G.R. No. 141524. September 14, 2005.

DOMINGO NEYPES, LUZ FAUSTINO, ROGELIO FAUSTINO, LOLITO VICTORIANO, JACOB OBANIA AND
DOMINGO CABACUNGAN, petitioners, vs. HON. COURT OF APPEALS, HEIRS OF BERNARDO DEL MUNDO,
namely: FE, CORAZON, JOSEFA, SALVADOR and CARMEN, all surnamed DEL MUNDO, LAND BANK OF
THE PHILIPPINES AND HON. ANTONIO N. ROSALES, Presiding Judge, Branch 43, Regional Trial Court,
Roxas, Oriental Mindoro, respondents.

Remedial Law; Appeals; The right to appeal is neither a natural right nor a part of due process; It is
merely a statutory privilege and may be exercised only in the manner and in accordance with the
provisions of law.—First and foremost, the right to appeal is neither a natural right nor a part of due
process. It is merely a statutory privilege and may be exercised only in the manner and in accordance with
the provisions of law. Thus, one who seeks to avail of the right to appeal must comply with the
requirements of the Rules. Failure to do so often leads to the loss of the right to appeal. The period to
appeal is fixed by both statute and procedural rules.

Same; Same; An appeal should be taken within 15 days from the notice of judgment or final order
appealed from.—Based on the foregoing, an appeal should be taken within 15 days from the notice of
judgment or final order appealed from. A final judgment or order is one that finally disposes of a case,
leaving nothing more for the court to do with respect to it. It is an adjudication on the merits which,
considering the evidence presented at the trial, declares categorically what the rights and obligations of
the parties are; or it may be an order or judgment that dismisses an action.

Same; Same; Court deems it practical to allow a fresh period of 15 days within which to file the notice
of appeal in the Regional Trial Court, counted from receipt of the order dismissing a motion for a new
trial or motion for reconsideration to standardize the appeal periods provided in the Rules.—To
standardize the appeal periods provided in the Rules and to afford litigants fair opportunity to appeal their
cases, the Court deems it practical to allow a fresh period of 15 days within which to file the notice of
appeal in the Regional Trial Court, counted from receipt of the order dismissing a motion for a new trial
or motion for reconsideration. Neypes vs. Court of Appeals, 469 SCRA 633, G.R. No. 141524 September
14, 2005

G.R. No. 167403. August 6, 2008.*

MAKATI INSURANCE CO., INC., petitioner, vs. HON. WILFREDO D. REYES, as Presiding Judge of the
Regional Trial Court of Manila, Branch 36, RUBILLS INTERNATIONAL, INC., TONG WOON SHIPPING PTE
LTD, and ASIAN TERMINALS, INC., respondents.

Courts; Judgments; A final judgment or order is one that finally disposes of a case, leaving nothing more
for the court to do with respect to it.—Based on the foregoing, an appeal should be taken within 15 days
from the notice of judgment or final order appealed from. A final judgment or order is one that finally
disposes of a case, leaving nothing more for the court to do with respect to it. It is an adjudication on the
merits which, considering the evidence presented at the trial, declares categorically what the rights and
obligations of the parties are; or it may be an order or judgment that dismisses an action.

Appeals; Judgments; Fresh Period Rule; With the advent of the “fresh period rule,” parties who availed
themselves of the remedy of motion for reconsideration are now allowed to file a notice of appeal
within fifteen days from the denial of that motion.—In the interest of substantial justice, procedural
rules of the most mandatory character in terms of compliance may be relaxed. With the advent of the
“fresh period rule,” parties who availed themselves of the remedy of motion for reconsideration are now
allowed to file a notice of appeal within fifteen days from the denial of that motion. The “fresh period
rule” is not inconsistent with Rule 41, Section 3 of the Revised Rules of Court which states that the appeal
shall be taken “within fifteen (15) days from notice of judgment or final order appealed from.” The use of
the disjunctive word “or” signifies disassociation and independence of one thing from another. It should,
as a rule, be construed in the sense which it ordinarily implies. Hence, the use of “or” in the above
provision supposes that the notice of appeal may be filed within 15 days from the notice of judgment or
within 15 days from notice of the “final order,” which, in this case is the 17 July 2002 RTC Order denying
petitioner’s Verified Motion for Reconsideration, received by petitioner on 3 July 2002.
Same; Same; Same.—Neither does the new rule run counter to the spirit of Section 39 of Batas Pambansa
Blg. 129 which shortened the appeal period from 30 days to 15 days to hasten the disposition of cases.
The original period of appeal remains and the requirement for strict compliance still applies. The fresh
period of 15 days becomes significant only when a party opts to file a motion for new trial or motion for
reconsideration. In this manner, the trial court which rendered the assailed decision is given another
opportunity to review the case and, in the process, minimize and/or rectify any error of judgment. While
we aim to resolve cases with dispatch and to have judgments of courts become final at some definite
time, we likewise aspire to deliver justice fairly. The “fresh period rule” finally eradicates the confusion as
to when the 15-day appeal period should be counted—from receipt of notice of judgment or from receipt
of notice of “final order” appealed from.

Same; Same; Same.—In First Aqua Sugar Traders, Inc. v. Bank of the Philippine Islands, 514 SCRA 223
(2007), we held that a party litigant may now file his notice of appeal either within fifteen days from
receipt of the original decision or within fifteen days from the receipt of the order denying the motion for
reconsideration. In De los Santos v. Vda de Mangubat, 535 SCRA 411 (2007), we applied the same principle
of “fresh period rule,” expostulating that procedural law refers to the adjective law which prescribes rules
and forms of procedure in order that courts may be able to administer justice. Procedural laws do not
come within the legal conception of a retroactive law, or the general rule against the retroactive operation
of statutes. The “fresh period rule” is irrefragably procedural, prescribing the manner in which the
appropriate period for appeal is to be computed or determined and, therefore, can be made applicable
to actions pending upon its effectivity, such as the present case, without danger of violating anyone else’s
rights.

Same; Same; Under the 1997 Rules of Civil Procedure, Rule 41, Section 1(h), thereof expressly provides
that no appeal may be taken from an order dismissing an action without prejudice.—Under the 1997
Rules of Civil Procedure, Rule 41, Section 1(h), thereof expressly provides that no appeal may be taken
from an order dismissing an action without prejudice. It may be subject of a special civil action for
certiorari under Rule 65 of the Rules of Court, as amended by the said 1997 Rules of Civil Procedure. The
Court of Appeals, therefore, acted correctly in stating that the Notice of Appeal filed by the petitioner was
dismissible.

Courts; Grave Abuse of Discretion; An act of a court or tribunal, may only be considered as committed
in grave abuse of discretion when the same was performed in a capricious or whimsical exercise of
judgment which is equivalent to lack of jurisdiction.—The Writ of Certiorari is an extraordinary remedy
to correct errors of jurisdiction. An act of a court or tribunal may only be considered as committed in grave
abuse of discretion when the same was performed in a capricious or whimsical exercise of judgment which
is equivalent to lack of jurisdiction. The abuse of discretion must be so patent and gross as to amount to
an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law or to act at all in
contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of
passion or personal hostility. Be that as it may, it must be emphasized that this practice is applied only
under certain exceptional circumstances to prevent unnecessary delay in the administration of justice and
so as not to unduly burden the courts.

Pleadings and Practice; The expeditious disposition of cases is as much the duty of the plaintiff as the
court.—We have always been steadfast in ruling that in every action, the plaintiff is duty-bound to
prosecute the same with utmost diligence and with reasonable dispatch to enable him to obtain the relief
prayed for and, at the same time, minimize the clogging of the court dockets. The expeditious disposition
of cases is as much the duty of the plaintiff as the court. It must be remembered that a defendant in a
case likewise has the right to the speedy disposition of the action filed against him, considering that any
delay in the proceedings entails prolonged anxiety and valuable time wasted. In all, we find that while it
is true that the petitioner’s Notice of Appeal was timely filed based on our ruling in Neypes, said Notice
of Appeal was the wrong remedy. Even if considered as a Petition for Certiorari under Rule 65 of the Rules
of Court, the same has no merit as discussed above. Makati Insurance Co., Inc. vs. Reyes, 561 SCRA 234,
G.R. No. 167403 August 6, 2008
G.R. No. 170354. June 30, 2006.*

EDGARDO PINGA, petitioner, vs. THE HEIRS OF GERMAN SANTIAGO represented by FERNANDO
SANTIAGO, respondents.

Remedial Law; The constitutional faculty of the Court to promulgate rules of practice and procedure
necessary carries the power to overturn judicial precedents on points of remedial law.—The
constitutional faculty of the Court to promulgate rules of practice and procedure necessarily carries the
power to overturn judicial precedents on points of remedial law through the amendment of the Rules of
Court. One of the notable changes introduced in the 1997 Rules of Civil Procedure is the explicit proviso
that if a complaint is dismissed due to fault of the plaintiff, such dismissal is “without prejudice to the right
of the defendant to prosecute his counterclaim in the same or in a separate action.” The innovation was
instituted in spite of previous jurisprudence holding that the fact of the dismissal of the complaint was
sufficient to justify the dismissal as well of the compulsory counterclaim.

Same; Actions; The Dismissal of the complaint due to the fault of plaintiff does not necessarily carry
with it the dismissal of the counterclaim.—We hold that under Section 3, Rule 17 of the 1997 Rules of
Civil Procedure, the dismissal of the complaint due to the fault of plaintiff does not necessarily carry with
it the dismissal of the counterclaim, compulsory or otherwise. In fact, the dismissal of the complaint is
without prejudice to the right of defendants to prosecute the counterclaim.

Same; Same; Dismissal of plaintiff’s complaint is without prejudice to the right of the defendant to
prosecute his counterclaim in the same or separate action.—The express qualification in the provision
that the dismissal of the complaint due to the plaintiff’s fault, as in the case for failure to prosecute, is
without prejudice to the right of the defendant to prosecute his counterclaim in the same or separate
action. This stands in marked contrast to the provisions under Rule 17 of the 1964 Rules of Court which
were superseded by the 1997 amendments. In the 1964 Rules, dismissals due to failure to prosecute were
governed by Section 3, Rule 17.

Same; If the court dismisses the complaint on the ground of lack of jurisdiction, the compulsory
counterclaim must also be dismissed as it is merely ancillary to the main action and no jurisdiction
remained for any grant of relief under the counterclaim.—We should not ignore the theoretical bases of
the rule distinguishing compulsory counterclaims from permissive counterclaims insofar as the dismissal
of the action is concerned. There is a particular school of thought that informs the broad proposition in
Dalman that “if the civil case is dismissed, so also is the counterclaim filed therein,” or the more nuanced
discussions offered in Metals, International Container, and BA Finance. The most potent statement of the
theory may be found in Metals, which proceeds from the following fundamental premises—a compulsory
counterclaim must be set up in the same proceeding or would otherwise be abated or barred in a separate
or subsequent litigation on the ground of auter action pendant, litis pendentia or res judicata; a
compulsory counterclaim is auxiliary to the main suit and derives its jurisdictional support therefrom as it
arises out of or is necessarily connected with the transaction or occurrence that is the subject matter of
the complaint; and that if the court dismisses the complaint on the ground of lack of jurisdiction, the
compulsory counterclaim must also be dismissed as it is merely ancilliary to the main action and no
jurisdiction remained for any grant of relief under the counterclaim.

Same; Counterclaim bears the same integral characteristics as a complaint: namely a cause of action
constituting an act or omission by which a party violates the right of another.—Whatever the nature of
the counterclaim, it bears the same integral characteristics as a complaint; namely a cause (or causes) of
action constituting an act or omission by which a party violates the right of another. The main difference
lies in that the cause of action in the counterclaim is maintained by the defendant against the plaintiff,
while the converse holds true with the complaint. Yet, as with a complaint, a counterclaim without a cause
of action cannot survive.
Same; Allegations that form the counterclaim are rooted in an act or omission of the plaintiff other than
the plaintiff’s very act of filing the complaint.—It would then seemingly follow that if the dismissal of the
complaint somehow eliminates the cause(s) of the counterclaim, then the counterclaim cannot survive.
Yet that hardly is the case, especially as a general rule. More often than not, the allegations that form the
counterclaim are rooted in an act or omission of the plaintiff other than the plaintiff’s very act of filing the
complaint. Moreover, such acts or omissions imputed to the plaintiff are often claimed to have occurred
prior to the filing of the complaint itself. The only apparent exception to this circumstance is if it is alleged
in the counterclaim that the very act of the plaintiff in filing the complaint precisely causes the violation
of the defendant’s rights. Yet even in such an instance, it remains debatable whether the dismissal or
withdrawal of the complaint is sufficient to obviate the pending cause of action maintained by the
defendant against the plaintiff.

Same; Words and Phrases; A compulsory counterclaim arises out of or is connected with the transaction
or occurrence constituting the subject matter of the opposing party’s claim, does not require for its
adjudication the presence of the third parties, and stands within the jurisdiction of the court both as to
the amount involved and the nature of the claim.—A compulsory counterclaim arises out of or is
connected with the transaction or occurrence constituting the subject matter of the opposing party’s
claim, does not require for its adjudication the presence of third parties, and stands within the jurisdiction
of the court both as to the amount involved and the nature of the claim. The fact that the culpable acts
on which the counterclaim is based are founded within the same transaction or occurrence as the
complaint, is insufficient causation to negate the counterclaim together with the complaint. The dismissal
or withdrawal of the complaint does not traverse the boundaries of time to undo the act or omission of
the plaintiff against the defendant, or vice versa. While such dismissal or withdrawal precludes the pursuit
of litigation by the plaintiff, either through his/her own initiative or fault, it would be iniquitous to similarly
encumber the defendant who maintained no such initiative or fault. If the defendant similarly moves for
the dismissal of the counterclaim or neglects to timely pursue such action, let the dismissal of the
counterclaim be premised on those grounds imputable to the defendant, and not on the actuations of the
plaintiff.

Same; The terms “ancillary” or “auxiliary” may mislead in signifying that a complaint innately possesses
more credence than a counterclaim, yet there are many instances wherein the complaint is trivial but
the counterclaim is meritorious.—The other considerations supplied in Metals are anchored on the
premise that the jurisdictional foundation of the counterclaim is the complaint itself. The theory is correct,
but there are other facets to this subject that should be taken into account as well. On the established
premise that a counterclaim involves separate causes of action than the complaint even if derived from
the same transaction or series of transactions, the counterclaim could have very well been lodged as a
complaint had the defendant filed the action ahead of the complainant. The terms “ancillary” or
“auxiliary” may mislead in signifying that a complaint innately possesses more credence than a
counterclaim, yet there are many instances wherein the complaint is trivial but the counterclaim is
meritorious. In truth, the notion that a counterclaim is, or better still, appears to be merely “ancillary” or
“auxiliary” is chiefly the offshoot of an accident of chronology, more than anything else.

Same; The dismissal of the compulsory counterclaim is automatic upon the dismissal of the complaint,
whether upon the initiative of the plaintiff or of the defendant.—The formalistic distinction between a
complaint and a counterclaim does not detract from the fact that both of them embody causes of action
that have in their end the vindication of rights. While the distinction is necessary as a means to facilitate
order and clarity in the rules of procedure, it should be remembered that the primordial purpose of
procedural rules is to provide the means for the vindication of rights. A party with a valid cause of action
against another party cannot be denied the right to relief simply because the opposing side had the good
fortune of filing the case first. Yet this in effect was what had happened under the previous procedural
rule and correspondent doctrine, which under their final permutation, prescribed the automatic dismissal
of the compulsory counterclaim upon the dismissal of the complaint, whether upon the initiative of the
plaintiff or of the defendant.
Same; Sections 2 and 3 of Rule 17 ordains a more equitable disposition of the counterclaims by ensuring
that any judgment thereon is based on the merit of the counterclaim itself and not because of the
survival of the main complaint.—The present rule embodied in Sections 2 and 3 of Rule 17 ordains a more
equitable disposition of the counterclaims by ensuring that any judgment thereon is based on the merit
of the counterclaim itself and not on the survival of the main complaint. Certainly, if the counterclaim is
palpably without merit or suffers jurisdictional flaws which stand independent of the complaint, the trial
court is not precluded from dismissing it under the amended rules, provided that the judgment or order
dismissing the counterclaim is premised on those defects. At the same time, if the counterclaim is justified,
the amended rules now unequivocally protect such counterclaim from peremptory dismissal by reason of
the dismissal of the complaint. Pinga vs. Heirs of German Santiago, 494 SCRA 393, G.R. No. 170354 June
30, 2006

G.R. No. 159593. October 16, 2006.*

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MIRANT1 PAGBILAO CORPORATION (formerly

SOUTHERN ENERGY QUEZON, INC.), respondent.

Actions; Pleadings and Practice; The settled rule is that defenses not pleaded in the answer may not be
raised for the first time on appeal.—It is already well-settled in this jurisdiction that a party may not
change his theory of the case on appeal. Such a rule has been expressly adopted in Rule 44, Section 15 of
the 1997 Rules of Civil Procedure, which provides—SEC. 15. Questions that may be raised on appeal.—
Whether or not the appellant has filed a motion for new trial in the court below, he may include in his
assignment of errors any question of law or fact that has been raised in the court below and which is
within the issues framed by the parties. Thus, in Carantes v. Court of Appeals, 76 SCRA 514 (1977), this
Court emphasized that—The settled rule is that defenses not pleaded in the answer may not be raised for
the first time on appeal. A party cannot, on appeal, change fundamentally the nature of the issue in the
case. When a party deliberately adopts a certain theory and the case is decided upon that theory in the
court below, he will not be permitted to change the same on appeal, because to permit him to do so
would be unfair to the adverse party.

Same; Same; Judgments; A judgment that goes beyond the issues and purports to adjudicate something
on which the court did not hear the parties is not only irregular but also extrajudicial and invalid.—In
the more recent case of Mon v. Court of Appeals, 298 SCRA 678 (1998), this Court again pronounced that,
in this jurisdiction, the settled rule is that a party cannot change his theory of the case or his cause of
action on appeal. It affirms that “courts of justice have no jurisdiction or power to decide a question not
in issue.” Thus, a judgment that goes beyond the issues and purports to adjudicate something on which
the court did not hear the parties, is not only irregular but also extrajudicial and invalid. The rule rests on
the fundamental tenets of fair play.

Same; Same; Procedural Rules and Technicalities.—The BIR Commissioner pleads with this Court not to
apply the foregoing rule to the instant case, for a rule on technicality should not defeat substantive justice.
The BIR Commissioner apparently forgets that there are specific reasons why technical or procedural rules
are imposed upon the courts, and that compliance with these rules, should still be the general course of
action. Hence, this Court has expounded that—Procedural rules, we must stress, should be treated with
utmost respect and due regard since they are designed to facilitate the adjudication of cases to remedy
the worsening problem of delay in the resolution of rival claims and in the administration of justice. The
requirement is in pursuance to the bill of rights inscribed in the Constitution which guarantees that “all
persons shall have a right to the speedy disposition of their cases before all judicial, quasi-judicial and
administrative bodies.” The adjudicatory bodies and the parties to a case are thus enjoined to abide
strictly by the rules. While it is true that a litigation is not a game of technicalities, it is equally true that
every case must be prosecuted in accordance with the prescribed procedure to ensure an orderly and
speedy administration of justice. There have been some instances wherein this Court allowed a relaxation
in the application of the rules, but this flexibility was “never intended to forge a bastion for erring litigants
to violate the rules with impunity.” A liberal interpretation and application of the rules of procedure can
be resorted to only in proper cases and under justifiable causes and circumstances.
Taxation; Value Added Tax (VAT); Input Value Added Tax (VAT) on capital goods is among those
expressly recognized as creditable input tax by Section 104(a) of the Tax Code of 1986, as amended by
R.A. No. 7716.—Capital goods or properties, as defined in Revenue Regulations No. 7-95, the
implementing rules on VAT, are “goods and properties with estimated useful life greater than one year
and which are treated as depreciable assets under Section 29(f), used directly or indirectly in the
production or sale of taxable goods or services.” Contrary to the argument of the BIR Commissioner, input
VAT on capital goods is among those expressly recognized as creditable input tax by Section 104(a) of the
Tax Code of 1986, as amended by Rep. Act No. 7716, to wit—Sec. 104. Tax Credits.—(a) Creditable input
tax.—Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 108
hereof on the following transactions shall be creditable against the output tax: (1) Purchase or importation
of goods: (A) For sale; or (B) For conversion into or intended to form part of a finished product for sale
including packing materials; or (C) For use as supplies in the course of business; or (D) For use as materials
supplied in the sale of service; or (E) For use in trade or business for which deduction for depreciation or
amortization is allowed under this Code, except automobiles, aircraft and yachts. [Emphasis supplied.]
Thus, goods and properties used by the taxpayer in its VAT-taxable business, subject to depreciation or
amortization in accordance with the Tax Code, are considered capital goods. Input VAT on the purchase
of such capital goods is creditable against the taxpayer’s output VAT. The taxpayer is further given the
option, under Section 106(b) of the Tax Code of 1986, as amended by Republic Act No. 7716, to claim
refund of the input VAT on its capital goods, but only to the extent that the said input VAT has not been
applied to its output VAT.

Same; Same; Input Value Added Tax (VAT) paid on the purchase of capital goods and input VAT credits
attributable to zero-rated sales are two different input VAT credits, arising from distinct transactions,
although both may be the subject of claims for refund by the taxpayer.—This Court, likewise, will not
give credence to the BIR Commissioner’s contention that the claim for refund of input VAT on capital
goods by the MPC should be denied for the latter’s failure to comply with the requirements for the refund
of input VAT credits on zero-rated sales provided in Section 16 of Revenue Regulations No. 5-87, as
amended by Revenue Regulations No. 3-88. The BIR Commissioner is apparently confused. MPC is
claiming refund of the input VAT it has paid on the purchase of capital goods, it is not claiming refund of
its input VAT credits attributable to its zero-rated sales. These are two different input VAT credits, arising
from distinct transactions, although both may be the subject of claims for refund by the taxpayer. Indeed,
the very same regulation invoked by the BIR Commissioner, Revenue Regulations No. 5-87, as amended,
distinguishes between these two refundable input VAT credits and discusses them in two separate
paragraphs: Section 16(a) on zero-rated sales of goods and services, and Section 16(b) on capital goods.
It is also worth noting that Revenue Regulations No. 7-95, issued on 9 December 1995, which consolidated
all VAT regulations, already superseded Revenue Regulations No. 5-87. Still, Revenue Regulations No. 7-
95 maintains the distinction between these two input VAT credits, discussing the zero-rated sales of goods
or properties or services in Section 4.106-1(a), and capital goods in Section 4.106-1(b).

Same; Court of Tax Appeals; Another well-settled principle in this jurisdiction is that the Supreme Court
is bound by the findings of the Court of Tax Appeals (CTA).—It is worth noting that the foregoing findings
by the CTA were affirmed in totality by the Court of Appeals. Likewise, this Court finds no reason to disturb
the foregoing findings of the tax court. Another well-settled principle in this jurisdiction is that this Court
is bound by the findings of fact of the CTA. Only errors of law, and not rulings on the weight of evidence,
are reviewable by this Court. Findings of fact of the CTA are not to be disturbed unless clearly shown to
be unsupported by substantial evidence. Quite the reverse, the claim of MPC for refund of input VAT on
its purchase of capital goods and services in the present case is found to be supported by substantial
evidence, not just by the CTA, but also by the Court of Appeals. The BIR Commissioner failed to convince
this Court otherwise.
Same; Pleadings and Practice; Since the Commissioner of Internal Revenue represents the interest of
the government in tax cases, he should exert more effort and exercise more diligence in preparing his
pleadings before any court—he should not wait to do so only upon appeal of his case to the higher court
for the Supreme Court may not always be inclined to allow him to remedy his past laxity.—As a final
point, this Court would like to call the attention of the BIR Commissioner, as well as the responsible BIR
officers, to seriously study and consider each and every application for claim for refund filed before their
office. It is very obvious to this Court that the Answer filed by the BIR Commissioner before the Court of
Appeals, which it essentially reproduced as its Memorandum before the same court, presented general
and pro forma arguments. The BIR Commissioner only raised belatedly before the Court of Appeals the
issues of whether MPC is a public utility and whether it is subject to franchise tax and not VAT. Even then,
his Petition for Review before the appellate court, numbering only six pages, with only one page devoted
to a discussion of the merits of his Petition, left much to be desired and would hardly persuade any court.
Since he represents the interest of the government in tax cases, the BIR Commissioner should exert more
effort and exercise more diligence in preparing his pleadings before any court; he should not wait to do
so only upon appeal of his case to the higher court. This Court may not always be inclined to allow him to
remedy his past laxity. Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (formerly
Southern Energy Quezon, Inc.), 504 SCRA 484, G.R. No. 159593 October 16, 2006

G.R. No. 139442. December 6, 2006.*

LOURDES DELA CRUZ, petitioner, vs. HON. COURT OF APPEALS and MELBA TAN TE, respondents.

Jurisdictions; Words and Phrases; Jurisdiction is the power or capacity given by the law to a court or
tribunal to entertain, hear and determine certain controversies—jurisdiction over the subject matter is
conferred by law.—Jurisdiction is the power or capacity given bythe law to a court or tribunal to entertain,
hear and determine certain controversies. Jurisdiction over the subject matter is conferred by law.

Ejectment; Forcible Entry; Requisites.—Exclusive, original jurisdiction over ejectment proceedings

(accion interdictal) is lodged with the first level courts. This is clarified in Section 1, Rule 70 of the 1997
Rules of Civil Procedure that embraces an action for forcible entry (detentacion), where one is deprived
of physical possession of any land or building by means of force, intimidation, threat, strategy, or stealth.
In actions for forcible entry, three (3) requisites have to be met for the municipal trial court to acquire
jurisdiction. First, the plaintiffs must allege their prior physical possession of the property. Second, they
must also assert that they were deprived of possession either by force, intimidation, threat, strategy, or
stealth. Third, the action must be filed within one (1) year from the time the owners or legal possessors
learned of their deprivation of physical possession of the land or building.

Same; Same; Unlawful Detainer.—The other kind of ejectment proceeding is unlawful detainer
(desahucio), where one unlawfully withholds possession of the subject property after the expiration or
termination of the right to possess. Here, the issue of rightful possession is the one decisive; for in such
action, the defendant is the party in actual possession and the plaintiff’s cause of action is the termination
of the defendant’s right to continue in possession. The essential requisites of unlawful detainer are: (1)
the fact of lease by virtue of a contract express or implied; (2) the expiration or termination of the
possessor’s right to hold possession; (3) withholding by the lessee of the possession of the land or building
after expiration or termination of the right to possession; (4) letter of demand upon lessee to pay the
rental or comply with the terms of the lease and vacate the premises; and (5) the action must be filed
within one (1) year from date of last demand received by the defendant. A person who wants to recover
physical possession of his real property will prefer an ejectment suit because it is governed by the Rule on
Summary Procedure which allows immediate execution of the judgment under Section 19, Rule 70 unless
the defendant perfects an appeal in the RTC and complies with the requirements to stay execution; all of
which are nevertheless beneficial to the interests of the lot owner or the holder of the right of possession.
Same; Same; The two kinds of action to recover possession of real property which fall under the
jurisdiction of the RTC—the plenary action for the recovery of real right of possession (accion
publiciana) and an action for the recovery of ownership (accion reinvindicatoria)—are governed by the
regular rules of procedure and adjudication takes a longer period than the summary ejectment suit.—
Two (2) kinds of action to recover possession of real property which fall under the jurisdiction of the RTC
are: (1) the plenary action for the recovery of the real right of possession (accion publiciana) when the
dispossession has lasted for more than one year or when the action was filed more than one (1) year from
date of the last demand received by the lessee or defendant; and (2) an action for the recovery of
ownership (accion reivindicatoria) which includes the recovery of possession. These actions are governed
by the regular rules of procedure and adjudication takes a longer period than the summary ejectment
suit.

Same; Same; Written demand is not necessary in an action for forcible entry.—The allegations in the
complaint show that prior to the sale by Lino Reyes, representing the estate of his wife Emerlinda Reyes,
he was in possession and control of the subject lot but were deprived of said possession when petitioner,
by means of stealth and strategy, entered and occupied the same lot. These circumstances imply that he
had prior physical possession of the subject lot and can make up a forcible entry complaint. On the other
hand, the allegation that petitioner Dela Cruz was served several demands to leave the premises but
refused to do so would seem to indicate an action for unlawful detainer since a written demand is not
necessary in an action for forcible entry. It is a fact that the MeTC complaint was filed on September 8,
1997 within one (1) year from the date of the last written demand upon petitioner Dela Cruz on January
14, 1997.

Same; Pleadings and Practice; Equitable justice dictates that allegations in the answer should be
considered to aid in arriving at the real nature of the action.—As previously discussed, the settled rule is
jurisdiction is based on the allegations in the initiatory pleading and the defenses in the answer are
deemed irrelevant and immaterial in its determination. However, we relax the rule and consider the
complaint at bar as an exception in view of the special and unique circumstances present. First, as in
Ignacio v. CFI of Bulacan, 42 SCRA 89 (1971), the defense of lack of jurisdiction was raised in the answer
wherein there was an admission that petitioner Dela Cruz was a lessee of the former owners of the lot,
the Reyeses, prior to the sale to respondent Tan Te. The fact that petitioner was a tenant of the
predecessors-in-interest of respondent Tan Te is material to the determination of jurisdiction. Since this
is a judicial admission against the interest of petitioner, such admission can be considered in determining
jurisdiction. Second, the ejectment suit was filed with the Manila MeTC on September 8, 1997 or more
than nine (9) years ago. To dismiss the complaint would be a serious blow to the effective dispensation of
justice as the parties will start anew and incur additional legal expenses after having litigated for a long
time. Equitable justice dictates that allegations in the answer should be considered to aid in arriving at
the real nature of the action. Lastly, Section 6, Rule 1 of the Rules of Court clearly empowers the Court to
construe Rule 70 and other pertinent procedural issuances “in a liberal manner to promote just, speedy,
and inexpensive disposition of every action and proceeding.”

Same; Possession by Tolerance; An ejectment complaint based on possession by tolerance of the owner
is a specie of unlawful detainer cases.—Based on the complaint and the answer, it is apparent that the
Tan Te ejectment complaint is after all a complaint for unlawful detainer. It was admitted that petitioner
Dela Cruz was a lessee of the Reyeses for around four (4) decades. Thus, initially petitioner as lessee is the
legal possessor of the subject lot by virtue of a contract of lease. When fire destroyed her house, the
Reyeses considered the lease terminated; but petitioner Dela Cruz persisted in returning to the lot and
occupied it by strategy and stealth without the consent of the owners. The Reyeses however tolerated
the continued occupancy of the lot by petitioner. Thus, when the lot was sold to respondent Tan Te, the
rights of the Reyeses, with respect to the lot, were transferred to their subrogee, respondent Tan Te, who
for a time also tolerated the stay of petitioner until she decided to eject the latter by sending several
demands, the last being the January 14, 1997 letter of demand. Since the action was filed with the MeTC
on September 8, 1997, the action was instituted well within the one (1) year period reckoned from January
14, 1997. Hence, the nature of the complaint is one of unlawful detainer and the Manila MeTC had
jurisdiction over the complaint. Thus, an ejectment complaint based on possession by tolerance of the
owner, like the Tan Te complaint, is a specie of unlawful detainer cases.
Same; Words and Phrases; “Possession by Tolerance,” Explained; An ejectment complaint based on
possession by tolerance of the owner is a specie of unlawful detainer cases.—As early as 1913, case law
introduced the concept of possession by tolerance in ejectment cases as follows: It is true that the landlord
might, upon the failure of the tenant to pay the stipulated rents, consider the contract broken and demand
immediate possession of the rented property, thus converting a legal possession into illegal possession.
Upon the other hand, however, the landlord might conclude to give the tenant credit for the payment of
the rents and allow him to continue indefinitely in the possession of the property. In other words, the
landlord might choose to give the tenant credit from month to month or from year to year for the payment
of their rent, relying upon his honesty of his financial ability to pay the same. During such period the tenant
would not be in illegal possession of the property and the landlord could not maintain an action of
desahucio until after he had taken steps to convert the legal possession into illegal possession. A mere
failure to pay the rent in accordance with the contract would justify the landlord, after the legal notice, in
bringing an action of desahucio. The landlord might, however, elect to recognize the contract as still in
force and sue for the sums due under it. It would seem to be clear that the landlord might sue for the
rents due and [unpaid, without electing to terminate the contract of tenancy;] [w]hether he can declare
the contract of tenancy broken and sue in an action desahucio for the possession of the property and in
a separate actions for the rents due and damages, etc. The concept of possession by tolerance in unlawful
detainer cases was further refined and applied in pertinent cases submitted for decision by 1966. The rule
was articulated as follows: Where despite the lessee’s failure to pay rent after the first demand, the lessor
did not choose to bring an action in court but suffered the lessee to continue occupying the land for nearly
two years, after which the lessor made a second demand, the one-year period for bringing the detainer
case in the justice of the peace court should be counted not from the day the lessee refused the first
demand for payment of rent but from the time the second demand for rents and surrender of possession
was not complied with. Dela Cruz vs. Court of Appeals, 510 SCRA 103, G.R. No. 139442 December 6, 2006