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G.R. No.

112573 February 9, 1995


NORTHWEST
ORIENT
vs.
COURT OF APPEALS and
INC., respondents.

AIRLINES,

INC. petitioner,

C.F.

&

SHARP

COMPANY

PADILLA, JR., J.:


This petition for review on certiorari seeks to set aside the decision of the
Court of Appeals affirming the dismissal of the petitioner's complaint to
enforce the judgment of a Japanese court. The principal issue here is
whether a Japanese court can acquire jurisdiction over a Philippine
corporation doing business in Japan by serving summons through
diplomatic channels on the Philippine corporation at its principal office in
Manila after prior attempts to serve summons in Japan had failed.
Petitioner Northwest Orient Airlines, Inc. (hereinafter NORTHWEST), a
corporation organized under the laws of the State of Minnesota, U.S.A.,
sought to enforce in Civil Case No. 83-17637 of the Regional Trial Court
(RTC), Branch 54, Manila, a judgment rendered in its favor by a Japanese
court against private respondent C.F. Sharp & Company, Inc., (hereinafter
SHARP), a corporation incorporated under Philippine laws.
As found by the Court of Appeals in the challenged decision of 10
November 1993, 1 the following are the factual and procedural antecedents
of this controversy:
On May 9, 1974, plaintiff Northwest Airlines and
defendant C.F. Sharp & Company, through its Japan
branch, entered into an International Passenger Sales
Agency Agreement, whereby the former authorized the
latter to sell its air transportation tickets. Unable to remit
the proceeds of the ticket sales made by defendant on
behalf of the plaintiff under the said agreement, plaintiff

on March 25, 1980 sued defendant in Tokyo, Japan, for


collection of the unremitted proceeds of the ticket sales,
with claim for damages.
On April 11, 1980, a writ of summons was issued by the 36th Civil
Department, Tokyo District Court of Japan against defendant at its office
at the Taiheiyo Building, 3rd floor, 132, Yamashita-cho, Naka-ku,
Yokohoma, Kanagawa Prefecture. The attempt to serve the summons was
unsuccessful because the bailiff was advised by a person in the office that
Mr. Dinozo, the person believed to be authorized to receive court processes
was in Manila and would be back on April 24, 1980.
On April 24, 1980, bailiff returned to the defendant's office
to serve the summons. Mr. Dinozo refused to accept the
same claiming that he was no longer an employee of the
defendant.
After the two attempts of service were unsuccessful, the
judge of the Tokyo District Court decided to have the
complaint and the writs of summons served at the head
office of the defendant in Manila. On July 11, 1980, the
Director of the Tokyo District Court requested the
Supreme Court of Japan to serve the summons through
diplomatic channels upon the defendant's head office in
Manila.
On August 28, 1980, defendant received from Deputy
Sheriff Rolando Balingit the writ of summons (p. 276,
Records). Despite receipt of the same, defendant failed to
appear at the scheduled hearing. Thus, the Tokyo Court
proceeded to hear the plaintiff's complaint and on
[January 29, 1981], rendered judgment ordering the
defendant to pay the plaintiff the sum of 83,158,195 Yen
and damages for delay at the rate of 6% per annum from
August 28, 1980 up to and until payment is completed
(pp. 12-14, Records).

On March 24, 1981, defendant received from Deputy


Sheriff Balingit copy of the judgment. Defendant not
having appealed the judgment, the same became final and
executory.
Plaintiff was unable to execute the decision in Japan,
hence, on May 20, 1983, a suit for enforcement of the
judgment was filed by plaintiff before the Regional Trial
Court of Manila Branch 54. 2
On July 16, 1983, defendant filed its answer averring that
the judgment of the Japanese Court sought to be enforced
is null and void and unenforceable in this jurisdiction
having been rendered without due and proper notice to
the defendant and/or with collusion or fraud and/or upon
a clear mistake of law and fact (pp. 41-45, Rec.).
Unable to settle the case amicably, the case was tried on
the merits. After the plaintiff rested its case, defendant on
April 21, 1989, filed a Motion for Judgment on a Demurrer
to
Evidence
based
on
two
grounds:
(1) the foreign judgment sought to be enforced is null and
void for want of jurisdiction and (2) the said judgment is
contrary to Philippine law and public policy and rendered
without due process of law. Plaintiff filed its opposition
after which the court a quo rendered the now assailed
decision dated June 21, 1989 granting the demurrer
motion and dismissing the complaint (Decision, pp. 376378, Records). In granting the demurrer motion, the trial
court held that:
The foreign judgment in the Japanese
Court sought in this action is null and void
for want of jurisdiction over the person of
the defendant considering that this is an
action in personam; the Japanese Court

did not acquire jurisdiction over the


person of the defendant because
jurisprudence requires that the defendant
be served with summons in Japan in
order for the Japanese Court to acquire
jurisdiction over it, the process of the
Court in Japan sent to the Philippines
which is outside Japanese jurisdiction
cannot confer jurisdiction over the
defendant in the case before the Japanese
Court of the case at bar.Boudard versus
Tait 67 Phil. 170. The plaintiff contends
that the Japanese Court acquired
jurisdiction because the defendant is a
resident of Japan, having four (4)
branches doing business therein and in
fact had a permit from the Japanese
government to conduct business in Japan
(citing the exhibits presented by the
plaintiff); if this is so then service of
summons should have been made upon
the defendant in Japan in any of these
alleged four branches; as admitted by the
plaintiff the service of the summons
issued by the Japanese Court was made in
the Philippines thru a Philippine Sheriff.
This Court agrees that if the defendant in
a foreign court is a resident in the court of
that foreign court such court could
acquire jurisdiction over the person of the
defendant but it must be served upon the
defendant in the territorial jurisdiction of
the foreign court. Such is not the case here
because the defendant was served with
summons in the Philippines and not in
Japan.

Unable to accept the said decision, plaintiff on July 11,


1989 moved for reconsideration of the decision, filing at
the same time a conditional Notice of Appeal, asking the
court to treat the said notice of appeal "as in effect after
and upon issuance of the court's denial of the motion for
reconsideration."
Defendant opposed the motion for reconsideration to
which a Reply dated August 28, 1989 was filed by the
plaintiff.
On October 16, 1989, the lower court disregarded the
Motion for Reconsideration and gave due course to the
plaintiff's Notice of Appeal. 3
In its decision, the Court of Appeals sustained the trial court. It agreed
with the latter in its reliance upon Boudard vs.Tait 4 wherein it was held
that "the process of the court has no extraterritorial effect and no
jurisdiction is acquired over the person of the defendant by serving him
beyond the boundaries of the state." To support its position, the Court of
Appeals further stated:
In an action strictly in personam, such as the instant case,
personal service of summons within the forum is required
for the court to acquire jurisdiction over the defendant
(Magdalena Estate Inc. vs. Nieto, 125 SCRA 230). To
confer jurisdiction on the court, personal or substituted
service of summons on the defendant not extraterritorial
service is necessary (Dial Corp vs. Soriano, 161 SCRA 739).
But while plaintiff-appellant concedes that the collection
suit filed is an action in personam, it is its theory that a
distinction must be made between an action in
personam against a resident defendant and an action in
personam against a non-resident defendant. Jurisdiction
is acquired over a non-resident defendant only if he is
served personally within the jurisdiction of the court and

over a resident defendant if by personal, substituted or


constructive
service
conformably
to
statutory
authorization. Plaintiff-appellant argues that since the
defendant-appellee maintains branches in Japan it is
considered a resident defendant. Corollarily, personal,
substituted or constructive service of summons when
made in compliance with the procedural rules is sufficient
to give the court jurisdiction to render judgment in
personam.
Such an argument does not persuade.
It is a general rule that processes of the court cannot
lawfully be served outside the territorial limits of the
jurisdiction of the court from which it issues (Carter vs.
Carter; 41 S.E. 2d 532, 201) and this isregardless of the
residence or citizenship of the party thus served (IowaRahr vs. Rahr, 129 NW 494, 150 Iowa 511, 35 LRC, NS,
292, Am. Case 1912 D680). There must be actual service
within the proper territorial limits on defendant or
someone authorized to accept service for him. Thus, a
defendant, whether a resident or not in the forum where
the action is filed, must be served with summons within
that forum.
But even assuming a distinction between a resident
defendant and non-resident defendant were to be adopted,
such distinction applies only to natural persons and not in
the corporations. This finds support in the concept that "a
corporation has no home or residence in the sense in
which those terms are applied to natural persons" (Claude
Neon Lights vs. Phil. Advertising Corp., 57 Phil. 607).
Thus, as cited by the defendant-appellee in its brief:
Residence is said to be an attribute of a natural person,
and can be predicated on an artificial being only by more

or less imperfect analogy. Strictly speaking, therefore, a


corporation can have no local residence or habitation. It
has been said that a corporation is a mere ideal existence,
subsisting only in contemplation of law an invisible
being which can have, in fact, no locality and can occupy
no space, and therefore cannot have a dwelling place. (18
Am. Jur. 2d, p. 693 citing Kimmerle v. Topeka, 88 370,
128 p. 367; Wood v. Hartfold F. Ins. Co., 13 Conn 202)
Jurisprudence so holds that the foreign or domestic
character of a corporation is to be determined by the place
of its origin where its charter was granted and not by the
location of its business activities (Jennings v. Idaho Rail
Light & P. Co., 26 Idaho 703, 146 p. 101), A corporation is
a "resident" and an inhabitant of the state in which it is
incorporated and no other (36 Am. Jur. 2d, p. 49).
Defendant-appellee is a Philippine Corporation duly
organized under the Philippine laws. Clearly, its residence
is the Philippines, the place of its incorporation, and not
Japan. While defendant-appellee maintains branches in
Japan, this will not make it a resident of Japan. A
corporation does not become a resident of another by
engaging in business there even though licensed by that
state and in terms given all the rights and privileges of a
domestic corporation (Galveston H. & S.A.R. Co. vs.
Gonzales, 151 US 496, 38 L ed. 248, 4 S Ct. 401).
On this premise, defendant appellee is a non-resident
corporation. As such, court processes must be served upon
it at a place within the state in which the action is brought
and not elsewhere (St. Clair vs. Cox, 106 US 350, 27 L ed.
222, 1 S. Ct. 354). 5
It then concluded that the service of summons effected in Manila or
beyond the territorial boundaries of Japan was null and did not confer

jurisdiction upon the Tokyo District Court over the person of SHARP;
hence, its decision was void.
Unable to obtain a reconsideration of the decision, NORTHWEST elevated
the case to this Court contending that the respondent court erred in
holding that SHARP was not a resident of Japan and that summons on
SHARP could only be validly served within that country.
A foreign judgment is presumed to be valid and binding in the country
from which it comes, until the contrary is shown. It is also proper to
presume the regularity of the proceedings and the giving of due notice
therein. 6
Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in
personam of a tribunal of a foreign country having jurisdiction to
pronounce the same is presumptive evidence of a right as between the
parties and their successors-in-interest by a subsequent title. The
judgment may, however, be assailed by evidence of want of jurisdiction,
want of notice to the party, collusion, fraud, or clear mistake of law or fact.
Also, under Section 3 of Rule 131, a court, whether of the Philippines or
elsewhere, enjoys the presumption that it was acting in the lawful exercise
of jurisdiction and has regularly performed its official duty.
Consequently, the party attacking a foreign judgment has the burden of
overcoming the presumption of its validity. 7Being the party challenging
the judgment rendered by the Japanese court, SHARP had the duty to
demonstrate the invalidity of such judgment. In an attempt to discharge
that burden, it contends that the extraterritorial service of summons
effected at its home office in the Philippines was not only ineffectual but
also void, and the Japanese Court did not, therefore acquire jurisdiction
over it.
It is settled that matters of remedy and procedure such as those relating to
the service of process upon a defendant are governed by the lex fori or the
internal law of the forum. 8 In this case, it is the procedural law of Japan
where the judgment was rendered that determines the validity of the
extraterritorial service of process on SHARP. As to what this law is is a

question of fact, not of law. It may not be taken judicial notice of and must
be pleaded and proved like any other fact. 9Sections 24 and 25, Rule 132 of
the Rules of Court provide that it may be evidenced by an official
publication or by a duly attested or authenticated copy thereof. It was then
incumbent upon SHARP to present evidence as to what that Japanese
procedural law is and to show that under it, the assailed extraterritorial
service is invalid. It did not. Accordingly, the presumption of validity and
regularity of the service of summons and the decision thereafter rendered
by the Japanese court must stand.
Alternatively in the light of the absence of proof regarding Japanese
law, the presumption of identity or similarity or the so-called processual
presumption 10 may be invoked. Applying it, the Japanese law on the
matter is presumed to be similar with the Philippine law on service of
summons on a private foreign corporation doing business in the
Philippines. Section 14, Rule 14 of the Rules of Court provides that if the
defendant is a foreign corporation doing business in the Philippines,
service may be made: (1) on its resident agent designated in accordance
with law for that purpose, or, (2) if there is no such resident agent, on the
government official designated by law to that effect; or (3) on any of its
officers or agents within the Philippines.
If the foreign corporation has designated an agent to receive summons, the
designation is exclusive, and service of summons is without force and gives
the court no jurisdiction unless made upon him. 11
Where the corporation has no such agent, service shall be made on the
government official designated by law, to wit: (a) the Insurance
Commissioner in the case of a foreign insurance company; (b) the
Superintendent of Banks, in the case of a foreign banking corporation; and
(c) the Securities and Exchange Commission, in the case of other foreign
corporations duly licensed to do business in the Philippines. Whenever
service of process is so made, the government office or official served shall
transmit by mail a copy of the summons or other legal proccess to the
corporation at its home or principal office. The sending of such copy is a
necessary part of the service. 12

SHARP contends that the laws authorizing service of process upon the
Securities and Exchange Commission, the Superintendent of Banks, and
the Insurance Commissioner, as the case may be, presuppose a situation
wherein the foreign corporation doing business in the country no longer
has any branches or offices within the Philippines. Such contention is
belied by the pertinent provisions of the said laws. Thus, Section 128 of the
Corporation Code 13and Section 190 of the Insurance Code 14 clearly
contemplate two situations: (1) if the corporation had left the Philippines
or had ceased to transact business therein, and (2) if the corporation has
no designated agent. Section 17 of the General Banking Act 15 does not even
speak a corporation which had ceased to transact business in the
Philippines.
Nowhere in its pleadings did SHARP profess to having had a resident
agent authorized to receive court processes in Japan. This silence could
only mean, or least create an impression, that it had none. Hence, service
on the designated government official or on any of SHARP's officers or
agents in Japan could be availed of. The respondent, however, insists that
only service of any of its officers or employees in its branches in Japan
could be resorted to. We do not agree. As found by the respondent court,
two attempts at service were made at SHARP's Yokohama branch. Both
were unsuccessful. On the first attempt, Mr. Dinozo, who was believed to
be the person authorized to accept court process, was in Manila. On the
second, Mr. Dinozo was present, but to accept the summons because,
according to him, he was no longer an employee of SHARP. While it may
be true that service could have been made upon any of the officers or
agents of SHARP at its three other branches in Japan, the availability of
such a recourse would not preclude service upon the proper government
official, as stated above.
As found by the Court of Appeals, it was the Tokyo District Court which
ordered that summons for SHARP be served at its head office in the
Philippine's after the two attempts of service had failed. 16 The Tokyo
District Court requested the Supreme Court of Japan to cause the delivery
of the summons and other legal documents to the Philippines. Acting on
that request, the Supreme Court of Japan sent the summons together with

the other legal documents to the Ministry of Foreign Affairs of Japan


which, in turn, forwarded the same to the Japanese Embassy in Manila .
Thereafter, the court processes were delivered to the Ministry (now
Department) of Foreign Affairs of the Philippines, then to the Executive
Judge of the Court of First Instance (now Regional Trial Court) of Manila,
who forthwith ordered Deputy Sheriff Rolando Balingit to serve the same
on SHARP at its principal office in Manila. This service is equivalent to
service on the proper government official under Section 14, Rule 14 of the
Rules of Court, in relation to Section 128 of the Corporation Code. Hence,
SHARP's contention that such manner of service is not valid under
Philippine laws holds no water. 17
In deciding against the petitioner, the respondent court sustained the trial
court's reliance on Boudard vs. Tait 18where this Court held:
The
fundamental
rule
is
that
jurisdiction in
personam over nonresidents, so as to sustain a money
judgment, must be based upon personal service within the
state which renders the judgment.
xxx xxx xxx
The process of a court, has no extraterritorial effect, and
no jurisdiction is acquired over the person of the
defendant by serving him beyond the boundaries of the
state. Nor has a judgment of a court of a foreign country
against a resident of this country having no property in
such foreign country based on process served here, any
effect here against either the defendant personally or his
property situated here.
Process issuing from the courts of one state or country
cannot run into another, and although a nonresident
defendant may have been personally served with such
process in the state or country of his domicile, it will not
give such jurisdiction as to authorize a personal judgment
against him.

It
further
availed
of
the
ruling
in Magdalena
Estate,
Inc. vs. Nieto 19 and Dial Corp. vs. Soriano, 20 as well as the principle laid
down by the Iowa Supreme Court in the 1911 case of Raher vs. Raher. 21
The first three cases are, however, inapplicable. Boudard involved the
enforcement of a judgment of the civil division of the Court of First
Instance of Hanoi, French Indo-China. The trial court dismissed the case
because the Hanoi court never acquired jurisdiction over the person of the
defendant considering that "[t]he, evidence adduced at the trial
conclusively proves that neither the appellee [the defendant] nor his agent
or employees were ever in Hanoi, French Indo-China; and that the
deceased Marie Theodore Jerome Boudard had never, at any time, been
his employee." In Magdalena Estate, what was declared invalid resulting
in the failure of the court to acquire jurisdiction over the person of the
defendants in an action in personam was the service of summons through
publication against non-appearing resident defendants. It was claimed that
the latter concealed themselves to avoid personal service of summons upon
them. In Dial, the defendants were foreign corporations which were not,
domiciled and licensed to engage in business in the Philippines and which
did not have officers or agents, places of business, or properties here. On
the other hand, in the instant case, SHARP was doing business in Japan
and was maintaining four branches therein.
Insofar as to the Philippines is concerned, Raher is a thing of the past. In
that case, a divided Supreme Court of Iowa declared that the principle that
there can be no jurisdiction in a court of a territory to render a personal
judgment against anyone upon service made outside its limits was
applicable alike to cases of residents and non-residents. The principle was
put at rest by the United States Supreme Court when it ruled in the 1940
case ofMilliken vs. Meyer 22 that domicile in the state is alone sufficient to
bring an absent defendant within the reach of the state's jurisdiction for
purposes of a personal judgment by means of appropriate substituted
service or personal service without the state. This principle is embodied in
section 18, Rule 14 of the Rules of Court which allows service of summons
on residents temporarily out of the Philippines to be made out of the
country. The rationale for this rule was explained in Milliken as follows:

[T]he authority of a state over one of its citizens is not


terminated by the mere fact of his absence from the state.
The state which accords him privileges and affords
protection to him and his property by virtue of his
domicile may also exact reciprocal duties. "Enjoyment of
the privileges of residence within the state, and the
attendant right to invoke the protection of its laws, are
inseparable" from the various incidences of state
citizenship. The responsibilities of that citizenship arise
out of the relationship to the state which domicile creates.
That relationship is not dissolved by mere absence from
the state. The attendant duties, like the rights and
privileges incident to domicile, are not dependent on
continuous presence in the state. One such incident of
domicile is amenability to suit within the state even during
sojourns without the state, where the state has provided
and employed a reasonable method for apprising such an
absent party of the proceedings against him. 23
The domicile of a corporation belongs to the state where it was
incorporated. 24 In a strict technical sense, such domicile as a corporation
may have is single in its essence and a corporation can have only one
domicile which is the state of its creation. 25
Nonetheless, a corporation formed in one-state may, for certain purposes,
be regarded a resident in another state in which it has offices and transacts
business. This is the rule in our jurisdiction and apropos thereto, it may be
necessery to quote what we stated in State Investment House,
Inc, vs. Citibank, N.A., 26 to wit:
The issue is whether these Philippine branches or units
may be considered "residents of the Philippine Islands" as
that term is used in Section 20 of the Insolvency Law . . .
or residents of the state under the laws of which they were
respectively incorporated. The answer cannot be found in
the Insolvency Law itself, which contains no definition of

the term, resident, or any clear indication of its meaning.


There are however other statutes, albeit of subsequent
enactment and effectivity, from which enlightening
notions of the term may be derived.
The National Internal Revenue Code declares that the
term "'resident foreign corporation' applies to a foreign
corporation engaged in trade or business within the
Philippines," as distinguished from a "'non-resident
foreign corporation' . . . (which is one) not engaged in
trade or bussiness within the Philippines." [Sec. 20, pars.
(h) and (i)].
The Offshore Banking Law, Presidential Decree No. 1034,
states "that branches, subsidiaries, affiliation, extension
offices or any other units of corporation or juridical person
organized under the laws of any foreign country operating
in the Philippines shall be considered residents of the
Philippines. [Sec. 1(e)].
The General Banking Act, Republic Act No. 337, places
"branches and agencies in the Philippines of foreign banks
. . . (which are) called Philippine branches," in the same
category as "commercial banks, savings associations,
mortgage banks, development banks, rural banks, stock
savings and loan associations" (which have been formed
and organized under Philippine laws), making no
distinction between the former and the latter in so far as
the terms "banking institutions" and "bank" are used in
the Act [Sec. 2], declaring on the contrary that in "all
matters not specifically covered by special provisions
applicable only to foreign banks, or their branches and
agencies in the Philippines, said foreign banks or their
branches and agencies lawfully doing business in the
Philippines "shall be bound by all laws, rules, and
regulations applicable to domestic banking corporations of

the same class, except such laws, rules and regulations as


provided for the creation, formation, organization, or
dissolution of corporations or as fix the relation, liabilities,
responsibilities, or duties of members, stockholders or
officers of corporation. [Sec. 18].
This court itself has already had occasion to hold [Claude
Neon Lights, Fed. Inc. vs. Philippine Advertising Corp., 57
Phil. 607] that a foreign corporation licitly doing business
in the Philippines, which is a defendant in a civil suit, may
not be considered a non-resident within the scope of the
legal provision authorizing attachment against a
defendant not residing in the Philippine Islands; [Sec.
424, in relation to Sec. 412 of Act No. 190, the Code of
Civil Procedure; Sec. 1(f), Rule 59 of the Rules of 1940,
Sec. 1(f), Rule 57, Rules of 1964] in other words, a
preliminary attachment may not be applied for and
granted solely on the asserted fact that the defendant is a
foreign corporation authorized to do business in the
Philippines and is consequently and necessarily, "a
party who resides out of the Philippines." Parenthetically,
if it may not be considered as a party not residing in the
Philippines, or as a party who resides out of the country,
then, logically, it must be considered a party who does
reside in the Philippines, who is a resident of the country.
Be this as it may, this Court pointed out that:
. . . Our laws and jurisprudence indicate a
purpose
to
assimilate
foreign
corporations, duly licensed to do business
here, to the status of domestic
corporations. (Cf. Section 73, Act No.
1459, and Marshall Wells Co. vs. Henry
W. Elser & Co., 46 Phil. 70, 76; Yu Cong
Eng vs. Trinidad, 47 Phil. 385, 411) We
think it would be entirely out of line with

this policy should we make a


discrimination
against
a
foreign
corporation, like the petitioner, and
subject its property to the harsh writ of
seizure by attachment when it has
complied not only with every requirement
of law made specially of foreign
corporations, but in addition with every
requirement of law made of domestic
corporations. . . .
Obviously, the assimilation of foreign corporations
authorized to do business in the Philippines "to the status
of domestic corporations, subsumes their being found and
operating as corporations, hence,residing, in the country.
The same principle is recognized in American law: that the
residence of a corporation, if it can be said to have a
residence, is necessarily where it exercises corporate
functions . . .;" that it is considered as dwelling "in the
place where its business is done . . .," as being "located
where its franchises are exercised . . .," and as being
"present where it is engaged in the prosecution of the
corporate enterprise;" that a "foreign corporation licensed
to do business in a state is a resident of any country where
it maintains an office or agent for transaction of its usual
and customary business for venue purposes;" and that the
"necessary element in its signification is locality of
existence." [Words and Phrases, Permanent Ed., vol. 37,
pp. 394, 412, 493].
In as much as SHARP was admittedly doing business in Japan through its
four duly registered branches at the time the collection suit against it was
filed, then in the light of the processual presumption, SHARP may be
deemed a resident of Japan, and, as such, was amenable to the jurisdiction

of the courts therein and may be deemed to have assented to the said
courts' lawful methods of serving process. 27
Accordingly, the extraterritorial service of summons on it by the Japanese
Court was valid not only under the processual presumption but also
because of the presumption of regularity of performance of official duty.
We find NORTHWEST's claim for attorney's fees, litigation expenses, and
exemplary damages to be without merit. We find no evidence that would
justify an award for attorney's fees and litigation expenses under Article
2208 of the Civil Code of the Philippines. Nor is an award for exemplary
damages warranted. Under Article 2234 of the Civil Code, before the court
may consider the question of whether or not exemplary damages should be
awarded, the plaintiff must show that he is entitled to moral, temperate, or
compensatory damaged. There being no such proof presented by
NORTHWEST, no exemplary damages may be adjudged in its favor.
WHEREFORE, the instant petition is partly GRANTED, and the
challenged decision is AFFIRMED insofar as it denied NORTHWEST's
claims for attorneys fees, litigation expenses, and exemplary damages but
REVERSED insofar as in sustained the trial court's dismissal of
NORTHWEST's complaint in Civil Case No. 83-17637 of Branch 54 of the
Regional Trial Court of Manila, and another in its stead is hereby rendered
ORDERING private respondent C.F. SHARP L COMPANY, INC. to pay to
NORTHWEST the amounts adjudged in the foreign judgment subject of
said case, with interest thereon at the legal rate from the filing of the
complaint therein until the said foreign judgment is fully satisfied.
Costs against the private respondent.
SO ORDERED.
G.R. No. 163584

December 12, 2006

REMELITA
M.
vs.
CELITA B. MIRALLES, respondent.

ROBINSON, petitioner,

DECISION

SANDOVAL-GUTIERREZ, J.:
Before us is the instant petition for review on certiorari assailing the
Resolutions dated February 111 and May 11, 20042 of the Regional Trial
Court (RTC), Branch 274, Paraaque City, in Civil Case No. 00-0372.
On August 25, 2000, Celita Miralles, respondent, filed with the said court a
complaint for sum of money against Remelita Robinson, petitioner,
docketed as Civil Case No. 00-0372. Respondent alleged that petitioner
borrowed from her US$20,054.00 as shown by a Memorandum of
Agreement they both executed on January 12, 2000.
Summons was served on petitioner at her given address. However, per
return of service of Sheriff Maximo Potente dated March 5, 2001,
petitioner no longer resides at such address.
On July 20, 2001, the trial court issued an alias summons to be served at
No. 19 Baguio St., Alabang Hills, Muntinlupa City, petitioners new
address.
Again, the summons could not be served on petitioner. Sheriff Potente
explained that:
The Security Guard assigned at the gate of Alabang Hills refused to
let me go inside the subdivision so that I could effect the service of
the summons to the defendant in this case. The security guard
alleged that the defendant had given them instructions not to let
anybody proceed to her house if she is not around. I explained to
the Security Guard that I am a sheriff serving the summons to the
defendant, and if the defendant is not around, summons can be

received by any person of suitable age and discretion living in the


same house. Despite of all the explanation, the security guard by
the name of A.H. Geroche still refused to let me go inside the
subdivision and served (sic) the summons to the defendant. The
same thing happened when I attempted to serve the summons
previously.

A copy of the Order was sent to petitioner by registered mail at her new
address.

Therefore, the summons was served by leaving a copy thereof


together with the copy of the complaint to the security guard by
the name of A.H. Geroche, who refused to affix his signature on
the original copy thereof, so he will be the one to give the same to
the defendant.

On September 26, 2003, petitioner filed with the trial court a petition for
relief from the judgment by default. She claimed that summons was
improperly served upon her, thus, the trial court never acquired
jurisdiction over her and that all its proceedings are void.

Eventually, respondent filed a motion to declare petitioner in default for


her failure to file an answer seasonably despite service of summons.

On February 11, 2004, the trial court issued a Resolution denying the
petition for relief. Petitioner filed a motion for reconsideration, but it was
denied by the trial court in a Resolution dated May 11, 2004.

On February 28, 2003, the trial court granted respondents motion


declaring petitioner in default and allowing respondent to present her
evidence ex parte.

Hence, the instant recourse.

On June 20, 2003, the trial court issued an Order, the dispositive portion
of which reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against defendant ordering the defendant to pay the
plaintiff as follows:
1. The sum of US$20,054.00 as the unpaid obligation, plus the
stipulated interest of 3% a month from May 2000 (date of default)
until fully paid;
2. Php100,000.00 for moral damages;
3. Php50,000.00 plus Php1,500.00 per appearance as attorneys
fees;
4. Costs of suit.

SO ORDERED.

Upon respondents motion, the trial court, on September 8, 2003, issued a


writ of execution.

The sole issue for our resolution is whether the trial court correctly ruled
that a substituted service of summons upon petitioner has been validly
effected.
Summons is a writ by which the defendant is notified of the action brought
against him or her.3 In a civil action, service of summons is the means by
which the court acquires jurisdiction over the person of the
defendant.4 Any judgment without such service, in the absence of a valid
waiver, is null and void.5 Where the action is in personamand the
defendant is in the Philippines, the service of summons may be made
through personal or substituted service in the manner provided for in
Sections 6 and 7, Rule 14 of the 1997 Rules of Procedure, as
amended,6 thus:
SEC. 6. Service in person on defendant. Whenever practicable,
the summons shall be served by handing a copy thereof to the
defendant in person, or if he refuses to receive and sign for it, by
tendering it to him.

SEC. 7. Substituted service. If, for justifiable causes, the


defendant cannot be served within a reasonable time as provided
in the preceding section, service may be effected (a) by leaving
copies of the summons at the defendants residence with some
person of suitable age and discretion then residing therein; or (b)
by leaving the copies at the defendants office or regular place of
business with some competent person in charge thereof.
Under our procedural rules, personal service is generally preferred over
substituted service, the latter mode of service being a method
extraordinary in character.7 For substituted service to be justified, the
following circumstances must be clearly established: (a) personal service of
summons within a reasonable time was impossible; (b) efforts were
exerted to locate the party; and (c) the summons was served upon a person
of sufficient age and discretion residing at the partys residence or upon a
competent person in charge of the partys office or place of
business.8 Failure to do so would invalidate all subsequent proceedings on
jurisdictional grounds.9
Petitioner contends that the service of summons upon the subdivision
security guard is not in compliance with Section 7, Rule 14 since he is not
related to her or staying at her residence. Moreover, he is not duly
authorized to receive summons for the residents of the village. Hence, the
substituted service of summons is not valid and that the trial court never
acquired jurisdiction over her person.
We have ruled that the statutory requirements of substituted service must
be followed strictly, faithfully, and fully and any substituted service other
than that authorized by the Rules is considered ineffective. 10 However, we
frown upon an overly strict application of the Rules. It is the spirit, rather
than the letter of the procedural rules, that governs.
In his Return, Sheriff Potente declared that he was refused entry by the
security guard in Alabang Hills twice. The latter informed him that
petitioner prohibits him from allowing anybody to proceed to her
residence whenever she is out. Obviously, it was impossible for the sheriff

to effect personal or substituted service of summons upon petitioner. We


note that she failed to controvert the sheriffs declaration. Nor did she deny
having received the summons through the security guard.
Considering her strict instruction to the security guard, she must bear its
consequences. Thus, we agree with the trial court that summons has been
properly served upon petitioner and that it has acquired jurisdiction over
her.
WHEREFORE, we DENY the petition and we AFFIRM the assailed
Orders of the RTC, Branch 274, Paraaque City, in Civil Case No. 00-0372.
Costs against petitioner.
SO ORDERED.

PERKIN
ELMER
SINGAPORE PTE LTD.,
Petitioner,

- versus -

G.R. No. 172242


Present:
YNARES-SANTIAGO, J.,
irperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
NACHURA, JJ.

DAKILA
TRADING
Promulgated:
CORPORATION,
Respondent.
August 14, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION

CHICO-NAZARIO, J.:
The
case
before
this
Court
is
a
Petition
for
Review[1] on Certiorari under Rule 45 of the 1997 Revised Rules of Civil
Procedure seeking to annul and set aside the Decision, [2] dated 4 April
2006, of the Court of Appeals in CA-G.R. SP No. 78981, which affirmed the
Orders, dated 4 November 2002[3] and 20 June 2003,[4]of the
Mandaluyong City Regional Trial Court (RTC), Branch 212, in Civil Case
No. MC99-605, which, in turn, denied the Motion to Dismiss and
subsequent Motion for Reconsideration of herein petitioner Perkin
Elmer Singapore Pte Ltd.
Petitioner is a corporation duly organized and existing under the
laws of Singapore. It is not considered as a foreign corporation doing
business in thePhilippines. Herein respondent Dakila Trading
Corporation is a corporation organized and existing under Philippine
laws, and engaged in the business of selling and leasing out laboratory
instrumentation and process control instrumentation, and trading of
laboratory chemicals and supplies.
The antecedents of the present case are as follows:
Respondent entered into a Distribution Agreement [5] on 1 June
1990 with Perkin-Elmer Instruments Asia Pte Ltd. (PEIA), a
corporation duly organized and existing under the laws of Singapore and
engaged in the business of manufacturing, producing, selling or
distributing various laboratory/analytical instruments. By virtue of the
said agreement, PEIA appointed the respondent as the sole distributor of
its products in the Philippines. The respondent was likewise granted the
right to purchase and sell the products of PEIA subject to the terms and
conditions set forth in the Distribution Agreement. PEIA, on the other
hand, shall give respondent a commission for the sale of its products in
the Philippines.

Under the same Distribution Agreement, respondent shall order


the products of PEIA, which it shall sell in the Philippines, either from
PEIA itself or fromPerkin-Elmer Instruments (Philippines)
Corporation (PEIP), an affiliate of PEIA. PEIP is a corporation duly
organized and existing under Philippine laws, and involved in the business
of wholesale trading of all kinds of scientific, biotechnological, and
analytical instruments and appliances. PEIA allegedly owned 99% of the
shares of PEIP.
On 2 August 1997, however, PEIA unilaterally terminated the
Distribution Agreement, prompting respondent to file before the RTC of
Mandaluyong City, Branch 212, a Complaint[6] for Collection of Sum of
Money and Damages with Prayer for Issuance of a Writ of Attachment
against PEIA and PEIP, docketed as Civil Case No. MC99-605.
The RTC issued an Order,[7] dated 26 March 1999, denying
respondents prayer for the issuance of a writ of attachment. The
respondent moved for the reconsideration of the said Order but it was
denied in another Order, dated 11 January 2000.[8]
Respondent then filed Ex-Parte Motions for Issuance of Summons
and for Leave of Court to Deputize Respondents General Manager,
Richard A. Tee, to Serve Summons Outside of the Philippines,[9] which the
RTC granted in its Order, dated 27 April 2000.[10] Thus, an Alias
Summons, dated 4 September 2000, was issued by the RTC to PEIA. But
the said Alias Summons was served on 28 September 2000 and received
by Perkinelmer Asia, a Singaporean based sole proprietorship, owned
by the petitioner and, allegedly, a separate and distinct entity from PEIA.
PEIP moved to dismiss[11] the Complaint filed by respondent on the
ground that it states no cause of action. Perkinelmer Asia, on the other
hand, through its counsel, sent letters, dated 12 October 2000[12] and 15
November 2000,[13] to the respondent and to the RTC, respectively, to
inform them of the wrongful service of summons upon Perkinelmer Asia.

Accordingly, respondent filed an Ex-Parte Motion to Admit


Amended Complaint, together with the Amended Complaint claiming that
PEIA had become a sole proprietorship [14] owned by the petitioner, and
subsequently changed its name to Perkinelmer Asia. Being a sole
proprietorship of the petitioner, a change in PEIAs name and juridical
status did not detract from the fact that all its due and outstanding
obligations to third parties were assumed by the petitioner. Hence, in its
Amended Complaint[15] respondent sought to change the name of PEIA to
that of the petitioner. In an Order, dated 24 July 2001,[16] the RTC
admitted the Amended Complaint filed by the respondent. Respondent
then filed another Motion[17] for the Issuance of Summons and for Leave of
Court to Deputize Respondents General Manager, Richard A. Tee, to Serve
Summons Outside the Philippines. In another Order, dated 4 March 2002,
[18]
the RTC deputized respondents General Manager to serve summons on
petitioner in Singapore. The RTC thus issued summons[19] to the
petitioner. Acting on the said Order, respondents General Manager went
to Singapore and served summons on the petitioner.
Meanwhile, in an Order, dated 10 October 2001, the RTC denied
the Motion to Dismiss filed by PEIP, compelling the latter to file its Answer
to the Amended Complaint.
Petitioner subsequently filed with the RTC a Special Appearance
and Motion to Dismiss[20] respondents Amended Complaint on 30 May
2002 based on the following grounds: (1) the RTC did not acquire
jurisdiction over the person of the petitioner; (2) the respondent failed to
state a cause of action against the petitioner because it is not the real partyin-interest; (3) even assuming arguendo that the respondent correctly filed
the case against the petitioner, the Distribution Agreement which was the
basis of its claim grants PEIA the right to terminate the contract at any
time; and (4) the venue was improperly laid. The RTC in its Order, dated 4
November 2002, denied petitioners Motion to Dismiss, ratiocinating as
follows:

Prescinding from the above arguments of both


parties, the [RTC] is inclined to DENY the Motion to
Dismiss.
A careful scrutiny on (sic) the allegation in the
(Amended) Complaint would show that [herein
respondent] alleges ownership by the [herein petitioner]
of shares of stocks in the [PEIP]. Such allegation of
ownership of shares of stocks by the [petitioner] would
reveal that there is an allegation of personal property in
the Philippines. Shares of stocks represent personal
property of the shareholder. Thus, it follows that even
though the Amended Complaint is primarily for damages,
it does relate to a property of the [petitioner], to which the
latter has a claim interest (sic), or an actual or contingent
lien, which will make it fall under one of the requisite (sic)
for extraterritorial service under Section 15, Rule 14, of the
Rules of Court. Thus, it could be gainfully said that the
summons had been validly served for [RTC] to acquire
jurisdiction over the [petitioner].
The [petitioner] hinges its dismissal on the failure
of the [respondent] to state a cause of action. The [RTC]
would like to emphasize that in a Motion to Dismiss, it
hypothetically admits the truth of the facts alleged in a
complaint.
When the ground for dismissal is that the complaint
states no cause of action, such fact can be determined only
from the facts alleged in the complaint x x x and from no
other x x x and the Court cannot consider other
matters aliunde x x x. This implies that the issue must be
passed upon on the basis of the allegations and declare
them to be false, otherwise it would be a procedural error
and a denial of due process to the [respondent] x x x.

The three (3) essential elements of a cause of


action are the following:
a)
b)

The plaintiffs legal rights;


A correlative obligation of the
defendant;
c) The omission of the defendant in
violation of the legal rights.
A cursory reading of the Amended Complaint
would reveal that all of the essential elements of a cause of
action are attendant in the Amended Complaint.
As for the contention that venue was improperly
laid, x x x, the [RTC] in its ultimate desire that the ends of
justice could be served in its fullest, cannot rule that venue
was improperly laid.
xxxx
The stipulation as to the venue of a prospective
action does not preclude the filing of the suit in the
residence of the [respondent] under Section 2, Rule 4,
Rules of Court, especially where the venue stipulation was
imposed by the [petitioner] for its own benefits.
xxxx
The [RTC] further believes that it is imperative that
in order to ferret out the truth, a full-blown trial is
necessary for parties to be able to prove or disprove their
allegations.[21]
Petitioner moved for the reconsideration of the aforesaid Order
but, it was denied by the RTC in its Order, dated 20 June 2003.

Consequently, petitioner filed a Petition for Certiorari under Rule


65 of the 1997 Revised Rules of Civil Procedure with application for
temporary restraining order and/or preliminary injunction before the
Court of Appeals alleging that the RTC committed grave abuse of
discretion amounting to lack or excess of jurisdiction in refusing to dismiss
the Amended Complaint. The Court of Appeals never issued any
temporary restraining order or writ of injunction. On 4 April 2006, the
Court of Appeals rendered a Decision affirming the RTC Orders of 4
November 2002 and 20 June 2003.
This brings us to the present Petition before this Court wherein
petitioner raised the following issues.
I.
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR IN NOT RULING
THAT THE SERVICE OF SUMMONS ON PETITIONER
WAS DEFECTIVE AND THAT THE TRIAL COURT THUS
FAILED TO ACQUIRE JURISDICTION OVER THE
PERSON OF THE PETITIONER.
II.
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR IN RULING THAT
THE
SOLE
ISSUE
IN
THE
PETITION
FOR CERTIORARIFILED
BEFORE
IT
IS
THE
QUESTION OF WHETHER THE TRIAL COURT
ACQUIRED JURISDICTION OVER THE PERSON OF
THE
PETITIONER
THROUGH
THE
EXTRATERRITORIAL SERVICE OF SUMMONS.
A.

WHETHER OR NOT THE COURT OF


APPEALS SHOULD HAVE GRANTED
THE PETITION FOR CERTIORARI AND
REVERSED THE RTC ORDERS ON THE
GROUND THAT THE AMENDED
COMPLAINT FAILED TO STATE A
CAUSE
OF
ACTION
AGAINST
PETITIONER.
1.
BASED
ON
THE
ALLEGATIONS
IN
THE EXPARTE MOTION TO ADMIT AMENDED
COMPLAINT, AMENDED COMPLAINT,
AND ALL DOCUMENTS ATTACHED
AND/OR
RELATED
THERETO,
PETITIONER IS NOT THE REAL
PARTY-IN-INTEREST DEFENDANT IN
THE CASE BELOW.
2.
ASSUMING
ARGUENDO
THAT RESPONDENT DAKILA FILED
THIS CASE AGAINST THE CORRECT
[PARTY],
INASMUCH
AS
THE
DISTRIBUTION AGREEMENT DATED 1
JUNE 1990 GRANTS [PEIA] THE RIGHT
TO TERMINATE THE CONTRACT AT
ANY TIME, RESPONDENT DAKILA
FAILS TO STATE A CAUSE OF ACTION
IN THE CASE BELOW.
B.
WHETHER OR NOT THE COURT OF
APPEALS SHOULD HAVE GRANTED
THE PETITION FOR CERTIORARI AND

REVERSED THE RTC ORDERS ON THE


GROUND OF IMPROPER VENUE.
III.
WHETHER OR NOT PETITIONER IS ENTITLED TO A
TEMPORARY RESTRAINING ORDER AND/OR WRIT
OF INJUNCTION.
The foregoing issues raised by petitioner essentially requires this
Court to make a determination of the (1) proper service of summons and
acquisition of jurisdiction by the RTC over the person of the petitioner; (2)
existence of a cause of action against petitioner in respondents Amended
Complaint; and (3) proper venue for respondents civil case against
petitioner.
Petitioner contends that Civil Case No. MC99-605 involves
an action for collection of sum of money and damages arising from the
alleged breach of the Distribution Agreement. The action is one in
personam, or an action against a person based on his personal liability;
and for the court a quo to acquire jurisdiction over the person of the
petitioner, personal service of summons, and not extraterritorial service of
summons, must be made within the state even if the petitioner is a nonresident. Petitioner avers that extraterritorial service of summons stated
under Section 15, Rule 14 of the 1997 Revised Rules of Civil Procedure, is
only proper inin rem and quasi in rem cases; thus, resort to an
extraterritorial service of summons in the case at bar was
erroneous. Petitioner asseverates that the allegations in the respondents
Amended Complaint that the petitioner has personal properties within the
Philippines does not make the present case one that relates to, or the
subject of which is, property within the Philippines warranting the
extraterritorial service of summons under Section 15, Rule 14 of the 1997
Revised Rules of Civil Procedure. Petitioner states that for an action to be
considered as one that relates to, or the subject of which is, property within
the Philippines, the main subject matter of the action must be the property

within the Philippines itself, and such was not the situation in this
case. Likewise, the prayer in respondents Amended Complaint for the
issuance of a writ of attachment over the personal property of PEIP, which
is 99% owned by petitioner (as the supposed successor of PEIA), did not
convert the action from one in personam to one that is quasi in rem. Also,
the petitioner points out that since the respondents prayer for the issuance
of a writ of attachment was denied by the RTC in its Order, dated 26 March
1999, then the nature of Civil Case No. MC99-605 remains in personam,
contrary to the ruling of the Court of Appeals that by the attachment of the
petitioners interest in PEIP the action in personam was converted to an
action quasi in rem. Resultantly, the extraterritorial service of summons
on the petitioner was not validly effected, and did not give the RTC
jurisdiction over the petitioner.
Petitioner further argues that the appellate court should have
granted its Petition for Certiorari on the ground that the RTC committed
grave abuse of discretion amounting to lack or excess of jurisdiction in
refusing to dismiss respondents Amended Complaint for failure to state a
cause of action against petitioner which was not the real party-in-interest
in Civil Case No. MC99-605. Petitioner claims that it had never used the
name PEIA as its corporate name, and neither did it change its name from
that of PEIA. Petitioner stresses that PEIA is an entirely different
corporate entity that is not connected in whatever manner to the
petitioner. Even assuming arguendo that petitioner is the real party-ininterest in Civil Case No. MC99-605 or that petitioner and PEIA are one
and the same entity, petitioner still avows that the respondent failed to
state a cause of action against it because the Distribution Agreement
expressly grants PEIA the right to terminate the said contract at any time.
Lastly, it is the contention of the petitioner that the appellate court
should have granted its Petition for Certiorari because the RTC committed
grave abuse of discretion amounting to lack or excess of jurisdiction in
refusing to dismiss Civil Case No. MC99-605 for having been filed in an
improper venue. Petitioner asserts that in the Distribution Agreement
entered into between the respondent and PEIA, both had mutually agreed
to the exclusive jurisdiction of the courts of Singapore or of

the Philippines as elected by PEIA. Absent any waiver by PEIA of its right
to choose the venue of the dispute, the Complaint filed by the respondent
before the RTC in the Philippines should have been dismissed on the
ground of improper venue.
The Petition is meritorious.
Jurisdiction is the power with which courts are invested for
administering justice; that is, for hearing and deciding cases. In order for
the court to have authority to dispose of the case on the merits, it must
acquire jurisdiction over the subject matter and the parties.[22]
Jurisdiction of the court over the subject matter is conferred only
by the Constitution or by law. It is determinable on the basis of allegations
in the complaint.[23]
Courts acquire jurisdiction over the plaintiffs upon the filing of the
complaint, while jurisdiction over the defendants in a civil case is acquired
either through the service of summons upon them in the manner required
by law or through their voluntary appearance in court and their
submission to its authority. If the defendants have not been summoned,
unless they voluntarily appear in court, the court acquires no jurisdiction
over their persons and a judgment rendered against them is null and
void. To be bound by a decision, a party should first be subjected to the
courts jurisdiction.[24]
Thus, one of the modes of acquiring jurisdiction over the person of
the defendant or respondent in a civil case is through service of
summons. It is intended to give notice to the defendant or respondent that
a civil action has been commenced against him. The defendant or
respondent is thus put on guard as to the demands of the plaintiff or the
petitioner.[25]
The proper service of summons differs depending on the nature of
the civil case instituted by the plaintiff or petitioner: whether it is in
personam, in rem, orquasi in rem. Actions in personam, are those actions

brought against a person on the basis of his personal liability; actions in


rem are actions against the thing itself instead of against the person; and
actions are quasi in rem, where an individual is named as defendant and
the purpose of the proceeding is to subject his or her interest in a property
to the obligation or loan burdening the property.[26]
Under Section 15, Rule 14 of the 1997 Revised Rules of Civil
Procedure, there are only four instances wherein a defendant who is a nonresident and is not found in the country may be served with summons by
extraterritorial service, to wit: (1) when the action affects the personal
status of the plaintiff; (2) when the action relates to, or the subject of which
is property, within the Philippines, in which the defendant claims a lien or
an interest, actual or contingent; (3) when the relief demanded in such
action consists, wholly or in part, in excluding the defendant from any
interest in property located in the Philippines; and (4) when the defendant
non-residents property has been attached within the Philippines. In these
instances, service of summons may be effected by (a) personal service out
of the country, with leave of court; (b) publication, also with leave of court;
or (c) any other manner the court may deem sufficient.[27]
Undoubtedly, extraterritorial service of summons applies only
where the action is in rem or quasi in rem, but not if an action is in
personam.
When the case instituted is an action in rem or quasi in rem,
Philippine courts already have jurisdiction to hear and decide the case
because, in actions in remand 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.[28] Thus, in such
instance, extraterritorial service of summons can be made upon the
defendant. The said extraterritorial service of summons is not for the
purpose of vesting the court with jurisdiction, but for complying with the
requirements of fair play or due process, so that the defendant will be
informed of the pendency of the action against him and the possibility that
property in the Philippines belonging to him or in which he has an interest
may be subjected to a judgment in favor of the plaintiff, and he can thereby

take steps to protect his interest if he is so minded. [29] On the other hand,
when the defendant or respondent does not reside and is not found in
the Philippines,[30] and the action involved is in personam, Philippine
courts cannot try any case against him because of the impossibility of
acquiring jurisdiction over his person unless he voluntarily appears in
court.[31]
In the case at bar, this Court sustains the contention of the
petitioner that there can never be a valid extraterritorial service of
summons upon it, because the case before the court a quo involving
collection of a sum of money and damages is, indeed, an action in
personam, as it deals with the personal liability of the petitioner to the
respondent by reason of the alleged unilateral termination by the former of
the Distribution Agreement. Even the Court of Appeals, in its Decision
dated 4 April 2004, upheld the nature of the instant case as an action in
personam. In the said Decision the appellate court ruled that:
In the instant petition, [respondents] cause of
action in Civil Case No. MC99-605 is anchored on the
claim that petitioner unilaterally terminated the
Distribution Agreement. Thus, [respondent] prays in its
[C]omplaint that Upon the filing of the Complaint, issue
an Order fixing the amount of the bond and issue a writ
of attachment requiring the sheriff to attach the
properties of [Perkin-Elmer Philippines], which are not
exempt from execution, and as much as may be sufficient
to satisfy [respondents] demands.
The action instituted by [respondent] affects the
parties alone, not the whole world. Hence, it is an
action in personam, i.e., any judgment therein is binding
only upon the parties properly impleaded.
xxxx

The
objective
sought
in
[respondents]
[C]omplaint was to establish a claim against petitioner for
its alleged unilateral termination of [D]istribution
[A]greement. Hence, to repeat, Civil Case No.
MC99-605 is an action in personam because it is
an action against persons, namely, herein
petitioner, on the basis of its personal liability. As
such, personal service of summons upon the
[petitioner] is essential in order for the court to
acquire of (sic) jurisdiction over [its person].
[32]
(Emphasis supplied.)
Thus, being an action in personam, personal service of summons within
the Philippines is necessary in order for the RTC to validly acquire
jurisdiction over the person of the petitioner, and this is not possible in the
present case because the petitioner is a non-resident and is not found
within the Philippines. Respondents allegation in its Amended Complaint
that petitioner had personal property within the Philippines in the form of
shares of stock in PEIP did not make Civil Case No. MC99-605 fall under
any of the four instances mentioned in Section 15, Rule 14 of the Rules of
Court, as to convert the action in personam to an action in rem orquasi in
rem and, subsequently, make the extraterritorial service of summons upon
the petitioner valid.
It is incorrect for the RTC to have ruled that the allegations made
by the respondent in its Amended Complaint, which is primarily for
collection of a sum of money and damages, that the petitioner owns shares
of stock within the Philippines to which the petitioner claims interest, or
an actual or contingent lien, would make the case fall under one of the
aforesaid instances wherein extraterritorial service of summons under
Section 15, Rule 14 of the 1997 Revised Rules of Civil Procedure, would be
valid. The RTC in arriving at such conclusions relied on the second
instance, mentioned under Section 15, Rule 14 of the 1997 Revised Rules of
Civil Procedure (i.e., when the action relates to, or the subject of which is
property, within the Philippines, in which the defendant claims a lien or

interest, actual or contingent), where extraterritorial service of summons


can be properly made. However, the aforesaid second instance has no
application in the case before this Court. Primarily, the Amended
Complaint filed by the respondent against the petitioner was for the
collection of sum of money and damages. The said case was neither
related nor connected to any property of the petitioner to which it claims a
lien or interest. The action for collection of a sum of money and damages
was purely based on the personal liability of the petitioner towards the
respondent. The petitioner is correct in saying that mere allegations of
personal property within the Philippines does not necessarily make the
action as one that relates to or the subject of which is, property within the
Philippines as to warrant the extraterritorial service of summons. For the
action to be considered one that relates to, or the subject of which, is the
property within the Philippines, the main subject matter of the action
must be the property itself of the petitioner in the Philippines. By
analogy, an action involving title to or possession of real or personal
property -- such as the foreclosure of real estate or chattel mortgage where
the mortgagor does not reside or is not found in the Philippines -- can be
considered as an action which relates to, or the subject of which is,
property within the Philippines, in which the defendant claims a lien or
interest, actual or contingent; and in such instance, judgment will be
limited to the res.[33]
Moreover, the allegations made by the respondent that the
petitioner has property within the Philippines were in support of its
application for the issuance of a writ of attachment, which was denied by
the RTC. Hence, it is clear from the foregoing that the Complaint filed by
the respondent against the petitioner does not really relate to, or the
subject of which is, property within the Philippines of the petitioner.
This Court also finds error in the Decision of the Court of
Appeals. It is provided for in the said Decision, thus:
However, let it be emphasized that in the
[C]omplaint filed before the trial court, [respondent]
prayed that Upon the filing of the Complaint, issue an

Order fixing the amount of the bond and issue a writ of


attachment requiring the sheriff to attach the properties
of [Perkin-Elmer Philippines], which are not exempt from
execution, and as much as may be sufficient to satisfy
[respondents] demands.
In other words, although the [C]omplaint before
the trial court does not involve the personal status of the
[respondent], nevertheless, the case involves property
within thePhilippines in which the [petitioner] has or
claim an interest, or which the [respondent] has attached,
which is one of the instances where extraterritorial service
of summons is proper.
xxxx
Hence, it is submitted that one of the instances
when exterritorial service of summons under Section 15,
Rule 14 of the Rules of Court is proper may be considered
to have been met. This is because the [C]omplaint for
collection of sum of money which is an action in
personam was converted into an action quasi in rem by
the attachment of [petitioners] interest in
[Perkin-Elmer Philippines].[34] (Emphasis supplied.)
Respondents allegation in its Amended Complaint that petitioner
had personal property within the Philippines in the form of shares of stock
in PEIP does not convert Civil Case No. MC99-605 from an action in
personam to one quasi in rem, so as to qualify said case under the fourth
instance mentioned in Section 15, Rule 14 of the 1997 Revised Rules of
Civil Procedure (i.e., when the non-resident defendants property has been
attached within the Philippines), wherein extraterritorial service of
summons upon the petitioner would have been valid. It is worthy to note
that what is required under the aforesaid provision of the Revised Rules of
Civil Procedure is not a mere allegation of the existence of personal

property belonging to the non-resident defendant within the Philippines


but, more precisely, that the non-resident defendants personal property
located within the Philippines must have been actually attached. This
Court in the case of Venturanza v. Court of Appeals[35] ruled that when the
attachment was void from the beginning, the action in personam which
required personal service of summons was never converted into an
action in rem where service by publication would have been valid. Hence,
the appellate court erred in declaring that the present case, which is an
action in personam, was converted to an action quasi in rem because of
respondents allegations in its Amended Complaint that petitioner had
personal property within thePhilippines.
Glaringly, respondents prayer in its Amended Complaint for the
issuance of a writ of attachment over petitioners purported shares of stock
in PEIP located within the Philippines was denied by the court a quo in
its Order dated 26 March 1999. Respondents Motion for Reconsideration
of the said Order was likewise denied by the RTC in its subsequent Order,
dated 11 January 2000. Evidently, petitioners alleged personal property
within the Philippines, in the form of shares of stock in PEIP, had not been
attached; hence, Civil Case No. MC99-605, for collection of sum of money
and damages, remains an action in personam. As a result, the
extraterritorial service of summons was not validly effected by the RTC
against the petitioner, and the RTC thus failed to acquire jurisdiction over
the person of the petitioner. The RTC is therefore bereft of any authority
to act upon the Complaint filed before it by the respondent insofar as the
petitioner is concerned.
If there was no valid summons served upon petitioner, could RTC
have acquired jurisdiction over the person of the petitioner by the latters
voluntary appearance? As a rule, even if the service of summons upon the
defendant or respondent in a civil case is defective, the court can still
acquire jurisdiction over his person when he voluntary appears in court or
submits himself to its authority. Nonetheless, voluntary appearance, as a
mode of acquiring jurisdiction over the person of the defendant, is likewise
inapplicable in this case.

It is settled that a party who makes a special appearance in court


for the purpose of challenging the jurisdiction of said court, based on the
invalidity of the service of summons, cannot be considered to have
voluntarily submitted himself to the jurisdiction of the court. [36] In the
present case, petitioner has been consistent in all its pleadings in assailing
the service of summons upon it and the jurisdiction of the RTC over its
person. Thus, the petitioner cannot be declared in estoppel when it filed
an Answer ad cautelam with compulsory counterclaim before the RTC
while the instant Petition was still pending before this Court. The
petitioner was in a situation wherein it had no other choice but to file an
Answer; otherwise, the RTC would have already declared that petitioner
had waived its right to file responsive pleadings. [37] Neither can the
compulsory counterclaim contained in petitioners Answer ad cautelam be
considered as voluntary appearance of petitioner before the
RTC. Petitioner seeks to recover damages and attorneys fees as a
consequence of the unfounded suit filed by respondent against it. Thus,
petitioners compulsory counterclaim is only consistent with its position
that the respondent wrongfully filed a case against it and the RTC
erroneously exercised jurisdiction over its person.
Distinction must be made in Civil Case No. MC99-605 as to the
jurisdiction of the RTC over respondents complaint and over petitioners
counterclaim -- while it may have no jurisdiction over the former, it may
exercise jurisdiction over the latter. The compulsory counterclaim
attached to petitioners Answer ad cautelam can be treated as a separate
action, wherein petitioner is the plaintiff while respondent is the
defendant.[38] Petitioner could have instituted a separate action for the
very same claims but, for the sake of expediency and to avoid multiplicity
of suits, it chose to demand the same in Civil Case No. MC99-605.
[39]
Jurisdiction of the RTC over the subject matter and the parties in the
counterclaim must thus be determined separately and independently from
the jurisdiction of the same court in the same case over the subject matter
and the parties in respondents complaint.
Moreover, even though the petitioner raised other grounds in its
Motion to Dismiss aside from lack of jurisdiction over its person, the same

is not tantamount to its voluntary appearance or submission to the


authority of the court a quo. While in De Midgely v. Ferandos,[40] it was
held that, in a Motion to Dismiss, the allegation of grounds other than lack
of jurisdiction over the person of the defendant, including a prayer "for
such other reliefs as" may be deemed "appropriate and proper" amounted
to voluntary appearance, such ruling must be deemed superseded by the
declaration of this Court in La Naval Drug Corporation v. Court of
Appeals[41] that estoppel by jurisdiction must be unequivocal and
intentional. It would be absurd to hold that petitioner unequivocally and
intentionally submitted itself to the jurisdiction of the court by seeking
other reliefs to which it might be entitled when the only relief that it could
properly ask from the trial court is the dismissal of the complaint against
it.[42] Thus, the allegation of grounds other than lack of jurisdiction with a
prayer for such other reliefs as may be deemed appropriate and proper
cannot be considered as unequivocal and intentional estoppel. Most
telling is Section 20, Rule 14 of the Rules of Court, which expressly
provides:
SEC.
20. Voluntary
appearance. The
defendants voluntary appearance in the action shall be
equivalent to service of summons. The inclusion in a
motion to dismiss of other grounds aside from lack of
jurisdiction over the person of the defendant shall not be
deemed a voluntary appearance.[43] (Emphasis supplied.)
In sum, this Court finds that the petitioner did not submit itself
voluntarily to the authority of the court a quo; and in the absence of valid
service of summons, the RTC utterly failed to acquire jurisdiction over the
person of the petitioner.
Anent the existence of a cause of action against petitioner and the
proper venue of the case, this Court upholds the findings of the RTC on
these issues.

Dismissal of a Complaint for failure to state a cause of action is


provided for by the Rules of Court. [44] When a Motion to Dismiss is
grounded on the failure to state a cause of action, a ruling thereon should
be based only on the facts alleged in the complaint. The court must pass
upon this issue based solely on such allegations, assuming them to be
true. For it to do otherwise would be a procedural error and a denial of
plaintiffs right to due process.[45] While, truly, there are well-recognized
exceptions[46] to the rule that the allegations are hypothetically admitted as
true and inquiry is confined to the face of the complaint, [47] none of the
exceptions apply in this case. Hence, the general rule applies. The defense
of the petitioner that it is not the real party-in-interest is evidentiary in
nature which must be proven in trial. The appellate court, then, cannot be
faulted for not granting petitioners Motion to Dismiss on the ground of
failure to state a cause of action.
In the same way, the appellate court did not err in denying
petitioners Motion to Dismiss Civil Case No. MC99-605 on the ground of
improper venue. In arriving at such conclusion, this Court quotes with
approval the following ratiocination of the RTC:
As for the contention that venue was improperly
laid, x x x, the [trial court] in its ultimate desire that the
ends of justice could be served in its fullest, cannot rule
that venue was improperly laid.
xxxx
The stipulation as to the venue of a
prospective action does not preclude the filing of
the suit in the residence of the [respondent] under
Section 2, Rule 4, Rules of Court, especially where
the venue stipulation was imposed by the
[petitioner] for its own benefits. [48] (Emphasis
supplied.)

Despite the venue stipulation found in the Distribution Agreement


stipulating that the exclusive jurisdiction over disputes arising from the
same shall lie in the courts of Singapore or of the Territory (referring to the
Philippines), whichever is elected by PEIA (or petitioner, as PEIAs alleged
successor), the RTC of the Philippines cannot be considered as an
improper venue. Truly, the venue stipulation used the word exclusive,
however, a closer look on the Distribution Agreement would reveal that the
venue stipulation was really in the alternative i.e., courts of Singapore or of
the Territory, meaning, the Philippines; thus, the court a quo is not an
improper venue for the present case.
Nonetheless, it bears to emphasize that despite our findings that
based on the allegations in respondents Complaint in Civil Case No.
MC99-605, respondent appears to have a cause of action against the
petitioner and that the RTC is the proper venue for the said case, Civil
Case No. MC99-605 is still dismissible, for the RTC never acquired
jurisdiction over the person of the petitioner. The extraterritorial service
of summons upon the petitioner produces no effect because it can only be
done if the action is in rem or quasi in rem. The case for collection of sum
of money and damages filed by the respondent against the petitioner being
an action in personam, then personal service of summons upon the
petitioner within the Philippines is essential for the RTC to validly acquire
jurisdiction over the person of the petitioner. Having failed to do so, the
RTC can never subject petitioner to its jurisdiction. The mere allegation
made by the respondent that the petitioner had shares of stock within the
Philippines was not enough to convert the action from one in personam to
one that was quasi in rem, for petitioners purported personal property
was never attached; thus, the extraterritorial service of summons upon the
petitioner remains invalid. In light of the foregoing findings, this Court
concludes that the RTC has no power to hear and decide the case against
the petitioner, because the extraterritorial service of summons was not
validly effected upon the petitioner and the RTC never acquired
jurisdiction over its person.
Finally, as regards the petitioners counterclaim, which is purely for
damages and attorneys fees by reason of the unfounded suit filed by the

respondent against it, it has long been settled that the same truly falls
under the classification of compulsory counterclaim and it must be
pleaded in the same action, otherwise, it is barred. [49] In the case at bar,
this Court orders the dismissal of the Complaint filed by the
respondent against the petitioner because the court a quo failed to
acquire jurisdiction over the person of the latter. Since the
Complaint of the respondent was dismissed, what will happen then to the
counterclaim of the petitioner? Does the dismissal of the complaint carry
with it the dismissal of the counterclaim?
In the cases of Metal Engineering Resources Corp. v. Court of
Appeals,[50] International Container Terminal Services, Inc. v. Court of
Appeals,[51] and BA Finance Corporation v. Co.,[52] the Court ruled that if
the court does not have jurisdiction to entertain the main action of the case
and dismisses the same, then the compulsory counterclaim, being ancillary
to the principal controversy, must likewise be dismissed since no
jurisdiction remained for any grant of relief under the counterclaim. [53] If
we follow the aforesaid pronouncement of the Court in the cases
mentioned above, the counterclaim of the herein petitioner being
compulsory in nature must also be dismissed together with the
Complaint. However, in the case of Pinga vs. Heirs of German Santiago,
[54]
the Court explicitly expressed that:
Similarly, Justice Feria notes that the present
rule reaffirms the right of the defendant to move for the
dismissal of the complaint and to prosecute his
counterclaim, as stated in the separate opinion [of Justice
Regalado in BA Finance]. Retired Court of Appeals
Justice Hererra pronounces that the amendment to
Section 3, Rule 17 [of the 1997 Revised Rules of
Civil Procedure] settles that nagging question
whether the dismissal of the complaint carries
with it the dismissal of the counterclaim, and
opines thatby reason of the amendments, the
rulings
in Metals
Engineering, International

Container, and BA
abandoned. x x x.

Finance may

be

deemed

x x x, when the Court promulgated the 1997 Rules


of Civil Procedure, including the amended Rule 17, those
previous jural doctrines that were inconsistent with the
new rules incorporated in the 1997 Rules of Civil
Procedure were implicitly abandoned insofar as
incidents arising after the effectivity of the new procedural
rules on 1 July 1997. BA Finance, or even the doctrine that
a counterclaim may be necessarily dismissed along with
the complaint, clearly conflicts with the 1997 Rules of Civil
Procedure. The abandonment of BA Finance as doctrine
extends as far back as 1997, when the Court adopted the
new Rules of Civil Procedure. If, since then, abandonment
has not been affirmed in jurisprudence, it is only because
no proper case has arisen that would warrant express
confirmation of the new rule. That opportunity is here
and now, and we thus rule that the dismissal of a
complaint due to fault of the plaintiff is without
prejudice to the right of the defendant to
prosecute any pending counterclaims of whatever
nature in the same or separate action. We
confirm that BA Finance and all previous rulings
of the Court that are inconsistent with this present
holding
are now
abandoned.[55] [Emphasis
supplied].
It is true that the aforesaid declaration of the Court refers to
instances covered by Section 3, Rule 17 of the 1997 Revised Rules of Civil
Procedure[56] on dismissal of the complaint due to the fault of the
plaintiff. Nonetheless, it does not also preclude the application of the same
to the instant case just because the dismissal of respondents Complaint
was upon the instance of the petitioner who correctly argued lack of
jurisdiction over its person.

Also in the case of Pinga v. Heirs of German Santiago, the Court


discussed the situation wherein the very filing of the complaint by the
plaintiff against the defendant caused the violation of the latters rights. As
to whether the dismissal of such a complaint should also include the
dismissal of the counterclaim, the Court acknowledged that said matter is
still debatable, viz:
Whatever the nature of the counterclaim, it bears
the same integral characteristics as a complaint; namely a
cause (or causes) of action constituting an act or omission
by which a party violates the right of another. The main
difference lies in that the cause of action in the
counterclaim is maintained by the defendant against the
plaintiff, while the converse holds true with the
complaint. Yet, as with a complaint, a counterclaim
without a cause of action cannot survive.
x x x if the dismissal of the complaint somehow
eliminates the cause(s) of the counterclaim, then the
counterclaim cannot survive. Yet that hardly is the case,
especially as a general rule. More often than not, the
allegations that form the counterclaim are rooted in an act
or omission of the plaintiff other than the plaintiffs very
act of filing the complaint. Moreover, such acts or
omissions imputed to the plaintiff are often claimed to
have occurred prior to the filing of the complaint
itself. The only apparent exception to this
circumstance is if it is alleged in the counterclaim
that the very act of the plaintiff in filing the
complaint precisely causes the violation of the
defendants rights. Yet even in such an instance,
it remains debatable whether the dismissal or
withdrawal of the complaint is sufficient to
obviate the pending cause of action maintained by
the defendant against the plaintiff.[57]

Based on the aforequoted ruling of the Court, if the dismissal of


the complaint somehow eliminates the cause of the counterclaim, then the
counterclaim cannot survive. Conversely, if the counterclaim itself states
sufficient cause of action then it should stand independently of and survive
the dismissal of the complaint. Now, having been directly confronted with
the problem of whether the compulsory counterclaim by reason of the
unfounded suit may prosper even if the main complaint had been
dismissed, we rule in the affirmative.
It bears to emphasize that petitioners counterclaim against
respondent is for damages and attorneys fees arising from the unfounded
suit. While respondents Complaint against petitioner is already
dismissed, petitioner may have very well already incurred damages and
litigation expenses such as attorneys fees since it was forced to engage
legal representation in the Philippines to protect its rights and to assert
lack of jurisdiction of the courts over its person by virtue of the improper
service of summons upon it. Hence, the cause of action of petitioners
counterclaim is not eliminated by the mere dismissal of respondents
complaint.
It may also do well to remember that it is this Court which
mandated that claims for damages and attorneys fees based on unfounded
suit constitute compulsory counterclaim which must be pleaded in the
same action or, otherwise, it shall be barred. It will then be iniquitous and
the height of injustice to require the petitioner to make the counterclaim in
the present action, under threat of losing his right to claim the same ever
again in any other court, yet make his right totally dependent on the fate
of the respondents complaint.
If indeed the Court dismisses petitioners counterclaim solely on
the basis of the dismissal of respondents Complaint, then what remedy is
left for the petitioner? It can be said that he can still file a separate action
to recover the damages and attorneys fees based on the unfounded suit for
he cannot be barred from doing so since he did file the compulsory
counterclaim in the present action, only that it was dismissed when
respondents Complaint was dismissed. However, this reasoning is highly

flawed and irrational considering that petitioner, already burdened by the


damages and attorneys fees it may have incurred in the present case, must
again incur more damages and attorneys fees in pursuing a separate
action, when, in the first place, it should not have been involved in any case
at all.
Since petitioners counterclaim is compulsory in nature and its
cause of action survives that of the dismissal of respondents complaint,
then it should be resolved based on its own merits and evidentiary
support.
WHEREFORE, premises considered, the instant Petition is
hereby GRANTED. The Decision of the Court of Appeals, dated 4 April
2006, in CA-G.R. SP No. 78981, affirming the Orders, dated 4 November
2002 and 20 June 2003, of the Regional Trial Court of Mandaluyong City,
Branch 212, in Civil Case No. MC99-605, is hereby REVERSED AND
SET ASIDE. Respondents Amended Complaint in Civil Case No. MC99605 as against the petitioner is hereby orderedDISMISSED, and all the
proceedings against petitioner in the court a quo by virtue thereof are
hereby DECLARED NULL
AND
VOID. The Regional Trial Courtof Mandaluyong City,
Branch
212,
is DIRECTED to proceed without further delay with the resolution of
respondents Complaint in Civil Case No. MC99-605 as to defendant PEIP,
as well as petitioners counterclaim. No costs.
SO ORDERED.

ORION SECURITY CORPORATION,


Petitioner,

- versus -

CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

KALFAM ENTERPRISES, INC.,


Promulgated:
Respondent.
April 27, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
RESOLUTION
QUISUMBING, J.:

For review on certiorari are the Decision [1] dated February 17, 2004
and Resolution[2] dated April 22, 2004 of the Court of Appeals in CA-G.R.
CV No. 70565, which reversed the Decision[3] dated March 15, 2000 of the
Regional Trial Court of Quezon City, Branch 215, in Civil Case No. Q-9732024.
The facts, borne by the records, are as follows:
Petitioner Orion Security Corporation is a domestic private
corporation engaged in the business of providing security services. One of
its clients is respondent Kalfam Enterprises, Inc.
Respondent was not able to pay petitioner for services rendered.
Petitioner thus filed a complaint [4] against respondent for collection of sum
of money. The sheriff tried to serve the summons and a copy of the
complaint on the secretary of respondents manager. However,
respondents representatives allegedly refused to acknowledge their
receipt. The summons and the copy of the complaint were left at
respondents office.[5]
When respondent failed to file an Answer, petitioner filed a motion
to declare respondent in default.[6] The trial court, however, denied the
motion on the ground that there was no proper service of summons on
G.R. No. 163287
respondent.[7]
Petitioner then filed a motion for alias summons, which the trial
Present:
court granted.[8] The process server again left the summons and a copy of
the complaint at respondents office through respondents security guard,
QUISUMBING, J., Chairperson,
who allegedly refused to acknowledge their receipt.[9]
CARPIO,

Again, respondent failed to file an Answer. On motion[10] of


petitioner, respondent was declared in default. [11] Thereafter, petitioner
was allowed to adduce evidence ex parte.
Respondent filed a motion for reconsideration [12] of the resolution
declaring it in default. Respondent alleged the trial court did not acquire
jurisdiction over its person due to invalid service of summons. The trial
court denied the motion for reconsideration.[13]
On March 15, 2000, the trial court rendered a default judgment,
the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered in
favor of plaintiff Orion Security Corporation and against
defendant Kalfam Enterprises, Inc., ordering said
defendant to pay plaintiff the amounts as follows:
a) FIVE HUNDRED THIRTEEN THOUSAND
EIGHT HUNDRED THIRTY NINE PESOS AND TWENTY
SIX CENTAVOS (P513,839.26), Philippine Currency, as
the total amount of the balance due to the plaintiff, plus
interest thereon at the rate of twelve percent (12%) per
annum, computed from August 29, 1997, the date of the
filing of this case until said obligation is fully paid;
b) FIFTY
ONE
THOUSAND
THREE
HUNDRED EIGHTY THREE PESOS AND NINETY TWO
CENTAVOS (P51,383.92), Philippine Currency, which is
ten percent (10%) of the outstanding obligation, as
attorneys fees;
c) FIVE THOUSAND PESOS (P5,000.00),
Philippine Currency, as litigation expenses; and THREE
THOUSAND FIVE HUNDRED SIXTY THREE PESOS
AND TWENTY FIVE CENTAVOS (P3,563.25) for the costs
of suit.
SO ORDERED.[14]
On appeal, the Court of Appeals held that summons was not
validly served on respondent, decreeing thus:

WHEREFORE, in view of the foregoing, the


appealed decision is REVERSED and SET ASIDE. The
case is hereby REMANDED to the trial court for further
proceedings upon valid service of summons to the parties
concerned.
SO ORDERED.[15]
Petitioners motion for reconsideration of the Court of Appeals
decision was denied. Hence, the instant petition raising the following as
issues:
I.
WHETHER OR NOT THE HONORABLE
COURT
OF
APPEALS
DECISION
DATED FEBRUARY
17,
2004 AND
ITS
RESOLUTION DATED APRIL 22, 2004ARE
NULL AND VOID FOR FAILURE TO COMPLY
WITH SEC. 14, ART. VIII OF THE 1987
CONSTITUTION;
II.
WHETHER OR NOT THE HONORABLE
COURT OF APPEALS SERIOUSLY ERRED IN
NOT RULING THAT THE TRIAL COURT HAS IN
FACT ACQUIRED JURISDICTION OVER THE
PERSON OF THE RESPONDENT DUE TO THE
LATTERS VOLUNTARY APPEARANCE IN THE
PROCEEDINGS THEREIN;
III.
WHETHER OR NOT THE HONORABLE
COURT OF APPEALS SERIOUSLY ERRED
IN NOT HOLDING THAT THE SUBSTITUTED
SERVICE OF SUMMONS EFFECTED UPON THE
SECURITY GUARD OF THE RESPONDENT
SHOULD
BE
DEEMED
SUBSTANTIAL
COMPLIANCE WITH THE RULE ON SERVICE
OF
SUMMONS,
IN
VIEW
OF
THE
EXCEPTIONAL CIRCUMSTANCES ATTENDANT
IN THE PRESENT CASE.[16]

Simply put, the sole issue is whether the trial court acquired
jurisdiction over respondent either by (1) valid substituted service of
summons on respondent; or (2) respondents voluntary appearance in the
trial court and submission to its authority.
Petitioner contends that the Court of Appeals completely brushed
aside respondents voluntary appearance in the proceedings of the trial
court. According to petitioner, the trial court acquired jurisdiction over
respondent due to the latters voluntary appearance in the proceedings
before the said court. Petitioner insists substituted service of summons on
respondents security guard is substantial compliance with the rule on
service of summons, in view of the exceptional circumstances in the
present case.
Respondent, however, counters that the special appearance of its
counsel does not constitute voluntary appearance. Respondent maintains
that its filing of an opposition to petitioners motion to declare respondent
in default and other subsequent pleadings questioning the trial courts
jurisdiction over it does not amount to voluntary appearance. Respondent
stresses it was not properly served with summons via substituted service
since the security guard on whom it was purportedly served was not the
competent person contemplated by Section 7, Rule 14 of the Rules of
Court.
We find the petition without merit.
Courts acquire jurisdiction over the plaintiffs upon the filing of the
complaint. On the other hand, jurisdiction over the defendants in a civil
case is acquired either through the service of summons upon them or
through their voluntary appearance in court and their submission to its
authority.[17]
In case of domestic private juridical entities such as respondent in
the instant case, Section 11 of Rule 14 states:
SEC. 11. Service upon domestic private juridical
entity. When the defendant is a corporation, partnership
or association organized under the laws of the Philippines
with a juridical personality, service may be made on the
president, managing partner, general manager, corporate
secretary, treasurer, or in-house counsel.

As a rule, summons should be personally served on the


defendant. It is only when summons cannot be served personally within a
reasonable period of time that substituted service may be resorted to. In
this connection, Section 7 of Rule 14 provides:
SEC. 7. Substituted service. If, for justifiable
causes, the defendant cannot be served within a
reasonable time as provided in the preceding section,
service may be effected (a) by leaving copies of the
summons at the defendants residence with some person
of suitable age and discretion then residing therein, or (b)
by leaving the copies at defendants office or regular place
of business with some competent person in charge thereof.
In this case, records show that respondents president, managing
partner, general manager, corporate secretary, treasurer, or in-house
counsel never received the summons against respondent, either in person
or by substituted service.
Note that in case of substituted service, there should be a report
indicating that the person who received the summons in the defendants
behalf was one with whom the defendant had a relation of confidence
ensuring that the latter would actually receive the summons. [18] Here,
petitioner failed to show that the security guard who received the
summons in respondents behalf shared such relation of confidence that
respondent would surely receive the summons. Hence, we are unable to
accept petitioners contention that service on the security guard
constituted substantial compliance with the requirements of substituted
service.
Neither did the trial court acquire jurisdiction over respondent by
the latters voluntary appearance in court proceedings. Note that a party
who makes a special appearance in court challenging the jurisdiction of
said court based on the ground of invalid service of summons is not
deemed to have submitted himself to the jurisdiction of the court. [19] In
this case, records show that respondent, in its special appearance, precisely
questioned the jurisdiction of the trial court on the ground of invalid

service of summons. Thus, it cannot be deemed to have submitted to said


courts authority.
Since the trial court never acquired jurisdiction over respondent,
either by valid substituted service of summons or by respondents
voluntary appearance in court and submission to its authority, respondent
cannot be bound by the trial courts judgment ordering it to pay petitioner
a sum of money.
WHEREFORE, the petition is DENIED. The assailed Decision
dated February 17, 2004 and Resolution dated April 22, 2004 of the Court
of Appeals in CA-G.R. CV No. 70565 are AFFIRMED. Let the case
be REMANDED to the trial court for further proceedings upon valid
service of summons to respondent.
No pronouncement as to costs.
SO ORDERED.
VLASON ENTERPRISES CORPORATION, petitioner, vs. COURT
OF APPEALS and DURAPROOF SERVICES, represented
by its General Manager,Cesar Urbino Sr., respondents.
DECISION
PANGANIBAN, J.:
Summons to a domestic or resident corporation should be served on
officers, agents or employees, who are responsible enough to warrant the
presumption that they will transmit to the corporation notice of the filing
of the action against it. Rules on the service of motions should be liberally
construed in order to promote the ends of substantial justice. A rigid
application that will result in the manifest injustice should be avoided. A
default judgment against several defendants cannot affect the rights of one
who was never declared in default. In any event, such judgment cannot
include an award not prayed for in the complaint, even if proven ex parte.
The Case

These principles were used by this Court in resolving this Petition for
Review on Certiorari before us, assailing the July 19, 1993 Decision [1] and
the August 15, 1995 Resolution, [2] both promulgated by the Court of
Appeals. The assailed Decision disposed as follows:[3]

ACCORDINGLY, in view of the foregoing disquisitions, all the three (3)


consolidated petitions for certiorari are hereby GRANTED.
THE assailed Order of respondent Judge Arsenio Gonong of the Regional
Trial Court of Manila, Branch 8, dated April 5, 1991, in the first petition for
certiorari (CA-G.R. SP No. 24669); the assailed Order of Judge Bernardo
Pardo, Executive Judge of the Regional Trial Court of Manila, Branch 8,
dated July 6, 1992, in the second petition for certiorari (CA-G.R.
SP No. 28387); and finally, the assailed order or Resolution en banc of the
respondent Court of Tax Appeals Judges Ernesto Acosta, Ramon de Veyra
and Manuel Gruba, under date of October 5, 1992, in the third petition for
certiorari (CA-G.R. SP No. 29317) are all hereby NULLIFIED and SET
ASIDE thereby giving way to the entire decision dated February 18, 1991 of
the respondent Regional Trial Court of Manila, Branch 8, in Civil Case No.
89-51451 which remains valid, final and executory, if not yet wholly
executed.
THE writ of preliminary injunction heretofore issued by this Court on
March 6, 1992 and reiterated on July 22, 1992 and this date against the
named respondents specified in the dispositive portion of the judgment of
the respondent Regional Trial Court of Manila, Branch 8 in the first
petition for certiorari, which remains valid, existing and enforceable, is
hereby MADE PERMANENT without prejudice (1) to the [private
respondents] remaining unpaid obligations to the herein partyintervenor in accordance with the Compromise Agreement or in
connection with the decision of the respondent lower court in CA-G.R. SP
No. 24669 and (2) to the government, in relation to the forthcoming
decision of the respondent Court of Tax Appeals on the amount of taxes,
charges, assessments or obligations that are due, as totally secured and
fully guaranteed payment by the [private respondents] bond, subject to
the relevant rulings of the Department of Finance and other prevailing
laws and jurisprudence.
The assailed Resolution ruled:

ACCORDINGLY, in the light of the foregoing disquisitions, as well as


considering these clarifications, the three (3) motions aforementioned are
hereby DENIED.
The Facts

Poro Point Shipping Services, then acting as the local agent of Omega
Sea Transport Company of Honduras & Panama, a Panamanian company,
(hereafter referred to as Omega), requested permission for its vessel M/V
Star Ace, which had engine trouble, to unload its cargo and to store it at
the Philippine Ports Authority (PPA) compound in San Fernando, La
Union while awaiting transhipment to Hongkong. The request was
approved by the Bureau of Customs.[4] Despite the approval, the customs
personnel boarded the vessel when it docked on January 7, 1989, on
suspicion that it was the hijacked M/V Silver Med owned by Med Line
Philippines Co., and that its cargo would be smuggled into the country.
[5]
The district customs collector seized said vessel and its cargo pursuant to
Section 2301, Tariff and Customs Code. A notice of hearing of SFLU
Seizure Identification No. 3-89 was served on its consignee, Singkong
Trading Co. of Hongkong, and its shipper, Dusit International Co., Ltd. of
Thailand.
While seizure proceedings were ongoing, La Union was hit by three
typhoons, and the vessel ran aground and was abandoned. On June 8,
1989, its authorized representative, Frank Cadacio, entered into a salvage
agreement with private respondent to secure and repair the vessel at the
agreed consideration of $1 million and fifty percent (50%) [of] the cargo
after all expenses, cost and taxes.[6]
Finding that no fraud was committed, the District Collector of
Customs, Aurelio M. Quiray, lifted the warrant of seizure on July 16, 1989.
[7]
However, in a Second Indorsement dated November 11, 1989, then
Customs Commissioner Salvador M. Mison declined to issue a clearance
for Quirays Decision; instead, he forfeited the vessel and its cargo in
accordance with Section 2530 of the Tariff and Customs Code.
[8]
Accordingly, acting District Collector of Customs John S. Sy issued a
Decision decreeing the forfeiture and the sale of the cargo in favor of the
government.[9]

To enforce its preferred salvors lien, herein Private Respondent


Duraproof Services filed with the Regional Trial Court of Manila a Petition
for Certiorari, Prohibition and Mandamus[10]assailing the actions of
Commissioner Mison and District Collector Sy. Also impleaded as
respondents were PPA Representative Silverio Mangaoang and Med Line
Philippines, Inc.
On January 10, 1989, private respondent amended its Petition [11] to
include former District Collector Quiray; PPA Port Manager Adolfo Ll.
Amor Jr; Petitioner Vlason Enterprises as represented by its president,
Vicente Angliongto; Singkong Trading Company as represented by Atty.
Eddie Tamondong; Banco Du Brasil; Dusit International Co., Inc.; ThaiNan Enterprises Ltd. and Thai-United Trading Co., Ltd.[12] In both
Petitions, private respondent plainly failed to include any allegation
pertaining to petitioner, or any prayer for relief against it.
Summonses for the amended Petition were served on Atty. Joseph
Capuyan for Med Line Philippines: Angliongto (through his secretary,
Betty Bebero), Atty. Tamondong and Commissioner Mison. [13] Upon
motion of the private respondent, the trial court allowed summons by
publication to be served upon the alien defendants who were not residents
and had no direct representatives in the country.[14]
On January 29, 1990, private respondent moved to declare
respondents in default, but the trial court denied the motion in its
February 23, 1990 Order, [15] because Mangaoang and Amor had jointly
filed a Motion to Dismiss, while Mison and Med Line had moved
separately for an extension to file a similar motion. [16] Later it rendered an
Order dated July 2, 1990, giving due course to the motions to dismiss filed
by Mangaoang and Amor on the ground of litis pendentia, and by the
commissioner and district collector of customs on the ground of lack of
jurisdiction.[17] In another Order, the trial court dismissed the action
against Med Line Philippines on the ground of litis pendentia.[18]
On two other occasions, private respondent again moved to declare
the following in default: petitioner, Quiray, Sy and Mison on March 26,
1990;[19] and Banco Du Brazil, Dusit International Co., Inc., Thai-Nan
Enterprises Ltd. and Thai-United Trading Co., Ltd. on August 24, 1990.
[20]
There is no record, however, that the trial court acted upon the
motions. On September 18, 1990, petitioner filed another Motion for leave

to amend the petition,[21] alleging that its counsel failed to include the
following necessary and/or indispensable parties: Omega represented by
Cadacio; and M/V Star Ace represented by Capt. Nahon Rada, relief
captain. Aside from impleading these additional respondents, private
respondent also alleged in the Second (actually, third) Amended
Petition[22] that the owners of the vessel intended to transfer and alienate
their rights and interests over the vessel and its cargo, to the detriment of
the private respondent.
The trial court granted leave to private respondent to amend its
Petition, but only to exclude the customs commissioner and the district
collector.[23] Instead, private respondent filed the Second Amended
Petition with Supplemental Petition against Singkong Trading Company;
and Omega and M/V Star Ace,[24] to which Cadacio and Rada filed a Joint
Answer.[25]
Declared in default in an Order issued by the trial court on January
23, 1991, were the following: Singkong Trading Co., Commissioner
Mison, M/V Star Ace and Omega.[26] Private respondent filed, and the trial
court granted, an ex parte Motion to present evidence against the
defaulting respondents.[27] Only private respondent, Atty. Tamondong,
Commissioner Mison, Omega and M/V Star Ace appeared in the next
pretrial hearing; thus, the trial court declared the other respondents in
default and allowed private respondent to present evidence against them.
[28]
Cesar Urbino, general manager of private respondent, testified and
adduced evidence against the other respondents, including herein
petitioner. As regards petitioner, he declared: Vlason Enterprises
represented by Atty. Sy and Vicente Angliongto thru constant intimidation
and harassment of utilizing the PPA Management of San Fernando, La
Union x x x further delayed, and [private respondent] incurred heavy
overhead expenses due to direct and incidental expenses xxx causing
irreparable damages of about P3,000,000 worth of ship tackles, rigs, and
appurtenances including radar antennas and apparatuses, which were
taken surreptitiously by persons working for Vlason Enterprises or its
agents[.][29]
On December 29, 1990, private respondent and Rada, representing
Omega, entered into a Memorandum of Agreement stipulating that Rada
would write and notify Omega regarding the demand for salvage fees of

private respondent; and that if Rada did not receive any instruction from
his principal, he would assign the vessel in favor of the salvor.[30]
On February 18, 1991, the trial court disposed as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, based on the allegations,
prayer and evidence adduced, both testimonial and documentary, the
Court is convinced, that, indeed, defendants/respondents are liable to
[private respondent] in the amount as prayed for in the petition for which
it renders judgment as follows:
1.
Respondent M/V Star Ace, represented by Capt. Nahum Rada,
[r]elief [c]aptain of the vessel and Omega Sea Transport Company, Inc.,
represented by Frank Cadacio[,] is ordered to refrain from alienating or
[transferring] the vessel M/V Star Ace to any third parties;
2.
a.

Singkong Trading Company to pay the following:


Taxes due the government;

b.
Salvage fees on the vessel in the amount of $1,000,000.00 based
on xxx Lloyds Standard Form of Salvage Agreement;
c.
Preservation, securing and guarding fees on the vessel in the
amount of $225,000.00;
d.

Maintenance fees in the amount of P2,685,000.00;

e.
Salaries of the crew from August 16, 1989 to December 1989 in the
amount of $43,000.00 and unpaid salaries from January 1990 up to the
present;
f.

Attorneys fees in the amount of P656,000.00;

3.
[Vlason] Enterprises to pay [private respondent] in the amount
of P3,000,000.00 for damages;
4.
Banco [Du] Brazil to pay [private respondent] in the amount of
$300,000.00 in damages; and finally,

5.

Costs of [s]uit.

Subsequently, upon the Motion of Omega, Singkong Trading Co. and


private respondent, the trial court approved a Compromise
Agreement[31] among the movants, reducing by 20 percent the amounts
adjudged. For their part, respondents-movants agreed not to appeal the
Decision.[32] On March 8, 1991, private respondent moved for the execution
of judgment, claiming that the trial court Decision had already become
final and executory.[33] The Motion was granted[34] and a Writ of Execution
was issued.[35] To satisfy the Decision, Sheriffs Jorge Victorino, Amado
Sevilla and Dionisio Camagon were deputized on March 13, 1991 to levy
and to sell on execution the defendants vessel and personal property.
On March 14, 1991, petitioner filed, by special appearance, a Motion
for Reconsideration, on the grounds that it was allegedly not impleaded as
a defendant, served summons or declared in default; that private
respondent was not authorized to present evidence against it in default;
that the judgment in default was fatally defective, because private
respondent had not paid filing fees for the award; and that private
respondent had not prayed for such award. [36] Private respondent opposed
the Motion, arguing that it was a mere scrap of paper due to its defective
notice of hearing.
On March 18, 1991, the Bureau of Customs also filed an ex
parte Motion to recall the execution, and to quash the notice of levy and
the sale on execution.[37] Despite this Motion, the auction sale was
conducted on March 21, 1991 by Sheriff Camagon, with private
respondent submitting the winning bid.[38] The trial court ordered the
deputy sheriffs to cease and desist from implementing the Writ of
Execution and from levying on the personal property of the defendants.
[39]
Nevertheless, Sheriff Camagon issued the corresponding Certificate of
Sale on March 27, 1991.[40]
On April 12, 1991,[41] private respondent filed with the Court of
Appeals (CA) a Petition for Certiorari and Prohibition to nullify the cease
and desist orders of the trial court. [42]Respondent Court issued on April 26,
1991 a Resolution which reads:[43]
MEANWHILE, in order to preserve the status quo and so as not to render
the present petition moot and academic, a TEMPORARY RESTRAINING

ORDER is hereby ISSUED enjoining the respondent Judge, the Honorable


Arsenio M. Gonong, from enforcing and/or implementing the Orders
dated 22 March 1991 and 5 April 1991 which ordered respondent Sheriff to
cease and desist from implementing the writ of execution and the return
thereof, the quashing of the levy xxx on [the] execution [and sale] of the
properties levied upon and sold at public auction by the Sheriff, for reason
of grave abuse of discretion and in excess of jurisdiction, until further
orders from this Court.
WITHIN ten (10) days from notice hereof, respondents [petitioner
included] are also required to SHOW CAUSE why the prayer for a writ of
preliminary injunction should not be granted.
On May 8, 1991, petitioner received from Camagon a notice to pay
private respondent P3 million to satisfy the trial court Decision. Not
having any knowledge of the CA case to which it was not impleaded,
petitioner filed with the trial court a Motion to Dismiss ex abutandi ad
cautelam on the grounds that (1) the Petition of private respondent stated
no cause of action against it, (2) the trial court had no jurisdiction over the
case, and (3) litis pendentia barred the suit.[44]
On May 10, 1991, Camagon levied on petitioners properties, which
were scheduled for auction later on May 16, 1991. Specific descriptions of
the properties are as follows:[45]
a) Motor Tugboat DEN DEN ex Emerson-I
Length:

35.67 ms.

Depth:

3.15 ms.

Breadth:
Gross Tons:

7.33 ms.
205.71

Net tons: 67.78

Official Number 213551

Material: Steel

Class License:

License No. 4424


b) Barge - FC99" ex YD-153

CWL

Length:

34.15 ms.

Depth:

2.77 m.s.

Breadth:

15.85 m.s.

Gross Tons:

491.70

Net Tons: 491.70

Official Number 227236

Material: Steel

Class License: CWL

License No. 83-0012


c) Barge LAWIN ex Sea Lion 2
Length:

66.92 ms.

Depth:

4.52 m.s.

Net Tons: 1,027/43


Material: Steel

Breadth:

11.28 ms.

Gross Tons:

1,029.56

Official Number 708069


Class License:

Coastwise

License No. 81-0059


Petitioner also filed a special appearance before the CA. It prayed for
the lifting of the levy on its properties or, alternatively, for a temporary
restraining order against their auction until its Motion for Reconsideration
was resolved by the trial court.[46]
Acting on petitioners Motion for Reconsideration, the trial court
reversed its Decision of February 18, 1991, holding in its May 22, 1991
Resolution as follows:[47]
xxx [T]hat xxx Motion For Reconsideration [of the petitioner] was filed on
March 14, 1991 (See: page 584, records, Vol.2) indubitably showing that it
was seasonably filed within the 15-day time-frame. Therefore, xxx said
default-judgment ha[d] not yet become final and executory when the Writ
of Execution was issued on March 13, 1991 xxx The rules [provide] that
[the e]xecution shall issue as a matter of right upon the expiration of the
period of appeal from a judgment if no appeal has been duly perfected
(Sec. 1, R-39, RRC). That being the case, VEC has all the right to file as it

did xxx the aforementioned reconsideration motion calling [the] attention


of the Court and pointing therein its supposed error and its correction if,
indeed, any [error was] committed. It is in this light that this Court made
an in-depth reflection and assessment of the premises or reasons raised by
[petitioner], and after a re-examination of the facts and evidence spread on
the records, it has come to the considered conclusion that the questioned
default-judgment has been improvidently issued. By the records, the claim
of [private respondent] that his January 29, 1990 Ex-Parte Motion To
Declare Defendants In Default (pp. 174-177, records, Vol. 1) including VEC
had been granted is belied by the February 23, 1990 Order (pp. 214-215,
records, ibid) par. 2, thereof, reading to wit:
By the foregoing, for reasons stated thereunder respectively, this Court, in
the exercise of its judicious discretion, in the sense that the rules should be
liberally construed in order to promote their object and to assist the
parties, resolves to DENY petitioners Motion to have the Commissioner of
Customs AND OTHER ENUMERATED RESPONDENTS DECLARED IN
DEFAULT. [Emphasis ours].
Not even [private respondents] November 23, 1990 Ex-Parte Motion To
Present [Evidence] Against Defaulting Defendants (page 489, records,
Vol.2) [can] be deemed as a remedy of the fact that there never was issued
an order of default against respondents including [petitioner]
VEC. Having thus established that there [had] been no order of default
against VEC as contemplated by Sec. 1, Rule 18, in relation to Sec. 9, Rule
13, Revised Rules of Court, there could not have been any valid defaultjudgment rendered against it. The issuance of an order of default is a
conditionsine qua non in order [that] a judgment by default be clothed
with validity. Further, records show that this Court never had authorized
[private respondent] to adduce evidence ex-parte against [petitioner]
VEC. In sum, the February 18, 1991 decision by default is null and void as
against [petitioner] VEC. With this considered conclusion of nullity of said
default judgment in question, this Court feels there is no more need for it
to resolve Arguments I-A & I-B, as well as III-A & III-B, of the March 14,
1991 Motion for Reconsideration. The Court agrees, however, with said
discussions on the non-compliance [with] Sec. 2, Rule 7 (Title of

Complaint) and Sec. I, Rule 8 on the requirement of indicating in the


complaint the ultimate facts on which the party pleading relies for his
claim of defense [--] which is absent in the January 9, Amended Petition
(pp. 122-141, records, Vol. I) [--] for it merely mentioned [petitioner] VEC
in par. 5 thereof and no more. It abides, likewise, with [Argument] III-B
that the Decision in suit award[ed] amounts never asked for in instant
petition as regards VEC (Sec. 5, Rule 18, RRC). xxx.

Confirming the order in open court on October 5, 1992, the Court hereby
RESOLVES to:

WHEREFORE, in view of the foregoing consideration, and as prayed for,


the February 18, 1991 Judgment by Default is hereby reconsidered and
SET ASIDE.

2. Direct him to assign personnel and/or representatives to conduct an


inventory of part of the vessels cargo now in the possession of Mr. Cesar S.
Urbino, Sr. at 197 Heroes del 96 Street, Caloocan City, which inventory
may be participated in by all the parties interested in said cargo.

On June 26, 1992, then Executive Judge Bernardo P. Pardo [48] of the
Regional Trial Court of Manila issued an Order [49] annulling the Sheriffs
Report/Return dated April 1, 1991, and all proceedings taken by
Camagon.
The CA granted private respondents Motion to file a Supplemental
Petition impleading petitioner in CA-GR 24669. [50] In view of the rampant
pilferage of the cargo deposited at the PPA compound, private respondent
obtained from the appellate court a Writ of Preliminary Injunction dated
March 6, 1992. The Writ reads:[51]
ACCORDINGLY, in view of the foregoing disquisitions, the urgent verified
motion for preliminary injunction dated February 11, 1992 is hereby
GRANTED. Therefore, let a writ of preliminary injunction forthwith issue
against the respondents and all persons or agents acting in their behalf,
enjoining them not to interfere in the transferring of the aforementioned
vessel and its cargoes, or in removing said cargoes xxx from [the] PPA
compound.
On September 15, 1992, Sheriff Amado Sevilla seized petitioners
motor tugboat Den Den by virtue of the Order[52] dated April 3, 1992,
issued by the RTC of Manila, Branch 26.[53]
On August 6, 1992, the CA consolidated CA-GR SP No. 28387 [54] with
CA-GR SP No. 24669.[55] The Court of Tax Appeals issued on October 5,
1992, a Resolution in CTA Case Nos. 4492, 4494 and 4500, which disposed
as follows:

1. Order Respondent Commissioner of Customs to assign or detail [a]


sufficient number of customs police and guards aboard, and around the
vicinity of, the vessel M/V Star Ace now in anchor at Mariveles, Bataan or
elsewhere, in order to ensure its safety during the pendency of these cases;

To enjoin the CTA from enforcing said Order, private respondent filed
before the Court of Appeals another Petition for Certiorari,[56] which was
later also consolidated with CA-GR SP No. 24669.
On July 19, 1993, the CA rendered the assailed Decision. Petitioner
filed (1) a Motion for Clarification, praying for a declaration that the trial
court Decision against it was not valid; and (2) a partial Motion for
Reconsideration, seeking to set aside the assailed Decision insofar as the
latter affected it.
On July 5, 1995, the Court of Appeals issued the following Resolution:
[57]

Pending resolution of the motions for reconsideration, filed by Vlason


Enterprises Corporation and Banco [Du] Brazil, and considering [private
respondents] Motion for Entry of Judgment with respect to respondent
PPA having already been granted by this Court as far back as June 17,
1994, pursuant to the resolution of the Supreme Court dated December 8,
1993 in G.R. No. 111270-72 (Philippine Ports Authority vs. Court of
Appeals, et al.) informing the parties in said case that the judgment sought
to be reviewed has now become final and executory, the lower court may
now take appropriate action on the urgent ex-parte motion for issuance
of a writ of execution, filed by [private respondent] on July 15, 1994.
On August 28, 1995, the Regional Trial Court of Manila, Branch 26,
issued a Writ of Possession which resulted in private respondent taking

possession of petitioners barge Lawin (formerlySea Lion 2) on September


1, 1995.[58]
Hence, this Petition.[59]
Ruling of the Respondent Court

As already adverted to, Respondent Court granted the Petition


for Certiorari of the private respondent, which was consolidated with the
latters two other Petitions. The court a quo issued the following rulings:
1. The trial court had jurisdiction over the salvors claim or
admiralty case pursuant to Batas Pambansa Bilang 129.
2. Since the Decision of the trial court became final and
executory, never having been disputed or appealed to a higher
court, the trial judge committed grave abuse of discretion in
recalling the Writ of Execution and in quashing the levy and
the execution of the sale of M/V Star Ace and its cargo.
2. Such acts constituted an alteration or a modification of a final
and executory judgment and could never be justified under
law and jurisprudence.
3. Civil Case 59-51451 dealt only with the salvors claim without
passing upon the legality or the validity of the undated
Decision of the Commissioner of Customs in the seizure
proceeding.
4. Petitioner and his co-respondents could not invoke the
jurisdiction of a court to secure affirmative relief against their
opponent and, after failing to obtain such relief, question the
courts jurisdiction.
5. Petitioner had no recourse through any of the following
judicially accepted means to question the final judgment:
a. a petition for relief from judgment under Rule 38,
b. a direct action to annul and enjoin the enforcement of the questioned
judgment, and
c. a collateral attack against the questioned judgment which appears void
on its face.

6. A court which has already acquired jurisdiction over a case


cannot be ousted by a coequal court; the res in this casethe
vessel and its cargowere placed under the control of the trial
court ahead of the CTA.
7. The admiralty Decision had attained finality while the issue of
the validity of the seizure proceedings was still under
determination.
In the assailed Resolution, Respondent Court clarified that there was
no need to serve summons anew on petitioner, since it had been served
summons when the Second Amended Petition (the third) was filed; and
that petitioners Motion for Reconsideration was defective and void,
because it contained no notice of hearing addressed to the counsel of
private respondent in violation of Rule 16, Section 4 of the Rules of Court.
To this second motion, [private respondent] contends that there was no
need to serve summons anew to VEC when the second amended petition
was filed impleading VEC, pursuant to the ruling of the Supreme Court
in Asiatic Travel Corp. vs. CA (164 SCRA 623); and that finally, the
decision of the court a quo o[n] February 18, 1991 became final and
executory, notwithstanding the timely filing of the motion for
reconsideration of VEC for the reason that the said motion for
reconsideration was defective or void, there being no notice of hearing
addressed to the counsel of petitioner. In fact, no motion such as this
instant one can be acted upon by the Court without proof of service of the
notice thereof, pursuant to Rule 16, Section 4 of the Rules of Court.
xxx
xxx
xxx
Finally, we should never lose sight of the fact that the instant petition
for certiorari is proper only to correct errors of jurisdiction committed by
the lower court, or grave abuse of discretion which is tantamount to lack of
jurisdiction. Where the error is not one of jurisdiction but an error of law
or of fact which is a mistake of judgment, appeal is the remedy (Salas vs.
Castro, 216 SCRA 198). Here, respondents failed to appeal. Hence, the
decision dated February 18, 1991 of the lower court has long become final,
executory and unappealable. We do not and cannot therefore review the
instant case as if it were on appeal and direct actions on these

motions. While the proper remedy is appeal, the action for certiorari will
not be entertained. Indeed, certiorari is not a substitute for lapsed appeal.

(ii)
The trial court never authorized ex-parte presentation of evidence
against VEC.

At any rate, the decision dated July 19, 1993 of this Court on the main
petition for certiorari is not yet final (except with respect to respondent
PPA), the Bureau of Customs having filed a petition for certiorari and
prohibition, under Rule 65 of the Rules of Court, with the Supreme Court,
necessitating prudence on Our part to await its final verdict.[60]

3.

Assignment of Errors

Before us, petitioner submits the following assignment of errors on


the part of Respondent Court:[61]
I
The Court of Appeals committed serious error in ruling that the entire
decision of the trial court in Civil Case No. 89-51451 dated 18 February
1991 became final and executory because it was never disputed or
appealed.
A.
VEC filed a motion for reconsideration of the said decision two days
before deadline, which motion was granted by the trial court.
B.
The trial court correctly granted VECs motion for reconsideration
and set aside the 18 February 1991 decision xxx against VEC, for:
1. The trial court never acquired jurisdiction over the person of VEC as
to enable it to render any judgment against it:

The Judgment by default was fatally defective because:

(i)
No filing fee was paid by [private respondent] for the staggering
amount of damages awarded by the trial court.
(ii)
The 18 February 1991 decision violates the Revised Rules of Court,
which prescribe that a judgment by default cannot decree a relief not
prayed for.
II
Since the 18 February 1991 Decision in Civil Case No. 89-51451 is void as
against VEC, the recall of the writ of execution was valid, as far as VEC is
concerned.
The Court believes that the issues can be simplified and restated as
follows:
1. Has the February 18, 1991 RTC Decision become final and
executory in regard to petitioner?
2. Did the trial court acquire jurisdiction over the petitioner?
3. Was the RTC default judgment binding on petitioner?
4. Was the grant of damages against petitioner procedurally
proper?
5. Was private respondent entitled to a writ of execution?
This Courts Ruling

(i)
51451;

VEC was not impleaded as a respondent in Civil Case No. 89-

(ii)

Summons was not served on VEC;

2. The trial court improperly rendered judgment by default against


VEC;
(i)

The petition is meritorious.


First Issue: Finality of the RTC Decision

The trial court never issued an order of default against VEC;

A judgment becomes final and executory by operation of law. Its


finality becomes a fact when the reglementary period to appeal lapses, and
no appeal is perfected within such period. [62]The admiralty case filed by
private respondent with the trial court involved multiple defendants. This
being the case, it necessarily follows that the period of appeal of the
February 18, 1991 RTC Decision depended on the date a copy of the
judgment was received by each of the defendants. Elsewise stated, each

defendant had a different period within which to appeal, depending on the


date of receipt of the Decision.[63]
Omega, Singkong Trading Co. and M/V Star Ace chose to enter into a
compromise agreement with private respondent. As to these defendants,
the trial court Decision had become final, and a writ of execution could be
issued against them.[64] Doctrinally, a compromise agreement is
immediately final and executory.[65]
Petitioner, however, is not in the same situation. Said Decision
cannot be said to have attained finality as to the petitioner, which was not a
party to the compromise. Moreover, petitioner filed a timely Motion for
Reconsideration with the trial court, thirteen days after it received the
Decision or two days before the lapse of the reglementary period to
appeal. A motion for reconsideration tolls the running of the period to
appeal.[66] Thus, as to petitioner, the trial court Decision had not attained
finality.
Exception to the Rule on Notice of Hearing

Respondent Court and private respondent argue that, although timely


filed, petitioners Motion for Reconsideration was a mere scrap of paper,
because (1) it did not contain a notice of hearing addressed to
the current counsel of private respondent, and (2) the notice of hearing
addressed to and served on private respondents deceased counsel was not
sufficient. Admittedly, this Motion contained a notice of hearing sent to
Atty. Jesus C. Concepcion who, according to private respondent, had
already died and had since been substituted by its new counsel, Atty.
Domingo Desierto. Therefore, the appellate court ruled that the said
Motion did not toll the reglementary period to appeal and that the trial
court Decision became final.
This Court disagrees. Rule 15 of the Rules of Court states:
SEC. 4. Notice.Notice of a motion shall be served by the applicant to all
parties concerned, at least three (3) days before the hearing thereof,
together with a copy of the motion, and of any affidavits and other papers
accompanying it. The court, however, for good cause may hear a motion
on shorter notice, specially on matters which the court may dispose of on
its own motion.

SEC. 5. Contents of notice.The notice shall be directed to the parties


concerned, and shall state the time and place for the hearing of the
motion. [67]
Ideally, the foregoing Rule requires the petitioner to address and to
serve on the counsel of private respondent the notice of hearing of the
Motion for Reconsideration. The case at bar, however, is far from
ideal. First, petitioner was not validly summoned and it did not participate
in the trial of the case in the lower court; thus, it was understandable that
petitioner would not be familiar with the parties and their
counsels. Second, Atty. Desierto entered his appearance only as
collaborating counsel,[68] who is normally not entitled to notices even from
this Court. Third, private respondent made no manifestation on record
that Atty. Concepcion was already dead. Besides, it was Atty. Concepcion
who signed the Amended Petition, wherein petitioner was first impleaded
as respondent and served a copy thereof. Naturally, petitioners attention
was focused on this pleading, and it was within its rights to assume that
the signatory to such pleading was the counsel for private respondent.
The Court has consistently held that a motion which does not meet
the requirements of Sections 4 and 5 of Rule 15 of the Rules of Court is
considered a worthless piece of paper, which the clerk of court has no right
to receive and the trial court has no authority to act upon. Service of a
copy of a motion containing a notice of the time and the place of hearing of
that motion is a mandatory requirement, and the failure of movants to
comply with these requirements renders their motions fatally defective.
[69]
However, there are exceptions to the strict application of this
rule. These exceptions are as follows:[70]
xxx Liberal construction of this rule has been allowed by this Court in
cases (1) where a rigid application will result in a manifest failure or
miscarriage of justice;[71] especially if a party successfully shows that the
alleged defect in the questioned final and executory judgment is not
apparent on its face or from the recitals contained therein; (2) where the
interest of substantial justice will be served; [72] (3) where the resolution of
the motion is addressed solely to the sound and judicious discretion of the
court;[73] and (4) where the injustice to the adverse party is not

commensurate [to] the degree of his thoughtlessness in not complying


with the procedure prescribed.[74]
The present case falls under the first exception. Petitioner was not
informed of any cause of action or claim against it. All of a sudden, the
vessels which petitioner used in its salvaging business were levied upon
and sold in execution to satisfy a supposed judgment against it. To allow
this to happen simply because of a lapse in fulfilling the notice requirement
which, as already said, was satisfactorily explained would be a manifest
failure or miscarriage of justice.
A notice of hearing is conceptualized as an integral component of
procedural due process intended to afford the adverse parties a chance to
be heard before a motion is resolved by the court. Through such notice, the
adverse party is permitted time to study and answer the arguments in the
motion.
Circumstances in the case at bar show that private respondent was
not denied procedural due process, and that the very purpose of a notice of
hearing had been served. On the day of the hearing, Atty. Desierto did not
object to the said Motion for lack of notice to him; in fact, he was furnished
in open court with a copy of the motion and was granted by the trial court
thirty days to file his opposition to it. These circumstances clearly justify a
departure from the literal application of the notice of hearing rule. [75] In
other cases, after the trial court learns that a motion lacks such notice, the
prompt resetting of the hearing with due notice to all the parties is held to
have cured the defect.[76]
Verily, the notice requirement is not a ritual to be followed
blindly. Procedural due process is not based solely on a mechanistic and
literal application that renders any deviation inexorably fatal. Instead,
procedural rules are liberally construed to promote their objective and to
assist in obtaining a just, speedy and inexpensive determination of any
action and proceeding.[77] For the foregoing reasons, we believe that
Respondent Court committed reversible error in holding that the Motion
for Reconsideration was a mere scrap of paper.
Second Issue: Jurisdiction Over Petitioner
Service of Summons on a Corporation

The sheriffs return shows that Angliongto who was president of


petitioner corporation, through his secretary Betty Bebero, was served
summons on January 18, 1990.[78] Petitioner claims that this service was
defective for two reasons: (1) Bebero was an employee of Vlasons
Shipping, Inc., which was an entity separate and distinct from Petitioner
Vlason Enterprises Corporation (VEC); and (2) the return pertained to the
service of summons for the amended Petition, not for the Second
Amended Petition with Supplemental Petition, the latter pleading having
superseded the former.
A corporation may be served summons through its agents or officers
who under the Rules are designated to accept service of process. A
summons addressed to a corporation and served on the secretary of its
president binds that corporation.[79] This is based on the rationale that
service must be made on a representative so integrated with the
corporation sued, that it is safe to assume that said representative had
sufficient responsibility and discretion to realize the importance of the
legal papers served and to relay the same to the president or other
responsible officer of the corporation being sued. [80] The secretary of the
president satisfies this criterion. This rule requires, however, that the
secretary should be an employee of the corporation sought to be
summoned. Only in this manner can there be an assurance that the
secretary will bring home to the corporation [the] notice of the filing of
the action against it.
In the present case, Bebero was the secretary of Angliongto, who was
president of both VSI and petitioner, but she was an employee of VSI, not
of petitioner. The piercing of the corporate veil cannot be resorted to when
serving summons.[81] Doctrinally, a corporation is a legal entity distinct and
separate from the members and stockholders who compose it. However,
when the corporate fiction is used as a means of perpetrating a fraud,
evading an existing obligation, circumventing a statute, achieving or
perfecting a monopoly or, in generally perpetrating a crime, the veil will be
lifted to expose the individuals composing it. None of the foregoing
exceptions has been shown to exist in the present case. Quite the contrary,
the piercing of the corporate veil in this case will result in manifest
injustice. This we cannot allow. Hence, the corporate fiction remains.
Effect of Amendment of Pleadings on Jurisdiction

Petitioner claims that the trial court did not acquire jurisdiction over
it, because the former had not been served summons anew for the Second
Amended Petition or for the Second Amended Petition with Supplemental
Petition. In the records, it appears that only Atty. Tamondong, counsel for
Singkong Trading, was furnished a copy of the Second Amended Petition.
[82]
The corresponding sheriffs return indicates that only Omega, M/V Star
Ace and Capt. Rada were served summons and copies of said Petition.[83]
We disagree. Although it is well-settled that an amended pleading
supersedes the original one, which is thus deemed withdrawn and no
longer considered part of the record, it does not follow ipso facto that the
service of a new summons for amended petitions or complaints is
required. Where the defendants have already appeared before the trial
court by virtue of a summons on the original complaint, the amended
complaint may be served upon them without need of another summons,
even if new causes of action are alleged. [84] After it is acquired, a courts
jurisdiction continues until the case is finally terminated. Conversely,
when defendants have not yet appeared in court and no summons has been
validly served, new summons for the amended complaint must be served
on them.[85] It is not the change of cause of action that gives rise to the need
to serve another summons for the amended complaint, but rather the
acquisition of jurisdiction over the persons of the defendants. If the trial
court has not yet acquired jurisdiction over them, a new service of
summons for the amended complaint is required.
In this case, the trial court obviously labored under the erroneous
impression that petitioner had already been placed under its jurisdiction
since it had been served summons through the secretary of its
president. Thus, it dispensed with the service on petitioner of new
summons for the subsequent amendments of the Petition. We have
already ruled, however, that the first service of summons on petitioner was
invalid. Therefore, the trial court never acquired jurisdiction, and the said
court should have required a new service of summons for the amended
Petitions.
Impleading a Party in the Title of the Complaint

Petitioner further claims that the trial court failed to acquire


jurisdiction to render judgment against it because (1) the title of the three
Petitions filed by private respondent never included petitioner as a party-

defendant, in violation of Rule 7; and (2) the Petitions failed to state any
allegation of ultimate facts constituting a cause of action against petitioner.
We disagree with petitioner on the first ground. The judicial attitude
has always been favorable and liberal in allowing amendments to
pleadings. Pleadings shall be construed liberally so as to render
substantial justice to the parties and to determine speedily and
inexpensively the actual merits of the controversy with the least regard to
technicalities.[86]
The inclusion of the names of all the parties in the title of a complaint
is a formal requirement under Section 3, Rule 7. However, the rules of
pleadings require courts to pierce the form and go into the substance, and
not to be misled by a false or wrong name given to a pleading. The
averments in the complaint, not the title, are controlling. Although the
general rule requires the inclusion of the names of all the parties in the title
of a complaint, the non-inclusion of one or some of them is not fatal to the
cause of action of a plaintiff, provided there is a statement in the body of
the petition indicating that a defendant was made a party to such action.
Private respondent claims that petitioner has always been included in
the caption of all the Petitions it filed, which included Antonio Sy, field
manager of petitioner. We checked and noted that in the caption and the
body of the Amended Petition and Second Amended Petition with
Supplemental Petition, Antonio Sy was alleged to be representing Med
Line Philippines, not petitioner. Because it was private respondent who
was responsible for the errors, the Court cannot excuse it from compliance,
for such action will prejudice petitioner, who had no hand in the
preparation of these pleadings. In any event, we reiterate that, as a general
rule, mere failure to include the name of a party in the title of a complaint
is not fatal by itself.
Stating a Cause of Action in the Complaint

The general rule is allegata et probata -- a judgment must conform to


the pleadings and the theory of the action under which the case was tried.
[87]
But a court may also rule and render judgment on the basis of the
evidence before it, even though the relevant pleading has not been
previously amended, so long as no surprise or prejudice to the adverse
party is thereby caused.[88]

In the case at bar, the liability of petitioner was based not on any
allegation in the four Petitions filed with the trial court, but on the
evidence presented ex parte by the private respondent. Since the trial court
had not validly acquired jurisdiction over the person of petitioner, there
was no way for the latter to have validly and knowingly waived its objection
to the private respondents presentation of evidence against it.

has come to the considered conclusion that the questioned defaultjudgment has been improvidently issued. [Based on] the records, the
claim of [private respondent] that [its] January 29, 1990 Ex-Parte Motion
to Declare Defendants In Default (pp. 174-177, records, Vol. 1) including
VEC had been granted is belied by the February 23, 1990 Order (pp. 214215, records, ibid) par. 2, thereof, xxx

Third Issue: Judgment By Default

The trial court Decision holding petitioner liable for damages is


basically a default judgment. In Section 18, judgment by default is allowed
under the following condition:[89]
SEC. 1. Judgment by default.If the defendant fails to answer within the
time specified in these rules, the court shall, upon motion of the plaintiff
and proof of such failure, declare the defendant in default. Thereupon the
court shall proceed to receive the plaintiffs evidence and render judgment
granting him such relief as the complaint and the facts proven may
warrant. xxxx.
Thus, it becomes crucial to determine whether petitioner was ever declared
in default, and whether the reception of evidence ex parte against it was
procedurally valid.
Petitioner Was Never Declared In Default

Petitioner insists that the trial court never declared it in default.


We agree. The trial court denied the January 29, 1990 Motion of
private respondent to declare all the defendants in default, but it never
acted on the latters subsequent Motion to declare petitioner
likewise. During the pretrial on January 23, 1993, the RTC declared in
default only Atty. Eddie Tamondong, as well as the other defendants Hon.
Salvador Mison, M/V Star Ace, Omega Sea Transport Co., Inc. of Panama
and Sinkong Trading Co., [but] despite xxx due notice to them, [they]
failed to appear.[90] Even private respondent cannot pinpoint which trial
court order held petitioner in default.
More important, the trial court, in its Resolution dated May 22, 1991,
admitted that it never declared petitioner in default, viz.:
xxx It is in this light that this [c]ourt made an in-depth reflection and
assessment of the premises or reasons raised by [petitioner] VEC[;] and
after a re-examination of the facts and evidence spread on the records, it

xxx
xxx
xxx
Not even petitioners November 23, 1990 Ex-Parte Motion To Present
Evidence Against Defaulting Defendants (page 489, records, Vol. 2) [can]
be deemed as a remedy [for] the fact that there never was issued an order
of default against respondents including [petitioner] VEC. Having thus
established that there ha[d] been no order of default against VEC as
contemplated by Sec. 1, Rule 18, in relation to Sec. 9, Rule 13, Revised
Rules of Court, there could not have been any valid default-judgment
rendered against it. The issuance of an order [o]f default is a condition
sine qua non in order [that] a judgment by default be clothed with
validity. Further, records show that this [c]ourt never had authorized
[private respondent] to adduce evidence ex-parte against [Petitioner]
VEC. In sum, the February 18, 1991 decision by default is null and void as
against [Petitioner] VEC. xxxx.
The aforementioned default judgment refers to the February 18, 1989
Decision, not to the Order finding petitioner in default as contended by
private respondent. Furthermore, it is a legal impossibility to declare a
party-defendant to be in default before it was validly served summons.
Trial Court Did Not Allow Presentation of Evidence Ex Parte Against Petitioner

The Order of December 10, 1990, which allowed the presentation of


evidence ex parte against the defaulting defendants, could not have
included petitioner, because the trial court granted private respondents
motion praying for the declaration of only the foreign defendants in
default. So too, private respondents ex parte Motion to present evidence
referred to the foreign defendants only.[91]
Furthermore, the reception of evidence ex parte against a nondefaulting party is procedurally indefensible. Without a declaration that
petitioner is in default as required in Section 1, Rule 18, the trial court had

no authority to order the presentation of evidence ex parte against


petitioner to render judgment against it by default. The trial judge must
have thought that since it failed to appear despite summons and was in
default, it effectively waived any objection to the presentation of evidence
against it. This rule, however, would have applied only if petitioner had
submitted itself to the jurisdiction of the trial court. The latter correctly
declared, in the Resolution just cited, that the default judgment against the
former had been improvidently rendered.
Fourth Issue: Awards Not Paid and Prayed For
Additional Filing Fees as Lien on the Judgment

Had the trial court validly acquired jurisdiction over petitioner,


nonpayment of docket fees would not have prevented it from holding
petitioner liable for damages. The Court, in Manchester Development
Corporation v. Court of Appeals, [92] ruled that a court acquires jurisdiction
over any case only upon the payment of the prescribed docket fee, not
upon the amendment of the complaint or the payment of the docket fees
based on the amount sought in the amended pleading. This ruling,
however, was modified in Sun Insurance Office, Ltd. v. Asuncion, [93] which
added:
3. Where the trial court acquires jurisdiction over a claim [through] 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.
Filing fees for damages and awards that cannot be estimated
constitute liens on the awards finally granted by the trial court. Their
nonpayment alone is not a ground for the invalidation of the award.
Judgment by Default Cannot Grant Relief Not Prayed For

A declaration or order of default is issued as a punishment for


unnecessary delay in joining issues. In such event, defendants lose their
standing in court, they cannot expect the trial court to act upon their
pleadings, and they are not entitled to notice of the proceeding until the

final termination of the case.[94] Thus, the trial court proceeds with the
reception of the plaintiffs evidence upon which a default judgment is
rendered.
Section 1 of Rule 18 provides that after the defendant has been
declared in default, the court shall proceed to receive the plaintiffs
evidence and render judgment granting him such relief as the complaint
and the facts proven may warrant. The reliefs that may be granted,
however, are restricted by Section 5, which provides that a judgment
entered against a party in default shall not exceed the amount or be
different in kind from that prayed for.
In other words, under Section 1, a declaration of default is not an
admission of the truth or the validity of the plaintiffs claims. [95] The
claimant must still prove his claim and present evidence. In this sense the
law gives defaulting parties some measure of protection because plaintiffs,
despite the default of defendants, are still required to substantiate their
allegations in the complaint. The judgment of default against defendants
who have not appeared or filed their answers does not imply a waiver of all
their rights, except their right to be heard and to present evidence in their
favor. Their failure to answer does not imply their admission of the facts
and the causes of action of the plaintiffs, because the latter are required to
adduce evidence to support their allegations.
Moreover, the trial court is not allowed by the Rules to receive
evidence that tends to show a relief not sought or specified in the
pleadings.[96] The plaintiff cannot be granted an award greater than or
different in kind from that specified in the complaint.[97]
This case should be distinguished, however, from that of defendants,
who filed an answer but were absent during trial. In that case, they can be
held liable for an amount greater than or different from that originally
prayed for, provided that the award is warranted by the proven facts. This
rule is premised on the theory that the adverse party failed to object to
evidence relating to an issue not raised in the pleadings.
The latter rule, however, is not applicable to the instant
case. Admittedly, private respondent presented evidence that would have
been sufficient to hold petitioner liable for damages. However, it did not
include in its amended Petitions any prayer for damages against

petitioner. Therefore, the trial court could not have validly held the latter
liable for damages even if it were in default.

DECISION

Fifth Issue: Execution of Final Judgment

Section 1 of Rule 39 provides that execution shall issue only upon a


judgment that finally disposes of the action or proceeding. Such execution
shall issue as a matter of right upon the expiration of the period to appeal
it, if no appeal has been duly perfected.[98]
In the present case, however, we have already shown that the trial
courts Decision has not become final and executory against petitioner. In
fact, the judgment does not even bind it. Obviously, Respondent Court
committed serious reversible errors when it allowed the execution of the
said judgment against petitioner.
WHEREFORE, the appeal is hereby GRANTED, and the assailed
Decision and Resolution of the Court of Appeals are REVERSED and SET
ASIDE insofar as they affect petitioner. The levy and the sale on execution
of petitioners properties are declared NULL and VOID. Said properties
are ordered RESTORED to petitioner. No pronouncement as to cost.
SO ORDERED.
ERNESTO C. DEL ROSARIO andDAVAO
TIMBER CORPORATION,
Petitioners,

- versus -

FAR
EAST
BANK
&
TRUST
COMPANY[1] and
PRIVATEDEVELOPMENT CORPORATION
OF THE PHILIPPINES,
Respondents.

G.R. No. 150134

CARPIO MORALES, J.:


The Regional Trial Court (RTC) of Makati City, Branch 65 (sic)
having, by Decision[3] of July 10, 2001, dismissed petitioners complaint
in Civil Case No. 00-540 on the ground of res judicata and splitting of a
cause of action, and by Order of September 24, 2001 [4] denied their motion
for reconsideration thereof, petitioners filed the present petition for review
on certiorari.
[2]

From the rather lengthy history of the present controversy, a


recital of the following material facts culled from the records is in order.
On May 21, 1974, petitioner Davao Timber Corporation (DATICOR)
and respondent Private Development Corporation of the Philippines
(PDCP) entered into a loan agreement under which PDCP extended to
DATICOR a foreign currency loan of US $265,000 and a peso loan of P2.5
million or a total amount of approximately P4.4 million, computed at the
then prevailing rate of exchange of the dollar with the peso.

Present:
The loan agreement provided, among other things, that DATICOR
QUISUMBING, J., Chairperson,
shall pay: (1) a service fee of one percent (1%) per annum (later increased
to six percent [6%] per annum) on the outstanding balance of the peso
CARPIO,
loan; (2) 12 percent (12%) per annum interest on the peso loan; and (3)
CARPIO MORALES,
penalty charges of two percent (2%) per month in case of default.
TINGA, and
VELASCO, JR., JJ.
The loans were secured by real estate mortgages over six parcels of
land one situated in Manila (the Otis property) which was registered in
the name of petitioner Ernesto C. Del Rosario, and five in Mati, Davao
Oriental and chattel mortgages over pieces of machinery and equipment.
PROMULGATED:
October 31, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

Petitioners paid a total of P3 million to PDCP, which the latter


applied to interest, service fees and penalty charges. This left petitioners,

by PDCPscomputation, with an outstanding balance on the principal of


more than P10 million as of May 15, 1983.

million[10] P4.335 million from PDCP, and P965,000 from FEBTC. The
case, Civil Case No. 94-1610, was raffled to Branch 132 of the Makati RTC.

By March 31, 1982, petitioners had filed a complaint against PDCP


before the then Court of First Instance (CFI) of Manila for violation of the
Usury Law, annulment of contract and damages. The case, docketed as
Civil Case No. 82-8088, was dismissed by the CFI.

On May 31, 1995, Branch 132 of the Makati RTC rendered a


decision[11] in Civil Case No. 94-1610 ordering PDCP to pay petitioners the
sum of P4.035 million,[12] to bear interest at 12% per annum from April 25,
1994 until fully paid; to execute a release or cancellation of the mortgages
on the five parcels of land in Mati, Davao Oriental and on the pieces of
machinery and equipment and to return the corresponding titles to
petitioners; and to pay the costs of the suit.

On appeal, the then Intermediate Appellate Court (IAC) set aside


the CFIs dismissal of the complaint and declared void and of no effect the
stipulation of interest in the loan agreement between DATICOR and PDCP.
PDCP appealed the IACs decision to this Court where it was
docketed as G.R. No. 73198.
In the interim, PDCP assigned a portion of its receivables from
petitioners (the receivables) to its co-respondent Far East Bank and Trust
Company (FEBTC) under a Deed of Assignment dated April 10, 1987[5] for
a consideration of P5,435,000. The Deed of Assignment was later amended
by two Supplements.[6]
FEBTC, as assignee of the receivables, and petitioners later executed
a Memorandum of Agreement (MOA) dated December 8, 1988 whereby
petitioners agreed to, as they did pay FEBTC [7] the amount of P6.4
million as full settlement of the receivables.
On September 2, 1992, this Court promulgated its Decision in G.R.
No. 73198[8] affirming in toto the decision of the IAC. It determined that
after deducting theP3 million earlier paid by petitioners to PDCP, their
remaining balance on the principal loan was only P1.4 million.
Petitioners thus filed on April 25, 1994 a Complaint[9] for sum of
money against PDCP and FEBTC before the RTC of Makati, mainly to
recover the excess payment which they computed to be P5.3

As for the complaint of petitioners against respondent FEBTC, the


trial court dismissed it for lack of cause of action, ratiocinating that the
MOA between petitioners and FEBTC was not subject to this Courts
Decision in G.R. No. 73198, FEBTC not being a party thereto.
From the trial courts decision, petitioners and respondent PDCP
appealed to the Court of Appeals (CA). The appeal was docketed as CAG.R. CV No. 50591.
On May 22, 1998, the CA rendered a decision [13] in CA-G.R. CV No.
50591, holding that petitioners outstanding obligation, which this Court
had determined in G.R. No. 73198 to be P1.4 million, could not be
increased or decreased by any act of the creditor PDCP.
The CA held that when PDCP assigned its receivables, the
amount payable to it by DATICOR was the same amount payable to
assignee
FEBTC, irrespective of any stipulation that PDCP and
FEBTC might have
provided in the Deed of Assignment, DATICOR not having been a party
thereto, hence, not bound by its terms.
Citing Articles 2154[14] and 2163[15] of the Civil Code which embody
the principle of solutio indebiti, the CA held that the party bound to refund
the excess payment of P5 million[16] was FEBTC as it received the

overpayment; and that FEBTC could recover from PDCP the amount
of P4.035 million representing its overpayment for the assigned
receivables based on the terms of the Deed of Assignment or on the general
principle of equity.
Noting, however, that DATICOR claimed in its complaint only the
amount of P965,000 from FEBTC, the CA held that it could not grant a
relief different from or in excess of that prayed for.
Finally, the CA held that the claim of PDCP against DATICOR for
the payment of P1.4 million had no basis, DATICORs obligation having
already been paid in full, overpaid in fact, when it paid assignee FEBTC the
amount of P6.4 million.

complaint in Civil Case No. 94-1610 as they were merely claiming the
amount of P965,000 from it, they were barred from claiming it.
FEBTC later filed a Third Party Complaint[20] against PDCP
praying that the latter be made to pay the P965,000 and the interests
adjudged by the CA in favor of petitioners, as well as the P4.335 million
and interests that petitioners were claiming from it. It posited that PDCP
should be held liable because it received a consideration of P5.435 million
when it assigned the receivables.
Answering[21] the Third Party Complaint, PDCP contended that
since petitioners were not seeking the recovery of the amount of P965,000,
the same cannot be recovered via the third party complaint.

Accordingly, the CA ordered PDCP to execute a release or


cancellation of the mortgages it was holding over the Mati real properties
and the machinery and equipment, and to return the corresponding
certificates of title to petitioners. And it ordered FEBTC to pay petitioners
the amount of P965,000 with legal interest from the date of the
promulgation of its judgment.

PDCP went on to contend that since the final and executory


decision in CA-G.R. CV No. 50591 had held that DATICOR has no cause
of action

FEBTCs motion for reconsideration of the CA Decision was


denied, and so was its subsequent appeal to this Court.

Moreover, PDCP contended that it was not privy to the MOA


which explicitly excluded the receivables from the effect of the Supreme
Court decision, and that the amount of P6.4 million paid by petitioners to
FEBTC was clearly intended as consideration for the release and
cancellation of the lien on the Otis property.

On April 25, 2000, petitioners filed before the RTC of Makati a


Complaint[17] against FEBTC to recover the balance of the excess payment
of P4.335 million.[18] The case was docketed as Civil Case No. 00-540, the
precursor of the present case and raffled to Branch 143 of the RTC.
In its Answer,[19] FEBTC denied responsibility, it submitting that
nowhere in the dispositive portion of the CA Decision in CA-G.R. CV No.
50591 was it held liable to return the whole amount of P5.435 million
representing the consideration for the assignment to it of the receivables,
and since petitioners failed to claim the said whole amount in their original

against it for the refund of any part of the excess payment, FEBTC can no
longer re-litigate the same issue.

Replying,[22] FEBTC pointed out that PDCP cannot deny that it


benefited from the assignment of its rights over the receivables from
petitioners. It added that the third party claim being founded on a valid
and justified cause, PDCPs counterclaims lacked factual and legal basis.
Petitioners thereafter filed a Motion for Summary Judgment [23] to
which FEBTC filed its opposition.[24]

By Order of March 5, 2001, the trial court denied the motion for
summary judgment for lack of merit.[25]
On July 10, 2001, the trial court issued the assailed Decision
dismissing petitioners complaint on the ground of res judicata and
splitting of cause of action. It recalled that petitioners had filed Civil Case
No. 94-1610 to recover the alleged overpayment both from PDCP and
FEBTC and to secure the cancellation and release of their mortgages on
real properties, machinery and equipment; that when said case was
appealed, the CA, in its Decision, ordered PDCP to release and cancel the
mortgages and FEBTC to pay P965,000 with interest, which Decision
became final and executory on November 23, 1999; and that a Notice of
Satisfaction of Judgment between petitioners and FEBTC was in fact
submitted on August 8, 2000, hence, the issue between them was finally
settled under the doctrine of resjudicata.
The trial court moreover noted that the MOA between petitioners
and FEBTC clearly stated that the pending litigation before the Supreme
Court of the Philippines with respect to the Loan exclusive of the
Receivables assigned to FEBTC shall prevail up to the extent not covered
by this Agreement. That statement in the MOA, the trial court ruled,
categorically made only the loan subject to this Courts Decision in G.R.
No. 73198, hence, it was with the parties full knowledge and consent that
petitioners agreed to pay P6.4 million to FEBTC as consideration for the
settlement. The parties cannot thus be allowed to welsh on their
contractual obligations, the trial court concluded.
Respecting the third party claim of FEBTC, the trial court held
that FEBTCs payment of the amount of P1,224,906.67 (P965,000 plus
interest) to petitioners was in compliance with the final judgment of the
CA, hence, it could not entertain such claim because the Complaint filed by
petitioners merely sought to recover from FEBTC the alleged overpayment
of P4.335 million and attorneys fees of P200,000.

Petitioners motion for reconsideration [26] of the July 10,


2001 decision of the trial court was denied by Order of September 24,
2001.
Hence, the present petition.
In their Memorandum,[27] petitioners proffer that, aside from the
issue of whether their complaint is dismissible on the ground
of res judicata and splitting of cause of action, the issues of 1) whether
FEBTC can be held liable for the balance of the overpayment of P 4.335
million plus interest
which petitioners previously claimed against PDCP in Civil Case No. 941610, and 2) whether PDCP can interpose as defense the provision in the
Deed of Assignment and the MOA that the assignment of the receivables
shall not be affected by this Courts Decision in G.R. No. 73198, be
considered.
Stripped of the verbiage, the only issue for this Courts
consideration is the propriety of the dismissal of Civil Case No. 00-540
upon the grounds stated by the trial court. This should be so because a
Rule 45 petition, like the one at bar, can raise only questions of law (and
that justifies petitioners elevation of the case from the trial court directly
to this Court) which must be distinctly set forth.[28]
The petition is bereft of merit.
Section 47 of Rule 39 of the Rules of Court, on the doctrine
of res judicata, reads:
Sec. 47. Effect of judgments or final orders. The
effect of a judgment or final order rendered by a court of
the Philippines, having jurisdiction to pronounce the
judgment or final order, may be as follows:
xxxx

(b)
In other cases, the judgment or final order
is, with respect to the matter directly adjudged or as to any
other matter that could have been raised in relation
thereto, conclusive between the parties and their
successors in interest by title subsequent to the
commencement of the action or special proceeding,
litigating for the same thing and under the same title and
in the same capacity; and

or decree is rendered on the merits is conclusively settled by the judgment


therein and cannot again be litigated between the parties and their privies
whether or not the claim or demand, purpose, or subject matter of the two
suits is the same.[32] It refers to a situation where the judgment in the
prior

(c)
In any other litigation between the same
parties or their successors in interest, that only is deemed
to have been adjudged in a former judgment or final order
whichappears upon its face to have been so adjudged, or
which was actually and necessarily included therein or
necessary thereto. (Underscoring supplied)

action operates as an estoppel only as to the matters actually determined


or which were necessarily included therein.[33]

The above-quoted provision lays down two main rules. Section


49(b) enunciates the first rule of res judicata known as bar by prior
judgment or estoppel by judgment, which states that the judgment or
decree of a court of competent jurisdiction on the merits concludes the
parties and their privies to the litigation and constitutes a bar to a new
action or suit involving the same cause of action either before the same or
any other tribunal.[29]
Stated otherwise, bar by former judgment makes the judgment
rendered in the first case an absolute bar to the subsequent action since
that judgment is conclusive not only as to the matters offered and received
to sustain it but also as to any other matter which might have been offered
for that purpose and which could have been adjudged therein. [30] It is in
this concept that the term res judicata is more commonly and generally
used as a ground for a motion to dismiss in civil cases.[31]
The second rule of res judicata embodied in Section 47(c), Rule 39
is conclusiveness of judgment. This rule provides that any right, fact, or
matter in issue directly adjudicated or necessarily involved in the
determination of an action before a competent court in which a judgment

The case at bar satisfies the four essential requisites of bar by


prior judgment, viz:
(a)

finality of the former judgment;

(b)

the court which rendered it had


jurisdiction over the subject matter and
the parties;

(c)

it must be a judgment on the merits; and

(d)

there must be, between the first and


second actions, identity of parties, subject
matter and causes of action.[34]

There is no doubt that the judgment on appeal relative to Civil


Case No. 94-1610 (that rendered in CA-G.R. CV No. 50591) was a final
judgment. Not only did it dispose of the case on the merits; it also became
executory as a consequence of the denial of FEBTCs motion for
reconsideration and appeal.[35]
Neither is there room to doubt that the judgment in Civil Case No.
94-1610 was on the merits for it determined the rights and liabilities of the
parties.[36] To recall, it was ruled that: (1) DATICOR overpaid by P5.3

million; (2) FEBTC was bound to refund the excess payment but because
DATICORs claim against FEBTC was only P965,000, the court could only
grant so much as the relief prayed for; and (3) PDCP has no further
claim against DATICOR because its obligation had already been
paid in full.
Right or wrong, that judgment bars another case based upon the same
cause of action.[37]
As to the requisite of identity of parties, subject matter and causes
of action, it cannot be gainsaid that the first case, Civil Case No. 94-1610,
was brought by petitioners to recover an alleged overpayment of P5.3
million P965,000 from FEBTC and P4.335 million from PDCP.
On the other hand, Civil Case No. 00-540, filed by the same
petitioners, was for the recovery of P4.335 million which is admittedly part
of the P5.3 million earlier sought to be recovered in Civil Case No. 941610. This time, the action was brought solely against FEBTC which in
turn impleaded PDCP as a third party defendant.
In determining whether causes of action are identical to warrant
the application of the rule of res judicata, the test is to ascertain whether
the same evidence which is necessary to sustain the second action would
suffice to authorize a recovery in the first even in cases in which the forms
or nature of the two actions are different. [38] Simply stated, if the same
facts or evidence would sustain both, the two actions are considered the
same within the rule that the judgment in the former is a bar to the
subsequent action.
It bears remembering that a cause of action is the delict or the
wrongful act or omission committed by the defendant in violation of the
primary rights of the plaintiff.[39]
In the two cases, petitioners imputed to FEBTC the same alleged
wrongful act of mistakenly receiving and refusing to return an amount in
excess of what was due it in violation of their right to a refund. The same

facts and evidence presented in the first case, Civil Case No. 94-1610, were
the very same facts and evidence that petitioners presented in Civil Case
No. 00-540.
Thus, the same Deed of Assignment between PDCP and FEBTC,
the first and second supplements to the Deed, the MOA between
petitioners and FEBTC, and this Courts Decision in G.R. No. 73198 were
submitted in Civil Case No. 00-540.
Notably, the same facts were also pleaded by the parties in support
of their allegations for, and defenses against, the recovery of the P4.335
million. Petitioners, of course, plead the CA Decision as basis for their
subsequent claim for the remainder of their overpayment. It is well
established, however, that a party cannot, by varying the form of action or
adopting a different method of presenting his case, or by pleading
justifiable circumstances as herein petitioners are doing, escape the
operation of the principle that one and the same cause of action shall not
be twice litigated.[40]
In fact, authorities tend to widen rather than restrict the doctrine
of res judicata on the ground that public as well as private
interest demands the ending of suits by requiring the parties to sue once
and for all in the same case all the special proceedings and remedies to
which they are entitled.[41]
This Court finds well-taken then the pronouncement of the
court a quo that to allow the re-litigation of an issue that was finally settled
as between petitioners and FEBTC in the prior case is to allow the splitting
of a cause of action, a ground for dismissal under Section 4 of Rule 2 of the
Rules of Court reading:
SEC. 4. Splitting of a single cause of action; effect
of. If two or more suits are instituted on the basis of the
same cause of action, the filing of one or a judgment
upon the merits in any one is available as a

ground for the dismissal of the others. (Emphasis


and underscoring supplied)
This rule proscribes a party from dividing a single or indivisible cause of
action into several parts or claims and instituting two or more actions
based on it.[42] Because the plaintiff cannot divide the grounds for recovery,
he is mandated to set forth in his first action every ground for relief which
he claims to exist and upon which he relies; he cannot be permitted to rely
upon them by piecemeal in successive actions to recover for the same
wrong or injury.[43]
Clearly then, the judgment in Civil Case No. 94-1610 operated as a
bar to Civil Case No. 00-540, following the above-quoted Section 4, Rule 2
of the Rules of Court.
A final word. Petitioners are sternly reminded that both the rules
on res judicata and splitting of causes of action are based on the salutary
public policy against unnecessary multiplicity of suits interest
reipublicae ut sit finis litium.[44] Re-litigation of matters already settled by
a courts final judgment merely burdens the courts and the taxpayers,
creates uneasiness and confusion, and wastes valuable time and energy
that could be devoted to worthier cases.[45]
WHEREFORE, the Petition is DENIED. The assailed Decision
of the RTC, Branch 143, Makati dismissing petitioners complaint in Civil
Case No. 00-540 isAFFIRMED.
Costs against petitioners.
SO ORDERED.
REYNALDO HALIMAO, complainant, vs. ATTYS. DANIEL
VILLANUEVA and INOCENCIO PEFIANCO FERRER,
JR., respondents.
DECISION

MENDOZA, J.:
This is a complaint for disbarment against Attorneys Daniel
Villanueva and Inocencio Ferrer, Jr., for serious misconduct.
The complaint originated from a letter dated April 14, 1992 which
complainant Reynaldo Halimao wrote to the Chief Justice, alleging that
respondents, without lawful authority and armed with armalites and
handguns, forcibly entered the Oo Kian Tiok Compound in Cainta, Rizal, of
which complainant was caretaker, on April 4, 1992 at 11:00 A.M.
Complainant prayed that an investigation be conducted and respondents
disbarred. To the complaint were attached the affidavits of alleged
witnesses, including that of Danilo Hemandez, a security guard at the
compound, who had also filed a similar complaint against herein
respondents.
In its resolution dated July 1, 1992, the Court required respondents to
comment.
On August 14, 1992, respondents filed a comment in which they
claimed that the complaint is a mere duplication of the complaint filed by
Danilo Hernandez in Administrative Case No. 3835, which this Court had
already dismissed on August 5, 1992 for lack of merit. They pointed out
that both complaints arose from the same incident and the same acts
complained of and that Danilo Hernandez, who filed the prior case, is the
same person whose affidavit is attached to the complaint in this case.
Respondent Ferrer claimed that he was nowhere near the compound
when the incident took place. He submitted affidavits attesting to the fact
that he had spent the whole day of April 4, 1992 in Makati with his family.
Additionally, Ferrer claimed that the two complaints were filed for the
purpose of harassing him because he was the principal lawyer of Atty.
Daniel Villanueva in two cases before the Securities and Exchange
Commission. The cases involved the ownership and control of Filipinas
Textile Mills (Filtex), which is owned by Villanuevas family and whose
premises are the Oo Kian Tiok compound.

This case was thereafter referred to the Integrated Bar of


the Philippines for investigation, report and recommendation.
In its Resolution No. XI-94-017 dated January 22, 1994, the Board of
Governors of the IBP dismissed the case against respondents. It acted on
the basis of the report and recommendation of Atty. Victor C. Fernandez,
Investigating Commissioner, who found that the complaint is barred by the
decision in Administrative Case No. 3835 which involved the same
incident. Atty. Fernandez noted that in fact the complaints in the two cases
were similarly worded.
The Investigating Commissioner held that although the complaint in
the prior case was initiated by a security guard (Danilo Hernandez) of the
compound while the present case was filed by the caretaker, nevertheless
the complainants had substantially the same interest. The Investigating
Commissioner observed:
Furthermore, Danilo Hernandez is not a stranger to complainant
herein. Both represent the same interest as co-workers in the Oo Kian Tiok
Compound. In his letter-complaint, complainant mentions Danilo
Hernandez as an employee and his co-worker at the Oo Kian Tiok
Compound. Complainant even attached to his complaint the affidavit of
Danilo Hernandez that was submitted to the Municipal Trial Court of
Cainta, Rizal in support of the criminal complaints (Criminal Cases Nos.
MTC-4700 and 4701 (92) filed against respondents herein. In said affidavit
(Magkakalakip na Sinumpaang Salaysay) dated April 4, 1992, Danilo
Hernandez also mentions the name of complainant as a caretaker of the Oo
Kian Tiok Compound. Clearly, the complainant and Danilo Hernandez not
only represent the same interest in filing their respective complaints, but
have the same complaint against respondents.[1]
The Commissioner held that for res judicata to apply, absolute
identity of parties is not required, it being sufficient that there is identity of
interests of the parties. In this case, both complainants were present at the
compound when the incident allegedly happened, and the acts they were
complaining against and the relief they were seeking were the same.

On March 28, 1994, complainant filed a motion for reconsideration of


the resolution of the IBP Board of Governors. His motion was referred to
the Court in view of the fact that the records of the case had earlier been
forwarded to the Court on March 11, 1994.
In his aforesaid motion, complainant contends that by filing a motion
to dismiss the complaint in this case, private respondents must be deemed
to have hypothetically admitted the material allegations in the complaint
and, therefore, private respondents must be deemed to have confessed to
the charge of serious misconduct. Hence, it was error for the IBP to
dismiss his complaint.
Complainant also contends that by invoking the resolution of this
Court in Administrative Case No. 3835, respondents are evading the issues
and that Ferrers defense of alibi is weak and cannot prevail against the
direct and positive identification by him and his witnesses. He contends
that the resolution in Administrative Case No. 3835 has no bearing upon
the present case and that the Investigating Commissioner should have
resolved the issues of fact before him.
Respondents filed an Opposition to the motion for
reconsideration. As a preliminary matter, they argue that the motion for
reconsideration is a mere scrap of paper, because it is not provided for in
Rule 139-B of the Rules of Court, and that what complainant should
instead have done was to appeal to this Court.
Rule 139-B states in pertinent part:
12. Review and decision by the Board of Governors.
xxx xxx xxx
c) If the respondent is exonerated by the Board or the disciplinary sanction
imposed by it is less than suspension or disbarment [such as admonition,
reprimand, or fine] it shall issue a decision exonerating respondent or
imposing such sanction. The case shall be deemed terminated unless upon
petition of the complainant or other interested party filed with the
Supreme Court within fifteen (15) days from notice of the Boards
resolution, the Supreme Court orders otherwise.

Although Rule 139-B, 12(c) makes no mention of a motion for


reconsideration, nothing in its text or in its history suggests that such
motion is prohibited. It may therefore be filed within 15 days from notice
to a party. Indeed, the filing of such motion should be encouraged before
resort is made to this Court as a matter of exhaustion of administrative
remedies, to afford the agency rendering the judgment an opportunity to
correct any error it may have committed through a misapprehension of
facts or misappreciation of the evidence.[2]
Considering, however, that complainants motion for reconsideration
was filed after the IBP had forwarded the records of this case to this Court,
it would be more expedient to treat it as complainants petition for review
within the contemplation of Rule 139-B, 12(c).
Now with regard to complainants argument that it was error for the
Investigating Commissioner to dismiss the complaint against respondents
because, by filing a motion to dismiss, respondents are deemed to have
admitted the allegations of the complaint against them, suffice it to say
that the rule that a motion to dismiss is to be considered as a hypothetical
admission of the facts alleged in the complaint applies more particularly to
cases in which the ground for dismissal is the failure of the complaint to
state a cause of action. When it appears on the face of the complaint that
the plaintiff is not entitled to any relief under the facts alleged, the
defendant may file a motion to dismiss hypothetically admitting the facts
alleged in the complaint.[3] By filing such a motion, the defendant in effect
says that even assuming the facts to be as alleged by the plaintiff, the latter
has failed to prove that he has a right which the former has violated.[4]
The rule does not unqualifiedly apply to a case where the defendant
files a motion to dismiss based on lack of jurisdiction of the court or
tribunal over the person of the defendant or over the subject matter or over
the nature of the action; or on improper venue; or on lack of capacity to
sue of the plaintiff or on litis pendentia, res judicata,
prescription, unenforceability, or on the allegation that the suit is between
members of the same family and no earnest efforts towards a compromise
have been made. In such cases, the hypothetical admission is limited to the

facts alleged in the complaint which relate to and are necessary for the
resolution of these grounds as preliminary matters involving substantive
or procedural laws, but not to the other facts of the case.
On the other hand, when a motion to dismiss is based on payment,
waiver, abandonment, release, compromise, or other form of
extinguishment, the motion to dismiss does not hypothetically, but
actually, admits the facts alleged in the complaint, i.e., the existence of the
obligation or debt, only that the plaintiff claims that the obligation has
been satisfied. So that when a motion to dismiss on these grounds is
denied, what is left to be proven in the trial is no longer the existence of the
debt but the fact vel non of payment by the defendant.
The Investigating Commissioner properly dismissed the complaint in
this case on the ground of res judicata, it appearing that it involves the
same incident and the same cause of action as Administrative Case No.
3825. Indeed, it appears that on August 5, 1995, the First Division of the
Court dismissed a similar complaint filed in Administrative Case No. 3835.
The resolution reads:
Adm. Case No. 3835 (Danilo Hernandez v. Attys. Daniel Villanueva and
Inocencio Pefianco Ferrer, Jr.). - This administrative complaint against
Attorneys Daniel Villanueva and Inocencio P. Ferrer, Jr. is the offshoot of a
family feud involving the ownership and possession of the Filipinas Textile
Mills (Filtex). The contest between Bernardino Villanueva and Daniel
Villanueva (probably relatives) for the control of the corporation has
escalated into a three-cornered fight when Oo Kian Tiok joined the fray,
claiming ownership of the same property by purchase from the Equitable
Banking Corporation, mortgage creditor and highest bidder thereof at the
mortgage foreclosure sale.
Respondent Daniel Villanueva believes that Bernardino Villanueva is the
evil genius behind this complaint for his disbarment filed by a certain
Daniel Hernandez. On the other hand, Hernandez claims to be one of
several security guards placed by Oo Kian Tiok on the Filtex property. His
allegation that the respondents drove him and the other security guards

out of the Filtex premises at gun point was denied by the respondents and
is not substantiated by independent evidence.
For want of a prima facie showing of professional misconduct on the part
of the respondents, the complaint must be dismissed. The three-cornered
dispute among respondent Daniel Villanueva, Bernardino Villanueva and
Oo Kian Tok [sic] over the possession and ownership of the Filtex property
should be litigated and determined in an appropriate judicial action, not in
administrative proceedings to disbar Attorney Daniel Villanueva and his
counsel, Attorney Inocencio P. Ferrer, Jr.
WHEREFORE, the complaint against respondents Attys. Daniel Villanueva
and Inocencio P. Ferrer, Jr. is DISMISSED for lack of merit.
Two motions for reconsideration of this resolution were filed by the
complainant therein, both of which were denied, the first one on
September 23, 1992 and the second one on November 9, 1992.
While the complainant (Danilo Hernandez) in Administrative Case
No. 3835 is different from the complainant in the present case, the fact is
that they have an identity of interest, as the Investigating Commissioner
ruled. Both complainants were employed at the Oo Kian Tiok Compound
at the time of the alleged incident. Both complain of the same act allegedly
committed by respondents. The resolution of this Court in Administrative
Case No. 3835 is thus conclusive in this case, it appearing that the
complaint in this case is nothing but a duplication of the complaint of
Danilo Hernandez in the prior case. In dismissing the complaint brought
by Danilo Hernandez in the prior case, this Court categorically found
want of a prima facie showing of professional misconduct on the part of
the respondents [Attorneys Daniel Villanueva and Inocencio Ferrer, Jr.].
WHEREFORE, the resolution of the Board of Governors of the
Integrated Bar of the Philippines, approving and adopting the report and
recommendation of the Investigating Commissioner, is AFFIRMED and
the complaint against respondents is DISMISSED.
SO ORDERED.

NATIONAL POWER CORPORATION, petitioner, vs. COURT OF


APPEALS and CAGAYAN ELECTRIC POWER AND LIGHT
CO., INC. (CEPALCO), respondents.
[G.R. No. 113613. September 26, 1997]
PHIVIDEC INDUSTRIAL AUTHORITY, petitioner, vs. COURT
OF APPEALS and CAGAYAN ELECTRIC POWER AND
LIGHTCO., INC. (CEPALCO), respondents.
DECISION
ROMERO, J.:
Offered for resolution in these consolidated petitions for review
on certiorari is the issue of whether or not the National Power Corporation
(NPC) has jurisdiction to determine whether it may supply electric power
directly to the facilities of an industrial corporation in areas where there is
an existing and operating electric power franchisee.
On June 17, 1961, the Cagayan Electric and Power Light Company
(CEPALCO) was enfranchised by Republic Act No. 3247 "to construct,
maintain and operate an electric light, heat and power system for the
purpose of generating and/or distributing electric light, heat and/or power
for sale within the City of Cagayan de Oro and its suburbs" for fifty (50)
years. Republic Act No. 3570, approved on June 21, 1963, expanded the
area of coverage of the franchise to include the municipalities of Tagoloan
and Opol, both in the Province of Misamis Oriental. On August 4, 1969,
Republic Act No. 6020 further amended the same franchise to include in
the areas of CEPALCO's authority of "generating and distributing electric
light and power for sale," the municipalities of Villanueva and Jasaan, also
of the said province.
Presidential Decree No. 243, issued on July 12, 1973, created a "body
corporate and politic" to be known as the Philippine Veterans Investment
Development Corporation (PHIVIDEC) vested with authority to engage in
"commercial, industrial, mining, agricultural and other enterprises" among
other powers[1] and "to allow the full and continued employment of the
productive capabilities of and investment of the veterans and retirees of
the Armed Forces of the Philippines." On August 13, 1974, Presidential
Decree No. 538 was promulgated to create the PHIVIDEC Industrial
Authority (PIA), a subsidiary of PHIVIDEC, to carry out the government
policy "to encourage, promote and sustain the economic and social growth

of the country and that the establishment of professionalized management


of well-planned industrial areas shall further this objective." [2] Under Sec. 3
of P.D. No. 538, the first area for development shall be located in the
municipalities of Tagoloan and Villanueva. [3] This area forms part of the
PHIVIDEC Industrial Estate Misamis Oriental (PIE-MO).
As manager of PIE-MO, PIA granted the Ferrochrome Philippines,
Inc. (FPI) and Metal Alloys Corporation (MAC) authority to operate in its
area of development. On July 6, 1979, PIA granted CEPALCO a temporary
authority to retail electric power to the industries operating within the
PIE-MO.[4] The Agreement executed by PIA and CEPALCO authorized
CEPALCO "to operate, administer, construct and distribute electric power
within the PHIVIDEC Industrial Estate, Misamis Oriental, such authority
to be co-extensive with the territorial jurisdiction of PHIVIDEC Industrial
Estate, as defined in Sec. 3 of P.D. No. 538 and shall be for a period of five
(5) years, renewable for another five (5) years at the option of
CEPALCO." The parties provided further that:
"9. At the end of the fifth year, or at the end of the 10th year,
should this Agreement be thus renewed, PIA has the option to
take over the operation of the electric service and acquire by
purchase CEPALCO's assets within PIE-MO. This option shall be
communicated to CEPALCO in writing at least 24 months before
the date of acquistion of assets and takeover of operation by
PIA. Should PIA exercise its option to purchase the assets of
CEPALCO in PIE-MO, PIA shall respect the right of ownership of
and maintenance by CEPALCO of those assets inside PIE-MO
not covered by such purchase. x x x."
According to PIA,[5] CEPALCO proved no match to the power
demands of the industries in PIE-MO that most of these companies
operating therein closed shop.[6] Impelled by a "desire to provide cheap
power costs to power-intensive industries operating within the Estate,"
PIA applied with the National Power Corporation (NPC) for direct power
connection which the latter in due course approved. [7] One of the
companies which entered into an agreement with the NPC for a direct sale
and supply of power was the Ferrochrome Phils., Inc. (FPI).
Contending that the said agreement violated its right as the
authorized operator of an electric light and power system in the area and

the national electrification policy, CEPALCO filed Civil Case No. Q-35945,
a petition for prohibition, mandamus and injunction before the Regional
Trial Court of Quezon City against the NPC. Notwithstanding NPC's claim
that it was authorized by its Charter to sell electric power "in bulk" to
industrial enterprises, the lower court rendered a decision on May 2, 1984,
restraining the NPC from supplying power directly to FPI upon the ground
that such direct sale, supply and delivery of electric power by the NPC to
FPI was violative of the rights of CEPALCO under its legislative
franchise. Hence, the lower court ordered the NPC to "permanently desist"
from effecting direct supply of power to the FPI and "from entering into
and/or implementing any agreement or arrangement for such direct power
connection, unless coursed through the power line" of CEPALCO.
Eventually, the case reached this Court through G.R. No. 72085.
[8]
On December 28, 1989, the Court denied the appeal interposed by NPC
on the ground that the statutory authority given to the NPC as regards
direct supply of power to BOI-registered enterprises "should always be
subordinate to the 'total-electrification-of-the-entire-country-on-an-areacoverage basis policy' enunciated in P. D. No. 40."[9] We held further that:
"Nor should we lose sight of the factual findings of the
court a quo that petitioner-appellee CEPALCO had not only been
authorized by the Phividec Industrial Authority to provide
electrical power to the Phividec Industrial Estate within which
the FPI plant is located, but that petitioner-appellee CEPALCO
had in fact, supplied the latter's power requirements for the
construction of its plant, upon FPI's application therefor as early
as October 17, 1980.
It bears emphasis then that 'it is only after a hearing (or an
opportunity for such a hearing) where it is established that the
affected private franchise holder is incapable or unwilling to
match the reliability and rates of NPC that a direct connection
with NPC may be granted.' Here, petitioner-appellee's reliability
as a power supplier and ability to match the NPC rates were
never put in issue.
It is immaterial that petitioner-appellee's franchise was not
exclusive. A privilege to sell within specified territory, even if not

exclusive, is a valuable property right entitled to protection


against unauthorized competition."[10]
Notwithstanding said decision, in September 1990, FPI filed a new
application for the direct supply of electric power from NPC. The Hearing
Committee of the NPC had started hearing the application but CEPALCO
filed with the Regional Trial Court of Quezon City a petition for contempt
against NPC officials led by Ernesto Aboitiz. On August 10, 1992, the trial
court found the respondents in direct contempt of court and accordingly
imposed upon them a fine of 500.00 each.
The respondent NPC officials challenged before this Court the
judgment holding them in contempt of court through G.R. No. 107809,
(Aboitiz v. Regino).[11] In the Decision of July 5, 1993, the Court upheld
the contempt ruling and, after quoting the lower court's decision of May 2,
1984 which the Court upheld in G.R. No. 72085, said:
"These directives show that the lower court (and this Court)
intended the arrangment between FPI and CEPALCO to be
permanent and free from NAPOCOR's influence or
intervention. Any attempt on the part of NAPOCOR or its officers
and/or employees to strike a deal with FPI would be a clear and
direct disobedience to a lawful order and therefore
contemptuous.
The petitioners call the attention of the Court to the statement of
CEPALCO that 'NAPOCOR has already implemented in full' the
May 2, 1984 decision of the lower court as affirmed by this Court.
They suggest that in view of this, the decision no longer has any
binding effect upon the parties, or to put it another way, has
become functus officio. Consequently, when they entertained the
re-application of FPI for direct power connection to NAPOCOR,
they were not disobeying the May 2, 1984 order of the trial court
and so should not be held in contempt.
This argument must be rejected in view of our finding of the
permanence and comprehensiveness of the challenged order of
the trial court. 'Permanent' is not a difficult word to
understand. It means 'lasting or intended to last indefinitely
without change.' As for the scope of the order, NAPOCOR was
directed to 'desist from effecting, causing, and continuing the

direct supply, sale and delivery of electricity from its power line
to the plant of Ferrochrome Philippines, Inc., and from entering
into and/or implementing any agreement or arrangement for
such direct power connection, unless coursed through the power
line of petitioner." (Underscoring supplied.)
Meanwhile, the NPC Hearing Committee [12] proceeded with its
hearings. CEPALCO was duly notified thereof but it opted to question the
committee's jurisdiction. It did not submit any evidence. Consequently, in
its Report and Recommendation dated September 27, 1991, the committee
gave weight to the evidence presented by FPI that CEPALCO charged
higher rates than what the NPC would if allowed to supply power directly
to FPI. Although the committee considered as unfounded FPI's claim of
CEPALCO's unreliability as a power supplier,[13] it nonetheless held that:
"Form (sic) the foregoing and on the basis of the decision of the
Supreme Court in the case of National Power Corporation and
Fine Chemicals (Phils.) Inc. v. The Court of Appeals and the
Manila Electric Company, G.R. No. 84695, May 8, 1990, FPI is
entitled to a direct connection to NPC as applied for considering
that CEPALCO is unwilling to match the rates of NPC for directly
serving FPI and that FPI is a duly registered BOI registered
enterprises (sic). The Supreme Court in the aforestated case has
ruled as follows:
'As consistently ruled by the Court pursuant to P.D. No.
380 as amended by P.D. No. 395, NPC is statutorily
empowered to directly service all the requirements of a
BOI registered enterprise provided that, first, any
affected private franchise holder is afforded an
opportunity to be heard on the application therefor and
second, from such a hearing, it is established that said
private franchise holder is incapable or unwilling to
match the reliability and rates of NPC for directly
serving
the
latter
(National
Power
Corporation v.Jacinto, 134 SCRA 435 [1985]. National
Power Corporation v. Court of Appeals, 161 SCRA 103
[1988]).'"[14]

However, considering the "better and priority right" of PIA, the committee
recommended that instead of a direct power connection by the NPC to FPI,
the connection should be made to PIA "as a utility user for its industrial
Estate at Tagoloan, Misamis Oriental."[15]
For its part, on November 3, 1989, CEPALCO filed with the Energy
Regulatory Board (ERB) a petition praying that the ERB "order the
discontinuance of all existing direct supply of power by the NPC within
petitioner's franchise area" (ERB Case No. 89-430). On July 17, 1992, the
ERB ruled that CEPALCO "is relatively efficient and reliable as manifested
by its very low system losses (far from the 14% standard) and very high
power factors" and therefore CEPALCO is technically capable "to distribute
power to its consumers within its franchise area, particularly the industrial
customers." It disposed of the petition as follows:
"WHEREFORE, in view of the foregoing premises, when the petitioner has
been proven to be capable of distributing power to its industrial consumers
and having passed the secondary considerations with a passing mark of
85%, judgment is hereby rendered granting the relief prayed for.
Accordingly, it is hereby declared that all direct connection of industries to
NPC within the franchise area of CEPALCO is no longer
necessary. Therefore, all existing NPC direct supply of power to industrial
consumers within the franchise area of CEPALCO is hereby ordered
discontinued. x x x."[16]
However, during the pendency of the Aboitiz case in this Court or on
August 3, 1992, PIA contracted the NPC for the construction of a 138
kilovolt (KV) transmission line from Namutulan substation to the receiving
and/or substation of PIA.[17]
As expected, on February 17, 1993, CEPALCO filed in the Regional
Trial Court of Pasig (Branch 68), a petition for certiorari, prohibition,
mandamus and injunction against the NPC and some officials of both the
NPC and PIA.[18] Docketed as SCA No. 290, the petition specifically sought
the issuance of a temporary restraining order. However, after hearing, the
prayer for the temporary restraining order was denied by the court in its
order of March 12, 1993.[19] CEPALCO filed a motion for the
reconsideration of said order while NPC and PIA moved for the dismissal
of the petition.[20]

On June 23, 1993, noting the cases filed by CEPALCO all seeking
exclusivity in the distribution of electric power to areas covered by its
franchise, the court[21] ruled that "the right of petitioner to supply electric
power in the aforesaid area to the exclusion of other entities had been
settled once and for all by the Regional Trial Court of Quezon City wherein
petitioner obtained a favorable judgment." Hence, the petition was
dismissed on the ground of res judicata.[22]
Forthwith, CEPALCO elevated the case to this Court through a
petition for certiorari, prohibition and injunction with prayer for the
issuance of a preliminary injunction or a temporary restraining order. The
petition was docketed as G.R. No. 110686 but on August 18, 1993, the
Court referred it to the Court of Appeals pursuant to Sec. 9, paragraph 1 of
B.P. Blg. 129 conferring upon the appellate court original jurisdiction to
issue writs of prohibition and certiorari and auxiliary writs.[23] In the Court
of Appeals, the petition was docketed as CA-G.R. No. 31935-SP.
On September 10, 1993, the Fifteenth Division of the Court of Appeals
issued a resolution[24] denying the prayer for the issuance of a temporary
restraining order on the strength of Sec. 1 of P.D. No. 1818. It ruled that
since the NPC is a public utility, it "enjoys the protective mantle" of said
decree prohibiting courts from issuing restraining orders or preliminary
injunctions in cases involving infrastructure and natural resource
development projects of, and operated by, the government.[25]
However, on September 17, 1993, upon a motion for reconsideration
filed by CEPALCO and a re-evaluation of the provisions of P.D. No. 1818,
the Court of Appeals set aside its resolution of September 10, 1993 and
held that:
"x x x the project intended by respondent NPC, which is the
construction, completion and operation of the 138-kv line, is not
in consonance with the intendment of said Decree which is to
protect public utilities and their projects and activities intended
for public convenience and necessity. The project of respondent
NPC is intended to serve exclusively the needs of private entities,
Metal Alloys Corporation and Ferrochrome Philippine in
Tagoloan, Misamis Oriental."
Accordingly, the Court of Appeals issued a temporary restraining
order directing the private respondents therein "to immediately cease and

desist from proceeding with the construction, completion and operation of


the 138-kv line subject of the petition." The NPC, PIA and the officers of
both were directed to explain why the preliminary injunction prayed for
should not issue.[26]
In due course, the Court of Appeals rendered the decision [27] of
November 15, 1993 assailed herein. After ruling that the lower court
gravely abused its discretion in dismissing the petition below on the
grounds of res judicata and litis pendentia, the Court of Appeals
confronted squarely the issue of whether or not "the NPC itself has the
power to determine the propriety of direct power connection from its lines
to any entity located within the franchise area of another public utility." [28]
Elucidating that the ruling of this Court in both G.R. No. 78609
(NPC v. Court of Appeals)[29] and G.R. No. 87697 (Del Monte [Philippines],
Inc. v. Hon. Felix M. de Guzman, etc., et al.)[30] categorically held that
before a direct connection to the NPC may be granted, a proper
administrative body must conduct a hearing "to determine which entity,
the franchise holder or the NPC, has the right to supply electric power to
the entity applying for direct connection," the Court of Appeals declared:
"We have no doubt that the ERB, and not the NPC, is the administrative
body referred to by the Supreme Court where the hearing is to be
conducted to determine the propriety of direct connection. The charter of
the ERB (PD 1206 in relation to EO 172) is clear on this:
"The Board shall, after due notice and hearing, exercise the following
powers and functions, among others:
xxx
xxx
xxx
e.
Issue Certificate of Public Convenience for the operation of
electric power utilities and services, ... including the establishment and
regulation of areas of operation of particular operators of public power
utilities and services, the fixing of standards and specifications in all cases
related to the issued Certificate of Public Convenience ..."
Moreover, NPC is not an administrative body as jurisprudentially defined,
and that the NPC cannot usurp a power it has never been conferred by its
charter or by other law -- the power to determine the validity of direct

connection agreement it enters into in violation of a power distributor's


franchise.
Thus, considering that PIA professes to be and intends to engage in the
business of a public power utility, it must first apply for a public
convenience and necessity (conferment of operating authority) with the
ERB. This may have been the opportune time for ERB to determine
whether to allow PIA to directly connect with NPC, with notice and
opportunity for CEPALCO considering that, as the latter alleges, this new
line which NPC is installing duplicates that existing Cepalco 138 kv line
which NPC itself turned over to Cepalco and for which it was paid in full."
Consequently, the Court of Appeals affirmed the dismissal of the petition,
annulled and set aside the decision of the Hearing Committee of the NPC
on direct connection with PIA, and ordered the NPC "to desist from
continuing the construction of that NPC-Natumulan-Phividec 138 kv
transmission line."[31]
Without filing a motion for the reconsideration of said Decision, NPC
filed in this Court on December 9, 1993, a motion for an extension of time
within which to file "the proper petition." The motion which was docketed
as G.R. No. 112702, was granted on December 20, 1993 with warning
that no further extension would be granted. Thereafter, NPC filed a motion
praying that it be excused from filing the petition on account of the filing
by PIA in the Court of Appeals of a motion for the reconsideration of the
Decision of November 15, 1993. In the Resolution of February 2, 1994, the
Court noted and granted petitioner's motion and considered the case
"closed and terminated."[32]This resolution was withdrawn in the
Resolution of February 8, 1995 [33] in view of the "inadvertent clerical error"
terminating the case, after the NPC had mailed its petition for review on
certiorari on February 21, 1994.[34]
In the meantime, PIA filed a motion for reconsideration of the
appellate court's Decision of November 15, 1993 arguing in the main that,
not being a party to previous cases between CEPALCO and NPC, it was not
bound by decisions of this Court. The Court of Appeals denied the motion
on January 28, 1994 on the basis of stare decisis where once the court has
laid down a principle of law as applicable to a certain state of facts, it will

adhere to and apply the principle to all future cases where the facts are
substantially the same.[35] Hence, PIA filed a petition for review
on certiorari which was docketed as G.R. No. 113613.
G.R. Nos. 112702 and 113613 were consolidated on June 15, 1994.
[36]

In G.R. No. 112702, petitioner NPC contends that private


respondent CEPALCO is not entitled to relief because it has been forumshopping. Private respondent had filed Civil Case No. Q-93-14597 in the
Regional Trial Court of Quezon City which had been forwarded to it by the
Regional Trial Court of Pasig. Said case and the instant case (SCA No.
290) deal with the same issue of restoring CEPALCO's right to supply
power to FPI and MAC. Petitioner thus contends that because the principle
of litis pendentia applies, although other parties are involved in the case
before the Quezon City court, there is no basis for granting relief to private
respondent CEPALCO "(s)ince the dismissal for lack of jurisdiction was
affirmed by the respondent court."[37] Corollarily, petitioner asserts that
because the main case herein was dismissed "without trial," the
respondent appellate court should not have accorded private respondent
affirmative relief.[38]
Petitioner NPC's contention is based on the fact that on October 6,
1992, private respondent CEPALCO filed against the NPC in the Regional
Trial Court of Pasig, Civil Case No. 62490, an action for specific
performance and damages with prayer for preliminary mandatory
injunction directing the NPC to immediately restore to CEPALCO the
distribution of power pertaining to MAC's consumption. [39] However, no
summons was served and the ex-parte writ prayed for was not issued.
Nevertheless, the case was forwarded to the Regional Trial Court of
Quezon City where it was docketed as Civil Case No. 93-14597. That case
was pending when SCA No. 290 was filed before the Regional Trial Court
of Pasig.
The Court of Appeals affirmed the lower court's dismissal of the case
neither on the grounds of res judicata nor litis pendentia but on the "only
one
unresolved
issue,
which
is whether the NPC itself has the power to determine the propriety of direct
power connection from its lines to any entity located within the franchise a
rea of another publicutility."[40] The Court of Appeals opined that the

effects of litis pendentia could not have resulted in the dismissal of SCA
No. 290 because Civil Case No. Q-35945 which becameG.R. No. 72085 was
based on facts totally different from that of SCA No. 290.
In invoking litis pendentia, however, petitioner NPC refers to this
case, SCA No. 290, and Civil Case No. 93-14597. SCA No. 290 and Civil
Case No. 93-14597 may both have the same objective, the restoration of
CEPALCO's right to distribute power to PIE-MO areas under its franchise
aside from the fact that the cases involve practically the same
parties. However, litis pendentia may not be successfully invoked to cause
the dismissal of SCA No. 290.
In order to constitute a ground for the abatement or dismissal of an
action, litis pendentia must exhibit the concurrence of the following
requisites: (a) identity of parties, or at least such as representing the same
interest in both actions; (b) identity of rights asserted and relief prayed for,
the relief being founded on the same facts, and (c) identity in the two (2)
cases should be such that the judgment that may be rendered in the
pending case would, regardless of which party is successful, amount
to res judicata in the other.[41]As a rule, the second case filed should be
abated under the maxim qui prior est tempore, potior est jure. However,
this rule is not a hard and fast one. The "priority-in-time rule" may give
way to the criterion of "more appropriate action." More recently, the
criterion used was the "interest of justice rule."[42]
We hold that the last criterion should be the basis for resolving this
case, although it was filed later than Civil Case No. 62490 which, upon its
transfer, became Civil Case No. 93-14795. In so doing, we shall avoid
multiplicity of suits which is the matrix upon which litis pendentia is
anchored and eventually bring about the final settlement of the recurring
issue of whether or not the NPC may supply power directly to the
industries within PIE-MO, notwithstanding the operation of franchisee
CEPALCO in the same area.
It should be noted that there is yet pending another case, namely,
Civil Case No. 91-383, instituted by PIA against CEPALCO in the Regional
Trial Court of Misamis Oriental which apparently deals with a related issue
- PIA's franchise or authority to provide power to enterprises within the
PIE-MO.[43] Hence, the principle of litis pendentia which ordinarily
demands the dismissal of an action filed later than another, should be

considered under the primordial concept of "interest of justice," in order


that a recurrent issue common to all cases may be definitively resolved.
The principal and common question raised in these consolidated
cases is: whether or not the NPC may supply power directly to PIA in the
PIE-MO area where CEPALCO has a franchise. Petitioner PIA in G.R.
No. 113613 asserts that it may receive power directly from the NPC
because it is a public utility. It avers that P.D. No. 538, as amended,
empowers PIA "as and to be a public utility to operate and serve the power
needs within PIE-MO, i.e., a specific area constituting a small portion of
petitioner's franchise coverage," without, however, specifying the
particular provision which so empowers PIA.[44]
A "public utility" is a business or service engaged in regularly
supplying the public with some commodity or service of public
consequence such as electricity, gas, water, transportation, telephone or
telegraph service.[45] The term implies public use and service.[46]
Petitioner PIA is a subsidiary of the PHIVIDEC with "governmental
and proprietary functions."[47] Sec. 4 of P.D. No. 538 specifically confers
upon it the following powers:
"a. To operate, administer and manage the PHIVIDEC Industrial
Areas and other areas which shall hereafter be proclaimed,
designated and specified in subsequent Presidential
Proclamation; to construct acquire, own, lease, operate and
maintain infrastructure facilities, factory buildings, warehouses,
dams, reservoirs, water distribution, electric light and power
systems, telecommunications and transportation networks, or
such other facilities and services necessary or useful in the
conduct of industry and commerce or in the attainment of the
purposes and objectives of this Decree;" (Underscoring
supplied.)
Clearly then, the PIA is authorized to render indirect service to the
public by its administration of the PHIVIDEC industrial areas like the PIEMO and may, therefore, be considered a public utility. As it is expressly
authorized by law to perform the functions of a public utility, a certificate
of public convenience, as suggested by the Court of Appeals, is not
necessary for it to avail of a direct power connection from the
NPC. However, such authority to be a public utility may not be exercised

in such a manner as to prejudice the rights of existing franchisees. In fact,


by its actions, PIA recognized the rights of the franchisees in the area.
Accordingly, in pursuit of its powers "to grant such franchise for and
to operate and maintain within the Areas electric light, heat or power
systems," etc. under Sec. 4 (i) of P.D. No. 538 and its rule-making power
under Sec. 4 (l) of the same law, on July 20, 1979, the PIA Board of
Directors promulgated the "Rules and Regulations To Implement the
Intent and Provisions of Presidential Decree No. 538." [48] Rule XI thereof
on "Utilities and Services" provides as follows:
"SECTION 1. Utilities - It is the responsibility of the Authority to provide
all required utilities and services inside the Estate:
xxx

xxx
x x x.
a) Contracts for the purchase of public utilities and/or services
shall be subject to the prior approval of the
Authority; Provided, however, that similar contract(s)
existing prior to the effectivity of this Rules and Regulations
shall continue to be in full force and effect.

xxx
(Underscoring supplied.)

xxx

x x x.

It should be noted that the Rules and Regulations took effect thirty
(30) days after its publication in the Official Gazette on September 24,
1979 or more than three (3) months after the July 6, 1979 contract between
PIA and CEPALCO was entered into. As such, the Rules and Regulations
itself allowed the continuance of the supply of electric power to PIE-MO by
CEPALCO.
That the contract of July 6, 1979 was not renewed by the parties after
the expiration of the five-year period stipulated therein did not change the
fact that within that five-year period, in violation of both the contract and
its Rules and Regulations, PIA applied with the NPC for direct power
connection. The matter was aggravated by NPC's favorable action on the
application, totally unmindful of the extent of its powers under the law
which, in National Power Corporation v. Court of Appeals,[49] the Court
delimits as follows:

"x x x. It is immaterial whether the direct connection is merely an


improvement or an increase in existing voltage, as alleged by
petitioner, or a totally new and separate electric service as
claimed by private respondent. The law on the matter is clear.
PD 40 promulgated on 7 November 1972 expressly provides
that the generation of electric power shall be undertaken solely
by the NPC. However, Section 3 of the same decree also provides
that the distribution of electric power shall be undertaken by
cooperatives, private utilities (such as the CEPALCO), local
governments and other entities duly authorized, subject to state
regulation. (Underscoring supplied.)
The same case ruled that "(i)t is only after a hearing (or an
opportunity for such a hearing) where it is established that the
affected private franchise holder is incapable or unwilling to match the
reliability and rates of NPC that a direct connection with NPC may be
granted."[50] As earlier stated, the Court arrived at the same ruling in the
later cases of G.R. Nos. 72085, 84695 and 87697.
Petitioner NPC attempted to abide by these rulings when it conducted
a hearing to determine whether it may supply power directly to PIA. While
it notified CEPALCO of the hearing, the NPC is not the proper authority
referred to by this Court in the aforementioned earlier decisions, not only
because the subject of the hearing is a matter involving the NPC itself, but
also because the law has created the proper administrative body vested
with authority to conduct a hearing.
CEPALCO shares the view of the Court of Appeals that the Energy
Regulatory Board (ERB) is the proper administrative body for such
hearings. However, a recent legislative development has overtaken said
view.
The ERB, which used to be the Board of Energy, is tasked with the
following powers and functions by Executive Order No. 172 which took
effect immediately after its issuance on May 8, 1987:
"SEC. 3. Jurisdiction, Powers and Functions of the Board. When warranted and only when public necessity requires, the
Board may regulate the business of importing, exporting, reexporting, shipping, transporting, processing, refining,
marketing and distributing energy resources. x x x.

(a)

The Board shall, upon prior notice and hearing, exercise the
following, among other powers and functions:
Fix and regulate the prices of petroleum products;

(b)
Fix and regulate the rate schedule or prices of piped gas to be
charged by duly franchised gas companies which distribute gas by means
of underground pipe system;
(c)
Fix and regulate the rates of pipeline concessionaires under the
provisions of Republic Act No. 387, as amended, otherwise known as the
'Petroleum Act of 1949,' as amended by Presidential Decree No. 1700;
(d)
Regulate the capacities of new refineries or additional capacities
of existing refineries and license refineries that may be organized after the
issuance of this Executive Order, under such terms and conditions as are
consistent with the national interest;
(e)
Whenever the Board has determined that there is a shortage or
any petroleum product, or when public interest so requires, it may take
such steps as it may consider necessary, including the temporary
adjustment of the levels of prices of petroleum products and the payment
to the Oil Price Stabilization Fund created under Presidential Decree No.
1956 by persons or entities engaged in the petroleum industry of such
amounts as may be determined by the Board, which will enable the
importer to recover its cost of importation."
As may be gleaned from said provisions, the ERB is basically a price
or rate-fixing agency. Apparently recognizing this basic function, Republic
Act No. 7638 (An Act Creating the Department of Energy, Rationalizing
the Organization and Functions of Government Agencies Related to
Energy, and for Other Purposes),[51] which was approved on December 9,
1992 and which took effect fifteen days after its complete publication in at
least two (2) national newspapers of general circulation, specifically
provides as follows:
"SEC. 18. Rationalization or Transfer of Functions of Attached or
Related Agencies.- The non-price regulatory jurisdiction, powers,
and functions of the Energy Regulatory Board as provided for in

Section 3 of Executive Order No. 172 are hereby transferred to


the Department.
The foregoing transfer of powers and functions shall include all
applicable funds and appropriations, records, equipment,
property, and such personnel as may be necessary. Provided,
That only such amount of funds and appropriations of the Board
as well as only the personnel thereof which are completely or
primarily involved in the exercise by said Board of its non-price
regulatory powers and functions shall be affected by such
transfer.
The power of the NPC to determine, fix, and prescribe the rates
being charged to its customers under Section 4 of Republic Act
No. 6395, as amended, as well as the power of electric
cooperatives to fix rates under Section 16 (o), Chapter II of
Presidential Decree No. 269, as amended, are hereby transferred
to the Energy Regulatory Board. The Board shall exercise its new
powers only after due notice and hearing and under the same
procedure provided for in Executive Order No. 172."
Upon the effectivity of Republic Act No. 7638, then Acting Chairman
of the Energy Coordinating Council Delfin Lazaro transmitted to the
Department of Justice the query of whether or not the "non-power rate
powers and functions" of the ERB are included in the "jurisdiction, powers
and functions transferred to the Department of Energy." Answering the
query in the affirmative, the Department of Justice rendered Opinion No.
22 dated February 12, 1993 the pertinent portion of which states:
"x x x we believe that since the provision of Section 18 on the
transfer of certain powers and functions from ERB to DOE is
clear and unequivocal, and devoid of any ambiguity, in the sense
that it categorically refers to 'non-price jurisdiction, powers and
functions' of ERB under Section 3 of E.O. No. 172, there is no
room for interpretation, but only for application, of the law. This
is a cardinal rule of statutory construction.
Clearly, the parameters of the transfer of functions from ERB to
DOE pursuant to Section 18, are circumscribed by the provision
of Section 3 of E.O. No. 172 alone, so that, if there are other
'related' functions of ERB under other provisions of E.O. No. 172

or other energy laws, these 'related' functions, which may


conceivably refer to what you call 'non-power rate powers and
functions' of ERB, are clearly not contemplated by Section 18 and
are, therefore, not to be deemed included in the transfer of
functions from ERB to DOE under the said provision.
It may be argued that Section 26 of R.A. No. 7638 contains a
repealing clause which provides that:
'All laws, presidential decrees, executive orders, rules
and regulations or parts thereof, inconsistent with the
provisions of this Act, are hereby repealed or modified
accordingly. x x x.'
and, therefore, all provisions of E.O. No. 172 and related laws
which are inconsistent with the policy, purpose and intent of R.A.
No. 7638 are deemed repealed. It has been said, however, that a
general repealing clause of such nature does not operate as an
express repeal because it fails to identify or designate the act or
acts that are intended to be repealed. Rather, it is a clause which
predicates the intended repeal upon the condition that a
substantial conflict must be found on existing and prior acts of
the same subject matter. Such being the case, the presumption
against implied repeals and the rule on strict construction
regarding implied repeals shall apply ex propio vigore. For the
legislature is presumed to know the existing laws so that, if
repeal of particular or specific laws is intended, the proper step is
to so express it. The failure to add a specific repealing clause
particularly mentioning the statute to be repealed indicates that
the intent was not to repeal any existing law on the matter,
unless an irreconcilable inconsistency and repugnancy exists in
the terms of the new and the old laws (Iloilo Palay and Corn
Planters Association, Inc. vs. Feliciano, 13 SCRA 377; City of
Naga vs. Agna, 71 SCRA 176, cited in Agpalo, Statutory
Construction, 1990 Edition, pp. 191-192).
In view of the foregoing, it is our opinion that only the non-price
regulatory functions of ERB under Section 3 of E.O. 172 are
transferred to the DOE. All other powers of ERB which are not
within the purview of its 'non-price regulatory jurisdiction,

powers and functions' as defined in Section 3 are not so


transferred to DOE and accordingly remain vested in ERB."
The determination of which of two public utilities has the right to
supply electric power to an area which is within the coverage of both is
certainly not a rate-fixing function which should remain with the ERB. It
deals with the regulation of the distribution of energy resources which,
under Executive Order No. 172, was expressly a function of ERB. However,
with the enactment of Republic Act No. 7638, the Department of Energy
took over such function. Hence, it is this Department which shall
then determine whether CEPALCO or PIA should supply power to PIEMO.
Clearly, petitioner NPC's assertion that its "authority to entertain and
hear direct connection applications is a necessary incident of its express
authority to sell electric power in bulk" is now baseless. [52] Even without
the new legislation affecting its power to conduct hearings, it is certainly
irregular, if not downright anomalous for the NPC itself to determine
whether it should supply power directly to the PIA or the industries within
the PIE-MO. It simply cannot arrogate unto itself the authority to exercise
non-rate fixing powers which now devolves upon the Department of
Energy and to hear and eventually grant itself the right to supply power in
bulk.[53]
On the other hand, ventilating the issue in a public hearing would not
unduly prejudice CEPALCO although it was enfranchised by law earlier
than the PIA. Exclusivity of any public franchise has not been favored by
this Court such that in most, if not all, grants by the government to private

corporations, the interpretation of rights, privileges or franchises is taken


against the grantee. Thus in Alger Electric, Inc. v. Court of Appeals,[54] the
Court said:
"x x x Exclusivity is given by law with the understanding that the
company enjoying it is self-sufficient and capable of supplying
the needed service or product at moderate or reasonable
prices. It would be against public interest where the firm granted
a monopoly is merely an unnecessary conduit of electric power,
jacking up prices as a superfluous middleman or an inefficient
producer which cannot supply cheap electricity to power
intensive industries. It is in the public interest when industries
dependent on heavy use of electricity are given reliable and direct
power at the lower costs thus enabling the sale of nationally
marketed products at prices within the reach of the masses. x x
x."
WHEREFORE, both petitions in G.R. No. 112702 and 113613 are
hereby DENIED. The Department of Energy is directed to conduct a
hearing with utmost dispatch to determine whether it is the Cagayan
Electric Power and Light Co., Inc. or the National Power Corporation,
through the PHIVIDEC Industrial Authority, which should supply electric
power to the industries in the PHIVIDEC Industrial Estate-Misamis
Oriental. This Decision is immediately executory.
SO ORDERED