the other co-owners as co-plaintiffs because the suit is presumed
to have been filed for the benefit of his co-owners. In the latter case and in that of De Guia v. Court
of Appeals, we also held that Article 487 of the Civil Code, which provides that any of the co-owners
may bring an action for ejectment, covers all kinds of action for the recovery of possession.
In sum, in suits to recover properties, all co-owners are real parties in interest. However, pursuant to
Article 487 of the Civil Code and relevant jurisprudence, any one of them may bring an action, any
kind of action, for the recovery of co-owned properties. Therefore, only one of the co-owners, namely
the co-owner who filed the suit for the recovery of the co-owned property, is an indispensable party

Section 4. Spouses as parties. Husband and wife shall sue or be sued jointly, except as provided by
law.
Non-joinder of indispensable parties not ground to dismiss action
Even assuming that Glenn Go is an indispensable party to the action, we have held in a number of
cases26 that the misjoinder or non-joinder of indispensable parties in a complaint is not a ground for
dismissal of action. As we stated in Macababbad v. Masirag: 27
Rule 3, Section 11 of the Rules of Court provides that neither misjoinder nor nonjoinder of parties is
a ground for the dismissal of an action, thus:
Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of parties is
ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of
any party or on its own initiative at any stage of the action and on such terms as are just. Any claim
against a misjoined party may be severed and proceeded with separately.
In Domingo v. Scheer, this Court held that the proper remedy when a party is left out is to implead
the indispensable party at any stage of the action. The court, either motu proprio or upon the motion
of a party, may order the inclusion of the indispensable party or give the plaintiff opportunity to
amend his complaint in order to include indispensable parties. If the plaintiff to whom the order to
include the indispensable party is directed refuses to comply with the order of the court, the
complaint may be dismissed upon motion of the defendant or upon the court's own motion. Only
upon unjustified failure or refusal to obey the order to include or to amend is the action dismissed.
In these lights, the RTC Order of July 26, 2000 requiring plaintiff Karen Go to join her husband as a
party plaintiff is fully in order.

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Demand not required prior
to filing of replevin action

WHEREFORE, premises considered, we DENY the petition for review for lack of merit. Costs
against petitioner Roger V. Navarro.

In arguing that prior demand is required before an action for a writ of replevin is filed, Navarro
apparently likens a replevin action to an unlawful detainer.

SO ORDERED.

For a writ of replevin to issue, all that the applicant must do is to file an affidavit and bond, pursuant
to Section 2, Rule 60 of the Rules, which states:
Sec. 2. Affidavit and bond.
The applicant must show by his own affidavit or that of some other person who personally knows the
facts:
(a) That the applicant is the owner of the property claimed, particularly describing it, or
is entitled to the possession thereof;
(b) That the property is wrongfully detained by the adverse party, alleging the cause of
detention thereof according to the best of his knowledge, information, and belief;
(c) That the property has not been distrained or taken for a tax assessment or a fine pursuant
to law, or seized under a writ of execution or preliminary attachment, or otherwise placed
under custodia legis, or if so seized, that it is exempt from such seizure or custody; and
(d) The actual market value of the property.
The applicant must also give a bond, executed to the adverse party in double the value of the property
as stated in the affidavit aforementioned, for the return of the property to the adverse party if such
return be adjudged, and for the payment to the adverse party of such sum as he may recover from the
applicant in the action.
We see nothing in these provisions which requires the applicant to make a prior demand on the
possessor of the property before he can file an action for a writ of replevin. Thus, prior demand is not
a condition precedent to an action for a writ of replevin.
More importantly, Navarro is no longer in the position to claim that a prior demand is necessary, as he
has already admitted in his Answers that he had received the letters that Karen Go sent him,
demanding that he either pay his unpaid obligations or return the leased motor vehicles. Navarros
position that a demand is necessary and has not been made is therefore totally unmeritorious.
G.R. No. 166920

February 19, 2007

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PACIFIC CONSULTANTS INTERNATIONAL ASIA, INC. and JENS PETER
HENRICHSEN, Petitioners,
vs.
KLAUS K. SCHONFELD, Respondent.

January 1998
Dear Mr. Schonfeld,
Letter of Employment

DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court of the
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 76563. The CA decision reversed the
Resolution of the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 029319-01,
which, in turn, affirmed the Decision of the Labor Arbiter in NLRC NCR Case No. 30-12-04787-00
dismissing the complaint of respondent Klaus K. Schonfeld.
The antecedent facts are as follows:
Respondent is a Canadian citizen and was a resident of New Westminster, British Columbia, Canada.
He had been a consultant in the field of environmental engineering and water supply and sanitation.
Pacicon Philippines, Inc. (PPI) is a corporation duly established and incorporated in accordance with
the laws of the Philippines. The primary purpose of PPI was to engage in the business of providing
specialty and technical services both in and out of the Philippines. 2 It is a subsidiary of Pacific
Consultants International of Japan (PCIJ). The president of PPI, Jens Peter Henrichsen, who was also
the director of PCIJ, was based in Tokyo, Japan. Henrichsen commuted from Japan to Manila and
vice versa, as well as in other countries where PCIJ had business.

This Letter of Employment with the attached General Conditions of Employment constitutes the
agreement under which you will be engaged by our Company on the terms and conditions defined
hereunder. In case of any discrepancies or contradictions between this Letter of Employment and the
General Conditions of Employment, this Letter of Employment will prevail.
You will, from the date of commencement, be ["seconded"] to our subsidiary Pacicon Philippines,
Inc. in Manila, hereinafter referred as Pacicon. Pacicon will provide you with a separate contract,
which will define that part of the present terms and conditions for which Pacicon is responsible. In
case of any discrepancies or contradictions between the present Letter of Employment and the
contract with Pacicon Philippines, Inc. or in the case that Pacicon should not live up to its obligations,
this Letter of Employment will prevail.
1. Project Country: The Philippines with possible short-term assignments in other countries.
2. Duty Station: Manila, the Philippines.
3. Family Status: Married.
4. Position: Sector Manager, Water and Sanitation.

In 1997, PCIJ decided to engage in consultancy services for water and sanitation in the Philippines.
In October 1997, respondent was employed by PCIJ, through Henrichsen, as Sector Manager of PPI
in its Water and Sanitation Department. However, PCIJ assigned him as PPI sector manager in the
Philippines. His salary was to be paid partly by PPI and PCIJ.
On January 7, 1998, Henrichsen transmitted a letter of employment to respondent in Canada,
requesting him to accept the same and affix his conformity thereto. Respondent made some revisions
in the letter of employment and signed the contract. 3 He then sent a copy to Henrichsen. The letter of
employment reads:
Mr. Klaus K. Schonfeld
II-365 Ginger Drive
New Westminster, B.C.
Canada V3L 5L5
Tokyo 7

5. Commencement: 1st October 1997.


6. Remuneration: US$7,000.00 per month. The amount will be paid partly as a local salary
(US$2,100.00 per month) by Pacicon and partly as an offshore salary (US$4,900.00) by
PCI to bank accounts to be nominated by you.
A performance related component corresponding to 17.6% of the total annual remuneration,
subject to satisfactory performance against agreed tasks and targets, paid offshore.
7. Accommodation: The company will provide partly furnished accommodation to a rent
including association fees, taxes and VAT not exceeding the Pesos equivalent of
US$2,900.00 per month.
8. Transportation: Included for in the remuneration.

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9. Leave Travels: You are entitled to two leave travels per year.
10. Shipment of Personal
Effects: The maximum allowance is US$4,000.00.
11. Mobilization

As required by Rule XIV (Employment of Aliens) of the Omnibus Rules Implementing the Labor
Code, PPI applied for an Alien Employment Permit (Permit) for respondent before the Department of
Labor and Employment (DOLE). It appended respondents contract of employment to the
application.1awphi1.net
On February 26, 1999, the DOLE granted the application and issued the Permit to respondent. It
reads:
Republic of the Philippines
Department of Labor & Employment
National Capital Region

Travel: Mobilization travel will be from New Westminster, B.C., Canada.


This letter is send (sic) to you in duplicate; we kindly request you to sign and return one copy to us.

ALIEN EMPLOYMENT PERMIT


Yours sincerely,
ISSUED TO: SCHONFELD, KLAUS KURT
Pacific Consultants International
Jens Peter Henrichsen

DATE OF BIRTH: January 11, 1942 NATIONALITY: Canadian

Above terms and conditions accepted

POSITION: VP WATER & SANITATION

Date: 2 March 1998

EMPLOYER: PACICON PHILIPPINES, INC.

(Sgd.)
Klaus Schonfeld

ADDRESS: 27/F Rufino Pacific Towers Bldg., Ayala Ave., Makati City
PERMIT

as annotated and initialed4


Section 21 of the General Conditions of Employment appended to the letter of employment reads:
21 Arbitration
Any question of interpretation, understanding or fulfillment of the conditions of employment, as well
as any question arising between the Employee and the Company which is in consequence of or
connected with his employment with the Company and which can not be settled amicably, is to be
finally settled, binding to both parties through written submissions, by the Court of Arbitration in
London.5

ISSUED ON: February 26, 1999 SIGNATURE OF BEARER:


VALID UNTIL: January 7, 2000 (Sgd.)
APPROVED: BIENVENIDO S. LAGUESMA
By: MAXIMO B. ANITO
REGIONAL DIRECTOR
(Emphasis supplied)6

Respondent arrived in the Philippines and assumed his position as PPI Sector Manager. He was
accorded the status of a resident alien.

Respondent received his compensation from PPI for the following periods: February to June 1998,
November to December 1998, and January to August 1999. He was also reimbursed by PPI for the

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expenses he incurred in connection with his work as sector manager. He reported for work in Manila
except for occasional assignments abroad, and received instructions from Henrichsen. 7
On May 5, 1999, respondent received a letter from Henrichsen informing him that his employment
had been terminated effective August 4, 1999 for the reason that PCIJ and PPI had not been
successful in the water and sanitation sector in the Philippines. 8 However, on July 24, 1999,
Henrichsen, by electronic mail,9 requested respondent to stay put in his job after August 5, 1999, until
such time that he would be able to report on certain projects and discuss all the opportunities he had
developed.10 Respondent continued his work with PPI until the end of business hours on October 1,
1999.
Respondent filed with PPI several money claims, including unpaid salary, leave pay, air fare from
Manila to Canada, and cost of shipment of goods to Canada. PPI partially settled some of his claims
(US$5,635.99), but refused to pay the rest.
On December 5, 2000, respondent filed a Complaint11 for Illegal Dismissal against petitioners PPI
and Henrichsen with the Labor Arbiter. It was docketed as NLRC-NCR Case No. 30-12-04787-00.
In his Complaint, respondent alleged that he was illegally dismissed; PPI had not notified the DOLE
of its decision to close one of its departments, which resulted in his dismissal; and they failed to
notify him that his employment was terminated after August 4, 1999. Respondent also claimed for
separation pay and other unpaid benefits. He alleged that the company acted in bad faith and
disregarded his rights. He prayed for the following reliefs:
1. Judgment be rendered in his favor ordering the respondents to reinstate complainant to
his former position without loss of seniority and other privileges and benefits, and to pay
his full backwages from the time compensation was with held (sic) from him up to the time
of his actual reinstatement. In the alternative, if reinstatement is no longer feasible,
respondents must pay the complainant full backwages, and separation pay equivalent to one
month pay for every year of service, or in the amount of US$16,400.00 as separation pay;

Petitioners filed a Motion to Dismiss the complaint on the following grounds: (1) the Labor Arbiter
had no jurisdiction over the subject matter; and (2) venue was improperly laid. It averred that
respondent was a Canadian citizen, a transient expatriate who had left the Philippines. He was
employed and dismissed by PCIJ, a foreign corporation with principal office in Tokyo, Japan. Since
respondents cause of action was based on his letter of employment executed in Tokyo, Japan dated
January 7, 1998, under the principle of lex loci contractus, the complaint should have been filed in
Tokyo, Japan. Petitioners claimed that respondent did not offer any justification for filing his
complaint against PPI before the NLRC in the Philippines. Moreover, under Section 12 of the
General Conditions of Employment appended to the letter of employment dated January 7, 1998,
complainant and PCIJ had agreed that any employment-related dispute should be brought before the
London Court of Arbitration. Since even the Supreme Court had already ruled that such an agreement
on venue is valid, Philippine courts have no jurisdiction. 13
Respondent opposed the Motion, contending that he was employed by PPI to work in the Philippines
under contract separate from his January 7, 1998 contract of employment with PCIJ. He insisted that
his employer was PPI, a Philippine-registered corporation; it is inconsequential that PPI is a whollyowned subsidiary of PCIJ because the two corporations have separate and distinct personalities; and
he received orders and instructions from Henrichsen who was the president of PPI. He further
insisted that the principles of forum non conveniens and lex loci contractus do not apply, and that
although he is a Canadian citizen, Philippine Labor Laws apply in this case.
Respondent adduced in evidence the following contract of employment dated January 9, 1998 which
he had entered into with Henrichsen:
Mr. Klaus K. Schonfeld
II-365 Ginger Drive
New Westminster, B.C.
Canada V3L 5L5
Manila 9 January, 1998

2. Judgment be rendered ordering the respondents to pay the outstanding monetary


obligation to complainant in the amount of US$10,131.76 representing the balance of
unpaid salaries, leave pay, cost of his air travel and shipment of goods from Manila to
Canada; and
3. Judgment be rendered ordering the respondent company to pay the complainant damages
in the amount of no less than US $10,000.00 and to pay 10% of the total monetary award as
attorneys fees, and costs.
Other reliefs just and equitable under the premises are, likewise, prayed for.12 1awphi1.net

Dear Mr. Schonfeld,


Letter of Employment
This Letter of Employment with the attached General Conditions of Employment constitutes the
agreement, under which you will be engaged by Pacicon Philippines, Inc. on the terms and conditions
defined hereunder.
1. Project Country: The Philippines with possible assignments in other countries.

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2. Duty Station: Manila, the Philippines.

Henrichsen under the letterhead of PCIJ in Japan. 16 The letter of employment dated January 9, 1998
which respondent relies upon did not bear his (respondents) signature nor that of Henrichsen.

3. Family Status: Married.


4. Position: Sector Manager Water and Sanitation Sector.

On August 2, 2001, the Labor Arbiter rendered a decision granting petitioners Motion to Dismiss.
The dispositive portion reads:

5. Commencement: 1 January, 1998.

WHEREFORE, finding merit in respondents Motion to Dismiss, the same is hereby granted. The
instant complaint filed by the complainant is dismissed for lack of merit.

6. Remuneration: US$3,100.00 per month payable to a bank account to be nominated by


you.

SO ORDERED.17

8. Transportation: Included for in the remuneration.

The Labor Arbiter found, among others, that the January 7, 1998 contract of employment between
respondent and PCIJ was controlling; the Philippines was only the "duty station" where Schonfeld
was required to work under the General Conditions of Employment. PCIJ remained respondents
employer despite his having been sent to the Philippines. Since the parties had agreed that any
differences regarding employer-employee relationship should be submitted to the jurisdiction of the
court of arbitration in London, this agreement is controlling.

9. Shipment of Personal The maximum allowance is US$2500.00 in Effects: connection


with initial shipment of personal effects from Canada.

On appeal, the NLRC agreed with the disquisitions of the Labor Arbiter and affirmed the latters
decision in toto.18

10. Mobilization Travel: Mobilization travel will be from New Westminster, B.C., Canada.

Respondent then filed a petition for certiorari under Rule 65 with the CA where he raised the
following arguments:

7. Accommodation: The company will provide partly furnished accommodation to a rent


including association fees, taxes and VAT not exceeding the Pesos equivalent of
US$2300.00 per month.

This letter is send (sic) to you in duplicate; we kindly request you to sign and return one copy to us.
I
Yours sincerely,
Pacicon Philippines, Inc.
Jens Peter Henrichsen
President14
According to respondent, the material allegations of the complaint, not petitioners defenses,
determine which quasi-judicial body has jurisdiction. Section 21 of the Arbitration Clause in the
General Conditions of Employment does not provide for an exclusive venue where the complaint
against PPI for violation of the Philippine Labor Laws may be filed. Respondent pointed out that PPI
had adopted two inconsistent positions: it was first alleged that he should have filed his complaint in
Tokyo, Japan; and it later insisted that the complaint should have been filed in the London Court of
Arbitration.15
In their reply, petitioners claimed that respondents employer was PCIJ, which had exercised
supervision and control over him, and not PPI. Respondent was dismissed by PPI via a letter of

WITH ALL DUE RESPECT, THE HONORABLE NATIONAL LABOR RELATIONS


COMMISSION GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION WHEN IT AFFIRMED THE LABOR ARBITERS DECISION
CONSIDERING THAT:
A. PETITIONERS TRUE EMPLOYER IS NOT PACIFIC CONSULTANTS INTERNATIONAL
OF JAPAN BUT RESPONDENT COMPANY, AND THEREFORE, THE LABOR ARBITER HAS
JURISDICTION OVER THE INSTANT CASE; AND
B. THE PROPER VENUE FOR THE PRESENT COMPLAINT IS THE ARBITRATION BRANCH
OF THE NLRC AND NOT THE COURT OF ARBITRATION IN LONDON.
II

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WITH ALL DUE RESPECT, THE HONORABLE NATIONAL LABOR RELATIONS
COMMISSION GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION WHEN IT AFFIRMED THE DISMISSAL OF THE COMPLAINT
CONSIDERING THAT PETITIONERS TERMINATION FROM EMPLOYMENT IS ILLEGAL:
A. THE CLOSURE OF RESPONDENT COMPANYS WATER AND SANITATION
SECTOR WAS NOT BONA FIDE.
B. ASSUMING ARGUENDO THAT THE CLOSURE OF RESPONDENT COMPANYS
WATER AND SANITATION SECTOR WAS JUSTIFIABLE, PETITIONERS
DISMISSAL WAS INEFFECTUAL AS THE DEPARTMENT OF LABOR AND
EMPLOYMENT (DOLE) AND PETITIONER WAS NOT NOTIFIED THIRTY (30)
DAYS BEFORE THE ALLEGED CLOSURE.19
Respondent averred that the absence or existence of a written contract of employment is not decisive
of whether he is an employee of PPI. He maintained that PPI, through its president Henrichsen,
directed his work/duties as Sector Manager of PPI; proof of this was his letter-proposal to the
Development Bank of the Philippines for PPI to provide consultancy services for the Construction
Supervision of the Water Supply and Sanitation component of the World Bank-Assisted LGU Urban
Water and Sanitation Project.20 He emphasized that as gleaned from Alien Employment Permit (AEP)
No. M-029908-5017 issued to him by DOLE on February 26, 1999, he is an employee of PPI. It was
PPI president Henrichsen who terminated his employment; PPI also paid his salary and reimbursed
his expenses related to transactions abroad. That PPI is a wholly-owned subsidiary of PCIJ is of no
moment because the two corporations have separate and distinct personalities.
The CA found the petition meritorious. Applying the four-fold test21 of determining an employeremployee relationship, the CA declared that respondent was an employee of PPI. On the issue of
venue, the appellate court declared that, even under the January 7, 1998 contract of employment, the
parties were not precluded from bringing a case related thereto in other venues. While there was,
indeed, an agreement that issues between the parties were to be resolved in the London Court of
Arbitration, the venue is not exclusive, since there is no stipulation that the complaint cannot be filed
in any other forum other than in the Philippines.
On November 25, 2004, the CA rendered its decision granting the petition, the decretal portion of
which reads:
WHEREFORE, the petition is GRANTED in that the assailed Resolutions of the NLRC are hereby
REVERSED and SET ASIDE. Let this case be REMANDED to the Labor Arbiter a quo for
disposition of the case on the merits.

A motion for the reconsideration of the above decision was filed by PPI and Henrichsen, which the
appellate court denied for lack of merit. 23
In the present recourse, PPI and Henrichsen, as petitioners, raise the following issues:
I
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT AN EMPLOYMENT
RELATIONSHIP EXISTED BETWEEN PETITIONERS AND RESPONDENT DESPITE THE
UNDISPUTED FACT THAT RESPONDENT, A FOREIGN NATIONAL, WAS HIRED ABROAD
BY A FOREIGN CORPORATION, EXECUTED HIS EMPLOYMENT CONTRACT ABROAD,
AND WAS MERELY "SECONDED" TO PETITIONERS SINCE HIS WORK ASSIGNMENT WAS
IN MANILA.
II
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE LABOR ARBITER A
QUO HAS JURISDICTION OVER RESPONDENTS CLAIM DESPITE THE UNDISPUTED
FACT THAT RESPONDENT, A FOREIGN NATIONAL, WAS HIRED ABROAD BY A FOREIGN
CORPORATION, EXECUTED HIS EMPLOYMENT CONTRACT ABROAD, AND HAD
AGREED THAT ANY DISPUTE BETWEEN THEM "SHALL BE FINALLY SETTLED BY THE
COURT OF ARBITRATION IN LONDON."24
Petitioners fault the CA for reversing the findings of the Labor Arbiter and the NLRC. Petitioners
aver that the findings of the Labor Arbiter, as affirmed by the NLRC, are conclusive on the CA. They
maintain that it is not within the province of the appellate court in a petition for certiorari to review
the facts and evidence on record since there was no conflict in the factual findings and conclusions of
the lower tribunals. Petitioners assert that such findings and conclusions, having been made by
agencies with expertise on the subject matter, should be deemed binding and conclusive. They
contend that it was the PCIJ which employed respondent as an employee; it merely seconded him to
petitioner PPI in the Philippines, and assigned him to work in Manila as Sector Manager. Petitioner
PPI, being a wholly-owned subsidiary of PCIJ, was never the employer of respondent.
Petitioners assert that the January 9, 1998 letter of employment which respondent presented to prove
his employment with petitioner PPI is of doubtful authenticity since it was unsigned by the purported
parties. They insist that PCIJ paid respondents salaries and only coursed the same through petitioner
PPI. PPI, being its subsidiary, had supervision and control over respondents work, and had the
responsibilities of monitoring the "daily administration" of respondent. Respondent cannot rely on the
pay slips, expenses claim forms, and reimbursement memoranda to prove that he was an employee of
petitioner PPI because these documents are of doubtful authenticity.

SO ORDERED.22

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Petitioners further contend that, although Henrichsen was both a director of PCIJ and president of
PPI, it was he who signed the termination letter of respondent upon instructions of PCIJ. This is
buttressed by the fact that PCIJs letterhead was used to inform him that his employment was
terminated. Petitioners further assert that all work instructions came from PCIJ and that petitioner PPI
only served as a "conduit." Respondents Alien Employment Permit stating that petitioner PPI was his
employer is but a necessary consequence of his being "seconded" thereto. It is not sufficient proof
that petitioner PPI is respondents employer. The entry was only made to comply with the DOLE
requirements.
There being no evidence that petitioner PPI is the employer of respondent, the Labor Arbiter has no
jurisdiction over respondents complaint.
Petitioners aver that since respondent is a Canadian citizen, the CA erred in ignoring their claim that
the principlesof forum non conveniens and lex loci contractus are applicable. They also point out that
the principal office, officers and staff of PCIJ are stationed in Tokyo, Japan; and the contract of
employment of respondent was executed in Tokyo, Japan.
Moreover, under Section 21 of the General Conditions for Employment incorporated in respondents
January 7, 1998 letter of employment, the dispute between respondent and PCIJ should be settled by
the court of arbitration of London. Petitioners claim that the words used therein are sufficient to show
the exclusive and restrictive nature of the stipulation on venue.
Petitioners insist that the U.S. Labor-Management Act applies only to U.S. workers and employers,
while the Labor Code of the Philippines applies only to Filipino employers and Philippine-based
employers and their employees, not to PCIJ. In fine, the jurisdictions of the NLRC and Labor Arbiter
do not extend to foreign workers who executed employment agreements with foreign employers
abroad, although "seconded" to the Philippines. 25
In his Comment,26 respondent maintains that petitioners raised factual issues in their petition which
are proscribed under Section 1, Rule 45 of the Rules of Court. The finding of the CA that he had been
an employee of petitioner PPI and not of PCIJ is buttressed by his documentary evidence which both
the Labor Arbiter and the NLRC ignored; they erroneously opted to dismiss his complaint on the
basis of the letter of employment and Section 21 of the General Conditions of Employment. In
contrast, the CA took into account the evidence on record and applied case law correctly.
The petition is denied for lack of merit.
It must be stressed that in resolving a petition for certiorari, the CA is not proscribed from reviewing
the evidence on record. Under Section 9 of Batas Pambansa Blg. 129, as amended by R.A. No. 7902,
the CA is empowered to pass upon the evidence, if and when necessary, to resolve factual issues. 27 If
it appears that the Labor Arbiter and the NLRC misappreciated the evidence to such an extent as to

compel a contrary conclusion if such evidence had been properly appreciated, the factual findings of
such tribunals cannot be given great respect and finality.28
Inexplicably, the Labor Arbiter and the NLRC ignored the documentary evidence which respondent
appended to his pleadings showing that he was an employee of petitioner PPI; they merely focused
on the January 7, 1998 letter of employment and Section 21 of the General Conditions of
Employment.
Petitioner PPI applied for the issuance of an AEP to respondent before the DOLE. In said application,
PPI averred that respondent is its employee. To show that this was the case, PPI appended a copy of
respondents employment contract. The DOLE then granted the application of PPI and issued the
permit.
It bears stressing that under the Omnibus Rules Implementing the Labor Code, one of the
requirements for the issuance of an employment permit is the employment contract. Section 5, Rule
XIV (Employment of Aliens) of the Omnibus Rules provides:
SECTION 1. Coverage. This rule shall apply to all aliens employed or seeking employment in the
Philippines and the present or prospective employers.
SECTION 2. Submission of list. All employers employing foreign nationals, whether resident or
non-resident, shall submit a list of nationals to the Bureau indicating their names, citizenship, foreign
and local address, nature of employment and status of stay in the Philippines.
SECTION 3. Registration of resident aliens. All employed resident aliens shall register with the
Bureau under such guidelines as may be issued by it.
SECTION 4. Employment permit required for entry. No alien seeking employment, whether as a
resident or non-resident, may enter the Philippines without first securing an employment permit from
the Ministry. If an alien enters the country under a non-working visa and wishes to be employed
thereafter, he may only be allowed to be employed upon presentation of a duly approved employment
permit.
SECTION 5. Requirements for employment permit applicants. The application for an employment
permit shall be accompanied by the following:
(a) Curriculum vitae duly signed by the applicant indicating his educational background,
his work experience and other data showing that he possesses technical skills in his trade or
profession.

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(b) Contract of employment between the employer and the principal which shall embody
the following, among others:
1. That the non-resident alien worker shall comply with all applicable laws and
rules and regulations of the Philippines;
2. That the non-resident alien worker and the employer shall bind themselves to
train at least two (2) Filipino understudies for a period to be determined by the
Minister; and
3. That he shall not engage in any gainful employment other than that for which
he was issued a permit.
(c) A designation by the employer of at least two (2) understudies for every alien worker.
Such understudies must be the most ranking regular employees in the section or department
for which the expatriates are being hired to insure the actual transfer of technology.
Under Section 6 of the Rule, the DOLE may issue an alien employment permit based only on the
following:
(a) Compliance by the applicant and his employer with the requirements of Section 2
hereof;
(b) Report of the Bureau Director as to the availability or non-availability of any person in
the Philippines who is competent and willing to do the job for which the services of the
applicant are desired;
(c) His assessment as to whether or not the employment of the applicant will redound to the
national interest;
(d) Admissibility of the alien as certified by the Commission on Immigration and
Deportation;
(e) The recommendation of the Board of Investments or other appropriate government
agencies if the applicant will be employed in preferred areas of investments or in
accordance with the imperative of economic development.
Thus, as claimed by respondent, he had an employment contract with petitioner PPI; otherwise,
petitioner PPI would not have filed an application for a Permit with the DOLE. Petitioners are thus
estopped from alleging that the PCIJ, not petitioner PPI, had been the employer of respondent all
along.

We agree with the conclusion of the CA that there was an employer-employee relationship between
petitioner PPI and respondent using the four-fold test. Jurisprudence is firmly settled that whenever
the existence of an employment relationship is in dispute, four elements constitute the reliable
yardstick: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power
of dismissal; and (d) the employers power to control the employees conduct. It is the so-called
"control test" which constitutes the most important index of the existence of the employer-employee
relationshipthat is, whether the employer controls or has reserved the right to control the employee
not only as to the result of the work to be done but also as to the means and methods by which the
same is to be accomplished. Stated otherwise, an employer-employee relationship exists where the
person for whom the services are performed reserves the right to control not only the end to be
achieved but also the means to be used in reaching such end. 29 We quote with approval the following
ruling of the CA:
[T]here is, indeed, substantial evidence on record which would erase any doubt that the respondent
company is the true employer of petitioner. In the case at bar, the power to control and supervise
petitioners work performance devolved upon the respondent company. Likewise, the power to
terminate the employment relationship was exercised by the President of the respondent company. It
is not the letterhead used by the company in the termination letter which controls, but the person who
exercised the power to terminate the employee. It is also inconsequential if the second letter of
employment executed in the Philippines was not signed by the petitioner. An employer-employee
relationship may indeed exist even in the absence of a written contract, so long as the four elements
mentioned in the Mafinco case are all present. 30
The settled rule on stipulations regarding venue, as held by this Court in the vintage case of
Philippine Banking Corporation v. Tensuan,31 is that while they are considered valid and enforceable,
venue stipulations in a contract do not, as a rule, supersede the general rule set forth in Rule 4 of the
Revised Rules of Court in the absence of qualifying or restrictive words. They should be considered
merely as an agreement or additional forum, not as limiting venue to the specified place. They are not
exclusive but, rather permissive. If the intention of the parties were to restrict venue, there must be
accompanying language clearly and categorically expressing their purpose and design that actions
between them be litigated only at the place named by them. 32
In the instant case, no restrictive words like "only," "solely," "exclusively in this court," "in no other
court save ," "particularly," "nowhere else but/except ," or words of equal import were stated in
the contract.33 It cannot be said that the court of arbitration in London is an exclusive venue to bring
forth any complaint arising out of the employment contract.
Petitioners contend that respondent should have filed his Complaint in his place of permanent
residence, or where the PCIJ holds its principal office, at the place where the contract of employment
was signed, in London as stated in their contract. By enumerating possible venues where respondent
could have filed his complaint, however, petitioners themselves admitted that the provision on venue
in the employment contract is indeed merely permissive.

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Petitioners insistence on the application of the principle of forum non conveniens must be rejected.
The bare fact that respondent is a Canadian citizen and was a repatriate does not warrant the
application of the principle for the following reasons:
First. The Labor Code of the Philippines does not include forum non conveniens as a
ground for the dismissal of the complaint.34
Second. The propriety of dismissing a case based on this principle requires a factual
determination; hence, it is properly considered as defense. 35
Third. In Bank of America, NT&SA, Bank of America International, Ltd. v. Court of
Appeals,36 this Court held that:
x x x [a] Philippine Court may assume jurisdiction over the case if it chooses to do so; provided, that
the following requisites are met: (1) that the Philippine Court is one to which the parties may
conveniently resort to; (2) that the Philippine Court is in a position to make an intelligent decision as
to the law and the facts; and, (3) that the Philippine Court has or is likely to have power to enforce its
decision. x x x
Admittedly, all the foregoing requisites are present in this case.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No.
76563 is AFFIRMED. This case is REMANDED to the Labor Arbiter for disposition of the case on
the merits. Cost against petitioners.
SO ORDERED.

G.R. No. 175796

July 22, 2015

BPI FAMILY SAVINGS BANK INC., Petitioner,


vs.
SPOUSES BENEDICTO & TERESITA YUJUICO, Respondents,

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DECISION

abandoned or extinguished apart from the respondents' contention that the properties had been
subjected to expropriation by the City of Manila. 8

BERSAMIN, J.:
An action to recover the deficiency after extrajudicial foreclosure of a real property mortgage is a
personal action because it does not affect title to or possession of real property, or any interest therein.

On November 4, 2003, the respondents moved for reconsideration, reiterating their grounds earlier
made in their motion to dismiss. 9
In turn, the petitioner adopted its comment/opposition to the motion to dismiss. 10

The Case
This appeal is taken by the petitioner to overturn the decision promulgated on March 31,
2006,1 whereby the Court of Appeals (CA) set aside the orders issued by the Regional Trial Court,
Branch 60, in Makati City (Makati RTC) on October 17, 2003 2 and February 1, 2005 3 dismissing

The respondents then filed their reply, 11 in which they raised for the first time their objection on the
ground of improper venue. They contended that the action for the recovery of the deficiency, being a
supplementary action of the extrajudicial foreclosure proceedings, was a real action that should have
been brought in the Manila RTC because Manila was the place where the properties were located. 12

their action against the respondents to recover the deficiency after the extrajudicial foreclosure of
their mortgage (Civil Case No.03-450) on the ground of improper venue.

On February 1, 2005, the Makati RTC denied the respondents' motion for reconsideration for its lack
of merit; and held on the issue of improper venue that:

Antecedents
On August 22, 1996, the City of Manila filed a complaint against the respondents for the
expropriation of five parcels of land located in Tondo, Manila and registered in the name of
respondent Teresita Yujuico. Two of the parcels of land, covered by Transfer Certificate of Title
(TCT) No. 261331 and TCT No. 261332, were previously mortgaged to Citytrust Banking
Corporation, the petitioner's predecessor-in-interest, under a First Real Estate Mortgage Contract. 4On
June 30, 2000, the Regional Trial Court in Manila (Manila RTC) rendered its judgment declaring the
five parcels of land expropriated for public use. The judgment became final and executory on January
28, 2001 and was entered in the book of entries of judgment on March 23, 2001. 5 The petitioner
subsequently filed a Motion to Intervene in Execution with Partial Opposition to Defendant's Request
to Release, but the RTC denied the motion for having been "filed out of time." Hence, the petitioner
decided to extrajudicially foreclose the mortgage constituted on the two parcels of land subject of the
respondents' loan. After holding the public auction, the sheriff awarded the two lots to the petitioner
as the highest bidder at P10, 000, 000.00. 6
Claiming a deficiency amounting to Pl8, 522155.42, the pet1t1oner sued the respondents to recover
such deficiency in the Makati RTC (Civil Case No. 03-450).1wphi1 The respondents moved to
dismiss the complaint on several grounds, namely: that the suit was barred by res judicata; that the
complaint stated no cause of action; and that the plaintiffs claim had been waived, abandoned, or
extinguished. 7
In its order issued on October 17, 2003, the Makati RTC denied the respondents' motion to dismiss,
ruling that there was no res judicata; that the complaint stated a sufficient cause of action to recover
the deficiency; and that there was nothing to support the claim that the obligation had been

It would be improper for this Court to dismiss the plaintiffs complaint on the ground of improper
venue, assuming that the venue is indeed improperly laid, since the said ground was not raised in the
defendant's Motion to Dismiss. On this point, it was held in the case of Malig, et al. vs. Bush, L
22761, May 31, 1969 that "an action cannot be dismissed on a ground not alleged in the motion
therefore even if said ground, e.g., prescription, is provided in Rule 16. 13
Decision of the CA
Not satisfied, the respondents assailed the orders dated October 1 7, 2003 and February 1, 2005 by
petition for certiorari.14 They submitted for consideration by the CA the following issues, namely:
x x x (WHETHER OR NOT) RESPONDENT TRIAL COURT COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ISSUED
ITS ASSAILED ORDERS CONSIDERING THAT:
A THE COMPLAINT A QUO IS BARRED BY RES JUDICATA.
B. THE COMPLAINT STATED NO CAUSE OF ACTION.
C. PRIVATE RESPONDENT'S CLAIM HAS BEEN WAIVED, ABANDONED OR
OTHERWISE EXTINGUISHED.
D. VENUE WAS IMPROPERLY LAID. 15

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On March 31, 2006, the CA granted the petition for certiorari of the respondents on the basis of the
fourth issue, opining:
xxxx
Thus, a suit for recovery of the deficiency after the foreclosure of a mortgage is in the nature of a
mortgage action because its purpose is precisely to enforce the mortgage contract; it is upon a written
contract and upon an obligation of the mortgage-debtor to pay the deficiency which is created by law.
As such, the venue of an action for recovery of deficiency must necessarily be the same venue as that
of the extrajudicial foreclosure of mortgage.
xxxx
In this regard, We take note that the parcels of land subject of the mortgage contract are located in
Tondo, Manila, under Transfer Certificates of Title Nos. 216331 and 216332. On the other hand, the
extrajudicial foreclosure of the real estate mortgage took place at the R TC of Manila on January 28,
2003. Thus, the suit for judgment on the deficiency filed by respondent BPI against petitioners
Yujuico, being an action emanating from the foreclosure of the real estate mortgage contract between
them, must necessarily be filed also at the RTC of Manila, not at the RTC of Makati.
x x x x 16
The CA denied the respondents' Motion for Partial Reconsideration and the petitioner's Partial
Motion for Reconsideration on December 7, 2006.17
Issues
Hence, this appeal by the petitioner, to assail the CA's dismissal of Civil Case No. 03-450 on the
ground of improper venue upon the following grounds,18 namely:
I.
WHETHER OR NOT THE HONORA.BLE COURT OF APPEALS' DENIAL OF THE
PETITIONER'S PARTIAL MOTION FOR RECONSIDERATION ON THE GROUND OF
IMPROPER VENUE AS A RESULT DISMISSED THE COMPLAINT FOR SUM OF MONEY IS
CONTRARY TO LAW.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS['] ACT OF APPRECIATING
THE ADDITIONAL GROUND OF IMPROPER VENUE, ONLY RAISED IN THE MOTION FOR

RECONSIDERATION FILED IN THE LOWER COURT AFTER IT DENIED RESPONDENTS'


MOTION TO DISMISS, IS CONTRARY TO LAW AND JURISPRUDENCE.19
Ruling of the Court
We grant the petition for review on certiorari.
It is basic that the venue of an action depends on whether it is a real or a personal action. The
determinants of whether an action is of a real or a personal nature have been fixed by the Rules of
Court and relevant jurisprudence. According to Section 1, Rule 4 of the Rules of Court, a real action
is one that affects title to or possession of real property, or an interest therein. Thus, an action for
partition or condemnation of, or foreclosure of mortgage on, real property is a real action. 20 The real
action is to be commenced and tried in the proper court having jurisdiction over the area wherein the
real property involved, or a portion thereof, is situated, which explains why the action is also referred
to as a local action. In contrast, the Rules of Court declares all other actions as personal
actions. 21 such actions may include those brought for the recovery of personal property, or for the
enforcement of some contract or recovery of damages for its breach, or for the recovery of damages
for the commission of an injury to the person or property.22 The venue of a personal action is the
place where the plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the
principal defendants resides, or in the case of a non-resident defendant where he may be found, at the
election of the plaintiff, 23 for which reason the action is considered a transitory one.
Based on the distinctions between real and personal actions, an action to recover the deficiency after
the extrajudicial foreclosure of the real property mortgage is a personal action, for it does not affect
title to or possession of real property, or any interest therein.
It is true that the Court has said in Caltex Philippines, Inc. v. Intermediate Appellate Court 24 that "a
suit for the recovery of the deficiency after the foreclosure of a mortgage is in the nature of a
mortgage action because its purpose is precisely to enforce the mortgage contract." However, the CA
erred in holding, upon the authority of Caltex Philippines, Inc., that the venue of Civil Case No. 03
450 must necessarily be Manila, the same venue as that of the extrajudicial foreclosure of mortgage.
An examination of Caltex Philippines, Inc. reveals that the Court was thereby only interpreting the
prescriptive period within which to bring the suit for the recovery of the deficiency after the
foreclosure of the mortgage, and was not at all ruling therein on the venue of such suit or on the
nature of such suit being either a real or a personal action.
Given the foregoing, the petitioner correctly brought Civil Case No.03-450 in the Makati RTC
because Makati was the place where the main office of the petitioner was located.1avvphi1
Moreover, the Makati RTC observed, and the observation is correct in our view, that it would be
improper to dismiss Civil Case No. 03-450 on the ground of improper venue, assuming that the venue
had been improperly laid, considering that the respondents had not raised such ground in their Motion

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to Dismiss. As earlier indicated, they came to raise the objection of improper venue for the first time
only in their reply to the petitioner's comment on their Motion for Reconsideration. They did so
belatedly.
We underscore that in civil proceedings, venue is procedural, not jurisdictional, and may be waived
by the defendant if not seasonably raised either in a motion to dismiss or in the answer.25 Section 1,
Rule 9 of the Rules of Court thus expressly stipulates that defenses and objections not pleaded either
in a motion to dismiss or in the answer are deemed waived. As it relates to the place of trial, indeed,
venue is meant to provide convenience to the parties, rather than to restrict their access to the
courts.26 In other words, unless the defendant seasonably objects, any action may be tried by a court
despite its being the improper venue.
WHEREFORE, we GRANT the petition for review on certiorari; REVERSE and SET ASIDE the
decision promulgated by the Court of Appeals on March 31, 2006; REINSTATE the orders dated
October 17, 2003 and February 1, 2005 of the Regional Trial Court, Branch 60, in Makati City; and
ORDER the respondents to pay the costs of suit.
SO ORDERED.

SECOND DIVISION
G.R. No. 161417

February 8, 2007

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MA. TERESA CHAVES BIACO, Petitioner,
vs.
PHILIPPINE COUNTRYSIDE RURAL BANK, Respondent.

On February 22, 2000, respondent bank filed a complaint for foreclosure of mortgage against the
spouses Ernesto and Teresa Biaco before the RTC of Misamis Oriental. Summons was served to the
spouses Biaco through Ernesto at his office (Export and Industry Bank) located at Jofelmor Bldg.,
Mortola Street, Cagayan de Oro City.

DECISION
TINGA, J.:
Petitioner, Ma. Teresa Chaves Biaco, seeks a review of the Decision 1 of the Court of Appeals in CAG.R. No. 67489 dated August 27, 2003, which denied her petition for annulment of judgment, and the
Resolution2 dated December 15, 2003 which denied her motion for reconsideration.
The facts as succinctly stated by the Court of Appeals are as follows:
Ernesto Biaco is the husband of petitioner Ma. Teresa Chaves Biaco. While employed in the
Philippine Countryside Rural Bank (PCRB) as branch manager, Ernesto obtained several loans from
the respondent bank as evidenced by the following promissory notes:
Feb. 17, 1998

P 65,000.00

Mar. 18, 1998

30,000.00

May 6, 1998

60,000.00

May 20, 1998

350,000.00

July 30, 1998

155,000.00

Sept. 8, 1998

40,000.00

Sept. 8, 1998

120,000.00

As security for the payment of the said loans, Ernesto executed a real estate mortgage in favor of the
bank covering the parcel of land described in Original Certificate of Title (OCT) No. P-14423. The
real estate mortgages bore the signatures of the spouses Biaco.
When Ernesto failed to settle the above-mentioned loans on its due date, respondent bank through
counsel sent him a written demand on September 28, 1999. The amount due as of September 30,
1999 had already reached ONE MILLION EIGHTY THOUSAND SIX HUNDRED SEVENTY SIX
AND FIFTY CENTAVOS (P1,080,676.50).
The written demand, however, proved futile.

Ernesto received the summons but for unknown reasons, he failed to file an answer. Hence, the
spouses Biaco were declared in default upon motion of the respondent bank. The respondent bank
was allowed to present its evidence ex parte before the Branch Clerk of Court who was then
appointed by the court as Commissioner.
Arturo Toring, the branch manager of the respondent bank, testified that the spouses Biaco had been
obtaining loans from the bank since 1996 to 1998. The loans for the years 1996-1997 had already
been paid by the spouses Biaco, leaving behind a balance of P1,260,304.33 representing the 1998
loans. The amount being claimed is inclusive of interests, penalties and service charges as agreed
upon by the parties. The appraisal value of the land subject of the mortgage is only P150,000.00 as
reported by the Assessors Office.
Based on the report of the Commissioner, the respondent judge ordered as follows:
WHEREFORE, judgment is hereby rendered ordering defendants spouses ERNESTO R. BIACO and
MA. THERESA [CHAVES] BIACO to pay plaintiff bank within a period of not less than ninety (90)
days nor more than one hundred (100) days from receipt of this decision the loan of ONE MILLION
TWO HUNDRED SIXTY THOUSAND THREE HUNDRED FOUR PESOS and THIRTY THREE
CENTAVOS (P1,260,304.33) plus litigation expenses in the amount of SEVEN THOUSAND SIX
HUNDRED FORTY PESOS (P7,640.00) and attorneys fees in the amount of TWO HUNDRED
FIFTY TWO THOUSAND THIRTY PESOS and FORTY THREE CENTAVOS (P252,030.43) and
cost of this suit.
In case of non-payment within the period, the Sheriff of this Court is ordered to sell at public auction
the mortgaged Lot, a parcel of registered land (Lot 35802, Cad. 237 {Lot No. 12388-B, Csd-10002342-D}), located at Gasi, Laguindingan, Misamis Oriental and covered by TCT No. P-14423 to
satisfy the mortgage debt, and the surplus if there be any should be delivered to the defendants
spouses ERNESTO and MA. THERESA [CHAVES] BIACO. In the event however[,] that the
proceeds of the auction sale of the mortgage[d] property is not enough to pay the outstanding
obligation, the defendants are ordered to pay any deficiency of the judgment as their personal
liability.
SO ORDERED.
On July 12, 2000, the sheriff personally served the above-mentioned judgment to Ernesto Biaco at his
office at Export and Industry Bank. The spouses Biaco did not appeal from the adverse decision of
the trial court. On October 13, 2000, the respondent bank filed an ex parte motion for execution to

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direct the sheriff to sell the mortgaged lot at public auction. The respondent bank alleged that the
order of the court requiring the spouses Biaco to pay within a period of 90 days had passed, thus
making it necessary to sell the mortgaged lot at public auction, as previously mentioned in the order
of the court. The motion for execution was granted by the trial court per Order dated October 20,
2000.
On October 31, 2000, the sheriff served a copy of the writ of execution to the spouses Biaco at their
residence in #92 9th Street, Nazareth, Cagayan de Oro City. The writ of execution was personally
received by Ernesto. By virtue of the writ of execution issued by the trial court, the mortgaged
property was sold at public auction in favor of the respondent bank in the amount of ONE
HUNDRED FIFTY THOUSAND PESOS (P150,000.00).
The amount of the property sold at public auction being insufficient to cover the full amount of the
obligation, the respondent bank filed an "ex parte motion for judgment" praying for the issuance of a
writ of execution against the other properties of the spouses Biaco for the full settlement of the
remaining obligation. Granting the motion, the court ordered that a writ of execution be issued
against the spouses Biaco to enforce and satisfy the judgment of the court for the balance of ONE
MILLION THREE HUNDRED SIXTY NINE THOUSAND NINE HUNDRED SEVENTY FOUR
PESOS AND SEVENTY CENTAVOS (P1,369,974.70).
The sheriff executed two (2) notices of levy against properties registered under the name of petitioner
Ma. Teresa Chaves Biaco. However, the notices of levy were denied registration because Ma. Teresa
had already sold the two (2) properties to her daughters on April 11, 2001. 3
Petitioner sought the annulment of the Regional Trial Court decision contending that extrinsic fraud
prevented her from participating in the judicial foreclosure proceedings. According to her, she came
to know about the judgment in the case only after the lapse of more than six (6) months after its
finality. She claimed that extrinsic fraud was perpetrated against her because the bank failed to verify
the authenticity of her signature on the real estate mortgage and did not inquire into the reason for the
absence of her signature on the promissory notes. She moreover asserted that the trial court failed to
acquire jurisdiction because summons were served on her through her husband without any
explanation as to why personal service could not be made.
The Court of Appeals considered the two circumstances that kept petitioner in the dark about the
judicial foreclosure proceedings: (1) the failure of the sheriff to personally serve summons on
petitioner; and (2) petitioners husbands concealment of his knowledge of the foreclosure
proceedings. On the validity of the service of summons, the appellate court ruled that judicial
foreclosure proceedings are actions quasi in rem. As such, jurisdiction over the person of the
defendant is not essential as long as the court acquires jurisdiction over the res. Noting that the
spouses Biaco were not opposing parties in the case, the Court of Appeals further ruled that the fraud
committed by one against the other cannot be considered extrinsic fraud.

Her motion for reconsideration having been denied, petitioner filed the instant Petition for
Review,4 asserting that even if the action is quasi in rem, personal service of summons is essential in
order to afford her due process. The substituted service made by the sheriff at her husbands office
cannot be deemed proper service absent any explanation that efforts had been made to personally
serve summons upon her but that such efforts failed. Petitioner contends that extrinsic fraud was
perpetrated not so much by her husband, who did not inform her of the judicial foreclosure
proceedings, but by the sheriff who allegedly connived with her husband to just leave a copy of the
summons intended for her at the latters office.
Petitioner further argues that the deficiency judgment is a personal judgment which should be deemed
void for lack of jurisdiction over her person.
Respondent PCRB filed its Comment,5 essentially reiterating the appellate courts ruling. Respondent
avers that service of summons upon the defendant is not necessary in actions quasi in rem it being
sufficient that the court acquire jurisdiction over the res. As regards the alleged conspiracy between
petitioners husband and the sheriff, respondent counters that this is a new argument which cannot be
raised for the first time in the instant petition.
We required the parties to file their respective memoranda in the Resolution 6 dated August 18, 2004.
Accordingly, petitioner filed her Memorandum7 dated October 10, 2004, while respondent filed its
Memorandum for Respondent8dated September 9, 2004.
Annulment of judgment is a recourse equitable in character, allowed only in exceptional cases as
where there is no available or other adequate remedy. Jurisprudence and Sec. 2, Rule 47 of the 1997
Rules of Civil Procedure (Rules of Court) provide that judgments may be annulled only on grounds
of extrinsic fraud and lack of jurisdiction or denial of due process. 9
Petitioner asserts that extrinsic fraud consisted in her husbands concealment of the loans which he
obtained from respondent PCRB; the filing of the complaint for judicial foreclosure of mortgage;
service of summons; rendition of judgment by default; and all other proceedings which took place
until the writ of garnishment was served.10
Extrinsic fraud exists when there is a fraudulent act committed by the prevailing party outside of the
trial of the case, whereby the defeated party was prevented from presenting fully his side of the case
by fraud or deception practiced on him by the prevailing party.11 Extrinsic fraud is present where
the unsuccessful party had been prevented from exhibiting fully his case, by fraud or deception
practiced on him by his opponent, as by keeping him away from court, a false promise of a
compromise; or where the defendant never had knowledge of the suit, being kept in ignorance by the
acts of the plaintiff; or where an attorney fraudulently or without authority assumes to represent a
party and connives at his defeat; or where the attorney regularly employed corruptly sells out his
clients interest to the other side. The overriding consideration is that the fraudulent scheme of
the prevailing litigant prevented a party from having his day in court.12

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With these considerations, the appellate court acted well in ruling that there was no fraud perpetrated
by respondent bank upon petitioner, noting that the spouses Biaco were co-defendants in the case and
shared the same interest. Whatever fact or circumstance concealed by the husband from the wife
cannot be attributed to respondent bank.

There is a dimension to this case though that needs to be delved into. Petitioner avers that she was not
personally served summons. Instead, summons was served to her through her husband at his office
without any explanation as to why the particular surrogate service was resorted to. The Sheriffs
Return of Service dated March 21, 2000 states:

Moreover, petitioners allegation that her signature on the promissory notes was forged does not
evince extrinsic fraud. It is well-settled that the use of forged instruments during trial is not extrinsic
fraud because such evidence does not preclude the participation of any party in the proceedings. 13

xxxx

The question of whether the trial court has jurisdiction depends on the nature of the
action, i.e., whether the action isin personam, in rem, or quasi in rem. The rules on service of
summons under Rule 14 of the Rules of Court likewise apply according to the nature of the action.
An action in personam is an action against a person on the basis of his personal liability. An action in
rem is an action against the thing itself instead of against the person. An action quasi in rem is one
wherein an individual is named as defendant and the purpose of the proceeding is to subject his
interest therein to the obligation or lien burdening the property.14
In an action in personam, jurisdiction over the person of the defendant is necessary for the court to
validly try and decide the case. In a proceeding in rem or quasi in rem, jurisdiction over the person of
the defendant is not a prerequisite to confer jurisdiction on the court provided that the court acquires
jurisdiction over the res. Jurisdiction over the res is acquired either (1) by the seizure of the property
under legal process, whereby it is brought into actual custody of the law; or (2) as a result of the
institution of legal proceedings, in which the power of the court is recognized and made effective. 15
Nonetheless, summons must be served upon the defendant not for the purpose of vesting the court
with jurisdiction but merely for satisfying the due process requirements. 16
A resident defendant who does not voluntarily appear in court, such as petitioner in this case, must be
personally served with summons as provided under Sec. 6, Rule 14 of the Rules of Court. If she
cannot be personally served with summons within a reasonable time, substituted service may be
effected (1) by leaving copies of the summons at the defendants residence with some person of
suitable age and discretion then residing therein, or (2) by leaving the copies at defendants office or
regular place of business with some competent person in charge thereof in accordance with Sec. 7,
Rule 14 of the Rules of Court.
In this case, the judicial foreclosure proceeding instituted by respondent PCRB undoubtedly vested
the trial court with jurisdiction over the res. A judicial foreclosure proceeding is an action quasi in
rem. As such, jurisdiction over the person of petitioner is not required, it being sufficient that the trial
court is vested with jurisdiction over the subject matter.

That on March 16, 2000, the undersigned served the copies of Summons, complaint and its annexes
to the defendants Sps. Ernesto R. & Ma. Teresa Ch. Biaco thru Ernesto R. Biaco[,] defendant of the
above-entitled case at his office EXPORT & INDUSTRY BANK, Jofelmore Bldg.[,] Mortola St.,
Cagayan de Oro City and he acknowledged receipt thereof as evidenced with his signature appearing
on the original copy of the Summons.17 [Emphasis supplied]
Without ruling on petitioners allegation that her husband and the sheriff connived to prevent
summons from being served upon her personally, we can see that petitioner was denied due process
and was not able to participate in the judicial foreclosure proceedings as a consequence. The violation
of petitioners constitutional right to due process arising from want of valid service of summons on
her warrants the annulment of the judgment of the trial court.
There is more, the trial court granted respondent PCRBs ex-parte motion for deficiency judgment
and ordered the issuance of a writ of execution against the spouses Biaco to satisfy the remaining
balance of the award. In short, the trial court went beyond its jurisdiction over the res and rendered a
personal judgment against the spouses Biaco. This cannot be countenanced.1awphil.net
In Sahagun v. Court of Appeals,18 suit was brought against a non-resident defendant, Abelardo
Sahagun, and a writ of attachment was issued and subsequently levied on a house and lot registered
in his name. Claiming ownership of the house, his wife, Carmelita Sahagun, filed a motion to
intervene. For failure of plaintiff to serve summons extraterritorially upon Abelardo, the complaint
was dismissed without prejudice.
Subsequently, plaintiff filed a motion for leave to serve summons by publication upon Abelardo. The
trial court granted the motion. Plaintiff later filed an amended complaint against Abelardo, this time
impleading Carmelita and Rallye as additional defendants. Summons was served on Abelardo
through publication in the Manila Evening Post. Abelardo failed to file an answer and was declared in
default. Carmelita went on certiorari to the Court of Appeals assailing as grave abuse of discretion the
declaration of default of Abelardo. The Court of Appeals dismissed the petition and denied
reconsideration.
In her petition with this Court, Carmelita raised the issue of whether the trial court acquired
jurisdiction over her husband, a non-resident defendant, by the publication of summons in a
newspaper of general circulation in the Philippines. The Court sustained the correctness of
extrajudicial service of summons by publication in such newspaper.

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The Court explained, citing El Banco Espaol-Filipino v. Palanca,19 that foreclosure and attachment
proceedings are both actions quasi in rem. As such, jurisdiction over the person of the (non-resident)
defendant is not essential. Service of summons on a non-resident defendant who is not found in the
country is required, not for purposes of physically acquiring jurisdiction over his person but simply in
pursuance of the requirements of fair play, so that he may be informed of the pendency of the action
against him and the possibility that property belonging to him or in which he has an interest may be
subjected to a judgment in favor of a resident, and that he may thereby be accorded an opportunity to
defend in the action, should he be so minded.
Significantly, the Court went on to rule, citing De Midgely v. Ferandos, et. al.20 and Perkins v. Dizon,
et al.21 that in a proceeding in rem or quasi in rem, the only relief that may be granted by the court
against a defendant over whose person it has not acquired jurisdiction either by valid service of
summons or by voluntary submission to its jurisdiction, is limited to the res.
Similarly, in this case, while the trial court acquired jurisdiction over the res, its jurisdiction is limited
to a rendition of judgment on the res. It cannot extend its jurisdiction beyond the res and issue a
judgment enforcing petitioners personal liability. In doing so without first having acquired
jurisdiction over the person of petitioner, as it did, the trial court violated her constitutional right to
due process, warranting the annulment of the judgment rendered in the case.
WHEREFORE, the instant petition is GRANTED. The Decision dated August 27, 2003 and the
Resolution dated December 15, 2003 of the Court of Appeals in CA-G.R. SP No. 67489 are SET
ASIDE. The Judgment dated July 11, 2000 and Order dated February 9, 2001 of the Regional Trial
Court of Cagayan de Oro City, Branch 20, are likewise SET ASIDE.
SO ORDERED.

G.R. No. 173002

July 4, 2008

BENJAMIN BAUTISTA, petitioner,


vs.
SHIRLEY G. UNANGST and OTHER UNKNOWN PERSONS, respondentS.
DECISION
REYES, R.T., J.:

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THE presumption of equitable mortgage imposes a burden on the buyer to present clear evidence to
rebut it. He must overthrow it, lest it persist.1 To overturn that prima facie presumption, the buyer
needs to adduce substantial and credible evidence to prove that the contract was a bona fide deed of
sale with right to repurchase.
This petition for review on certiorari impugns the Decision2 of the Court of Appeals (CA) in CAG.R. CV No. 859423which reversed and set aside that4 of the Regional Trial Court (RTC) in an action
for specific performance or recovery of possession, for sum of money, for consolidation of
ownerships and damages.
The Facts
On November 15, 1996, Hamilton Salak rented a car from GAB Rent-A-Car, a car rental shop owned
by petitioner Benjamin Bautista. The lease was for three (3) consecutive days at a rental fee
of P1,000.00 per day.5 However, Salak failed to return the car after three (3) days prompting
petitioner to file a complaint against him for estafa, violation of Batas Pambansa Blg. 22 and
carnapping.6
On February 2, 1997, Salak and his common-law wife, respondent Shirley G. Unangst, were arrested
by officers of the Criminal Investigation Service Group (CISG) of the Philippine National Police
while riding the rented car along Quezon City. The next day, petitioner demanded from Salak at the
CISG Office the sum of P232,372.00 as payment for car rental fees, fees incurred in locating the car,
attorney's fees, capital gains tax, transfer tax, and other incidental expenses. 7
Salak and respondent expressed willingness to pay but since they were then short on cash, Salak
proposed to sell to petitioner a house and lot titled in the name of respondent. Petitioner welcomed
the proposal after consulting his wife, Cynthia. Cynthia, on the other hand, further agreed to pay the
mortgage loan of respondent over the subject property to a certain Jojo Lee in the amount
of P295,000.00 as the property was then set to be publicly auctioned on February 17, 1997. 8
To formalize their amicable settlement, Cynthia, Salak and respondent executed a written
agreement.9 They stipulated that respondent would sell, subject to repurchase, her residential property
in favor of Cynthia for the total amount of P527,372.00 broken down, as follows: (1) P295,000.00 for
the amount paid by Cynthia to Lee to release the mortgage on the property; and (2) P232,372.00,
which is the amount due to GAB Rent-A-Car. Cynthia also agreed to desist from pursuing the
complaint against Salak and respondent.10
Respondent and petitioner also executed a separate deed of sale with right to repurchase, 11 specifying,
among others, that: (1) respondent, as vendor, shall pay capital gains tax, current real estate taxes and
utility bills pertaining to the property; (2) if respondent fails to repurchase the property within 30
days from the date of the deed, she and her assigns shall immediately vacate the premises and deliver

its possession to petitioner without need of a judicial order; and (3) respondent's refusal to do so will
entitle petitioner to take immediate possession of the property.12
Respondent failed to repurchase the property within the stipulated period. As a result, petitioner filed,
on June 5, 1998, a complaint for specific performance or recovery of possession, for sum of money,
for consolidation of ownership and damages against respondent and other unnamed persons before
the RTC of Olongapo City.
In his complaint,13 petitioner alleged, among others, that after respondent failed to repurchase the
subject realty, he caused the registration of the deed of sale with the Register of Deeds and the
transfer of the tax declarations in his name; that respondent failed to pay the capital gains taxes and
update the real estate taxes forcing him to pay said amounts in the sum of P71,129.05
and P11,993.72, respectively; and that respondent violated the terms of the deed when she, as well as
the other unnamed persons, refused to vacate the subject property despite repeated demands. 14
Petitioner prayed before the RTC that an order be issued in his favor directing respondents to: (1)
surrender the possession of the property; (2) pay P150,000.00 for the reasonable compensation for its
use from March 7, 1997 to June 7, 1998, plus P10,000.00 per month afterward; (3) pay the amount
advanced by petitioner, to wit: P71,129.05 and P11,993.72 for the payment of capital gains tax and
real estate taxes, respectively; and P70,000.00 for attorney's fees.15
On June 16, 1998, petitioner filed an amended complaint, 16 reiterating his previous allegations but
with the added prayer for consolidation of ownership pursuant to Article 1607 of the Civil Code. 17
On the other hand, respondents controverted the allegations in the complaint and averred in their
Answer,18 among others, that plaintiff had no cause of action inasmuch as respondent Unangst signed
the subject deed of sale under duress and intimidation employed by petitioner and his cohorts; that,
assuming that her consent was freely given, the contract of sale was simulated and fictitious since the
vendor never received the stipulated consideration; that the sale should be construed as an equitable
mortgage pursuant to Articles 1602 and 1604 of the Civil Code because of its onerous conditions and
shockingly low consideration; that their indebtedness in the form of arrears in car rentals merely
amounts to P90,000.00; and that the instant action was premature as plaintiff had not yet consolidated
ownership over the property. Defendants counterclaimed for moral damages in the amount
ofP500,000.00 and attorney's fees in the amount of P50,000.00, plus P500.00 per appearance.19
On July 29, 2004, after due proceedings, the RTC rendered a decision in favor of petitioner, disposing
as follows:
WHEREFORE, judgment is rendered finding the Deed of Sale with Right to Repurchase
(Exh. "C") as, indeed, a document of sale executed by the defendant in favor of the plaintiff
covering the parcel of land house (sic) situated at Lot 3-B, Blk. 10, Waterdam Road,
Gordon Heights, Olongapo City, declared under Tax Declaration Nos. 004-7756R and

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7757R (Exhs. "I" and "I-1"). The defendant and any person taking rights from her is (sic)
ordered to immediately vacate from the place and turn over its possession to the plaintiff.
They are likewise directed not to remove any part of the building on the lot.

On the other hand, petitioner insisted, among others, that although the petition for relief of
respondents was filed on time, the proper filing fees for said petition were paid beyond the 60-day
reglementary period. He posited that jurisdiction is acquired by the court over the action only upon
full payment of prescribed docket fees.31

The ownership of the said property is properly consolidated in the name of the plaintiff.
CA Disposition
The defendant is further ordered to pay to the plaintiff the amount of P10,000.00 a month
from March 7, 1997 up to the time possession of the lot and house is restored to the
plaintiff representing the reasonable value for the use of the property; the amount
of P71,129.05 representing the payment made by the plaintiff on the capital gain taxes and
the further amount of P70,000.00 for attorney's fees and the costs of suit.
SO ORDERED.20
Respondents failed to interpose a timely appeal. However, on September 10, 2004, respondent
Unangst filed a petition for relief pursuant to Section 38 of the 1997 Rules on Civil Procedure. She
argued that she learned of the decision of the RTC only on September 6, 2004 when she received a
copy of the motion for execution filed by petitioner.21
Petitioner, on the other hand, moved for the dismissal of respondent's petition on the ground that the
latter paid an insufficient sum of P200.00 as docket fees.22
It appears that respondent Unangst initially paid P200.00 as docket fees as this was the amount
assessed by the Clerk of Court of the RTC.23 Said amount was insufficient as the proper filing fees
amount to P1,715.00. Nevertheless, the correct amount was subsequently paid by said respondent on
February 22, 2005.24
In their comment,25 respondents countered that they should not be faulted for paying deficient docket
fees as it was due to an erroneous assessment of the Clerk of Court. 26
The RTC granted the petition for relief. Subsequently, it directed respondents to file a notice of appeal
within twenty-four (24) hours from receipt of the order.27 Accordingly, on February 23, 2005,
respondents filed their notice of appeal.28
Respondents contended before the CA that the RTC erred in: (1) not annulling the deed of sale with
right to repurchase; (2) declaring that the deed of sale with right to repurchase is a real contract of
sale; (3) ordering the consolidation of ownership of the subject property in the name of
petitioner.29 They argued that respondent Unangst's consent to the deed of sale with right to
repurchase was procured under duress and that even assuming that her consent was freely given, the
contract partakes of the nature of an equitable mortgage. 30

In a Decision32 dated April 7, 2006, the CA reversed and set aside the RTC judgment. 33 The
dispositive part of the appellate court's decision reads, thus:
IN VIEW OF ALL THE FOREGOING, the instant appeal is hereby GRANTED, the
challenged Decision dated July 29, 2004 hereby (sic) REVERSED and SET ASIDE, and a
new one entered declaring the Deed of Sale With Right Of Repurchase dated February 4,
1997 as an equitable mortgage. No cost.
SO ORDERED.34
The CA declared that the Deed of Sale with Right of Repurchase executed by the parties was an
equitable mortgage. On the procedural aspect pertaining to the petition for relief filed by respondent
Unangst, the CA ruled that "the trial court, in opting to apply the rules liberally, cannot be faulted for
giving due course to the questioned petition for relief which enabled appellants to interpose the
instant appeal."35 It ratiocinated:
Appellee recognizes the timely filing of appellants' petition for relief to be able to appeal
judgment but nonetheless points out that the proper filing fees were paid beyond the 60-day
reglementary period. Arguing that the court acquires jurisdiction over the action only upon
full payment of the prescribed docket fees, he submits that the trial court erred in granting
appellants' petition for relief despite the late payment of the filing fees.
While this Court is fully aware of the mandatory nature of the requirement of payment of
appellate docket fee, the High Court has recognized that its strict application is qualified by
the following: first, failure to pay those fees within the reglementary period allows only
discretionary, not automatic, dismissal; second, such power should be used by the court in
conjunction with its exercise of sound discretion in accordance with the tenets of justice
and fair play, as well as with a great deal of circumspection in consideration of all attendant
circumstances (Meatmasters International Corporation v. Lelis Integrated Development
Corporation, 452 SCRA 626 [2005], citing La Salette College v. Pilotin, 418 SCRA 380
[2003]).
Applied in the instant case, the docket fees were admittedly paid only on February 22,
2005, or a little less than two (2) months after the period for filing the petition lapsed. Yet,
this matter was sufficiently explained by appellants. The records bear out that appellants

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initially paid P200.00 as docket fees because this was the amount assessed by the Clerk of
Court of the RTC of Olongapo City (p. 273, Records). As it turned out, the fees paid was
insufficient, the proper filing fees being P1,715.00, which was eventually paid by
appellants on February 1, 2005 (p. 296, Records). As such, appellants cannot be faulted for
their failure to pay the proper docket fees for, given the prevailing circumstances, such
failure was clearly not a dilatory tactic nor intended to circumvent the Rules of Court. On
the contrary, appellants demonstrated their willingness to pay the docket fees when they
subsequently paid on the same day they were assessed the correct fees (p. 299, Records).
Notably, in Yambao v. Court of Appeals (346 SCRA 141 [2000]), the High Court declared
therein that "the appellate court may extend the time for the payment of the docket fees if
appellants is able to show that there is a justifiable reason for his failure to pay the correct
amount of docket fees within the prescribed period, like fraud, accident, mistake, excusable
negligence, or a similar supervening casualty, without fault on the part of appellant." Verily,
the trial court, in opting to apply the rules liberally, cannot be faulted for giving due course
to the questioned petition for relief which enabled appellants to interpose the instant
appeal.36
On the substantial issues, the CA concluded that "While the records is bereft of any proof or evidence
that appellee employed unlawful or improper pressure against appellant Unangst to give her consent
to the contract of sale, there is, nevertheless, sufficient basis to hold the subject contract as one of
equitable mortgage."37 It explained:
Jurisprudence has consistently held that the nomenclature used by the contracting parties to
describe a contract does not determine its nature. The decisive factor in determining the
true nature of the transaction between the parties is the intent of the parties, as shown not
necessarily by the terminology used in the contract but by all the surrounding
circumstances, such as the relative situations of the parties at that time; the attitudes, acts,
conduct, and declarations of the parties; the negotiations between them leading to the deed;
and generally, all pertinent facts having a tendency to fix and determine the real nature of
their design and understanding (Legaspi v. Ong, 459 SCRA 122 [2005]).
It must be stressed, however, that there is no conclusive test to determine whether a deed
absolute on its face is really a simple loan accommodation secured by a mortgage. In fact, it
is often a question difficult to resolve and is frequently made to depend on the surrounding
circumstances of each case. When in doubt, courts are generally inclined to construe a
transaction purporting to be a sale as an equitable mortgage, which involves a lesser
transmission of rights and interests over the property in controversy (Legaspi, ibid.).
Article 1602 of the Civil Code enumerates the instances where a contract shall be presumed
to be an equitable mortgage when - (a) the price of a sale with right to repurchase is
unusually inadequate; (b) the vendor remains in possession as lessee or otherwise; (c) upon
or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed; (d) the purchaser retains for himself a part

of the purchase price; (e) the vendor binds himself to pay taxes on the thing sold; and, (f) in
any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation
(Legaspi, supra;Martinez v. Court of Appeals, 358 SCRA 38 [2001]).
For the presumption of an equitable mortgage to arise under Article 1602, two (2) requisites
must concur: (a) that the parties entered into a contract denominated as a contract of sale;
and, (b) that their intention was to secure an existing debt by way of a mortgage. Any of the
circumstance laid out in Article 1602, not the concurrence nor an overwhelming number of
the circumstances therein enumerated, suffices to construe a contract of sale to be one of
equitable mortgage (Lorbes v. Court of Appeals, 351 SCRA 716 [2001]).
Applying the foregoing considerations in the instant case, there is hardly any doubt that the
true intention of the parties is that the transaction shall secure the payment of a debt. It is
not contested that before executing the subject deed, Unangst and Salak were under police
custody and were sorely pressed for money. Such urgent prospect of prolonged detention
helps explain why appellants would subscribe to an agreement like the deed in the instant
case. This might very well explain appellants' insistence that Unangst was not truly free
when she signed the questioned deed. Besides, there is no gainsaying that when appellee
allowed appellants to retain possession of the realty sold for 30 days, as part of the
agreement, that period of time surely signaled a time allotted to Salak and Unangst, as
debtors, within which to pay their mortgage indebtedness.
The High Court, in several cases involving similar situations, has declared that "while it
was true that plaintiffs were aware of the contents of the contracts, the preponderance of the
evidence showed, however, that they signed knowing that said contracts did not express
their real intention, and if they did so notwithstanding this, it was due to the urgent
necessity of obtaining funds. Necessitous men are not, truly speaking, free men; but to
answer a present emergency, will submit to any terms that the crafty may impose upon
them" (Lorbes, ibid.; Reyes v. Court of Appeals, 339 SCRA 97 [2000]; Lao v. Court of
Appeals, 275 SCRA 237 [1997]; Zamora v. Court of Appeals, 260 SCRA 10
[1996]; Labasan v. Lacuesta, 86 SCRA 16 [1978]).
After all, Article 1602(6) provides that a contract of sale with right to repurchase is
presumed to be an equitable mortgage in any other case where it may be fairly inferred that
the real intention of the parties is that the transaction shall secure the payment of a debt or
the performance of any obligation. In fine, a careful review of the records convincingly
shows that the obtaining facts in this case qualify the controversial agreement between the
parties as an equitable mortgage under Article 1602 of the New Civil Code. 38
Issues

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Petitioner has resorted to the present recourse under Rule 45, assigning to the CA the following
errors:

the interest of justice. It is always within the power of this Court to suspend its own rules, or to
except a particular case from their operation, whenever the purposes of justice require it. 44

(a) The Honorable Court of Appeals committed grave error in finding that the respondent
perfected an appeal via Petition for Relief To Be Able To Appeal Judgment even when the
proper docket fees were paid beyond the period prescribed to bring such action under
Section 3 of Rule 38 of the 1997 Rules of Civil Procedure in relation to the
pronouncements by the Honorable Court in the cases of Philippine Rabbit Bus Lines, Inc. v.
Arciaga [148 SCRA 433], Philippine Pryce Assurance Corp. v. Court of Appeals [148
SCRA 433] and Sun Insurance Office, Ltd. v. Asuncion [170 SCRA 274].

In not a few instances, the Court relaxed the rigid application of the rules of procedure to afford the
parties the opportunity to fully ventilate their cases on the merits. This is in line with the timehonored principle that cases should be decided only after giving all parties the chance to argue their
causes and defenses.45 For, it is far better to dispose of a case on the merit which is a primordial end,
rather than on a technicality, if it be the case, that may result in injustice. 46 The emerging trend in the
rulings of this Court is to afford every party-litigant the amplest opportunity for the proper and just
determination of his cause, free from the constraints of technicalities. 47

(b) The Honorable Court of Appeals erred on a question of law in reversing the Decision of
the Court a quo finding the Deed of Sale with Right to Repurchase a document of sale
executed by the respondent in favor of the petitioner and in further holding such contract as
one of equitable mortgage.39

As early as 1946, in Segovia v. Barrios,48 the Court ruled that where an appellant in good faith paid
less than the correct amount for the docket fee because that was the amount he was required to pay by
the clerk of court, and he promptly paid the balance, it is error to dismiss his appeal because "(e)very
citizen has the right to assume and trust that a public officer charged by law with certain duties knows
his duties and performs them in accordance with law. To penalize such citizen for relying upon said
officer in all good faith is repugnant to justice."49

Our Ruling
On the first issue, petitioner contends that respondents' "Petition for Relief to Be Able to Appeal
Judgment," which paved the way for the allowance of respondents' appeal of the RTC decision, was
filed within the prescriptive period but the proper docket fees for it were belatedly paid. 40 He thus
posits that the RTC did not acquire jurisdiction over said petition. Having no jurisdiction, the RTC
could not have allowed respondents to appeal.
On this issue, respondent counters that the belated payment of proper docket fees was not due to their
fault but to the improper assessment by the Clerk of Court. Respondent asserts the ruling of the CA
that the court may extend the time for the payment of the docket fees if there is a justifiable reason
for the failure to pay the correct amount. Moreover, respondent argues that petitioner failed to contest
the RTC Order dated February 21, 2004 that allowed the payment of supplementary docket fees.
Petitioner failed to file a motion for reconsideration or a petition for certiorari to the higher court to
question said order.
We agree with respondents. Their failure to pay the correct amount of docket fees was due to a
justifiable reason.
The right to appeal is a purely statutory right. Not being a natural right or a part of due process, the
right to appeal may be exercised only in the manner and in accordance with the rules provided
therefor.41 For this reason, payment of the full amount of the appellate court docket and other lawful
fees within the reglementary period is mandatory and jurisdictional. 42 Nevertheless, as this Court
ruled in Aranas v. Endona,43 the strict application of the jurisdictional nature of the above rule on
payment of appellate docket fees may be mitigated under exceptional circumstances to better serve

Technicality and procedural imperfections should thus not serve as bases of decisions. 50 In that way,
the ends of justice would be better served. For, indeed, the general objective of procedure is to
facilitate the application of justice to the rival claims of contending parties, bearing always in mind
that procedure is not to hinder but to promote the administration of justice. 51
We go now to the crux of the petition. Should the deed of sale with right to repurchase executed by
the parties be construed as an equitable mortgage? This is the pivotal question here.
According to petitioner, the deed should not be construed as an equitable mortgage as it does not fall
under any of the instances mentioned in Article 1602 of the Civil Code where the agreement can be
construed as an equitable mortgage. He added that the "language and terms of the Deed of Sale with
Right to Repurchase executed by respondent in favor of the petition are clear and unequivocal. Said
contract must be construed with its literal sense."52
We cannot agree.
Respondent is correct in alleging that the deed of sale with right to repurchase qualifies as an
equitable mortgage under Article 1602. She merely secured the payment of the unpaid car rentals and
the amount advanced by petitioner to Jojo Lee.
The transaction between the parties is one of equitable mortgage and not a sale with right to purchase
as maintained by petitioners. Article 1602 of the New Civil Code provides that the contract is
presumed to be an equitable mortgage in any of the following cases:

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(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the performance
of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the
vendee as rent or otherwise shall be considered as interest which shall be subject to the
usury laws.53 (Emphasis ours)
The conclusion that the deed of sale with right to repurchase is an equitable mortgage is buttressed by
the following:
First, before executing the deed, respondent and Salak were under police custody due to the
complaint lodged against them by petitioner. They were sorely pressed for money, as they would not
be released from custody unless they paid petitioner. It was at this point that respondent was
constrained to execute a deed of sale with right to repurchase. Respondent was in no position
whatsoever to bargain with their creditor, petitioner. Nel consensui tam contrarium est quam vis atqui
metus. There can be no consent when under force or duress. Bale wala ang pagsang-ayon kung ito'y
nakuha sa pamimilit o paraang di malaya.
It is established that respondent signed the deed only because of the urgent necessity of obtaining
funds.1avvphi1 When the vendor is in urgent need of money when he executes the sale, the alleged
sale with pacto de retro will be construed as an equitable mortgage. 54 "Necessitous men are not, truly
speaking, free men; but to answer a present emergency will submit to any terms that the crafty may
impose upon them."55
Second, petitioner allowed respondent and Salak to retain the possession of the property despite the
execution of the deed. In fact, respondent and Salak were not bound to deliver the possession of the
property to petitioner if they would pay him the amount he demanded. 56

Where in a contract of sale with pacto de retro, the vendor remains in possession, as a lessee or
otherwise, the contract shall be presumed to be an equitable mortgage. 57 The reason for the
presumption lies in the fact that in a contract of sale with pacto de retro, the legal title to the property
is immediately transferred to the vendee, subject to the vendor's right to redeem. Retention, therefore,
by the vendor of the possession of the property is inconsistent with the vendee's acquisition of the
right of ownership under a true sale.58 It discloses, in the alleged vendee, a lack of interest in the
property that belies the truthfulness of the sale a retro. 59
Third, it is likewise undisputed that the deed was executed by reason of: (1) the alleged indebtedness
of Salak to petitioner, that is, car rental payments; and (2) respondent's own obligation to petitioner,
that is, reimbursement of what petitioner paid to the mortgagee, Jojo Lee. Fact is, the purchase price
stated in the deed was the amount of the indebtedness of both respondent and Salak to petitioner.60
Apparently, the deed purports to be a sale with right to purchase. However, since it was executed in
consideration of the aforesaid loans and/or indebtedness, said contract is indubitably an equitable
mortgage. The rule is firmly settled that whenever it is clearly shown that a deed of sale with pacto
de retro, regular on its face, is given as security for a loan, it must be regarded as an equitable
mortgage.61
The above-mentioned circumstances preclude the Court from declaring that the parties intended the
transfer of the property from one to the other by way of sale. They are more than sufficient to show
that the true intention of the parties is to secure the payment of said debts. Verily, an equitable
mortgage under paragraphs 2 and 6 of Article 1602 exists here. Settled is the rule that to create the
presumption enunciated by Article 1602, the existence of one circumstance is enough. 62
Moreover, under Article 1603 of the Civil Code it is provided that: "(i)n case of doubt, a contract
purporting to be a sale with right to repurchase shall be construed as an equitable mortgage." In this
case, We have no doubt that the transaction between the parties is that of a loan secured by said
property by way of mortgage.
In Lorbes v. Court of Appeals,63 the Court held that:
The decisive factor in evaluating such agreement is the intention of the parties, as shown
not necessarily by the terminology used in the contract but by all the surrounding
circumstances, such as the relative situation of the parties at that time, the attitude, acts,
conduct, declarations of the parties, the negotiations between them leading to the deed, and
generally, all pertinent facts having a tendency to fix and determine the real nature of their
design and understanding. As such, documentary and parol evidence may be submitted and
admitted to prove the intention of the parties.
Sales with rights to repurchase, as defined by the Civil Code, are not favored. We will not construe
instruments to be sales with a right to repurchase, with the stringent and onerous effects which follow,

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unless the terms of the document and the surrounding circumstances require it. Whenever, under the
terms of the writing, any other construction can fairly and reasonably be made, such construction will
be adopted and the contract will be construed as a mere loan unless the court can see that, if enforced
according to its terms, it is not an unconscionable one. 64
Article 1602 of the Civil Code is designed primarily to curtail the evils brought about by contracts of
sale with right of repurchase, such as the circumvention of the laws against usury and pactum
commissorium.65
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.

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