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General v. Hon. Franco T.

Falcon, in his
1. RP vs. MERALCO, G.R. No. 201715, Dec.
capacity as the Presiding Judge of Branch
11, 2013; 71, Regional Trial Court, National Capital
2. Aguilar vs. Lightbringers Credit Region, Pasig City, Manila Electric Company
and National Power Corporation,1 whereby
Cooperative, G.R. No. 209605, Jan. 12, 2015;
the Court of Appeals (CA) dismissed the
3. Eastern Shipping Lines, Inc. vs. BPI/MS original and the supplemental petitions for
Insurance Corp. G.R. No. 182864, Jan. 12, certiorari, prohibition and mandamus of
2015; herein petitioner Republic of the
Philippines,and in effect upheldthe assailed
4. Absolute Mgt. Corp. vs. Metrobank, G.R. interlocutory orders ofNovember 3,
No. 190277, July 23, 2014; and 20102 and November 4, 2010,3 and the pre-
trial order of November 24, 2010,4 all issued
5. Aznar Brothers Realty vs. Sps. Ybañez, G.R. by the Regional Trial Court (RTC), Branch 71,
No. 161380, April 21, 2014 in Pasig Cityin Special Civil Action No.
3392,an action for declaratory relief entitled
Manila Electric Company v. National Power
Corporation, et al. The CA further ordered
the RTC, Branch 71, in Pasig City to
FIRST DIVISION proceedwith the trial in Special Civil Action
No. 3392, and to resolve the case with
G.R. No. 201715 December 11, 2013 dispatch.

REPUBLIC OF THE PHILIPPINES, Petitioner, Additionally, the petitioner prays that


vs. respondents Manila Electric Company
MANILA ELECTRIC COMPANY (MERALCO), (MERALCO) and National Power
and NATIONAL POWER CORPORATION Corporation (NAPOCOR) be directed to
(NPC), Respondents. resolve their dispute through
arbitrationpursuant to the arbitration clause
DECISION of their contract for the sale of electricity
(CSE).5
BERSAMIN, J.:
Antecedents
The intervening rendition by the trial court of
a decision on the merits of the case renders Thedecision of the CA sums up thefollowing
moot and academic the resolution of any uncontested material antecedents.
issue raised on certiorari against
interlocutory orders setting the pre-trial and MERALCO and NAPOCOR had entered into
declaring the petitioner to have waived its the CSE on November 21, 1994. The CSE
right to present its evidence. The resolution would be effective for 10 years starting from
of the issue, having been pre-empted by January 1, 1995. Under the CSE, NAPOCOR
the decision in the main action, ceased to was obliged to supply and MERALCO was
have any practical value. obliged to purchase a minimum volume of
electric power and energy from 1995 until
The Case 2004 at the rates approved by the Energy
Regulatory Board (ERB), now the Energy
Regulatory Commission (ERC). A provision of
Under appeal via petition for review on
the CSE required MERALCO to pay minimum
certiorari is the decision promulgated on
monthly charges even if the actual volume
October 14, 2011 in C.A.-G.R. SP No. 116863
of the power and energy drawn from
entitled Republic of the Philippines,
NAPOCOR fell below the stated minimum
represented by the Office of the Solicitor
quantities.
In the years 2002, 2003 and 2004, due to The Settlement Agreement coveredthe
circumstances beyond the reasonable charges being imposed by NAPOCOR and
control of the parties, MERALCO drew from the National Transmission Corporation
NAPOCOR electric power and energy less (TRANSCO) under Section 2.1 (Contract
than the minimum quantities stipulated in Demand and Contract Energy of
the CSE for those years. MERALCO did not MERALCO) in relation to Section 5.2
pay the minimum monthly charges but only (Transmission Service) and Section 7 (Direct
the charges for the electric power and Connection within MERALCO’s franchise
energy actually taken. Thus, NAPOCOR area), all of the CSE. MERALCO therein
served on MERALCO a claim for the agreed to pay to NAPOCOR
contracted but undrawn electric power and ₱27,515,000,000.00(i.e., the equivalentof
energy starting the billing month of January 18,222 gigawatt hours valued at ₱1.51per
2002. kilowatt hour), which amount represented
the value of the difference between the
MERALCO objected to the claimof aggregate contracted energy for the years
NAPOCOR, and served its notice of 2002, 2203 and 2004, on the one hand, and
termination of the CSE. MERALCO submitted the total amount of energy MERALCO
its own claim to NAPOCOR for, among actually purchasedfrom NAPOCOR from
others: (a) losses suffered due to the delay in January 2002 until April 30, 2003 and the
the construction of NAPOCOR’s transmission amount of energy MERALCO was scheduled
lines, which prevented it from fully to purchase thereafter and until December
dispatching the electricity contracted with 31, 2004, on the other. NAPOCOR
independent power producers (IPPs) at their reciprocated by agreeing to give credit to
respective minimum energy quantities; and MERALCO for the delayed completion of
(b) unrealized revenues owing to the transmission facilities as well as for the
NAPOCOR’s continuing to supply electricity energy corresponding to NAPOCOR’s sales
to directly-connected customers within to directly-connected customers located
MERALCO’s franchise area in violation of the within MERALCO’s franchise area. The
MERALCO franchise and the CSE. credit, valued at ₱7,465,000,000.00,
reducedthe net amount payable by
Recognizing that any delays in the resolution MERALCO to NAPOCOR under the
of their dispute was inimical to public Settlement Agreement to
interest, MERALCO and NAPOCOR ₱20,050,000,000.00.
agreedto submit their dispute to
mediation.6 They appointed the late Mediators Amb.Ordoñez and del Rosario
Ambassador Sedfrey A.Ordoñez and rendered their jointattestationto the
Antonio V. del Rosario as their mediators, Settlement Agreement, as follows:
and the mediation required about 20
meetings, during which NAPOCOR and the We, Ambassador Sedfrey A. Ordoñezand
Government were represented by high-level Antonio V. del Rosario, do hereby attest
officials (includingthen Energy Secretary andcertify that we have been duly
Vincent S. Perez, Jr. and PSALM President appointed by the Parties and acted as
Edgardo M. del Fonso).The mediation Mediators in the foregoing Settlement and
resulted in the execution on July 15, 2003 of that the agreements contained therein are
a settlement (entitled An Agreement the results of the painstaking efforts exerted
Resolving The Issues In Mediation Between by the Parties to resolve the issues and
The National Power Corporation And The differences between them through
Manila Electric Company In Regard To The reasonable, fair and just solution that places
1994 Contract For The Sale Of above all considerations the highest
Electricity),7hereafter referred to as concern for the welfare of the consumers. x
Settlement Agreementfor brevity. xx8
It is noted that from the time the Settlement Solicitor General (OSG) with a request for
Agreement was executed on June 15,2003 the OSG to send a representative to
until December 31,2004, MERALCO took participate in the proceedings. Hearings
further electricity from NAPOCOR, and were conducted on the application from
made payments toward the total Minimum July 22, 2004 until October 7, 2005, at which
chargeunder the CSE that exceeded the NAPOCOR was represented by its OSG-
parties’ estimate. As a result, the net amount designated counsel.
due to NAPOCORunder the Settlement
Agreement was further reduced to about On July 10, 2006, MERALCO submitted its
₱14,000,000,000.00. memorandum, and the case was deemed
submitted for resolution.
The Settlement Agreement containeda
pass-through provision However, on May 13, 2008,or almost two
thatallowedMERALCO to pay NAPOCORthe years after the case was submitted for
net settlement amount from resolution, the OSG, representing herein
collectionsrecovered from MERALCO’s petitioner, filed in the ERC a motion for leave
consumersonce the ERC approvedthe pass- to intervene with motion to admit its
through. The net amount due under the attached opposition.10Considering the
Settlement Agreementwasto be paid by opposition by the OSG to the validity of the
MERALCO to NAPOCOR over a period of Settlement Agreement, the ERC suspended
five to six years, starting on the first billing the proceedings and deferred the approval
month immediately following the ERC’s of the joint application. This prompted
approval of the pass-through of that MERALCO to initiate on November 23, 2009
amount to MERALCO’sconsumers, and in the RTC in Pasig an action for declaratory
ending 60months after the last billing month. relief (Special Civil Action No. 3392).11
Spreading payment to NAPOCORover a
moving five-to six-year period was intended On August 20, 2010, the petitioner filed its
to minimize the impact of the adjustment on comment on the petitionfor declaratory
the consumers, which was estimated to be relief,12 praying for the stay of the
about P0.12 per kilowatt hour. proceedings and forNAPOCOR and
MERALCO to be directed to resort to
The Settlement Agreement was duly arbitration.
approved by the respective Boards of
MERALCO and NAPOCOR. On September 16, 2010, the representative
from the OSG appeared in the RTCand
Considering that the Settlement Agreement moved to suspend the proceedings, but the
stipulated in its Section 3.1 that it would take RTC denied the motion. Subsequently, on
effect "upon approval by the ERC of the September 30, 2010, the OSG filed a motion
recovery of the settlement amounts in this to dismiss or to stay the proceedings, and to
Agreement from consumers, for which the refer the parties to arbitration.
parties shall file a joint petition with the
[ERC],"NAPOCOR and MERALCO filed on On October 28, 2010,the OSG presentedan
April 15, 2004their joint application in the urgent supplemental motion to cancel the
ERC,9 seeking the approval of the pass- November 4, 2010 hearing. However, on
through provision ofthe Settlement November 3, 2010, the RTC denied the
Agreement, and a provisional authority to motion to dismiss or to stay the proceedings
implement the pass-through provision and to refer the parties to arbitrationthrough
subject to a final decision after hearing on the first assailed order,13 stating in its
the merits. pertinent portions as follows:

The joint application was set for initial The motions filed by the OSG raise a
hearing, with notice to the Office of the common issue: whether or not the parties,
MERALCO and NPC, should be referred to centrals upon the arbitration clause found in
arbitration? the milling contracts. There is no legal basis
for petitioners’ purported right to demand
After a judicious evaluation of the arbitration when they are not parties to the
arguments by the parties, this Court rules milling contracts, especially when the
that MERALCO and NPC are not required to language of the arbitration clause expressly
undergo arbitration. grants the right to demand arbitration only
to the parties to the contract.
An examination of the Settlement
Agreement, which is the subject matter of As for OSG’s contention that the instant
this petition for declaratory relief shows that petition should be dismissed because it
it does not require the parties therein to would not terminate the controversy
resolve their dispute arising from said between the parties due to the existing ERC
agreement through arbitration. Proceedings, this Court is mindful of the fact
that the ERC itself has ruled in its order of
The arbitration clause referred to by the September 14, 2009 that the issues raised by
OSG is found in the Contract for the Sale of the OSG in the earlier proceedings before it
Electricity (CSE).1âwphi1 Said contract is not are outside its jurisdiction. This means that
the one beinglitigatedin thisproceedings. these issues may be properly resolved by this
The instant petition for declaratory relief Court and is in fact duty-bound to consider
does not concern the CSE. Besides, there is and rule the issues presented before it in this
no unsettled dispute between MERALCO case.
and NPC arising from the CSE that would
require resort to arbitration. This Court therefore holds that there is no
impediment for it to continue this
Further, the parties to the Settlement proceedings and to determine the validity
Agreement have not requested that any of the Settlement Agreement.
dispute between them should be resolved
through arbitration. The OSG, who is not a WHEREFORE, the office (sic) Office of the
party to the Settlement Agreement or to the Solicitor General’s Motion to Dismiss or Stay
CSE, has no standing to demand that the Proceedings and Refer the Parties to
MERALCO and NPC should proceed to Arbitration and the Motion for
arbitration consistent with the Supreme Reconsideration (of the Honorable Court’s
Court’s ruling in Ormoc Sugarcane Planter’s Order dated September 16, 2010) are
Association vs. Court of Appeals, G.R. No. DENIED.
156660, August 24, 2009, were (sic) it ruled
that- SO ORDERED.14

By their own allegation, petitioners are On November 4, 2010, the pre-trialwas held,
associations duly existing and organized butthe Presiding Judge of Branch 71 of the
under Philippine law, i.e. they have juridical RTC ultimatelyresetit through the second
personalities separate and distinct from that assailed orderdue to the non-appearance
of their member Planters. It is likewise of the representative of the OSG,15 viz:
undisputed that the eighty (80) milling
contracts that were presented were signed When this case was called, Atty. Jonas
only by the member Planter concerned and Emmanuel S. Santos, for the petitioner, Atty.
one of the Centrals as parties. In other Julieta S. Baccutan-Estamo, for defendant
words, none of the petitioners were parties PNC, appeared.
or signatories to the milling contracts. This
circumstance is fatal to petitioners’ cause Over the vehement objection of Atty.
since they anchor their right to demand Santos and Atty. Baccutan-Estamo on the
arbitration from the respondent sugar
Urgent Supplemental Motion to Cancel The CA granted the TRO on December 1,
November 4, 2010 Hearing filed by the 2010,18 and the WPIon February 3,
Office of the Solicitor General, considering 2011,19 enjoining the RTC Judge from
that they were both ready, the pre-trial conducting further proceedings in Special
conference set for today is cancelled and Civil Action No. 3392 and from issuing orders
reset to November 24, 2010 at 8:30 A.M., and performing other acts that would
which is an intransferrable date. The render the case moot and academic
manifestation of Atty. Baccutan-Estamo that effective during the pendency of C.A.-G.R.
if in the next hearing the respondent OSG SP No. 116863.
still fails to appear they be declared as in
default, is noted. On October 14, 2011, the CA promulgated
itsdecision under review,20 disposing
SO ORDERED. thuswise:

Upon learning that the next scheduled IN VIEW OF ALL THE FOREGOING, the instant
hearing would be on November 24, 2010, Petition including its Supplemental Petition
the OSG filed on November 22, 2010 a are hereby DENIED. The Regional Trial Court,
motion to cancel that pre-trial, and a Branch 71 of Pasig City is hereby ORDEREDto
motion for the inhibition of the RTC Judge. It proceed to trial in S.C.A. Case No. 3392, and
set both motions for hearing on November to immediately resolve the same with
24, 2010. dispatch.

Also on November 22, 2010, the petitioner SO ORDERED.


broughtin the CA a petition for certiorari,
prohibition and mandamus (C.A.-G.R. SP The CA denied the petitioner’s motion for
No. 116863), with an application for a reconsideration through its resolution
temporary restraining order (TRO) and writ of promulgated on April 25, 2012.21
preliminary injunction (WPI), alleging that
respondent RTC Judge had committed Hence, the petitioner has appealed.
grave abuse of discretion: (a) in refusing to
inhibit himself; (b) in refusing to order
Issues
respondentsMERALCO and NAPOCORto
resolve their dispute by arbitration; (c) in
The petitioner states as the ground for the
proceeding with the pre-trialof the case;
allowance of its petition for review on
and (d) in declaring the petitioner in default
certiorari that:
and at the same time deeming
thepetitionerto have waived itsrightto
participate and present evidence.16 THE COURT OF APPEALS COMMITTED AN
ERROR IN IGNORING FUNDAMENTAL ISSUES
AT THE HEART OF THE CONTROVERSY
During the hearing ofNovember 24, 2010,
BETWEEN PETITIONER AND RESPONDENTS,
the representativesof the OSG (namely:
AND THEREBY IMPROVIDENTLY ALLOWING
State Solicitors Catalina A. Catral-Talatala
THE TRIAL COURT TO PROCEED WITH S.C.A.
and Donalita R. Lazo) appearedin the RTCto
CASE NO. 3392.22
argue for the cancellation of the pre-trial of
that date and to have the RTC Judgeby
reason of his perceived bias in favor of The petitioner submitsargumentsin support of
MERALCO. However,the RTCdenied the the foregoing, to wit:
motion to cancel the pre-trialand instead
declared the petitioner to have waived the I
right to participate in the pre-trial and to
present evidence.17 THE DISPUTE BETWEEN MERALCO AND NPC
SHOULD BE RESOLVED THROUGH
ARBITRATION INSTEAD OFMEDIATION IN We deny the petition for review, and affirm
ACCORDANCEWITH THEIR the decision of the CA.
ARBITRATIONAGREEMENT UNDER THE CSE.
I
II RTC’s intervening rendition of the decisionon
the merits has rendered this appealmoot
RESPONDENT JUDGE HAS NOJURISDICTION
OVER THESUBJECT MATTER RAISED INS.C. A. In its assaileddecisionof October 14, 2011,
CASE NO. 3392. the CAdirectedthe RTC to proceed to the
trial on the merits in Special Civil Action No.
III 3392, and to resolve the case with dispatch.
It is worth mentioning at this juncture,
THE COURT OF APPEALS ERREDIN ALLOWING therefore, that, as the petitioner indicated in
THE TRIAL COURT TO PROCEED WITH THE PRE- its petition,24the RTCcomplied and
TRIAL AND SUBSEQUENT TRIALIN S.C.A. CASE ultimatelyrendered its decision on the merits
NO. 3392 INDISREGARD OF PETITIONER’S in Special Civil Action No. 3392 on May 29,
RIGHTS. IN PARTICULAR, THECOURT OF 2012 granting MERALCO’s petition for
APPEALS ERRED IN [i] FAILING TO declaratory relief and declaring the
ACKNOWLEDGE THECIRCUMSTANCES Settlement Agreement between NAPOCOR
OFPARTIALITY THAT WARRANTEDRESPONDENT and MERALCO as valid and binding, save
JUDGE’SINHIBITION FROM THE CASE; [ii] for the pass-through provision that was
APPROVING THE TRIAL COURT’SPRECIPITATE reserved for the consideration and approval
ACTION TOPROCEED WITH THE PRE- of the ERC. The petitioner has probably
TRIALDESPITE INFORMATION THAT A PETITION appealed the decision by now, for its
FOR CERTIORARI HAD BEEN FILED BY petition for review expressly manifested
PETITIONER, AND THEREUPON DECLARING theintention to appeal to the CA.25
THE PETITIONER TO HAVEWAIVED THE RIGHT
TOPARTICIPATE THEREIN AND TOPRESENT With the intervening rendition of the decision
EVIDENCE. on the merits, the challenge against the
interlocutory orders of the RTC designed to
IV prevent the RTC from proceeding with the
pre-trial and the trial on the merits was
rendered mootand academic. In other
THE SETTLEMENT IS
words, any determination of the issue on the
GROSSLYDISADVANTAGEOUS
interlocutory orders was left without any
ANDPREJUDICIAL TO THE GOVERNMENT.
practical value.26 Acase that is moot and
academic because of supervening events
V.
ceases to present any justiciable
controversy. The courts of law will not
THE PASS-ON PROVISIONIMPOSED UNDER determine moot and academic questions,
THESETTLEMENT IS CONTRARY TOL AW, for they should not engage in academic
MORALS, PUBLICINTEREST, AND PUBLIC declarations and determine moot
POLICY. questions.27

VI II
CA correctly ruled thatRTC Judge
THE SETTLEMENT AGREEMENTWAS ENTERED did not commit graveabuse of discretion
INTO WITHOUT THE PARTICIPATION AND in issuing the assailed orders
LEGAL GUIDANCE OF THE OFFICE OFTHE
SOLICITOR GENERAL.23 Nonetheless, the Court considers it
necessary to still deal with the contentions of
Ruling the petitioner in the interest of upholding the
observations of the CA on the propriety of preliminary injunction has been issued,
the interlocutory orders of the RTC.Doing so enjoining the public respondent from further
will be instructive for the Bench and the proceeding with the case.
practicing Bar who may find themselves in
similar situations. The public respondent shall proceed with
the principal case within ten (10) days from
The petitioner assails the order of the RTC the filing of a petition for certiorariwith a
dated November 3, 2010 for denying its higher court or tribunal, absent a temporary
motion to dismiss or to stay proceedings and restraining order or a preliminary injunction,
to refer the parties to arbitration, and the or upon its expiration. Failure of the public
pre-trial order dated November 24, 2010 for respondent to proceed with the principal
declaring that the petitioner was being case may be a ground for an administrative
deemed to have waived the right to charge. (Emphasis supplied)
participate in the pre-trial and to present
evidence in its behalf. Itargues that the CA As the foregoing rule also indicates, for the
thereby erred, firstly, in ruling that the RTC not to proceedwith the pre-trial on its
assailed orders of the RTCwere not tainted scheduled date of November 24,
with grave abuse of discretion, and, 2010despite the absence of any TRO or WPI
secondly, in ordering the RTC to proceed to enjoining it from doing so could have
the trial of Special Civil Action No. 3392, and subjected its Presiding Judge to an
to resolve the case with dispatch. administrative charge.

The Court cannot sustain the arguments of We further concur with the holding of theCA
the petitioner. that the RTC did not commit any grave
abuse of discretion amounting to lack or
The RTC’s proceedingwith the pre-trial set on excess of jurisdictionin deeming the
November 24, 2010was entirely in accord petitioner’s right to participate in the pre-
withthe Rules of Court. While it is true that trial and its right to present evidence as
the OSG had filed on November 22, 2010 waived throughthe third assailed pre-trial
the petition for certiorari, prohibition and order dated November 24, 2010. The waiver
mandamus, theCA did not restrain the RTC appears to have been caused by the
from thus proceeding. Absent any TRO or deliberate refusal of the petitioner’s counsel
WPI stoppingthe RTC from proceeding, the to participate in the proceedings.
mere filing or pendency of the special civil
actions for certiorari, mandamusand The pre-trial, initially set on September 16,
prohibition did not interrupt the due course 2010,29 wasreset by the RTC on October 7,
of the proceedings inthe main case. This is 2010 upon the motion of the OSG itself
quite clear from therevised Section 7, Rule notwithstanding that bothMERALCO and
65 of the Rules of Court,28 which NAPOCOR hadalreadysubmitted their pre-
mandatedthat the petition shall not interrupt trial briefs and had manifested their
the course of the principal case,viz: readinessto proceedto the pre-trial. Yet, on
October 7, 2010, the representative of the
Section7. Expediting proceedings; injunctive OSG again requested a resettingof the pre-
relief.–The court in which the petition is filed trial. MERALCO expressed its strong
may issue orders expediting the oppositionto the request, but the RTC
proceedings, and it may also grant a granted the request and moved the pre-trial
temporary restraining order or a writ of to November 4, 2010.30
preliminary injunction for the preservation of
the rights of the parties pending such Prior to November 4, 2010, the OSGfiled an
proceedings. The petition shall not interrupt omnibus motion, again requesting the RTC
the course of the principal case, unless a to cancel the pre-trial. Onthe scheduled
temporary restraining order or a writ of pre-trial of November 4, 2010,the
representative of the OSG did not appear Your Honor, may we be excused from
forthe petitioner, subsequentlyadmitting that participating with the pre-trial.
thenon-appearance had beenintentional.
Nonetheless, the RTCreset the pre-trial on COURT:
November 24, 2010over the "vehement
objection" of MERALCO’s counsel, but the It was your first stand during the first day
RTC expresslyconditioned the new date when the pre-trial was set. In fact, one of the
as"intransferable."31 lawyers of OSG likewise stated that he will
not participate. In the interest of substantial
On November 24, 2010,however, the justice let us be more fair in the conduct of
representative of the OSG appeared in this proceedings, we (sic) all officers of the
court but only to movefor the cancellation court, we are guided by the rules, we have
ofthe hearing. The recorded proceedings of to comply, we will proceed. The order will
that date were recounted in the assailed be made after the hearing, unless that we
decision of the CA, which also rendered its will suspend the hearing now then the
cogent observations on the consequences stenographer will prepare the order so that
of the actuations of the representative of you’ll have a copy, what do you want, are
the OSG, as follows: we going to suspend the proceedings so
that the written order will be given to you. Is
x x x While petitioner was initially present that what you want? We will proceed.
during the scheduled pre-trial conference
on 24 November 2011, State Solicitor Lazo This is one request which has never been
(one of petitioner’s counsels) asked to be done by the Court. An oral order of the
excused from participating thereat. Excerpts Court is only released after the hearing,
of the stenographic notes taken during the because it will be prepared by the
hearing a quoon 24 November 2010 reveals: stenographer. Are you agreeable to that
statement of the Court or you want to
"xxx suspend all proceedings of today so that
you will be given a chance that your
COURT: request will be granted. Are you not
changing your motion?
Now, on the matter regarding the pre-trial
conference which has been set today, the ATTY. LAZO:
Court believes that in the absence of a TRO,
we will proceed with the pre-trial Your Honor, I submit to the discretion of this
conference as scheduled. Court.

ATTY. LAZO: COURT:

Your Honor, may we ask for a written order When you submit then you wait, we will
resolving our motion to cancel hearing proceed. Second call.
today and our motion for inhibition.
ATTY. LAZO:
COURT:
Can we have a copy of the same by
The court has already made oral order. In registered mail because we have some
the meantime, you be ready for the urgent matters to attend to your Honor.
conduct of the pre-trial.
COURT:
ATTY. LAZO:
Okay.
ATTY. LAZO: this purpose before the Court, and when a
party "fails to appear at a pre-trial
May we be excused, your Honor. conference (be) may be non-suited or
considered as in default.The obligationin(sic)
COURT: appear denotes not simply the personal
appearance, or the mere physical
presentation by a party of one’s self, but
Okay.
connotes as importantly, preparedness to
go into the different subject assigned by law
What are we going to do?
to a pre-trial. (Emphasis supplied)

ATTY. SANTOS:
Petitioner’s State Solicitors’ initial
attendance during the pre-trial conference
Your Honor, we are ready to proceed with could not be equated to the personal
the pre-trial. We have our Pre-Trial Brief filed appearance mandated by Section 4, Rule
and so with the NPC, your Honor. 18 of the Rules of Court. The duty to appear
during the pre-trial conference is not by
COURT: mere initial attendance, but taking an
active role during the said proceedings.
Now, in the conduct of the pre-trial, you Petitioner (as defendant a quo) has no valid
have to reiterate what you already reason to complain for its predicament now
mentioned in your Pre-Trial Briefs for as it chose to withhold its participation
purposes of this Court to come out with the during the pre-trial conference.32
pre-trial order based on the stipulations
made by the parties. From an objective view of the proceedings,
the RTC’sdeeming of the petitioner’s right to
xxx" (Emphasis supplied) participate in the pre-trial and its right to
present evidence as waived was
The above-quoted TSN belies petitioner’s reasonable under the circumstances. Thus, it
claim that despite its State Solicitor’s did not act arbitrarily, whimsically, or
appearance and objection to the holding capriciously. The dismissal of the petition for
of the said hearing of 24 November 2010, certiorari, prohibition and mandamuswas
public respondent proceeded to declare correctand justified, for grave abuse of
petitioner in default. A quo, public discretion on the part of the RTC was not
respondent did not categorically declare persuasively demonstratedby the petitioner.
petitioner in default, but instead, decreed Grave abuse of discretionmeans either that
petitioner to have waived its right to the judicial or quasi-judicial power
participate in the pre-trial and present wasexercised in an arbitrary or despotic
evidence in its behalf which is in manner by reason of passion or personal
accordance with Section 5, Rule 18 of the hostility, or that the respondent judge,
Rules of Court for the apparent reason that tribunal or board evaded a positive duty, or
State Solicitor Lazo himself asked to be virtually refused to perform the duty
excusedfrom participating in the pre-trial enjoined or to act in contemplation of law,
conference. The case of Development Bank such as when such judge, tribunal or board
of the Philippines vs. Court of Appeals, et al. exercising judicial or quasi-judicial powers
is enlightening on this point where the acted in a capricious or whimsical manner
Supreme Court had the occasion to state as to be equivalent to lack of jurisdiction.33
therein that:
III
"Consistently with the mandatory character Validity of the Settlement Agreement
of the pre-trial, the Rules oblige not only the is not an issue in this appeal
lawyers but the parties as well to appear for
In hereby assailing the decision of the CA to
uphold the challenged orders of the RTC,
the OSG raises various arguments against
the validity of the Settlement Agreement.

The Court believes and holds that it cannot


address such arguments simply because the
issue in this appeal concerns only the
upholding by the CA of the propriety of the
assailed interlocutory orders of the RTC. The
validity of the Settlement Agreement is not
an issue.

Moreover, the validity of the Settlement


Agreement is properly within the
competence of the RTC, the proper court
for that purpose (except the matter of the
pass-through provision, which was within the
jurisdiction of the ERC).

IV
Mediation v. Arbitration

The petitioner requests the Court's


intervention to direct MERALCO and
NAPOCOR to resolve their dispute through
arbitration pursuant to the arbitration clause
of the CSE.

The Court declines the request, considering


that the primary competence to determine
the enforceability of the arbitration clause
of the CSE pertained to the RTC in Special
Civil Action No. 3392. Yielding to the request
would have the Court usurping the
jurisdiction of the RTC. Moreover, with the
RTC having meanwhile rendered its decision
declaring the Settlement Agreement valid,
the recourse of the petitioner as to its
request is probably an appeal in due
course.

WHEREFORE, we DENY the petition for review


on certiorari, and AFFIRM the decision
promulgated by the Court of Appeals on
October 14, 2011 in C.A.-G.R. SP No. 116863.

SO ORDERED.
G.R. No. 209605, January 12, 2015 evidenced by Cash Disbursement
Voucher No. 4010 but the net loan
NEIL B. AGUILAR AND RUBEN was only P45,862.00 as supported by
CALIMBAS, Petitioners, v. LIGHTBRINGERS PNB Check No.
CREDIT COOPERATIVE, Respondent. 0000005133.5chanRoblesvirtualLawlib
rary
DECISION
2. In Civil Case No. 1429, petitioner
Calimbas allegedly borrowed
MENDOZA, J.:
P202,800.18 as evidenced by Cash
Disbursement Voucher No. 3962 but
This is a petition for review on certiorari filed
the net loan was only P60,024.00 as
by petitioners Neil B. Aguilar (Aguilar) and
supported by PNB Check No.
Ruben Calimbas (Calimbas), seeking to
0000005088;6chanRoblesvirtualLawlib
reverse and set aside the April 5, 20131 and
rary
October 9, 20132Resolutions of the Court of
Appeals (CA) in CA-G.R. SP No. 128914, 3. In Civil Case No. 1430, petitioner
which denied the petition for review Aguilar allegedly borrowed
outright, assailing the January 2, 2013 P126,849.00 as evidenced by Cash
Decision3 of the Regional Trial Court, Branch Disbursement Voucher No. 3902 but
5, Dinalupihan, Bataan (RTC) and the May 9, the net loan was only P76,152.00 as
2012 Decision4 of the First Municipal Circuit supported by PNB Check No.
Trial Court, Dinalupihan, Bataan (MCTC). 0000005026;7

In the lower courts, one of the issues


involved was the proper application of the
Tantiangco, Aguilar and Calimbas filed their
rules when a party does not appear in the
respective answers. They uniformly claimed
scheduled pre-trial conference despite due
that the discrepancy between the principal
notice. In this petition, the dismissal by the
amount of the loan evidenced by the cash
CA of the petition filed under Rule 42 for
disbursement voucher and the net amount
failure to attach the entire records has also
of loan reflected in the PNB checks showed
been put to question, aside from the
that they never borrowed the amounts
veracity of indebtedness issue.
being collected. They also asserted that no
interest could be claimed because there
The Facts
was no written agreement as to its
imposition.
This case stemmed from the three (3)
complaints for sum of money separately
On the scheduled pre-trial conference, only
filed by respondent Lightbringers Credit
respondent and its counsel appeared. The
Cooperative (respondent) on July 14, 2008
MCTC then issued the Order,8 dated August
against petitioners Aguilar and Calimbas,
25, 2009, allowing respondent to present
and one Perlita
evidence ex parte.Respondent later
Tantiangco (Tantiangco) which were
presented Fernando Manalili (Manalili), its
consolidated before the First Municipal
incumbent General Manager, as its sole
Circuit Trial Court, Dinalupihan,
witness. In his testimony, Manalili explained
Bataan (MCTC). The complaints alleged
that the discrepancy between the amounts
that Tantiangco, Aguilar and
of the loan reflected in the checks and
Calimbas were members of the
those in the cash disbursement vouchers
cooperative who borrowed the following
were due to the accumulated interests from
funds:chanroblesvirtuallawlibrary
previous outstanding obligations, withheld
share capital, as well as the service and
1. In Civil Case No. 1428, Tantiangco miscellaneous fees. He stated, however,
allegedly borrowed P206,315.71 as
that it was their bookkeeper who could best payee and subject to the presentation of
explain the details. proper identification. Nonetheless, the
MCTC ruled that only the amount shown in
Aguilar and Calimbas insisted that they the PNB check must be awarded because
should have the right to cross-examine the respondent failed to present its bookkeeper
witness of respondent, notwithstanding the to justify the higher amounts being claimed.
fact that these cases were being heard ex The court also awarded attorney’s fees in
parte. In the interest of justice, the MCTC favor of respondent. The dispositive portion
directed the counsels of the parties to of the decision in Civil Case No. 1429
submit their respective position papers on reads:chanroblesvirtuallawlibrary
the issue of whether or not a party who had
been declared “as in default” might still WHEREFORE, premises considered, judgment
participate in the trial of the case. Only is hereby rendered in plaintiff’s favor and
respondent, however, complied with the against the defendant, ordering the latter to
directive. In its Order,9 dated April 27, 2011, pay plaintiff the amount of P60,024.00 with
the MCTC held that since the proceedings interest at the rate of 12% per annum from
were being heard ex parte, the petitioners April 4, 2007 until fully paid, plus P15,000.00
who had been declared “as in default” had as attorney’s fees.
no right to participate therein and to cross-
examine the witnesses. Thereafter, Costs against the defendant.
respondent filed its formal offer of
evidence.10chanRoblesvirtualLawlibrary SO ORDERED.14

MCTC Ruling And in Civil Case No. 1430, the dispositive


portion states:chanroblesvirtuallawlibrary
On May 9, 2012, the MCTC resolved the
consolidated cases in three separate WHEREFORE, premises considered, judgment
decisions. In Civil Case No. 1428,11 the MCTC is hereby rendered in plaintiff’s favor and
dismissed the complaint against Tantiangco against the defendant, ordering the latter to
because there was no showing that she pay the plaintiff the amount of ?76,152.00
received the amount being claimed. with interest at the rate of 12% per annum
Moreover, the PNB check was made from February 28, 2007 until fully paid.
payable to “cash” and was encashed by a
certain Violeta Aguilar. There was, however, Defendant is further directed to pay
no evidence that she gave the proceeds to attorney’s fees equivalent to 25% of the
Tantiangco. Further, the dates indicated in adjudged amount.
the cash disbursement voucher and the PNB
check varied from each other and Costs against the defendant.
suggested that the voucher could refer to a
different loan. SO ORDERED.15

The decisions in Civil Case No. 142912 and On July 12, 2012, a notice of appeal16 was
1430,13 however, found both Calimbas and filed by the petitioners, and on August 15,
Aguilar liable to respondent for their 2012, they filed their joint memorandum for
respective debts. The PNB checks issued to appeal17 before the Regional Trial Court,
the petitioners proved the existence of the Branch 5, Bataan (RTC). Aguilar and
loan transactions. Their receipts of the loan Calimbas argued out that had they been
were proven by their signatures appearing allowed to present evidence, they would
on the dorsal portions of the checks as well have established that the loan documents
as on the cash disbursement vouchers. As a were bogus. Respondent produced
matter of practice, banks would allow the documents to appear that it had new
encashment of checks only by the named borrowers but did not lend any amount to
them. Attached to the joint memorandum CA Ruling
were photocopies of the dorsal portions of
the PNB checks which showed that these Aggrieved, Aguilar and Calimbas filed a
checks were to be deposited back to petition for review22 before the CA on March
respondent’s bank account. 11, 2013. It was dismissed, however, in the
questioned resolution,23 dated April 5, 2013,
RTC Ruling stating that the petition was formally
defective because the “verification and
On January 2, 2013, the RTC rendered disclaimer of forum shopping” and the
separate decisions in Civil Case No. DH- “affidavit of service” had a
1300-1218 and Civil Case No. DH-1299- defective jurat for failure of the notary
1219 which affirmed the MCTC decisions. It public to indicate his notarial commission
held that the PNB checks were concrete number and office address. Moreover, the
evidence of the indebtedness of the entire records of the case, inclusive of the
petitioners to respondent. The RTC relied on oral and documents evidence, were not
the findings of the MCTC that the checks attached to the petition in contravention of
bore no endorsement to another person or Section 2, Rule 42 of the Rules of Court.
entity. The checks were issued in the name
of the petitioners and, thus, they had the A motion for reconsideration24 was filed by
right to encash the same and appropriate the petitioners which sought the leniency of
the proceeds. The decretal portions of the the CA. They attached a corrected
RTC decision in both cases similarly verification and disclaimer of forum
read:chanroblesvirtuallawlibrary shopping and affidavit of service. They
asked the CA to simply order the RTC to
WHEREFORE, premises considered, the elevate the records of the case pursuant to
appeal is hereby DENIED. The Decision Section 7, Rule 42 of the Rules of Court.
dated May 9, 2012 of the First Municipal Moreover, the petitioners could not attach
Circuit Trial Court (1st MCTC), Dinalupihan- the records of the case because the
Hermosa, Bataan is hereby affirmed in toto. flooding caused by “Habagat” in August
2012 soaked the said records in water.
SO ORDERED.
In the other questioned resolution, dated
On January 18, 2013, the petitioners filed October 9, 2013, the CA denied the motion
their joint motion for reconsideration/new because the petitioners still failed to attach
trial20 before the RTC. Aguilar and Calimbas the entire records of the case which was a
reiterated their position that they did not mandatory requirement under Section 2,
receive the proceeds of the checks. As an Rule 42.
alternative prayer, petitioners moved that
the RTC remand the case to the MCTC for a Hence, this petition.
new trial on account of the Sinumpaang
Salaysay of Arcenit Dela Torre, the SOLE ASSIGNMENT OF ERROR
bookkeeper of respondent.
THE COURT OF APPEALS COMMITTED GRAVE
On February 11, 2013, the RTC issued ABUSE OF DISCRETION AMOUNTING TO LACK
separate orders21 denying the motion of the OR IN EXCESS OF JURISDICTION WHEN IT
petitioners. It explained that all the issues DISMISSED THE PETITION FOR REVIEW FILED
were already passed upon and the BEFORE IT BY THE PETITIONERS UNDER RULE 42
supposed newly discovered evidence was OF THE RULES OF COURT CITING THAT THE
already available during appeal, but the SAID PETITION IS FORMALLY DEFECTIVE FOR
petitioners failed to present the same in FAILURE OF THE PETITIONERS TO SUBMIT WITH
time. THE SAID PETITION THE ENTIRE RECORDS OF
THE APPEALED CIVIL CASE NOS. DH-1300-12 reply before this Court,27 adding that the
AND DH-1299-12.25 elevation of the entire records of the case
was not a mandatory requirement, and the
The petitioners argue that contrary to the CA could exercise its discretion that it
findings of the CA, they substantially furnished with the entire records of the case
complied with the required form and by invoking Section 7, Rule 42 of the Rules of
contents of a petition for review under Court.cralawred
Section 2, Rule 42 of the Rules of Court.
There is nothing in the provision which The Court’s Ruling
requires that the entire records of the
appealed case should be endorsed to the
CA. Such requirement would definitely be First Procedural Issue
cumbersome to poor litigants like them.
On the sole assignment of error, the Court
They assert that they submitted the following agrees with the petitioners that Section 2,
pleadings and material portions of the court Rule 42 does not require that the entire
records in their petition for review: (1) records of the case be attached to the
certified copies of the decisions, orders or petition for review. The provision
resolutions of the RTC and the MCTC; (2) states:chanroblesvirtuallawlibrary
complaints against the petitioners attached
with documents used by respondent in its Sec. 2. Form and contents. - The petition
formal offer of evidence; (3) answer of the shall be filed in seven (7) legible copies, with
petitioners; (4) order of the MCTC declaring the original copy intended for the court
the petitioners in default; (5) respondent’s being indicated as such by the petitioner,
formal offer of evidence; (6) notice of and shall (a) state the full names of the
appeal; (7) joint memorandum of appeal; parties to the case, without impleading the
and (8) joint motion for reconsideration/new lower courts or judges thereof either as
trial. According to the petitioners, these petitioners or respondents; (b) indicate the
pleadings and records were sufficient to specific material dates showing that it was
support their petition for review. filed on time; (c) set forth concisely a
statement of the matters involved, the issues
Assuming that there was a reason to dismiss raised, the specification of errors of fact or
the petition on account of technicalities, the law, or both, allegedly committed by the
petitioners argue that the CA should not Regional Trial Court, and the reasons or
have strictly applied the rules of procedure arguments relied upon for the allowance of
and provided leniency to the petitioners. the appeal; (d) be accompanied by clearly
They also ask the Court to give a glance on legible duplicate originals or true copies of
the merits of their case brought before the the judgments or final orders of both lower
CA. courts, certified correct by the clerk of court
of the Regional Trial Court, the requisite
On February 7, 2014, respondent filed its number of plain copies thereof and of the
comment26 contending that the petitioners pleadings and other material portions of the
had no excuse in their non-compliance with record as would support the allegations of
Section 2, Rule 42. They claim that the court the petition. [Emphasis and underscoring
records were not attached because these supplied]
were soaked in flood water in August 2012,
but the RTC rendered its decision in January The abovequoted provision enumerates the
2013. The petitioners failed to secure a required documents that must be attached
certification from the RTC that these records to a petition for review, to wit: (1) clearly
were indeed unavailable. legible duplicate originals or true copies of
the judgments or final orders of both lower
On May 21, 2014, the petitioners filed their courts, certified correct by the clerk of court
of the Regional Trial Court; (2) the requisite Recently, in Galvez, v. CA,31 it was held that
number of plain copies thereof; and (3) of attaching the other records of the MTC and
the pleadings and other material portions of the RTC were not necessary based on the
the record as would support the allegations circumstances of the case. The petitioner
of the petition. Clearly, the Rules do not therein was not assailing the propriety of the
require that the entire records of the case findings of fact by the MTC and the RTC, but
be attached to the petition for review. Only only the conclusions reached by the said
when these specified documents are not lower courts after their appreciation of the
attached in the petition will it suffer infirmities facts. In dealing with the questions of law,
under Section 3, Rule 42, which the CA could simply refer to the attached
states:chanroblesvirtuallawlibrary decisions of the MTC and the RTC.

Sec. 3. Effect of failure to comply with Thus, the question in the case at bench is
requirements. - The failure of the petitioner whether or not the petitioners attached the
to comply with any of the foregoing sufficient pleadings and material portions of
requirements regarding the payment of the the records in their petition for review. The
docket and other lawful fees, the deposit for Court rules that the petition was in
costs, proof of service of the petition, and substantial compliance with the
the contents of and the documents which requirements.
should accompany the petition shall be
sufficient ground for the dismissal thereof. The assignment of error32 in the petition for
review clearly raises questions of fact as the
In Canton v. City of Cebu,28 the Court petitioners assail the appreciation of
discussed the importance of attaching the evidence by the MCTC and the RTC. Thus,
pleadings or material portions of the records aside from the decisions and orders of the
to the petition for review. “[P]etitioner’s MCTC and the RTC, the petitioners should
discretion in choosing the documents to be attach pertinent portions of the records such
attached to the petition is however not as the testimony of the sole witness of
unbridled. The CA has the duty to check the respondent, the copies of the cash
exercise of this discretion, to see to it that disbursement vouchers and the PNB checks
the submission of supporting documents is presented by respondent in the MCTC. In
not merely perfunctory. The practical the petition for review, the petitioners
aspect of this duty is to enable the CA to attached respondent’s complaints before
determine at the earliest possible time the the MCTC which contained the
existence of prima facie merit in the photocopies of the cash disbursement
petition.”29 In that case, the petition was vouchers and PNB checks. These should be
denied because the petitioner failed to considered as ample compliance with
attach the complaint, answer and appeal Section 2, Rule 42 of the Rules of Court.
memorandum to support their allegation.
Second Procedural Issue
In Cusi-Hernandez v. Diaz,30 a case where
the petitioner did not attach to her petition Nevertheless, instead of remanding the case
for review a copy of the contract to sell that to the CA, this Court deems it fit to rule on
was at the center of controversy, the Court the merits of the case to once and for all
nonetheless found that there was a settle the dispute of the parties.
substantial compliance with the rule,
considering that the petitioner had The rule is that a court can only consider the
appended to the petition for review a evidence presented by respondent in the
certified copy of the decision of the MTC MCTC because the petitioners failed to
that contained a verbatim reproduction of attend the pre-trial conference on August
the omitted contract. 25, 2009 pursuant to Section 5, Rule 18 of the
Rules of Court.33 The Court, however, clarifies
that failure to attend the pre-trial does not parte and the court shall render judgment
result in the “default” of the defendant. on the basis thereof. Thus, the plaintiff is
Instead, the failure of the defendant to given the privilege to present his evidence
attend shall be cause to allow the plaintiff to without objection from the defendant, the
present his evidence ex parte and the court likelihood being that the court will decide in
to render judgment on the basis thereof. favor of the plaintiff, the defendant having
forfeited the opportunity to rebut or present
The case of Philippine American Life & his own
General Insurance Company v. Joseph evidence.35chanRoblesvirtualLawlibrary
Enario34 discussed the difference between
non-appearance of a defendant in a pre- The pre-trial cannot be taken for granted. It
trial conference and the declaration of a is not a mere technicality in court
defendant in default in the present Rules of proceedings for it serves a vital objective:
Civil Procedure. The decision the simplification, abbreviation and
states:chanroblesvirtuallawlibrary expedition of the trial, if not indeed its
dispensation.36 More significantly, the pre-
Prior to the 1997 Revised Rules of Civil trial has been institutionalized as the answer
Procedure, the phrase "as in default" was to the clarion call for the speedy disposition
initially included in Rule 20 of the old rules, of cases. Hailed as the most important
and which read as procedural innovation in Anglo-Saxon justice
follows:ChanRoblesVirtualawlibrary in the nineteenth century, it paved the way
Sec. 2. A party who fails to appear at a pre- for a less cluttered trial and resolution of the
trial conference may be non-suited or case. It is, thus, mandatory for the trial court
considered as in default. to conduct pre-trial in civil cases in order to
It was however amended in the 1997 realize the paramount objective of
Revised Rules of Civil Procedure. Justice simplifying, abbreviating and expediting
Regalado, in his book REMEDIAL LAW trial.37chanRoblesvirtualLawlibrary
COMPENDIUM, explained the rationale for
the deletion of the phrase "as in default" in In the case at bench, the petitioners failed
the amended provision, to to attend the pre-trial conference set on
wit:ChanRoblesVirtualawlibrary August 25, 2009. They did not even give any
1. This is a substantial reproduction of excuse for their non-appearance, manifestly
Section 2 of the former Rule 20 with the ignoring the importance of the pre-trial
change that, instead of defendant being stage. Thus, the MCTC properly issued the
declared "as in default" by reason of his non- August 25, 2009 Order,38 allowing
appearance, this section now spells out that respondent to present evidence ex parte.
the procedure will be to allow the ex
parte presentation of plaintiff’s evidence The MCTC even showed leniency when it
and the rendition of judgment on the basis directed the counsels of the parties to
thereof. While actually the procedure submit their respective position papers on
remains the same, the purpose is one of whether or not Aguilar and Calimbas could
semantical propriety or terminological still participate in the trial of the case despite
accuracy as there were criticisms on the use their absence in the pre-trial conference.
of the word "default" in the former provision This gave Aguilar and Calimbas a second
since that term is identified with the failure to chance to explain their non-attendance
file a required answer, not appearance in and, yet, only respondent complied with the
court. directive to file a position paper. The MCTC,
in its Order,39 dated April 27, 2011, properly
If the absent party is the plaintiff, then his held that since the proceedings were being
case shall be dismissed. If it is the defendant heard ex parte, Aguilar and Calimbas had
who fails to appear, then the plaintiff is no right to participate therein and to cross-
allowed to present his evidence ex examine the witness.
petitioners were present on both the PNB
Thus, as it stands, the Court can only checks and the cash disbursement
consider the evidence on record offered by vouchers. The checks were also made
respondent. The petitioners lost their right to payable to the order of the petitioners.
present their evidence during the trial Hence, respondent can properly demand
and, a fortiori, on appeal due to their that they pay the amounts borrowed. If the
disregard of the mandatory attendance in petitioners believe that there is some other
the pre-trial conference. bogus scheme afoot, then they must
institute a separate action against the
Substantive Issue responsible personalities. Otherwise, the
Court can only rule on the evidence on
And on the merits of the case, the Court record in the case at bench, applying the
holds that there was indeed a contract of appropriate laws and jurisprudence.
loan between the petitioners and
respondent. The Court agrees with the As to the award of attorney’s fees, the Court
findings of fact of the MCTC and the RTC is of the view that the same must be
that a check was a sufficient evidence of a removed. Attorney's fees are in the concept
loan transaction. The findings of fact of the of actual or compensatory damages
trial court, its calibration of the testimonies of allowed under the circumstances provided
the witnesses and its assessment of the for in Article 2208 of the Civil Code, and
probative weight thereof, as well as its absent any evidence supporting its grant,
conclusions anchored on the findings are the same must be deleted for lack of
accorded high respect, if not conclusive factual basis.43 In this case, the MCTC merely
effect.40chanRoblesvirtualLawlibrary stated that respondent was constrained to
file the present suit on account of the
The case of Pua v. Spouses Lo Bun petitioners’ obstinate failure to settle their
Tiong41 discussed the weight of a check as obligation. Without any other basis on
an evidence of a record to support the award, such cannot
loan:chanroblesvirtuallawlibrary be upheld in favor of respondent. The
settled rule is that no premium should be
In Pacheco v. Court of Appeals, this Court placed on the right to litigate and that not
has expressly recognized that a check every winning party is entitled to an
constitutes an evidence of indebtedness automatic grant of attorney’s
and is a veritable proof of an obligation. fees.44chanRoblesvirtualLawlibrarychanroble
Hence, it can be used in lieu of and for the slaw
same purpose as a promissory note. In fact,
in the seminal case of Lozano v. Martinez, WHEREFORE, the petition is PARTIALLY
We pointed out that a check functions more GRANTED.
than a promissory note since it not only
contains an undertaking to pay an amount In accord with the discourse on the
of money but is an "order addressed to a substantive issue, the January 2, 2013
bank and partakes of a representation that decision of the Regional Trial Court, Branch
the drawer has funds on deposit against 5, Dinalupihan, Bataan, is AFFIRMED. The
which the check is drawn, sufficient to award of attorney's fees is,
ensure payment upon its presentation to the however,DELETED.
bank." This Court reiterated this rule in the
relatively recent Lim v. Mindanao Wines and SO ORDERED.cralawlawlibrary
Liquour Galleria stating that a check, the
entries of which are in writing, could prove a
loan transaction.42

There is no dispute that the signatures of the


all risks under Marine Policy No. 103-
GG03448834.
G.R. No. 182864, January 12, 2015
On 11 February 2004, the complaint alleged
that the shipment arrived at the port of
EASTERN SHIPPING LINES,
Manila in an unknown condition and was
INC., Petitioner, v. BPI/MS INSURANCE CORP.,
turned over to ATI for safekeeping. Upon
& MITSUI SUMITOMO INSURANCE CO.,
withdrawal of the shipment by the Calamba
LTD., Respondents.
Steel’s representative, it was found out that
part of the shipment was damaged and
DECISION was in bad order condition such that there
was a Request for Bad Order Survey. It was
PEREZ, J.: found out that the damage amounted to
US$4,598.85 prompting Calamba Steel to
Before this Court is a Petition for Review reject the damaged shipment for being unfit
on Certiorari1 of the Decision2 of the Second for the intended purpose.
Division of the Court of Appeals in CA-G.R.
CV No. 88744 dated 31 January 2008, On 12 May 2004 at Kashima, Japan,
modifying the Decision of the Regional Trial Sumitomo Corporation again shipped on
Court (RTC) by upholding the liability of board ESLI’s vessel M/V “Eastern Venus 25”
Eastern Shipping Lines, Inc. (ESLI) but 50 coils in various Steel Sheet weighing
absolving Asian Terminals, Inc. (ATI) from 383,532 kilograms in good order and
liability and deleting the award of attorney’s condition for transportation to and delivery
fees. at the port of Manila, Philippines in favor of
the same consignee Calamba Steel as
The facts gathered from the records follow: evidenced by a Bill of Lading with Nos.
ESLIKSMA002. The declared value of the
On 29 December 2004, BPI/MS Insurance shipment was US$221,455.58 as evidenced
Corporation (BPI/MS) and Mitsui Sumitomo by Invoice Nos. KJGE-04-1327-NT/KE2. The
Insurance Company Limited (Mitsui) filed a shipment was insured with the respondents
Complaint3 before the RTC of Makati City BPI/MS and Mitsui against all risks under
against ESLI and ATI to recover actual Marine Policy No. 104-GG04457785.
damages amounting to US$17,560.48 with
legal interest, attorney’s fees and costs of On 21 May 2004, ESLI’s vessel with the
suit. second shipment arrived at the port of
Manila partly damaged and in bad order.
In their complaint, BPI/MS and Mitsui alleged The coils sustained further damage during
that on 2 February 2004 at Yokohama, the discharge from vessel to shore until its
Japan, Sumitomo Corporation shipped on turnover to ATI’s custody for safekeeping.
board ESLI’s vessel M/V “Eastern Venus 22”
22 coils of various Steel Sheet weighing Upon withdrawal from ATI and delivery to
159,534 kilograms in good order and Calamba Steel, it was found out that the
condition for transportation to and delivery damage amounted to US$12,961.63. As it
at the port of Manila, Philippines in favor of did before, Calamba Steel rejected the
consignee Calamba Steel Center, Inc. damaged shipment for being unfit for the
(Calamba Steel) located in Saimsim, intended purpose.
Calamba, Laguna as evidenced by a Bill of
Lading with Nos. ESLIYMA001. The declared Calamba Steel attributed the damages on
value of the shipment was US$83,857.59 as both shipments to ESLI as the carrier and ATI
shown by an Invoice with Nos. KJGE-03- as the arrastreoperator in charge of the
1228-NT/KE3. The shipment was insured with handling and discharge of the coils and
the respondents BPI/MS and Mitsui against filed a claim against them. When ESLI and
ATI refused to pay, Calamba Steel filed an 3. Parties admitted the existence of the
insurance claim for the total amount of the Invoice issued by Sumitomo
cargo against BPI/MS and Mitsui as cargo Corporation, a true and faithful copy
insurers. As a result, BPI/MS and Mitsui of which was attached to the
became subrogated in place of and with all Complaint as Annex B;
the rights and defenses accorded by law in
favor of Calamba Steel. 4. Parties likewise admitted the
existence of the Marine Cargo Policy
Opposing the complaint, ATI, in its Answer, issued by the Mitsui Sumitomo
denied the allegations and insisted that the Insurance Company, Limited, copy
coils in two shipments were already of which was attached to the
damaged upon receipt from ESLI’s vessels. It Complaint as Annex C;
likewise insisted that it exercised due
diligence in the handling of the shipments 5. [ATI] admitted the existence and
and invoked that in case of adverse due execution of the Request for
decision, its liability should not exceed Bad Order Survey dated February 13,
P5,000.00 pursuant to Section 7.01, Article 2004, attached to the Complaint as
VII4 of the Contract for Cargo Handling Annex D;
Services between Philippine Ports Authority
(PPA) and ATI.5 A cross-claim was also filed 6. Insofar as the second cause of
against ESLI. action, [ESLI] admitted the existence
and due execution of the document
On its part, ESLI denied the allegations of the [Bill of Lading Nos. ESLIKSMA002,
complainants and averred that the Invoice with Nos. KJGE-04-1327-
damage to both shipments was incurred NT/KE2 and Marine Cargo Policy
while the same were in the possession and against all risks on the second
custody of ATI and/or of the consignee or its shipment] attached to the
representatives. It also filed a cross-claim Complaint as Annexes E, F and G;
against ATI for indemnification in case of
liability.6chanRoblesvirtualLawlibrary 7. [ATI] admitted the existence of the
Bill of Lading together with the
To expedite settlement, the case was Invoices and Marine Cargo Policy.
referred to mediation but it was returned to [It] likewise admitted by [ATI] are the
the trial court for further proceedings due to Turn Over Survey of Bad Order
the parties’ failure to resolve the legal issues Cargoes attached to the Complaint
as noted in the Mediator’s Report dated 28 as Annexes H, H-1 and J.8
June 2005.7chanRoblesvirtualLawlibrary

On 10 January 2006, the court issued a Pre- The parties agreed that the procedural issue
Trial Order wherein the following stipulations was whether there was a valid subrogation
were agreed upon by the in favor of BPI/MS and Mitsui; and that the
parties:chanroblesvirtuallawlibrary substantive issues were, whether the
shipments suffered damages, the cause of
1. Parties admitted the capacity of the damage, and the entity liable for reparation
parties to sue and be sued; of the damages
caused.9chanRoblesvirtualLawlibrary
2. Parties likewise admitted the
existence and due execution of the Due to the limited factual matters of the
Bill of Lading covering various steel case, the parties were required to present
sheets in coil attached to the their evidence through affidavits and
Complaint as Annex A; documents. Upon submission of these
evidence, the case was submitted for
resolution.10chanRoblesvirtualLawlibrary submissions were the Turn Over Surveys of
Bad Cargo Order,31 Requests for Bad Order
BPI/MS and Mitsui, to substantiate their Survey,32 Cargo Gatepasses issued by
claims, submitted the Affidavits of (1) Mario ATI,33 Notices of Loss/Claims of Calamba
A. Manuel (Manuel),11 the Cargo Surveyor of Steel34 and Contract for Cargo Handling
Philippine Japan Marine Surveyors and Services.35chanRoblesvirtualLawlibrary
Sworn Measurers Corporation who
personally examined and conducted the On 17 September 2006, RTC Makati City
surveys on the two shipments; (2) Richatto P. rendered a decision finding both the ESLI
Almeda,12 the General Manager of and ATI liable for the damages sustained by
Calamba Steel who oversaw and examined the two shipments. The dispositive portion
the condition, quantity, and quality of the reads:chanroblesvirtuallawlibrary
shipped steel coils, and who thereafter filed
formal notices and claims against ESLI and WHEREFORE, judgment is hereby rendered in
ATI; and (3) Virgilio G. Tiangco, Jr.,13 the favor of [BPI/MS and Mitsui] and against [ESLI
Marine Claims Supervisor of BPI/MS who Inc.] and [ATI], jointly and severally ordering
processed the insurance claims of Calamba the latter to pay [BPI/MS and Mitsui] the
Steel. Along with the Affidavits were the Bills following:
of Lading14 covering the two shipments,
Invoices,15 Notices of Loss of Calamba 1. Actual damages amounting to
Steel,16 Subrogation Form,17 Insurance US$17,560.48 plus 6% legal interest
Claims,18Survey Reports,19 Turn Over Survey per annum commencing from the
of Bad Order Cargoes20 and Request for filing of this complaint, until the same
Bad Order is fully paid;
Survey.21chanRoblesvirtualLawlibrary
2. Attorney’s fees in a sum equivalent
ESLI, in turn, submitted the Affidavits of to 20% of the amount claimed;
Captain Hermelo M. Eduarte,22 Manager of
the Operations Department of ESLI, who 3. Costs of suit.36
monitored in coordination with ATI the
discharge of the two shipments, and Aggrieved, ESLI and ATI filed their respective
Rodrigo Victoria (Rodrigo),23 the Cargo appeals before the Court of Appeals on
Surveyor of R & R Industrial and Marine both questions of fact and
Services, Inc., who personally surveyed the law.37chanRoblesvirtualLawlibrary
subject cargoes on board the vessel as well
as the manner the ATI employees Before the appellate court, ESLI argued that
discharged the coils. The documents the trial court erred when it found BPI/MS
presented were the Bills of Lading, has the capacity to sue and when it
Secretary’s Certificate24 of PPA, granting ATI assumed jurisdiction over the case. It also
the duty and privilege to questioned the ruling on its liability since the
provide arrastre and stevedoring services at Survey Reports indicated that the cause of
South Harbor, Port of Manila, Contract for loss and damage was due to the “rough
Cargo Handling Services,25 Damage handling of ATI’s stevedores during
Report26 and Turn Over Report made by discharge from vessel to shore and during
Rodrigo.27 ESLI also adopted the Survey loading operation onto the trucks.” It
Reports submitted by BPI/MS and invoked the limitation of liability of US$500.00
Mitsui.28chanRoblesvirtualLawlibrary per package as provided in
Commonwealth Act No. 65 or the Carriage
Lastly, ATI submitted the Affidavits of its Bad of Goods by Sea Act
Order Inspector Ramon Garcia (COGSA).38chanRoblesvirtualLawlibrary
(Garcia)29 and Claims Officer Ramiro De
Vera.30 The documents attached to the On the other hand, ATI questioned the
capacity to sue of BPI/MS and Mitsui and case so that it could not rebut while
the award of attorney’s fees despite its lack petitioner puts it at fault.45
of justification in the body of the decision.
ATI also imputed error on the part of the trial ESLI in its Reply46 put the blame for the non-
court when it ruled that ATI’s employees exclusion of ATI to BPI/MS and
were negligent in the ruling of the shipments. Mitsui:chanroblesvirtuallawlibrary
It also insisted on the applicability of the
provision of COGSA on limitation of [BPI/MS and Mitsui] claim that herein [ESLI]
liability.39chanRoblesvirtualLawlibrary did not implead [ATI] as a party respondent
in the Petition for Review on Certiorari it had
In its Decision,40 the Court of Appeals filed. Herein Petitioner submits that it is not
absolved ATI from liability thereby modifying the obligation of [ESLI] to implead ATI as the
the decision of the trial court. The dispositive same is already the look out of [BPI/MS and
portions reads:chanroblesvirtuallawlibrary Mitsui]. If [BPI/MS and Mitsui] believe that ATI
should be made liable, they should have
WHEREFORE, the appeal of ESLI is DENIED, filed a Motion for Reconsideration with the
while that of ATI is GRANTED. The assailed Honorable Court of Appeals. The fact that
Judgment dated September 17, 2006 of [BPI/MS and Mitsui] did not even lift a finger
Branch 138, RTC of Makati City in Civil Case to question the decision of the Honorable
No. 05-108 is hereby MODIFIED absolving ATI Court of Appeals goes to show that [BPI/MS
from liability and deleting the award of and Mitsui] are not interested as to whether
attorney’s fees. The rest of the decision is or not ATI is indeed liable.47
affirmed.41
It is clear from the exchange that both [ESLI]
Before this Court, ESLI seeks the reversal of and [BPI/MS and Mitsui] are aware of the
the ruling on its liability. non-inclusion of ATI, the arrastre operator, as
a party to this review of the Decision of the
At the outset, and notably, ESLI included Court of Appeals. By blaming each other for
among its arguments the attribution of the exclusion of ATI, [ESLI] and [BPI/MS and
liability to ATI but it failed to implead the Mitsui] impliedly agree that the absolution of
latter as a party to the present petition. This ATI from liability is final and beyond review.
non-inclusion was raised by BPI/MS and Clearly, [ESLI] is the consequential loser. It
Mitsui as an issue42 in its alone must bear the proven liability for the
Comment/Opposition43 and loss of the shipment. It cannot shift the
Memorandum:44chanRoblesvirtualLawlibrary blame to ATI, thearrastre operator, which
has been cleared by the Court of Appeals.
For reasons known only to [ESLI], it did not Neither can it argue that the consignee
implead ATI as a party respondent in this should bear the loss.
case when it could have easily done so.
Considering the nature of the arguments Thus confined, we go to the merits of the
raised by petitioner pointing to ATI as solely arguments of ESLI.
responsible for the damages sustained by
the subject shipments, it is respectfully First Issue: Liability of ESLI
submitted that ATI is an indispensable party
in this case. Without ATI being impleaded, ESLI bases of its non-liability on the survey
the issue of whether ATI is solely responsible reports prepared by BPI/MS and Mitsui’s
for the damages could not be determined witness Manuel which found that the cause
with finality by this Honorable Court. ATI of damage was the rough handling on the
certainly deserves to be heard on the issue shipment by the stevedores of ATI during the
but it could not defend itself because it was discharging operations.48 However, Manuel
not impleaded before this Court. Perhaps, does not absolve ESLI of liability. The witness
this is the reason why [ESLI] left out ATI in this in fact includes ESLI in the findings of
negligence. Paragraphs 3 and 11 of the functions as a cargo surveyor are, (1)
affidavit of witness Manuel attribute fault to getting hold of a copy of the bill of lading
both ESLI and ATI. and cargo manifest; (2) inspection and
monitoring of the cargo on-board, during
3. The vessel M.V. “EASTERN VENUS” V 22-S discharging and after unloading from the
carrying the said shipment of 22 coils of vessel; and (3) making a necessary report of
various steel sheets arrived at the port of his findings. Thus, upon arrival at the South
Manila and discharged the said shipment Harbor of Manila of the two vessels of ESLI on
on or about 11 February 2004 to 11 February 2004 and on 21 May 2004,
the arrastre operator [ATI]. I personally Rodrigo immediately boarded the vessels to
noticed that the 22 coils were roughly inspect and monitor the unloading of the
handled during their discharging from the cargoes. In both instances, it was his finding
vessel to the pier of [ATI] and even during that there was mishandling on the part of
the loading operations of these coils from ATI’s stevedores which he reported as the
the pier to the trucks that will transport the cause of the
coils to the consignees’s warehouse. During damage.50chanRoblesvirtualLawlibrary
the aforesaid operations, the employees
and forklift operators of [ESLI] and [ATI] were Easily seen, however, is the absence of a
very negligent in the handling of the subject crucial point in determining liability of either
cargoes. or both ESLI and ATI – lack of determination
whether the cargo was in a good order
xxxx condition as described in the bills of lading
at the time of his boarding. As Rodrigo
11. The vessel M.V. “EASTERN VENUS” V 25-S admits, it was also his duty to inspect and
carrying the said shipment of 50 coils of monitor the cargo on-board upon arrival of
various steel sheets arrived at the port of the vessel. ESLI cannot invoke its non-liability
Manila and discharged the said shipment solely on the manner the cargo was
on or about 21 May 2004 to discharged and unloaded. The actual
the arrastre operator [ATI]. I personally condition of the cargoes upon arrival prior
noticed that the 50 coils were roughly to discharge is equally important and
handled during their discharging from the cannot be disregarded. Proof is needed
vessel to the pier of [ATI] and even during that the cargo arrived at the port of Manila
the loading operations of these coils from in good order condition and remained as
the pier to the trucks that will transport the such prior to its handling by ATI.
coils to the consignees’s warehouse. During
the aforesaid operations, the employees Common carriers, from the nature of their
and forklift operators of [ESLI] and [ATI] were business and on public policy
very negligent in the handling of the subject considerations, are bound to observe
cargoes.49 (Emphasis supplied). extraordinary diligence in the vigilance over
the goods transported by them. Subject to
ESLI cannot rely only on parts it chooses. The certain exceptions enumerated under
entire body of evidence should determine Article 173451 of the Civil Code, common
the liability of the parties. From the carriers are responsible for the loss,
statements of Manuel, [ESLI] was negligent, destruction, or deterioration of the goods.
whether solely or together with ATI. The extraordinary responsibility of the
common carrier lasts from the time the
To further press its cause, ESLI cites the goods are unconditionally placed in the
affidavit of its witness Rodrigo who stated possession of, and received by the carrier
that the cause of the damage was the for transportation until the same are
rough mishandling by ATI’s stevedores. delivered, actually or constructively, by the
carrier to the consignee, or to the person
The affidavit of Rodrigo states that his who has a right to receive
them.52chanRoblesvirtualLawlibrary liability on the Bad Order Cargo and Turn
Over of Bad Order. The Receipt bore a
In maritime transportation, a bill of lading is notation “B.O. not yet t/over to ATI,” while
issued by a common carrier as a contract, the Survey stated that the said steel case
receipt and symbol of the goods covered was not opened at the time of survey and
by it. If it has no notation of any defect or was accepted by the arrastre in good
damage in the goods, it is considered as a order. Based on these documents,
“clean bill of lading.” A clean bill of lading packages in the Asian Terminals, Inc.
constitutes prima facie evidence of the case were found damaged while in the
receipt by the carrier of the goods as custody of the carrier Westwind Shipping
therein Corporation.
described.53chanRoblesvirtualLawlibrary
Mere proof of delivery of the goods in good
Based on the bills of lading issued, it is order to a common carrier and of their
undisputed that ESLI received the two arrival in bad order at their destination
shipments of coils from shipper Sumitomo constitutes a prima facie case of fault or
Corporation in good condition at the ports negligence against the carrier. If no
of Yokohama and Kashima, Japan. adequate explanation is given as to how
However, upon arrival at the port of Manila, the deterioration, loss, or destruction of the
some coils from the two shipments were goods happened, the transporter shall be
partly dented and crumpled as evidenced held responsible.61 From the foregoing, the
by the Turn Over Survey of Bad Order fault is attributable to ESLI. While no longer
Cargoes No. 67982 dated 13 February an issue, it may be nonetheless state that ATI
200454 and Turn Over Survey of Bad Order was correctly absolved of liability for the
Cargoes Nos. 6836355 and 6836556 both damage.
dated 24 May 2004 signed by ESLI’s
representatives, a certain Tabanao and Second Issue: Limitation of Liability
Rodrigo together with ATI’s representative
Garcia. According to Turn Over Survey of ESLI assigns as error the appellate court’s
Bad Order Cargoes No. 67982, four coils and finding and reasoning that the package
one skid were partly dented and crumpled limitation under the COGSA62 is inapplicable
prior to turnover by ESLI to ATI’s possession even if the bills of lading covering the
while a total of eleven coils were partly shipments only made reference to the
dented and crumpled prior to turnover corresponding invoices. Noticeably, the
based on Turn Over Survey Bad Order invoices specified among others the weight,
Cargoes Nos. 68363 and 68365. quantity, description and value of the
cargoes, and bore the notation “Freight
Calamba Steel requested for a re- Prepaid” and “As Arranged.”63 ESLI argues
examination of the damages sustained by that the value of the cargoes was not
the two shipments. Based on the Requests incorporated in the bills of lading64 and that
for Bad Order Survey Nos. 5826757 and there was no evidence that the shipper had
5825458 covering the first shipment dated 13 presented to the carrier in writing prior to the
and 17 February 2004, four coils were loading of the actual value of the cargo,
damaged prior to turnover. The second and, that there was a no payment of
Request for Bad Order Survey No. corresponding freight.65 Finally, despite the
5865859 dated 25 May 2004 also affirmed the fact that ESLI admits the existence of the
earlier findings that eleven coils on the invoices, it denies any knowledge either of
second shipment were damaged prior to the value declared or of any information
turnover. contained
therein.66chanRoblesvirtualLawlibrary
In Asian Terminals, Inc., v. Philam Insurance
Co., Inc.,60 the Court based its ruling on According to the New Civil Code, the law of
the country to which the goods are to be package lawful money of the United States,
transported shall govern the liability of the or in case of goods not shipped in
common carrier for their loss, destruction or packages, per customary freight unit, unless
deterioration.67 The Code takes precedence the nature of the goods and a valuation
as the primary law over the rights and higher than $500.00 is declared in writing by
obligations of common carriers with the the shipper on delivery to the Carrier and
Code of Commerce and COGSA applying inserted in the bill of lading and extra freight
suppletorily.68chanRoblesvirtualLawlibrary is paid therein as required by applicable
tariffs to obtain the benefit of such higher
The New Civil Code provides that a valuation. In which case even if the actual
stipulation limiting a common carrier’s value of the goods per package or unit
liability to the value of the goods appearing exceeds such declared value, the value
in the bill of lading is binding, unless the shall nevertheless be deemed to be the
shipper or owner declares a greater declared value and any Carrier’s liability
value.69In addition, a contract fixing the sum shall not exceed such declared value and
that may be recovered by the owner or any partial loss or damage shall be adjusted
shipper for the loss, destruction, or pro-rata on the basis thereof. The Carrier
deterioration of the goods is valid, if it is shall not be liable for any loss or profit or any
reasonable and just under the consequential or special damage and shall
circumstances, and has been fairly and have the option of replacing any lost goods
freely agreed and replacing o reconditioning any
upon.70chanRoblesvirtualLawlibrary damage goods. No oral declaration or
agreement shall be evidence of a value
COGSA, on the other hand, provides under different from that provided
Section 4, Subsection 5 that an amount therein.71chanRoblesvirtualLawlibrary
recoverable in case of loss or damage shall
not exceed US$500.00 per package or per xxxx
customary freight unless the nature and
value of such goods have been declared by Accordingly, the issue whether or not ESLI
the shipper before shipment and inserted in has limited liability as a carrier is determined
the bill of lading. by either absence or presence of proof that
the nature and value of the goods have
In line with these maritime law provisions, been declared by Sumitomo Corporation
paragraph 13 of bills of lading issued by ESLI and inserted in the bills of lading.
to the shipper specifically provides a similar
restriction:chanroblesvirtuallawlibrary ESLI contends that the invoices specifying
the weight, quantity, description and value
The value of the goods, in calculating and of the cargo in reference to the bills of
adjusting any claims for which the Carrier lading do not prove the fact that the
may be liable shall, to avoid uncertainties shipper complied with the requirements
and difficulties in fixing value, be deemed to mandated by the COGSA. It contends that
the invoice value of the goods plus ocean there must be an insertion of this declaration
freight and insurance, if paid, Irrespective of in the bill of lading itself to fall outside the
whether any other value is greater or less, statutory limitation of liability.
and any partial loss or damage shall be
adjusted pro rata on the basis of such value; ESLI asserts that the appellate court erred
provided, however, that neither the Carrier when it ruled that there was compliance
nor the ship shall in any event be or become with the declaration requirement even if the
liable for any loss, non-delivery or misdelivery value of the shipment and fact of payment
of or damage or delay to, or in connection were indicated on the invoice and not on
with the custody or transportation of the the bill of lading itself.
goods in an amount exceeding $500.00 per
There is no question about the declaration It would be unfair for ESLI to invoke the
of the nature, weight and description of the limitation under COGSA when the shipper in
goods on the first bill of lading. fact paid the freight charges based on the
value of the goods. In Adams Express
The bills of lading represent the formal Company v. Croninger,76 it was said:
expression of the parties’ rights, duties and “Neither is it conformable to plain principles
obligations. It is the best evidence of the of justice that a shipper may understate the
intention of the parties which is to be value of his property for the purpose of
deciphered from the language used in the reducing the rate, and then recover a larger
contract, not from the unilateral post value in case of loss. Nor does a limitation
facto assertions of one of the parties, or of based upon an agreed value for the
third parties who are strangers to the purpose of adjusting the rate conflict with
contract.72 Thus, when the terms of an any sound principle of public policy.”
agreement have been reduced to writing, it Conversely, but for the same reason, it is
is deemed to contain all the terms agreed unjust for ESLI to invoke the limitation when it
upon and there can be, between the is informed that the shipper paid the freight
parties and their successors in interest, no charges corresponding to the value of the
evidence of such terms other than the goods.
contents of the written
agreement.73chanRoblesvirtualLawlibrary Also, ESLI admitted the existence and due
execution of the Bills of Lading and the
As to the non-declaration of the value of the Invoice containing the nature and value of
goods on the second bill of lading, we see the goods on the second shipment. As
no error on the part of the appellate court written in the Pre-Trial Order,77 the parties,
when it ruled that there was a compliance including ESLI, admitted the existence and
of the requirement provided by COGSA. The due execution of the two Bills of
declaration requirement does not require Lading78together with the Invoice on the
that all the details must be written down on second shipment with Nos. KJGE-04-1327-
the very bill of lading itself. It must be NT/KE279 dated 12 May 2004. On the first
emphasized that all the needed details are shipment, ESLI admitted the existence of the
in the invoice, which “contains the itemized Invoice with Nos. KJGE-031228-
list of goods shipped to a buyer, stating NT/KE380 dated 2 February 2004.
quantities, prices, shipping charges,” and
other details which may contain numerous The effect of admission of the genuineness
sheets.74 Compliance can be attained by and due execution of a document means
incorporating the invoice, by way of that the party whose signature it bears
reference, to the bill of lading provided that admits that he voluntarily signed the
the former containing the description of the document or it was signed by another for
nature, value and/or payment of freight him and with his
charges is as in this case duly admitted as authority.81chanRoblesvirtualLawlibrary
evidence.
A review of the bill of ladings and invoice on
In Unsworth Transport International (Phils.), the second shipment indicates that the
Inc. v. Court of Appeals,75 the Court held shipper declared the nature and value of
that the insertion of an invoice number does the goods with the corresponding payment
not in itself sufficiently and convincingly of the freight on the bills of lading. Further,
show that petitioner had knowledge of the under the caption “description of packages
value of the cargo. However, the same and goods,” it states that the description of
interpretation does not squarely apply if the the goods to be transported as “various
carrier had been advised of the value of the steel sheet in coil” with a gross weight of
goods as evidenced by the invoice and 383,532 kilograms (89.510 M3). On the other
payment of corresponding freight charges. hand, the amount of the goods is referred in
the invoice, the due execution and from the field of controversy. Consequently,
genuineness of which has already been an admission made in the pleadings cannot
admitted by ESLI, is US$186,906.35 as freight be controverted by the party making such
on board with payment of ocean freight of admission and are conclusive as to such
US$32,736.06 and insurance premium of party, and all proofs to the contrary or
US$1,813.17. From the foregoing, we rule inconsistent therewith should be ignored,
that the non- limitation of liability applies in whether objection is interposed by the party
the present case. or not. The allegations, statements or
admissions contained in a pleading are
We likewise accord the same binding effect conclusive as against the pleader. A party
on the contents of the invoice on the first cannot subsequently take a position
shipment. contrary of or inconsistent with what was
pleaded.86 (Citations omitted)
ESLI contends that what was admitted and
written on the pre-trial order was only the The admission having been made in a
existence of the first shipment’ invoice but stipulation of facts at pre-trial by the parties,
not its contents and due execution. It it must be treated as a judicial admission.
invokes admission of existence but Under Section 4, of Rule 129 of the Rules of
renounces any knowledge of the contents Court, a judicial admission requires no
written on it.82chanRoblesvirtualLawlibrary proof.87chanRoblesvirtualLawlibrary

Judicial admissions are legally binding on It is inconceivable that a shipping company


the party making the admissions. Pre-trial with maritime experience and resource like
admission in civil cases is one of the the ESLI will admit the existence of a
instances of judicial admissions explicitly maritime document like an invoice even if it
provided for under Section 7, Rule 18 of the has no knowledge of its contents or without
Rules of Court, which mandates that the having any copy thereof.
contents of the pre-trial order shall control
the subsequent course of the action, ESLI also asserts that the notation “Freight
thereby, defining and limiting the issues to Prepaid” and “As Arranged,” does not
be tried. In Bayas v. Sandiganbayan,83this prove that there was an actual declaration
Court emphasized made in writing of the payment of freight as
that:chanroblesvirtuallawlibrary required by COGSA. ESLI did not as it could
not deny payment of freight in the amount
Once the stipulations are reduced into indicated in the documents. Indeed, the
writing and signed by the parties and their earlier discussions on ESLI’s admission of the
counsels, they become binding on the existence and due execution of the
parties who made them. They become invoices, cover and disprove the argument
judicial admissions of the fact or facts regarding actual declaration of payment.
stipulated. Even if placed at a The bills of lading bore a notation on the
disadvantageous position, a party may not manner of payment which was “Freight
be allowed to rescind them unilaterally, it Prepaid” and “As Arranged” while the
must assume the consequences of the invoices indicated the amount exactly paid
disadvantage.84 by the shipper to ESLI.chanrobleslaw
Moreover, in Alfelor v. Halasan,85 this Court
declared that:chanroblesvirtuallawlibrary WHEREFORE, we DENY the Petition for Review
on Certiorari. The Decision dated 31 January
A party who judicially admits a fact cannot 2008 and Resolution dated 5 May 2008 of
later challenge that fact as judicial the Second Division of the Court of Appeals
admissions are a waiver of proof; production in CA-G.R. CV. No. 88744 are
of evidence is dispensed with. A judicial hereby AFFIRMED.
admission also removes an admitted fact
SO ORDERED.cralawlawlibrary
G.R. No. 190277 July 23, 2014 microfilm copies of several checks and the
bank ledgers of Current Account Nos.
ABSOLUTE MANAGEMENT 00719-250162-4 and 00700-250691-9. On
CORPORATION, Petitioner, November 20, 2006, the trial court set the
vs. case for pre-trial. When the counsels of the
METROPOLITAN BANK AND TRUST parties were asked by the trial court to
COMPANY, Respondent. produce their respective authorizations to
appear at the said hearing, [counsel for
DECISION petitioner] manifested that [her] authority to
appear for petitioner was submitted by
VILLARAMA, JR., J.: them at the first pre-trial hearing way back
[in] 2004.
At bar is a Petition for Review on Certiorari
Petitioner’s counsel was given the chance
with Application for the Issuance of a
to go over the records to look for [the]
Temporary Restraining Order and/or Writ of
Secretary’s Certificate she allegedly
Preliminary Injunction, of the Decision1 and
submitted in 2004. Petitioner’s counsel,
Resolution2 of the Court of Appeals (CA) in
however, failed to show any written
CA-G.R. SP No. 101568 dated August 13,
authority. As a result thereof, the trial court,
2009 and November 13, 2009, respectively,
upon motion of the private respondent,
reversing the Orders dated May 2, 20073 and
declared petitioner in default. Accordingly,
September 3, 20074 of the Regional Trial
the trial court allowed private respondent to
Court (RTC) of Quezon City, Branch 80, and
present evidence ex-parte.
requiring the court a quo to allow
respondent to participate in the
proceedings of Civil Case No. Q-00-42105. Without waiting for the written order of
default, petitioner, on December 5, 2006,
filed a Motion to Lift Order of Default seeking
The following undisputed facts are stated m
reconsideration of the Order dated
the op1mon of the appellate court:
November 20, 2006, attaching thereto an
Affidavit of Merit together with the required
On October 5, 2000, Sherwood Holdings
Secretary’s Certificate dated July 16, 2006
Corporation and Spouses Sandy Ang and
and Special Power of Attorney dated
Arlene Ang filed a case for sum of money
December 5, 2006.
against private respondent Absolute
Management Corporation before the
On May 2, 2007, the trial court issued an
Regional Trial Court of Quezon City, Branch
Order denying petitioner’s motion to lift the
80 and docketed as Civil Case No. Q-00-
order of default, which reads:
42105. Private respondent filed its answer
and incorporated a third-party complaint
against petitioner Metropolitan Bank and xxxx
Trust Company.
Petitioner filed a motion for reconsideration
In an Order dated January 30, 2004, the trial of the above-quoted Order but the same
court set the case for pre-trial on February 7, was denied by the trial court in its Order
2004, but the same was cancelled on dated September 3, 2007.5
account of the filing by petitioner ofa
motion to admit fourth-party-complaint Respondent filed a petition for certiorariwith
against the Estate of Jose L. Chua. the CA alleging that the RTC committed
grave abuse of discretion in issuing the
On September 5, 2005, the trial court issued aforestated Orders dated May 2 and
an Order directing petitioner to produce September 3, 2007.
and allow private respondent to copy,
In its assailed decision, the CA reversed the A) THE NON-APPEARANCE OF
trial court’s ruling that respondent’s counsel A PARTY IN PRE-TRIAL MAY BE
cannot validly represent respondent due to EXCUSED ONLY IF A VALID
"the failure on the part of the representative CAUSE IS SHOWN THEREFORE
of[respondent] to present a Secretary’s OR IF A REPRESENTATIVE
Certificate and Special Power of Attorney SHALL APPEAR IN HIS BEHALF
authorizing her to represent [respondent] FULLY [AUTHORIZED] IN
during the pre-trial stage."6 The CA ruled WRITING.
that the RTC’s determination holding that
respondent’s counsel cannot validly B) THE CASES CITED BY THE
represent respondent due to lack of HONORABLE COURT OF
authorization lacks merit, viz.: APPEALS, NAMELY: (1)
LANDBANK OF THE
The presumption in favor of the counsel’s PHILIPPINES VS. [PAMINTUAN],
authority to appear in behalf of a client is a CO.AND (2) CEBU
strong one. A lawyer is not even required to STEVEDORING VS. RAMOLETE,
present a written authorization from the TO SUPPORT ITS RULING THAT
client. In fact, the absence of a formal THE AUTHORITY OF [A]
notice of entry of appearance will not LAWYER TO APPEAR IN
invalidate the acts performed by the BEHALF OF THE CLIENT IS
counsel in his client’s name. However, the PRESUMED, ARE
court,on its own initiative or on motion of the INAPPLICABLE TO THE INSTANT
other party[,] [may] require a lawyer to CASE.
adduce authorization from the client.
II. THE HONORABLE COURT OF
xxxx APPEALS SERIOUSLY ERRED WHEN IT
HELD THAT THERE WAS GRAVE ABUSE
It is evident therefore that the trial court OF DISCRETION ON THE PART OF THE
gravely abused its discretion in denying LOWER COURT, WHEN IN FACT THE
[respondent’s] counsel to represent it. In the LOWER COURT ONLY PROPERLY
same vein, it is a clear disregard of the oft APPLIED THE PROVISIONS OF THE LAW
repeated principle that courts should not REQUIRING THE PRESENTATION OF A
resort to a rigid application of the rules SPECIAL POWER OF ATTORNEY
where the end result would frustrate the just, DURING PRE-TRIAL.
speedy and inexpensive determination of
the controversy.7 III. THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED WHEN IT
Petitioner’s motion for reconsideration was HELD THAT THE LIBERAL APPLICATION
denied in a Resolution dated November 13, OF THE RULES SHOULD BE APPLIED IN
2009. Hence, this petition raising the THE CASE OF RESPONDENT.
following assignment of errors:
IV. THE HONORABLE COURT OF
I. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT
APPEALS SERIOUSLY ERRED WHEN IT ORDERED RESPONDENT TO
HELD THAT A SPECIAL POWER OF PARTICIPATE IN THE TRIAL OF THE
ATTORNEY NEED NOT BE PRESENTED COLLECTION CASE FILED WITH THE
IN COURT DURING PRE-TRIAL REGIONAL TRIAL COURT.
HEARINGS SINCE THE AUTHORITY OF
A LAWYER TO APPEAR IN BEHALF OF A) RESPONDENT’S
HIS CLIENT IS PRESUMED. PARTICIPATION IN THE TRIAL
WOULD ONLY CAUSE THE
DELAY IN THE RESOLUTION OF
THE CASE, CONSIDERING SO ORDERED.
THAT IN ITS ANSWER, THEY
FAILED TO PRESENT A VALID Given in Open Court on November 20,
DEFENSE.8 200611

We grant the petition. When respondent tendered its explanation


in a Motion to Lift Order of Default dated
A petition for certiorari may be filed if the December 4, 2006, respondent clarified
trial court declared the defendant in default that:
with grave abuse of discretion.9 However,
an act of a court or tribunal can only be 2. The failure of the undersigned
consideredto be tainted with grave abuse counsel to present the above-
of discretion when such act is done in a mentioned authorization at the said
capricious or whimsical exercise of occasion was due to their impression
judgment as is equivalent to lack of that the same was already
jurisdiction.10 submitted by them during the initial
pre-trial hearing of the case that was
The court a quodid not commit such grave held on February 27, 2004. Because
abuse of discretion in the case at bar. The of such impression, undersigned
Order given by the RTC in open court dated counsel did not bring anymore the
November 20, 2006 stated, viz.: required authorization from
[respondent]. Upon inspection of the
When this case was called for pre-trial records of the case after the said
conference, co-plaintiff Sandy Ang failed to pre-trial hearing, undersigned
appear despite notice, thus, this case is counsel, however, discovered and
hereby dismissed, insofar as he is realized that no such authorization
concerned. Accordingly, defendant was submitted by them at the said
Absolute Management Corp. may now first pre-trial hearing.
adduce evidence ex partein support of its
counterclaim against co-plaintiff Sandy 3. The records of the instant case will
Ang. show that the undersigned counsel
has been representing [respondent]
With respect to the third-party complaint of in all the proceedings of the present
Absolute Management Corp., against third- case from the very start, including
party defendant Metropolitan Bank and the cases before the Court of
Trust Company whose counsel failed to Appeals (CA G.R. SP No. 86336) and
present a Secretary’s Certificate and the Supreme Court (SC G.R. SP No.
Special Power ofAttorney authorizing her to 170498), involving the issue of
represent said bank in today’s pre-trial, said whether ornot the former has the
third-party plaintiff is hereby allowed to right to file a fourth-party complaint
present evidence ex partepursuant to the against the Estate of Jose Chua.
provisions of Sec. 5, Rule 18 of the 1997 Rules
of Civil Procedure. 4. Indubitably, the undersigned
counsel’s inability to provide the
Meanwhile, let this case be referred to the Honorable Court the proper
Philippine Mediation Center for mediation authority to represent [respondent]
proceedings on December 6, 2006 at 10:00 at the pretrial hearing on November
in the morning. Let the pre-trial conference 20, 2006 was not willful and
between the remaining plaintiffs and deliberate, but simply due to their
defendant Absolute Management Corp. be excusable negligence. Nevertheless,
set on January 29, 2007 at 1:30 in the undersigned counsel[s] are
afternoon. attaching herewith the Secretary’s
Certificate and the Special Power of Everyone knows that a pre-trial incivil actions
Attorney, Annexes "A" and "B" hereof is mandatory, and has been so since
respectively, evidencing their January 1, 1964. Yet tothis day its place in
authority to represent [respondent] in the scheme of things is not fully
the instant case.12 appreciated, and it receives but
perfunctory treatment in many courts. Some
Despite the explanation, the trial court courts considerit a mere technicality, serving
denied the foregoing Motion to Lift Order of no useful purpose save perhaps,
Default for lack of merit in its Order dated occasionally to furnish ground for nonsuiting
May 2, 2007.13 It likewise found no the plaintiff, or declaring a defendant in
compelling reason to grant reconsideration default, or, wistfully, to bring about a
as stated in its Order dated September 3, compromise. The pre-trial device is not thus
2007.14 put to full use. Hence it has failed in the
main to accomplish the chief objective for
We agree with petitioner that the court a it: the simplification, abbreviation and
quomerely applied the law in this case expedition of the trial, if not indeed its
when it declared that respondent’s counsel dispensation. This is a great pity, because
did not have the authority to act on behalf the objective is attainable, and with not
of respondent as its representativeduring the much difficulty, if the device were more
pretrial on November 20, 2006. The intelligently and extensively handled.
applicable provision under Rule 18 of the
1997 Rules of Civil Procedure, as amended, xxxx
states, viz.:
What needs stressing is that the parties as
SEC. 4. Appearance of parties. - It shall be well as the Trial Court must realize that at the
the duty of the parties and their counsel to pre-trial, the parties are obligednot only to
appear at the pre-trial. The non- make formal identification and specification
appearance of a party may be excused ofthe issues and of their proofs, as above
only if a valid cause is shown therefor or if a described – indeed, there is noreason why
representative shall appear in his behalf fully the Court may not oblige the parties to set
authorized in writing to enter into an these matters down in separate writings and
amicable settlement, to submit to submit them to the Court prior to the pre-
alternative modes of dispute resolution, and trial, and then to discuss, refine and embody
to enter into stipulations or admissions of the matters agreed upon in a single
facts and of documents.15 document at or shortly after the pretrial –
but also and equally as peremptorily, to
SEC. 5. Effect of failure to appear. - The directly address and discusswith sincerity
failure of the plaintiff to appear when so and candor and in entire good faith each
required pursuant to the next preceding of the other subjects enumerated in Section
section shall be cause for dismissal of the 1, Rule 20, i.e., the "possibility of an amicable
action. The dismissal shall be with prejudice, settlement or of a submission to arbitration,"
unless otherwise ordered by the court. A the "advisability of a preliminary reference of
similar failure on the part of the defendant issues to a commissioner," and "such other
shall be cause to allow the plaintiff to matters as may aid in the prompt disposition
present his evidence ex parteand the court of the action," inclusive of a resort to the
to render judgment on the basis thereof. modes of discovery.

This Court has incisively explained the Consistently with the mandatory character
ratiocination of the foregoing rule on pre- of the pre-trial, the Rules oblige not only the
trial in the case of Development Bank of the lawyers but the parties as well to appear for
Philippines v. Court of Appeals16: this purpose before the Court, and when a
party "fails to appear at a pre-trial
conference (he) may be non-suited or It behooves the Court that respondent did
considered as indefault." The obligation "to not refute the contention of petitioner that
appear" denotes not simply the personal the ground for the trial court in declaring
appearance, or the mere physical respondent in default was the absence of a
presentation by a party of one’s self, but Special Power of Attorney (SPA) authorizing
connotes as importantly, preparedness to its counsel to act on its behalf as
go into the different subject assigned by law "representative" in the pre-trial conference.
to a pre-trial. And in those instances where a All that respondent relentlessly invoked was
party may not himself be present at the pre- the liberal application of the rules in order
trial, and another person substitutes for him, not to defeat the right of the respondent to
or his lawyer undertakes to appear not only be heard and to present evidence in its
as an attorney but in substitution of the defense – citing that default orders are
client’s person, it is imperative for that frowned upon and that all parties should be
representative of the lawyer to have given the opportunity to litigate their claims.
"special authority" to make such substantive Nonetheless, even respondent itself iswell
agreements as only the client otherwise has aware of the weakness of its plea for a
capacity to make. That "special authority" liberal application ofthe rules when it stated,
shouldordinarily be in writing or at the very viz.:
least be "duly established by evidence other
than the selfserving assertion of counsel (or x x x Citing this Honorable Court’s rulings in
the proclaimed representative) himself." the cases of Land Bank of the Philippines vs.
Without that special authority, the lawyer or Pamintuan Development Co.x x x and Cebu
representative cannot be deemed Stevedoring Co. vs. Ramoletex x x[,] the CA
capacitated to appear in place of the highlighted the established principles that a
party; hence, it will be considered that the lawyer is not required to present a written
latter has failed to put in an appearance at authorization from a client such that even
all, and he [must] therefore "be non-suited the absence of a formal notice of entry of
or considered as in default," notwithstanding appearance will not even invalidate the
his lawyer’s or delegate’s presence.17 acts performed by counsel in the client’s
name. Although not in all fours with the
Petitioner was correct when it pointed out circumstances of the present case, the
that: above cases nonetheless demonstrate the
firmly held general principles on client
x x x Atty. Raquel Buendia appeared on representation which were properly and
behalf of Respondent as both its counsel justly applied by the CA in the questioned
and representative in the pre-trial. Atty. Decision.19
Buendia’s authority to appear as counsel on
behalf of Respondent is not being The facts in the case at bar do not warrant
questioned. In that regard, the Court of a liberal construction of the rules.1âwphi1 To
Appeals correctly ruled that the authority of be sure, the only explanation proffered by
a counsel to appear in behalf of his client is respondent’s counsel for not having the
presumed. However, it should be noted that proper authorization to represent
Atty. Buendia also appeared as a respondent at pre-trial was her
representative of Respondent in the pre-trial manifestation in open court that the written
hearing. In this regard, Section 4, Rule 18 of authority was submitted to the court a
the Rules of Court specifically mandates quoduring the first pre-trial hearing way
that such representative must be armed back in 2004. When respondent’s counsel
with a written authority from the was given the chance to go over the
partylitigant. Unfortunately, she was not able records of the court a quoto look for the
to present one.18 Secretary’s Certificate and the SPA that she
allegedly submitted in 2004,these
documents could not be found from the
records of the case. Nonetheless, in its 88. If it was true that Respondent mistakenly
Motion to Lift Order of Default submitted to thought that the said SPA and Secretary’s
the trial court, respondent argued, viz.: Certificate werepresented in 2004, said
documents would have been dated 2004
Indubitably, the undersigned counsel’s (sic) and not 2006. Moreover, it bears stressing
inability to provide the Honorable Court the that the SPA was executed after the 20
proper authority to represent Third-Party November 2006 pre-trial hearing.21
Defendant at the pre-trial hearing on
November 20, 2006 was not willful and Finally, a cursory reading of the assailed
deliberate, but simply due to their excusable decision of the appellate court shows that
negligence. Nevertheless, undersigned when it reversed the decision of the court a
counsel[s] are attaching herewith the quo, it did so on the ground that
Secretary’s Certificate and the Special respondent’s counsel’s filing of a notice of
Power of Attorney, Annexes "A" and "B" entry of appearance has given rise to the
hereof respectively, evidencing their presumption that she (respondent’s counsel)
authority to represent Third-Party Defendant had the authority to represent respondent.
in the instant case.20 As stated by the CA:

We disagree with respondent that its x x x When her authority was challenged,
omission is excusable. Respondent had she manifested that her authority for the
failed to substantiate its sole excuse for its [respondent] was submitted and were
representative’s apparent lack of authority attached to the records of the case. The
to be its representative, in addition to being doubt entertained by the trial court is of no
its counsel, during the pre-trial conference. consequence in view of [respondent’s]
Tobe sure, if indeed there was such an vigorous assertion that it authorized said
authority previously executed by lawyer to represent it. Indeed, even an
respondent in favor of its counsel as early as unauthorized appearance of an attorney
the pre-trial conferences that respondent may be ratified by the client either expressly.
alleges tohave taken place on February 27, Ratification retroacts to the date of the
2004 and April 16, 2004, this fact would have lawyer’s first appearance and validates the
been easily proven by respondent. Such action taken by him.22
document conveying authority – having
originated from and issued by Indubitably, the appellate court ruled on the
respondentitself – would have been capacity of respondent’s counsel to
produced with relative facility. Respondent, represent it as its lawyer, or as its attorney, in
however, failed to produce this document the court a quo. Perforce, it ruled that the
before the court a quo, the appellate court RTC committed grave abuse of discretion
and thisCourt. As fairly observed by when it declared that respondent's counsel
petitioner, the SPA later submitted by did not have the authority to represent it.
respondent’s counsel is dated December 5, We are constrained to disagree with this
2006 or "after" the pre-trial conference on ruling. The crux of this controversy is whether
November 20, 2006. Thus, petitioner asserts: respondent's counsel had the authority to
represent respondent in her capacity as its
87. Moreover, a closer perusal of the SPA representative during the subject pre-trial,
and the Secretary’s Certificate, which and not in her capacity as its counsel.
Respondent allegedly thought were Prescinding from the foregoing disquisitions,
submitted during the 27 February 2004 we agree with the court a quo that
scheduled pre-trial,would show that the respondent's counsel did not have the
same were dated only on 05 December proper authority.
2006 and 16 July 2006, respectively.
WHEREFORE, in view of the foregoing, the
petition is GRANTED. The Decision and
Resolution of the Court of Appeals in CA-
G.R. SP No. 101568 dated August 13, 2009
and November 13, 2009, respectively, are
REVERSED. The Orders dated May 2, 2007
and September 3, 2007 of the Regional Trial
Court of Quezon City, Branch 80, in Civil
Case No. Q-00-42105 are hereby REINSTATED
and UPHELD.

No pronouncement as to costs.

SO ORDERED.
G.R. No. 161380, April 21, 2014 17 coconut trees situated in Banika-Bulacao,
Pardo, Cebu City, and covered by Tax
AZNAR BROTHERS REALTY Declaration No. IV-00128.3 The Deed of
COMPANY, Petitioner, v. SPOUSES JOSE AND Absolute Sale described the property as
MAGDALENA YBAÑEZ,Respondents. bounded on the North by Aznar Brothers; on
the East by Angel Sabellano; on the South
DECISION by Bernardo Sabellano; and on the West by
Agaton Bacalso. The parties agreed to
register the sale under Act No.
BERSAMIN, J.:
3344.4chanrobleslaw
The ownership of a sizable parcel of land is
On February 17, 1967, Saturnino Tanuco sold
the subject of this dispute between the
to Aznar Brothers for P2,528.00 the 15,760-
buyer of its recognized owner and the buyer
square-meter parcel of corn and cogon
of the successors-in-interest of the
land planted with 17 coconut trees situated
recognized owner. The land has since been
in Candawawan, Pardo, Cebu City,
registered under the Torrens system in the
bounded on the North by Alfonso Pacaña;
name of the latter buyer who had
on the East by Tecla Cabales; on the South
meanwhile obtained a free patent on the
by Angel Abellana; and on the West by
premise that the land belonged to the
Castor Sabellano. Tax Declaration No. IV-
public domain.chanrobleslaw
004787 was issued for the property. The
parties agreed to register the parcel of land
The Case
under Act No. 3344.5chanrobleslaw
Aznar Brothers Realty Company (Aznar
In his affidavit of confirmation executed on
Brothers) is on appeal to review and undo
April 11, 1967, Angel Abellana declared that
the adverse decision promulgated on
during the lifetime of his daughter, Rosa, he
October 10, 2002,1 whereby the Court of
had given to her husband, Tanuco, a parcel
Appeals (CA) affirmed the judgment
of land “known as Lot No. 18563” with an
rendered on March 8, 1996 by the Regional
area of 15,760 square meters located in
Trial Court (RTC), Branch 10, in Cebu
Pardo, Cebu City; that the land was
City2insofar as the RTC: (a) dismissed for lack
bounded on the North by Alfonso Pacaña;
of merit Aznar Brothers’ complaint for the
on the East by Tecla Cabales; on the South
declaration of the nullity of the extrajudicial
by Lot No. 5316 of Angel Abellana; and on
declaration of heirs with extrajudicial
the West by Castor Sabellano; that the
settlement of estate and deed of absolute
property assessed at P300.00 was declared
sale, and (b) declared Lot No. 18563 as
under Tax Declaration No. IV-004787; and
legally owned by defendants Spouses Jose
that on February 17, 1967 Tanuco had sold
and Magdalena Ybañez (Spouses Ybañez),
the parcel of land to Aznar Brothers for
but modified the decision of the RTC by
P4,728.00.6chanrobleslaw
deleting the awards of moral and
exemplary damages, attorney’s fees,
On July 3, 1968, Casimiro died intestate
litigation expenses and costs of
leaving as heirs his wife Maria, and their
suit.chanrobleslaw
children, namely, Fabian and Adriano, both
surnamed Ybañez, and Carmen Ybañez-
Antecedents
Tagimacruz, Fe Ybañez-Alison, and
Dulcisima Ybañez-Tagimacruz. On August
On March 21, 1964, Casimiro Ybañez
29, 1977, the heirs of Casimiro executed a
(Casimiro), with the marital consent of Maria
document entitled Extrajudicial Declaration
Daclan, executed aDeed of Absolute
of Heirs with an Extrajudicial Settlement of
Sale in favor of Aznar Brothers conveying for
Estate of Deceased Person and Deed of
P2,500.00 the 17,575-square-meter
Absolute Sale, whereby they divided and
unregistered agricultural land planted with
adjudicated among themselves Lot No. Jose R. Ybañez moved to dismiss the
18563 with an area of 16,050 square meters complaint of Aznar Brothers on the ground
situated in Banika, Bulacao, Pardo Cebu of lack of cause of action, lack of jurisdiction
City. By the same document, they sold the over the nature of the action, and estoppel
entire lot for P1,000.00 to their co-heir, by laches.12 After Aznar Brothers
Adriano D. Ybañez opposed,13 the RTC denied the motion to
(Adriano).7chanrobleslaw dismiss.14 Thereafter, Jose R. Ybañez filed his
answer to the complaint.
On June 21, 1978, Adriano sold Lot No. 18563
to Jose R. Ybañez for P60,000.00. Lot No. In his answer, Jose R. Ybañez reiterated the
18563 is described in their deed of sale as grounds of his motion to dismiss (i.e., lack of
containing an area of 16,050 square meters, cause of action, lack of jurisdiction over the
and was bounded on the North by the lot of nature of the action, and the bar by
Eusebia Bacalso; on the East by a lot of estoppel by laches); and prayed that Aznar
Aznar Brothers; on the South by a lot of Brothers be ordered to pay moral damages
Angel Abellana; and on the West by a lot of of P100,000.00; exemplary damages in an
Teofila C. Leona.8chanrobleslaw amount to be determined by the court;
attorney’s fees of P20,000.00; and litigation
On January 15, 1979, Jose R. Ybañez filed expenses of P5,000.00, plus costs of
Free Patent Application No. (VII-I) 18980 in suit.15chanrobleslaw
respect of the land he had bought from
Adriano.9 In due course, on July 20, 1979, In its reply, Aznar Brothers averred that Jose
Original Certificate of Title (OCT) No. 2150 R. Ybañez did not present “records or
was issued to Jose R. Ybañez. The 16,050- certification as to the ownership of the land
square-meter land is particularly described at the time of the application for free patent
in OCT No. 2150 as – xxx to prove that the land xxx is not a private
land.”16chanrobleslaw
situated in the Barrio of Bulacao-Pardo, City
of Cebu x x x. Bounded on the NorthEast, In the course of the case, Aznar Brothers
along lines 1-2-3 by Lot No. 1811, on the amended its complaint to allege the sale
SouthEast, along lines 3-4 by Lot No. 5316; on executed on February 17, 1967 by Tanuco
the SouthWest, along lines 4-5-6-7-8-9-10-11 and confirmed by Angel Abellana on April
by Lot No. 18565; on the NorthWest, along 11, 1967.17chanrobleslaw
line 11-12 by Lot No. 18566; along line 12-1
by Lot No. 18114, all of Cebu City.10 In his amended answer, Jose R. Ybañez
contended that Aznar Brothers had offered
On May 26, 1989, Aznar Brothers filed in the to buy the property from him, requesting him
RTC a complaint against Jose R. Ybañez to update and prepare all the documents
claiming absolute ownership of Lot No. relevant to the sale, but Aznar Brothers later
18563 by virtue of the Deed of Absolute opted to claim the property as its own when
Sale dated March 21, 1964 executed in its the sale could not be
favor by Casimiro (Civil Case No. CEB-7887). finalized.18chanrobleslaw
Alleging that the free patent issued in favor
of Jose R. Ybañez covered the same Aznar Brothers amended its complaint a
property “already adjudicated as private second time to implead Jose R. Ybañez’s
property,” Aznar Brothers sought judgment wife Magdalena Marcos-Ybañez as
to compel Jose R. Ybañez to surrender all defendant, averring that both defendants
the documents pertaining to the free patent held “no legal right nor just title to apply for
for cancellation, and to order him to pay free patent over the lot in question,” for the
attorney’s fees of P5,000.00 and litigation land was “no longer a public disposable
expenses of P3,000.00.11chanrobleslaw agricultural land but a private residential
land” that it already owned; that the
issuance of OCT No. 2150 was erroneous amended complaint would incorporate
and without factual and legal bases; that it additional but related causes of action, a
learned about the registration of the land in change permitted only during the pre-trial
the name of Jose R. Ybañez only when his stage.21chanrobleslaw
agent offered to sell the land to it; that it
refused the offer because it was already the The Ybañez Spouses then amended their
owner of the land; and that consequently answer by reiterating the allegations in their
OCT No. 2150 should be cancelled, and previous answers, and, in addition, pleaded
Jose R. Ybañez should be ousted from the that they had religiously paid the taxes on
land.19chanrobleslaw the land; that the claim of ownership of
Aznar Brothers had been based only on tax
Aznar Brothers sought a restraining order or declarations; that their application for free
a writ of preliminary injunction to prevent the patent had been granted more than ten
Spouses Ybañez from disposing of the land. years prior to the filing of the complaint by
It further sought the declaration as null and Aznar Brothers, who were all too aware of
void ab initio the Extrajudicial Declaration of the land registration case; that Aznar
Heirs with Extrajudicial Settlement of Estate Brothers did not question their title within one
of Deceased Person and Deed of Absolute year from its issuance; that a decree of
Sale dated August 29, 1977, and of registration being binding on the whole
the Deed of Absolute Sale dated June 21, world, the filing of the complaint ten years
1978; the cancellation of OCT No. 2150; an after the title had been issued left the
order directing the Register of Deeds to issue complaint without any cause of action; that
another title in its name; the ouster of the the action for recovery of possession
Spouses Ybañez from the property; the constituted a collateral attack on their title
permanent injunction to prevent Spouses to the property; and that adverse, notorious
Ybañez from interfering with or disturbing its and continuous possession of the property
possession and ownership of Lot No. 18563; under a claim of ownership was ineffective
and judgment ordering the Spouses Ybañez against a Torrens title. They sought the
to pay moral damages of P50,000.00, dismissal of the second amended complaint
attorney’s fees of P30,000.00, and litigation for lack of cause of action, lack of
expenses of P20,000.00. jurisdiction, estoppel by laches, and lack of
proper parties; and prayed for moral
The Ybañez Spouses opposed the admission damages of P100,000.00; exemplary
of the second amended complaint, damages in such amount as the court
claiming that the cause of action would would award in the exercise of discretion;
thereby be changed from accion attorney’s fees of P20,000.00; and litigation
publiciana to accion reivindicatoria; that expenses of P5,000.00 plus costs of
while Magdalena Marcos-Ybañez was suit.22chanrobleslaw
thereby being impleaded, the heirs named
in the Extrajudicial Declaration of Heirs with Judgment of the RTC
Extrajudicial Settlement of Estate of
Deceased Person and Deed of Absolute On March 8, 1996,23 the RTC rendered
Sale, specifically Adriano, were not being judgment after trial, declaring that the
impleaded; and that the declaration of identity of the land sold to Aznar Brothers by
nullity of OCT No. 2150 was a prohibited Casimiro and the land sold by the heirs of
collateral attack on their title to the Casimiro to Jose R. Ybañez was “not an issue
property.20chanrobleslaw anymore” because it was “not raised as an
issue” during the pre-trial conference; that
The RTC admitted the second amended the issue remaining for resolution concerned
complaint, emphasizing that the original which of the conflicting claims of ownership
cause of action ofaccion publiciana would – that of Aznar Brothers based on Tax
not be changed because the second Declaration No. GR-07-049-00694 or that of
the Spouses Ybañez based on OCT No. 2150 APPLICABLE DECISIONS OF THE
– should prevail; that the Spouses Ybañez SUPREME COURT THEREBY
with their OCT No. 2150 should prevail, COMMITTING A REVERSIBLE ERROR
rendering Aznar Brothers’ complaint OF LAW WHICH IS GRAVELY
dismissible for lack of merit; that Lot No. PREJUDICIAL TO THE RIGHT OF THE
18563 was “legally owned by the PETITIONER OVER THE SUBJECT LOT
defendants;” and Aznar Brothers was liable NO. 18563. SAID CONCLUSION IS NOT
to pay the Spouses Ybañez moral damages SUPPORTED BY FACTS ON RECORDS
of P100,000.00, exemplary damages of (sic).
P50,000.00, attorney’s fees of P20,000.00,
and litigation expenses of P5,000.00, plus 2. THE COURT OF APPEALS GRAVELY
costs of suit.chanrobleslaw ERRED IN AFFIRMING THE DECISION
OF THE REGIONAL TRIAL COURT
Decision of the CA DECLARING SUBJECT LOT AS LEGALLY
OWNED BY THE RESPONDENTS
Aznar Brothers appealed to the CA, assailing DESPITE OF ITS OWN FINDING THAT:
the judgment of the RTC for not sustaining RESPONDENTS WERE BUYERS IN BAD
the sale by Casimiro in its favor of Lot No. FAITH AND THAT THEIR SELLERS WERE
18563 despite the sale being registered NOT OWNERS OF THE PROPERTY IN
under Act No. 3344, as amended; and for QUESTION AND THEREFORE, THERE
awarding moral damages, exemplary WAS NOTHING THAT THEY COULD
damages, attorney’s fees and litigation HAVE SOLD TO THE RESPONDENTS.25
expenses to the Spouses Ybañez.

As earlier mentioned, the CA promulgated Ruling of the Court


its adverse decision on October 10,
2002,24 decreeing The appeal is meritorious.chanrobleslaw
thusly:chanRoblesvirtualLawlibrary
1.
WHEREFORE, premises considered, the Identity of the lot in litis is no
Court AFFIRMS the appealed judgment longer a proper issue herein
butDELETES the award of attorney’s fees,
litigation expenses, costs of the suit, moral The CA and the RTC both held that the
and exemplary damages. identity of the property in litis was no longer
an issue to be considered and determined
SO ORDERED. because the parties did not raise it at the
pre-trial. The Spouses Ybañez insist herein,
The CA denied the motion for however, that the RTC and the CA should
reconsideration of Aznar Brothers. have made such a finding nonetheless in
view of the materiality of whether the land
Issues claimed by Aznar Brothers was different
from Lot No. 18563, the land subject of their
Only Aznar Brothers has come to the Court OCT No. 2150.
for review, raising the following issues for
consideration and resolution, to We clarify that although the Spouses
wit:chanRoblesvirtualLawlibrary Ybañez’s non-appeal barred them from
assigning errors for purposes of this review,
1. THE CONCLUSION OF THE they are not prevented from now insisting, if
HONORABLE COURT OF APPEALS only to uphold the judgment of the CA
THAT PETITIONER IS BARRED BY against Aznar Brothers,26 that the property in
ESTOPPEL BY LACHES, IS NOT IN litis was not the same as Lot No. 18563, but
ACCORD WITH LAW AND/OR WITH they would not be accorded any relief
upon those reasons,27 even if the Court 30 of the Rules of Court.32 Again, neither of
should find Aznar Brother’s appeal them seized such opportunity. And the third
unmeritorious or utterly was for the Spouses Ybañez to adduce
frivolous.28chanrobleslaw evidence on Lot No. 18563 being different
from the land claimed by Aznar Brothers.
Regardless, the holding by both lower courts Had they done so, Aznar Brothers could
was proper and correct. The non-inclusion in have either allowed such evidence without
the pre-trial order barred the identity of the objection, or objected to such evidence on
property in litis as an issue, for it is basic that the ground of its not being relevant to any
any factual issue not included in the pre-trial issue raised in the pleadings or in the pre-trial
order will not be heard and considered at order. The RTC could then have proceeded
the trial,29 much less, on appeal. The parties as it deemed fit, including allowing such
had the obligation to disclose during the evidence. This procedure would have been
pre-trial all the issues they intended to raise authorized by Section 5, Rule 10 of the Rules
during the trial, except those involving of Court, viz:chanRoblesvirtualLawlibrary
privileged or impeaching matters, for the
rule is that the definition of issues during the Section 5. Amendment to conform to or
pre-trial conference will bar the authorize presentation of evidence. —
consideration of others, whether during trial When issues not raised by the pleadings are
or on appeal. The basis of the exclusion is tried with the express or implied consent of
that the parties are concluded by the the parties, they shall be treated in all
delimitation of the issues in the pre-trial order respects as if they had been raised in the
because they themselves agreed to pleadings. Such amendment of the
it.30chanrobleslaw pleadings as may be necessary to cause
them to conform to the evidence and to
The waiver of the identity of the property in raise these issues may be made upon
litis as an issue did not violate the right of motion of any party at any time, even after
any of the parties herein due to the Rules of judgment; but failure to amend does not
Court having forewarned them in Section 7, affect the result of the trial of these issues. If
Rule 18 of the Rules of Court that should the evidence is objected to at the trial on the
action proceed to trial, the pre-trial order ground that it is not within the issues made
would explicitly define and limit the issues to by the pleadings, the court may allow the
be tried, and its contents would control the pleadings to be amended and shall do so
subsequent course of the action, unless with liberality if the presentation of the merits
modified before trial to prevent manifest of the action and the ends of substantial
injustice. justice will be subserved thereby. The court
may grant a continuance to enable the
In reality, the parties could still have reversed amendment to be made. (5a)
the waiver had they so wanted. Towards
that end, they had three opportunities after Moreover, for the Spouses Ybañez to call
the issuance of the pre-trial order to submit upon the Court now to analyze or weigh
the identity of the propertyin litis as an issue evidence all over again upon such a
for trial and decision. The first was for either factual matter would be impermissible
of them to seek the modification of the pre- considering that the Court is not a trier of
trial order prior to the trial in order to prevent facts.33chanrobleslaw
manifest injustice,31 but neither did so. The
second was for either of them to have the There are exceptional instances in which the
trial court consider the identity of the Court has held itself competent to make its
property in litis as an issue proper for the trial, own appreciation of the facts, and not be
but such party must give a special reason to concluded by the findings of fact of the trial
justify the trial court in doing so. This would and appellate courts, namely: (1) when the
have been authorized under Section 5, Rule factual findings of the CA and those of the
trial court were contradictory; (2) when the plaintiff when they bought the same from
findings are grounded entirely on Adriano D. Ybañez on June 21, 1978. And
speculation, surmises, or conjectures; (3) there is neither any showing that defendant
when the inference made by the CA from its had prior knowledge of such sale when they
findings of fact was manifestly mistaken, applied for and was issued Original
absurd, or impossible; (4) when there is Certificate of Title No. 2150 on August 14,
grave abuse of discretion in the 1979. Thus, defendants can very well be
appreciation of facts; (5) when the CA, in considered as purchasers to the protection
making its findings, went beyond the issues of the provisions of P.D. 1529. While plaintiff
of the case, and such findings were contrary has shown to have acquired or was issued
to the admissions of both appellant and tax declaration No. GR-07-049-00694 and
appellee; (6) when the judgment of the CA had paid taxes on the property, said tax
was premised on a misapprehension of declaration and realty tax payments are not
facts; (7) when the CA failed to notice conclusive evidence of ownership (Ferrer-
certain relevant facts that, if properly Lopez vs. Court of Appeals, 150 SCRA 393). It
considered, would justify a different cannot prevail over Original Certificate of
conclusion; (8) when the findings of facts Title No. 2150 in the name of the
were themselves conflicting; (9) when the defendants, as a torrens title concludes all
findings of fact were conclusions without controversies over ownership of land
citation of the specific evidence on which covered by a final decree of registration
they were based; and (10) when the (PNB vs. Court of Appeals, 153 SCRA 435).
findings of fact of the CA were premised on
the absence of evidence but such findings The Deed of Absolute Sale (Exhibit F) in favor
were contradicted by the evidence on of plaintiff-appellant Aznar was registered
record. 34 None of the aforementioned under Act 3344, as amended on March 23,
exceptions obtains in this case. 1964 with the Register of Deeds of Cebu
City. The registration of said deed gave
Accordingly, the Court, just as the lower constructive notice to the whole world
courts have been bound, shall proceed including defendant-appellees of the
upon the assumption that the property in existence of said deed of conveyance.
litis and Lot No. 18563 were one and the (Gerona v. Guzman, 11 SCRA 153)
same realty. Defendant-appellees cannot, therefore,
claim to be buyers in good faith of the land
2. in question. Resultantly, they merely stepped
CA correctly concluded that Aznar Brothers into the shoes of their sellersvis a vis said
owned Lot No. 18563; and that the Spouses land. Since their sellers were not owners of
Ybañez the property in question, there was nothing
were not buyers in good faith that they could have sold to defendant-
appellees.35
In its assailed judgment, the CA concluded
that the RTC erred in holding in favor of the We sustain the CA’s conclusion that the
Spouses Ybañez, observing as Spouses Ybañez were guilty of bad faith,
follows:chanRoblesvirtualLawlibrary and that they acquired Lot No. 18563 from
sellers who were not the owners.
The trial court however erred when it Accordingly, we resolve the second error
held:chanroblesvirtuallawlibrary raised herein in favor of Aznar Brothers.

Nevertheless, from the totality of the The records and evidence fully
evidence adduced by the parties, there is substantiated the CA’s conclusion. The
no preponderant evidence that the Spouses Ybañez acquired Lot No. 18563
defendants had prior knowledge of the through the deed of sale executed on June
previous sale of subject property to the 21, 1978 by Adriano in favor of Jose R.
Ybañez. Together with his siblings Fabian Section 194. Recording of instruments or
Ybañez, Carmen Ybañez-Tagimacruz, Fe deeds relating to real estate not registered
Ybañez-Alison, and Dulcisima Ybañez- under Act Numbered Four hundred and
Tagimacruz, Adriano had supposedly ninety-six or under the Spanish Mortgage
inherited Lot No. 18563 from Casimiro, their Law. – No instrument or deed establishing,
father, who had died intestate on July 3, transmitting, acknowledging, modifying or
1968. Holding themselves as the heirs and extinguishing rights with respect to real
successors-in-interest of Casimiro, they had estate not registered under the provisions of
then executed on August 29, 1977 the Act Numbered Four hundred and ninety-six,
Extrajudicial Declaration of Heirs with entitled “The Land Registration Act,” and its
anExtrajudicial Settlement of Estate of amendments, or under the Spanish
Deceased Person and Deed of Absolute Mortgage Law,shall be valid, except as
Sale, whereby they divided and between the parties thereto, until such
adjudicated Lot No. 18563 among instrument or deed has been registered, in
themselves, and then sold the entire lot to the manner hereinafter prescribed, in the
Adriano. office of the register of deeds for the
province or city where the real estate lies.
But, as the CA correctly found, the Spouses
Ybañez held no right to Lot No. 18563 It shall be the duty of the register of deeds
because Adriano, their seller, and his siblings for each province or city to keep a day
were not the owners of Lot No. 18563. book and a register book of unregistered
Indeed, Casimiro had absolutely conveyed real estate, in accordance with a form to be
his interest in Lot No. 18563 to Aznar Brothers prepared by the Chief of the General Land
under the Deed of Absolute Sale of March Registration Office, with the approval of the
21, 1964 with the marital consent of Maria Secretary of Justice. The day book shall
Daclan, Casimiro’s surviving spouse and the contain the names of the parties, the nature
mother of Adriano and his siblings. of the instrument or deed for which
Considering that such conveyance was registration is requested, the hour and
effective and binding on Adriano and his minute, date and month of the year when
siblings, there was no valid transmission of the instrument was received. The register
Lot No. 18563 upon Casimiro’s death to any book shall contain, among other particulars,
of said heirs, and they could not legally the names, age, civil status, and the
adjudicate Lot No. 18563 unto themselves, residences of the parties interested in the
and validly transfer it to Adriano. The act or contract registered and in case of
conveyance by Adriano to Jose R. Ybañez marriage, the name of the wife, or husband,
on June 21, 1978 was absolutely void and as the case may be, the character of the
ineffectual. contract and its conditions, the nature of
each piece of land and its improvements
There is also no question that the Spouses only, and not any other kind of real estate or
Ybañez were aware of the conveyance of properties, its situation, boundaries, area in
Lot No. 18563 by Casimiro to Aznar Brothers square meters, whether or not the
considering that the Deed of Absolute boundaries of the property are visible on the
Sale of March 21, 1964 between Casimiro land by means of monuments or otherwise,
and Aznar Brothers was registered in the and in the affirmative case, in what they
book of registry of unregistered land on the consist; the permanent improvements
same day pursuant to their agreement. existing on the property; the page number
Such registration constituted a constructive of the assessment of each property in the
notice of the conveyance on the part of the year when the entry is made, and the
Spouses Ybañez pursuant to Section 194 of assessed value of the property for that year;
the Revised Administrative Code of 1917, as the notary or the officer who
amended by Act No. 3344, which provided acknowledged, issued, or certified the
as follows:chanRoblesvirtualLawlibrary instrument or deed; the name of the person
or persons who, according to the instrument, section shall be understood to be without
are in present possession of each property; prejudice to a third-party with a better right.
a note that the land has not been registered
under Act Numbered Four hundred and The register of deeds shall be entitled to
ninety-six nor under the Spanish Mortgage collect in advance as fees for the services to
Law; that the parties have agreed to be rendered by him in accordance with this
register said instrument under the provisions Act, the same fees established for similar
of this Act, and that the original instrument services relating to instruments or deeds in
has been filed in the office of the register of connection with real estate in section one
deeds, indicating the file number, and that hundred fourteen of Act Numbered Four
the duplicate has been delivered to the hundred ninety-six entitled “The Land
person concerned; the exact year, month, Registration Act,” as amended by Act
day, hour, and minute when the original of Numbered Two thousand eight hundred
the instrument was received for registration, and sixty-six. (Emphasis in the original; bold
as stated in the day book. It shall also be the italics supplied.)
duty of the register of deeds to keep an
index-book of persons and an index-book of Although a deed or instrument affecting
estates, respectively, in accordance with a unregistered lands would be valid only
form to be also prepared by the Chief of the between the parties thereto, third parties
General Land Registration Office, with the would also be affected by the registered
approval of the Secretary of Justice. deed or instrument on the theory of
constructive notice once it was further
Upon presentation of any instrument or registered in accordance with Section 194,
deed relating to real estate not registered i.e., the deed or instrument was written or
under Act Numbered Four hundred and inscribed in the day book and the register
ninety-six and its amendments or under the book for unregistered lands in the Office of
Spanish Mortgage Law, which shall be the Register of Deeds for the province or city
accompanied by as many duplicates as where the realty was located. As ruled
there are parties interested, it shall be the inGutierrez v. Mendoza-
duty of the register of deeds to ascertain Plaza:36chanrobleslaw
whether said instrument has all the
requirements for proper registration. If the The non-registration of the aforesaid deed
instrument is sufficient and there is no does not also affect the validity thereof.
legitimate objection thereto, or in case of Registration is not a requirement for validity
there having been one, if the same has of the contract as between the parties, for
been dismissed by final judgment of the the effect of registration serves chiefly to
courts, and if there does not appear in the bind third persons. The principal purpose of
register any valid previous entry that may be registration is merely to notify other persons
affected wholly or in part by the registration not parties to a contract that a transaction
of the instrument or deed presented, and if involving the property has been entered
the case does not come under the into. The conveyance of unregistered land
prohibition of section fourteen hundred and shall not be valid against any person unless
fifty-two of Act Numbered Twenty-seven registered, except (1) the grantor, (2) his
hundred and eleven, the register of deeds heirs and devisees, and (3) third persons
shall register the instrument in the proper having actual notice or knowledge thereof.
book. In case the instrument or deed As held by the Court of Appeals, petitioners
presented has defects preventing its are the heirs of Ignacio, the grantor of the
registration, said register of deeds shall subject property. Thus, they are bound by
refuse to register it until the defects have the provisions of the deed of donation inter
been removed, stating in writing his reasons vivos.
for refusing to record said instrument as
requested. Any registration made under this The effect on third parties of the
constructive notice by virtue of the effectivity of P.D. No. 1529, all unregistered
registration of the deed or instrument was lands may still be registered pursuant to
aptly illustrated in Bautista v. Fule,37 where Section 113 of P.D. No. 1529, which
the Court pronounced that the subsequent essentially replicates Section 194, as
buyer of unregistered land sold at an amended by Act No. 3344, to the effect
execution sale, which the purchaser at the that a deed or instrument conveying real
public auction registered under Act No. estate not registered under the Torrens
3344 seven days after that sale, was system40 should affect only the parties
“deemed to have constructive notice” of thereto unless the deed or instrument was
the sale, and, therefore, could not be registered in accordance with the same
“entitled to the rights of a purchaser in good section.41chanrobleslaw
faith.” The Court emphasized that as to
lands not registered under either the Spanish The only exception to the rule on
Mortgage Law or the Land Registration constructive notice by registration of the
Act, the registration under Act No. 3344 deed or instrument affecting unregistered
should produce its effects against third realty exists in favor of “a third party with a
persons if the law was “to have utility at better right.” This exception is provided in
all.”38chanrobleslaw Section 194, as amended by Act No. 3344,
to the effect that the registration “shall be
It is worth mentioning that Act No. 3344 understood to be without prejudice to a
(approved on December 8, 1926) was the third party with a better right;” and in
governing law at the time of the execution paragraph (b) of Section 113 of P.D. No.
of the deed of absolute sale of March 21, 1529, to the effect that “any recording
1964 between Casimiro and Aznar Brothers, made under this section shall be without
and the deed of absolute sale of February prejudice to a third party with a better
17, 1967 between Tanuco and Aznar right.” As to who is “a third party with better
Brothers. Both deeds were registered right” under these provisions is suitably
pursuant to Section 194; while, on the other explained in Hanopol v. Pilapil,42 a case
hand, the sale between Adriano and Jose where the sale of unregistered land was
R. Ybañez on June 21, 1978 was covered by registered under Act No. 3344 but the land
the P.D. No. 1529, also known as theProperty was sold twice, as
Registration Decree (whose effectivity was follows:chanRoblesvirtualLawlibrary
upon its approval on June 11,
1978).39chanrobleslaw It thus appears that the “better right”
referred to in Act No. 3344 is much more
Section 3 of P.D. No. 1529, albeit expressly than the mere prior deed of sale in favor of
discontinuing the system of registration the first vendee. In the Lichauco case just
under the Spanish Mortgage Law, has mentioned, it was the prescriptive right that
considered lands recorded under that had supervened. Or, as also suggested in
system as unregistered land that could still that case, other facts and circumstances
be recorded under Section 113 of P.D. No. exist which, in addition to his deed of sale,
1529 “until the land shall have been brought the first vendee can be said to have better
under the operation of the Torrens system;” right than the second purchaser.43 (Bold
and has provided that “[t]he books of emphasis supplied.)
registration for unregistered lands provided
under Section 194 of the Revised The Court also observes in Sales v. Court of
Administrative Code, as amended by Act Appeals,44 a case involving parties to a
No. 3344, shall continue to remain in force; deed of donation who had agreed to
provided, that all instruments dealing with register the instrument under Act No. 3344
unregistered lands shall henceforth be but failed to do so, that the “better right” of
registered under Section 113 of this Decree.” a third party relates to “other titles which a
It is clear, therefore, that even with the party might have acquired independently
of the unregistered deed such as title by that the CA erred in relying on estoppel by
prescription.”45 But the exception does not laches, a rule of equity, to bar its “dominical
obviously apply to the Spouses Ybañez claim” over Lot No. 18563. It insists that its
because they acquired their right from action to declare the nullity of
Adriano who did not hold any legal or the Extrajudicial Declaration of Heirs with
equitable interest in Lot No. 18563 that he Extrajudicial Settlement of Estate of
could validly transfer to the Spouses Deceased Person and Deed of Absolute
Ybañez.chanrobleslaw Sale dated August 29, 1977, and the Deed
of Absolute Sale of June 21, 1978 was
3. imprescriptible under Article 1410 of theCivil
Estoppel by laches did not bar Code; and that on the assumption
Aznar Brothers’ right over Lot No. 18563 that accion publiciana would prescribe in
ten years, its filing of the original complaint
Unexpectedly, the CA disregarded its on May 26, 1989 was done within the 10-
aforecited correct conclusion on Aznar year period counted from August 14, 1979,
Brothers’ ownership of Lot No. 18563, and the date of the issuance of OCT No. 2150 in
instead ruled that estoppel by laches had the name of Jose R. Ybañez.
already barred Aznar Brothers’ “dominical
claim” over Lot No. 18563. It ratiocinated The Spouses Ybañez counter that the CA
thusly:chanRoblesvirtualLawlibrary was correct because Aznar Brothers did not
assert possession and ownership over the
But then, there were pre-existing and land for 25 years; that it brought its
supervening circumstances which complaint only in 1989 after they had
effectively quashed the dominical claim of undergone the proceedings in rem for the
plaintiff-appellant over the subject land. issuance of OCT No. 2150; that it did not
Plaintiff-appellant was never in possession of challenge their application for the free
the land which it bought. Even after buying patent or the proceedings for the issuance
the land from Casimiro Ybañez, plaintiff- of OCT No. 2150; that it did not also oppose
appellant did not take possession of it. On the conduct of the survey of the land
the other hand, the heirs of Casimiro Ybañez relevant to the application for the free
took possession of said land upon the latter’s patent despite the notice of the survey
death. Said heirs sold their shares on said given by the surveying engineer to the
land to one of their co-heirs, Adriano adjoining lot owners; that during the hearing
Ybañez, who in turn, sold the whole land to of the case, Jose R. Ybañez testified that
defendant appellees, the spouses Jose and only three hectares of the land originally
Magdalena Ybañez. The latter continued owned by Casimiro had been sold to it, the
possessing said land, tax declared it, paid rest having been retained by Casimiro that
realty taxes thereon and finally secured a became the subject of the extrajudicial
free patent and title over it. Up to the settlement by his heirs, who had then sold
present, defendant-appellees are in that retained portion to Jose R. Ybañez; that
possession of the land as owners thereof. the tax declarations presented by it
described property distinct from that
There is absolutely no doubt that in law, covered by OCT No. 2150, although it
plaintiff-appellant had lost its dominical and claimed that the same property had been
possessory claim over the land for its sold to it twice by Casimiro and Tanuco; and
inaction from 1964 when it bought the land that on at least three occasions, it had
up to 1989 when it filed the Complaint in the attempted to buy the lot from them but the
trial court – or a long period of 25 years. This negotiations did not push through.
is called estoppel by laches.46
We hold and declare that the CA’s ruling in
Aznar Brothers now assails this adverse ruling favor of the Spouses Ybañez was devoid of
under its first assigned error by pointing out legal and factual support, and should be
rightfully reversed. evinced that it did not abandon its
ownership. Verily, its maintaining Lot No.
Laches is the failure or neglect for an 18563 as an unregistered land from then on
unreasonable and unexplained length of should not prejudice its rights; otherwise, its
time to do that which by exerting due registration pursuant to law would be set at
diligence a party could and should have naught. Secondly, the supposed acts of
done earlier.47 A suit that is barred on the possession of Lot No. 18563 exercised by the
ground of laches is also called a stale Spouses Ybañez from the time of their
demand. Laches is based on grounds of purchase from Adriano, including causing it
public policy that requires, for the peace of to be surveyed for purposes of the
society, the discouragement of stale claims application for free patent, did not
and, unlike the statute of limitations, is not a prejudice Aznar Brothers’ interest because
mere question of time but is principally a the registration under Act No. 3344 had
question of the inequity or unfairness of given constructive notice to the Spouses
permitting a right or claim to be enforced or Ybañez of its prior acquisition of the land.
asserted.48Tempus enim modus tollendi Thereby, the Spouses Ybañez became
obligationes et actiones, quia tempus currit bound by the sale from Casimiro to Aznar
contra desides et sui juris contemptores (For Brothers, and rendered them incapable of
time is a means of dissipating obligations acquiring the land in good faith from
and actions, because time runs against the Adriano. Consequently, Jose R. Ybañez’s
slothful and careless of their own intervening application for the free patent,
rights).49 Truly, the law serves those who are the grant of the free patent and the
vigilant and diligent, not those who sleep issuance of OCT No. 2150 thereafter did not
when the law requires them to supplant the superior rights and interest of
act.50chanrobleslaw Aznar Brothers in Lot No. 18563. And, lastly,
the Spouses Ybañez would not suffer any
For laches to bar a claim, four elements prejudice should Aznar Brothers prevail
must be shown, namely: (1) conduct on the herein, for Adriano, their predecessor-in-
part of the defendant, or one under whom interest, did not transmit to them any kind or
he claims, giving rise to a situation of which degree of right or interest in Lot No. 18563.
a complaint is made and for which the
complainant seeks a remedy; (2) delay in 4.
asserting the complainant’s right, the Lot No. 18563, not being land of the
complainant having had knowledge or public domain, was not subject to the free
notice of defendant’s conduct and having patent
been afforded an opportunity to institute a issued to the Spouses Ybañez
suit; (3) lack of knowledge or notice on the
part of the defendant that the complainant The Spouses Ybañez’s position rests on their
would assert the right on which he bases his having been issued the free patent and
suit; and (4) injury or prejudice to the OCT No. 2150.
defendant in the event that the relief is
accorded to the complainant, or the suit is The records do not support the position of
not held to be barred.51chanrobleslaw the Spouses Ybañez. Although Jose R.
Ybañez declared in paragraph 4 of his
The CA incorrectly barred the claim of Aznar application for the free patent that Lot No.
Brothers to Lot No. 18563 because of laches. 18563 was public land, and was not then
For one, Aznar Brothers immediately claimed or occupied by any other
registered the purchase in accordance with person;52 and further declared under oath in
Act No. 3344, the law then governing the the affidavit submitted to support his
registration of unregistered land. Its action in application for the free patent that he
that regard ensured the protection of the “recognize(d)” Lot No. 18563 “as public
law as to its ownership of the land, and land,” his declarations did not establish that
Lot No. 18563 was land of the public Lands has no authority to grant free patent
domain. Nor did the Spouses Ybañez show to lands that have ceased to be public in
that Jose R. Ybañez had acted in good faith character and have passed to private
in applying for the free patent pursuant to ownership. Consequently, a certificate of
Commonwealth Act No. 141 (The Public title issued pursuant to a homestead patent
Land Act), as amended. Instead, they were partakes of the nature of a certificate issued
fully aware of the nature and character of in a judicial proceeding only if the land
the land as private. In the Deed of Absolute covered by it is really a part of the
Sale dated June 21, 1978, Adriano stated disposable land of the public domain. (Bold
that he had been “the absolute owner in emphasis supplied)
fee simple free from all liens and
encumbrances whatsoever” of Lot No. To the same effect was Agne v. Director of
18563; and that he (Adriano) had held the Lands,58 where the Court declared that if
“perfect right to convey the same (as) the land covered by free patent was already
purchaser of the same as per Extrajudicial the private property of another and,
Declaration of Heirs with extrajudicial therefore, not part of the disposable land of
settlement of estate of deceased person the public domain, the patentee did not
and deed of absolute sale.”53 In view of the acquire any right or title to the land.
privity between Adriano and the Spouses
Ybañez as to the land, the former’s The principle of indefeasibility of the Torrens
statements concluded the title does not protect OCT No. 2150 because
latter.54chanrobleslaw the free patent on which the issuance of the
title was based was null and void. A direct
In contrast, Aznar Brothers acquired Lot No. attack as well as a collateral attack are
18563 as the private land of Casimiro. In proper, for, as the Court declared in De
their Deed of Absolute Sale of March 21, Guzman v. Agbagala:59chanrobleslaw
1964, Casimiro expressly warranted that the
land was his “own exclusive x x x. An action to declare the nullity of a
property.”55 With the ownership of Aznar void title does not prescribe and is
Brothers being thus established, the free susceptible to direct, as well as to collateral,
patent issued to Jose R. Ybañez by the attack. OCT No. P-30187 was registered on
Government was invalid for the reason that the basis of a free patent which the RTC
the Government had no authority to dispose ruled was issued by the Director of Lands
of land already in private ownership.56 The without authority. The petitioners falsely
invalidity of the free patent necessarily left claimed that the land was public land when
OCT No. 2150 a patent nullity. As ruled in fact it was not as it was private land
in Heirs of Simplicio Santiago v. Heirs of previously owned by Carmen who inherited
Mariano E. Santiago:57chanrobleslaw it from her parents. x x x.

The settled rule is that a free patent issued Nonetheless, it appears that Aznar Brothers
over a private land is null and void, and actually mounted a direct attack on the title
produces no legal effects of the Spouses Ybañez. In the original
whatsoever. Private ownership of land – as complaint, Aznar Brothers sought judgment
when there is a prima facie proof of ordering them to “[s]urrender all the
ownership like a duly registered possessory documents pertaining to the Free Patent for
information or a clear showing of open, cancellation.” Such relief was predicated
continuous, exclusive, and notorious on the allegation that the land in question
possession, by present or previous “was already adjudicated as private
occupants – is not affected by the issuance property of the plaintiff” through the Deed
of a free patent over the same land, of Absolute Sale of March 21, 1964. Aznar
because the Public Land Law applies only to Brothers reiterated the relief in the amended
lands of the public domain. The Director of complaint. In its second amended
complaint, it expressly prayed for the
“cancellation and annulment” of OCT No.
2150. By such pleadings, it directly attacked
OCT No. 2150, because their object was “to
nullify the title, and thus challenge the
judgment or proceeding pursuant to which
the title was decreed.”60chanrobleslaw

WHEREFORE, the Court REVERSES and SETS


ASIDE the decision promulgated on October
10, 2002 by the Court of Appeals partially
affirming the judgment rendered on March
8, 1996 by the Regional Trial Court, Branch
10, in Cebu City; DECLARES petitioner AZNAR
BROTHERS REALTY COMPANYthe sole and
exclusive owner of the unregistered parcel
of land known and described as Lot No.
18563; CANCELS and NULLIFIES Free Patent
No. VII-1118514 and Original Certificate of
Title No. 2150 of the Registry of Deeds of the
Province of Cebu in the name of
respondent Jose R. Ybañez, married to
Magdalena Marcos;
and ORDERS respondents to pay the costs of
suit.

SO ORDERED.