THIRD DIVISION

G.R. No. 222740, September 28, 2016

ST. LUKE'S COLLEGE OF MEDICINE-WILLIAM H. QUASHA MEMORIAL FOUNDATION, DR. BRIGIDO L. CARANDANG, AND
DR. ALEJANDRO P. ORTIGAS Petitioners, v. SPOUSES MANUEL AND ESMERALDA PEREZ AND SPOUSES ERIC AND
JURISITA QUINTOS, Respondents.

DECISION

PEREZ, J.:

Assailed in the present petition for review on certiorari is the Decision1 dated September 30, 2015 and the Resolution2 dated
February 2, 2016 of the Court of Appeals (CA) in CA-G.R. CV No. 103529, which rulings reversed the Decision dated July 7,
20143 of the Regional Trial Court (RTC), Branch 84, Malolos City, Bulacan in Civil Case No. 145-M-2012 and remanded the case
to the trial court for reception of evidence on the amount of damages to be awarded.

As a backgrounder, in 2006, the Commission on Higher Education issued Memorandum Order No. 10, series of 2006 which
required medical students to undergo rotating clinical clerkship in their fourth year. As such, petitioner St. Luke's College of
Medicine (St. Luke's) entered into a Memorandum of Intent with the Municipality of Cabiao, Nueva Ecija for the construction of
a community clinic. The said facility consisted of a six-bed medical facility in the ground floor, and a residential space for the
medical staff in the second floor.

The undisputed facts, as amply summarized by the CA, are as follows:ChanRoblesVirtualawlibrary

In February 2010, St. Luke's sent four (4) of its 4 th year medical students to the clinic, namely: plaintiffs-appellants Spouses
Perez's daughter Jessa, plaintiffs-appellants Spouses Quintos' daughter Cecille, Jerillie Ann Murillo (Murillo) and Miguel Rafael
Ramos (Ramos). They were tasked to complete a four-week clerkship rotation at the clinic and like the previous batches, they
were housed in the second floor of the clinic.

According to Ramos, he and his groupmates reported for duty at the Cabiao clinic at approximately 10 o'clock in the morning
of February 8, 2010. When their shift ended at 5 o'clock that afternoon, the group went for a jog and returned to the clinic at
around 7 o'clock in the evening. They again went out at 9 o'clock in the evening to buy beverages, cooking oil and other items
needed for their breakfast the next day and went to sleep sometime after midnight. Ramos admitted that one of the beverages
they bought was an alcoholic beverage called The Bar, which consisted of either vodka or gin. He also admitted that only he
and Cecille drank the alcoholic beverage which they mixed with the soda and that they did not consume the whole bottle.

Ramos was awakened sometime between 3 o'clock and 3:30 in the morning of February 9, 2010 when he heard Murillo
shouting from the other side of the room that there was a fire. Ramos immediately ran to the door which led to the living room
and when he opened the same, he saw thick smoke coming from the left portion of the living room where there was a glow. He
also felt extreme heat, prompting him to run to the bathroom to get a pail of water with which he tried to extinguish the fire.
The girls, who had followed him to the bathroom, stayed behind. When Ramos' attempt to put out the fire proved to be futile,
he went back to the bathroom and poured water on the girls in an attempt to alleviate the extreme heat coming from the fire.

According to Ramos, the smoke started to seep through the bathroom door and the group had started shouting for help. After a
considerable amount of time, he heard somebody outside instructing him to get back from the window. When he did so,
somebody broke the window and started to dismantle the iron grills barring the same. By that time, Ramos had started losing
consciousness due to smoke inhalation and only remembered that he was being pulled out of the building through the
window.

Unfortunately, the fire resulted in the deaths of the female medical students, including the daughters of plaintiffs-appellants
due to smoke inhalation resulting" to asphyxia.

As a result of the deaths, defendant-appellee St. Luke's compensated the parents of the three deceased students in the amount
of PhP300,000.00 each from insurance proceeds. (Citations omitted)
The Bureau of Fire Protection (BFP) conducted an investigation on the incident, and in a Certification dated April 18, 2011, it
certified that the fire was "purely accidental in nature due to unattended cooking," to wit:4
THIS IS TO CERTIFY THAT as appearing on The Blotter Book No. 0304-0287, pages 17 and 18, the two storey Institutional
building owned by Local Government Unit (LGU) Cabiao, Nueva Ecija was partially razed by fire including all the contents of
the second floor that transpired on or about 090245H February 2010. The estimated cost of damage is two Million pesos
(P2,000,000.00) more or less.

Result of investigation conducted by the Investigator on Case of this station, Bureau of Fire Protection, Cabiao, Nueva Ecija,
disclosed that the fire was purely ACCIDENTAL IN NATURE due to UNATTENDED COOKING that occurred at the kitchen of
said floor and no evidence were gathered to show that the fire was intentionally, deliberately or maliciously set.
Respondents had their doubts. Thus:5
xxx. xxx, plaintiffs-appellants, requested for a meeting with defendant-appellee Dr. Alejandro Ortigas, Associate Dean for
Faculty and Student Affairs of St. Luke's. During the meeting, plaintiffs-appellants were surprised by the presence of
defendants-appellees Dr. Brigido Carandang, St. Luke's Dean of Medicine, the Municipal Health Officer of Cabiao Dr. De Leon, as
well as Municipal Fire Marshall of Cabiao Baby Boy Esquivel, a Cabiao police officer and its barangay captain.

The officials informed plaintiffs-appellants that the fire was caused by the gas burner left open by the victims which greatly
disturbed plaintiffs-appellants. In a subsequent meeting, they were informed that there was also evidence that the victims
were drinking alcoholic beverages on the night of the fire which plaintiffs-appellants refused to accept.

Convinced that there was a cover-up, plaintiffs-appellants continued to question individual defendants-appellees. Exasperated,
defendant-appellee Dr. Carandang allegedly asked "Ano pa bang gusto ninyo sa amin? Nakiramay na kami."
Offended and still unconvinced, respondent Spouses Manuel and Esmeralda Perez, the parents of Jessa, and respondent
Spouses Eric and Jurisita Quintos, the parents of Cecille, sought the help of the National Bureau of Investigation (NBI). In its
Resolution dated August 3, 2010, the existence of which is expressly admitted by petitioners, having quoted the contents 6 and
having attached a copy thereof to the present petition,7 the NBI declared that the construction of the Cabiao Community Clinic
building was in violation of the provisions of Republic Act No. 9514 (R.A. No. 9514) or the Revised Fire Code of the Philippines,
that the cause of the fire was due to faulty electrical wiring, and that St. Luke's negligence is criminal in nature. The pertinent
parts of the said Resolution reads:8
xxxx

2. The building structure of Cabiao Community Center

The Cabiao Community Clinic/Center is a two-storey concrete building. The ground floor is used as the municipality's lie-in
clinic or hospital during day time. The students and in particular the victims use this facility together with the. medical
complement of the municipality for their community medical service.

On the 2nd floor was the office of Dr. LEON DE LEON, Cabiao Municipal Health Officer, adjacent was a storage room for office
and medical supplies and documents, the bedrooms for the medical students rendering community service, a dining area, a
kitchen, and the living-room. The second floor, it may be said, is virtually dedicated for the board and lodging of the students
while on mission. These rooms and areas are separated from each other by wood panels made of plywood including the wall in
which the gas stove was located. All the windows at the second floor are also covered by permanent iron grills. There
are no fire exits, fire alarms, fire extinguishers, sprinklers, emergency lights.

The community center is a virtual fire/death trap. During night time, medical students were left alone inside the 2nd
floor with the main gate locked from the outside and with no apparent signs of fire alarms, fire sprinklers, fire exit
plan, emergency lights, provisions of confining the fire to its source, among others, for the occupants fire safety and
protection system. They were on their own at the second floor, without anyone (maid or security guard) to attend to their
needs while the ground floors and the adjoining building were uninhabited.

3. The electrical system of Cabiao Community Clinic;

Engr. DAVID R. AOANAN, Chief Electrical Section of the (sic) and member of the NBI investigating team observed that the
facility has a main circuit breaker and the two distribution panels, located at the ground floor, just above the comfort room of
the 2nd floor. The main breaker has a 500 amp capacity while the two distribution panels serving the 1 st floor and the 2nd floor
has 200 amp capacity, each, as against the main electrical service wire with the size 14 mm.

The ratio between the capacity of the circuit breaker and the electrical service wire is out of proportion and became
electrically insensitive to overload and wire short circuits; thereby negating the very purpose the circuit breaker was
designed.
The size of service wire is Small, suitable only for lighting purposes and not to supply two buildings, dedicated for public
use. Six years of use in overload capacity would have worn out the wire and its strength and vitality, hence it will
readily overheat, notwithstanding at the time short circuits, only few bulbs were in use.

The electrical meter used is appropriate only to residential units and not to service the two buildings intended for public
which are [equipped] with modern medical equipment; the old NFA and the [Cabiao] Community Clinic.

Both live service wire and secondary electrical wires were bundled together inside the same tube. At the 2nd floor, visible
signs of cut wires were found inside a tube, including the service wire as it pass through going down to the main panel
board and several cut wires of the secondary breaker going to the second floor for power distribution.

The main and secondary panel boards were wrongly situated at the ground floor, above which is the location of a
comfort room, where water could easily slip to the panel boards.

The installation of the secondary panel board at the ground floor distributing power to the 2 nd floor defeats its
purpose, considering that if electrical trouble happens at the 2 nd floor one has to go to the 1st floor to shut off the
power.

4. The construction of the Cabiao Community Center building was in violation of the provision of Republic Act No. 9514
(Revised Fire Code of the Philippines)

Owners, occupants or administrator of buildings or structures are required to incorporate and provide fire safety
construction, protective and warning systems. Investigation shows that a) there were no fire protection features such as
sprinkler systems, hose boxes, hose reels or standpipe systems and other firefighting equipment; fire alarm systems; b) no fire
exit, fire exit plan for each floor of the building showing the routes from each other [sic] room to appropriate exits, displayed
prominently on the door of such room; c) no properly marked and lighted exits with provision for emergency light to
adequately illuminate exit ways in case of power failure, and d) no provisions for confining the fire at its source such as fire
resistive floors and walls.

5. The Cabiao Bureau of Fire Protection failed to perform its mandate pursuant to RA 9514.

Under the Fire Code, the Bureau of Fire Protection is required to conduct fire safety inspections as pre-requisite to the grant of
licenses and permits for the use and occupancy of buildings, structures, facilities and their premises including the installation
of fire protections and fire safety equipment and electrical systems in any building structure or facility; and the storage of
explosives or combustible, flammable, toxic and other hazardous materials.

The BFP is likewise responsible for designating fire inspectors who shall inspect every building at least once a year, and every
time the owner, administrator or occupant [renews] its business permit or permit to occupy; to issue a business permit or
permit to operate only after securing a Fire Safety Inspection Certification (FSIC); require the building owner occupant to
submit plans and specifications and other pertinent documents of building/structure in order to ensure compliance of
applicable codes and standards and issue a written notice to the owner and/or contractor to stop work on portion of any work
due to absence or in violation of approved plans and specifications; to inspect at reasonable time, any building, structure or
premises and order the owner/occupant to remove hazardous materials and/or stop operation if the standards are not met; to
declare and summarily abate hazardous conditions of the buildings or structures and/or declare the same as fire hazards.

It is worthy to note that despite the long period of time from the occurrence of the fire until the termination of this
investigation, the Cabiao BFP headed by FO3 ESQUIVEL has yet to submit its report and findings. However, inasmuch as FO3
ESQUIVEL has bungled the investigation of the fire by removing items from the scene of the fire and his failure to
explain the disappearance of other electrical debris, the opening and enlargement of the iron grill where the sole
survivor passed, the back door broken, and the non-recording of the investigations, FO3 Esquivel's action and
behaviors are highly suspect of a massive cover up of the real cause of the fire.

xxxx

7. St. Luke's negligence is criminal in nature.

St. Luke's College of Medicine - William H. Quasha Memorial, Inc., being the owner and operator of the Cabiao Community
Clinic is not without liability for the fate of the fire victims. As a learning institution, which sends out its students to rural
areas to comply with its curriculum requirement, St. Luke's has the duty and responsibility to see to it that the
premises to where it sends its students are safe. It is significant to stress that the Cabiao Community Clinic was established
by the Municipality of Cabiao and the St. Luke's College of Medicine in line with the latter's expansion of its Community
Medicine undertaking to the rural areas in order to train its students in health promotion and disease prevention as well as to
provide medical service to deserving population and to undertake clinical research on various health practices.

The victims were sent there as part of their community medicine module in the curriculum and their assignments were
determined by the officials of the College of Medicine.

8. The origin of fire.

The Cabiao BFP has manifested its prejudice and bias and thus, cannot be an independent, reliable and credible
investigator of this fire incident. They could not even entertain any theory, other than the gas burner, because in doing so
would place themselves in jeopardy. They even resorted to tampering of premises by removing all electrical wire debris,
thinking that in its absence, fire caused by short circuits cannot be proven.

It is highly probable that the origin of fire is electrical based on the Electrical Report No. 04-10-001 submitted by Engr.
DAVID R. AOANAN, Chief, Electrical Section, NBI because of the following.

i. Presence of thick black smoke that indicates heat caused by short-circuit

ii. Explosion or tripping off of the transformer, then a black out - showing therefore that the circuit breaker did not trip
off

iii. Inspection of the main circuit breaker and the secondary breakers show that these did not trip off

iv. Presence of short circuited wires located at the 2 nd floor, where buddle wires were found

v. Presence of numerous spliced wires or jumped wires in three different convenient outlets

vi. Mainboard panel is mismatched with the service wire

vii. Other defective wirings

It is a well done theory that the cause of the fire was due to faulty electrical wiring with two reasons to support it, first
is the physical manifestation as mentioned by Engr. DAVE AOANAN who conducted evaluation/investigation on what
is left on the building of the Cabiao Community Clinic; second is the personal experience of MIGUEL RAFAEL RAMOS y
DAVID the lone survivor of the incident [who] narrated what he perceived during last hour before he was
rescued. MIGUEL['s] narration contradict the theories laid down by Fire Marshall BABY BOY ESQUIVEL that the fire was by
the negligence of the victims [whom] he suspect[s] to have left [burning a] gas stove. MIGUEL'S narration specifically pointed
out that the fire was primarily coming from the living room and not at the kitchen which is directly in front of their door way.
(Emphasis supplied.)
Respondents then filed a Complaint for damages against petitioners St. Luke's College of Medicine-William H. Quasha
Memorial Foundation, Dean of Medicine Brigido L. Carandang, and Associate Dean for Faculty and Student Affairs Alejandro P.
Ortigas, claiming that their negligence caused the deaths of respondents' daughters. Respondents maintained that, as a
learning institution which sends out its medical students to rural areas to comply with its curriculum requirement, St. Luke's
has the contractual duty and legal responsibility to see to it that the premises to where it sends its students are safe and that,
in the case at bar, St. Luke's refused to recognize its obligations/liabilities. 9 Respondents thus prayed as follows:10
WHEREFORE, premises considered, it is respectfully prayed that judgment be rendered in favor of plaintiffs -
1. Finding the defendants negligent and liable under their contractual and legal obligations to Jessa and Cecille;

2. Directing defendants to pay plaintiffs, jointly and severally, actual, moral and exemplary damages; and cralawlawlibrary

3. Ordering defendants to pay the cost of suits and attorney's fees.

Plaintiffs further pray for such other reliefs as the Honorable Court may deem just and equitable under the premises.
The RTC dismissed the complaint for lack of merit.11 It held that the Cabiao Community Clinic was not a fire trap as there were
two (2) fire exits, and that respondents failed to present any report or finding by a competent authority that the said Clinic was
not a safe and secure place for the conduct of St. Luke's clerkship program. The RTC did not take into consideration the NBI
Report as it was allegedly not presented.12chanrobleslaw

The RTC further held that the Clinic is owned by the Municipality of Cabiao, and that the latter and/or its responsible officials
should have been impleaded as indispensable parties.13chanrobleslaw
The RTC summarized its findings in this manner:14
Albeit the Court is saddened by what happened with the untimely death of Perez and Quintos who are both very bright with
promising future in the field of medicine, it cannot however close its eyes on the evidence submitted before it by placing the
blame on the cause of their death[s] to the defendants just to put the fault on anybody in order to appease their grieving
love[d] ones. For in the mind of the Court, the omission of the defendants to secure a copy of the fire safety license of the Clinic
or verify if it has one prior to its construction before allowing their senior medical students to occupy and reside therein is not
per se a negligent act. Neither is the failure of the defendants to orient their senior medical students, who obviously are of legal
ages already such as the deceased, on how to take the necessary measures for their safety and security before retiring to sleep
in the night considered negligent. Likewise, the failure of the dialogue between the parties is not a legitimate ground to declare
the defendants negligent. Put differently, the Court is not persuaded that there is basis or justification to adjudge the
defendants negligent for the accidental death of Perez and Quintos.
Upon appeal, the CA reversed the RTC Decision and remanded the case to the RTC for reception of evidence on the amount of
damages to be awarded.15 Addressing the .preliminary issues, the CA held that the Municipality of Cabiao was not an
indispensable party as the Complaint was one for damages based on the allegations in the enrollment contract. It explained
that:16
While there was indeed an allegation of St. Luke's ownership of the clinic, bulk of the arguments in the complaint were based
on St. Luke's duty to ensure its students' safety based on its obligation as a school. Not being contractually obligated to keep
plaintiffs-appellants' children safe from any risk as a result of school-sanctioned activities, the Municipality of Cabiao cannot
be considered an indispensable party to the action as it was not a participant in the contract of enrollment.
Moreover, the CA held that although schools cannot be insurers of its students against all risks, in the case at bar, the safety of
the victims was within the reach of petitioners and the hazard of a fire was not unforeseeable. 17 Also, while the fire was
beyond the control of petitioners, their decision to house their students in a place where there are no means of escape in case
of such an emergency shows a blatant disregard for the students' welfare. 18chanrobleslaw

The CA elucidated as follows:19

The testimonies of Dr. Ortigas, Dr. Carandang and Dr. Macabulos all show a lack of effort on their part to thoroughly inspect the
conditions of the building in relation to the safety of their enrolled medical student-clerks.

According to Dr. Ortigas and Dr. Macabulos,20 they considered the doors leading out from the pantry and the bedrooms as fire
exits. However, as doctors who presumably have a wider degree of foresight than most, they failed to consider that a fire might
break out in areas which would block these doors that are merely ordinary exits. Further, Dr. Ortigas himself testified that
permits are not part of their consideration for safety and that they do not specifically look for the same [xxx.]

xxxx

Dr. Ortigas admitted that, as a doctor, he was not concerned with the permits issued regarding the construction and safety of
the building. However, at the time he conducted the inspections of the clinic, he was also the Associate Dean of St. Luke's
College of Medicine with the duty to ensure that the building was safe for the security of the enrolled students of St. Luke's
College of Medicine who would be assigned to the clinic during their clerkship and he admittedly did not consider the same.

As Associate Dean for Student Affairs, it would be reasonable to expect Dr. Ortigas to show concern for the safety and
security of the students enrolled in the institution thus, ensure that the premises they were to reside in would be properly
equipped in case of fires and other calamities. He himself stated that his position as such put him "in charge of student and
student affairs, xxx and in general, the non-academic matters involving students and the faculty." Consequently, it is safe to
conclude that his task included the safety and welfare of the students enrolled at St. Luke's College of Medicine, one which he
miserably failed to discharge.

Defendants-appellees also made a big deal out of the procedure of asking feedback from students which led to the assumption
that the clinic was safe and habitable. However, it must be remembered that the students that gave the feedback were more
concerned with passing their course and presumably trusted that the school would not send them to a location which it has
independently determined to be unsafe.

xxxx

In relation, defendants-appellees defend their judgment to send plaintiffs-appellants' daughters to the community clinic by
contending that there has been no untoward incident since the program began in 2004. xxx.

xxxx

The same argument also runs contrary to defendants-appellees' acceptance of the construction of iron grills on the second
floor windows of the clinic. According to Dr. Ortigas, the same were constructed in order to prevent people from using the
same to enter the building and not designed to prevent egress therefrom. Dr. Ortigas was specificallly questioned if there were
prior incidents of intrusion into the clinic to which he replied in the negative. If defendants-appellees' logic of "no untoward
incident has happened" is to be applied then, the presence of the grills was unnecessary in the same way that they found the
inspection of fire safety permits to be unnecessary. It baffles the Court, therefore, that defendants-appellees would accept the
precaution against an admittedly unlikely intrusion but ignore any safety measures against a fire which was a great possibility
given that the clinic had flammable equipment such as a gas burner for cooking. (Citations omitted)
Hence, the present petition for review on certiorari alleging that the CA committed reversible error when it: (a) held that the
Municipality of Cabiao was not an indispensable party,21 (b) disregarded the findings of the BFP that the fire was purely
accidental and caused by unattended cooking,22 and (c) ruled that petitioners were negligent.23chanrobleslaw

We deny the petition.

A perusal of the Complaint readily shows that respondents base their cause of action on petitioners' breach of the contractual
obligation, as an educational institution, of ensuring that their students, in the performance of a required school activity, would
be safe and secure. The Municipality of Cabiao, not being a party to said enrollment contract, is not an indispensable party to
the case.

An indispensable party is defined by the Rules of Court as a party-in-interest without whom no final determination can be had
of an action.24 In the present case, respondents premise petitioners' liability on their contractual obligation to their students
and, certainly, complete relief and a final judgment can be arrived at by weighing the claims and defenses of petitioners and
respondents, without need of evaluating the claims and defenses of the Municipality of Cabiao. If at all, the Municipality of
Cabiao is a necessary party25cralawred whose non-inclusion in the case at bar shall not prevent the court from proceeding
with the action.

Indeed, the present case is one between a school and its students, with their relationship being based on the enrollment
contracts. In the illuminating case of PSBA, et al. v. CA, et al.,26 the Court had the opportunity to lay down the principle
that:ChanRoblesVirtualawlibrary
When an academic institution accepts students for enrollment, there is established a contract between them, resulting in
bilateral obligations which both parties are bound to comply with. For its part, the school undertakes to provide the student
with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education
or a profession. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules
and regulations.

Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that
promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the
intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or
grenades exploding in the air or where there looms around the school premises a constant threat to life and limb. Necessarily,
the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent
the breakdown thereof.

Indubitably, institutions of learning have the "built-in" obligation of providing a conducive atmosphere for learning, an
atmosphere where there are no constant threats to life and limb, and one where peace and order are maintained.

In the case at bar, the Cabiao Community Clinic is to be considered as part of the campus premises of St. Luke's. In the course
description of the clerkship program in preventive and community medicine, it is stated that the Cabiao Community Clinic
serves as the base operation of the clerkship program.27 As such, petitioner had the same obligation to their students, even
though they were stationed in the Cabiao Community Clinic, and it was incumbent upon petitioners to ensure that said Clinic
was conducive for learning, that it had no constant threats to life and limb, and that peace and order was maintained thereat.
After all, although away from the main campus of St. Luke's, the students were still under the same protective and supervisory
custody of petitioners as the ones detailed in the main campus.

In the performance of its contractual and inherent obligations, the Court is mindful of the attendant difficulties on the part of
institutions of learning, and the Court recognizes that the latter cannot be an insurer of its students against all risks. Thus, as
also laid out in the PSBA case, "the school may still avoid liability by proving that the breach of its contractual obligation to the
students abusive behavior, a complainant, like Consing, Jr., has the right to seek refuge from the courts. It also noted that the
elements of libel in a criminal case are not the same as those for a civil action founded on the provisions of the Civil Code, and
therefore, necessitates a different treatment. It equally refused to dismiss the action on the ground of non-payment of docket
fees, despite Consing, Jr.’s escalated claims for damages therein, as jurisdiction was already vested in it upon the filing of the
original complaint. Moreover, it resolved to apply the liberal construction rule as regards the subject complaint’s verification
and certification, despite its improper wording, considering further that such defect was not raised at the first opportunity.
Consequently, it ordered Unicapital and PBI, et al. to file their Answer and, in addition, to submit" any Comment or Reaction
within five (5) days from receipt hereof on the allegations of Consing, Jr. in his rejoinder of September 9, 1999regarding the
supposed filing of an identical case in Makati City," 37 i.e., Civil Case No. 99-1418. Unperturbed, Unicapital and PBI, et al. moved
for reconsideration therefrom which was, however, denied by the RTC-Pasig City in an Order38 dated February 15, 2001 for
lack of merit. Aggrieved, they elevated the denial of their motions to dismiss before the CA via a petition for certiorari and
prohibition,39 docketed as CA-G.R. SP Nos. 64019 and 64451.

On October 20, 2005, the CA rendered a Joint Decision40 holding that no grave abuse of discretion was committed by the RTC-
Pasig City in refusing to dismiss Consing, Jr.'s complaint.1âwphi1 At the outset, it ruled that while the payment of the
prescribed docket fee is a jurisdictional requirement, its non-payment will not automatically cause the dismissal of the case. In
this regard, it considered that should there be any deficiency in the payment of such fees, the same shall constitute a lien on
the judgment award.41 It also refused to dismiss the complaint for lack of proper verification upon a finding that the copy of
the amended complaint submitted to the RTC-Pasig City was properly notarized.42 Moreover, it upheld the order of the RTC-
Pasig City for Unicapital and PBI, et al. to submit their comment due to the alleged existence of a similar case filed before the
RTC-Makati City.43

Anent the substantive issues of the case, the CA concurred with the RTC-Pasig City that Consing Jr.'s complaint states a cause of
action. It found that Unicapital and PBI, et al.’s purportedly abusive manner in enforcing their claims against Consing, Jr. was
properly constitutive of a cause of action as the same, if sufficiently proven, would have subjected him to "defamation of his
name in business circles, the threats and coercion against him to reimburse the purchase price, fraud and falsification and
breach of fiduciary obligation." It also found that the fact that Consing Jr.'s complaint contains "nebulous" allegations will not
warrant its dismissal as any vagueness therein can be clarified through a motion for a bill of particulars." 44 Furthermore, it
noted that Consing, Jr. does not seek to recover his claims against any particular provision of the corporation code or the
securities act but against the actions of Unicapital and PBI, et al.; hence, Consing, Jr.’s complaint was principally one for
damages over which the RTC has jurisdiction, and, in turn, there lies no misjoinder of causes of action. 45

was not due to its negligence, here statutorily defined to be the 'omission of that degree of diligence which is required by the
nature of the obligation and corresponding to the circumstances of persons, time and place."28chanrobleslaw

Our next query, then, is, in relation to the fire incident, did petitioners commit a breach of contract through negligence?

A review of the records compels the Court to answer in the affirmative.

In Mendoza, et al. v. Sps. Gomez,29 we defined negligence as "the failure to observe for the protection of the interests of another
person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person
suffers injury."

In Gaid v. People,30 we enumerated the elements of simple negligence as follows: (1) that there is lack of precaution on the part
of the offender, and (2) that the damage impending to be caused is not immediate or the danger is not clearly manifest. We
explained that:ChanRoblesVirtualawlibrary
The standard test in determining whether a person is negligent in doing an act whereby injury or damage results to the person
or property of another is this: could a prudent man, in the position of the person to whom negligence is attributed, foresee
harm to the person injured as a reasonable consequence of the course actually pursued? If so, the law imposes a duty on the
actor to refrain from that course or to take precautions to guard against its mischievous results, and the failure to do so
constitutes negligence. Reasonable foresight of harm, followed by the ignoring of the admonition born of this provision, is
always necessary before negligence can be held to exist. 31chanroblesvirtuallawlibrary
In the case at bar, it is well to remember that the victims were in the Cabiao Community Clinic because it was a requirement of
petitioners. The students were complying with an obligation under the enrollment contract — they were rendering medical
services in a community center as required by petitioners. It was thus incumbent upon petitioners to comply with their own
obligations under the enrollment contract - to ensure that the community center where they would designate their students is
safe and secure, among others.

Petitioners failed to take the necessary precautions to guard their students against foreseeable harm. As correctly found by the
CA, petitioners were remiss in inspecting the premises of the Cabiao Community Clinic and in ensuring that the necessary
permits were in order. These precautions could have minimized the risk to the safety of the victims. Indeed, the CA had basis
in making the following pronouncement:32
In the instant case, as previously emphasized, defendants-appellees were aware that its medical students were residing at the
second floor of the clinic. At the very least, during inspection, they should have thoroughly inspected the building's physical
appearance and the documents pertinent to the premises to make sure that the same minimized the risk to the safety of the
students. There is no record that any inquiry on the condition of the premises was even made by defendants-appellees prior to
the implementation of the program. In addition to such failure, defendants-appellees would have this Court believe that their
participation in the clinic was limited to providing the same with medical personnel without considering that such personnel
also included its students which St. Luke's was obliged to protect from unnecessary danger.
The petitioners were obviously negligent in detailing their students to a virtual fire trap. As found by the NBI, the Clinic was
unsafe and was constructed in violation of numerous provisions of the Revised Fire Code of the Philippines. It had no emergency
facilities, no fire exits, and had no permits or clearances from the appropriate government offices.

Petitioners additionally aver that the Clinic was built under the direction, supervision, management and control of the
Municipality of Cabiao,33 and that it ensured that there was an agreement for the Municipality of Cabiao to provide 24-hour
security to the Clinic.34chanrobleslaw

Petitioners, however, cannot escape liability based on these arguments. As held in Saludaga v. FEU, et al.,35 a learning
institution should not be allowed to completely relinquish or abdicate matters of safety and security to a third party as to do so
would result to contracting away its inherent obligation of ensuring a safe learning environment for its students.

In Saludaga, the Court chastised therein respondent Far Eastern University (FEU) for its total reliance on a security agency as
to the qualifications of its security guards, viz:36
Respondents also failed to show that they undertook steps to ascertain and confirm that the security guards assigned to them
actually possess the qualifications required in the Security Service Agreement. It was not proven that they examined the
clearances, psychiatric test results, 201 files, and other vital documents enumerated in its contract with Galaxy. Total reliance
on the security agency about these matters or failure to check the papers stating the qualifications of the guards is negligence
on the part of respondents. A learning institution should not be allowed to completely relinquish or abdicate security matters
in its premises to the security agency it hired. To do so would result to contracting away its inherent obligation to ensure a
safe learning environment for its students.
Similarly, we cannot turn; a blind eye on petitioners' total reliance on the Municipality of Cabiao in ensuring the safety and
security of their students. The enrollment contract is between petitioners and the victims, and petitioners cannot abdicate' on
their contractual obligation to provide their students a safe learning environment, nor can it pass or contract away such
obligation to a third party.

Moreover, as to the stipulation of 24-hour security in the Clinic, petitioners failed to present evidence that this stipulation was
actually enforced or that they took measures to ensure that it was enforced. This, once more, shows petitioners' propensity of
relying on third parties in carrying out its obligations to its students.

It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure, of its compliance
justify, prima facie, a corresponding right of relief.37 In Gilat Satellite Networks, Ltd. v. UCPB General Insurance Co., Inc.,38 the
Court expounded:ChanRoblesVirtualawlibrary
xxx. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers
upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve
the interests of the promissee that may include his "expectation interest," which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the contract been performed, or his "reliance interest,"
which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he
would have been in had the contract not been made; or his "restitution interest," which is his interest in having restored to him
any benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either for their makers or for
society, unless they are made the basis for action. The effect of every infraction is to create a new duty, that is, to make
RECOMPENSE to the one who has been injured by the failure of another to observe his contractual obligation unless he can
show extenuating circumstances, like proof of his exercise of due diligence x x x or of the attendance of fortuitous event, to
excuse him from his ensuing liability. xxx. (Emphasis omitted)
In the case at bar, it was amply shown that petitioners and the victims were bound by the enrollment contracts, and that
petitioners were negligent in complying with their obligation under the said contracts to ensure the safety and security of their
students. For this contractual breach, petitioners should be held liable.

WHEREFORE, in view of the foregoing, the Court resolves to DENY the petition for review on certiorari and AFFIRM the Court
of Appeals' Decision and Resolution.

SO ORDERED.chanRoblesvirtualLawlibrary

Velasco, Jr. (Chairperson), Peralta, and Jardeleza, JJ., concur.

Reyes, J., on leave.
 Third DIVISION

January 11, 2017

G.R. No. 193340

THE MUNICIPALITY OF TANGKAL, PROVINCE OF LANAO DEL NORTE, Petitioner,

vs.
HON. RASAD B. BALINDONG, in his capacity as Presiding Judge, Shari’a District Court, 4th Judicial District,
Marawi City, and HEIRS OF THE LATE MACALABO ALOMPO, represented by SULTAN DIMNANG B. ALOMPO,
Respondents.

DECISION

JARDELEZA, J.:

The Code of Muslim Personal Laws of the Philippines 1 (Code of Muslim Personal Laws) vests concurrent jurisdiction upon
Shari'a district courts over personal and real actions wherein the parties involved are Muslims, except those for forcible
entry and unlawful detainer. The question presented is whether the Shari'a District Court of Marawi City has jurisdiction in
an action for recovery of possession filed by Muslim individuals against a municipality whose mayor is a Muslim. The
respondent judge held that it has. We reverse.

The private respondents, heirs of the late Macalabo Alompo, filed a Complaint 2 with the Shari'a District Court of Marawi
City (Shari'a District Court) against the petitioner, Municipality of Tangkal, for recovery of possession and ownership of a
parcel of land with an area of approximately 25 hectares located at Barangay Banisilon, Tangkal, Lanao del Norte. They
alleged that Macalabo was the owner of the land, and that in 1962, he entered into an agreement with the Municipality of
Tangkal allowing the latter to "borrow" the land to pave the way for the construction of the municipal hall and a health
center building. The agreement allegedly imposed a condition upon the Municipality of Tangkal to pay the value of the
land within 35 years, or until 1997; otherwise, ownership of the land would revert to Macalabo. Private respondents
claimed that the Municipality of Tangkal neither paid the value of the land within the agreed period nor returned the land to
its owner. Thus, they prayed that the land be returned to them as successors-in-interest of Macalabo.

The Municipality of Tangkal filed an Urgent Motion to Dismiss 3 on the ground of improper venue and lack of jurisdiction. It
argued that since it has no religious affiliation and represents no cultural or ethnic tribe, it cannot be considered as a
Muslim under the Code of Muslim Personal Laws. Moreover, since the complaint for recovery of land is a real action, it
should have been filed in the appropriate Regional Trial Court of Lanao del Norte.

In its Order4 dated March 9, 2010, the Shari'a Distric.t Court denied the Municipality of Tangkal's motion to dismiss. It held
that since the mayor of Tangkal, Abdulazis A.M. Batingolo, is a Muslim, the case "is an action involving Muslims, hence,
the court has original jurisdiction concurrently with that of regular/civil courts." It added that venue was properly laid
because the Shari' a District Court has territorial jurisdiction over the provinces of Lanao del Sur and Lanao del Norte, in
addition to the cities of Marawi and Iligan. Moreover, the filing of a motion to dismiss is a disallowed pleading under the
Special Rules of Procedure in Shari'a Courts.5
The Municipality of Tangkal moved for reconsideration, which was denied by the Shari' a District Court. The Shari' a
District Court also ordered the Municipality of Tangkal to file its answer within 10 days. 6 The Municipality of Tangkal timely
filed its answer7 and raised as an affirmative defense the court's lack of jurisdiction.

Within the 60-day reglementary period, the Municipality of Tangkal elevated the case to us via petition
for certiorari, prohibition, and mandamus with prayer for a temporary restraining order8 (TRO). It reiterated its arguments
in its earlier motion to dismiss and answer that the Shari' a District Court has no jurisdiction since one party is a
municipality which has no religious affiliation.

In their Comment,9 private respondents argue that under the Special Rules of Procedure in Shari'a Courts, a petition
for certiorari, mandamus, or prohibition against any interlocutory order issued by the district court is a prohibited pleading.
Likewise, the Municpality of Tangkal' s motion to dismiss is disallowed by the rules. They also echo the reasoning of the
Shari' a District Court that since both the plaintiffs below and the mayor of defendant municipality are Muslims, the Shari' a
District Court has jurisdiction over the case.

In the meantime, we issued a TRO10 against the Shari'a District Court and its presiding judge, Rasad Balindong, from
holding any further proceedings in the case below.

II

In its petition, the Municipality of Tangkal acknowledges that generally, neither certiorari nor prohibition is an available
remedy to assail a court's interlocutory order denying a motion to dismiss. But it cites one of the exceptions to the
rule, i.e., when the denial is without or in excess of jurisdiction to justify its remedial action. 11 In rebuttal, private
respondents rely on the Special Rules of Procedure in Shari' a Courts which expressly identifies a motion to dismiss and a
petition for certiorari, mandamus, or prohibition against any interlocutory order issued by the court as prohibited
pleadings.12

Although the Special Rules of Procedure in Shari' a Courts prohibits the filing of a motion to dismiss, this procedural rule
may be relaxed when the ground relied on is lack of jurisdiction which is patent on the face of the complaint. As we held
in Rulona-Al Awadhi v. Astih:13

Instead of invoking a procedural technicality, the respondent court should have recognized its lack of jurisdiction over the
parties and promptly dismissed the action, for, without jurisdiction, all its proceedings would be, as they were, a futile and
invalid exercise. A summary rule prohibiting the filing of a motion to dismiss should not be a bar to the dismissal of the
action for lack of jurisdiction when the jurisdictional infirmity is patent on the face of the complaint itself, in view of the
fundamental procedural doctrine that the jurisdiction of a court may be challenged at anytime and at any stage of the
action. 14

Indeed, when it is apparent from the pleadings that the court has no jurisdiction over the subject matter, it is duty-bound to
dismiss the case regardless of whether the defendant filed a motion to dismiss. 15 Thus, in Villagracia v. Fifth Shari'a
District Court, 16 we held that once it became apparent that the Shari'a court has no jurisdiction over the subject matter
because the defendant is not a Muslim, the court should have motu proprio dismissed the case.17

An order denying a motion to dismiss is an interlocutory order which neither terminates nor finally disposes of a case as it
leaves something to be done by the court before the case is finally decided on the merits. Thus, as a general rule, the
denial of a motion to dismiss cannot be questioned in a special civil action for certiorari which is a remedy designed to
correct errors of jurisdiction and not errors of judgment. 18 As exceptions, however, the defendant may avail of a petition
for certiorari if the ground raised in the motion to dismiss is lack of jurisdiction over the person of the defendant or over the
subject matter, 19 or when the denial of the motion to dismiss is tainted with grave abuse of discretion. 20

The reason why lack of jurisdiction as a ground for dismissal is treated differently from others is because of the basic
principle that jurisdiction is conferred by law, and lack of it affects the very authority of the court to take cognizance of and
to render judgment on the action21-to the extent that all proceedings before a court without jurisdiction are void. 22 We
grant certiorari on this basis. As will be shown below, the Shari'a District Court's lack of jurisdiction over the subject matter
is patent on the face of the complaint, and therefore, should have been dismissed outright.
 III

The matters over which Shari'a district courts have Jurisdiction are enumerated in the Code of Muslim Personal Laws,
specifically in Article 143.23 Consistent with the purpose of the law to provide for an effective administration and
enforcement of Muslim personal laws among Muslims,24 it has a catchall provision granting Shari' a district courts original
jurisdiction over personal and real actions except those for forcible entry and unlawful detainer. 25The Shari'a district
courts' jurisdiction over these matters is concurrent with regular civil courts, i.e., municipal trial courts and regional trial
courts.26 There is, however, a limit to the general jurisdic;tion of Shari'a district courts over matters ordinarily cognizable by
regular courts: such jurisdiction may only be invoked if both parties are Muslims. If one party is not a Muslim, the action
must be filed before the regular courts. 27

The complaint below, which is a real action28 involving title to and possession of the land situated at Barangay Banisilon,
Tangkal, was filed by private respondents before the Shari' a District Court pursuant to the general jurisdiction conferred
by Article 143(2)(b). In determining whether the Shari' a District Court has jurisdiction over the case, the threshold
question is whether both parties are Muslims. There is no disagreement that private respondents, as plaintiffs below, are
Muslims. The only dispute is whether the requirement is satisfied because the mayor of the defendant municipality is also
a Muslim.1âwphi1

When Article 143(2)(b) qualifies the conferment of jurisdiction to actions "wherein the parties involved are Muslims," the
word "parties" necessarily refers to the real parties in interest. Section 2 of Rule 3 of the Rules of Court defines real
parties in interest as those who stand to be benefited or injured by the judgment in the suit, or are entitled to the avails of
the suit. In this case, the parties who will be directly benefited or injured are the private respondents, as real party
plaintiffs, and the Municipality of Tangkal, as the real party defendant. In their complaint, private respondents claim that
their predecessor-in-interest, Macalabo, entered into an agreement with the Municipality of Tangkal for the use of the
land. Their cause of action is based on the Municipality of Tangkal's alleged failure and refusal to return the land or pay for
its reasonable value in accordance with the agreement. Accordingly, they pray for the return of the land or the payment of
reasonable rentals thereon. Thus, a judgment in favor of private respondents, either allowing them to recover possession
or entitling them to rentals, would undoubtedly be beneficial to them; correlatively, it would be prejudicial to the
Municipality of Tangkal which would either be deprived possession of the land on which its municipal hall currently stands
or be required to allocate funds for payment of rent. Conversely, a judgment in favor of the Municipality of Tangkal would
effectively quiet its title over the land and defeat the claims of private respondents.

It is clear from the title and the averments in the complaint that Mayor Batingolo was impleaded only in a representative
capacity, as chief executive of the local government of Tangkal. When an action is defended by a representative, that
representative is not-and neither does he become-a real party in interest. The person represented is deemed the real
party in interest;29 the representative remains to be a third party to the action.30 That Mayor Batingolo is a Muslim is
therefore irrelevant for purposes of complying with the jurisdictional requirement under Article 143(2)(b) that both parties
be Muslims. To satisfy the requirement, it is the real party defendant, the Municipality of Tangkal, who must be a Muslim.
Such a proposition, however, is a legal impossibility.

The Code of Muslim Personal Laws defines a "Muslim" as "a person who testifies to the oneness of God and the
Prophethood of Muhammad and professes Islam."31 Although the definition does not explicitly distinguish between natural
and juridical persons, it nonetheless connotes the exercise of religion, which is a fundamental personal right. 32 The ability
to testify to the "oneness of God and the Prophethood of Muhammad" and to profess Islam is, by its nature, restricted to
natural persons. In contrast, juridical persons are artificial beings with "no consciences, no beliefs, no feelings, no
thoughts, no desires."33 They are considered persons only by virtue of legal fiction. The Municipality of Tangkal falls under
this category. Under the Local Government Code, a municipality is a body politic and corporate that exercises powers as
a political subdivision of the national government and as a corporate entity representing the inhabitants of its territory. 34

Furthermore, as a government instrumentality, the Municipality of Tangkal can only act for secular purposes and in ways
that have primarily secular effects35-consistent with the non-establishment clause. 36 Hence, even if it is assumed that
juridical persons are capable of practicing religion, the Municipality of Tangkal is constitutionally proscribed from adopting,
much less exercising, any religion, including Islam.

The Shari' a District Court appears to have understood the foregoing principles, as it conceded that the Municipality of
Tangkal "is neither a Muslim nor a Christian."37 Yet it still proceeded to attribute the religious affiliation of the mayor to the
municipality. This is manifest error on the part of the Shari' a District Court. It is an elementary principle that a municipality
has a personality that is separate and distinct from its mayor, vice-mayor, sanggunian, and other officers composing
it.38 And under no circumstances can this corporate veil be pierced on purely religious considerations-as the Shari' a
District Court has done-without running afoul the inviolability of the separation of Church and State enshrined in the
Constitution. 39
In view of the foregoing, the Shari' a District Court had no jurisdiction under the law to decide private respondents'
complaint because not all of the parties involved in the action are Muslims. Since it was clear from the complaint that the
real party defendant was the Municipality of Tangkal, the Shari'a District Court should have simply applied the basic
doctrine of separate juridical personality and motu proprio dismissed the case.

WHEREFORE, the petition is GRANTED. The assailed orders of the Shari'a District Court of Marawi City in Civil Case No.
201-09 are REVERSED and SET ASIDE. Accordingly, Civil Case No. 201-09 is DISMISSED.

SO ORDERED.

FRANCIS H. JARDELEZA
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

LUCAS P. BERSAMIN BIENVENIDO L. REYES

Associate Justice Associate Justice

ALFREDO BENJAMIN S. CAGUIOA*

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

MARIA LOURDES P.A. SERENO

Chief Justice
 FIRST DIVISION

G.R. No. 167979 March 15, 2006

WILSON S. UY, as Judicial Administrator of the Intestate Estate of the Deceased JOSE K. C. UY, Petitioner,
vs.
THE HON. COURT OF APPEALS, HON. ANASTACIO C. RUFON, As Presiding Judge of Branch 52, of the Regional
Trial Court, Sixth Judicial Region, sitting at Bacolod City, and JOHNNY K. H. UY, Respondents.

DECISION

YNARES-SANTIAGO, J.:

Petitioner assails the August 20, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 72678,1 affirming the January
22, 2002 Order of the Regional Trial Court, Branch 52 of Bacolod City in Special Proceedings No. 97-241,2 as well as the
April 29, 2005 Resolution denying the motion for reconsideration. 3

The facts of the case show that Jose K.C. Uy (Deceased) died intestate on August 20, 1996 and is survived by his
spouse, Sy Iok Ing Uy, and his five children, namely, Lilian S. Uy, Lilly S. Uy, Livian S. Uy-Garcia , Lilen S. Uy and Wilson
S. Uy (Petitioner).

On February 18, 1997, Special Proceedings No. 97-241 was instituted and Lilia Hofileña was appointed as special
administrator of the estate of the deceased. Petitioner moved to reconsider the order appointing Lilia Hofileña as special
administrator with prayer that letters of administration be issued to him instead. 4

On June 9, 1998, Judge Ramon B. Posadas revoked Lilia Hofileña’s appointment as special administrator and denied her
petition to be appointed as regular administrator. Meanwhile, letters of administration were granted to petitioner, who took
his oath of office as administrator on June 23, 1998.

On February 17, 1999, Johnny K. H. Uy (Private Respondent) filed a motion to intervene, praying that he be appointed as
administrator of the estate in lieu of petitioner. He alleged that he is the brother and a creditor of the deceased, and has
knowledge of the properties that should be included in the estate.

The trial court initially denied private respondent’s motion to intervene, 5 but on March 16, 2000,6 it reconsidered its earlier
order and appointed private respondent as co-administrator of the estate. Petitioner’s motion for reconsideration was
denied.

Petitioner then moved that private respondent bring into the estate properties belonging to the deceased, which motion
was granted by the trial court. Not satisfied with the compliance of private respondent, petitioner reiterated his motion for
removal of the former as co-administrator, but the same was denied.

The trial court found that private respondent substantially complied with the order directing him to bring into the estate
properties owned by or registered in the name of the deceased not subject of any adverse claim or controversy when he
listed the alleged properties suspected to be concealed, embezzled or conveyed away by the persons named therein.
Thus, it found no cogent reason to remove private respondent as co-administrator.7
Thereafter, petitioner appealed to the Court of Appeals by way of a petition for certiorari which however, dismissed the
petition.

The Court of Appeals held that the refusal of the trial court to remove private respondent as co-administrator of the estate
is neither an error of jurisdiction nor a grave abuse of discretion; that the appointment of private respondent was justified;
that the order of preference under Section 6 of Rule 78 of the Rules of Court does not rule out the appointment of co-
administrators; that the institution of a case for annulment of title and reconveyance against respondent does not justify
private respondent’s removal as co-administrator.

Petitioner’s motion for reconsideration was denied, hence, this petition on the following grounds:

WHETHER OR NOT THE COURT OF APPEALS AND THE RESPONDENT REGIONAL TRIAL COURT HAVE ACTED
WITHOUT JURISDICTION OR IN GRAVE ABUSE OF THEIR DISCRETION TANTAMOUNT TO LACK OF
JURISDICTION (sic), IN VIOLATION [OF] THE ESTABLISHED AND ACCEPTED RULE OF LAW AND IN COMPLETE
DISREGARD OF SUBSTANTIAL JUSTICE AND EQUITY IN APPOINTING A CO-ADMINISTRATOR OF AN ESTATE (IN
THE PROCESS OF SETTLEMENT) WHERE THERE IS AN INCUMBENT ADMINISTRATOR WHOSE APPOINTMENT
IS FIRM, FINAL, IMPLEMENTED AND INAPPEALABLE, AND WHICH (sic) APPOINTMENT HAS NOT BEEN
CANCELLED, RECALLED, REVOKED OR RESCINDED BY APPOINTING, AT THAT, A PERSON

(a)

ALIEN TO THE ESTATE OF THE DECEASED, WITH VARIOUS SERIOUS INTERESTS (ACTUAL JUDICIAL
CONTROVERSIES) IN CONFLICT WITH THOSE OF THE ESTATE, AND

(B)

WITH NO PROPER INTEREST IN THE ESTATE AND WHO IS PERSONALLY UNFIT, UNSUITABLE, UNWORTHY,
UNDESERVING OF THE TRUST INHERENT IN THE POSITION OF CO-ADMINISTRATOR OF THE ESTATE, AND
UNACCEPTABLE AND REPULSIVE TO THE FAMILY OF THE LEGAL HEIRS OF THE DECEASED; AND THEN
REFUSING TO REMOVE HIM AS CO-ADMINISTRATOR AFTER IT WAS SHOWN THAT HIS REPRESENTATIONS ON
WHICH HE WAS APPOINTED CO-ADMINISTRATOR WERE EMPTY AND FALSE; AND

WHETHER OR NOT THE RESPONDENT COURT OF APPEALS DENIED PETITIONER HIS CONSTITUTIONAL
RIGHTS TO DUE PROCESS OF LAW AND HIS RIGHT TO PETITION THE GOVERNMENT FOR REDRESS OF
GRIEVANCES BY NOT ADDRESSING AND RESOLVING THE ISSUES BROUGHT TO IT BY THE PETITIONER,
MORE ESPECIFICALLY THE ISSUES OF

(1)

RES JUDICATA AND STABILITY OF THE JUDGMENT APPOINTING THE PETITIONER HEREIN AS
JUDICIAL ADMINISTRATOR OF THE ESTATE IN QUESTION, AND

(2)

DECIDING THE ISSUES INVOLVED IN A MANNER CONTRARY TO THE RULES SET DOWN BY THE
SUPREME COURT ON THE MATTER.8

The main issues for resolution are: (1) whether the trial court acted with grave abuse of discretion in appointing private
respondent as co-administrator to the estate of the deceased; and (2) whether the Court of Appeals deprived petitioner of
his constitutional right to due process and his right to petition the government for redress of grievances by not addressing
the issues raised before it.

The petition is without merit.

Petitioner asserts that his appointment as a regular administrator is already final, unassailable or res judicata; that the
inferior court has no authority to re-open the issue of the appointment of an administrator without removing the incumbent
administrator; that private respondent is not only alien to the estate, but has a conflict of interest with it; that the trial
court’s appointment of private respondent as co-administrator constitutes grave abuse of discretion tantamount to lack of
jurisdiction.
There is no question that petitioner was appointed as regular administrator of the estate of the deceased Jose K. C. Uy on
June 9, 1998. However, private respondent in his motion to intervene sought to be appointed as administrator as he is not
only the brother of the decedent but also a creditor who knows the extent of the latter’s properties. Thus, the trial court,
while retaining petitioner as administrator, appointed private respondent as co-administrator of the estate.

The main function of a probate court is to settle and liquidate the estates of deceased persons either summarily or through
the process of administration.9 In the case at bar, the trial court granted letters of administration to petitioner and
thereafter to private respondent as co-administrator. Under Section 6, Rule 78 of the Rules of Court, the preference to
whom letters of administration may be granted are as follows:

SEC. 6. When and to whom letters of administration granted. – If no executor is named in the will, or the executor or
executors are incompetent, refuse the trust, or fail to give bond, or a person dies intestate, administration shall be granted:

(a) To the surviving husband or wife, as the case may be, or next of kin, or both, in the discretion of the court, or
to such person as such surviving husband or wife, or next of kin, requests to have appointed, if competent and
willing to serve;

(b) If such surviving husband or wife, as the case may be, or next of kin, or the person selected by them, be
incompetent or unwilling, or if the husband or widow, or next of kin, neglects for thirty (30) days after the death of
the person to apply for administration or to request that administration be granted to some other person, it may be
granted to one or more of the principal creditors, if competent and willing to serve;

(c) If there is no such creditor competent and willing to serve, it may be granted to such other person as the court
may select.

The order of preference in the appointment of an administrator depends on the attendant facts and
circumstances.10 In Sioca v. Garcia,11 this Court set aside the order of preference, to wit:

It is well settled that a probate court cannot arbitrarily and without sufficient reason disregard the preferential rights of the
surviving spouse to the administration of the estate of the deceased spouse. But, if the person enjoying such
preferential rights is unsuitable, the court may appoint another person. The determination of a person’s suitability for
the office of administrator rests, to a great extent, in the sound judgment of the court exercising the power of appointment
and such judgment will not be interfered with on appeal unless it appears affirmatively that the court below was in error.

x x x Unsuitableness may consist in adverse interest of some kind or hostility to those immediately interested in
the estate. x x x.12 (Emphasis supplied, citations omitted)

In the instant case, the order of preference was not disregarded by the trial court. Instead of removing petitioner, it
appointed private respondent, a creditor, as co-administrator since the estate was sizeable and petitioner was having a
difficult time attending to it alone. In fact, petitioner did not submit any report regarding the estate under his administration.
In its March 16, 2000 Order,13 the trial court found thus:

Going over all the arguments of the parties, after hearing has been set relative thereto, this Court has observed that
indeed the judicial administrator had not submitted to the Court any report about the Estate under his administration
except those involving the cases he filed and/or intervened in other branches. This may be due to his being
inexperienced, but this fact will not be reason enough to remove him from the administration of the Estate as Judicial
Administrator thereof. However, considering that the Intervenor is claiming to be the patriarch of the Uy family and who
claims to have enormous knowledge of the businesses and properties of the decedent Jose K.C. Uy, it is the feeling of
this Court that it will be very beneficial to the Estate if he be appointed co-administrator (without removing the already
appointed Judicial Administrator) of the Estate of Jose K.C. Uy, if only to shed more light to the alleged enormous
properties/businesses and to bring them all to the decedent’s Estate pending before this Court. 14

A co-administrator performs all the functions and duties and exercises all the powers of a regular administrator, only that
he is not alone in the administration.15 The practice of appointing co-administrators in estate proceedings is not prohibited.
In Gabriel v. Court of Appeals,16 this Court reaffirmed that jurisprudence allows the appointment of co-administrators
under certain circumstances, to wit:

Under both Philippine and American jurisprudence, the appointment of co-administrators has been upheld for various
reasons, viz: (1) to have the benefit of their judgment and perhaps at all times to have different interests represented; (2)
where justice and equity demand that opposing parties or factions be represented in the management of the estate of the
deceased; (3) where the estate is large or, from any cause, an intricate and perplexing one to settle; (4) to have all
interested persons satisfied and the representatives to work in harmony for the best interests of the estate; and (5) when a
person entitled to the administration of an estate desires to have another competent person associated with him in the
office.17 (Emphasis supplied)

Thus, petitioner’s argument that the trial court cannot re-open the issue of the appointment of an administrator without
removing the incumbent administrator is erroneous. In probate proceedings, considerable latitude is allowed a probate
court in modifying or revoking its own orders as long as the proceedings are pending in the same court and timely
applications or motions for such modifications or revocations are made by the interested parties. 18 In the instant case, the
estate of the deceased has not yet been settled and the case is still within the jurisdiction of the court.

The foregoing discussion renders moot the second issue raised by petitioner. We see no cogent reason to set aside the
findings of the Court of Appeals, because its findings of fact is conclusive and binding on the parties and not subject to
review by this Court, unless the case falls under any of the exceptions to the rule. 19

WHEREFORE, the petition is DENIED. The August 20, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 72678
affirming the January 22, 2002 Order of the Regional Trial Court in Special Proceedings No. 97-241, as well as the April
29, 2005 Resolution denying the motion for reconsideration are AFFIRMED.1avvphil.net

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice Asscociate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision
were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN
Chief Justice
 SECOND DIVISION

G.R. No. 174909, January 20, 2016

MARCELINO M. FLORETE, JR., MARIA ELENA F. MUYCO AND RAUL A.

MUYCO, Petitioners, v. ROGELIO M. FLORETE, IMELDA C. FLORETE, DIAMEL CORPORATION,
ROGELIO C. FLORETE JR., AND MARGARET RUTH C. FLORETE, Respondents.

G.R. NO. 177275

ROGELIO M. FLORETE SR., Petitioner, v. MARCELINO M. FLORETE, JR., MARIA ELENA F. MUYCO
AND RAUL A. MUYCO, Respondents.

DECISION

LEONEN, J.:

A stockholder may suffer from a wrong done to or involving a corporation, but this does not vest in the
aggrieved stockholder a sweeping license to sue in his or her own capacity. The determination of the
stockholder's appropriate remedy—whether it is an individual suit, a class suit, or a derivative suit—hinges
on the object of the wrong done. When the object of the wrong done is the corporation itself or "the whole
body of its stock and property without any severance or distribution among individual holders," 1 it is a
derivative suit, not an individual suit or class/representative suit, that a stockholder must resort to.

This resolves consolidated cases involving a Complaint for Declaration of Nullity of Issuances, Transfers
and Sale of Shares in People's Broadcasting Service, Inc. and All Posterior Subscriptions and Increases
thereto with Damages.2 The Complaint did not implead as parties the concerned corporation, some of the
transferees, transferors and other parties involved in the assailed transactions. The Petition 3 docketed as
G.R. No. 174909 assails the Court of Appeals Decision affirming the dismissal of the Complaint and
sustaining the award of P25,000,000.00 as moral damages and P5,000,000.00 as exemplary damages in
favor of Rogelio Florete, Sr. The Petition4 docketed as G.R. No. 177275 assails the Court of Appeals
Decision that disallowed the immediate execution of the same award of damages.

Spouses Marcelino Florete, Sr. and Salome Florete (now both deceased) had four (4) children: Marcelino
Florete, Jr. (Marcelino, Jr.), Maria Elena Muyco (Ma. Elena), Rogelio Florete, Sr. (Rogelio, Sr.), and
Teresita Menchavez (Teresita), now deceased.5chanroblesvirtuallawlibrary

People's Broadcasting Service, Inc. (People's Broadcasting) is a private corporation authorized to operate,
own, maintain, install, and construct radio and television stations in the Philippines. 6 In its incorporation
on March 8, 1966,7 it had an authorized capital stock of P250,000.00 divided into 2,500 shares at PI00.00
par value per share.8

Twenty-five percent (25%) of the corporation's authorized capital stock were then subscribed to as
follows:

Stockholder Number of Shares

Marcelino Florete, Sr. (Marcelino, Sr.) 250 shares

 Salome Florete (Salome) 100 shares

Ricardo Berlin (Berlin) 50 shares

Pacifico Sudario (Sudario) 50 shares

Atty. Santiago Divinagracia (Divinagracia), now deceased 9 50 shares10

On November 17, 1967, Berlin and Sudario resigned from their positions as General Manager and Station
Supervisor, respectively.11 Berlin and Sudario each transferred 20 shares to Raul Muyco and Estrella
Mirasol.12chanroblesvirtuallawlibrary

Salome died on November 22, 1980.13 Marcelino, Sr. suffered a stroke on July 12, 1982, which left him
paralyzed and bedridden until his death on October 3, 1990.14 After Marcelino, Sr.'s stroke, their son,
Rogelio, Sr. started managing the affairs of People's Broadcasting.15chanroblesvirtuallawlibrary

In October 1993, People's Broadcasting sought the services of the accounting and auditing firm Sycip
Gorres Velayo and Co. in order to determine the ownership of equity in the corporation. 16 On November 2,
1994, Sycip Gorres Velayo and Co. submitted a report detailing the movements of the corporation's shares
from November 23, 1967 to December 8, 1989. 17 The relevant portion of this report reads:

B. PEOPLE'S BROADCASTING SERVICE, INC. (PBS)

The movements in the capital stock accounts (by beneficial stockholders) are as follows:

Beneficial Shareholdings Additional Transfer of Transfer of Transfer of Increase (F) Shareholdings

Stockholder Nov. 27, Subscription Shares of Shares of Shares of Oct. 31, 1993
1967 (A) Sept. 1, Stock Stock (D) Stock
1982 (B) March 1, June 5, 1987
1983 (C) (E)

Marcelino M. 560 - 750 (680) - 62,344.19 62,974.19

Florete, Sr.

Salome M. 30 (30) - - -
Florete

Rogelio M. 20 5 1110 370 (5) 149,624.75 151,124.75

Florete

Ma. Elena F. 20 5 - - (25) 2,493.68 2,493.68

Muyco

Teresita F. - 5 - 20 (25) 2,493.69 2,493.69

Menchavez

Marcelino M. - 5 - 20 (20) 2,493.44 2,493.44

Florete, Jr.

Santiago C. 20 - - 270 75 29,925.25 30,290.25

Divinagracia

Newsound 610 - (610)

Broadcasting18
Consolidated - 1,250 (1,250)
Broadcasting

Total 1,260 1,250 249,375.00 251,875.00

(A) The People's Broadcasting Service, Inc. was incorporated in 1965 with an authorized capital stock of P250,000 divided into
2,500 shares at PI00 par value. As of November 23, 1967, the total subscribed shares of stock was [sic] 1,260. The 610 shares
issued in the name of [Newsounds Broadcasting Network, Inc.] was [sic] authorized by the Board of Directors in payment for
the obligation of the Corporation to [Newsounds Broadcasting Network, Inc.].

....

(B) On August 5, 1982, the Board of Directors passed Resolution No. 4 which authorized Atty. Divinagracia to negotiate the
purchase of two stations of Consolidated Broadcasting System, Inc. (CBS), DYMF and DXMF in Cebu and Davao,
respectively. In consideration thereof, [People's Broadcasting Service, Inc.] shall issue 1,250 shares of stock in favor of
[Consolidated Broadcasting System, Inc.]. In pursuance thereof, on September 1, 1982, the Corporation issued the remaining
1,240 shares of unissued capital stock to [Consolidated Broadcasting System, Inc.]. To complete the consideration of 1,250
shares, it was explained that [Salome] transferred her 10 shares to [Consolidated Broadcasting System, Inc.] and distributed
her remaining 20 shares to her children, at 5 shares each.

(C) On March 1, 1983, all the 610 shares of [Newsounds Broadcasting Network, Inc.] were transferred to [Rogelio, Sr.]. We were
not able to determine the person who endorsed the certificate in [sic] behalf [of] [Newsounds Broadcasting Network, Inc.] as
the certificate was not found on file. On the same day, the entire investment of [Consolidated Broadcasting System, Inc.] were
transferred to [Marcelino, Sr.] and [Rogelio, Sr.] at the proportion of 750 shares and 500 shares, respectively. The cancelled
certificates of [Consolidated Broadcasting System, Inc.] were endorsed by [Rogelio, Sr.] in [sic] its behalf.

(D) On February 28 and August 1, 1983, [Marcelino, Sr.] transferred 680 shares from his block to the following:

Transferee No. of Shares Date of Transfer

Rogelio M. Florete [Sr.] 370 February 28, 1983

Santiago C. Divinagracia 270 August 1, 1983

Marcelino M. Florete, Jr. 20 August 1, 1983

Teresita F. Menchavez 20 August 1, 1983

Total 680

(E) On June 3, 1987, the Corporation effected the transfer of 75 shares to [Divinagracia] by virtue of the deeds of sale executed by
the transferors concerned in his favor.

(F) On December 8, 1989, the [Securities and Exchange Commission] approved the application of the Corporation to increase the
authorized capital stock to P100,000,000.00 divided into 1,000,000 shares at P100 par value. Of the increase, 249,375 shares
were subscribed for P24,937,500 and P6,234,375 thereof was paid-up. The subscribers to the increase were as indicated in the
foregoing.

There were no other transactions affecting the interest of the beneficial stockholders up to October 31,
1993 except transfers to and from designated nominees[.] 19chanroblesvirtuallawlibrary
Even as it tracked the movements of shares, Sycip Gorres Velayo and Co. declined to give a categorical
statement on equity ownership as People's Broadcasting's corporate records were incomplete. 20 The report
contained the following disclaimer on the findings regarding the corporation's capital structure:

Because the procedures included certain assumptions as represented by the corporate secretaries
mentioned in Attachment I and we have not verified the documents supporting some of the
transactions, we do not express an opinion on the capital stock accounts of the respective companies
[including People's Broadcasting] as at October 31, 1993.21 (Emphasis supplied)

On February 1, 1997, the Board of Directors of People's Broadcasting approved Sycip Gorres Velayo and
Co.'s report.22chanroblesvirtuallawlibrary

In the meantime, Rogelio, Sr. transferred a portion of his shareholdings to the members of his immediate
family, namely: Imelda Florete, Rogelio Florete, Jr., and Margaret Ruth Florete, as well as to Diamel
Corporation, a corporation owned by Rogelio, Sr.'s family.23chanroblesvirtuallawlibrary

As of April 27, 2002, the stockholders of record of People's Broadcasting were the
following:24chanroblesvirtuallawlibrary

Stockholder No. of Shares

1. Diamel Corporation 30,000.00

2. Rogelio Florete [Sr.] 153,881.53

3. Marcelino Florete, Jr. 18,240.99

4. Ma. Elena Muyco 18,227.23

5. Santiago Divinagracia 30,289.25

6. Imelda Florete 1,000.00

7. Rogelio Florete, Jr. 100.00

8. Margaret Ruth Florete 100.00

9. Raul Muyco 10.00

10. Manuel Villa, Jr. 10.00

11 .Gregorio Rubias 1.00

12. Cyril Regaldao 1.00

13. Jose Mari Trenas 1.00

14. Enrico Jacomille 1.00

15. Joseph Vincent Go 1.00

16. Jerry Trenas 1.00

 17. Efrain Trenas 10.00

On June 23, 2003, Marcelino, Jr., Ma. Elena, and Raul Muyco (Marcelino, Jr. Group) filed before the
Regional Trial Court a Complaint25 for Declaration of Nullity of Issuances, Transfers and Sale of Shares in
People's Broadcasting Service, Inc. and All Posterior Subscriptions and Increases thereto with
Damages26 against Diamel Corporation, Rogelio, Sr., Imelda Florete, Margaret Florete, and Rogelio
Florete, Jr. (Rogelio, Sr. Group).

On July 25, 2003, the Rogelio, Sr. Group filed their Answer with compulsory
counterclaim.27chanroblesvirtuallawlibrary

On August 2, 2005, the Regional Trial Court issued a Decision (which it called a "Placitum") dismissing the
Marcelino, Jr. Group's Complaint. It ruled that the Marcelino, Jr. Group did not have a cause of action
against the Rogelio, Sr. Group and that the former is estopped from questioning the assailed movement of
shares of People's Broadcasting. It also ruled that indispensible parties were not joined in their Complaint.

According to the trial court, the indispensable parties would include:

[Marcelino, Sr.] and/or his estate and/or his heirs, [Salome] and/or her estate and/or her heirs,
[Divinagracia] and/or his estate and/or his successors-in-interest, [Teresita] and/or her estate and/or her
own successors-in-interest, the other [People's Broadcasting Service, Inc.] stockholders who may be
actually beneficial owners and not purely nominees, all the so called nominal stockholders. . . [and] the
various [People's Broadcasting Service, Inc.] Corporate Secretaries[.]" 28chanrobleslaw

The Regional Trial Court granted Rogelio, Sr.'s compulsory counterclaim for moral and exemplary
damages amounting to P25,000,000.00 and P5,000,000.00, respectively, reasoning that Rogelio, Sr.
suffered from the besmirching of his personal and commercial reputation.29chanroblesvirtuallawlibrary

The dispositive portion of the Regional Trial Court Decision reads:

WHEREFORE, premises duly considered, the instant "Complaint" of the plaintiffs is hereby DISMISSED for
lack of merit.

The "Counterclaim" of defendant Rogelio Florete Sr. is hereby given DUE COURSE but only insofar as the
claims for moral and exemplary damages are concerned. Consequently, the plaintiffs herein are hereby
ordered to pay, jointly and severally, defendant Rogelio Florete Sr., the following sums, to wit:

1. TWENTY FIVE MILLION PESOS (P25,000,000.00) as and for MORAL DAMAGES; and,

2. FIVE MILLION PESOS (P5,000,000.00) as and for EXEMPLARY DAMAGES.

The "Counterclaim(s)" of the other defendants and the prayer for the recovery of attorney's fees and
litigation expenses of defendant Rogelio Florete, Sr. are hereby DISMISSED likewise for lack of merit.

SO ORDERED.30chanrobleslaw

On August 15, 2005, Rogelio, Sr. filed a Motion for the immediate execution of the award of moral and
exemplary damages pursuant to Rule I, Section 431 of the Interim Rules of Procedure Governing Intra-
Corporate Controversies.32chanroblesvirtuallawlibrary

On September 8, 2005, the Marcelino, Jr. Group filed before the Court of Appeals a Petition for
Review33 with a prayer for the issuance of a temporary restraining order and/or writ of preliminary
injunction to deter the immediate execution of the trial court Decision awarding damages to Rogelio,
Sr.34 The Court of Appeals issued a temporary restraining order and, subsequently, a writ of preliminary
injunction.35chanroblesvirtuallawlibrary
In its Decision36 dated March 29, 2006, the Court of Appeals denied the Marcelino, Jr. Group's Petition and
affirmed the trial court Decision.37 It also lifted the temporary restraining order and writ of preliminary
injunction.38chanroblesvirtuallawlibrary

The Court of Appeals ruled that the Marcelino, Jr. Group did not have a cause of action against those
whom they have impleaded as defendants. It also noted that the principal obligors in or perpetrators of
the assailed transactions were persons other than those in the Rogelio, Sr. Group who have not been
impleaded as parties. Thus, the Court of Appeals emphasized that the following parties were indispensable
to the case: People's Broadcasting; Marcelino, Sr.; Consolidated Broadcasting System, Inc.; Salome;
Divinagracia; Teresita; and "other stockholders of [People's Broadcasting] to whom the shares were
transferred or the nominees of the stockholders."39chanroblesvirtuallawlibrary

The Court of Appeals further emphasized that the estates of Marcelino, Sr. and Salome had long been
settled, with those in the Marcelino, Jr. Group participating (in their capacity as heirs). As the Marcelino,
Jr. Group failed to act to protect their supposed interests in shares originally accruing to Marcelino, Sr. and
Salome, the group is estopped from questioning the distribution of Marcelino, Sr.'s and Salome's
assets.40 Furthering the conclusion that the Marcelino, Jr. Group was bound by estoppel, the Court of
Appeals noted that the Marcelino, Jr. Group was well aware of the matters stated in the report furnished
by Sycip Gorres Velayo and Co. but failed to act on any supposed error in the report. Instead, the
Marcelino, Jr. Group waited ten (10) years before filing their Complaint. In the interim, they even
participated in the affairs of People's Broadcasting, voting their shares and electing members of the Board
of Directors.41chanroblesvirtuallawlibrary

On April 26, 2006, the Marcelino, Jr. Group filed a Motion for Reconsideration dated April 24,
2006.42chanroblesvirtuallawlibrary

Pending resolution of the Marcelino, Jr. Group's Motion for Reconsideration, Rogelio, Sr. filed before the
Regional Trial Court a Motion to resolve his earlier motion for the immediate execution of the awards of
moral and exemplary damages, which was filed on August 15, 2005.43 The Regional Trial Court granted
the Motion in its Order dated May 18, 2006. 44 On May 23, 2006, a Writ of Execution was issued to enforce
the award of moral and exemplary damages.45chanroblesvirtuallawlibrary

The Marcelino, Jr. Group filed a Petition for Certiorari 46 before the Court of Appeals questioning the
Regional Trial Court Order to immediately execute its Decision.47 On June 13, 2006, the Court of Appeals
issued a temporary restraining order and, subsequently, a writ of preliminary injunction. 48 The Court of
Appeals reversed the trial court Order of immediate execution in the Decision promulgated on November
28, 2006.49 It also annulled the writ of execution issued pursuant to the Order of immediate execution.
Rogelio, Sr. filed a Motion for Reconsideration,50 but it was denied on February 23,
2007.51chanroblesvirtuallawlibrary

On September 15, 2006, the Court of Appeals denied the Marcelino, Jr. Group's Motion for Reconsideration
dated April 24, 2006.52chanroblesvirtuallawlibrary

Hence, on November 17, 2006, the Marcelino, Jr. Group filed the Petition 53 docketed as GR. No. 174909.

Since the Court of Appeals Decision disallowed the immediate execution of the Regional Trial Court
Decision, Rogelio, Sr. filed on May 7, 2007 the Petition 54 docketed as GR. No. 177275.

On March 16, 2009, this court ordered the consolidation of the Petitions docketed as GR. No. 174909 and
GR. No. 177275.

For resolution are the following issues:

First, whether it was proper for the Regional Trial Court to dismiss the Complaint filed by the Marcelino, Jr.
Group;

Second, assuming that it was error for the Regional Trial Court to dismiss the Complaint and that the case
may be decided on the merits, whether the transfers of shares assailed by the Marcelino, Jr. Group should
be nullified; and
Lastly, whether the Regional Trial Court's award of moral and exemplary damages in favor of Rogelio, Sr.
may be executed at this juncture of the proceedings.

The Marcelino, Jr. Group insists that they have sufficiently established causes of action accruing to them
and against the Rogelio, Sr. Group.55 They add that they have impleaded all indispensable parties. 56 Thus,
they claim that it was an error for the Regional Trial Court to dismiss their Complaint. They assert that a
resolution of the case on the merits must ensue.

The Marcelino, Jr. Group seeks to nullify the following transactions on the shares of stock of People's
Broadcasting, as noted in the report of Sycip Gorres Velayo and Co.:

(a) Issuance of 1,240 shares to Consolidated Broadcasting System, Inc. on September 1, 1982,

(b) Transfer of 10 shares from Salome to Consolidated Broadcasting System, Inc. on September 1, 1982,

(c) Issuance of 610 shares to Newsounds Broadcasting Network, Inc. on November 17, 1967,

(d) Transfer of 610 shares from Newsounds Broadcasting Network, Inc. to Rogelio, Sr. on March 1, 1983,

(e) Transfer of 750 shares from Consolidated Broadcasting System, Inc. to Marcelino, Sr. on March 1, 1983,

(f) Transfer of 500 shares from Consolidated Broadcasting System, Inc. to Rogelio, Sr.,

(g) Transfer of 680 shares from Marcelino, Sr. to the following: 370 shares to Rogelio, Sr., 270 shares to Divinagracia, 20
shares to Marcelino, Jr., and 20 shares to Teresita, and

(h) Increase in the authorized capital stock to PI00,000,000.00 divided into 1,000,000 shares with a par value of PI00.00
per share on December 8, 1989, and the resulting subscriptions. 57

For the issuance of 1,250 shares to Consolidated Broadcasting System, Inc., the Marcelino, Jr. Group
argues that Board Resolution No. 4 dated August 5, 1982, the basis for the issuance of the 1,250 shares
in favor of Consolidated Broadcasting System, Inc., was a forgery: it was simulated, unauthorized, and
issued without a quorum as required under Section 25 of the Corporation Code. 58 They add that Salome,
who allegedly transferred her 10 shares to complete the 1,250 share transfer, was already dead at the
time of the alleged transfer on September 1, 1982.59 The Marcelino, Jr. Group claims that no member of
the Board attended the meeting referred to in Board Resolution No. 4. 60 They further allege that the
signature of Marcelino, Sr. in Board Resolution No. 4 is a forgery.61 They argue that Marcelino, Sr. could
not have attended the meeting on August 5, 1982 because from July 12, 1982 to August 26, 1982, 62 he
was confined in Gov. B. Lopez Memorial Hospital for quadriparesis and motor aphasia. 63 They also supplied
the trial court with specimen signatures of Marcelino, Sr. to prove that the signature appearing on Board
Resolution No. 4 was forged.64chanroblesvirtuallawlibrary

The Marcelino, Jr. Group alleges that from the time Marcelino, Sr. suffered a stroke on July 12, 1982 until
his death on October 3, 1990, he was no longer capable of giving consent because of his quadriparesis
and motor aphasia.65 As they emphasized, "[q]uadriparesis means weakness of the upper and lower
extremities with spasticity and tremors. Motor aphasia means that the patient could not communicate,
unable to talk, nor responds [sic] to question or simple commands."66 Thus, they conclude that all of the
issuances of shares in favor of Marcelino, Sr. and all of the transfers of shares to and from Marcelino, Sr.
from July 12, 1982 are void for lack of consent.

With respect to the issuance of 610 shares to Newsounds Broadcasting Network, Inc. and the subsequent
transfer of 610 shares to Rogelio, Sr., the Marcelino, Jr. Group argues that there is no deed of conveyance
to support the transfer and that the stock certificates representing the 610 shares are missing. They
conclude that because of the absence of the stock certificates, there is no valid delivery and endorsement
as required by Section 63 of the Corporation Code.67 Hence, the transfer is invalid.
Regarding the increase in the authorized capital stock of People's Broadcasting, the Marcelino, Jr. Group
argues that the increase was procured by fraud because it was made "by the new Board of Directors who
were elected by stockholders who were transferees of the illegal, fraudulent and anomalous transfers, and
therefore have no power and authority to procure such increase." 68 They also pray that the subscriptions
to the increase be nullified.69chanroblesvirtuallawlibrary

After a declaration that the issuances and transfers are void, the Marcelino, Jr. Group prays that the
capital structure of People's Broadcasting System be corrected to reflect the
following:70chanroblesvirtuallawlibrary

Beneficial Stockholder No. of Shares %

Marcelino Florete, Sr. 660 81.48

Salome Florete 100 12.35

Santiago Divinagracia 50 6.17

Total 810 100.00

The Marcelino, Jr. Group further claims that the award of moral and exemplary damages is
erroneous.71 They add that the amounts of P25,000,000.00 as moral damages and P5,000,000.00 as
exemplary damages are excessive.72chanroblesvirtuallawlibrary

The Rogelio, Sr. Group seeks the denial of the Petition filed by the Marcelino, Jr. Group, claiming that it
raises factual questions that may not be taken cognizance of in a petition for review on certiorari under
Rule 45.73chanroblesvirtuallawlibrary

They further argue that the Marcelino, Jr. Group has no cause of action against them. 74 They insist that
indispensable parties have not been impleaded75 and that the Marcelino Jr. Group's claims should have
been raised during the settlement of the estates of deceased Spouses Marcelino, Sr. and Salome
Florete.76 They also argue that the Marcelino, Jr. Group is already estopped from questioning Sycip Gorres
Velayo and Co.'s report because they allowed 10 years to lapse before questioning the truthfulness of the
report. They add that the Marcelino, Jr. Group's members have been voting their shares since 1963
without making any reservation.77chanroblesvirtuallawlibrary

In G.R. No. 177275, Rogelio, Sr. argues that the Court of Appeals erred in disallowing the immediate
execution of the Regional Trial Court Decision. He argues that the Petition filed by the Marcelino, Jr. Group
before the Court of Appeals should not have been accepted because Rule 65 petitions require that there
no longer be any appeal nor any plain, speedy, and adequate remedy in the ordinary course of law. 78 He
alleges that when the Petition was filed by the Marcelino, Jr. Group, there was still a pending appeal
before the Court of Appeals to resolve the main case. 79 Rogelio, Sr. adds that the filing of a new petition
despite the pendency of the main case is a violation of the rule against forum
shopping.80chanRoblesvirtualLawlibrary

The sufficiency of the Marcelino, Jr. Group's plea for relief, through their Complaint for Declaration of
Nullity of Issuances, Transfers and Sale of Shares in People's Broadcasting Service, Inc. and All Posterior
Subscriptions and Increases thereto with Damages,81 hinges on a characterization of the suit or action
they initiated. This characterization requires a determination of the cause of action through which the
Marcelino, Jr. Group came to court for relief. It will, thus, clarify the parties who must be included in their
action and the procedural and substantive requirements they must satisfy if their action is to prosper.
A stockholder suing on account of wrongful or fraudulent corporate actions (undertaken through directors,
associates, officers, or other persons) may sue in any of three (3) capacities: as an individual; as part of a
group or specific class of stockholders; or as a representative of the corporation.

Villamor v. Umale82 distinguished individual suits from class or representative suits:

Individual suits are filed when the cause of action belongs to the individual stockholder personally, and not
to the stockholders as a group or to the corporation, e.g., denial of right to inspection and denial of
dividends to a stockholder. If the cause of action belongs to a group of stockholders, such as when the
rights violated belong to preferred stockholders, a class or representative suit may be filed to protect the
stockholders in the group.83chanroblesvirtuallawlibrary

Villamor further explained that a derivative suit "is an action filed by stockholders to enforce a corporate
action."84 A derivative suit, therefore, concerns "a wrong to the corporation itself." 85 The real party in
interest is the corporation, not the stockholders filing the suit. The stockholders are technically nominal
parties but are nonetheless the active persons who pursue the action for and on behalf of the corporation.

Remedies through derivative suits are not expressly provided for in our statutes—more specifically, in the
Corporation Code and the Securities Regulation Code—but they are "impliedly recognized when the said
laws make corporate directors or officers liable for damages suffered by the corporation and its
stockholders for violation of their fiduciary duties."86 They are intended to afford reliefs to stockholders in
instances where those responsible for running the affairs of a corporation would not otherwise act:

However, in cases of mismanagement where the wrongful acts are committed by the directors or trustees
themselves, a stockholder or member may find that he has no redress because the former are vested by
law with the right to decide whether or not the corporation should sue, and they will never be willing to
sue themselves. The corporation would thus be helpless to seek remedy. Because of the frequent
occurrence of such a situation, the common law gradually recognized the right of a stockholder to sue on
behalf of a corporation in what eventually became known as a "derivative suit." It has been proven to be
an effective remedy of the minority against the abuses of management. Thus, an individual stockholder is
permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to
protect or vindicate corporate rights, whenever officials of the corporation refuse to sue or are the ones to
be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as the
nominal party, with the corporation as the party in interest. 87chanrobleslaw

The distinction between individual and class/representative suits on one hand and derivative suits on the
other is crucial. These are not discretionary alternatives. The fact that stockholders suffer from a wrong
done to or involving a corporation does not vest in them a sweeping license to sue in their own
capacity. The recognition of derivative suits as a vehicle for redress distinct from individual and
representative suits is an acknowledgment that certain wrongs may be addressed only through acts
brought for the corporation:

Although in most every case of wrong to the corporation, each stockholder is necessarily affected because
the value of his interest therein would be impaired, this fact of itself is not sufficient to give him an
individual cause of action since the corporation is a person distinct and separate from him, and can and
should itself sue the wrongdoer.88chanrobleslaw

In Asset Privatization Trust v. Court of Appeals,89 the reasons for disallowing a direct individual suit were
further explained:

The reasons given for not allowing direct individual suit are:

(1) . . . "the universally recognized doctrine that a stockholder in a corporation has no title legal or
equitable to the corporate property; that both of these are in the corporation itself for the benefit of the
stockholders." In other words, to allow shareholders to sue separately would conflict with the separate
corporate entity principle;

(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case
of Evangelista v. Santos, that 'the stockholders may not directly claim those damages for themselves for
that would result in the appropriation by, and the distribution among them of part of the corporate assets
before the dissolution of the corporation and the liquidation of its debts and liabilities, something which
cannot be legally done in view of Section 16 of the Corporation Law...";

(3) the filing of such suits would conflict with the duty of the management to sue for the protection of all
concerned;

(4) it would produce wasteful multiplicity of suits; and

(5) it would involve confusion in ascertaining the effect of partial recovery by an individual on the
damages recoverable by the corporation for the same act.90chanrobleslaw

The avenues for relief are, thus, mutually exclusive. The determination of the appropriate remedy hinges
on the object of the wrong done. When the object is a specific stockholder or a definite class of
stockholders, an individual suit or class/representative suit must be resorted to. When the object of the
wrong done is the corporation itself or "the whole body of its stock and property without any severance or
distribution among individual holders," 91 it is a derivative suit that a stockholder must resort to. In Cua, Jr.
v. Tan:92chanroblesvirtuallawlibrary

Indeed, the Court notes American jurisprudence to the effect that a derivative suit, on one hand, and
individual and class suits, on the other, are mutually exclusive, viz.:ChanRoblesVirtualawlibrary
As the Supreme Court has explained: "A shareholder's derivative suit seeks to recover for the benefit of
the corporation and its whole body of shareholders when injury is caused to the corporation that may not
otherwise be redressed because of failure of the corporation to act. Thus, 'the action is derivative, i.e., in
the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of
its stock and property without any severance or distribution among individual holders, or it seeks to
recover assets for the corporation or to prevent the dissipation of its assets.'" In contrast, "a direct action
[is one] filed by the shareholder individually (or on behalf of a class of shareholders to which he or she
belongs) for injury to his or her interest as a shareholder.. . . [T]he two actions are mutually exclusive:
i.e., the right of action and recovery belongs to either the shareholders (direct action) or the corporation
(derivative action)."

Thus, in Nelson v. Anderson, the minority shareholder alleged that the other shareholder of the
corporation negligently managed the business, resulting in its total failure. The appellate court concluded
that the plaintiff could not maintain the suit as a direct action: "Because the gravamen of the complaint is
injury to the whole body of its stockholders, it was for the corporation to institute and maintain a remedial
action. A derivative action would have been appropriate if its responsible officials had refused or failed to
act." The court went on to note that the damages shown at trial were the loss of corporate profits. Since
"[shareholders own neither the property nor the earnings of the corporation," any damages that the
plaintiff alleged that resulted from such loss of corporate profits "were incidental to the injury to the
corporation."93 (Emphasis supplied, citations omitted)

Villamor recalls the requisites for filing derivative suits:

Rule 8, Section 1 of the Interim Rules of Procedure for Intra Corporate Controversies (Interim Rules)
provides the five (5) requisites for filing derivative suits:ChanRoblesVirtualawlibrary
SECTION 1. Derivative action.—A stockholder or member may bring an action in the name of a
corporation or association, as the case may be, provided, that:

(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the
action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies
available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain
the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and
 (4) The suit is not a nuisance or harassment suit.

In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not included in the enumeration, is implied in the first
paragraph of Rule 8, Section 1 of the Interim Rules: The action brought by the stockholder or member
must be "in the name of [the] corporation or association. . . ." This requirement has already been settled
in jurisprudence.

Thus, in Western Institute of Technology, Inc., et al. v. Salas, et al, this court said that "[a]mong the basic
requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on
behalf of the corporation must allege in his complaint before the proper forum that he is suing on a
derivative cause of action on behalf of the corporation and all other shareholders similarly situated who
wish to join [him]." ...

Moreover, it is important that the corporation be made a party to the case. 94 (Citations omitted)

II

The greater number of cases that sustained stockholders' recourse to derivative suits involved corporate
acts amounting to mismanagement by either the corporation's directors or officers in relations to third
persons. Several cases serve as examples.

Hi-Yield Realty v. Court of Appeals95 affirmed the Regional Trial Court's and Court of Appeals'
characterization of a Petition for Annulment of Real Estate Mortgage and Foreclosure Sale 96 as a derivative
suit. The Petition was initiated by private respondent Roberto H. Torres, a stockholder, on behalf of the
corporation Honorio Torres & Sons, Inc. Petitioner Hi-Yield Realty, Inc. was among the defendants to the
Petition, along with the related parties, Leonora, Ma. Theresa, Glenn, and Stephanie, all surnamed Torres,
as well as the Registers of Deeds of Marikina and of Quezon City. Against Hi-Yield Realty, Inc.'s claims,
this court sustained the respondent's position that the Petition was "primarily a derivative suit to redress
the alleged unauthorized acts of its corporate officers and major stockholders in connection with the
lands."97chanroblesvirtuallawlibrary

Cua, Jr. considered two corporate acts to be valid objects of a derivative suit. The first was a resolution of
the Board of Directors of the corporation Philippine Racing Club, Inc. to acquire up to 100% of the
common shares of another corporation, JTH Davies Holdings, Inc., as well as to appoint Santiago Cua, Jr.
"to act as attorney-in-fact and proxy who could vote all the shares of [Philippine Racing Club, Inc.] in [JTH
Davies Holdings, Inc.], as well as nominate, appoint, and vote into office directors and/or officers during
regular and special stockholders meetings of [JTH Davies Holdings, Inc.]." 98 The second was another
resolution of Philippine Racing Club, Inc.'s Board of Directors "approving the property-for-shares exchange
between Philippine] R[acing] C[lub], I[nc]. and [JTH Davies Holdings, Inc.]." 99chanroblesvirtuallawlibrary

In Cua, Jr., the derivative suit grounded on the first was dismissed by this court for being moot and
academic.100 The suit grounded on the second was similarly dismissed for failure to comply with one of the
requisites for instituting a derivative suit. The plaintiffs "made no mention at all of appraisal rights, which
could or could not have been available to them[,]" thereby violating Rule 8, Section 1 of the Interim Rules
of Procedure for Intra-Corporate Controversies.101chanroblesvirtuallawlibrary

As with Hi-Yield Realty and Cua, Go v. Distinction Properties Development and Construction,
Inc.102 concerned a corporate action taken in relation to a third person.

Petitioners Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim filed before the Housing and Land Use
Regulatory Board a Complaint, which they claimed was one for specific performance intended to compel
the developer of Phoenix Heights Condominium, Distinction Properties Development and Construction, Inc.
(Distinction Properties), to fulfill its contractual obligations. The Complaint was filed in the wake of an
agreement entered into by Distinction Properties with the condominium corporation Phoenix Heights
Condominium Corporation (PHCC). PHCC "approved a settlement offer from [Distinction Properties] for the
set-off of the latter's association dues arrears with the assignment [from Distinction Properties] of title
over [two saleable commercial units/spaces originally held by Distinction Properties] and their conversion
into common areas."103chanroblesvirtuallawlibrary

This court clarified that the true purpose of the petitioners' action was not to compel Distinction Properties
to fulfill its contractual obligations. Instead, "petitioners [we]re actually seeking to nullify and invalidate
the duly constituted acts of PHCC - the April 29, 2005 Agreement entered into by PHCC with DPDCI and its
Board Resolution which authorized the acceptance of the proposed offsetting/settlement of DPDCI's
indebtedness and approval of the conversion of certain units from saleable to common areas." This court
thereby concluded that "the cause of action rightfully pertains to PHCC [and that] [petitioners cannot
exercise the same except through a derivative suit."104chanroblesvirtuallawlibrary

The prevalence of derivative suits arising from corporate actions taken in relation to third persons is to be
expected. After all, it is easier to perceive the wrong done to a corporation when third persons unduly gain
an advantage. However, this does not mean that derivative suits cannot arise with respect to conflicts
among a corporation's directors, officers, and stockholders.

Ching and Wellington v. Subic Bay Golf and Country Club 105 sustained the Regional Trial Court's and Court
of Appeals' characterization of the Complaint filed by stockholders against officers of the corporation as a
derivative suit. Nestor Ching and Andrew Wellington filed a Complaint in their own names and in their
right as individual stockholders assailing an amendment introduced into Subic Bay Golf and Country Club's
articles of incorporation, which supposedly "takes away the right of the shareholders to participate in the
pro-rata distribution of the assets of the corporation after its dissolution." 106 They anchored their action on
Section 5(a) of Presidential Decree No. 902-A.107 They claimed that this statutory provision "allows any a
stockholder to file a complaint against the Board of Directors for employing devices or schemes amounting
to fraud and misrepresentation which is detrimental to the interest of the public and/or the
stockholders."108chanroblesvirtuallawlibrary

This court did not sustain Nestor Ching's and Andrew Wellington's claim of a right to sue in their own
capacity. Concluding that the petitioners' action was a derivative suit, this court explained:

The reliefs sought in the Complaint, namely that of enjoining defendants from acting as officers and Board
of Directors of the corporation, the appointment of a receiver, and the prayer for damages in the amount
of the decrease in the value of the shares of stock, clearly show that the Complaint was filed to curb the
alleged mismanagement of [Subic Bay Gold and Country Club]. The causes of action pleaded by
petitioners do not accrue to a single shareholder or a class of shareholders but to the corporation
itself.109 (Emphasis supplied)

We are mindful that in 1979, in Gamboa v. Victoriano,110 this court characterized an action to nullify the
sale of 823 unissued shares on the ground of violating the plaintiffs' pre-emptive rights and in violation of
the voting requirement for the Board of Directors as not a derivative suit. This court characterized the
action as one in which "the plaintiffs are alleging and vindicating their own individual interests or
prejudice, and not that of the corporation."111chanroblesvirtuallawlibrary

This pronouncement cannot be considered as a binding precedent for holding actions of the sort filed by
the plaintiffs therein to not be derivative suit. This point in Gamboa was mere obiter dictum. The main
issue in Gamboa was the validity of the trial court's denial of the Motion to Dismiss filed by four of the
seven defendants after the plaintiffs entered into a compromise agreement with the three other
defendants. The resolution of this issue was contingent on the determination of whether the compromise
amounted to the plaintiff's waiver and estoppel for having conceded the validity of the sale. Besides, this
court itself acknowledged that the statement it made characterizing the action brought by the plaintiffs
was premature. Immediately after saying that "the plaintiffs are alleging and vindicating their own
individual interests or prejudice, and not that of the corporation[,]" 112 this court stated: "At any rate, it is
yet too early in the proceedings since the issues have not been joined." 113chanRoblesvirtualLawlibrary

III

In this case, the Marcelino, Jr. Group anchored their Complaint on violations of and liabilities arising from
the Corporation Code, specifically: Section 23114 (on corporate decision-making being vested in the board
of directors), Section 25115 (quorum requirement for the transaction of corporate business), Sections
39116 and 102117 (both on stockholders' preemptive rights), Section 62118 (stipulating the consideration for
which stocks must be issued), Section 63119 (stipulating that no transfer of shares "shall be valid, except
as between the parties, until the transfer is recorded in the books of the corporation"), and Section
65120 (on liabilities of directors and officers "to the corporation and its creditors" for the issuance of
watered stocks) in relation to provisions in People's Broadcasting's Articles of Incorporation and By-Laws
as regards conditions for issuances of and subscription to shares. The Marcelino, Jr. Group ultimately
prays that People's Broadcasting's entire capital structure be reconfigured to reflect a status quo
ante.121chanroblesvirtuallawlibrary

As with Ching and Wellington, the actions being assailed by the Marcelino, Jr. Group pertain to parties that
are not extraneous to People's Broadcasting. They assail and seek to nullify acts taken by various
iterations of People's Broadcasting's Board of Directors. All these acts and incidents concern the capital
structure of People's Broadcasting. These acts reconfigured, through redistribution and enlargement, the
structure of People's Broadcasting's equity ownership. These acts also admitted into People's Broadcasting
new equity holders such as Consolidated Broadcasting System, Inc. and Newsounds Broadcasting
Network, Inc.

As Ching and Wellington exemplifies, the action should be a proper derivative suit even if the assailed acts
do not pertain to a corporation's transactions with third persons. Cua, Jr. established that the pivotal
consideration is whether the wrong done as well as the cause of action arising from it accrues to the
corporation itself or to the whole body of its stockholders. Ching and Wellington states that if "[t]he
causes of action pleaded ... do not accrue to a single shareholder or a class of shareholders but to the
corporation itself,"122 the action should be deemed a derivative suit. Also, in Go, an action "seeking to
nullify and invalidate the duly constituted acts [of a corporation]" entails a cause of action that "rightfully
pertains to [the corporation itself and which stockholders] cannot exercise . . . except through a derivative
suit."123chanroblesvirtuallawlibrary

These are the same conditions in this case. What the Marcelino, Jr. Group asks is the complete reversal of
a number of corporate acts undertaken by People' Broadcasting's different boards of directors. These
boards supposedly engaged in outright fraud or, at the very least, acted in such a manner that amounts to
wanton mismanagement of People's Broadcasting's affairs. The ultimate effect of the remedy they seek is
the reconfiguration of People's Broadcasting's capital structure.

The remedies that the Marcelino, Jr. Group seeks are for People's Broadcasting itself to avail. Ordinarily,
these reliefs may be unavailing because objecting stockholders such as those in the Marcelino, Jr. Group
do not hold the controlling interest in People's Broadcasting. This is precisely the situation that the rule
permitting derivative suits contemplates: minority shareholders having no other recourse "whenever the
directors or officers of the corporation refuse to sue to vindicate the rights of the corporation or are the
ones to be sued and are in control of the corporation."124chanroblesvirtuallawlibrary

The Marcelino, Jr. Group points to violations of specific provisions of the Corporation Code that supposedly
attest to how their rights as stockholders have been besmirched. However, this is not enough to sustain a
claim that the Marcelino, Jr. Group initiated a valid individual or class suit. To reiterate, whether
stockholders suffer from a wrong done to or involving a corporation does not readily vest in them a
sweeping license to sue in their own capacity.

The specific provisions adverted to by the Marcelino, Jr. Group signify alleged wrongdoing committed
against the corporation itself and not uniquely to those stockholders who now comprise the Marcelino, Jr.
Group. A violation of Sections 23 and 25 of the Corporation Code—on how decision-making is vested in
the board of directors and on the board's quorum requirement—implies that a decision was wrongly made
for the entire corporation, not just with respect to a handful of stockholders. Section 65 specifically
mentions that a director's or officer's liability for the issuance of watered stocks in violation of Section 62
is solidary "to the corporation and its creditors," not to any specific stockholder. Transfers of shares made
in violation of the registration requirement in Section 63 are invalid and, thus, enable the corporation to
impugn the transfer. Notably, those in the Marcelino, Jr. Group have not shown any specific interest in, or
unique entitlement or right to, the shares supposedly transferred in violation of Section 63.

Also, the damage inflicted upon People's Broadcasting's individual stockholders, if any, was indiscriminate.
It was not unique to those in the Marcelino, Jr. Group. It pertained to "the whole body of [People's
Broadcasting's] stock."125 Accordingly, it was upon People's Broadcasting itself that the causes of action
now claimed by the Marcelino Jr. Group accrued. While stockholders in the Marcelino, Jr. Group were
permitted to seek relief, they should have done so not in their unique capacity as individuals or as a group
of stockholders but in place of the corporation itself through a derivative suit. As they, instead, sought
relief in their individual capacity, they did so bereft of a cause of action. Likewise, they did so without even
the slightest averment that the requisites for the filing of a derivative suit, as spelled out in Rule 8,
Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies, have been satisfied. Since
the Complaint lacked a cause of action and failed to comply with the requirements of the Marcelino, Jr.
Group's vehicle for relief, it was only proper for the Complaint to have been
dismissed.chanRoblesvirtualLawlibrary

IV

Erroneously pursuing a derivative suit as a class suit not only meant that the Marcelino, Jr. Group lacked a
cause of action; it also meant that they failed to implead an indispensable party.

In derivative suits, the corporation concerned must be impleaded as a party. As explained in Asset
Privatization Trust:

Not only is the corporation an indispensible party, but it is also the present rule that it must be served
with process. The reason given is that the judgment must be made binding upon the corporation in order
that the corporation may get the benefit of the suit and may not bring a subsequent suit against the same
defendants for the same cause of action. In other words the corporation must be joined as party because
it is its cause of action that is being litigated and because judgment must be a res ajudicata [sic] against
it.126chanroblesvirtuallawlibrary

We have already discussed Go where this court concluded that an action brought by three individual
stockholders was, in truth, a derivative suit. There, this court further explained that a case cannot prosper
when the proper party is not impleaded:

As it is clear that the acts being assailed are those of PHHC, this case cannot prosper for failure to implead
the proper party, PHCC.

An indispensable party is defined as one who has such an interest in the controversy or subject matter
that a final adjudication cannot be made, in his absence, without injuring or affecting that interest. In the
recent case of Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-OLALIA-KMU) v. Keihin Philippines
Corporation, the Court had the occasion to state that:ChanRoblesVirtualawlibrary
Under Section 7, Rule 3 of the Rules of Court, "parties in interest without whom no final determination can
be had of an action shall be joined as plaintiffs or defendants." If there is a failure to implead an
indispensable party, any judgment rendered would have no effectiveness. It is "precisely 'when an
indispensable party is not before the court (that) an action should be dismissed.' The absence of an
indispensable party renders all subsequent actions of the court null and void for want of authority to act,
not only as to the absent parties but even to those present." The purpose of the rules on joinder of
indispensable parties is a complete determination of all issues not only between the parties themselves,
but also as regards other persons who may be affected by the judgment. A decision valid on its face
cannot attain real finality where there is want of indispensable parties.
Similarly, in the case of Plasabas v. Court of Appeals, the Court held that a final decree would necessarily
affect the rights of indispensable parties so that the Court could not proceed without their presence. In
support thereof, the Court in Plasabas cited the following authorities, thus:ChanRoblesVirtualawlibrary
The general rule with reference to the making of parties in a civil action requires the joinder of all
indispensable parties under any and all conditions, their presence being a sine qua non of the exercise of
judicial power. For this reason, our Supreme Court has held that when it appears of record that there are
other persons interested in the subject matter of the litigation, who are not made parties to the action, it
is the duty of the court to suspend the trial until such parties are made either plaintiffs or defendants, x x
x Where the petition failed to join as party defendant the person interested in sustaining the proceeding in
the court, the same should be dismissed, x x x When an indispensable party is not before the court, the
action should be dismissed.

Parties in interest without whom no final determination can be had of an action shall be joined either as
plaintiffs or defendants. The burden of procuring the presence of all indispensable parties is on the
plaintiff. The evident purpose of the rule is to prevent the multiplicity of suits by requiring the person
arresting a right against the defendant to include with him, either as co-plaintiffs or as co-defendants, all
persons standing in the same position, so that the whole matter in dispute may be determined once and
for all in one litigation.
From all indications, PHCC is an indispensable party and should have been impleaded, either as a plaintiff
or as a defendant, in the complaint filed before the HLURB as it would be directly and adversely affected
by any determination therein. To belabor the point, the causes of action, or the acts complained of, were
the acts of PHCC as a corporate body[.]127 (Citations omitted)

There are two consequences of a finding on appeal that indispensable parties have not been joined. First,
all subsequent actions of the lower courts are null and void for lack of jurisdiction. 128 Second, the case
should be remanded to the trial court for the inclusion of indispensable parties. It is only upon the
plaintiff's refusal to comply with an order to join indispensable parties that the case may be
dismissed.129chanroblesvirtuallawlibrary

All subsequent actions of lower courts are void as to both the absent and present parties. 130 To reiterate,
the inclusion of an indispensable party is a jurisdictional requirement:

While the failure to implead an indispensable party is not per se a ground for the dismissal of an action,
considering that said party may still be added by order of the court, on motion of the party or on its own
initiative at any stage of the action and/or such times as are just, it remains essential — as it is
jurisdictional — that any indispensable party be impleaded in the proceedings before the court renders
judgment. This is because the absence of such indispensable party renders all subsequent actions of the
court null and void for want of authority to act, not only as to the absent parties but even as to those
present.131 (Emphasis supplied, citation omitted)

In Metropolitan Bank and Trust Co. v. Alejo132 and Arcelona v. Court of Appeals,133 this court clarified that
the courts must first acquire jurisdiction over the person of an indispensable party. Any decision rendered
by a court without first obtaining the required jurisdiction over indispensable parties is null and void for
want of jurisdiction: "the presence of indispensable parties is necessary to vest the court with jurisdiction,
which is 'the authority to hear and determine a cause, the right to act in a
case.'"134chanroblesvirtuallawlibrary

In Divinagracia v. Parilla,135Macawadib v. Philippine National Police Directorate for Personnel and Records
Management,136People v. Go,137 and Valdez-Tallorin v. Heirs of Tarona,138 among others, this court
annulled judgments rendered by lower courts in the absence of indispensible parties.

The second consequence is unavailing in this case. While "[njeither misjoinder nor non-joinder of parties is
ground for dismissal of an action"139 and is, thus, not fatal to the Marcelino, Jr. Group's action, we have
shown that they lack a cause of action. This warrants the dismissal of their Complaint.

The first consequence, however, is crucial. It determines the validity of the Regional Trial Court's award of
damages to Rogelio, Sr.

Since the Regional Trial Court did not have jurisdiction, the decision awarding damages in favor of Rogelio,
Sr. is void.

Apart from this, there is no basis in jurisprudence for awarding moral and exemplary damages in cases
where individual suits that were erroneously filed were dismissed. In the analogous cases that we
previously discussed—Hi-Yield Realty, Cua, Jr., Go, and Ching and Wellington—the dismissal alone of the
erroneously filed complaints sufficed. This court never saw the need to award moral and exemplary
damages. This is in keeping with the Civil Code provisions that stipulate when the award of such damages
is proper. We find no reason to conclude that the Marcelino, Jr. Group acted in so malevolent, oppressive,
or reckless a manner that moral and exemplary damages must be awarded in such huge amounts as the
Regional Trial Court did.
From the conclusion that the Decision awarding damages is void and unwarranted, it necessarily follows
that the Order of the Regional Trial Court to immediately execute its Decision is likewise null and void.
In Arcelona, the Decision sought to be annulled was already being executed. However, this court found
that the assailed Decision was promulgated without indispensable parties being impleaded. Hence, the
Decision was ruled to have been made without jurisdiction. This court nullified the judgment and declared:

A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any right nor
the creator of any obligation. All acts performed pursuant to it and all claims emanating from it have
no legal effect. Hence, it can never become final and any writ of execution based on it is void: x x x it
may be said to be a lawless thing which can be treated as an outlaw and slain at sight, or ignored
wherever and whenever it exhibits its head.140 (Emphasis supplied)

Accordingly, the subsequent Order of the Decision's immediate execution is also void for lack of
jurisdiction. Contrary to Rogelio Sr.'s claim in its Petition, execution cannot ensue. For this reason, the
Petition docketed as G.R. No. 177275 must be denied.

WHEREFORE, the Petition docketed as G.R. No. 174909 is PARTLY GRANTED and the Petition docketed
as G.R. No. 177275 is DENIED.

The Complaint filed by Marcelino M. Florete, Jr., Maria Elena F. Muyco, and Raul A. Muyco for Declaration
of Nullity of Issuances, Transfers and Sale of Shares in People's Broadcasting Service, Inc. and All
Posterior Subscriptions and Increases thereto with Damages is dismissed as the complainants have no
cause of action. The award of P25,000,000.00 as moral damages and P5,000,000.00 as exemplary
damages in favor of Rogelio Florete, Sr. is deleted. The Regional Trial Court Order dated May 18, 2006
ordering the immediate execution of its Decision dated August 2, 2005 is set aside.

SO ORDERED.cralawlawlibrary

Carpio, (Chairperson), Del Castillo, Mendoza, and Perlas-Bernabe,* JJ., concur.

 SECOND DIVISION

G.R. No. 208450, June 05, 2017

SPS. ROBERTO ABOITIZ AND MARIA CRISTINA CABARRUS, Petitioners, v. SPS. PETER L. PO AND
VICTORIA L. PO, Respondents.

G.R. No. 208497

SPS. PETER L. PO AND VICTORIA L. PO, Petitioners, v. SPS. ROBERTO ABOITIZ AND MARIA
CRISTINA CABARRUS, JOSE MARIA MORAZA, AND ERNESTO ABOITIZ AND ISABEL
ABOITIZ, Respondents.

DECISION

LEONEN, J.:

This resolves two (2) Petitions for Review on Certiorari 1 assailing the Court of Appeals' October 31, 2012
Decision2 and its June 17, 2013 Resolution3 in CA-G.R. CV No. 03803. The assailed decision affirmed the
Regional Trial Court's Decision,4 which declared the spouses Peter Po and Victoria Po (Spouses Po) as the
rightful owners of the parcel of land. However, the Court of Appeals ruled that respondents Jose Maria
Moraza (Jose), spouses Ernesto Aboitiz (Ernesto), and Isabel Aboitiz (Isabel) were innocent buyers in good
faith whose titles were entitled to protection.5 The assailed resolution denied the Motion for Partial
Reconsideration of the spouses Roberto Aboitiz and Maria Cristina Cabarrus (Spouses Aboitiz). 6

The Spouses Aboitiz filed the Petition7 docketed as G.R. No. 208450. The Spouses Po filed the
Petition8 docketed as G.R. No. 208497. These cases are consolidated in the case at bar.

This case involves a parcel of land located in Cabancalan, Mandaue City,9 initially registered as Original
Certificate of Title No. 0-887, and titled under the name of Roberto Aboitiz (Roberto).10 The land is
referred to as Lot No. 2835.11

This parcel of land originally belonged to the late Mariano Seno (Mariano). 12

On July 31, 1973, Mariano executed a Deed of Absolute Sale in favor of his son, Ciriaco Seno (Ciriaco),
over a 1.0120-hectare land in Cebu covered by Tax Declaration No. 43358.13 This property included two
(2) lots: Lot No. 2807 and the land subject of this case, Lot No. 2835. 14

On May 5, 1978, Ciriaco sold the two (2) lots to Victoria Po (Victoria).15 The parties executed a Deed of
Absolute Sale.16

On July 15, 1982, Mariano died and was survived by his five (5) children (Mariano Heirs): Esperanza Seno
Vda. De Kuizon, Ramon Seno,17 Benita Seno Vda. De Lim, Simeon Seno,18 and Ciriaco.19

In 1990, Peter Po (Peter) discovered that Ciriaco "had executed a [q]uitclaim dated August 7, 1989
renouncing [his] interest over Lot [No.] 2807 in favor of [petitioner] Roberto." 20 In the quitclaim, Ciriaco
stated that he was "the declared owner of Lot [Nos.] 2835 and 2807."21

The Spouses Po confronted Ciriaco.22 By way of remedy, Ciriaco and the Spouses Po executed a
Memorandum of Agreement dated June 28, 1990 in which Ciriaco agreed to pay Peter the difference
between the amount paid by the Spouses Po as consideration for the entire property and the value of the
land the Spouses Po were left with after the quitclaim.23

However, also in 1990, Lot No. 2835 was also sold to Roberto.24 The Mariano Heirs, including Ciriaco,
executed separate deeds of absolute sale in favor of Roberto.25 Thereafter, Roberto immediately
developed the lot as part of a subdivision called North Town Homes. 26

In 1991, the Spouses Po declared Lot No. 2835 for taxation purposes and was issued Tax. Declaration No.
0634-A.27

In 1992, Roberto also declared Lot No. 2835 for taxation purposes and was issued Tax Declaration No.
1100, annotated with: "This tax declaration is also declared in the name of Mrs. VICTORIA LEE PO married
to PETER PO under [T]ax [Declaration] [N]o. 0634-A so that one may be considered a duplicate to the
other."28

On April 19, 1993, Roberto filed an application for original registration of Lot No. 2835 with the Mandaue
City Regional Trial Court, acting as land registration court.29 The case was raffled to Branch 28 and
docketed as LRC Case No. N-208.30

In its Decision dated October 28, 1993, the trial court granted the issuance of Original Certificate of Title
No. 0-887 in the name of Roberto.31 The lot was immediately subdivided with portions sold to Ernesto and
Jose.32

On November 19, 1996, the Spouses Po filed a complaint to recover the land and to declare nullity of title
with damages.33

The complaint was docketed in Branch 55, Regional Trial Court of Mandaue City.34

The trial court ruled in favor of the Spouses Po in its Decision dated November 23, 2009:

WHEREFORE, premises considered, judgment is rendered in favor of plaintiffs, and against defendants,
declaring the plaintiffs as owner of subject land and ordering the defendants reconvey and/or return to
plaintiffs Lot No. 2835; declaring as absolute nullity all the documents of sale involving Lot 2835 executed
by the Heirs of Mariano Seno in favor of defendant Roberto Aboitiz and such other documents used in the
improvident issuance of titles in the name of defendants, and to cancel the said titles. 35
The Spouses Aboitiz appealed to the Court of Appeals. The Court of Appeals, in its Decision dated October
31, 2012, partially affirmed the trial court decision, declaring the Spouses Po as the rightful owner of the
land. However, it ruled that the titles issued to respondents Jose, Ernesto, and Isabel should be
respected.36

The Court of Appeals discussed the inapplicability of the rules on double sale and the doctrine of buyer in
good faith since the land was not yet registered when it was sold to the Spouses Po. 37 However, it ruled in
favor of the Spouses Po on the premise that registered property may be reconveyed to the "rightful or
legal owner or to the one with a better right if the title [was] wrongfully or erroneously registered in
another person's name."38 The Court of Appeals held that the Mariano Heirs were no longer the owners of
the lot at the time they sold it to Roberto in 1990 because Mariano, during his lifetime, already sold this to
Ciriaco in 1973.39

It found that the Deed of Absolute Sale between Ciriaco and the Spouses Po was duly notarized and was
thus presumed regular on its face.40 Their Memorandum of Agreement did not cancel or rescind the Deed
of Absolute Sale but rather strengthened their claim that they "entered into a contract of [s]ale." 41

It likewise ruled that, contrary to the assertion of the Spouses Aboitiz, there was no showing that Ciriaco
merely held the property in trust for the Mariano Heirs.42

It held that the action of the Spouses Po had not yet prescribed because their complaint in 1996 was
within the 10-year prescriptive period as the title in favor of the Spouses Aboitiz was issued in 1994. 43

However, the Court of Appeals ruled that the certificates of title of Jose, Ernesto, and Isabel were valid as
they were innocent buyers in good faith.44

The Spouses Aboitiz thus filed their Petition for Review, which was docketed as GR. No. 208450. 45 They
argue that the Decision of Branch 55, Regional Trial Court of Mandaue City granting the complaint of the
Spouses Po is void for lack of jurisdiction over the matter.46 They claim that a branch of the Regional Trial
Court has no jurisdiction to nullify a final and executory decision of a co-equal branch;47 it is the Court of
Appeals that has this jurisdiction.48

They likewise assert that the Spouses Po's cause of action has prescribed 49 and allegedly accrued when
the Deed of Absolute Sale between the Spouses Po and Ciriaco was executed on May 5, 1978.50 They
maintain that more than 10 years had elapsed when the complaint was filed on November 12, 1996, thus
barring the action through prescription.51

The Spouses Aboitiz further insist that "estoppel and laches have already set in." 52 They claim that they
have been "in open, public, continuous, uninterrupted, peaceful[,] and adverse possession" in the concept
of owners over the property for "46 years as of 1993," without the Spouses Po acting on the Deed of
Absolute Sale.53 They attest that the development of North Town Homes Subdivision "was covered by
utmost publicity," but the Spouses Po did not immediately question the development or interpose any
objection during the registration proceedings.54

They posit that the Deed of Absolute Sale between Ciriaco and the Spouses Po is "clearly fake and
fraudulent"55 as evidenced by certifications of its non-existence in the notarial books and the Spouses Po's
failure to enforce their rights over the property until 18 years later. 56 They also affirm that the Deed of
Absolute Sale between Ciriaco and the Spouses Po's inadmissible as no documentary stamp was paid and
affixed.57

Lastly, they contend that the Mariano Heirs should have been impleaded in the action as they are
indispensable parties.58

The Spouses Po filed a Comment59 where they argued that the Regional Trial Court had jurisdiction when
it granted their complaint because the case filed by the Spouses Aboitiz was for the registration of the
land, while the case they filed was for reconveyance. 60 They insisted that their action had not prescribed
because an action for reconveyance prescribes in 10 years from the "date of issuance of the certificate of
title over the property."61 They argued that "laches ha[d] not set in."62 They claimed that the notarized
Deed of Absolute Sale between them and Ciriaco was not fake or fraudulent and was admissible in
evidence63 whereas the Spouses Aboitiz failed "to overcome [its] presumption of regularity and due
execution."64 They asserted that "the documentary stamps tax ha[d] been paid"65 and that the Mariano
Heirs were not indispensable parties.66

Spouses Aboitiz filed a Reply67 reiterating their arguments in the Petition.

The Spouses Po also filed a Petition for Review, which was docketed as G.R. No. 208497. They claim that
respondents Jose, Ernesto, and Isabel are not "innocent purchasers for value." 68 They allegedly knew of
the defective title of Roberto because his tax declaration had the following annotation: "This tax
declaration is also declared in the name of Mrs. VICTORIA LEE PO, married to PETER PO under tax dec.
No. 0634-A so that one may be considered a duplicate to the other. (Section 89 Paragraph H PD 464)." 69

Spouses Aboitiz filed a Comment.70 Aside from reiterating their assertions in their Petition for Review in
G.R No. 208450, they argued that there was no evidence that they acted in bad faith as "subdivision lot
buyers [were] not obliged to go beyond the [T]orrens title."71

Spouses Po filed a Reply.72

For resolution are the following issues:

First, whether the Regional Trial Court has jurisdiction over the Spouses Peter and Victoria Po's complaint;

Second, whether the action is barred by prescription,

Third, whether the doctrines of estoppel and laches apply;

Fourth, whether the land registration court's finding that Ciriaco Seno only held the property in trust for
the Mariano Heirs is binding as res judicata in this case;

Fifth, whether the Deed of Absolute Sale between Ciriaco Seno and the Spouses Peter and Victoria Po
should be considered as evidence of their entitlement to the property;

Sixth, whether the Mariano Heirs, as sellers in a deed of conveyance of realty, are indispensable parties;
and

Finally, whether the respondents Jose Maria Moraza, Ernesto Aboitiz, and Isabel Aboitiz are innocent
purchasers in good faith.

The Spouses Aboitiz argue that Branch 55, Regional Trial Court did not have jurisdiction to nullify the final
and executory Decision of Branch 28, Regional Trial Court in LRC Case No. N-208.73 They claim that that it
is the Court of Appeals that has jurisdiction to annul judgments of the Regional Trial Court. 74

However, the instant action is not for the annulment of judgment of a Regional Trial Court. It is a
complaint for reconveyance, cancellation of title, and damages.75

A complaint for reconveyance is an action which admits the registration of title of another party but claims
that such registration was erroneous or wrongful.76 It seeks the transfer of the title to the rightful and
legal owner, or to the party who has a superior right over it, without prejudice to innocent purchasers in
good faith.77 It seeks the transfer of a title issued in a valid proceeding. The relief prayed for may be
granted on the basis of intrinsic fraud-fraud committed on the true owner instead of fraud committed on
the procedure amounting to lack of jurisdiction.

An action for annulment of title questions the validity of the title because of lack of due process of law.
There is an allegation of nullity in the procedure and thus the invalidity of the title that is issued.

The complaint of the Spouses Po asserted that they were the true owners of the parcel of land which was
registered in the name of the Spouses Aboitiz.78 They alleged that they acquired the property from Ciriaco,
who acquired it from Mariano.79 They claimed that the Spouses Aboitiz had the property registered without
their knowledge and through fraud.80 Thus, they sought to recover the property and to cancel the title of
the Spouses Aboitiz.81 Thus the prayer in their Complaint stated:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, this Honorable Court is respectfully prayed to render judgment in
favor of plaintiffs and against defendants, ordering the latter as follows:

1. To reconvey and/or return to plaintiffs Lot No. 2835 which is the subject matter of this complaint;

2. To declare as absolute nullity all the documents of sale involving Lot 2835 in favor of defendants and
such other documents used in the improvident issuance of the Title in the name of defendants, and to
cancel said Title;

3. To pay jointly and severally the amount of P1,000,000.00 as moral damages; P500,000.00 as actual
damages; P100,000.00 as attorneys fees and P20,000.00 as litigation expenses.

Plaintiffs further pray for such other reliefs and remedies just and equitable in the premises. 82
Except for actions falling within the jurisdiction of the Municipal Trial Courts, the Regional Trial Courts
have exclusive original jurisdiction over actions involving "title to, or possession of, real
property."83 Section 19 of Batas Pambansa Blg. 129 provides:chanRoblesvirtualLawlibrary
Section 19. Jurisdiction in Civil Cases. - Regional Trial Courts shall exercise exclusive original jurisdiction:

....

(2) In all civil actions which involve the title to, or possession of, real property, or any interest therein,
except actions for forcible entry into and unlawful detainer of lands or buildings, original jurisdiction over
which is conferred upon Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial
Courts[.]
An action for reconveyance and annulment of title is an action involving the title to real property. 84

The complaint of the Spouses Po is clearly an action for reconveyance and annulment of title. Thus, the
Regional Trial Court has jurisdiction to hear the case.

The Spouses Aboitiz claim that it is the Court of Appeals that has jurisdiction over the annulment of
Regional Trial Court judgments.85

The jurisdiction of the Court of Appeals is provided in Section 9 of Batas Pambansa Blg.
129:chanRoblesvirtualLawlibrary
Section 9. Jurisdiction. - The Intermediate Appellate Court shall exercise:

....

(2) Exclusive original jurisdiction over actions for annulment of judgments of Regional Trial Courts[.]
While the Court of Appeals has jurisdiction to annul judgments of the Regional Trial Courts, the case at bar
is not for the annulment of a judgment of a Regional Trial Court. It is for reconveyance and the annulment
of title.

The difference between these two (2) actions was discussed in Toledo v. Court of Appeals:86
An action for annulment of judgment is a remedy in equity so exceptional in nature that it may be availed
of only when other remedies are wanting, and only if the judgment, final order or final resolution sought
to be annulled was rendered by a court lacking jurisdiction or through extrinsic fraud. An action for
reconveyance, on the other hand, is a legal and equitable remedy granted to the rightful owner of land
which has been wrongfully or erroneously registered in the name of another for the purpose of compelling
the latter to transfer or reconvey the land to him. The Court of Appeals has exclusive original jurisdiction
over actions for annulment of judgments of Regional Trial Courts whereas actions for reconveyance of real
property may be filed before the Regional Trial Courts or the Municipal Trial Courts, depending on the
assessed value of the property involved.

....

Petitioners allege that: first, they are the owners of the land by virtue of a sale between their and
respondents' predecessors-in-interest; and second, that respondents Ramoses and ARC Marketing illegally
dispossessed them by having the same property registered in respondents' names. Thus, far from
establishing a case for annulment of judgment, the foregoing allegations clearly show a case for
reconveyance.87 (Citations omitted)
As stated, a complaint for reconveyance is a remedy where the plaintiff argues for an order for the
defendant to transfer its title issued in a proceeding not otherwise invalid. The relief prayed for may be
granted on the basis of intrinsic rather than extrinsic fraud; that is, fraud committed on the real owner
rather than fraud committed on the procedure amounting to lack of jurisdiction.

An action for annulment of title, on the other hand, questions the validity of the grant of title on grounds
which amount to lack of due process of law. The remedy is premised in the nullity of the procedure and
thus the invalidity of the title that is issued. Title that is invalidated as a result of a successful action for
annulment against the decision of a Regional Trial Court acting as a land registration court may still
however be granted on the merits in another proceeding not infected by lack of jurisdiction or extrinsic
fraud if its legal basis on the merits is properly alleged and proven.

Considering the Spouses Aboitiz's fraudulent registration without the Spouses Po's knowledge and the
latter's assertion of their ownership of the land, their right to recover the property and to cancel the
Spouses Aboitiz's88 title, the action is for reconveyance and annulment of title and not for annulment of
judgment.

Thus, the Regional Trial Court has jurisdiction to hear this case.
 II

The Spouses Aboitiz argue that the Spouses Po's cause of action has prescribed.89 They claim that
prescription has set in because the original complaint was filed only on November 12, 1996, after more
than 10 years after the Deed of Absolute Sale between Ciriaco and Spouses Po was executed on May 5,
1978.90

The Spouses Po's action has not prescribed.

"[A]n action for reconveyance ... prescribes in [10] years from the issuance of the Torrens title over the
property."91 The basis for this is Section 53, Paragraph 3 92 of Presidential Decree No. 152993 in relation to
Articles 145694 and 1144(2)95 of the Civil Code.96

Under Presidential Decree No. 1529 (Property Registration Decree), the owner of a property may avail of
legal remedies against a registration procured by fraud:chanRoblesvirtualLawlibrary
SECTION 53. Presentation of Owner's Duplicate Upon Entry of New Certificate. - . . .

In all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies
against the parties to such fraud without prejudice, however, to the rights of any innocent holder for value
of a certificate of title...
Article 1456 of the Civil Code provides that a person acquiring a property through fraud becomes an
implied trustee of the property's true and lawful owner. 97

An implied trust is based on equity and is either (i) a constructive trust, or (ii) a resulting trust.98 A
resulting trust is created by implication of law and is presumed as intended by the parties. 99 A constructive
trust is created by force of law100 such as when a title is registered in favor of a person other than the true
owner.101

The implied trustee only acquires the right "to the beneficial enjoyment of [the] property." 102 The legal
title remains with the true owner.103 In Crisostomo v. Garcia, Jr.:104
Art. 1456 of the Civil Code provides:chanRoblesvirtualLawlibrary
Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes.
Thus, it was held that when a party uses fraud or concealment to obtain a certificate of title of property, a
constructive trust is created in favor of the defrauded party.

Constructive trusts are "created by the construction of equity in order to satisfy the demands of justice
and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or
abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good
conscience, to hold."

When property is registered in another's name, an implied or constructive trust is created by law in favor
of the true owner. The action for reconveyance of the title to the rightful owner prescribes in 10 years
from the issuance of the title.105 (Citations omitted)
Thus, the law creates a trust in favor of the property's true owner.

The prescriptive period to enforce this trust is 10 years from the time the right of action accrues. Article
1144 of the Civil Code provides:chanRoblesvirtualLawlibrary
Article 1144. The following actions must be brought within ten years from the time the right of action
accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

In an action for reconveyance, the right of action accrues from the ti.me the property is registered. 106

In Crisostomo,107 the petitioners were able to transfer the property under their names without knowledge
of the respondent.108 The respondent filed an action for reconveyance.109 In arguing that the action for
reconveyance had prescribed, the petitioners claimed that the cause of action of the respondent should be
based on the latter's Deed of Sale and thus the respondent's right of action should have accrued from its
execution.110 This Court, however, ruled that the right of action accrued from the time the property was
registered because registration is the act that signifies that the adverse party repudiates the implied
trust:chanRoblesvirtualLawlibrary
In the case at bar, respondent's action which is for Reconveyance and Cancellation of Title is based on an
implied trust under Art. 1456 of the Civil Code since he averred in his complaint that through fraud
petitioners were able to obtain a Certificate of Title over the property. He does not seek the annulment of
a voidable contract whereby Articles 1390 and 1391 of the Civil Code would find application such that the
cause of action would prescribe in four years.

....

An action for reconveyance based on implied or constructive trust prescribes in ten years from the alleged
fraudulent registration or date of issuance of the certificate of title over the property.

It is now well-settled that the prescriptive period to recover property obtained by fraud or mistake, giving
rise to an implied trust under Art. 1456 of the Civil Code, is 10 years pursuant to Art. 1144. This ten year
prescriptive period begins to run from the date the adverse party repudiates the implied trust, which
repudiation takes place when the adverse party registers the land. 111 (Citations omitted, emphasis
supplied)
Likewise, in Duque v. Domingo:112
The registration of an instrument in the Office of the Register of Deeds constitutes constructive notice to
the whole world, and, therefore , discovery of the fraud is deemed to have taken place at the time of
registration. Such registration is deemed to be a constructive notice that the alleged fiduciary or trust
relationship has been repudiated. It is now settled that an action on an implied or constructive trust
prescribes in ten (10) years from the date the right of action accrued. The issuance of Transfer Certificate
of Title No. 7501 in 1931 to Mariano Duque commenced the effective assertion of adverse title for the
purpose of the statute of limitations.113 (Citations omitted)
Registration of the property is a "constructive notice to the whole world."114 Thus, in registering the
property, the adverse party repudiates the implied trust.115 Necessarily, the cause of action accrues upon
registration.116

An action for reconveyance and annulment of title does not seek to question the contract which allowed
the adverse party to obtain the title to the property.117 What is put on issue in an action for reconveyance
and cancellation of title is the ownership of the property and its registration. 118 It does not question any
fraudulent contract119 Should that be the case, the applicable provisions are Articles 1390 120 and
1391121 of the Civil Code.122

Thus, an action for reconveyance and cancellation of title prescribes in 10 years from the time of the
issuance of the Torrens title over the property.123

Considering that the Spouses Po's complaint was filed on November 19, 1996, less than three (3) years
from the issuance of the Torrens title over the property on April 6, 1994, it is well within the 10-year
prescriptive period imposed on an action for reconveyance.

III

The Spouses Aboitiz insist that estoppel and laches have already set in. 124 They claim that they have been
in "open, continuous, public, peaceful, [and] adverse" possession in the concept of owners over the
property for "46 years as of 1993," without the Spouses Po acting on their Deed of Absolute
Sale.125 Moreover, the development of North Town Homes Subdivision "was covered by utmost publicity"
but the Spouses Po did not promptly question the development.126 In fact, they did not interpose any
objection during the registration proceedings.127

There is laches when a party was negligent or has failed "to assert a right within a reasonable time," thus
giving rise to the presumption that he or she has abandoned it.128 Laches has set in when it is already
inequitable or unfair to allow the party to assert the right.129 The elements of laches were enumerated
in Ignacio v. Basilio:chanRoblesvirtualLawlibrary
There is laches when: (1) the conduct of the defendant or one under whom he claims, gave rise to the
situation complained of; (2) there was delay in asserting a right after knowledge of the defendant's
conduct and after an opportunity to sue; (3) defendant had no knowledge or notice that the complainant
would assert his right; (4) there is injury or prejudice to the defendant in the event relief is accorded to
the complainant.130 (Citation omitted)
"Laches is different from prescription."131 Prescription deals with delay itself and thus is an issue of how
much time has passed.132 The time period when prescription is deemed to have set in is fixed by
law.133 Laches, on the other hand, concerns itself with the effect of delay and not the period of time that
has lapsed.134 It asks the question whether the delay has changed "the condition of the property or the
relation of the parties" such that it is no longer equitable to insist on the original right. 135 In Nielson & Co.,
Inc. v. Lepanto Consolidated Mining Co.:136
Appellee is correct in its contention that the defense of laches applies independently of prescription.
Laches is different from the statute of limitations. Prescription is concerned with the fact of delay. Whereas
laches is concerned with the effect of delay. Prescription is a matter of time; laches is principally a
question of inequity of permitting a claim to be enforced, this inequity being founded on some change in
the condition of the property or the relation of the parties. Prescription is statutory; laches is not. Laches
applies in equity, whereas prescription applies at law. Prescription is based on fixed time, laches is not. 137
The defense of laches is based on equity.138 It is not based on the title of the party invoking it, but on the
right holder's "long inaction or inexcusable neglect" to assert his claim.139

This Court rules that the Spouses Po is not barred by laches. There is no showing that they abandoned
their right to the property. The factual findings reveal that the Spouses Po had their rights over the
property registered in the assessor's office.140 They testified that they introduced improvements by
cultivating fruit trees after they purchased the lots.141 When the Spouses Po discovered that Ciriaco
executed a quitclaim renouncing his interest over Lot No. 2807 in favor of Roberto, the Spouses Po
executed a Memorandum of Agreement with Ciriaco to protect their interest in Lot No. 2835. 142

The Spouses Po also had the property declared for taxation purposes in their names and Tax Declaration
No. 0634-A was issued.143 Thus, when the Spouses Aboitiz also had the property declared for taxation
purposes, it had the annotation: "This tax declaration is also declared in the name of Mrs. Victoria Lee Po,
married to Peter Po under tax dec. no. 0634-A so that one may be considered a duplicate to the other."144

The Spouses Aboitiz only acquired their alleged rights over the property in 1990, when the Mariano Heirs
executed the Deeds of Sale in their favor.145 Assuming the Spouses Aboitiz immediately took possession
and began construction in 1990, it cannot be said that the Spouses Po were in delay in asserting their
right. In the Spouses Po's complaint, they asserted that they made demands upon the Spouses Aboitiz to
reconvey to them the property.146 They also referred the matter to the barangay for
conciliation:chanRoblesvirtualLawlibrary
11) That demands were made upon the defendants to reconvey to plaintiffs Lot 2835 unlawfully and
feloniously acquired by defendants, but to no avail, thereby compelling the plaintiffs to elevate the matter
for barangay conciliation, and for failure of the parties to effect a settlement, the proper Certification to
file action was then issued, a copy of which is hereto attached as Annex "L." 147
In their Answer with Counterclaim, the Spouses Aboitiz did not deny that demands were made upon them
and that the matter was elevated for barangay conciliation:chanRoblesvirtualLawlibrary
8. Par. 11 is denied as regards the all[e]gation that Lot 2835 was feloniously and un[l]awfully acquired by
defendants, for being false. The truth is that defendants were in good faith in acquiring same property.
Defendants refused to meet the demands of settlement by plaintiffs because they are strangers to the
property in question.148
When they discovered that the property was registered in the name of the Spouses Aboitiz in 1993, the
Spouses Po then filed the instant complaint to recover the property sold to them by Ciriaco, alleging that it
was done without their knowledge, through evident bad faith and fraud.149 The Spouses Po filed this case
in less than three (3) years from the time of registration.

Based on these circumstances, the elements of laches are clearly lacking in this case. There was no delay
in asserting their right over the property, and the Spouses Aboitiz had knowledge that the Spouses Po
would assert their right.
Thus, it cannot be said that they are barred by laches.

IV

The Spouses Aboitiz insist that there is already a finding by the Regional Trial Court in LRC Case No. N-
208 that Ciriaco merely held the property "in trust for the [Mariano Heirs]."150 Thus, Ciriaco could not have
validly sold the property to the Spouses Po.151 They claim that these findings are binding on the whole
world because land registration proceedings are actions in rem. 152

In the Decision in LRC Case No. N-208, no one opposed the application for registration.153 Moreover, the
Spouses Aboitiz presented only one (1) witness, Gregorio Espina (Espina), an employee of Roberto, 154 who
testified:chanRoblesvirtualLawlibrary
That this parcel of land is covered by tax declarations, to wit:

1) Tax Dec. No. 43174 in the name of Ciriaco Seno for the year 1953 (Exh. "T");

....

11) Tax Dec. No. 2835 in the name of applicant, Roberto Aboitiz for the year 1991 (Exh. "DD").

That the tax declarations covering Lot No. 2835 are in the name of Ciriaco Seno because the heirs of
Mariano Seno have agreed that Lot No. 2835 be held in trust by Ciriaco Seno in favor of the heirs. 155
This Court rules that this cannot be binding in this action for reconveyance.

Res judicata embraces two (2) concepts: (i) bar by prior judgment and (ii) conclusiveness of judgment,
respectively covered under Rule 39, Section 47 of the Rules of Court, paragraphs (b) and (c): 156
Section 47. Effect of judgments or final orders. - The effect of a judgment or final order rendered by a
court of the Philippines, having jurisdiction to pronounce the judgment or final order, may be as follows:

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

(c) In any other litigation between the same parties or their successors in interest, that only is deemed to
have been adjudged in a former judgment or final order which appears upon its face to have been so
adjudged, or which was actually and necessarily included therein or necessary thereto.
Res judicata in the concept of bar by prior judgment proscribes the filing of another action based on "the
same claim, demand, or cause of action."157 It applies when the following are present: (a) there is a final
judgment or order; (b) it is a judgment or order on the merits; (c) it was "rendered by a court having
jurisdiction over the subject matter and parties"; and (d) there is "identity of parties, of subject matter,
and of causes of action" between the first and second actions.158

Res judicata in the concept of conclusiveness of judgment applies when there is an identity of issues in
two (2) cases between the same parties involving different causes of action.159 Its effect is to bar "the
relitigation of particular facts or issues" which have already been adjudicated in the other
case.160 In Calalang v. Register of Deeds of Quezon City:161
The second concept - conclusiveness of judgment - states that a fact or question which was in issue in a
former suit and was there judicially passed upon and determined by a court of competent jurisdiction, is
conclusively settled by the judgment therein as far as the parties to that action and persons in privity with
them are concerned and cannot be again litigated in any future action between such parties or their
privies, in the same court or any other court of concurrent jurisdiction on either the same or different
cause of action, while the judgment remains unreversed by proper authority. It has been held that in
order that a judgment in one action can be conclusive as to a particular matter in another action between
the same parties or their privies, it is essential that the issue[s] be identical. If a particular point or
question is in issue in the second action, and the judgment will depend on the determination of that
particular point or question, a former judgment between the same parties or their privies will be final and
conclusive in the second if that same point or question was in issue and adjudicated in the first suit
(Nabus vs. Court of Appeals, 193 SCRA 732 [1991]). Identity of cause of action is not required but merely
identity of issues.162
However, in Racoma v. Fortich,163 this Court held that res judicata could not be a defense in an action for
reconveyance based on fraud where the complainant had no knowledge of the application for
registration:chanRoblesvirtualLawlibrary
The other ground upon which the lower court dismissed the complaint is res judicata. It is stated in the
order of dismissal that the plaintiff had admitted that the property in controversy was applied for by
defendant Maximina Fortich in a cadastral proceeding and under Act 496; that the proceedings were in
rem and, therefore, the whole world, including the plaintiff, were parties thereto and bound by the
judgment thereon... [I]t is obvious that the lower court was referring to the legal effect of the
conclusiveness against all persons of the in rem decision in the cadastral case rather than the actual fact
that the plaintiff was a claimant who appeared in the said case, for he alleged in his complaint that he
"has no knowledge whatsoever of the application for registration filed by defendant Maximina Fortich and
the order of decree of registration issued in favor of the defendant Maximina Fortich by this Honorable
Court until on February 25, 1967..." (Record on Appeal, page 30). Such being the case, then an action for
reconveyance is available to the plaintiff, the decree of registration notwithstanding, for...
"..., it is now a well-settled doctrine in this jurisdiction that the existence of a decree of registration in
favor of one party is no bar to an action to compel reconveyance of the property to the true owner, which
is an action in personam, even if such action be instituted after the year fixed by Section 38 of the Land
Registration Act as a limit to the review of the registration decree, provided it is shown that the
registration is wrongful and the property sought to be reconveyed has not passed to an innocent third
party holder for value.["]164 (Emphasis supplied)
The reason for this rule is to prevent the unjust deprivation of rights over real property. As discussed
in People v. Cainglet:165
It is fundamental and well-settled that a final judgment in a cadastral proceeding - a proceeding in rem -
is binding and conclusive upon the whole world. Reason is that public policy and public order demand not
only that litigations must terminate at some definite point but also that titles over lands under the Torrens
system should be given stability for on it greatly depends the stability of the country's economy. Interest
republicae ut sit finis litium. However, this conclusiveness of judgment in the registration of lands
is not absolute. It admits of exception. Public policy also dictates that those unjustly deprived of their
rights over real property by reason of the operation of our registration laws be afforded remedies. Thus,
the aggrieved party may file a suit for reconveyance of property or a personal action for recovery of
damages against the party who registered his property through fraud, or in case of insolvency of the party
who procured the registration through fraud, an action against the Treasurer of the Philippines for
recovery of damages from the Assurance Fund. Through these remedial proceedings, the law, while
holding registered titles indefoasible, allows redress calculated to prevent one from enriching himself at
the expense of other. Necessarily, without setting aside the decree of title, the issues raised in the
previous registration case are relitigated, for purposes of reconveyance of said title or recovery of
damages.166 (Citations omitted, emphasis supplied)
In this case, the Spouses Po allege that the registration was done through fraud. They contend that they
were unaware and were thus unable to contest the registration and prove their claim over the property.
Aside from several tax receipts, the Spouses Po formally offered as evidence, among others, the Deed of
Sale executed by Mariano in Ciriaco's favor, the Deed of Absolute Sale executed by Ciriaco in their favor,
and the Tax Declaration under Victoria's name. Additionally, they also submitted their Memorandum of
Agreement with Ciriaco and the Quitclaim executed by Ciriaco in favor of the Spouses Aboitiz.167 These
documents were not considered by the land registration court when it issued the title in favor of the
Spouses Aboitiz. The Spouses Po also offered the Application of Original Registration of Title of the
Spouses Aboitiz to prove that the Spouses Aboitiz only submitted to the land registration court the
cancelled tax declarations of Ciriaco, instead of the tax declaration of the Spouses Po. 168

Thus, the ruling of the land registration court cannot be so conclusive as to deny the Spouses Po the
remedy afforded to them by law. The action for reconveyance allows them to prove their ownership over
the property. Hence, they are not precluded from presenting evidence that is contrary to the findings in
the land registration case.

The factual findings of the land registration court are not being questioned. An action for reconveyance
based on an implied trust seeks to compel the registered owner to transfer the property to its true
owner.169 In Hortizuela v. Tagufa:170
[A]n action for reconveyance is a recognized remedy, an action in personam, available to a person whose
property has been wrongfully registered under the Torrens system in another's name. In an action for
reconveyance, the decree is not sought to be set aside. It does not seek to set aside the decree but,
respecting it as incontrovertible and no longer open to review, seeks to transfer or reconvey the land from
the registered owner to the rightful owner. Reconveyance is always available as long as the property has
not passed to an innocent third person for value.

There is no quibble that a certificate of title, like in the case at bench, can only be questioned through a
direct proceeding. The MCTC and the CA, however, failed to take into account that in a complaint for
reconveyance, the decree of registration is respected as incontrovertible and is not being questioned.
What is being sought is the transfer of the property wrongfully or erroneously registered in another's
name to its rightful owner or to the one with a better right. If the registration of the land is fraudulent, the
person in whose name the land is registered holds it as a mere trustee, and the real owner is entitled to
file an action for reconveyance of the property.171 (Citations omitted, emphasis supplied)
Likewise in Naval v. Court of Appeals:172
Ownership is different from a certificate of title. The fact that petitioner was able to secure a title in her
name did not operate to vest ownership upon her of the subject land. Registration of a piece of land under
the Torrens System does not create or vest title, because it is not a mode of acquiring ownership. A
certificate of title is merely an evidence of ownership or title over the particular property described
therein. It cannot be used to protect a usurper from the true owner; nor can it be used as a shield for the
commission of fraud; neither does it permit one to enrich himself at the expense of others. Its issuance in
favor of a particular person does not foreclose the possibility that the real property may be coowned with
persons not named in the certificate, or that it may be held in trust for another person by the registered
owner.

As correctly held by the Court of Appeals, notwithstanding the indefeasibility of the Torrens title, the
registered owner may still be compelled to reconvey the registered property to its true owners. The
rationale for the rule is that reconveyance does not set aside or re-subject to review the findings of fact of
the Bureau of Lands. In an action for reconveyance, the decree of registration is respected as
incontrovertible. What is sought instead is the transfer of the property or its title which has been
wrongfully or erroneously registered in another person's name, to its rightful or legal owner, or to the one
with a better right.173 (Citations omitted, emphasis supplied)
The rationale for allowing reconveyance despite the finality of the registration is that the issuance of a
certificate of title does not create or vest ownership to a person over the property.174 Registration under
the Torrens system "is not a mode of acquiring ownership."175 A certificate is only a proof of
ownership.176 Thus, its issuance does not foreclose the possibility of having a different owner, and it
cannot be used against the true owner as a shield for fraud.177

In an action for reconveyance, the parties are obliged to prove their ownership over the property.
Necessarily, the parties may present evidence to support their claims. The court must weigh these pieces
of evidence and decide who between the parties the true owner is. Therefore, it cannot be bound simply
by the factual findings of the land registration court alone.

An exception to this rule is if the party claiming ownership has alreadfs had the opportunity to prove his or
her claim in the land registration case.178 In such a case, res judicata will then apply.179 When an issue of
ownership has been raised in the land registration proceedings where the adverse party was given full
opportunity to present his or her claim, the findings in the land registration case will constitute a bar from
any other claim of the adverse party on the property.180

However, this is not the circumstance in the case at bar. The Spouses Po were not able to prove their
claim in the registration proceedings. Thus, res judicata cannot apply to their action for reconveyance.

The Spouses Aboitiz posit that the Deed of Absolute Sale between Ciriaco and the Spouses Po is fake and
fraudulent.181 They argue that this is evidenced by certifications of the document's non-existence in the
notarial books and the Spouses Po's failure to enforce their rights over the property until 18 years
later.182 They also claim that the Deed of Absolute Sale is inadmissible as no documentary stamp was paid
and affixed.183
This Court notes that the Spouses Aboitiz are raising questions of fact which are not within the scope of a
review on certiorari under Rule 45 of the Rules of Court. 184 An appeal under Rule 45 must raise only
questions of law, unless the factual findings are not supported by evidence or the judgment is based on a
misapprehension of facts.185 Absent these exceptions, the factual findings of the lower courts are accorded
respect and are beyond the review ofthis Court. 186

The Spouses Aboitiz failed to prove that these exceptions exist in the case at bar. The Regional Trial Court
lent credence to documents presented by the Spouses Po, Peter's testimony about Mariano's sale of the
property to Ciriaco,187 Ciriaco's sale of the property to the Spouses Po, and the issuance of a Tax
Declaration in the name ofVictoria.188

During trial, Peter also testified that after they bought the land, they had a caretaker who cultivated the
property by planting fruit trees.189 He claimed that when they subsequently discovered the quitclaim
executed by Ciriaco in favor of the Spouses Aboitiz, they executed a Memorandum of Agreement to
protect their interests in the property.190 He stated that they filed a complaint in the barangay when the
Spouses Aboitiz started cutting down their improvements and that they subsequently discovered that
Ciriaco was forced by the Mariano Heirs to sell the property to the Spouses Aboitiz. 191

The Spouses Aboitiz presented as their first witness Armando Avenido, who testified according to the
records only.192 He claimed that he was familiar with the land which was being developed by Aboitiz Land.
He testified that Roberto acquired the land through separate Deeds of Sale from the Mariano Heirs, had
the tax declaration transferred in his name, paid the taxes on the property, applied for the property's
registration, and developed the property into a subdivision. 193 During cross-examination it was revealed
that the tax declaration of the Spouses Po was issued before the tax declaration of the Spouses Aboitiz
and that the Spouses Po acquired from Ciriaco the entire land, while the Spouses Aboitiz purchased only
one-fifth (1/5) of the property.194

The Spouses Aboitiz's second witness, Bienvenido Escoton, testified that he was a mason working in the
subdivision on the road lot and that he knew no person claiming ownership of the land since 1989. 195

The Regional Trial Court thus held:chanRoblesvirtualLawlibrary

Analyzing the adduced and admitted evidence of both parties, Art. 1544 of the Civil Code cannot be aptly
applied in the case at bar, for reason that only the sale of Ciriaco Seno (Exh. "A" Exh. A/1" Exh. 2"/ A, A-1
and A-2) has the validating elements of sale, whereas the rest of the Deeds of Sale (Exhs 1 to 5) executed
by the Heirs of Mariano Seno in favor of the Defendants are void, for containing untruthful statements as
pleaded and proven. They are no longer the owners of the subject property when they executed the
several Deeds of Conveyance to defendant Roberto Aboitiz.

On the first issue on the identity and location of the land, the sale of Ciriaco Seno to Plaintiffs (Exh. "A")
reflected in the Tax Declarations that the Defendants used in their titling proceeding is the very same lot
as certified by the Barangay Captain dated July 28, 1999 under Plaintiff's Request for Admission.

Concerning the second formulated issue, only the Deed of Sale executed by Ciriaco Seno was valid with all
the attending requisites of sale. It was sold by the legitimate owner of the land, Ciriaco Seno to the
Plaintiffs. The sale (Exh. A, Exhibit "X") enjoyed preferential date of execution, being dated or executed in
1978 by the lawful owner Ciriaco Seno who was first to register the sale in the Registry of Property office,
and due to such registration, the Tax Declaration of Ciriaco Seno, was cancelled and a new Tax
Declaration was issued in the name of Victoria Po for as shown in Exh. E the said tax declaration
succeeded in canceling the Tax Declaration of Mariano Seno (Exh. C) and was issued thereafter a Tax
Declaration in the name of C[i]riaco Seno (Exh. D). So, when the latter sold the subject land to plaintiffs
in 1978, the same was already owned by C[i]riaco Seno.

When Mariano Seno died in 1982, the subject land owned by C[i]riaco Seno, naturally, is not part of the
estate of Mariano Seno, for at that point in time, the subject land is now owned by plaintiffs Sps. Po, and
the same was declared in their names (Exh. "D" "E" & "E-1").

As to the issue whether defendant Roberto Aboitiz was a purchaser in good faith and for value, the Court
holds that defendant Roberto Aboitiz was not a purchaser in good faith and for value for he was already
informed of the ownership of plaintiffs over the subject land during the conciliation proceedings before the
barangay official when plaintiffs filed a barangay case against him.

....

In this case, the Court believes that defendant Roberto Aboitiz is aware of the proprietary rights of the
plaintiffs considering the land was already declared for taxation purposes in plaintiffs' names after the tax
declaration of said land, first in the name of Mariano Seno was cancelled and another one issued in the
name of C[i]riaco Seno when the latter bought the said land from his father Mariano Seno, and after the
said tax declaration in the name of C[i]riaco Seno was cancelled and another one issued in the name of
plaintiffs herein.

So, defendant Roberto Aboitiz purchased the subject land from the Heirs of Mariano Seno who are no
longer the owners thereof and the tax declaration of subject land was no longer in the name of Mariano
Seno nor in the name of Heirs of Mariano Seno.

The City Assessor of Mandaue City even issued a Certification (Exh. X) to the effect that Tax Declaration
No. 0634-A in the name of Mrs. Victoria Lee Po married to Peter Po was issued prior to the issuance of
T.D. No. 1100 in the name of Roberto Aboitiz married to Maria Cristina Cabarruz.

Buyers of any untitled parcel of land for that matter, to protect their interest, will first verify from the
Assessor's Office that status of said land whether it has clean title or not. 196
With the exception of its ruling regarding respondents Jose, Ernesto, and Isabel being purchasers in good
faith, these factual findings were affirmed by the Court of Appeals.

Thus, there is no showing that the factual findings are not supported by evidence or that the judgment
seems to be based on a misapprehension of facts. Therefore, the factual findings of the lower courts are
binding.

Furthermore, this Court finds that the Spouses Aboitiz failed to prove their claim of fraud. The Spouses
Aboitiz attempted to prove that the Deed of Absolute Sale between Ciriaco and the Spouses Po was fake
and fraudulent by presenting certifications of its non-existence in the notarial books of the notary public
who notarized the document.197

However, a review of the certifications does not even state that the document does not exist in the
notarial books.

The Certification dated April 1, 1997 of the Records Management and Archives Office of the Department of
Education, Culture and Sports states:chanRoblesvirtualLawlibrary
This is to certify that per records of this Office, Deed of Sale executed by and between Ciriaco Seno and
Victoria Lee known as Doc. No. 66; Page No. 14; Book No. I; Series of 1978 entered in the Notarial
Register of Notary Public Jesus Pono is not among the documents transferred by the Regional Trial Court
of Cebu for safekeeping.198
Likewise, the Certification dated April 4, 1997 of the Office of the Clerk of Court of the Regional Trial Court
of Cebu, 7th Judicial Region, Cebu City provides:chanRoblesvirtualLawlibrary
This is to certify that as per notarial records on file with this office, available and found as of this date,
Atty. Jesus M. Pono had been issued a Notarial Commission for the term 1978-1979.

It is further certifie[d] that said Notary Public has not submitted his notarial reports for the year 1978-
1979 in this office wherein the Deed of Sale as stated on the letter dated March 31, 1997 designated as
Doc. no. 66; Page no. 14; Book No. I and Series of 1978 is allegedly included. 199 (Emphasis supplied)
These Certifications do not declare that the Deed of Absolute Sale does not exist. They only state that at
the time of their issuance, the Notary Public had not submitted his notarial reports or that the document
had not been transferred to the archives for safekeeping. It cannot logically be concluded from these
certifications that the document is inexistent, false, or fraudulent.

In any case, the Notary Public's failure to submit his or her notarial report does not auect the act of
notarization.200
Rule 132, Section 30 of the Rules of Court provides that:chanRoblesvirtualLawlibrary
Section 30. Proof of notarial documents. - Every instrument duly acknowledged or proved and certified as
provided by law, may be presented in evidence without further proof, the certificate of acknowledgment
being prima facie evidence of the execution of the instrument or document involved.
When a private document is notarized, the document is converted to a public document which is presumed
regular, admissible in evidence without need for proof of its authenticity and due execution, and entitled
to full faith and credit upon its face.201

To overturn the presumption in favor of a notarized document, the party questioning it must present
"clear, convincing, and more than merely preponderant evidence."202

Thus, parties who appear before a Notary Public should not be prejudiced by the failure of the Notary
Public to follow rules imposed by the Notarial Law.203 They are not obliged to ensure that the Notary Public
submits his or her notarial reports.204

The Spouses Aboitiz failed to present clear and convincing evidence to overturn the presumption. The
notarized Deed of Absolute Sale between Ciriaco and the Spouses Po is, thus, presumed regular and
authentic.

Consequently, this Court can affirm the finding that the property was sold to Ciriaco in 1973, and that
Ciriaco, as the owner of the property, had the right to sell it to the Spouses Po. Hence, the lot did not form
part of the estate of Mariano, and the Mariano Heirs did not have the capacity to sell the property to the
Spouses Aboitiz later on.

VI

The Spouses Aboitiz argue that the Mariano Heirs are indispensable parties who should have been
impleaded in this case.205

The Mariano Heirs are not indispensable parties.

Rule 3, Section 7 of the Revised Rules of Court provides:chanRoblesvirtualLawlibrary

Section 7. Compulsory Joinder of Indispensable Parties. - Parties in interest without whom no final
determination can be had of an action shall be joined either as plaintiffs or defendants.
An indispensable party is the party whose legal presence in the proceeding is so necessary that "the action
cannot be finally determined" without him or her because his or her interests in the matter and in the
relief "are so bound up with that of the other parties."206

The property owners against whom the action for reconveyance is filed are indispensable parties. 207 No
relief can be had, and the court cannot render a valid judgment, without them.208 The property has been
sold to respondents Jose, Ernesto, and Isabel.209 Thus, they are indispensable parties.

However, the seller of the property is not an indispensable party.210 In Spring Homes Subdivision Co., Inc.
v. Spouses Tablada, Jr.:211
Similarly, by virtue of the second Deed of Absolute Sale between Spring Homes and the Spouses Lumbres,
the Spouses Lumbres became the absolute and registered owner of the subject property herein. As such,
they possess that certain interest in the property without which, the courts cannot proceed for settled is
the doctrine that registered owners of parcels of land whose title is sought to be nullified should be
impleaded as an indispensable party. Spring Homes, however, which has already sold its interests in the
subject land, is no longer regarded as an indispensable party, but is, at best, considered to be a necessary
party whose presence is necessary to acijudicate the whole controversy, but whose interests are so far
separable that a final decree can be made in its absence without affecting it. This is because when Spring
Homes sold the property in question to the Spouses Lumbres, it practically transferred all its interests
therein to the said Spouses. In fact, a new title was already issued in the names of the Spouses Lumbres.
As such, Spring Homes no longer stands to be directly benefited or injured by the judgment in the instant
suit regardless of whether the new title registered in the names of the Spouses Lumbres is cancelled in
favor of the Spouses Tablada or not. Thus, contrary to the ruling of the RTC, the failure to summon Spring
Homes does not deprive it of jurisdiction over the instant case for Spring Homes is not an indispensable
party.212 (Citations omitted, emphasis supplied).
The Mariano Heirs, as the alleged sellers of the property, are not indispensable parties. They are at best
necessary parties, which are covered by Rule 3, Section 8 of the Rules of
Court:chanRoblesvirtualLawlibrary
Section 8. Necessary Party. - A necessary party is one who is not indispensable but who ought to be
joined as a party if complete relief is to be accorded as to those already parties, or for a complete
determination or settlement of the claim subject of the action.
Necessary parties may be joined in the case "to adjudicate the whole controversy," but the case may go
on without them because a judgment may be rendered without any effect on their rights and interests. 213

The Mariano Heirs may likewise be considered material witnesses to the action. A material matter to which
a witness can testify on can be a "main fact which was the subject of the inquiry" or any circumstance or
fact "which tends to prove" the fact subject of the inquiry, "which tends to corroborate or strengthen the
testimony relative to such inquiry," and "which legitimately affects the credit of any witness who
testifies."214

The validity of the Deeds of Sale allegedly executed by the parties in this case is a material matter in
determining who the true owner of the property is. Thus, the Mariano Heirs, including Ciriaco, may testify
as to the Deeds of Sale they executed to prove which sale is the valid one.

However, it is clear that the Mariano Heirs are not indispensable parties. They have already sold all their
interests in the property to the Spouses Aboitiz. They will no longer be affected, benefited, or injured by
any ruling of this Court on the matter, whether it grants or denies the complaint for reconveyance. The
ruling of this Court as to whether the Spouses Po are entitled to reconveyance will not affect their rights.
Their interest has, thus, become separable from that of Jose, Ernesto, and Isabel.

Thus, the Court of Appeals correctly ruled that the Mariano Heirs are not indispensable parties.

VII

Despite these findings, the Spouses Po cannot recover the property. Respondents Jose, Ernesto, and
Isabel are innocent purchasers for value.

An innocent purchaser for value refers to the buyer of the property who pays for its full and fair price
without or before notice of another person's right or interest in it. 215 He or she buys the property believing
that "the [seller] [i]s the owner and could [transfer] the title to the property." 216

The Spouses Po argue that respondents Jose, Ernesto, and Isabel are not innocent purchasers for value
because the tax declaration over the property has the following annotation:chanRoblesvirtualLawlibrary
This tax declaration is also declared in the name of Mrs. Victoria Lee Po, married to Peter Po under tax
dec. no. 0634-A so that one may be considered a duplicate to the other.
However, if a property is registered, the buyer of a parcel of land is not obliged to look beyond the
transfer certificate of title to be considered a purchaser in good faith for value. 217

Section 44 ofPresidential Decree No. 1529 218 states:chanRoblesvirtualLawlibrary

Section 44. Statutory liens affecting title. - Every registered owner receiving a certificate of title in
pursuance of a decree of registration, and every subsequent purchaser of registered land taking a
certificate of title for value and in good faith, shall hold the same free from all encumbrances except those
noted in said certificate and any of the following encumbrances which may be subsisting, namely:

First. Liens, claims or rights arising or existing under the laws and Constitution of the Philippines which are
not by law required to appear of record in the Registry of Deeds in order to be valid against subsequent
purchasers or encumbrancers of record.

Second. Unpaid real estate taxes levied and assessed within two years immediately preceding the
acquisition of any right over the land by an innocent purchaser for value, without prejudice to the right of
the government to collect taxes payable before that period from the delinquent taxpayer alone.
Third. Any public highway or private way established or recognized by law, or any government irrigation
canal or lateral thereof, if the certificate of title does not state that the boundaries of such highway or
irrigation canal or lateral thereof have been determined.

Fourth. Any disposition of the property or limitation on the use thereof by virtue of, or pursuant to,
Presidential Decree No. 27 or any other law or regulations on agrarian reform. (Emphasis supplied)
In Cruz v. Court of Appeals:219
The real purpose of the Torrens system of registration is to quiet title to land and to put a stop to any
question of legality of the title except claims which have been recorded in the certificate of title at the time
of registration or which may arise subsequent thereto. Every registered owner and every subsequent
purchaser for value in good faith holds the title to the property free from all encumbrances except those
noted in the certificate. Hence, a purchaser is not required to explore further what the Torrens title on its
face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right
thereto.

Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire
rights over the property the court cannot disregard such rights and order the total cancellation of the
certificate. The effect of such an outright cancellation would be to impair public confidence in the
certificate of title, for everyone dealing with property registered under the Torrens system would have to
inquire in every instance whether the title has been regularly or irregularly issued. This is contrary to the
evident purpose of the law. Every person dealing with registered land may safely rely on the correctness
of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate
to determine the condition of the property. Even if a decree in a registration proceeding is infected with
nullity, still an innocent purchaser for value relying on a Torrens title issued in pursuance thereof is
protected.220
The rationale for this rule is the public's interest in sustaining "the indefeasibility of a certificate of title, as
evidence of the lawful ownership of the land or of any encumbrance" on it.221 In Leong v. See:222
The Torrens system was adopted to "obviate possible conflicts of title by giving the public the right to rely
upon the face of the Torrens certificate and to dispense, as a rule, with the necessity of inquiring further."

One need not inquire beyond the four comers of the certificate of title when dealing with registered
property...

....

The protection of innocent purchasers in good faith for value grounds on the social interest embedded in
the legal concept granting indefeasibility of titles. Between the third party and the owner, the latter would
be more familiar with the history and status of the titled property. Consequently, an owner would incur
less costs to discover alleged invalidities relating to the property compared to a third party. Such costs
are, thus, better borne by the owner to mitigate costs for the economy, lessen delays in transactions, and
achieve a less optimal welfare level for the entire society.223 (Citations omitted)
Thus, respondents were not obliged to look beyond the title before they purchased the property. They
may rely solely on the face of the title.

The only exception to the rule is when the purchaser has actual knowledge of any defect or other
circumstance that would cause "a reasonably cautious man" to inquire into the title of the seller. 224 If
there is anything which arouses suspicion, the vendee is obliged to investigate beyond the face of the
title.225 Otherwise, the vendee cannot be deemed a purchaser in good faith entitled to protection under
the law.226

In this case, there is no showing that respondents Jose, Ernesto, and Isabel had any knowledge of the
defect in the title. Considering that the annotation that the Spouses Po are invoking is found in the tax
declaration and not in the title of the property, respondents Jose, Ernesto, and Isabel cannot be deemed
purchasers in bad faith.

WHEREFORE, the Court of Appeals' October 31, 2012 Decision227 and its June 17, 2013 Resolution228 in
CA-G.R. CV No. 03803 is AFFIRMED.

SO ORDERED.
Carpio, (Chairperson), and Peralta, JJ., concur.
Mendoza, and Martires, JJ., on official leave.
 SECOND DIVISION

June 19, 2017

G.R. No. 227005

BDO UNIBANK, INC., Petitioner

vs.
ENGR. SELWYN LAO, doing business under the name and style "SELWYN F. LAO CONSTRUCTION" AND "WING
AN CONSTRUCTION AND DEVELOPMENT CORPORATION" and INTERNATIONAL EXCHANGE BANK (now
UNION BANK OF THE PHILIPPINES),, Respondents

DECISION

MENDOZA, J.:

This is a petition for review on certiorari seeking to reverse and set aside the October 14, 2015 Decision1 and the
September 5, 2016 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 100351, which affirmed, with
modification, the July 9, 2012 Decision3 of the Regional Trial Court, Branch 55, Manila (RTC) in Civil Case No. 99-93068,
a case for collection of sum of money.

The Antecedents

On March 9, 1999, respondent Engineer Selwyn S. Lao (Lao) filed before the RTC a complaint for collection of sum of
money against Equitable Banking Corporation, now petitioner Banco de Oro Unibank (BDO), Everlink Pacific Ventures,
Inc. (Ever/ink), and Wu Hsieh a.k.a.George Wu (Wu).

In his complaint, Lao alleged that he was doing business under the name and style of "Selwyn Lao Construction"; that he
was a majority stockholder of Wing An Construction and Development Corporation (WingAn); that he entered into a
transaction with Ever link, through its authorizedrepresentative Wu, under which, Everlink would supply him with "HCG
sanitary wares"; and that for the down payment, he issued two (2) Equitable crossed checks payable to Everlink: Check
No. 0127-2422494 and Check No. 0127-242250,5 in the amounts of ₱273,300.00 and ₱336,500.00, respectively.

Lao further averred that when the checks were encashed, he contacted Everlink for the immediate delivery of the sanitary
wares, but the latter failed to perform its obligation. Later, Lao learned that the checks were deposited in two different
bank accounts at respondent International Exchange Bank, now respondent Union Bank of the
Philippines (UnionBank). He was later informed that the two bank accounts belonged to Wuand a company named New
Wave Plastic (New Wave), represented by a certain Willy Antiporda (Antiporda). Consequently, Lao was prompted to file
a complaint against Everlink and Wu for their failure to comply with their obligation and against BDO for allowing the
encashment of the two (2) checks. He later withdrew his complaint against Everlink as the corporation had ceased
existing.

In its answer, BDO asserted that it had no obligation to ascertain the owner of the account/s to which the checks were
deposited because the instruction to deposit the said checks to the payee's account only was directed to the payee and
the collecting bank, which in this case was Union Bank; that as the drawee bank, its obligations consist in examining the
genuineness of the signatures appearing on the checks, and paying the same if there were sufficient funds in the account
under which the checks were drawn; and that the subject checks were properly negotiated and paid in accordance with
the instruction of Lao in crossing them as they were deposited to the account of the payee Ever link with Union Bank,
which then presented them for payment with BDO.

On August 24, 2001, Lao filed an Amended Complaint, wherein he impleaded Union Bank as additional defendant for
allowing the deposit of the crossed checks in two bank accounts other than the payee's, in violation of its obligation to
deposit the same only to the payee's account.

In its answer, Union Bank argued that Check No. 0127-242249 was deposited in the account of Everlink; that Check No.
0127-242250 was validly negotiated by Everlink to New Wave; that Check No. 0127-242250 was presented for payment
to BDO, and the proceeds thereof were credited to New Wave's account; that it was under no obligation to deposit the
checks only in the account of Everlink because there was nothing on the checks which would indicate such restriction;
and that a crossed check continues to be negotiable, the only limitation being that it should be presented for payment by a
bank.

During trial, BDO presented as its witnesses Elizabeth P. Tinimbang (Tinimbang) and Atty. Carlos Buenaventura (Atty.
Buenaventura).

Tinimbang testified that Everlink was the payee of the two (2) crossed checks issued by their client, Wing An; that the
checks were deposited with Union Bank, which presented them to BDO for payment. She further narrated that after the
checks were cleared and that the drawer's signatures on the checks were determined to be genuine, that there was
sufficient fund to cover the amounts of the checks, and that there was no order to stop payment, the checks were paid by
BDO. Tinimbang continued that sometime in July 1998, BDO received a letter from Wing An stating that the amounts of
the checks were not credited to Everlink's account. This prompted BDO to write a letter to Union Bank demanding the
latter to refund the amounts of the checks. In a letter-reply, Union Bank claimed that the checks were deposited in the
account of Everlink.

Atty. Buenaventura claimed that BDO gave credence to Union Bank's representation that the checks were indeed credited
to the account of Everlink. He stated that BDO's only obligations under the circumstances were to ascertain the
genuineness of the checks, to determine if the account was sufficiently funded and to credit the proceeds to the collecting
bank. On cross-examination, Atty. Buenaventura clarified that Union Bank endorsed the crossed checks as could be seen
on the dorsal portion of the subject checks. According to him, such endorsement meant that the lack of prior endorsement
was guaranteed by Union Bank.

For its part, Union Bank presented as its witness Jojina Lourdes C. Vega (Vega), its Branch Business Manager. Vega
testified that the transaction history of Everlink's account with Union Bank and the notation at the back of the check
indicating Everlink's Account No. (005030000925) revealed that the proceeds of Check No. 0127-242249 were duly
credited to Everlink's account on September 22, 1997. As regards Check No. 0127-242250, Vega clarified that the
proceeds of the same were credited to New Wave's account. She explained that New Wave was a valued client of Union
Bank. As a form of accommodation extended to valued clients, Union Bank would request the signing of a second
endorsement agreement because the payee was not the same as the account holder. In this case, Antiporda executed a
Deed of Undertaking (Second Endorsed Checks) wherein he assumed the responsibilities for the correctness,
genuineness, and validity of the subject checks.

The RTC Ruling

In its Decision, dated July 9, 2012, the RTC absolved BDO from any liability, but ordered Union Bank to pay Lao the
amount of ₱336,500.00, representing the value of Check No. 0127-242250; ₱50,000.00 as moral damages; ₱l00,000.00
as exemplary damages; and ₱50,000.00 as attorney's fees.

The RTC observed that there was nothing irregular with the transaction of Check No. 0127-242249 because the same
was deposited in Everlink's account with Union Bank. It, however, found that Check No. 0127-242250 was irregularly
deposited and encashed because it was not issued for the account of Everlink, the payee, but for the account of New
Wave. The trial court noted further that Check No. 0127-242250 was not even endorsed by Everlink to New Wave. Thus,
it opined that Union Bank was negligent in allowing the deposit and encashment of the said check without proper
endorsement. The R TC wrote that considering that the subject check was a crossed check, Union Bank failed to take
reasonable steps in order to determine the validity of the representations made by Antiporda. In the end, it adjudged that
BDO could not be held liable because of Union Bank's warranty when it stamped on the check that "all prior endorsement
and/or lack of endorsement guaranteed." The dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is herebyrendered in FAVOR of the plaintiff Engr. Selwyn F. Lao and
AGAINST the defendant International Exchange Bank (now Union Bank) ordering the latter to pay the former the
following:

1. The amount of Three Hundred Thirty Six Thousand Five Hundred Pesos (₱336,500.oo) representing
the Equitable Bank Check No. 0127-242250;

2. The amount of Fifty Thousand Pesos (₱50,ooo.oo) representing moral damages;

3. The amount of One Hundred Thousand Pesos (₱100,ooo.oo) representing exemplary damages; and,

4. The amount of Fifty Thousand Pesos (₱50,ooo.oo) as attorney's fees.

The Complaints against defendants Equitable Banking Corporation (now Banco de Oro) and Wu Shu Chien a.k.a. George
Wu are hereby ordered DISMISSED.

Costs against the defendant International and Exchange Bank (now Union Bank).

SO ORDERED. 6

Aggrieved, Union Bank elevated an appeal to the CA. 7

The CA Ruling

In its assailed Decision, dated October 14, 2015, the CA affirmed, with modification, the ruling of the R TC. It ordered
BDO to pay Lao the amount of ₱336,500.00, with legal interest from the time of filing of the complaint until its full
satisfaction. The appellate court further directed Union Bank to reimburse BDO the aforementioned amount. It concurred
with the RTC that Union Bank was liable because of its negligence and its guarantee on the validity of all prior
endorsements or lack of it.

With regard to BDO's liability, the CA explained that it violated its duty to charge to the drawer's account only those
authorized by the latter when it paid the value of Check No. 0127-242250. Thus, it held that BDO was liable for the
amount charged to the drawer's account. The fallo reads:

FOR THESE REASONS, the appeal is PARTLY GRANTED. The July 9, 2012 Decision of the Regional Trial Court of
Manila, Branch 55 is AFFIRMED with MODIFICATIONS that Equitable Bank is ordered to pay Selwyn Lao the amount
corresponding to Check No. 0127-242250, i.e., ₱336,500.oo, with legal interest from the time of filing of the complaint until
the amount is fully paid. International Exchange Bank (now Union Bank of the Philippines) is ordered to reimburse
Equitable Bank the abovementioned amount. The award of damages and attorney's fees is DELETED. The rest of the
Decision stands.

SO ORDERED.8

On November 5, 2012, BDO filed its Motion for Partial Reconsideration. It argued that neither Lao nor Union Bank
appealed the dismissal of the complaint against it, thus, the RTC decision had already attained finality as far as it was
concerned. It also prayed that Lao should be allowed to recover directly from Union Bank.

In its assailed Resolution, dated September 6, 2016, the CA denied BDO's Motion for Partial Reconsideration. It
ratiocinated that in Bank ofAmerica, NT & SA v. Associated Citizens Bank, 9 (Bank of America) thedrawee bank was
adjudged liable for the amount charged to the drawer's account, while the collecting bank was ordered to reimburse the
drawee bank whatever amount the latter was made to pay.

Hence, this petition anchored on the following:

GROUNDS

I.
ISSUES NOT RAISED BY THE PARTIES ON APPEAL CANNOT BE REVIEWED NOR RULED UPON BY THE
APPELLATE COURT.

II.

A COLLECTING BANK ASSUMES RESPONSIBILITY FOR A CROSSED CHECK AS A GENERAL ENDORSER IN

ACCORDANCE WITH SECTION 66 OF THE NEGOTIABLE INSTRUMENTS LAW.

III.

THE PARTY WHICH DID NOT EXERCISE THE REQUIRED DILIGENCE IS THE CAUSE OF THE LOSS AND BEARS
THE DAMAGES. 10

BDO argued that the CA's order for it to pay Lao was erroneous as the RTC had already adjudged with finality that it was
not liable. It posited that the appellate court could not resolve issues not raised on appeal by both parties thereto. BDO
pointed out that it was not a party in the appeal before the CA. It further stressed that neither Lao nor Union Bank assailed
the R TC decision with respect to the dismissal of the complaint against it during the appeal before the CA, and even on
motion for reconsideration before the R TC. Thus, for failure to appeal therefrom, the R TC decision had already attained
finality as to BDO.

BDO further averred that Union Bank, as the collecting bank and last endorser, must suffer the loss because it had the
duty to ascertain the genuineness of all prior endorsement. It asserted that as the drawee bank, it could not be held liable
because it merely relied on Union Bank's express guarantee. It added that the proximate cause of the loss suffered by
Lao was the negligence of Union Bank when it allowed the deposit of the crossed check intended for Everlink to New
Wave's account.

In his Comment, 11 dated January 26,2017, Lao asserted that the CA did not commit any error when it resolved the issue
on the liability of BDO even if it was not raised on appeal. He was of the view that the said issue was inextricably
intertwined with the principal issue. Lao stated that the CA correctly adjudged BDO liable, without prejudice to its right to
seek reimbursement from Union Bank, as it was the correct sequence in the enforcement of payment in cases where the
collecting bank allowed a crossed check to be deposited in the account of a person other than the payee.

Union Bank did not file any comment on BDO's petition.

The Court's Ruling

The petition is meritorious.

Ordinarily, this Court would have concurred with the CA as regards the applicability of Bank of America. There is,
however, a peculiar circumstance which would prevent the application of Bank of America in the present case.

Sequence of Recovery in cases of unauthorized payment of checks

The Court agrees with the appellate court that in cases of unauthorized payment of checks to a person other than the
payee named therein, the drawee bank may be held liable to the drawer. The drawee bank, in turn, may seek
reimbursement from the collecting bank for the amount of the check. This rule on the sequence of recovery in case of
unauthorized check transactions had already been deeply embedded in jurisprudence. 12

The liability of the drawee bank is based on its contract with the drawer and its duty to charge to the latter's accounts only
those payables authorized by him. A drawee bank is under strict liability to pay the check only to the payee or to the
payee's order. When the drawee bank pays a person other than the payee named in the check, it does not comply with
the terms of the check and violates its duty to charge the drawer's account only for properly payable items. 13

On the other hand, the liability of the collecting bank is anchored on its guarantees as the last endorser of the check.
Under Section 66 of the Negotiable Instruments Law, an endorser warrants "that the instrument is genuine and in all
respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the
instrument is at the time of his endorsement valid and subsisting."
It has been repeatedly held that in check transactions, the collecting bank generally suffers the loss because it has the
duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment
to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the
endorsements. If any of the warranties made by the collecting bank turns out to be false, then the drawee bank may
recover from it up to the amount of the check. 14

In the present case, BDO paid the value of Check No. 0127-242250 to Union Bank, which, in turn, credited the amount to
New Wave's account. The payment by BDO was in violation of Lao's instruction because the same was not issued in
favor of Everlink, the payee named in the check. It must be pointed out that the subject check was not even endorsed by
Everlink to New Wave. Clearly, BDO violated its duty to charge to Lao's account only those payables authorized by him.

Nevertheless, even with such clear violation by BDO of its duty, the loss would have ultimately pertained to Union Bank.
By stamping at the back of the subject check the phrase "all prior endorsements and/or lack of it guaranteed," Union Bank
had, for all intents and purposes treated the check as a negotiable instrument and, accordingly, assumed the warranty of
an endorser. Without such warranty, BDO would not have paid the proceeds of the check. Thus, Union Bank cannot now
deny liability after the aforesaid warranty turned out to be false. 15

Union Bank was clearly negligent when it allowed the check to be presented by, and deposited in the account of New
Wave, despite knowledge that it was not the payee named therein. Further, it could not have escaped its attention that the
subject checks were crossed checks.

A crossed check is one where two parallel lines are drawn across its face or across the comer thereof. A check may be
crossed generally or specially. A check is crossed especially when the name of a particular banker or company is written
between the parallel lines drawn. It is crossed generally when only the words "and company" are written at all between the
parallel lines. 16

Jurisprudence dictates that the effects of crossing a check are: (1) that the check may not be encashed but only deposited
in the bank; (2) that the check may be negotiated only once - to one who has an account with a bank; and (3) that the act
of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that purpose. 17 The effects of crossing a check, thus, relate to the
mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee
named therein. 18

It is undisputed that Check No. 0127-242250 had been crossed generally as nothing was written between the parallel
lines appearing on the face of the instrument. This indicated that Lao, the drawer, had intended the same for deposit only
to the account of Everlink, the payee named therein. Despite this clear intention, however, Union Bank negligently allowed
the deposit of the proceeds of the said check in the account of New Wave.

Generally, BDO must be ordered to pay Lao the value of the subject check; whereas, Union Bank would be ordered to
reimburse BDO the amount of the check. The aforesaid sequence of recovery, however, is not applicable in the present
case due to the presence of certain factual peculiarities.

Simplification of the proceedings for Recovery

Although the rule on the sequence of recovery has been deeply engrained in jurisprudence, there may be exceptional
circumstances which would justify its simplification.1âwphi1 Stated differently, the aggrieved party may be allowed to
recover directly from the person which caused the loss when circumstances warrant. In Associated Bank v. Court of
Appeals (AssociatedBank), 19 the person who suffered the loss as a result of the unauthorizedencashment of crossed
checks was allowed to recover the loss directly from the negligent bank despite the latter's contention of lack of privity of
contract. The Court said:

There being no evidence that the crossed checks were actually received by the private respondent, she would have a
right of action against the drawer companies, which in turn could go against their respective drawee banks, which in turn
could sue the herein petitioner as collecting bank. In a similar situation, it was held that, to simplify proceedings, the payee
of the illegally encashed checks should be allowed to recover directly from the bank responsible for such encashment
regardless of whether or not the checks were actually delivered to the payee. We approve such direct action in the case at
bar.20

A peculiar circumstance in Associated Bank is the fact that the drawer companies, which should have been directly liable
to the aggrieved payee, were not impleaded as parties in the suit. In this regard, it is a fundamental principle in this
jurisdiction that a person cannot be prejudiced by a ruling rendered in an action or proceeding in which he has not been
made a party. This principle conforms to the constitutional guarantee of due process of law. 21 To the mind of the Court,
this principle was a foremost underlying consideration for allowing the direct recovery by the payee from the negligent
collecting bank.

Finality of the RTC decisionwith respecttoBDOjustifiesthe simplification of the proceedings for recovery.

BDO argues that the appellate court erred in ordering it to pay the amount of the subject check to Lao because it was no
longer a party in the case, not being impleaded in the appeal, and that the issue as regards its had liability already been
settled with finality by the R TC.

The Court agrees.

It has been held that it is not the caption of the pleading, but the allegations therein that are controlling. The non-inclusion
of a party in the title of the pleading is not fatal to the case, provided there is a statement in the body indicating that such
non-included person is a party to the case.22

BDO was not impleaded as a party in Union Bank's appeal before the CA. This is evident from the title of the case before
the CA, and the respective briefs of Union Bank and Lao, which mentioned only Lao and Union Bank as parties thereto.
Moreover, in their respective briefs before the appellate court, neither Lao 23 nor Union Bank24 made any statement or
raised any issue on BDO's liability and its inclusion as a party in the appeal.

Consequently, because of Lao and Union Bank's failure to appeal the July 9, 2012 Decision of the RTC with respect to
BDO's lack of liability, said decision became final as to the latter.

The finality of the July 9, 2012 RTC Decision as to BDO, which absolved it from any liability, necessarily means that it
could not be prejudiced or adversely affected by the decision rendered in the appeal. It is elementary in this jurisdiction
that a person cannot be bound by a decision wherein it was not a party.25 A contrary finding would violate BDO's
constitutional right to due· process. Needless to state, the appellate court erred in ordering BDO to pay the amount of the
subject check because the latter was not made a party in the appeal, and the issue as to its liability or lack thereof, was
not raised on appeal.

From the foregoing, the Court is of the considered view that the pronouncements made in Associated Bank as regards the
simplification of the recovery proceedings are applicable in the present case. The factual milieu of this case are
substantially similar with that of Associated Bank, i.e., a crossed check was presented and deposited, without authority, in
the account of a person other than the payee named therein; the collecting bank endorsed the crossed check and warrant
the validity of all prior endorsements and/or lack of it; the warranty turned out to be false; and, a party to the check
transaction, which would otherwise be held liable to the party aggrieved, was not made a party in the proceedings in court.

To summarize, Lao, the drawer of the subject check, has a right of action against BDO for its failure to comply with its duty
as the drawee bank. BDO, in turn, would have a right of action against Union Bank because of the falsity of its warranties
as the collecting bank. Considering, however, that BDO was not made a party in the appeal, it could no longer be held
liable to Lao. Thus, following Associated Bank, the proceedings for recovery must be simplified and Lao should be
allowed to recover directly from Union Bank.

WHEREFORE, the petition is GRANTED. The October 14, 2015 Decision and the September 5, 2016 Resolution of the
Court of Appeals in CA-G.R. CV No. 100351 are hereby REVERSED and SET ASIDE insofar as it ordered petitioner BDO
Unibank, Inc. to pay Selwyn Lao the amount of Check No. 0127-242250. The rest of the decision is AFFIRMED.

The amount shall earn interest at the rate of twelve percent (12%) perannum from August 24, 2001, the date of judicial
demand, to June 30, 2013.From July 1, 2013, the rate shall be six percent (6%) per annum until full satisfaction.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

WE CONCUR:
 ANTONIO T. CARPIO
Associate Justice

DIOSDADO M. PERALTA MARVIC M.V.F. LEONEN

Associate Justice Associate Justice

SAMUEL R. MARTIRES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.

DIOSDADO M. PERALTA
Associate Justice
Acting Chairperson, Second Division

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution and the Division Acting Chairperson’s Attestation, I certify that
the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

MARIA LOURDES P.A. SERENO

Chief Justice
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 191667 April 17, 2013

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
EDUARDO M. CACAYURAN, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this Petition for Review on Certiorari1 is the March 26, 2010 Decision2 of the Court of Appeals (CA) in CA-G.R.
CV. No. 89732 which affirmed with modification the April 10, 2007 Decision 3 of the Regional Trial Court (RTC) of Agoo, La
Union, Branch 31, declaring inter alia the nullity of the loan agreements entered into by petitioner Land Bank of the
Philippines (Land Bank) and the Municipality of Agoo, La Union (Municipality).

The Facts

From 2005 to 2006, the Municipality’s Sangguniang Bayan (SB) passed certain resolutions to implement a multi-phased
plan (Redevelopment Plan) to redevelop the Agoo Public Plaza (Agoo Plaza) where the Imelda Garden and Jose Rizal
Monument were situated.

To finance phase 1 of the said plan, the SB initially passed Resolution No. 68-20054 on April 19, 2005, authorizing then
Mayor Eufranio Eriguel (Mayor Eriguel) to obtain a loan from Land Bank and incidental thereto, mortgage a 2,323.75
square meter lot situated at the southeastern portion of the Agoo Plaza (Plaza Lot) as collateral. To serve as additional
security, it further authorized the assignment of a portion of its internal revenue allotment (IRA) and the monthly income
from the proposed project in favor of Land Bank.5 The foregoing terms were confirmed, approved and ratified on October
4, 2005 through Resolution No. 139-2005.6 Consequently, on November 21, 2005, Land Bank extended a ₱4,000,000.00
loan in favor of the Municipality (First Loan),7 the proceeds of which were used to construct ten (10) kiosks at the northern
and southern portions of the Imelda Garden. After completion, these kiosks were rented out. 8

On March 7, 2006, the SB passed Resolution No. 58-2006,9 approving the construction of a commercial center on the
Plaza Lot as part of phase II of the Redevelopment Plan. To finance the project, Mayor Eriguel was again authorized to
obtain a loan from Land Bank, posting as well the same securities as that of the First Loan. All previous representations
and warranties of Mayor Eriguel related to the negotiation and obtention of the new loan 10 were ratified on September 5,
2006 through Resolution No. 128-2006.11 In consequence, Land Bank granted a second loan in favor of the Municipality
on October 20, 2006 in the principal amount of ₱28,000,000.00 (Second Loan).12

Unlike phase 1 of the Redevelopment Plan, the construction of the commercial center at the Agoo Plaza was vehemently
objected to by some residents of the Municipality. Led by respondent Eduardo Cacayuran (Cacayuran), these residents
claimed that the conversion of the Agoo Plaza into a commercial center, as funded by the proceeds from the First and
Second Loans (Subject Loans), were "highly irregular, violative of the law, and detrimental to public interests, and will
result to wanton desecration of the said historical and public park."13 The foregoing was embodied in a
Manifesto,14 launched through a signature campaign conducted by the residents and Cacayuran.

In addition, Cacayuran wrote a letter15 dated December 8, 2006 addressed to Mayor Eriguel, Vice Mayor Antonio Eslao
(Vice Mayor Eslao), and the members of the SB namely, Violeta Laroya-Balbin, Jaime Boado, Jr., Rogelio De Vera,
James Dy, Crisogono Colubong, Ricardo Fronda, Josephus Komiya, Erwina Eriguel, Felizardo Villanueva, and Gerard
Mamuyac (Implicated Officers), expressing the growing public clamor against the conversion of the Agoo Plaza into a
commercial center. He then requested the foregoing officers to furnish him certified copies of various documents related
to the aforementioned conversion including, among others, the resolutions approving the Redevelopment Plan as well as
the loan agreements for the sake of public information and transparency.
Unable to get any response, Cacayuran, invoking his right as a taxpayer, filed a Complaint 16 against the Implicated
Officers and Land Bank, assailing, among others, the validity of the Subject Loans on the ground that the Plaza Lot used
as collateral thereof is property of public dominion and therefore, beyond the commerce of man. 17

Upon denial of the Motion to Dismiss dated December 27, 2006,18 the Implicated Officers and Land Bank filed their
respective Answers.

For its part, Land Bank claimed that it is not privy to the Implicated Officers’ acts of destroying the Agoo Plaza. It further
asserted that Cacayuran did not have a cause of action against it since he was not privy to any of the Subject Loans.19

During the pendency of the proceedings, the construction of the commercial center was completed and the said structure
later became known as the Agoo’s People Center (APC).

On May 8, 2007, the SB passed Municipal Ordinance No. 02-2007,20 declaring the area where the APC stood as
patrimonial property of the Municipality.

The Ruling of the RTC

In its Decision dated April 10, 2007,21 the RTC ruled in favor of Cacayuran, declaring the nullity of the Subject Loans.22 It
found that the resolutions approving the said loans were passed in a highly irregular manner and thus, ultra vires; as such,
the Municipality is not bound by the same.23 Moreover, it found that the Plaza Lot is proscribed from collateralization given
its nature as property for public use.24

Aggrieved, Land Bank filed its Notice of Appeal on April 23, 2007.25 On the other hand, the Implicated Officers’ appeal
was deemed abandoned and dismissed for their failure to file an appellants’ brief despite due notice. 26 In this regard, only
Land Bank’s appeal was given due course by the CA.

Ruling of the CA

In its Decision dated March 26, 2010,27 the CA affirmed with modification the RTC’s ruling, excluding Vice Mayor Eslao
from any personal liability arising from the Subject Loans. 28

It held, among others, that: (1) Cacayuran had locus standi to file his complaint, considering that (a) he was born, raised
and a bona fide resident of the Municipality; and (b) the issue at hand involved public interest of transcendental
importance;29 (2) Resolution Nos. 68-2005, 139-2005, 58-2006, 128-2006 and all other related resolutions (Subject
Resolutions) were invalidly passed due to the SB’s non-compliance with certain sections of Republic Act No. 7160,
otherwise known as the "Local Government Code of 1991" (LGC); (3) the Plaza Lot, which served as collateral for the
Subject Loans, is property of public dominion and thus, cannot be appropriated either by the State or by private
persons;30 and (4) the Subject Loans are ultra vires because they were transacted without proper authority and their
collateralization constituted improper disbursement of public funds.

Dissatisfied, Land Bank filed the instant petition.

Issues Before the Court

The following issues have been raised for the Court’s resolution: (1) whether Cacayuran has standing to sue; (2) whether
the Subject Resolutions were validly passed; and (3) whether the Subject Loans are ultra vires.

The Court’s Ruling

The petition lacks merit.

A. Cacayuran’s standing to sue

Land Bank claims that Cacayuran did not have any standing to contest the construction of the APC as it was funded
through the proceeds coming from the Subject Loans and not from public funds. Besides, Cacayuran was not even a
party to any of the Subject Loans and is thus, precluded from questioning the same.
The argument is untenable.

It is hornbook principle that a taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or
that public money is being deflected to any improper purpose, or that there is wastage of public funds through the
enforcement of an invalid or unconstitutional law. A person suing as a taxpayer, however, must show that the act
complained of directly involves the illegal disbursement of public funds derived from taxation. In other words, for a
taxpayer’s suit to prosper, two requisites must be met namely, (1) public funds derived from taxation are disbursed by a
political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed; and (2) the
petitioner is directly affected by the alleged act.31

Records reveal that the foregoing requisites are present in the instant case.

First, although the construction of the APC would be primarily sourced from the proceeds of the Subject Loans, which
Land Bank insists are not taxpayer’s money, there is no denying that public funds derived from taxation are bound to be
expended as the Municipality assigned a portion of its IRA as a security for the foregoing loans. Needless to state, the
Municipality’s IRA, which serves as the local government unit’s just share in the national taxes, 32 is in the nature of public
funds derived from taxation. The Court believes, however, that although these funds may be posted as a security, its
collateralization should only be deemed effective during the incumbency of the public officers who approved the same,
else those who succeed them be effectively deprived of its use.

In any event, it is observed that the proceeds from the Subject Loans had already been converted into public funds by the
Municipality’s receipt thereof. Funds coming from private sources become impressed with the characteristics of public
funds when they are under official custody.33

Accordingly, the first requisite has been clearly met.

Second, as a resident-taxpayer of the Municipality, Cacayuran is directly affected by the conversion of the Agoo Plaza
which was funded by the proceeds of the Subject Loans. It is well-settled that public plazas are properties for public
use34 and therefore, belongs to the public dominion.35 As such, it can be used by anybody and no one can exercise over it
the rights of a private owner.36 In this light, Cacayuran had a direct interest in ensuring that the Agoo Plaza would not be
exploited for commercial purposes through the APC’s construction. Moreover, Cacayuran need not be privy to the Subject
Loans in order to proffer his objections thereto. In Mamba v. Lara, it has been held that a taxpayer need not be a party to
the contract to challenge its validity; as long as taxes are involved, people have a right to question contracts entered into
by the government.37

Therefore, as the above-stated requisites obtain in this case, Cacayuran has standing to file the instant suit.

B. Validity of the Subject Resolutions

Land Bank avers that the Subject Resolutions provided ample authority for Mayor Eriguel to contract the Subject Loans. It
posits that Section 444(b)(1)(vi) of the LGC merely requires that the municipal mayor be authorized by the SB concerned
and that such authorization need not be embodied in an ordinance. 38

A careful perusal of Section 444(b)(1)(vi) of the LGC shows that while the authorization of the municipal mayor need not
be in the form of an ordinance, the obligation which the said local executive is authorized to enter into must be made
pursuant to a law or ordinance, viz:

Sec. 444. The Chief Executive: Powers, Duties, Functions and Compensation. -

xxxx

(b) For efficient, effective and economical governance the purpose of which is the general welfare of the municipality and
its inhabitants pursuant to Section 16 of this Code, the municipal mayor shall:

xxxx

(vi) Upon authorization by the sangguniang bayan, represent the municipality in all its business transactions and sign on
its behalf all bonds, contracts, and obligations, and such other documents made pursuant to law or ordinance; (Emphasis
and underscoring supplied)
In the present case, while Mayor Eriguel’s authorization to contract the Subject Loans was not contained – as it need not
be contained – in the form of an ordinance, the said loans and even the Redevelopment Plan itself were not approved
pursuant to any law or ordinance but through mere resolutions. The distinction between ordinances and resolutions is
well-perceived. While ordinances are laws and possess a general and permanent character, resolutions are merely
declarations of the sentiment or opinion of a lawmaking body on a specific matter and are temporary in nature.39 As
opposed to ordinances, "no rights can be conferred by and be inferred from a resolution."40 In this accord, it cannot be
denied that the SB violated Section 444(b)(1)(vi) of the LGC altogether.

Noticeably, the passage of the Subject Resolutions was also tainted with other irregularities, such as (1) the SB’s failure to
submit the Subject Resolutions to the Sangguniang Panlalawigan of La Union for its review contrary to Section 56 of the
LGC;41 and (2) the lack of publication and posting in contravention of Section 59 of the LGC. 42

In fine, Land Bank cannot rely on the Subject Resolutions as basis to validate the Subject Loans.

C. Ultra vires nature of the Subject

Loans

Neither can Land Bank claim that the Subject Loans do not constitute ultra vires acts of the officers who approved the
same.

Generally, an ultra vires act is one committed outside the object for which a corporation is created as defined by the law of
its organization and therefore beyond the powers conferred upon it by law. 43 There are two (2) types of ultra vires acts. As
held in Middletown Policemen's Benevolent Association v. Township of Middletown: 44

There is a distinction between an act utterly beyond the jurisdiction of a municipal corporation and the irregular exercise of
a basic power under the legislative grant in matters not in themselves jurisdictional. The former are ultra vires in the
primary sense and void; the latter, ultra vires only in a secondary sense which does not preclude ratification or the
application of the doctrine of estoppel in the interest of equity and essential justice. (Emphasis and underscoring supplied)

In other words, an act which is outside of the municipality’s jurisdiction is considered as a void ultra vires act, while an act
attended only by an irregularity but remains within the municipality’s power is considered as an ultra vires act subject to
ratification and/or validation. To the former belongs municipal contracts which (a) are entered into beyond the express,
implied or inherent powers of the local government unit; and (b) do not comply with the substantive requirements of law
e.g., when expenditure of public funds is to be made, there must be an actual appropriation and certificate of availability of
funds; while to the latter belongs those which (a) are entered into by the improper department, board, officer of agent; and
(b)do not comply with the formal requirements of a written contract e.g., the Statute of Frauds.45

Applying these principles to the case at bar, it is clear that the Subject Loans belong to the first class of ultra vires acts
deemed as void.

Records disclose that the said loans were executed by the Municipality for the purpose of funding the conversion of the
Agoo Plaza into a commercial center pursuant to the Redevelopment Plan. However, the conversion of the said plaza is
beyond the Municipality’s jurisdiction considering the property’s nature as one for public use and thereby, forming part of
the public dominion. Accordingly, it cannot be the object of appropriation either by the State or by private persons.46 Nor
can it be the subject of lease or any other contractual undertaking.47 In Villanueva v. Castañeda, Jr.,48 citing Espiritu v.
Municipal Council of Pozorrubio,49 the Court pronounced that:

x x x Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in
general. They are outside the commerce of man and cannot be disposed of or even leased by the municipality to private
parties.1âwphi1

In this relation, Article 1409(1) of the Civil Code provides that a contract whose purpose is contrary to law, morals, good
customs, public order or public policy is considered void50 and as such, creates no rights or obligations or any juridical
relations.51 Consequently, given the unlawful purpose behind the Subject Loans which is to fund the commercialization of
the Agoo Plaza pursuant to the Redevelopment Plan, they are considered as ultra vires in the primary sense thus,
rendering them void and in effect, non-binding on the Municipality.
At this juncture, it is equally observed that the land on which the Agoo Plaza is situated cannot be converted into
patrimonial property – as the SB tried to when it passed Municipal Ordinance No. 02-200752 – absent any express grant
by the national government.53 As public land used for public use, the foregoing lot rightfully belongs to and is subject to
the administration and control of the Republic of the Philippines. 54 Hence, without the said grant, the Municipality has no
right to claim it as patrimonial property.

Nevertheless, while the Subject Loans cannot bind the Municipality for being ultra vires, the officers who authorized the
passage of the Subject Resolutions are personally liable. Case law states that public officials can be held personally
accountable for acts claimed to have been performed in connection with official duties where they have acted ultra
vires,55 as in this case.

WHEREFORE, the petition is DENIED. Accordingly, the March 26, 2010 Decision of the Court of Appeals in CA-G.R. CV.
No. 89732 is hereby AFFIRMED.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.

MARIA LOURDES P. A. SERENO