SECOND DIVISION

[G.R. No. 125683. March 2, 1999.]

EDEN BALLATAN and SPS. BETTY MARTINEZ and CHONG CHY

LING, Petitioners, v. COURT OF APPEALS, GONZALO GO, WINSTON GO, LI
CHING YAO, ARANETA INSTITUTE OF AGRICULTURE and JOSE N.
QUEDDING, Respondents.

DECISION

PUNO, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals dated
March 25, 1996 in CA-G.R. CV No. 32472 entitled "Eden Ballatan, Et Al., plaintiffs-
appellees v. Gonzalo Go and Winston Go, appellants and third-party plaintiffs-appellants
v. Li Ching Yao, Et Al., third-party defendants." 1

The instant case arose from a dispute over forty-two (42) square meters of residential
land belonging to petitioners. The parties herein are owners of adjacent lots located at
Block No. 3, Poinsettia Street, Araneta University Village, Malabon, Metro Manila. Lot
No. 24, 414 square meters in area, is registered in the name of petitioners Eden
Ballatan and spouses Betty Martinez and Chong Chy Ling. 2 Lots Nos. 25 and 26, with
an area of 415 and 313 square meters respectively, are registered in the name of
respondent Gonzalo Go, Sr. 3 On Lot No. 25, respondent Winston Go, son of Gonzalo
Go, Sr., constructed his house. Adjacent to Lot No. 26 is Lot No. 27, 417 square meters
in area, and is registered in the name of respondent Li Ching Yao. 4

In 1985, petitioner Ballatan constructed her house on Lot No. 24. During the
construction, she noticed that the concrete fence and side pathway of the adjoining
house of respondent Winston Go encroached on the entire length of the eastern side of
her property. 5 Her building contractor informed her that the area of her lot was
actually less than that described in the title. Forthwith, Ballatan informed respondent
Go of this discrepancy and his encroachment on her property. Respondent Go,
however, claimed that his house, including its fence and pathway, were built within the
parameters of his father’s lot; and that this lot was surveyed by Engineer Jose
Quedding, the authorized surveyor of the Araneta Institute of Agriculture (AIA), the
owner-developer of the subdivision project.

Petitioner Ballatan called the attention of the AIA to the discrepancy of the land area in
her title and the actual land area received from them. The AIA authorized another
survey of the land by Engineer Jose N. Quedding. chanroblesvirtuallawlibrary

In a report dated February 28, 1985, Engineer Quedding found that the lot area of
petitioner Ballatan was less by a few meters and that of respondent Li Ching Yao, which
was three lots away, increased by two (2) meters. Engineer Quedding declared that he
made a verification survey of Lots Nos. 25 and 26 of respondents Go in 1983 and
allegedly found the boundaries to have been in their proper position. He, however,
could not explain the reduction in Ballatan’s area since he was not present at the time
respondents Go constructed their boundary walls. 6

On June 2, 1985, Engineer Quedding made a third relocation survey upon request of
the parties. He found that Lot No. 24 lost approximately 25 square meters on its
eastern boundary, that Lot No. 25, although found to have encroached on Lot No. 24,
did not lose nor gain any area; that Lot No. 26 lost some three (3) square meters
which, however, were gained by Lot No. 27 on its western boundary. 7 In short, Lots
Nos. 25, 26 and 27 moved westward to the eastern boundary of Lot No. 24.

On the basis of this survey, on June 10, 1985, petitioner Ballatan made a written
demand on respondents Go to remove and dismantle their improvements on Lot No.
24. Respondents Go refused. The parties, including Li Ching Yao, however, met several
times to reach an agreement on the matter.

Failing to agree amicably, petitioner Ballatan brought the issue before the barangay.
Respondents Go did not appear. Thus, on April 1, 1986, petitioner Ballatan instituted
against respondents Go Civil Case No. 772-MN for recovery of possession before the
Regional Trial Court, Malabon, Branch 169. The Go’s filed their "Answer with Third-Party
Complaint" impleading as third-party defendants respondents Li Ching Yao, the AIA and
Engineer Quedding.

On August 23, 1990, the trial court decided in favor of petitioners. It ordered the Go’s
to vacate the subject portion of Lot No. 24, demolish their improvements and pay
petitioner Ballatan actual damages, attorney’s fees and the costs of the suit. It
dismissed the third-party complaint against: (1) AIA after finding that the lots sold to
the parties were in accordance with the technical description and verification plan
covered by their respective titles; (2) Jose N. Quedding, there being no privity of
relation between him and respondents Go and his erroneous survey having been made
at the instance of AIA, not the parties; and (3) Li Ching Yao for failure to prove that he
committed any wrong in the subject encroachment. 8 The court made the following
disposition:jgc:chanrobles.com.ph

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, ordering the latter: chanrob1es virtual 1aw library

1. To demolish and remove all improvements existing and encroaching on plaintiff’s lot;

2. To clear, vacate and deliver possession of the encroached area to the plaintiffs;

3. To pay plaintiffs jointly and severally the following: chanrob1es virtual 1aw library

a) P7,800.00 for the expenses paid to the surveyors;

b) P5,000.00 for plaintiffs’ transportation;

4. To pay plaintiffs, jointly and severally, attorney’s fees equivalent to 25% of the
current market value of the subject matter in litigation at the time of execution; and

5. To pay the costs of suit.

The third-party complaint filed by third-party plaintiff Gonzalo Go and Winston Go

against third-party defendants Araneta Institute of Agriculture, Jose N. Quedding and Li
Ching Yao is hereby DISMISSED, without pronouncement as to costs.

SO ORDERED." cralaw virtua1aw library

Respondents Go appealed. On March 25, 1996, the Court of Appeals modified the
decision of the trial court. It affirmed the dismissal of the third-party complaint against
the AIA but reinstated the complaint against Li Ching Yao and Jose Quedding. Instead
of ordering respondents Go to demolish their improvements on the subject land, the
appellate court ordered them to pay petitioner Ballatan, and respondent Li Ching Yao to
pay respondents Go, a reasonable amount for that portion of the lot which they
encroached, the value to be fixed at the time of taking. It also ordered Jose Quedding
to pay respondents Go attorney’s fees of P5,000.00 for his erroneous survey. The
dispositive portion of the decision reads: chanroblesvirtuallawlibrary

"WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED

insofar as the dismissal of the third-party complaint against Araneta Institute of
Agriculture is concerned but modified in all other aspects as follows: chanrob1es virtual 1aw library

1) Defendants-appellants are hereby ordered to pay plaintiffs-appellees the reasonable

value of the forty-two (42) square meters of their lot at the time of its taking;
2) Third-party defendant Li Ching Yao is hereby ordered to pay defendants-appellants
the reasonable value of the thirty-seven (37) square meters of the latter’s lot at the
time of its taking; and

3) Third-party defendant Jose N. Quedding is hereby ordered to pay to defendants-

appellants the amount of P5,000.00. as attorney’s fees.

LET THE RECORD of the case be remanded to the Regional Trial Court of Malabon for
further proceedings and reception of evidence for the determination of the reasonable
value of Lots No. 24 and 26.

SO ORDERED." 9

Hence, this petition. Petitioners allege that: jgc:chanrobles.com.ph

"RESPONDENT COURT OF APPEALS ERRED ON QUESTIONS OF LAW AND GRAVELY

ABUSED ITS DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN: chanrob1es virtual 1aw library

1. IT APPLIED EQUITY OR EQUITABLE SOLUTIONS TO THE INSTANT CASE IN UTTER

DISREGARD AND IN VIOLATION OR GROSS IGNORANCE OF EXISTING LAWS AND
JURISPRUDENCE VESTING BASIC PROPERTY RIGHTS TO HEREIN PETITIONERS.
RESPONDENT COURT HAS NO POWER TO APPLY/USE EQUITY IN THE PRESENCE OF
EXISTING LAWS TO THE CONTRARY.

2. UNDER THE GUISE OF APPLYING EQUITY BUT IN EFFECT A VERY APPARENT

PARTIALITY AND FAVOR TO RESPONDENTS GO, IT ORDERED PAYMENT OF THE
ENCROACHED AREA AT THE VALUE AT THE TIME OF ITS TAKING AND NOT THE VALUE
AT THE TIME OF PAYMENT, THEREBY ENRICHING THE GO’S BUT DEPRIVING
PETITIONERS OF THE FRUITS OR INCREASE IN VALUE OF THEIR PROPERTY TO WHICH
THEY ARE ENTITLED UNDER THE LAW AS THE REGISTERED OWNERS WITH TORRENS
TITLE IN THEIR NAMES.

3. WHEN IT DID NOT DISMISS THE THIRD-PARTY COMPLAINT DUE TO NON-PAYMENT

OF ANY FILING OR DOCKET FEE.

4. WHEN IT DENIED PETITIONERS THE RECOVERY OF THE NECESSARY EXPENSES IN

PROTECTING THEIR RIGHTS IN THIS CASE." 10

Petitioners question the admission by respondent Court of Appeals of the third-party

complaint by respondents Go against the AIA, Jose Quedding and Li Ching Yao.
Petitioners claim that the third-party complaint should not have been considered by the
Court of Appeals for lack of jurisdiction due to third-party plaintiffs’ failure to pay the
docket and filing fees before the trial court.chanroblesvirtuallawlibrary:red

The third-party complaint in the instant case arose from the complaint of petitioners
against respondents Go. The complaint filed was for accion publiciana, i.e., the recovery
of possession of real property which is a real action. The rule in this jurisdiction is that
when an action is filed in court, the complaint must be accompanied by the payment of
the requisite docket and filing fees. 11 In real actions, the docket and filing fees are
based on the value of the property and the amount of damages claimed, if any. 12 If
the complaint is filed but the fees are not paid at the time of filing, the court acquires
jurisdiction upon full payment of the fees within a reasonable time as the court may
grant, barring prescription. 13 Where the fees prescribed for the real action have been
paid but the fees of certain related damages are not, the court, although having
jurisdiction over the real action, may not have acquired jurisdiction over the
accompanying claim for damages. 14 Accordingly, the court may expunge those claims
for damages, or allow, on motion, a reasonable time for amendment of the complaint
so as to allege the precise amount of damages and accept payment of the requisite
legal fees. 15 If there are unspecified claims, the determination of which may arise
after the filing of the complaint or similar pleading, the additional filing fee thereon shall
constitute a lien on the judgment award. 16 The same rule also applies to third-party
claims and other similar pleadings. 17
In the case at bar, the third-party complaint filed by respondents Go was incorporated
in their answer to the complaint. The third-party complaint sought the same remedy as
the principal complaint but added a prayer for attorney’s fees and costs without
specifying their amounts, thus: jgc:chanrobles.com.ph

"ON THE THIRD PARTY COMPLAINT

1. That summons be issued against Third-Party Defendants Araneta Institute of

Agriculture, Jose N. Quedding and Li Ching Yao;

2. That after hearing, they be sentenced to indemnify the Third-Party Plaintiffs for
whatever is adjudged against the latter in favor of the Plaintiffs;

3. That Third-Party Defendants be ordered to pay attorney’s fees as may be proved

during trial;

4. That Third-Party Defendants be ordered to pay the costs.

Other just and equitable reliefs are also prayed for." 18

The Answer with Third-Party Complaint was admitted by the trial court without the
requisite payment of filing fees, particularly on the Go’s prayer for damages. 19 The
trial court did not award the Go’s any damages. It dismissed the third-party complaint.
The Court of Appeals, however, granted the third-party complaint in part by ordering
third-party defendant Jose N. Quedding to pay the Go’s the sum of P5,000.00 as
attorney’s fees.

Contrary to petitioners’ claim, the Court of Appeals did not err in awarding damages
despite the Go’s failure to specify the amount prayed for and pay the corresponding
additional filing fees thereon. The claim for attorney’s fees refers to damages arising
after the filing of the complaint against the Go’s. The additional filing fee on this claim is
deemed to constitute a lien on the judgment award. 20

The Court of Appeals found that the subject portion is actually forty-two (42) square
meters in area, not forty-five (45), as initially found by the trial court; that this forty-
two (42) square meter portion is on the entire eastern side of Lot No. 24 belonging to
petitioners; that on this said portion is found the concrete fence and pathway that
extends from respondent Winston Go’s house on adjacent Lot No. 25; that inclusive of
the subject portion, respondents Go did not gain nor lose any portion of Lots Nos. 25
and 26; that instead, Lot No. 27, on which respondent Li Ching Yao built his house,
encroached on the land of respondents Go, gaining in the process thirty-seven (37)
square meters of the latter’s land. 21

We hold that the Court of Appeals correctly dismissed the third-party complaint against
AIA. The claim that the discrepancy in the lot areas was due to AIA’s fault was not
proved. The appellate court, however, found that it was the erroneous survey by
Engineer Quedding that triggered these discrepancies. And it was this survey that
respondent Winston Go relied upon in constructing his house on his father’s land. He
built his house in the belief that it was entirely within the parameters of his father’s
land. In short, respondents Go had no knowledge that they encroached on petitioners’
lot. They are deemed builders in good faith 22 until the time petitioner Ballatan
informed them of their encroachment on her property. 23

Respondent Li Ching Yao built his house on his lot before any of the other parties did.
24 He constructed his house in 1982, respondents Go in 1983, and petitioners in 1985.
25 There is no evidence, much less, any allegation that respondent Li Ching Yao was
aware that when he built his house he knew that a portion thereof encroached on
respondents Go’s adjoining land. Good faith is always presumed, and upon him who
alleges bad faith on the part of a possessor rests the burden of proof. 26

All the parties are presumed to have acted in good faith. Their rights must, therefore,
be determined in accordance with the appropriate provisions of the Civil Code on
property.chanrobles law library

Article 448 of the Civil Code provides: jgc:chanrobles.com.ph

"ARTICLE 448. The owner of the land on which anything has been built, sown or planted
in good faith, shall have the right to appropriate as his own the works, sowing or
planting, after payment of the indemnity provided for in Articles 546 and 548, 27 or to
oblige the one who built or planted to pay the price of the land, and the one who sowed
the proper rent. However, the builder or planter cannot be obliged to buy the land if its
value is considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the building or
trees after proper indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof." cralaw virtua1aw library

The owner of the land on which anything has been built, sown or planted in good faith
shall have the right to appropriate as his own the building, planting or sowing, after
payment to the builder, planter or sower of the necessary and useful expenses, and in
the proper case, expenses for pure luxury or mere pleasure. The owner of the land may
also oblige the builder, planter or sower to purchase and pay the price of the land. If
the owner chooses to sell his land, the builder, planter or sower must purchase the
land, otherwise the owner may remove the improvements thereon. The builder, planter
or sower, however, is not obliged to purchase the land if its value is considerably more
than the building, planting or sowing. In such case, the builder, planter or sower must
pay rent to the owner of the land. If the parties cannot come to terms over the
conditions of the lease, the court must fix the terms thereof. The right to choose
between appropriating the improvement or selling the land on which the improvement
stands to the builder, planter or sower, is given to the owner of the land. 28

Article 448 has been applied to improvements or portions of improvements built by

mistaken belief on land belonging to the adjoining owner. 29 The facts of the instant
case are similar to those in Cabral v. Ibanez, 30 to wit: jgc:chanrobles.com.ph

" [P]laintiffs Geronima Zabala and her husband Justino Bernardo, constructed their
house in the belief that it was entirely within the area of their own land without knowing
at that time that part of their house was occupying a 14-square meter portion of the
adjoining lot belonging to the defendants, and that the defendants Bernardo M. Cabral
and Mamerta M. Cabral were likewise unaware of the fact that a portion of plaintiff’s
house was extending and occupying a portion of their lot with an area of 14 square
meters. The parties came to know of the fact that part of the plaintiff’s house was
occupying part of defendant’s land when the construction of plaintiff’s house was about
to be finished, after a relocation of the monuments of the two properties had been
made by the U.S. Army through the Bureau of Lands, according to their ‘Stipulation of
Facts,’ dated August 17, 1951." cralaw virtua1aw library

On the basis of these facts, we held that: jgc:chanrobles.com.ph

"The Court, therefore, concludes that the plaintiffs are builders in good faith and the
relative rights of the defendant Mamerta Cabral as owner of the land and of the
plaintiffs as owners of the building is governed by Article 361 of the Civil Code (Co Tao
v. Joaquin Chan Chico, 46 Off. Gaz. 5514). Article 361 of the old Civil Code has been
reproduced with an additional provision in Article 448 of the new Civil Code, approved
June 18, 1949." 31

Similarly, in Grana and Torralba v. Court of Appeals, 32 we held that: jgc:chanrobles.com.ph

"Although without any legal and valid claim over the land in question, Petitioners,
however, were found by the Court of Appeals to have constructed a portion of their
house thereon in good faith. Under Article 361 of the old Civil Code (Article 448 of the
new), the owner of the land on which anything has been built in good faith shall have
the right to appropriate as his own the building, after payment to the builder of
necessary or useful expenses, and in the proper case, expenses for pure luxury or mere
pleasure, or to oblige the builder to pay the price of the land. Respondents, as owners
of the land, have therefore the choice of either appropriating the portion of petitioners’
house which is on their land upon payment of the proper indemnity to petitioners, or
selling to petitioners that part of their land on which stands the improvement. It may
here be pointed out that it would be impractical for respondents to choose to exercise
the first alternative, i.e., buy that portion of the house standing on their land, for in
that event the whole building might be rendered useless. The more workable solution, it
would seem, is for respondents to sell to petitioners that part of their land on which was
constructed a portion of the latter’s house. If petitioners are unwilling or unable to buy,
then they must vacate the land and must pay rentals until they do so. Of course,
respondents cannot oblige petitioners to buy the land if its value is considerably more
than that of the aforementioned portion of the house. If such be the case, then
petitioners must pay reasonable rent. The parties must come to an agreement as to the
conditions of the lease, and should they fail to do so, then the court shall fix the same."
33

In light of these rulings, Petitioners, as owners of Lot No. 24, may choose to purchase
the improvement made by respondents Go on their land, or sell to respondents Go the
subject portion. If buying the improvement is impractical as it may render the Go’s
house useless, then petitioners may sell to respondents Go that portion of Lot No. 24
on which their improvement stands. If the Go’s are unwilling or unable to buy the lot,
then they must vacate the land and, until they vacate, they must pay rent to
petitioners. Petitioners, however, cannot compel respondents Go to buy the land if its
value is considerably more than the portion of their house constructed thereon. If the
value of the land is much more than the Go’s improvement, then respondents Go must
pay reasonable rent. If they do not agree on the terms of the lease, then they may go
to court to fix the same.

In the event that petitioners elect to sell to respondents Go the subject portion of their
lot, the price must be fixed at the prevailing market value at the time of payment. The
Court of Appeals erred in fixing the price at the time of taking, which is the time the
improvements were built on the land. The time of taking is determinative of just
compensation in expropriation proceedings. The instant case is not for expropriation. It
is not a taking by the state of private property for a public purpose upon payment of
just compensation. This is a case of an owner who has been paying real estate taxes on
his land but has been deprived of the use of a portion of this land for years. It is but fair
and just to fix compensation at the time of payment. 34

Article 448 and the same conditions abovestated also apply to respondents Go as
owners and possessors of their land and respondent Li Ching Yao as builder of the
improvement that encroached on thirty-seven (37) square meters of respondents Go’s
land. chanroblesvirtualawlibrary

IN VIEW WHEREOF, the decision of respondent Court of Appeals is modified as follows:

virtual 1aw library
chanrob1es

(1) Petitioners are ordered to exercise within thirty (30) days from finality of this
decision their option to either buy the portion of respondents Go’s improvement on
their Lot No. 24, or sell to said respondents the portion of their land on which the
improvement stands. If petitioners elect to sell the land or buy the improvement, the
purchase price must be at the prevailing market price at the time of payment. If buying
the improvement will render respondents Go’s house useless, then petitioners should
sell the encroached portion of their land to respondents Go. If petitioners choose to sell
the land but respondents Go are unwilling or unable to buy, then the latter must vacate
the subject portion and pay reasonable rent from the time petitioners made their choice
up to the time they actually vacate the premises. But if the value of the land is
considerably more than the value of the improvement, then respondents Go may elect
to lease the land, in which case the parties shall agree upon the terms of the lease.
Should they fail to agree on said terms, the court of origin is directed to fix the terms of
the lease.

From the moment petitioners shall have exercised their option, respondents Go shall
pay reasonable monthly rent up to the time the parties agree on the terms of the lease
or until the court fixes such terms.

(2) Respondents Go are likewise directed to exercise their rights as owners of Lots Nos.
25 and 26, vis-a-vis respondent Li Ching Yao as builder of the improvement that
encroached on thirty seven (37) square meters of respondents Go’s land in accordance
with paragraph one abovementioned.

(3) The Decision of the Court of Appeals ordering Engineer Quedding, as third-party
defendant, to pay attorney’s fees of P5,000.00 to respondents Go is affirmed. The
additional filing fee on the damages constitutes a lien on this award.

(4) The Decision of the Court of Appeals dismissing the third-party complaint against
Araneta Institute of Agriculture is affirmed.

SO ORDERED.
 FIRST DIVISION

[G.R. No. L-59255. December 29, 1995.]

OLIVIA M. NAVOA and ERNESTO NAVOA, Petitioners, v. COURT OF APPEALS,

TERESITA DOMDOMA and EDUARDO DOMDOMA, Respondents.

DECISION

BELLOSILLO, J.:

Petitioners Olivia M. Navoa and Ernesto Navoa seek reversal of the decision of the Court
of Appeals 1 which "modified" the order of the trial court dismissing the complaint for
lack of cause of action. The appellate court remanded the case to the court a quo for
private respondents to file their responsive pleading and for trial on the merits.

On 17 December 1977 private respondents filed with the Regional Trial Court of Manila
an action against petitioners for collection of various sums of money based on loans
obtained by the latter. On 3 January 1978 petitioners filed a motion to dismiss the
complaint on the ground that the complaint stated no cause of action and that plaintiffs
had no capacity to sue.

After private respondents submitted their opposition to the motion to dismiss on 9

January 1978 the trial court dismissed the case. A motion to reconsider the dismissal
was denied.

On 27 March 1978 private respondents appealed to the Court of Appeals which on 11

December 1980 modified the order of dismissal "by returning the records of this case
for trial on the merits, upon filing of an answer subject to the provisions of Articles
1182 and 1197 of the Civil Code for the first cause of action. The other causes of action
should be tried on the merits subject to the defenses the defendants may allege in their
answer." cralaw virtua1aw library

The instant petition alleges that respondent court erred: (a) in not dismissing the
appeal for lack of appellate jurisdiction over the case which involves merely a question
of law; (b) in not affirming the order of dismissal for lack of cause of action; and, (c) in
holding that private respondents have a cause of action under the second to the sixth
causes of action of the complaint. 2

We cannot sustain the petition. Petitioners are now estopped from assailing the
appellate jurisdiction of the Court of Appeals after receiving an adverse judgment
therefrom. 3 Having participated actively in the proceedings before the appellate court,
petitioners can no longer question its authority.

Petitioners submit that private respondents failed to specify in their complaint a fixed
period within which petitioners should pay their obligations; that instead of stating that
petitioners failed to discharge their obligations upon maturity private respondents
sought to collect on the checks which were issued to them merely as security for the
loans; and, that private respondents failed to make a formal demand on petitioners to
satisfy their obligations before filing the action.

For a proper determination of whether the complaint filed by private respondents

sufficiently stated a cause of action, we shall examine the relevant allegations in the
complaint, to wit: chanrob1es virtual 1aw library

Allegations Common To All Causes of Actions

x          x           x
3. That sometime in . . . February, 1977, when the Reycard Duet was in Manila, plaintiff
Teresita got acquainted with defendant Olivia in the jewelry business, the former selling
the jewelries of the latter; that to the Reycard Duet alone, plaintiff Teresita sold
jewelries worth no less than ONE HUNDRED TWENTY THOUSAND (P120,000.00) PESOS
in no less than twenty (20) transactions; that even when the Reycards have already
left, their association continued, and up to the month of August, 1977, plaintiff Teresita
sold for defendant Olivia jewelries worth no less than TWENTY THOUSAND (P20,000.00)
PESOS, in ten (10) transactions more or less;

x          x           x

5. That sometime in the months of June and July of 1977, defendant Olivia, on two
occasions, asked for a loan from plaintiff Teresita, for the purpose of investing the same
in the purchase of jewelries, which loan were secured by personal checks of the former;
that in connection with these loans, defendant promised plaintiff a participation in an
amount equivalent to one half (1/2) of the profit to be realized; that on these loans,
plaintiff was given a share in the amount of P1,200.00 in the first transaction, and in
the second transaction, the sum of P950.00;

First Cause of Action

6. That on August 15, 1977, defendant Olivia got from plaintiff Teresita, one diamond
ring, one and one half (1-1/2) karats, heart shape, valued in the amount of Fifteen
thousand (P15,000.00) Pesos; that as a security for the said ring, Olivia issued a
Philippine Commercial and Industrial Bank Check, San Sebastian Branch, dated August
15, 1977, No. 13894, copy of which is hereto attached and made a part hereof as
Annex "A" ;

7. That the condition of the issuance of the check was — if the ring is not returned
within fifteen (15) days from August 15, 1977, the ring is considered sold; that after
fifteen days, plaintiff Teresita asked defendant Olivia if she could deposit the check, and
the answer of defendant Olivia was — hold it for sometime, until I tell you to deposit
the same; that the check was held until the month of November, 1977, and when
deposited, it was dishonored for lack of sufficient funds; that for the reason that the
aforementioned check was not honored when deposited, defendant Olivia should be
held liable for interest at the rate of one percent a month, from date of issue, until the
same is fully paid;

Second Cause of Action

8. That on August 25, 1977, plaintiff Teresita extended a loan to the herein defendant
Olivia in the amount of TEN THOUSAND (P10,000.00) PESOS, secured by a Philippine
Commercial and Industrial Bank Check, PCIBANK Singalong Branch, No. 14307, dated
Sept. 25, 1977, photo copy of which is hereto attached and made a part hereof as
Annex "B" ;

9. That this loan was extended upon representation of defendant Olivia that she needed
money to pay for jewelries which she can resell for a big profit; that having established
her goodwill, by reason of the transaction mentioned in par. "5" hereof, the loan was
extended by plaintiff;

10. That this check, Annex "B", when deposited was dishonored; that for the reason
that the check was dishonored when deposited, defendant Olivia should be held liable
for interest at the rate of one percent (1%) per month, from the date of issue until fully
paid;

Third Cause of Action

11. That on August 27, 1977, plaintiff extended to defendant Olivia a loan in the
amount of FIVE THOUSAND PESOS (P5,000.00), secured by a Philippine Commercial &
Industrial Bank check, PCIBANK Singalong Branch, No. 14308, dated Sept. 27, 1977,
photo copy of which is hereto attached and made a part hereof as Annex "C" ;

12. That this loan was extended on the same representation made by defendant Olivia,
stated in par. "9", under the terms and conditions stated in par. "5" hereof;

13. That the check Annex "C", has not as yet been paid up to now, hence, defendant
Olivia should be held liable for interest at the rate of one percent (1%) monthly, from
date of issue, until fully paid;

Fourth Cause of Action

14. That on August 30, 1977, plaintiff Teresita, extended a loan in favor of defendant
Olivia, in the amount of Five Thousand (P5,000.00) Pesos, secured by a Philippine
Commercial and Industrial Bank Check, PCIBANK Singalong Branch, No. 14311, dated
Sept. 30, 1977, photo copy of which is hereto attached and made a part hereof as
Annex "D" ;

15. That this loan was extended on the same representation made by defendant Olivia,
as stated in par. "9" hereof, under the terms and conditions stated in par. "5" hereof;

16. That this check, Annex "D" has not as yet been paid up to now, hence, she should
be held liable for interest thereon at the rate of one percent (1%) per month, from date
of issue, until fully paid;

Fifth Cause of Action

17. That on Sept. 15, 1977, plaintiff Teresita extended a loan in favor of defendant
Olivia, in the amount of TEN THOUSAND (P10,000.00) PESOS, secured by a Philippine
Commercial & Industrial Bank check, PCIBANK Singalong Branch, No. 143P0, dated
October 15, 1977, photo copy of which is hereto attached and made a part hereof as
Annex "E" ;

18. That this loan was given on the same representation made by defendant Olivia,
stated on par. "9" hereof, and under the terms and conditions stated in par. "5" hereof;

19. That this check Annex "E" when deposited was dishonored; that for the reason that
the check was dishonored when deposited, defendant Olivia should be held liable for
interest at the rate of one percent (1%) monthly, from date of issue, until fully paid;

Sixth Cause of Action

20. That on Sept. 27, 1977, plaintiff Teresita extended a loan to defendant Olivia, in the
amount of TEN THOUSAND (P10,000.00) PESOS, secured by a Philippine Commercial &
Industrial Bank check, No. 14325, dated October 27, 1977, photo copy of which is
hereto attached and made a part hereof as Annex "F" ;

21. That this loan was given on the same representation made by defendant Olivia,
stated in par. "9" hereof, and under the terms and conditions stated in par. "5" hereof;

22. That this check, Annex F, when deposited was dishonored; that for the reason that
the check was dishonored when deposited, defendant Olivia should be held liable for
interest thereon, at the rate of one percent (1%) monthly, from date of issue, until fully
paid;

Seventh Cause of Action

23. That plaintiff, by reason of the two transactions in par. "5" hereof, reposed trust
and confidence on defendant Olivia, however, by virtue of these trust and confidence,
she availed of the same in securing the loans aforementioned by misrepresentations,
and as a direct consequence thereof, the loans have not as yet been settled up to now,
for which plaintiff Teresita suffered sleepless nights, mental torture and wounded
feelings, for the reason that the money used in said transactions do all belong to her;
that this situation is further aggravated by the malicious act of defendant Olivia, by
having filed a complaint with the Manila Police, to the effect that she (Teresita) stole
the checks involved in this case; that as a consequence thereof, she was investigated
and she suffered besmirched reputation, social humiliation, wounded feelings, moral
shock and similar injuries, for which defendant Olivia should be held liable, as and by
way of moral damages in the amount of EIGHTY THOUSAND (P80,000.00)PESOS;

Eight Cause of Action

24. That as and by way of exemplary or corrective damages, to serve as an example or

correction for the public good, defendant Olivia should be held liable to pay to the
herein plaintiff Teresita, the amount of Ten Thousand Pesos, as exemplary damages;

Ninth Cause of Action

25. That plaintiff, in order to protect her rights and interests, engaged the services of
the undersigned, and she committed herself to pay the following: chanrob1es virtual 1aw library

a. The amount of P200.00 for every appearance in the trial of this case.

b. The amount of P2,000.00 as retainers fees.

c. An amount equivalent to ten percent of any recovery from defendant.

On the basis of the allegations under the heading Allegations Common to all Causes of
Action above stated as well as those found under the First Cause of Action to the Ninth
Cause of Action, should the complaint be dismissed for want of cause of action?

A cause of action is the fact or combination of facts which affords a party a right to
judicial interference in his behalf. The requisites for a cause of action are: (a) a right in
favor of the plaintiff by whatever means and under whatever law it arises or is created,
(b) an obligation on the part of the defendant to respect and not to violate such right;
and, (c) an act or omission on the part of the defendant constituting a violation of the
plaintiff’s right or breach of the obligation of the defendant to the plaintiff. 4 Briefly
stated, it is the reason why the litigation has come about; it is the act or omission of
defendant resulting in the violation of someone’s right. 5

In determining the existence of a cause of action, only the statements in the complaint
may properly be considered. Lack of cause of action must appear on the face of the
complaint and its existence may be determined only by the allegations of the complaint,
consideration of other facts being proscribed and any attempt to prove extraneous
circumstances not being allowed.

If a defendant moves to dismiss the complaint on the ground of lack of cause of action,
such as what petitioners did in the case at bar, he is regarded as having hypothetically
admitted all the averments thereof. The test of sufficiency of the facts found in a
complaint as constituting a cause of action is whether or not admitting the facts alleged
the court can render a valid judgment upon the same in accordance with the prayer
thereof. The hypothetical admission extends to the relevant and material facts well
pleaded in the complaint and inferences fairly deducible therefrom. Hence, if the
allegations in a complaint furnish sufficient basis by which the complaint can be
maintained, the same should not be dismissed regardless of the defense that may be
assessed by the defendants. 6

In their first cause of action private respondents Eduardo and Teresita Domdoma
alleged that petitioner Olivia Navoa obtained from the latter a ring valued at
P15,000.00 and issued as security therefor a check for the same amount dated 15
August 1977 with the condition that if the ring was not returned within fifteen (15) days
the ring would be considered sold; and, after the lapse of the period, private
respondent Teresita Domdoma asked to deposit the check but petitioner Olivia Navoa
requested the former not to deposit it in the meantime; that when Teresita Domdoma
deposited the check after holding it for sometime the same was dishonored for lack of
funds. Private respondent Teresita Domdoma sought to collect the amount of
P15,000.00 plus interest from 15 August 1977 until fully paid.

From these facts the ring was considered sold to petitioner Olivia Navoa 15 days from
15 August 1977 and despite the sale the latter failed to pay the price therefor even as
the former was given ample time to pay the agreed amount covered by a check.
Clearly, respondent Teresita Domdoma’s right under the agreement with petitioner
Olivia Navoa was violated by the latter.

In the second to the sixth causes of action it was alleged that private respondents
granted loans to petitioners in different amounts on different dates. All these loans
were secured by separate checks intended for each amount of loan obtained and dated
one month after the contracts of loan were executed. That when these checks were
deposited on their due dates they were all dishonored by the bank. As a consequence,
private respondents prayed that petitioners be ordered to pay the amounts of the loans
granted to them plus one percent interest monthly from the dates the checks were
dishonored until fully paid.

Culled from the above, the right of private respondents to recover the amounts loaned
to petitioners is clear. Moreover, the corresponding duty of petitioners to pay private
respondents is undisputed. The question now is whether petitioners committed an act
or omission constituting a violation of the right of private respondents.

All the loans granted to petitioners are secured by corresponding checks dated a month
after each loan was obtained. In this regard, the term security is defined as a means of
ensuring the enforcement of an obligation or of protecting some interest in property. It
may be personal, as when an individual becomes a surety or a guarantor; or a property
security, as when a mortgage, pledge, charge, lien, or other device is used to have
property held, out of which the person to be made secure can be compensated for loss.
7 Security is something to answer for as a promissory note. 8 That is why a secured
creditor is one who holds a security from his debtor for payment of a debt. 9 From the
allegations in the complaint there is no other fair inference than that the loans were
payable one month after they were contracted and the checks issued by petitioners
were drawn to answer for their debts to private respondents.

Petitioners failed to make good the checks on their due dates for the payment of their
obligations. Hence, private respondents filed the action with the trial court precisely to
compel petitioners to pay their due and demandable obligations. Art. 1169 of the Civil
Code is explicit — those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation. The continuing refusal of petitioners to heed the demand of private
respondents stated in their complaint unmistakably shows the existence of a cause of
action on the part of the latter against the former.

Quite obviously, the trial court erred in dismissing the case on the ground of lack of
cause of action. Respondent Court of Appeals therefore is correct in demanding the
case to the trial court for the filing of an answer by petitioners and to try the case on
the merits.

WHEREFORE, the petition is DENIED. The judgment of the Court of Appeals dated 11
December 1980 remanding the case to the trial court for the filing of petitioners’
answer and thereafter for trial on the merits is AFFIRMED. Costs against petitioners.

SO ORDERED
 FIRST DIVISION
[G.R. Nos. 92029-30 : December 20, 1990.]
192 SCRA 507
NICANOR G. DE GUZMAN, JR., Petitioner, vs. HON. COURT OF APPEALS, Former
Fifth Division, HON. REGIONAL TRIAL COURT, National Capital Judicial Region, Br.
48, Manila, and ENRIQUE KP. TAN, Respondents.
 
DECISION
 
GANCAYCO, J.:
 
A cause of action is the fact or combination of facts which affords a party a right to judicial
interference in his behalf. 1 An action means an ordinary suit in a court of justice, by which
one party prosecutes another for the enforcement or protection of a right, or the
prosecution or redress of a wrong. 2
The cause of action must always consist of two elements: (1) the plaintiff's primary right
and the defendant's corresponding primary duty, whatever may be the subject to which
they relate — person, character, property or contract; and (2) the delict or wrongful act or
omission of the defendant, by which the primary right and duty have been violated. 3 The
cause of action is determined not by the prayer of the complaint but by the facts alleged. 4
The term right of action is the right to commence and maintain an action. 5 In the law on
pleadings, right of action is distinguished from cause of action in that the former is a
remedial right belonging to some persons, while the latter is a formal statement of the
operative facts that give rise to such remedial right. The former is a matter of right and
depends on the substantive law, while the latter is a matter of statement and is governed
by the law of procedure. 6
The right of action springs from the cause of action, but does not accrue until all the facts
which constitute the cause of action have occurred. 7 When there is an invasion of primary
rights, then and not until then does the adjective or remedial law become operative, and
under it arise rights of action. There can be no right of action until there has been a wrong
— a violation of a legal right — and it is then given by the adjective law. 8
The herein petition for review on Certiorari of a decision of the Court of Appeals dated
January 30, 1990 in CA G.R. No. 22481 9 puts into test the sufficiency of the cause of action
of a complaint filed in the Regional Trial Court of Manila. : nad

The undisputed antecedents are that on September 15, 1988, petitioner filed a complaint
for damages and other equitable reliefs in the trial court, the relevant allegations of which
are as follows:
"3. Plaintiff and defendant have been friends and in the course of this relationship,
they have exchanged mutual favors and accommodations, including discounting of
check for cash.
4. More than seven (7) years ago, several checks were issued by plaintiff to
defendant in exchange for cash which probably amounted to P280,900.00. In due
time, these checks were either fully paid, settled, extinguished or condoned by
agreement of the parties, and for which reason, plaintiff did not anymore redeem the
checks precisely because they have been close and mutual friends.
5.a. Lately, however, plaintiff received from defendant's lawyer a demand
letter dated 1988 supposedly detailing out therein the former's obligation to
the latter, as follows:

 Principal Amount —                     P280,900.00

 (Value of 66 dishonored checks)

 Legal Interest at —                     235,956.00

  1% per Month (For 84

 months or 7 years)

 Attorney's Collection —                51,685.00

 Fee (At 10% Only)

                                                —————

 TOTAL Amount Due —                  P568,541.00

                                                ========

Copy of said letter is attached hereto as Annex A and made an integral part
hereof.
b. The claim of P568,541.00 is not due and owing from the plaintiff to the
defendant because, as already stated, the amounts of the checks issued to
defendant some more than (7) years ago, were either fully paid, settled,
extinguished or treated as condoned by agreement of the parties.
6. In the said letter, Annex A hereof, defendant threatened to "institute the proper
action and hold (plaintiff liable for the consequence," in the following manner:
. . . unfortunately, you had not heeded his (defendant's) request and so we
hereby inform you that this shall definitely be our last letter to you on this
matter and we are giving you a final period of ten (10) days from receipts
hereof to remit full payment of said sum of P568,541.00, otherwise, without
need of further advice to you, we shall institute the proper action and hold
you liable for the consequence. :-cralaw

7. Defendant knows fully well that the sum of P568,541.00 is not wholly or partly
due or owing to him from plaintiff particularly the huge, fantastic, and unwarranted
claim for alleged legal interests in the sum of P235,956.00 which roughly accounts
for 84% of the alleged principal amount being collected by defendant from plaintiff
under his ill-tenored Annex A hereof, and the unwarranted claim for attorney's
collection fees of P51,685.00.
8. Plaintiff is very reluctant to file the instant complaint against his defendant friend
but was gravely agitated to do so because of a clearly perceived and palpable injury
to him as unequivocally expressed in defendant's letter, Annex A hereof.
9. In the circumstances given, defendant has kept possession of the alleged checks
amounting to P280,900.00 at the expense of plaintiff and since the obligation
thereunder has either been fully or wholly paid, settled, extinguished, or condoned
by agreement of the parties, defendant holds them without just or legal ground and
is bound to return them to plaintiff.
10. In writing the letter, Annex A hereof and demanding therein an obligation from
plaintiff which is not due and owing from the latter, defendant failed to act with
justice, observe honesty and good faith.
11. To prosecute the instant action, plaintiff has incurred actual expenses in the sum
of at least P15,000.00.
12. In the circumstances herein-above given, defendant acted in a wanton, reckless,
oppressive, or malevolent manner. Hence, exemplary damages in the sum of
P200,000.00 should be imposed against the defendant for the public good, in
addition to other damages claimed herein.
13. Nominal damages should be adjudicated against the defendant in order that the
right of plaintiff which has been invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered
by the latter.
14. To prosecute the case herein, plaintiff has retained the services of counsel at the
agreed attorney's fees of P75,000.00.
 WHEREFORE, it is respectfully prayed that, after due hearing judgment be rendered
in favor of plaintiff and against defendant, as follows:
1. Ordering defendant to pay plaintiff the sum of P15,000.00 as actual or
compensatory damages;
2. Ordering the defendant to pay plaintiff the exemplary damages in the sum
of P200,000.00;
3. Ordering defendant to return to plaintiff the several checks mentioned in
Annex A of the complaint and adjudicating nominal damages in favor of
plaintiff and against the defendant;
4. Ordering defendant to pay plaintiff the sum of P75,000.00 for and as
attorney's fees; and
5. Ordering the defendant to pay the costs of the suit. : nad

Plaintiff prays for other relief just and proper in the premises of the case." 10
On October 8, 1988, private respondent filed a motion to dismiss the complaint for lack of
cause of action and prescription. An opposition thereto was filed by petitioner to which a
reply was made by private respondent. After a rejoinder was submitted by petitioner, on
November 24, 1988 the trial court dismissed the complaint for failure to state a cause of
action. 11
A motion for reconsideration thereof filed by petitioner, which was opposed by private
respondent, and to which a reply was filed by petitioner, was denied by the trial court on
March 17, 1989. 12
Hence, petitioner filed a petition for Certiorari and mandamus and other relief in the Court
of Appeals against said orders of the trial court. As earlier stated, on January 30, 1990, the
Court of Appeals rendered its decision dismissing the appeal with costs against petitioner.
Thus, the herein petition whereby petitioner alleges that the trial court committed a grave
abuse of discretion in issuing the questioned orders dated November 24, 1988 and March
17, 1989, and that the Court of Appeals did likewise in dismissing the appeal of petitioner
thereby disregarding a question of substance not in accord with law.
The petition is impressed with merit.
A reading of the complaint shows that it is therein alleged that more than seven (7) years
ago, several checks were issued by petitioner to private respondent in exchange for cash
amounting to P280,900.00; that in due time, said checks were "either fully paid, settled,
extinguished or condoned by agreement of the parties" so petitioner did not anymore
redeem the checks because of their friendship; that on August 30, 1988, private
respondent's lawyer sent a letter of demand to petitioner to pay said principal amount plus
interest and attorney's fees with a total amount due of P568,541.00, which claim is not due
and owing having been settled between the parties; that in said letter threat of court action
was made causing injury to petitioner; that private respondent illegally withheld the
petitioner's checks which should be returned to petitioner; that for private respondent's act
of demanding payment for an obligation not due and for the former's failure to act with
justice, observe honesty and good faith, petitioner prays for relief by way of actual,
exemplary and nominal damages, and also prays that the private respondent be ordered to
return to petitioner the checks mentioned in the complaint, and to pay the costs.
Contrary to the findings of the lower court and the appellate court that the complaint states
no cause of action, this Court finds and so holds that it states a sufficient cause of action.
It must be remembered that when a party files a motion to dismiss the complaint for lack of
cause of action he is deemed to hypothetically admit the allegations thereof.
From the allegation of the complaint in this case it appears that, (1) petitioner has a
primary right, because of having paid his obligation to private respondent, to have the
checks he issued to cover the amount returned to him or otherwise cancelled by private
respondent; and (2) the primary right of was violated when private respondent demanded
payment of a settled obligation relying on the very checks of petitioner he had not returned.
Consequently, on account of such demand for payment for an obligation duly settled, the
petitioner thereby suffered damages 13 and should be afforded such relief as prayed for in
the complaint.:-cralaw

Contrary to the observation made by the appellate court, the cause of action had not
prescribed. The cause of action accrued only on August 20, 1988 when in a demand letter
for payment private respondent thereby committed a wrongful act against petitioner. The
complaint was filed promptly on September 15, 1988, well within the four (4) year
prescriptive period of an action of this nature. 14
WHEREFORE, the petition is GRANTED and the questioned decision of the Court of Appeals
dated January 30, 1990 as well as the questioned orders of the Regional Trial Court of
Manila dated November 24, 1988 and March 17, 1989, are hereby REVERSED AND SET
ASIDE. Let the records of this case be remanded to the trial court for further proceedings.
Costs against private respondent.
SO ORDERED.
 SECOND DIVISION

[G.R. No. 123555. January 22, 1999.]

PROGRESSIVE DEVELOPMENT CORPORATION, INC., Petitioner, v. COURT OF

APPEALS and WESTIN SEAFOOD MARKET, INC., Respondents.

DECISION

BELLOSILLO, J.:

May the lessee which instituted before the Metropolitan Trial Court an action for forcible
entry with damages against its lessor file a separate suit with the Regional Trial Court
against the same lessor for moral and exemplary damages plus actual and
compensatory damages based on the same forcible entry? chanrobles virtual lawlibrary

On grounds of litis pendencia and forum-shopping, petitioner invokes established

jurisprudence that a party cannot by varying the form of action or adopting a different
method of presenting his case evade the principle that the same cause of action shall
not be litigated twice between the same parties or their privies. 1 Petitioner therefore
prays for reversal of the decision of the Court of Appeals dated 27 May 1995, as well as
its Resolution dated 17 January 1996 denying reconsideration, which upheld the denial
by the Regional Trial Court of petitioner’s motion to dismiss private respondent’s
damage suit.

The antecedents: On 27 May 1991 petitioner leased to private respondent Westin

Seafood Market, Inc., a parcel of land with a commercial building thereon located at
Araneta Center, Cubao, Quezon City, for a period of nine (9) years and three (3)
months, i.e., from 2 January 1989 to 30 April 1998, with a monthly rental of
approximately P600,000.00. The contract contained, among others, the following
pertinent terms and conditions: chanrob1es virtual 1aw library

EFFECT OF VIOLATIONS

25. LESSEE hereby agrees that all the provisions contained in this Contract shall be
deemed as conditions, as well as covenants, and that this Contract shall be
automatically terminated and cancelled without resorting to court action should LESSEE
violate any or all said conditions, including the payment of Rent, CUSA and other
charges indicated in the FLP when due within the time herein stipulated and in any such
cases, LESSEE hereby irrevocably appoints LESSOR, its authorized agents, employees
and/or representatives as his duly authorized attorney-in-fact, even after the
termination, expiration or cancellation of this Contract, with full power and authority to
open, enter, repossess, secure, enclose, fence and otherwise take full and complete
physical possession and control of the leased premises and its contents without
resorting to court action and/or to summarily disconnect electrical and/or water
services thereof, and that LESSEE hereby irrevocably empowers LESSOR, his authorized
agents, employees and/or representatives to take inventory and possession of
whatever equipment, furniture, articles, merchandise, appliances, etc., found therein
belonging to LESSEE, consignors and/or to any other persons and to place the same in
LESSOR’s warehouse or any other place at LESSOR’s discretion for safekeeping,
charging LESSEE the corresponding storage fees therefor; that in case LESSEE fails to
claim said equipment, furniture, articles, merchandise, appliances, etc. from storage
and simultaneously liquidate any liability with LESSOR within seven (7) days from date
of said transfer to LESSOR’s warehouse, LESSOR is likewise hereby expressly
authorized and empowered by LESSEE to dispose of said property/properties in a public
sale through a Notary Public of LESSOR’s choice and to apply the proceeds thereof to
whatever liability and/or indebtedness LESSEE may have to LESSOR plus reasonable
expenses for the same, including storage fees, and the balance, if any, shall be turned
over to LESSEE; that LESSEE hereby expressly agrees that any or all acts performed by
LESSOR, his authorized agents, employees and/or representatives under the provisions
of this Section may not be the subject of any petition for a Writ of Preliminary
Injunction or Mandatory Injunction in court, and that LESSOR and/or his authorized
agents, employees, and/or representatives shall be free from any civil and/or criminal
liability or responsibility whatsoever therefor.

TERMINATION OF LEASE

26. Upon the automatic termination of this lease contract, as the case may be, LESSEE
shall immediately vacate and redeliver physical possession of the leased premises,
including the keys appertaining thereto, to LESSOR in good, clean and sanitary
condition, reasonable wear and tear excepted, devoid of all occupants, equipment,
furniture, articles, merchandise, etc., belonging to LESSEE or to any other person
except those belonging to LESSOR; that should LESSEE fail to comply with this
provision, LESSOR is hereby given the same rights and power to proceed against
LESSEE as expressly granted in the immediately preceding section.

Private respondent failed to pay rentals despite several demands by petitioner. As of 19

October 1992 the arrearages amounted to P8,608,284.66. Admittedly, non-payment of
rentals constituted breach of their contract; thus, pursuant to the express authority
granted petitioner under the above-quoted Secs. 25 and 26 of the lease agreement,
petitioner on 31 October 1992 repossessed the leased premises, inventoried the
movable properties found within and owned by private respondent and scheduled public
auction for the sale of the movables on 19 August 1993 with notice to
private Respondent.

On 26 November 1992 private respondent filed with the Metropolitan Trial Court of
Quezon City a complaint against petitioner for forcible entry with damages and a prayer
for a temporary restraining order and/or writ of preliminary injunction. 2 The case was
raffled to Branch 40 presided over by Judge Guillermo L. Loja Jr. who issued a
temporary restraining order enjoining petitioner from selling private respondent’s
properties at a public auction.

On 9 December 1992 Judge Loja inhibited himself from trying the case and directed its
transfer to Branch 34 presided over by Judge Joselito SD Generoso. Soon after,
petitioner filed an urgent motion for the inhibition of Judge Generoso and the
immediate reraffle of the case arguing that the summary transfer of the case to Judge
Generoso was irregular as it was not done by raffle.

The motion was granted and the case went to Branch 36 presided over by Judge
Francisco D. Villanueva. Thereafter, On 22 December 1992, at the continuation of the
hearing on the issuance of a writ preliminary mandatory injunction, the parties agreed,
among others, on the following: (a) private respondent would deposit with the
Philippine Commercial and Industrial Bank in the name of the Metropolitan Trial Court,
Branch 36, the amount of P8,000,000.00 to guarantee the payment of its back rentals;
(b) petitioner would defer the sale of the personal properties of the Westin Seafood
Market, Inc., until a final settlement of the case had been arrived at; (c) petitioner shall
allow private respondent to retrieve all the perishable goods from inside the leased
premises like frozen meat, vegetables and fish, all properly receipted for; (d) petitioner
shall allow three (3) maintenance personnel of private respondent to enter the premises
at reasonable working hours to maintain the restaurant equipment; and (e) the parties
shall negotiate for the restoration of the premises to private respondent, and if no
settlement be arrived at on or before January 8, 1993, the hearing on the merits of the
case shall proceed and the disposition of the amount deposited representing the rental
arrearages shall be left to the discretion of the court.

This agreement was incorporated in the order of the court dated 22 December 1992 3
which in effect terminated for all intents and purposes the incident on the issuance of a
preliminary writ of injunction.

Private respondent did not comply with its undertaking to deposit with the designated
bank the amount representing its back rentals. Instead, with the forcible entry case still
pending with the MeTC, private respondent instituted on 9 June 1993 another action for
damages against petitioner with the Regional Trial Court of Quezon City. The case was
raffled to Branch 101 presided over by Judge Pedro T. Santiago. 4

Petitioner filed a motion to dismiss the damage suit on the ground of litis pendencia and
forum shopping. On 2 July 1993, instead of ruling on the motion, Judge Santiago issued
an order archiving the case pending the outcome of the forcible entry case being heard
at the MeTC for the reason that "the damages is (sic) principally anchored on whether
or not the defendants (petitioner herein) have committed forcible entry." 5 On 2 August
1993 petitioner moved for reconsideration of the order and reiterated its motion to
dismiss the suit for damages.

Before petitioner’s motion to dismiss could be resolved, private respondent filed with
the RTC on 18 August 1993 an amended complaint for damages. On 14 September
1993 it also filed an Urgent Ex-Parte Motion for the Issuance of a Temporary
Restraining Order and Motion for the Grant of a Preliminary Prohibitory and Preliminary
Mandatory Injunction. On the very same day, Judge Santiago issued an order (a)
denying petitioner’s motion to dismiss, (b) admitting private respondent’s amended
complaint, and (c) granting private respondent’s application for a temporary restraining
order against petitioner.

Thus, petitioner filed with the Court of Appeals a special civil action for certiorari and
prohibition on the ground that Judge Santiago acted in excess of his jurisdiction and/or
committed grave abuse of discretion amounting to lack of jurisdiction in admitting the
amended complaint of private respondent and issuing a restraining order against
petitioner; in allowing private respondent to engage in forum shopping; and, taking
cognizance of the action for damages despite lack of jurisdiction. 6

But the Court of Appeals dismissed the petition due to the failure of petitioner to file a
motion for reconsideration of Judge Santiago’s order of 14 September 1993 which, it
explained, was a prerequisite to the institution of a petition for certiorari and
prohibition. It also found that the elements of litis pendencia were lacking to justify the
dismissal of the action for damages with the RTC because despite the pendency of the
forcible entry case with the MeTC the only damages recoverable thereat were those
caused by the loss of the use and occupation of the property and not the kind of
damages being claimed before the RTC which had no direct relation to loss of material
possession. It clarified that since the damages prayed for in the amended complaint
with the RTC were those caused by the alleged high-handed manner with which
petitioner reacquired possession of the leased premises and the sale of private
respondent’s movables found therein, the RTC and not the MeTC had jurisdiction over
the action of damages. 7

Petitioner, aggrieved by the decision of the appellate court, filed the instant petition for
review on certiorari under Rule 45 of the Rules of Court alleging that it erred in (a)
finding that petitioner failed to avail of its plain, speedy and adequate remedy of a prior
motion for reconsideration with the RTC; (b) ruling that the trial judge did not act with
grave abuse of discretion in taking cognizance of the action for damages and injunction
despite the pendency of the forcible entry case with the MeTC; and, (c) ruling that
private respondent did not commit forum shopping since the causes of action before the
RTC and MeTC were not identical with each other.

There is merit in the petition. While generally a motion for reconsideration must first be
filed before resorting to certiorari in order to give the lower court an opportunity to
correct the errors imputed to it 8 this rule admits of exceptions and is not intended to
be applied without considering the circumstances of the case. 9 The filing of the motion
for reconsideration before availing of the remedy of certiorari is not sine qua non when
the issue raised is one purely of law, 10 or where the error is patent or the disputed
order is void, 11 or the questions raised on certiorari are the same as those already
squarely presented to and passed upon by the lower court.

In its motion for dismissal of the action for damages with the RTC petitioner raised the
ground that another action for forcible entry was pending at the MeTC between the
same parties involving the same matter and cause of action. Outrightly rejected by the
RTC, the same issue was elevated by petitioner on certiorari before the Court of
Appeals. Clearly, under the prevailing circumstance, any motion for reconsideration of
the trial court would have been a pointless exercise. 12

We now turn to the issue of whether an action for damages filed with the Regional Trial
Court by the lessee against the lessor should be dismissed on the ground of pendency
of another action for forcible entry and damages earlier filed by the same lessee against
the same lessor before the Metropolitan Trial Court.

Section 1 of Rule 70 of the Rules of Court provides that any person deprived of the
possession of any land or building by force, intimidation, threat, strategy or stealth, or
against whom the possession of any land or building is unlawfully withheld, may bring
an action in the proper Municipal Trial Court against the person or persons unlawfully
withholding or depriving of possession, together with damages and costs. The mandate
under this rule is categorical: that all cases for forcible entry or unlawful detainer shall
be filed before the Municipal Trial Court which shall include not only the plea for
restoration of possession but also all claims for damages and costs arising therefrom.
Otherwise expressed, no claim for damages arising out of forcible entry or unlawful
detainer may be filed separately and independently of the claim for restoration of
possession.

This is consistent with the principle laid down in Sec. 1, par (e), of Rule 16 of the Rules
of Court which states that the pendency of another action between the same parties for
the same cause is a ground for dismissal of an action. Res adjudicata requires that
there must be between the action sought to be dismissed and the other action the
following elements: (a) identity of parties or at least such as representing the same
interest in both actions; (b) identity of rights asserted and relief prayed for, the relief
being founded on the same facts; and, (c) the identity in the two (2) preceding
particulars should be such that any judgment which may be rendered on the other
action will, regardless of which party is successful, amount to res adjudicata in the
action under consideration. 13

It is likewise basic under Sec. 3 of Rule 2 of the Revised Rules of Court, as amended,
that a party may not institute more than one suit for a single cause of action. Under
Sec. 4 of the same Rule, if two or more suits are instituted on the basis of the same
cause of action, the filing of one or a judgment upon the merits in any one is available
as a ground for the dismissal of the other or others. "Cause of action" is defined by Sec.
2 of Rule 2 as the act of omission by which a party violates a right of another. 14 These
premises obtaining, there is no question at all that private respondent’s cause of action
in the forcible entry case and in the suit for damages is the alleged illegal retaking of
possession of the leased premises by the lessor, petitioner herein, from which all legal
reliefs arise. Simply stated, the restoration of possession and demand for actual
damages in the case before the MeTC and the demand for damages with the RTC both
arise from the same cause of action, i.e., the forcible entry by petitioner into the leased
premises.

A comparative study of the two (2) complaints filed by private respondent against
petitioner before the two (2) trial courts shows that not only are the elements of res
adjudicata present, at least insofar as the claim for actual and compensatory damages
is concerned, but also that the claim for damages — moral and exemplary in addition to
actual and compensatory — constitutes splitting a single cause of action. Since this runs
counter to the rule against multiplicity of suits, the dismissal of the second action
becomes imperative. chanroblesvirtual|awlibrary

The complaint for forcible entry contains the following pertinent allegations —

2.01 On 02 January 1989, plaintiff entered into a contract of lease with defendant PDC
over a property designated as Ground Floor, Seafood Market (hereinafter "Subject
Premises") situated at the corner of EDSA corner MacArthur Street, Araneta Center,
Cubao, Quezon City, for a period of ten (10) years from 02 January 1989 to 30 April
1998.
2.02 Immediately after having acquired actual physical possession of the Subject
Premises, plaintiff established and now operates thereon the now famous Seafood
Market Restaurant. Since then, plaintiff had been in actual, continuous, and peaceful
physical possession of the Subject Premises until 31 October 1992.

x          x           x

3.02 Plaintiff, being the lessee of the Subject Premises, is entitled to the peaceful
occupation and enjoyment of the Subject Premises to the exclusion of all others,
including defendants herein.

3.03 Defendants’ resort to strong arms tactics to forcibly wrest possession of the
Subject Premises from plaintiff and maintain possession thereof through the use of
force, threat, strategy and intimidation by the use of superior number of men and arms
amounts to the taking of the law into their own hands.

3.04 Thus, defendants’ act of unlawfully evicting out plaintiff from the Subject Premises
it is leasing from defendant PDC and depriving it of possession thereof through the use
of force, threat, strategy and intimidation should be condemned and declared illegal for
being contrary to public order and policy.

3.05 Consequently, defendants should be enjoined from continuing with their illegal
acts and be ordered to vacate the Subject Premises and restore possession thereof,
together with its contents, to plaintiff.

x          x           x

4.07 Considering that defendants’ act of forcibly grabbing possession of the Subject
Premises from plaintiff is illegal and null and void, defendant should be adjudged liable
to plaintiff for all the aforedescribed damages which plaintiff incurred as a result
thereof.

The amended complaint for damages filed by private respondent alleges basically the
same factual circumstances and issues as bases for the relief prayed for, to wit: chanrob1es virtual 1aw library

4. On May 28,1991, plaintiff and defendant PDC entered into a Contract of Lease for a
period of ten years or from January 2, 1989 up to April 30, 1998 over a property
designated as Ground Floor, Seafood Market (hereinafter referred to as Subject
Premises) situated at the corner of EDSA corner McArthur Street, Araneta Center,
Cubao, Quezon City. A copy of the lease contract is attached hereto as Annex "A" .

5. Immediately thereafter, plaintiff took over actual physical possession of Subject

Premises, and established thereon the now famous "Seafood Market Restaurant." cralaw virtua1aw library

x          x           x

7. On October 31, 1992 at around 8:30 p.m., defendant PDC, without the benefit of any
writ of possession or any lawful court order and with the aid of approximately forty (40)
armed security guards and policemen under the supervision of defendant Tejam,
forcibly entered the subject premises through force, intimidation, threats and stealth
and relying on brute force and in a thunderboltish manner and against plaintiff’s will,
unceremoniously drew away all of plaintiff’s men out of the subject premises, thereby
depriving herein plaintiff of its actual, physical and natural possession of the subject
premises. The illegal, high-handed manner and gestapo like take-over by defendants of
subject premises is more particularly described as follows: . . .

8. To date, defendants continue to illegally possess and hold the Subject Premises,
including all the multi-million improvements, fixtures and equipment therein owned by
plaintiff, all to the damage and prejudice of plaintiff. The actuations of defendants
constitute an unlawful appropriation., seizure and taking of property against the will
and consent of plaintiff. Worse, defendants are threatening to sell at public auction and
without the consent of plaintiff and without lawful authority, the multi-million fixtures
and equipment of plaintiff and at prices way below the market value thereof. Plaintiff
hereby attaches as Annex "B" the letter from defendants dated August 6, 1993
addressed to plaintiff, informing the latter that the former intends to sell at an auction
on August 19, 1993 at 2:00 p.m. properties of the plaintiff presently in defendants’
possession.

x          x           x

12. Defendant’s unlawful takeover of the premises constitutes a violation of its

obligation under Art. 1654 of the New Civil Code requiring the lessor to maintain the
lessee in peaceful and adequate enjoyment of the lease for the entire duration of the
contract. Hence, plaintiff has filed the present suit for the recovery of damages under
Art. 1659 of the New Civil Code . . .

Restated in its bare essentials, the forcible entry case has one cause of action, namely,
the alleged unlawful entry by petitioner into the leased premises out of which three (3)
reliefs (denominated by private respondent as its causes of action) arose: (a) the
restoration by the lessor (petitioner herein) of the possession of the leased premises to
the lessee; (b) the claim for actual damages due to the losses suffered by private
respondent such as the deterioration of perishable foodstuffs stored inside the premises
and the deprivation of the use of the premises causing loss of expected profits; and, (c)
the claim for attorney’s fees and costs of suit.

On the other hand, the complaint for damages prays for a monetary award consisting of
(a) moral damages of P500,000.00 and exemplary damages of another P500,000.00;
(b) actual damages of P20,000,000.00 and compensatory damages of P1,000,000.00
representing unrealized profits; and, (c) P200,000.00 for attorney’s fees and costs, all
based on the alleged forcible takeover of the leased premises by petitioner. Since actual
and compensatory damages were already prayed for in the forcible entry case before
the MeTC, it is obvious that this cannot be relitigated in the damage suit before the RTC
by reason of res adjudicata.

The other claims for moral and exemplary damages cannot also succeed considering
that these sprung from the main incident being heard before the MeTC. Jurisprudence is
unequivocal that when a single delict or wrong is committed — like the unlawful taking
or detention of the property of another — there is but one single cause of action
regardless of the number of rights that may have been violated, and all such rights
should be alleged in a single complaint as constituting one single cause of action. 15 In
a forcible entry case, the real issue is the physical possession of the real property. The
question of damages is merely secondary or incidental, so much so that the amount
thereof does not affect the jurisdiction of the court. In other words, the unlawful act of
a deforciant in taking possession of a piece of land by means of force and intimidation
against the rights of the party actually in possession thereof is a delict or wrong, or a
cause of action that gives rise to two (2) remedies, namely, the recovery of possession
and recovery of damages arising from the loss of possession, but only to one action.
For obvious reasons, both remedies cannot be the subject of two (2) separate and
independent actions, one for recovery of possession only, and the other, for the
recovery of damages. That would inevitably lead to what is termed in law as splitting up
a cause of action. 16 In David v. de la Cruz 17 we observed —

Herein tenants have but one cause of action against their landlord, their illegal
ejectment or removal from their landholdings, which cause of action however entitles
them to two (2) claims or remedies — for reinstatement and damages. As both claims
arise from the same cause of action, they should be alleged in a single complaint.

A claim cannot be divided in such a way that a part of the amount of damages may be
recovered in one case and the rest, in another. 18 In Bachrach v. Icarangal 19 we
explained that the rule was aimed at preventing repeated litigations between the same
parties in regard to the same subject of the controversy and to protect the defendant
from unnecessary vexation. Nemo debet bis vexari pro una et eadem causa.

What then is the effect of the dismissal of the other action? Since the rule is that all
such rights should be alleged in a single complaint, it goes without saying that those
not therein included cannot be the subject of subsequent complaints for they are barred
forever. 20 If a suit is brought for a part of a claim, a judgment obtained in that action
precludes the plaintiff from bringing a second action for the residue of the claim,
notwithstanding that the second form of action is not identical with the first or different
grounds for relief are set for the second suit. This principle not only embraces what was
actually determined, but also extends to every matter which the parties might have
litigated in the case. 21 This is why the legal basis upon which private respondent
anchored its second claim for damages, i.e., Art. 1659 in relation to Art. 1654 of the
Civil Code, 22 not otherwise raised and cited by private respondent in the forcible entry
case, cannot be used as justification for the second suit for damages. We note, not
without some degree of displeasure, that by filing a second suit for damages, private
respondent was not only able to press a claim for moral and exemplary damages which
by its failure to allege the same in its suit before the MeTC foreclosed its right to sue on
it, but it was also able to obtain from the RTC, by way of another temporary restraining
order, a second reprieve from an impending public auction sale of its movables which it
could not anymore secure from the MeTC before which the matter of the issuance of a
preliminary writ of injunction was already closed. chanrobles.com : virtual law library

The foregoing discussions provide sufficient basis to petitioner’s charge that private
respondent and its counsel in the trial courts committed forum shopping. In Crisostomo
v. Securities and Exchange Commission 23 we ruled —

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a

party seeks a favorable opinion (other than by appeal or certiorari) in another. The
principle applies . . . with respect to suits filed in the courts . . . in connection with
litigations commenced in the court . . . in anticipation of an unfavorable . . . ruling and
a favorable case where the court in which the second suit was brought, has no
jurisdiction.

This Court likewise elucidated in New Pangasinan Review, Inc. v. National Labor
Relations Commission 24 that there is forum shopping when the actions involve the
same transactions, the same essential facts and circumstances. The reason behind the
proscription of forum shopping is obvious. This unnecessarily burdens our courts with
heavy caseloads, unduly taxes the manpower and financial resources of the judiciary
and trifles with and mocks our judicial processes, thereby adversely affecting the
efficient administration of justice. This condemnable conduct has prompted the Court to
issue circulars 25 ordering among others that a violation thereof shall be cause for the
dismissal of the case or cases without prejudice to the taking of appropriate action
against the counsel or party concerned.

The records ineluctably show that the complaint lodged by private respondent with the
Regional Trial Court of Quezon City contained no certification of non-forum shopping.
When petitioner filed a motion to dismiss the case raising among others the ground of
forum shopping it pointed out the absence of the required certification. The amended
complaint, as well as the second and third amended complaints, attempted to rectify
the error by invariably stating that there was no other action pending between the
parties involving the same causes of action although there was actually a forcible entry
case pending before the MTC of Quezon City. By its admission of a pending forcible
entry case, it is obvious that private respondent was indulging in forum shopping. While
private respondent conveniently failed to inform the RTC that it had likewise sought
damages in the MTC on the basis of the same forcible entry, the fact remains that it
precisely did so, which stratagem was being duplicated in the second case. This is a
compelling reason to dismiss the second case.

WHEREFORE, the Petition is GRANTED. The questioned Decision of the Court of Appeals
dated 27 September 1995 and the Order of the Regional Trial Court of Quezon City
dated 24 September 1993 are REVERSED and SET ASIDE. The Regional Trial Court of
Quezon City is directed to dismiss Civil Case No. Q93-16409, "Westin Seafood Market,
Inc. v. Progressive Development Corporation, Et Al.," and the Metropolitan Trial Court
of Quezon City to proceed with the proper disposition of Civil Case No. 6589, "Westin
Seafood Market, Inc. v. Progressive Development Corporation, Et Al.," with dispatch
considering the summary nature of the case. Treble costs against private Respondent.

SO ORDERED. chanr
 SECOND DIVISION

[G.R. No. L-66620. September 24, 1986.]

REMEDIO V. FLORES, Petitioner, v. HON. JUDGE HEILIA S. MALLARE-

PHILLIPPS, IGNACIO BINONGCAL & FERNANDO CALION, Respondents.

Lucio A. Dixon for respondent F. Calion.

SYLLABUS

1. REMEDIAL LAW; BATAS PAMBANSA BLG. 129; SECTION 33(1) OF ITS INTERIM
RULES; SUBJECT TO REQUIREMENTS FOR PERMISSIVE JOINDER OF PARTIES UNDER
THE RULES OF COURT. — The Court rules that the application of the totality rules under
Section 33(1) of Batas Pambansa Blg. 129 and Section 11 of the Interim Rules is
subject to the requirements for the permissive joinder of parties under Section 6 of
Rule 3 which provides as follows: "Permissive joinder of parties. — All persons in whom
or against whom any right to relief in respect to or arising out of the same transaction
or series of transactions is alleged to exist, whether jointly, severally, or in the
alternative, may, except as otherwise provided in these rules, join as plaintiffs or be
joined as defendants in one complaint, where any question of law or fact common to all
such plaintiffs or to all such defendants may arise in the action; but the court may
make such orders as may be just to prevent any plaintiff or defendant from being
embarrassed or put to expense in connection with any proceedings in which he may
have no interest."cralaw virtua1aw library

2. ID.; ID.; SECTION 39 THEREOF; APPLICABLE ONLY TO ORDINARY APPEALS FROM

REGULAR TRIAL COURT TO COURT OF APPEALS. — Petitioner did not attach to his
petition a copy of his complaint in the erroneous belief that the entire original record of
the case shall be transmitted to this Court pursuant to the second paragraph of Section
39 of BP 129. This provision applies only to ordinary appeals from the regional trial
court to the Court of Appeals (Section 20 of the Interim Rules). Appeals to this Court by
petition for review on certiorari are governed by Rule 45 of the Rules of Court (Section
25 of the Interim Rules).

3. ID.; ID.; SECTION 33(1) OF ITS INTERIM RULES; DISTINGUISHED FROM SECTION
88 OF JUDICIARY ACT OF 1948. — There is no difference between the former and
present rules in cases where a plaintiff sues a defendant on two or more separate
causes of action. In such cases, the amount of the demand shall be the totality of the
claims in all the causes of action irrespective of whether the cause of action arose out of
the same or different transactions. If the total demand exceeds twenty thousand pesos,
then the regional trial court has jurisdiction. Needless to state, if the causes of action
are separate and independent, their joinder in one complaint is permissive and not
mandatory, and any cause of action where the amount of the demand is twenty
thousand pesos or less may be the subject of a separate complaint filed with a
metropolitan or municipal trial court.

4. ID.; ID.; ID.; ID. — There is a difference between the former and present rules in
cases where two or more plaintiffs having separate causes of action against a defendant
join in a single causes of action against a defendant join in a single complaint. Under
the former rules, "where the claims or causes of action joined in a single complaint are
separately owned by or due to different parties, each separate claim shall furnish the
jurisdictional test" (Section 88 of the Judiciary Act of 1948 as amended, supra). This
was based on the ruling in the case of Vda. de Rosario v. Justice of the Peace, 99 Phil.
693. As worded, the former ruled applied only to cases of permissive joinder or parties
plaintiff. However, it was also applicable to cases of permissive joinder of parties
defendant, as may be deduced from the ruling in the case of Brillo v. Buklatan, thus:
"Furthermore, the first cause of action is composed of separate claims against several
defendants of different amounts each of which is not more than P2,000 and falls under
the jurisdiction of the justice of the peace court under Section 88 of Republic Act No.
296. The several claims do not seem to arise from the same transaction or series of
transactions and there seem to be no questions of law or of fact common to all the
defendants as may warrant their joinder under Rule 3, Section 6. Therefore, if new
complaints are to be filed in the name of the real party in interest they should be filed
in the justice of the peace court." (87 Phil. 519, 520, reiterated in Gacula v. Martinez,
88 Phil. 142, 146). Under the present law, the totality rule is applied also to cases
where two or more plaintiffs having separate causes of action against a defendant join
in a single complaint, as well as to cases where a plaintiff has separate causes of action
against two or more defendants joined in a single complaint. However, the causes of
action in favor of the two or more plaintiffs or against the two or more defendants
should arise out of the same transaction or series of transactions and there should be a
common question of law or fact, as provided in Section 6 of Rule 3.

5. ID.; ID.; ID.; ID. — The difference between the former and present rules in cases of
permissive joinder of parties may be illustrated by the two cases which were cited in
the case of Vda. de Rosario v. Justice of the Peace (supra) as exceptions to the totality
rule. In the case of Soriano y Cia v. Jose (86 Phil. 523), where twenty-nine dismissed
employees joined in a complaint against the defendant to collect their respective
claims, each of which was within the jurisdiction of the municipal court, although the
total exceeded the jurisdictional amount, this Court held that under the law then the
municipal court had jurisdiction. In said case, although the plaintiff’s demands were
separate, distinct and independent of one another, their joint suit was authorized under
Section 6 of Rule 3 and each separate claim furnished the jurisdictional test. In the case
of International Colleges, Inc. v. Argonza (90 Phil. 470), where twenty-five dismissed
teachers jointly sued the defendant for unpaid salaries, this Court also held that the
municipal court had jurisdiction because the amount of each claim was within, although
the total exceeded, its jurisdiction and it was a case of permissive joinder of parties
plaintiff under Section 6 of Rule 3. Under the present law, the two cases above cited
(Assuming they do not fall under the Labor Code) would be under the jurisdiction of the
regional trial court). Similarly, in the above-cited cases of Brillo v. Buklatan and Gacula
v. Martinez (supra), if the separate claims against the several defendants arose out of
the same transaction or series of transactions and there is a common question of law or
fact, they would now be under the jurisdiction of the regional trial court.

6. ID.; CIVIL PROCEDURE; PERMISSIVE JOINDER OF PARTIES; JURISDICTIONAL

TESTS; HOW FURNISHED. — In cases of permissive joinder of parties, whether as
plaintiffs or as defendants, under Section 6 of Rule 3, the total of all the claims shall
now furnish the jurisdictional test. Needless to state also, if instead of joining or being
joined in one complaint separate actions are filed by or against the parties, the amount
demanded in each complaint shall furnish the jurisdictional test.

DECISION

FERIA, J.:

The Court rules that the application of the totality rule under Section 33(1) of Batas
Pambansa Blg. 129 and Section 11 of the Interim Rules is subject to the requirements
for the permissive joinder of parties under Section 6 of Rule 3 which provides as
follows:jgc:chanrobles.com.ph

"Permissive joinder of parties, — All persons in whom or against whom any right to
relief in respect to or arising out of the same transaction or series of transactions is
alleged to exist, whether jointly, severally, or in the alternative, may, except as
otherwise provided in these rules, join as plaintiffs or be joined as defendants in one
complaint, where any question of law or fact common to all such plaintiffs or to all such
defendants may arise in the action; but the court may make such orders as may be just
to prevent any plaintiff or defendant from being embarrassed or put to expense in
connection with any proceedings in which he may have no interest." cralaw virtua1aw library

Petitioner has appealed by certiorari from the order of Judge Heilia S. Mallare-Phillipps

of the Regional Trial Court of Baguio City and Benguet Province which dismissed his
complaint for lack of jurisdiction. Petitioner did not attach to his petition a copy of his
complaint in the erroneous belief that the entire original record of the case shall be
transmitted to this Court pursuant to the second paragraph of Section 39 of BP 129.
This provision applies only to ordinary appeals from the regional trial court to the Court
of Appeals (Section 20 of the Interim Rules). Appeals to this Court by petition for
review on certiorari are governed by Rule 45 of the Rules of Court (Section 25 of the
Interim Rules).

However, the order appealed from states that the first cause of action alleged in the
complaint was against respondent Ignacio Binongcal for refusing to pay the amount of
P11,643.00 representing cost of truck tires which he purchased on credit from
petitioner on various occasions from August to October, 1981; and the second cause of
action was against respondent Fernando Calion for allegedly refusing to pay the amount
of P10,212.00 representing cost of truck tires which he purchased on credit from
petitioner on several occasions from March, 1981 to January, 1982. chanrobles.com : virtual law library

On December 15, 1983, counsel for respondent Binongcal filed a Motion to Dismiss on
the ground of lack of jurisdiction since the amount of the demand against said
respondent was only P11,643.00, and under Section 19(8) of BP 129 the regional trial
court shall exercise exclusive original jurisdiction if the amount of the demand is more
than twenty thousand pesos (P20,000.00). It was further averred in said motion that
although another person, Fernando Calion, was allegedly indebted to petitioner in the
amount of P10,212.00, his obligation was separate and distinct from that of the
other Respondent. At the hearing of said Motion to Dismiss, counsel for respondent
Calion joined in moving for the dismissal of the complaint on the ground of lack of
jurisdiction. Counsel for petitioner opposed the Motion to Dismiss. As above stated, the
trial court dismissed the complaint for lack of jurisdiction.

Petitioner maintains that the lower court has jurisdiction over the case following the
"novel" totality rule introduced in Section 33(1) of BP 129 and Section 11 of the Interim
Rules.

The pertinent portion of Section 33(1) of BP 129 reads as follows: jgc:chanrobles.com.ph

". . . Provided, That where there are several claims or causes of action between the
same or different parties, embodied in the same complaint, the amount of the demand
shall be the totality of the claims in all the causes of action, irrespective of whether the
causes of action arose out of the same or different transactions . . ." cralaw virtua1aw library

Section 11 of the Interim Rules provides thus: jgc:chanrobles.com.ph

"Application of the totality rule. — In actions where the jurisdiction of the court is
dependent on the amount involved, the test of jurisdiction shall be the aggregate sum
of all the money demands, exclusive only of interest and costs, irrespective of whether
or not the separate claims are owned by or due to different parties. If any demand is
for damages in a civil action, the amount thereof must be specifically alleged." cralaw virtua1aw library

Petitioner compares the above-quoted provisions with the pertinent portion of the
former rule under Section 88 of the Judiciary Act of 1948 as amended which reads as
follows:chanrobles.com:cralaw:red

". . . Where there are several claims or causes of action between the same parties
embodied in the same complaint, the amount of the demand shall be the totality of the
demand in all the causes of action, irrespective of whether the causes of action arose
out of the same or different transactions; but where the claims or causes of action
joined in a single complaint are separately owned by or due to different parties, each
separate claim shall furnish the jurisdictional test . . ." cralaw virtua1aw library
and argues that with the deletion of the proviso in the former rule, the totality rule was
reduced to clarity and brevity and the jurisdictional test is the totality of the claims in
all, not in each, of the causes of action, irrespective of whether the causes of action
arose out of the same or different transactions.

This argument is partly correct. There is no difference between the former and present
rules in cases where a plaintiff sues a defendant on two or more separate causes of
action. In such cases, the amount of the demand shall be the totality of the claims in all
the causes of action irrespective of whether the causes of action arose out of the same
or different transactions. If the total demand exceeds twenty thousand pesos, then the
regional trial court has jurisdiction. Needless to state, if the causes of action are
separate and independent, their joinder in one complaint is permissive and not
mandatory, and any cause of action where the amount of the demand is twenty
thousand pesos or less may be the subject of a separate complaint filed with a
metropolitan or municipal trial court.

On the other hand, there is a difference between the former and present rules in cases
where two or more plaintiffs having separate causes of action against a defendant join
in a single complaint. Under the former rule, "where the claims or causes of action
joined in a single complaint are separately owned by or due to different parties, each
separate claim shall furnish the jurisdictional test" (Section 88 of the Judiciary Act of
1948 as amended, supra). This was based on the ruling in the case of Vda. de Rosario
v. Justice of the Peace, 99 Phil. 693. As worded, the former rule applied only to cases of
permissive joinder of parties plaintiff. However, it was also applicable to cases of
permissive joinder of parties defendant, as may be deduced from the ruling in the case
of Brillo v. Buklatan, thus:
chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

"Furthermore, the first cause of action is composed of separate claims against several
defendants of different amounts each of which is not more than P2,000 and falls under
the jurisdiction of the justice of the peace court under section 88 of Republic Act No.
296. The several claims do not seem to arise from the same transaction or series of
transactions and there seem to be no questions of law or of fact common to all the
defendants as may warrant their joinder under Rule 3, section 6. Therefore, if new
complaints are to be filed in the name of the real party in interest they should be filed
in the justice of the peace court." (87 Phil. 519, 520, reiterated in Gacula v. Martinez,
88 Phil. 142, 146).

Under the present law, the totality rule is applied also to cases where two or more
plaintiffs having separate causes of action against a defendant join in a single
complaint, as well as to cases where a plaintiff has separate causes of action against
two or more defendants joined in a single complaint. However, the causes of action in
favor of the two or more plaintiffs or against the two or more defendants should arise
out of the same transaction or series of transactions and there should be a common
question of law or fact, as provided in Section 6 of Rule 3.

The difference between the former and present rules in cases of permissive joinder of
parties may be illustrated by the two cases which were cited in the case of Vda. de
Rosario v. Justice of the Peace (supra) as exceptions to the totality rule. In the case of
Soriano y Cia v. Jose (86 Phil. 523), where twenty-nine dismissed employees joined in
a complaint against the defendant to collect their respective claims, each of which was
within the jurisdiction of the municipal court although the total exceeded the
jurisdictional amount, this Court held that under the law then the municipal court had
jurisdiction. In said case, although the plaintiffs’ demands were separate, distinct and
independent of one another, their joint suit was authorized under Section 6 of Rule 3
and each separate claim furnished the jurisdictional test. In the case of International
Colleges, Inc. v. Argonza (90 Phil. 470), where twenty-five dismissed teachers jointly
sued the defendant for unpaid salaries, this Court also held that the municipal court had
jurisdiction because the amount of each claim was within, although the total exceeded,
its jurisdiction and it was a case of permissive joinder of parties plaintiff under Section
6 of Rule 3.

Under the present law, the two cases above cited (assuming they do not fall under the
Labor Code) would be under the jurisdiction of the regional trial court. Similarly, in the
abovecited cases of Brillo v. Buklatan and Gacula v. Martinez (supra), if the separate
claims against the several defendants arose out of the same transaction or series of
transactions and there is a common question of law or fact, they would now be under
the jurisdiction of the regional trial court.

In other words, in cases of permissive joinder of parties, whether as plaintiffs or as

defendants, under Section 6 of Rule 3, the total of all the claims shall now furnish the
jurisdictional test. Needless to state also, if instead of joining or being joined in one
complaint separate actions are filed by or against the parties, the amount demanded in
each complaint shall furnish the jurisdictional test.

In the case at bar, the lower court correctly held that the jurisdictional test is subject to
the rules on joinder of parties pursuant to Section 5 of Rule 2 and Section 6 of Rule 3 of
the Rules of Court and that, after a careful scrutiny of the complaint, it appears that
there is a misjoinder of parties for the reason that the claims against respondents
Binongcal and Calion are separate and distinct and neither of which falls within its
jurisdiction.

WHEREFORE, the order appealed from is affirmed, without pronouncement as to costs.

SO ORDERED.
 THIRD DIVISION

[G.R. NO. 121165 : September 26, 2006]

HON. DOMINADOR F. CARILO, Presiding Judge, R.T.C. XI-19 Digos, Davao del
Sur, BONIFACIO J. GUYOT, Clerk of Court and Provincial Sheriff of Davao del
Sur, ALFREDO C. SENOY, Deputy Prov. Sheriff assigned to R.T.C. XI-19 Digos,
Davao del Sur, MARCOS D. RISONAR, JR., ., Registrar of Deeds of Davao del
Sur, and MARIA GONZALES, Petitioners, v. HON. COURT OF APPEALS, MARIA
PAZ DABON and ROSALINDA DABON, Respondents.

RESOLUTION

QUISUMBING, J.:

For review on certiorari is the Decision1 dated February 22, 1995 of the Court of
Appeals in CA-G.R. SP No. 23687, which annulled and set aside the judgment and
orders of the Regional Trial Court (RTC) of Digos, Davao del Sur, Branch 19, in Civil
Case No. 2647, Maria Gonzales v. Priscilla Manio and Jose Manio.

The facts as culled from the records are as follows:

On April 2, 1990, petitioner Maria Gonzales filed a complaint against the spouses
Priscilla and Jose Manio with the RTC of Digos, Davao del Sur, Branch 19. Gonzales
sought the execution of the deed of sale in her favor for the property she bought from
Priscilla Manio. She also asked for damages and attorney's fees.

Gonzales alleged that on April 26, 1988, she paid P10,000 to Priscilla as downpayment
on the P400,000 purchase price of the lot with improvements, since Priscilla had a
special power of attorney from her son, Aristotle, the owner of the land. They also
agreed that the balance would be paid within three months after the execution of the
deed of sale. Yet, after the lapse of the period and despite repeated demands, Priscilla
did not execute the deed of sale. Thus, Gonzales filed an action for specific performance
against the spouses Priscilla and Jose Manio.

For failure to file an Answer, the Manios were declared in default and Gonzales was
allowed to present evidence ex parte.

After trial, the court rendered judgment in favor of Gonzales, which we quote verbatim:

WHEREFORE, premises considered, it is hereby ordered that judgment is rendered in

favor of plaintiff and against defendants, ordering defendants:

1) To execute the final deed of sale and transfer of the property mentioned in
paragraph 4 above to plaintiff, or should the defendant refuse to execute the deed of
sale, the Clerk of Court be directed to execute the same upon plaintiff's depositing of
the sum of P390,000.00 with the Clerk of Court as complete and valid payment thereof
to defendant Priscilla Manio;

2) To pay plaintiff the sum of P100,000.00 for moral damages and P50,000.00 for
exemplary damages;

3) To pay plaintiff the sum of P50,000.00 for attorney's fees plus P700.00 per
appearances of plaintiff's counsel before this Honorable Court as appearance fees;

4) To pay plaintiff the sum of P5,000.00 as litigation expenses.

SO ORDERED.2
Gonzales deposited with the Clerk of Court the P390,000 balance of the price and filed a
motion for execution.3 She later withdrew the motion because the trial court's decision
was not properly served on the defendants. After numerous delays, the sheriff finally
personally served a copy of the decision on Priscilla on August 4, 1990, at the ungodly
hour of 12:00 midnight at Sitio Wilderness, Barangay Mount Carmel, Bayugan, Agusan
del Sur.4

Since there was no appeal, the trial court's decision became final and executory. But
the writ of execution was not served upon the defendants, since according to the
Sheriff's Return, the defendants could not be located. The sheriff, likewise, informed the
trial court that the money judgment could be readily satisfied by the petitioner's cash
deposit should the trial court grant the motion to release the cash deposit filed by
Gonzales.5

Subsequently, Gonzales filed a motion asking that the Clerk of Court be directed to be
the one to execute a deed of conveyance. Gonzales also filed a motion to withdraw the
cash deposit for the balance of the price to offset the award of damages. The trial court
granted both motions but later modified the amount to P207,800.

On October 29, 1990, Gonzales filed a petition for the nullification of the Owner's
Duplicate Certificate of Title No. 16658 and asked that a new certificate be issued in her
name to give effect to the deed of conveyance since Priscilla refused to relinquish the
owner's duplicate copy.

Consequently, the trial court declared the owner's duplicate copy of TCT No. 16658
void, and directed the City Civil Registrar to issue a new certificate of title in favor of
Gonzales. The orders were reiterated in subsequent orders and TCT No. T-23690 was
issued under the name of Gonzales.

On December 14, 1990, herein respondents Maria Paz Dabon and Rosalina Dabon,
claiming to have bought the aforementioned lot from Aristotle Manio filed before the
Court of Appeals a petition for annulment of judgment and orders of the RTC in Civil
Case No. 2647. The case was docketed as CA G.R. SP No. 23687, entitled "Maria Paz
Dabon and Rosalina Dabon v. Hon. Dominador F. Carillo, Presiding Judge, RTC Branch
19, Digos, Davao del Sur; Bonifacio J. Guyot, Clerk of Court and Provincial Sheriff of
Davao del Sur; Alfredo C. Senoy, Deputy Prov. Sheriff assigned to RTC Br. 19, Digos,
Davao del Sur; Marcos D. Risonar, Jr., Registrar of Deeds of Davao del Sur; and Maria
Gonzales." The Dabons alleged therein that the judgment of the trial court was void  ab
initio because of lack of jurisdiction over their persons, as the real parties in interest,
and that they were fraudulently deprived of their right to due process. They also prayed
for a Temporary Restraining Order and for Preliminary Prohibitory Injunction against
Gonzales. They gave the trial court a notice of their action for the annulment of the
judgment and subsequent orders in Civil Case No. 2647.6

Meanwhile, Gonzales filed before the trial court a motion for the issuance of a writ of
possession. The Dabons filed an opposition on the following grounds: (1) The writ of
possession cannot be enforced because the defendants named in the writ, the Manios,
were no longer in possession of the property; (2) They had bought the lot with the
improvements therein and had taken possession, although they had not yet registered
their ownership with the Register of Deeds; and (3) The court did not acquire
jurisdiction over them as the real parties in interest.

On December 17, 1990, the Court of Appeals, without giving due course to the petition,
issued a resolution restraining the trial court from implementing its Decision dated June
19, 19907 and its subsequent orders thereto in Civil Case No. 2647 until further notice
from the Court of Appeals. It also required Gonzales to file her Comment. 8

The Court of Appeals in a resolution denied the application for preliminary injunction
and appointed a commissioner to receive evidence of the parties. 9
Following the Commissioner's report, the Court of Appeals found that (1) the contract of
sale between Gonzales and Priscilla was unenforceable because the sale was evidenced
by a handwritten note which was vague as to the amount and which was not notarized;
(2) the trial court did not acquire jurisdiction over the indispensable parties; and (3) the
proceedings were attended with fraud. The Court of Appeals nullified the judgment of
the RTC in Civil Case No. 2647 and cancelled TCT No. T-23690. The dispositive portion
of said judgment reads as follows:

WHEREFORE, premises considered, the questioned decision, dated June 19, 1990 (and
all orders arising therefrom), of the Regional Trial Court (Branch 19) in Digos, Davao
del Sur is hereby ANNULLED and SET ASIDE and the Transfer Certificate of Title No. T-
23690 which was issued thereafter declared null and void and ordered canceled. Costs
against the private respondent.

SO ORDERED.10

On July 17, 1995, Gonzales' Motion for Reconsideration was denied. Hence, the instant
petition, assigning the following errors:

The Honorable Court of Appeals erred in not holding that the purchase of the disputed
property by petitioner Maria Gonzales from Aristotle Manio thru the latter's mother and
attorney-in-fact was a valid contract as between the contracting parties.

II

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONER

MARIA GONZALES WAS IN GOOD FAITH IN BUYING THE DISPUTED PROPERTY FROM
ARISTOTLE MANIO THRU THE LATTER'S MOTHER AND ATTORNEY-IN-FACT.

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING IN THE INSTANT CASE
THE DOCTRINE IN DOUBLE SALE UNDER ARTICLE 1544 OF THE CIVIL CODE OF THE
PHILIPPINES.

IV

THE HONORABLE COURT OF APPEALS GRAVELY FAILED TO APPRECIATE THE FACT

THAT PRIVATE RESPONDENTS' [PETITIONERS BELOW] CLAIM IS HIGHLY INCREDIBLE,
IMPROBABLE, AND FRAUDULENT.

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE

RESPONDENTS MARIA PAZ DABON AND ROSALINA DABON HAVE NO RIGHT TO BRING
THE INSTANT SUIT.

VI

COROLLARILY, THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSTAINING

PETITIONER MARIA GONZALES' [PRIVATE RESPONDENT BELOW] CLAIM FOR DAMAGES
AGAINST THE PRIVATE RESPONDENTS [PETITIONERS BELOW].11

Simply, the threshold issues in this petition are: (1) whether the Court of Appeals erred
in declaring the sale of the land to Gonzales by Priscilla invalid; (2) whether there was
basis to annul the judgment of the RTC; and (3) whether the Dabons could file the
action for annulment of judgment.
We shall discuss the issues jointly.

Prefatorily, we note that named as petitioners are Presiding Judge Dominador Carillo;
Bonifacio Guyot, Alfredo Senoy, Clerk of Court and Deputy Sheriff of the same court,
respectively; Marcos D. Risonar, Registrar of Deeds of Davao del Sur; and Maria
Gonzales. In our view, petitioner Gonzales apparently had impleaded Judge Carillo,
Guyot, Senoy and Risonar in this petition by merely reversing the designation of said
public officers among the respondents below in the Court of Appeals, as now among the
petitioners herein. Since they are not interested parties and would not benefit from any
of the affirmative reliefs sought, only Maria Gonzales remains as the genuine party-
petitioner in the instant case.

We now come to the main issues: (1) Was there sufficient basis to annul the judgment
in Civil Case No. 2647? (2) Are the Dabons proper parties to file the petition for
annulment of judgment? cralaw library

Petitioner Gonzales contends that the respondents do not have standing before the
Court of Appeals to file a petition for annulment of the judgment in Civil Case No. 2647
because respondents were not parties therein. Petitioner maintains that respondents
have no right that could be adversely affected by the judgment because they are not
the owners of the property. Petitioner claims that the Court of Appeals should have
applied the doctrine of double sale to settle the issue of ownership and declare her the
true owner of the property. Petitioner concludes that respondents - not being the
owners and are not real parties in interest in the complaint for specific performance -
have no right to bring the action for annulment of the judgment. According to petitioner
Gonzales, she did not implead Aristotle as defendant in Civil Case No. 2647 since a
decision against Priscilla, Aristotle's attorney-in-fact, would bind Aristotle also.

Respondents (Maria Paz and Rosalina Dabon) now insist that they are parties in interest
as buyers, owners and possessors of the contested land and that they had been
fraudulently deprived of their day in court during the proceedings in the trial court in
Civil Case No. 2647. They have no remedy in law other than to file a case for the
annulment of judgment of the trial court in said case.

Petitioner Gonzales should be reminded of Section 3 of Rule 3 of the Rules on Civil

Procedure which explicitly states that an action should be brought against the real party
in interest,12 and in case the action is brought against the agent, the action must be
brought against an agent acting in his own name and for the benefit of an undisclosed
principal without joining the principal, except when the contract involves things
belonging to the principal.13 The real party in interest is the party who would be
benefited or injured by the judgment or is the party entitled to the avails of the suit.
We have held that in such a situation, an attorney-in-fact is not a real party in interest
and that there is no law permitting an action to be brought by and against an attorney-
in-fact.14

Worth stressing, the action filed by Gonzales before the RTC is for specific performance
to compel Priscilla to execute a deed of sale, involving real property which, however,
does not belong to Priscilla but to Aristotle Manio, the son of Priscilla. The complaint
only named as defendant Priscilla, joined by her spouse, yet Priscilla had no interest on
the lot and can have no interest whatever in any judgment rendered. She was not
acting in her own name, nor was she acting for the benefit of an undisclosed principal.
The joinder of all indispensable parties is a condition sine qua non of the exercise of
judicial powers, and the absence of 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.15 Accordingly, the failure to implead Aristotle Manio as
defendant renders all proceedings in the Civil Case No. 2647, including the order
granting the cancellation of TCT No. 16658 and issuance of a new title, null and void.

It is settled that a person need not be a party to the judgment sought to be

annulled.16 What is essential is that he can prove his allegation that the judgment was
obtained by fraud or collusion and he would be adversely affected thereby, 17 because if
fully substantiated by preponderance of evidence, those allegations could be the basis
for annulment of the assailed judgment.

In the present case, even if respondents were not parties to the specific performance
case, any finding that there was extrinsic fraud in the institution of the
complaint, i.e. exclusion of the real party in interest, and collusion between petitioner
and Sheriff Senoy, would adversely affect the respondents' ownership and thus, could
be their basis for annulment of the judgment.

Pertinently, Section 2 of Rule 47 of the Rules on Civil Procedure explicitly provides the
two grounds for annulment of judgment, namely: extrinsic fraud and lack of
jurisdiction.18

There is extrinsic fraud when a party has been prevented by fraud or deception from
presenting his case. Fraud is extrinsic where it prevents a party from having a trial or
from presenting his entire case to the court, or where it operates upon matters
pertaining not to the judgment itself but to the manner in which it is procured. The
overriding consideration when extrinsic fraud is alleged is that the fraudulent scheme of
the prevailing litigant prevented a party from having his day in court. 19 It must be
distinguished from intrinsic fraud which refers to acts of a party at a trial which
prevented a fair and just determination of the case, and which could have been litigated
and determined at the trial or adjudication of the case. 20

In its Decision dated February 22, 1995, the Court of Appeals found that indices of
fraud attended the case before the trial court: First, the plaintiff deliberately excluded
the Dabons as party to the case despite knowledge that the Dabons had alleged that
they had bought the land from Aristotle. Second, the Sheriff's Return was suspiciously
served on a Saturday, at midnight, on August 4, 1990. Third, the trial court ordered the
plaintiff to deposit the full payment of property, but subsequently ordered its
withdrawal. Lastly, there was no notice given to the person named in the certificate of
title which Gonzales wanted to be annulled.

Of the indices of fraud cited by the Court of Appeals, the failure to comply with the
notification requirement in the petition for the cancellation of title amounts to extrinsic
fraud. Under the Property Registration Decree, all parties in interest shall be given
notice.21 There is nothing in the records that show Gonzales notified the actual
occupants or lessees of the property. Further, the records show that Gonzales had
known of the sale of the land by Aristotle to the Dabons and despite her knowledge, the
former did not include the Dabons in her petition for the annulment of title. Deliberately
failing to notify a party entitled to notice also constitutes extrinsic fraud. 22 This fact is
sufficient ground to annul the order allowing the cancellation of title in the name of
Gonzales.

Likewise, under Rule 47, a judgment is void for lack of jurisdiction over the persons of
the real parties in interest, i.e., Aristotle Manio and the Dabons.

Lastly, petitioner insists that the contract of sale between her and Priscilla was valid and
enforceable because under the provision on double sale,23 she owned the land because
she bought the lot on April 26, 1988, while the same was allegedly sold to the Dabons
on October 19, 1989. In our view, the doctrine on double sale holds no relevance in this
case. The pertinent article of the Civil Code provides:

ART. 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first possession thereof in good faith,
if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in possession; and in the absence thereof; to the person who presents
the oldest title, provided there is good faith.

Otherwise stated, where it is immovable property that is the subject of a double sale,
ownership shall be transferred (1) to the person acquiring it who in good faith first
recorded it in the Registry of Property; (2) in default thereof, to the person who in good
faith was first in possession; and (3) in default thereof, to the person who presents the
oldest title, provided there is good faith. The requirement of the law is two-fold:
acquisition in good faith and registration in good faith. 24

At this juncture, we must emphasize that the action for annulment of judgment under
Rule 47 of the Rules of Court does not involve the merits of the final order of the trial
court.25 The issue of whether before us is a case of double sale is outside the scope of
the present Petition for Review . The appellate court only allowed the reception of
extraneous evidence to determine extrinsic fraud. To determine which sale was valid,
review of evidence is necessary. This we cannot do in this petition. An action for
annulment of judgment is independent of the case where the judgment sought to be
annulled is rendered26 and is not an appeal of the judgment therein. 27

The extraneous evidence presented to the appellate court cannot be used to supplant
the evidence in the records of the specific performance case because the extraneous
evidence was not part of the records on the merits of the case. Again, the extraneous
evidence was only allowed merely to prove the allegations of extrinsic fraud.
Accordingly, we hold that the issue of ownership of the subject real property cannot be
addressed in this Petition for Review .

Annulment of judgment is not a relief to be granted indiscriminately by the courts. It is

a recourse equitable in character and allowed only in exceptional cases as where there
is no available or other adequate remedy. 28 This case falls under said exception. In this
case, where it was found that the trial court did not have jurisdiction over the real
parties in interest, and that notices were deliberately not given, amount to extrinsic
fraud. The Court of Appeals did not err in granting the annulment of the judgment in
Civil Case No. 2647 and the orders subsequent thereto, for lack of jurisdiction and
extrinsic fraud.

WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated
February 22, 1995 of the Court of Appeals in CA-G.R. SP No. 23687, is AFFIRMED.
Costs against petitioner Maria Gonzales.

SO ORDERED.
 EN BANC

[G.R. No. L-22533. February 9, 1967.]

PLACIDO C. RAMOS and AUGUSTO L. RAMOS, Petitioners, v. PEPSI-COLA

BOTTLING CO. OF THE P.I. and ANDRES BONIFACIO, Respondents.

Placido B. Ramos and Renato L. Ramos, for Petitioners.

Trinidad & Borromeo for Respondents.

SYLLABUS

1. APPEAL; CREDIBILITY OF WITNESS NOT FOR THE SUPREME COURT TO RE-

EXAMINE. — This Court has consistently respected the findings of fact of the Court of
Appeals with some few exceptions which do not obtain herein.

2. APPEAL; QUESTIONS OF LAW AND FACT DISTINGUISHED. — For a question to be

one of law it must involve no examination of the probative value of the evidence
presented by the litigants or any of them. And the distinction is well known. There is a
question of law in a given case when the doubt or difference arises as to what the law is
on a certain state of facts; there is a question of fact when the doubt or difference
arises as to the truth or falsehood of alleged facts.

3. CIVIL LAW; DUE DILIGENCE IN THE SELECTION OF A DRIVER ILLUSTRATED. — The

uncontradicted testimony of (the) personnel manager of defendant company, was to
the effect that defendant driver was first hired as a member of the bottle crop in the
production department: that when he was hired as a driver, defendant company had
size him by looking into his background, asking him to submit clearances, and later on,
he was sent to the pool house to take the usual driver’s examination, consisting of,
first, theoretical examination and second, the practical driving examination, all of which
he had undergone, and that the defendant company was a member of the Safety
Council. In view therefore, we are of sense that defendant company had exercised the
diligence of a good father of a family in the choice or selection of defendant driver.

4. ID.; DUE DILIGENCE IN THE SUPERVISION OF EMPLOYEE DISCUSSED; ARTICLE

2180 OF THE CIVIL CODE CONSTRUED. — From Article 2180, two things are apparent;
(1) That when an injury is caused by the negligence of a servant or employee there
instantly arises a presumption of law that there was negligence on the part of the
master or employer either in the selection of the servant or employee, or in supervision
over him after the selection; or both; and (2) that the presumption is juris tantum and
not juris et de jure, and consequently may be rebutted. It follows necessarily that if the
employer shows to the satisfaction of the court that in selection and supervision he has
exercised the care and diligence of a good father of a family, the presumption is
overcome and he is relieved from liability.

5. APPEAL; MATTERS NOT RAISED AND ARGUED IN THE LOWER COURT CANNOT BE
VENTILATED IN THE SUPREME COURT FOR THE FIRST TIME. — Appellant’s other
assignment of errors are likewise outside the purview of this Court’s reviewing power.
Thus, the question of whether PEPSI-COLA violated the Revised Motor Vehicles Law and
rules and regulations related thereto, not having been raised and argued in the Court of
Appeals, cannot be ventilated herein for the first time.

DECISION

BENGZON, J.P., J.:
On June 30, 1958 Placido and Augusto Ramos sued Pepsi-Cola Bottling Co. of the P.I. 1
and Andres Bonifacio in the Court of First Instance of Manila as a consequence of a
collision, on May 10, 1958, involving the car of Placido Ramos and a tractor-truck and
trailer of PEPSI-COLA. Said car was at the time of the collision driven by Augusto
Ramos, son and co-plaintiff of Placido. PEPSI-COLA’s tractor- truck was then driven by
its driver and co-defendant Andres Bonifacio.

After trial, the Court of First Instance rendered judgment on April 15, 1961, finding
Bonifacio negligent and declaring that PEPSI- COLA had not sufficiently proved its
having exercised the due diligence of a good father of a family to prevent the damage.
PEPSI- COLA and Bonifacio, solidarily, were ordered to pay the plaintiffs P2,638.50
actual damages; P2,000.00 moral damages; P2,000.00 as exemplary damages; and,
P1,000.00 attorney’s fees with costs.

Not satisfied with this decision, the defendants appealed to the Court of Appeals.

Said Court, on January 15, 1964, affirmed the trial court’s judgment insofar as it found
defendant Bonifacio negligent, but modified it by absolving defendant PEPSI-COLA from
liability, finding that, contrary to the plaintiff’s contention, PEPSI-COLA sufficiently
proved due diligence in the selection of its driver Bonifacio.

Plaintiffs thereupon appealed to Us through this petition for review of the Court of
Appeals’ decision. And appellants would argue before this Court that defendant PEPSI-
COLA’s evidence failed to show that it had exercised due diligence n the selection of its
driver in question.

Said point, as stated, was resolved by the Court of Appeals in PEPSI-COLA’s favor,
thus:jgc:chanrobles.com.ph

"The uncontradicted testimony of Juan T. Añasco, personnel manager of defendant

company, was to the effect that defendant driver was first hired as a member of the
bottle crop in the production department; that when he was hired as a driver, ‘we had
size [sic] him by looking into his background, asking him to submit clearances, previous
experience, physical examination and later on, he was sent to the pool house to take
the usual driver’s examination, consisting of: ‘First, theoretical examination and second,
the practical driving examination,’ all of which he had undergone, and that the
defendant company was a member of the Safety Council. In view hereof, we are of the
sense that defendant company had exercised the diligence of a good father of a family
in the choice or selection of defendant driver. In the case of Campo v. Camarote, No. L-
9147 (1956), 53 O.G. 2794, cited in appellee’s brief, our Supreme Court had occasion
to put it down as a rule that ‘In order that the defendant may be considered as having
exercised all the diligence of a good father of a family, he should have been satisfied
with the mere possession of a professional driver’s license; he should have carefully
examined the applicant for employment as to his qualifications, his experiences and
record of service.’ Defendant Company has taken all these steps. 2

Appellants herein seek to assail the foregoing portion of the decision under review by
taking issue with the testimony of Añasco upon which the findings of due diligence
aforestated are rested. Thus, it is now contended that Añasco, being PEPSI-COLA’s
employee, is a biased and interested witness; and that his testimony is not believable.

It is rather clear, therefore, that appellants would raise herein an issue of fact and
credibility, something as to which this Court has consistently respected the findings of
the Court of Appeals, with some few exceptions, which do not obtain herein. 3

Stated differently, Añasco’s credibility is not for this Court now to re-examine. And said
witness having been found credible by the Court of Appeals, his testimony, as accepted
by said Court, cannot at this stage be assailed. As We said in Co Tao v. Court of
Appeals, L-9194, April 25, 1957, assignments of error involving the credibility of
witnesses and which in effect dispute the findings of fact of the Court of Appeals,
cannot be reviewed in these proceedings. For a question to be one of law it must
involve no examination of the probative value of the evidence presented by the litigants
or any of them. 4 And the distinction is well-known: There is a question of law in a
given case when the doubt or difference arises as to what the law is on a certain state
of facts; there is a question of fact when the doubt or difference arises as to the truth
or the falsehood of alleged facts. 5

From all this it follows that for the purposes of this appeal, it must be taken as
established that, as testified to by Añasco, PEPSI- COLA did in fact carefully examine
the driver-applicant Bonifacio as to his qualifications, experiences and record of service,
taking all steps mentioned by the Court of Appeals in its decision already quoted.

Such being the case, there can be no doubt that PEPSI-COLA exercised the required
due diligence in the selection of its driver. As ruled by this Court in Campo v. Camarote,
53 O.G. 2794, 2797: "In order that the defendant may be considered as having
exercised all diligence of a good father of a family, he should not be satisfied with the
mere possession of a professional driver’s license; he should have carefully examined
the applicant for employment as to his qualifications, his experience and record of
service."cralaw virtua1aw library

It should perhaps be stated that in the instant case no question is raised as to due
diligence in the supervision by PEPSI-COLA of its driver. Article 2180 of the Civil Code
provides inter alia: jgc:chanrobles.com.ph

". . . The owners and managers of en establishment or enterprise are likewise

responsible for damages caused by their employees in the service of the branches in
which the letter are employed or on the occasion of their functions.

x          x           x

"The responsibility treated of in this Article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage." cralaw virtua1aw library

And construing a similar provision of the old Civil Code, this Court said in Bahia v.
Litonjua, 30 Phil. 624, 627: jgc:chanrobles.com.ph

"From this article two things are apparent: (1) That when an injury is caused by the
negligence of a servant or employee there instantly arises a presumption of law that
there was negligence on the part of the master or employer either in the selection of
the servant or employee, or in supervision over him after the selection, or both; and
(2) that the presumption is juris tantum and not jure et de juris, and consequently may
be rebutted. It follows necessarily that if the employer shows to the satisfaction of the
court that in selection and supervision he has exercised the care and diligence of a good
father of a family, the presumption is overcome and he is relieved from liability." cralaw virtua1aw library

As pointed out, what appellants here contend as not duly proved by PEPSI-COLA is only
due diligence in the selection of its driver. And, parenthetically, it is not surprising that
appellants thus confine their arguments to this aspect of due diligence, since the record
— as even appellants’ brief (pp. 13-17) reflects in quoting in part the testimony of
PEPSI-COLA’s witness — would show sufficient evidence to establish due diligence in
the supervision by PEPSI-COLA of its drivers, including Bonifacio.

Appellants’ other assignment of errors are likewise outside the purview of this Courts’
reviewing power. Thus, the question of whether PEPSI-COLA violated the Revised Motor
Vehicle Law. and rules and regulations related thereto, not having been raised and
argued in the Court of Appeals, cannot be ventilated herein for the first time. 6 And the
matter of whether or not PEPSI-COLA did acts to ratify the negligent act of its driver is
a factual issue not proper herein.

Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against
appellants. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar, Sanchez and Ruiz
Castro, JJ., concur.

RESOLUTION ON MOTION FOR RECONSIDERATION

May 16, 1967 - BENGZON, J.P., J.:

Petitioners seek a reconsideration 1 of Our decision 2 in the instant case affirming in

toto the challenged decision of the Court of Appeals absolving respondent PEPSI-COLA
from liability. In Our decision, We refrained from passing on the merits of the question
whether PEPSI-COLA in operating the tractor-truck and trailer, violated the Rev. Motor
Vehicles Law 3 and the rules and regulations related thereto, for the procedural reason
that it did not appear to have been raised before the Court of Appeals.

It now appears, however, that said question was raised in a motion to reconsider filed
with the Court of Appeals which resolved the same against petitioners. Due
consideration of the matter on its merits, convinces Us that the decision of the Court of
Appeals should still be affirmed in toto.

Petitioners impute to PEPSI-COLA the violation of subpars. I and 4(d), par. (a), Sec. 27
of M.V.O. Administrative Order No. 1, dated Sept. 1, 1951, in that at the time of the
collision the trailer-truck, which had a total weight of 30,000 k. gms., was (a) being
driven at a speed of about 30 k.p.h., or beyond the 15 k.p.h. limit set and (b) was not
equipped with a rear-vision mirror nor provided with a helper for the driver.

The cited provisions read: jgc:chanrobles.com.ph

"SECTION 27. — Registration, operation, and inspection of truck-trailer combinations,

semi-trailers, and tractors.

"(a) No trailer or semi-trailer having a gross weight of more than 2,000 kilograms and
is not equipped with effective brakes on at least two opposite wheels of the rear axle
and are so controlled that the brakes will act in unison with or preceding the effective
action of the brakes of the tractor-truck shall be registered for operation for public
highways of the Philippines; provided, that the trailers without brakes may be
registered from year to year for operation under the following conditions: jgc:chanrobles.com.ph

"1. No such trailer shall be operated at any time at a speed, in excess of 15 kilometers
per hour in conjunction with a tractor-truck, the actual gross weight of which is less
than twice the weight of the trailer.

x          x           x

"4(d) Tractor-trucks shall be either equipped with rear-vision mirror to enable the driver
to see vehicles approaching from the rear or shall carry a helper who shall be so
stationed on the truck or trailer that he will constantly have a view of the rear. He shall
be provided with means of effectively signalling to the driver to give way to overtaking
vehicles.

"4(e) No truck and trailer combination shall be operated at a speed greater than 30
kilometers per hours." cralaw virtua1aw library

It will be noted that the 15 k.p.h. limit in subpar. 1, supra, refers only to trailers or
semi-trailers having a gross weight of more than 2,000 kgms., AND which are "not
equipped with effective brakes on at least two opposite wheels of the rear axle and are
so controlled that the brakes will act in unison with or preceding the effective action of
the brakes of the tractor-truck . . ." This is the condition set in the proviso in par. (a),
supra, wherein "trailers without [such] brakes may be registered from year to year for
operation . . .", i.e., they should not "be operated at any time at a speed in excess of
15 kilometers per hour in conjunction with a tractor-truck . . ." But there was no finding
by the Court of Appeals that the truck-trailer here did not have such brakes. In the
absence of such fact, it is subpar. 4 (e), supra, that will apply. And petitioners admit
that the truck-trailer was being driven at about 30 k.p.h.

It is a fact that driver Bonifacio was not accompanied by a helper on the night of the
collision since he was found to be driving alone. However, there is no finding that the
tractor-truck did not have a rear-vision mirror. To be sure, the records disclose that
Pat. Rodolfo Pahate, the traffic policeman who went to the collision scene, testified that
he saw the tractor-truck there but he does not remember if it had any rear-vision
mirror. 4 This cannot prove lack of rear- vision mirror. And the cited provision —
subpar. 4(d) — is complied if either of the two alternatives, i.e., having a rear-vision
mirror or a helper, is present. Stated otherwise, said provision is violated only where
there is a positive finding that the tractor-truck did not have both rear-vision mirror and
a helper for the driver.

Petitioners also charge PEPSI-COLA with having violated par. (b) of Sec. 8-A of the Rev.
Motor Vehicles Law, providing that: jgc:chanrobles.com.ph

"No motor vehicle operating as a single unit shall exceed the following dimensions: jgc:chanrobles.com.ph

"Over all width . . . 2.5 meters"

x          x           x

since there was an express finding that the truck-trailer was 3 meters wide. However,
Sec. 9(d) of the same law, as amended, providing that —

"SEC. 9. Special permits, fees for. — The chief of the Motor Vehicles Office with the
approval of the Secretary of Public Works and Communications shall establish
regulations and a tariff of additional fees under which special permits may be issued in
the discretion of the Chief of the Motor Vehicles Office or his deputies, for each of the
following special cases, and without such special permit, no such motor vehicles shall
be operated on the public highways . . .

x          x           x

"(d) For registration or fees of a motor vehicle exceeding the limit of permissible
dimensions specified in subsections (b) and (c) of section eight-A hereof." (Emphasis
supplied)

x          x           x

expressly allows the registration or use of motor vehicles exceeding the limits of
permissible dimensions specified in subsec. (b) of Sec. 8-A. So, to conclude that there
was a violation of law — which indisputably constitutes negligence, at the very least —
it is not enough that the width of the tractor-truck exceed the limit in Sec. 8-A; in
addition, it must also appear that there was no special permit granted under Sec. 9.
Unfortunately for petitioners, that vital factual link is missing. There was no proof much
less any finding to that effect. And it was incumbent upon petitioners-appellants to
have proved lack of such permit since the tractor-truck and the trailer were registered.
5 Compliance with law and regularity in the performance of official duty — in this case,
the issuance of proper registration papers — are presumed 6 and prevail over mere
surmises. Having charged a violation of law, the onus of substantiating the same fell
upon petitioners-appellants. Hence, the conclusion that there was a violation of the law
lacks factual basis.
Petitioners would also have Us abandon the Bahia ruling. 7 In its stead, We are urged
to apply the Anglo-American doctrine, of respondent superior. We cannot however,
abandon the Bahia ruling without going against the explicit mandate of the law. A
motor vehicle owner is not an absolute insurer against all damages caused by its driver.
Article 2180 of our Civil Code is very explicit that the owner’s responsibility shall cease
once it proves that it has observed the diligence of a good father of a family to prevent
damage. The Bahia case merely clarified what that diligence consists of, namely,
diligence in the selection and supervision of the driver-employee.

Neither could We apply the respondent superior principle. Under Article 2180 of the
Civil Code, the basis of an employer’s liability is his own negligence, not that of his
employees. The former is made responsible for failing to properly and diligently select
and supervise his erring employees. We do not - and have never - followed the
respondent superior rule. 8 So, the American rulings cited by petitioners, based as they
are on said doctrine, are not authoritative here.

In view of the foregoing, the motion for reconsideration is hereby denied.

 THIRD DIVISION

[G.R. No. 110015. July 11, 1995.]

MANILA BAY CLUB CORPORATION, Petitioner, v. THE COURT OF APPEALS,

MODESTA SABENIANO and MIRIAM SABENIANO, JUDITH SABENIANO, JOY
DENNIS SABENIANO, et. al., Respondents.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL; QUESTION OF LAW; DISTINGUISHED

FROM QUESTION OF FACT. — What a question of law or a question of fact is has been
consistently defined by the Court in this wise: "For a question to be one of law it must
involve no examination of the probative value of the evidence presented by the litigants
or any of them. And the distinction is well-known: There is a question of law in a given
case when the doubt or difference arises as to what the law is on a certain state of
facts; there is a question of fact when the doubt arises as to the truth or the falsehood
of alleged facts." Here, petitioner has made it very clear that it is not disputing
respondent Court of Appeals’ and the trial court’s findings vis-a-vis its failure to
designate private respondents as beneficiaries in the insurance policies it procured on
the leased building at the inception of the lease contract. And from the arguments
raised herein by petitioner, this Court is indeed not called upon to re-examine and
appreciate anew any evidence presented below, (e.g., the insurance policies, other
documents and oral testimony, etc.), and thereafter arrive at a contrary finding. What
petitioner is challenging is solely the respondent Court of Appeals’ conclusion drawn
from these undisputed facts, i.e., that petitioner’s omission to designate private
respondents as beneficiaries constituted a breach of paragraph 22 of the lease contract.
This Court in the early case of "Cunanan v. Lazatin" (74 Phil. 719) has ruled that:
"There is no question of facts here because the facts are admittedly proven. Whether or
not the conclusion drawn by the Court of Appeals from those facts is correct, is a
question of law which this Court is authorized to pass upon." "Dauan v. Sec. of
Agriculture and Natural Resources" (19 SCRA 223) likewise held that: ". . . it is a rule
now settled that the conclusion drawn from the facts is a conclusion of law which the
courts may review." And in the relatively recent case of "Binalay v. Manalo" (195 SCRA
374 [1991]), the Court, speaking thru Justice Feliciano, reiterated the rule:
"Jurisprudence is likewise settled that the Court of Appeals is the final arbiter of
questions of fact. But whether a conclusion drawn from such findings of fact is correct,
is a question of law cognizable by this Court." chanroblesvirtuallawlibrary

2. ID.; ID.; ID.; QUESTIONS NOT RAISED BEFORE TRIAL COURT CANNOT BE RAISED
ON APPEAL FOR THE FIRST TIME. — Petitioner likewise argues that despite its failure to
endorse the first two (2) fire insurance policies to private respondents, the latter are
nonetheless amply protected since the insurance proceeds are deemed to be held "in
trust" for Private Respondents. This issue of "trust" was, aptly pointed out by private
respondents, never raised before the trial court. Consequently, it cannot be raised
before this Court, for no question will be entertained on appeal unless it has been
raised in the court below. If this issue was ever raised, petitioner did so only in its
Motion for Reconsideration of respondents Court of Appeals’ decision, the effect of
which is as if it was never duly raised in that court at all. In "Delos Santos v. Reyes
(205 SCRA 487), the issue of estoppel was not raised by petitioner Delos Santos in the
Brief he submitted before the Court of Appeals. It was thus held that petitioner Delos
Santos cannot raise it for the first time in a petition for review before the Supreme
Court.

3. ID.; ID.; ID.; FACTUAL FINDINGS OF COURT; RULE. — Factual finding is as binding
on this Court as it is on petitioner, for well-settled is the general rule that the
jurisdiction of this Court in cases brought before it from the Court of Appeals is limited
to reviewing or revising errors of law; findings of fact of the latter are conclusive.

4. ID.; EVIDENCE; JUDICIAL ADMISSION; RULE; APPLICATION IN CASE AT BAR. — Mr.

Aquino’s testimony is clearly judicial admission against petitioner’s own interest which
estops petitioner from contending that its incipient failure to procure insurance for the
benefit of private respondents does not constitute a violation of the lease contract,
specifically the "insurance clause" (paragraph 22). This is so because under Section 4,
Rule 129 of the Rules of Court: "An admission, verbal or written, made by a party in the
course of the proceedings in the same case, does not require proof. The admission may
be contradicted only by showing that it was made through palpable mistake or that no
such admission was made."  chanroblesvirtual|awlibrary

5. CIVIL LAW; CONTRACT; RULE IN CASE OF AMBIGUITY; NOT APPLICABLE IN CASE AT

BAR. — In assailing its imputed violation of the lease contract, petitioner now argues
that from a reading of paragraph 22 of said contract, nowhere is it expressly stated that
the duty to procure the insurance on the leased building for private respondents’ benefit
devolves exclusively upon petitioner, thus intimating that private respondents should
likewise be faulted for not having obtained the insurance themselves. Petitioner claims
an ambiguity in the contract exists. Petitioner’s argument fails to impress. First, the
express admission made by petitioner’s witness Mr. Danilo Aquino as to its non-
compliance with the "insurance clause" (paragraph 22) of the lease contract
conclusively presupposes petitioner’s full-awareness that such contractual duty rests on
its shoulder. Second, to the May 17, 1990 letter of one private respondent, Modesta
Sabeniano, reminding petitioner of its repeated failure to deliver to private respondents
the Original Policy of the leased building as per the leased contract, petitioner replied,
in its letter dated May 21, 1990, that it is "still working out with our Insurance
Company for segregating the coverage for issuance of policy purposes." The tenor of
petitioner’s reply equally indicates, though not as categorical as the admission,
acknowledgment of a responsibility on its part to insure the leased building. For if it
were otherwise, in the face of private respondents’ repeated demands on petitioner to
secure the insurance, petitioner should have explained to private respondents that it is
not solely duty-bound to insure the leased building and that private respondents might
as well secure the insurance themselves. But petitioner did not, and instead
immediately secured insurance policies for 1988-89 and 1989-90 with petitioner as
beneficiary and not private respondents. And third, petitioner cannot successfully argue
that the lease contract is a contract of adhesion solely prepared by private respondents
and for which reason the ambiguity should be resolved against the latter. Private
respondents Modesta Sabeniano testified that petitioner’s lawyer, one Atty. Rivera,
participated in the preparation of the lease contract. It becomes clear that the lease
contract was, as claimed by private respondents, indeed the "product of mutual
agreement between parties", and not a "take it or leave it" proposition adhered to
helplessly by petitioner. Private respondent Modesta Sabeniano’s testimony being a
factual matter should be taken on its face value, for, to emphasize once again,
petitioner is precluded from disputing facts. For these reasons, the purported ambiguity
is resolved, unfortunately against petitioner.

6. ID.; SPECIAL CONTRACTS; LEASE; FAILURE OR NEGLECT TO PERFORM OR COMPLY

WITH ANY OF ITS CONDITIONS; GROUND FOR TERMINATION THEREOF. — Petitioner
essentially contends that private respondents cannot unilaterally rescind the lease
contract because its purported violation of the "insurance clause" (paragraph 22) was
merely slight or casual. We do not agree with petitioner. Under paragraph 19 of the
lease contract, the lessee’s (petitioner) failure or neglect to perform or comply with any
of the covenants, conditions agreements or restriction stipulated shall result in the
automatic termination and cancellation of the lease. It can be fairly judged from the
tenor of paragraph 19 that the parties intended mandatory compliance with all the
provisions of the contract. Among such provisions requiring strict observance is the
"insurance clause" (paragraph 22) which expressly provides that "the building must be
insured and the insurance premium must be for the account of the LESSEE . . ." Thus,
upon petitioner’s failure to comply with the mandatory requirement of paragraph 22,
private respondents were well-within their right to rescind the lease contract by express
grant of paragraph 19. Certainly, there is nothing wrong if the parties to the lease
contract agreed on certain mandatory provisions concerning their respective rights and
obligations, such as the procurement of the insurance and the rescission clause. For it is
well to recall that contracts are respected as the law between the contracting parties,
and they may establish such stipulations, clauses, terms and conditions as they may
want to include. As long as such agreements are not contrary to law, morals, good
customs, public policy or public order they shall have the force of law between them. In
this connection, none can be added to the respondent Court of Appeals’ correct
observation why petitioner’s omission to designate private respondents as beneficiaries
in the insurance policies it secures over the leased building is not merely a slight or
casual breach, but a substantial one allowing private respondents to rescind the lease
contract.

7. ID.; ID.; ID.; FACTORS TO CONSIDER IN FIXING THE AMOUNT OF RENT. — In

reaching that amount, the trial court took into consideration the following factors: 1)
prevailing rates in the vicinity 2) location of the property; 3) use of the property; 4)
inflation rate; and 5) the testimony of private respondent Modesta Sabeniano that she
was offered by a Japanese-Filipino investor a monthly rental of P400,000.00 for the
leased premises then occupied by petitioner. Petitioner for its part should have
presented its controverting evidence below to support what it believes to be the fair
rental value of the leased building since the burden of proof to show that the rental
demanded is unconscionable or exorbitant rests upon the lessee. But petitioner failed to
do so. Hence, the valuation made by the trial court, as affirmed by respondent Court of
Appeals, stands. It is worth stressing at this juncture that the trial court had the
authority to fix the reasonable value for the continued use and occupancy of the leased
premises after the termination of the lease contract, and that it was not bound by the
stipulated rental in the contract of lease since it is equally settled that upon termination
or expiration of the contract of lease the rental stipulated therein may no longer be the
reasonable value for the use and occupation of the premises as a result or by reason of
the charge or rise in values. Moreover, the trial court can take judicial notice of the
general increase in rentals of real estate especially of the business establishments like
the leased building owned by private respondents. chanroblesvirtuallawlibrary

DECISION

FRANCISCO, J.:

A ten-year lease contract, commencing in March 4, 1988 and set to expire on March 4,
1998, over the subject building situated at 1408 Roxas Boulevard, Pasay City was
executed by and between the private respondents Sabenianos as owners-lessors and
petitioner Manila Bay Club Corporation as lessee. 1

The lease agreement, however, was short-lived because private respondents, in a letter
dated May 28, 1990, unilaterally terminated the lease with the request that petitioner
vacate the leased premises and peacefully surrender its possession, on the following
grounds: jgc:chanrobles.com.ph

"x       x       x

1. Failure on the part of the LESSEE until this very late date, to insure the leased
building which is a violation of the requirement of paragraph 22 of the CONTRACT OF
LEASE and highly prejudicial to the interest of the LESSOR; chanrobles.com : virtual lawlibrary

2. For unpaid accumulated rentals in arrears, amounting to the appreciable sum of

P151,575.57 and failure on your part as LESSEE to issue all the postdated checks
agreed upon in the original and amended contract, dated March 15, 1988;

3. For failure on the part of the LESSEE to pay the fees, taxes and other assessments
on the improvements as required by paragraph 16 of the Contract of Lease, which is
also prejudicial to the owner-lessor." 2

Private respondents invoked the "Special Clause" of the lease contract as found in
paragraph 19 thereof to justify in their action. It reads: jgc:chanrobles.com.ph
"19. If the rental herein stipulated or any the part thereof at any time, shall be in
arrears or unpaid, or if the tenant shall at any time fail or neglect to perform or comply
with of the covenants, conditions, agreements or restriction stipulated or if the tenants
shall become bankrupt or insolvent or shall compound with his creditors, then and in
any of such above cases, this lease contract shall become automatically terminated and
cancelled and the said premises shall be peacefully vacated by the LESSEE for the
LESSOR to hold and enjoy henceforth as if these presents have not been made and it
shall be lawful for the LESSOR or any person duly authorized in his behalf, without any
formal notice or demand to enter into and upon said leased premises or any part
thereof without prejudice on the part of the LESSOR to exercise all rights on the
contract of lease and those given by law. And upon such cancellation of the contract,
the LESSEE hereby grants to the LESSOR the legal right to enter and take possession of
the leased premises as though the term of the lease contract has expired." cralaw virtua1aw library

Feeling aggrieved by premature termination of the lease, petitioner on June 8, 1990

filed a complaint with the Makati Regional Trial Court for "Specific Performance with
Prayer for Preliminary Injunction and Damages" against private respondents, alleging in
substance that private respondents unilateral cancellation of the lease contract was
arbitrary and capricious, for petitioner did not violate any of its provisions. Petitioner
thus prayed that private respondents be ordered to desist from further harassing
petitioner, honor the lease contract, and to pay exemplary damages, professional fee
and costs. 3

On the other hand, private respondents in their answer claimed that petitioner: chanroblesvirtuallawlibrary

1) failed to pay monthly rentals as they fell due, in violation of paragraph 2;

"Monthly Rental"

2. The rate of the monthly rental shall be Thirty Five Thousand Pesos (P35,000.00),
with an annual acceleration rate of Five (5) percent of the succeeding three (3) years,
and Seven (7) percent for the remaining four (4) years which shall be paid in advance
by the LESSEE to the LESSOR every fourth (4th) day of every month effective
immediately upon the signing of this Contract of Lease without the necessity of
demand. Overdue monthly rentals shall earn interest at any rate of five (5) percent per
month, Continuous non-payment of rent for a period of three (3) months shall be
understood as an automatic cancellation of the lease agreement without prejudice to
the LESSEE to redeem such non-payment subject to a corresponding penalty charges
and surcharge as provided for in this agreement." cralaw virtua1aw library

2) used the leased premises for gambling and prostitution, prohibited under paragraph
8;chanroblesvirtual|awlibrary

"8. The LESSEE hereby expressly agrees and warrants that he shall use the premises
exclusively for the following purposes: restaurant, catering, gym, recreation, and other
services which are contrary to public laws, morals and that which is legal, and lawful.
Such purposes as gambling and prostitution or any other practices of similar nature is
strictly prohibited." and

3) failed to secure an insurance policy on the leased premises for the benefit of private
respondents as lessors, as provided for in paragraph 22;

"Effectivity of this Lease

x          x           x

22. The building must be insured and the insurance premium must be for the account
of the LESSEE. The appraised value of the present status of the building by the
insurance company shall be the amount of insurance of which the beneficiary shall be
for the benefit of the LESSOR. The appraised value of the improvements or renovation
made by the insurance company shall accrue to the benefit of the LESSEE."  chanroblesvirtuallawlibrary

By reason of these violations, specifically that pertaining to paragraph 22, private

respondents argued that the lease contract was deemed terminated and cancelled
pursuant to the "Special Clause" in paragraph 19 providing for automatic termination
and cancellation, thereby entitling private respondents to take the possession of the
leased premises.

The trial Court held that petitioner was not in default nor in arrears in payment of
rentals to private respondents, and that evidence is wanting to prove the leased
premises were being used by petitioner for gambling and prostitution activities.
However, the trial court found that petitioner violated the "insurance clause"
(paragraph 22) of the contract. It declared that: jgc:chanrobles.com.ph

". . ., the evidence shows and the plaintiff (petitioner) even admitted in its
memorandum, that it failed to secure an appraisal to the leased building in its original
condition or at the time of the execution of the contract for the purpose of insuring the
same for the benefit of the defendants (private respondents). chanroblesvirtuallawlibrary

While it is true as pointed out by the plaintiff, that it has insured the leased building in
question from the very inception of the lease contract, the Court notes that the
beneficiary of said insurance policies was the Manila bay Club Corporation and not the
defendants-lessor as agreed upon in the contract. (See paragraph 22, Contract of
Lease, Exhibits "A", "K" and "L"). Although nothing had happened on the insured
building the fact of the matter is that the defendants who owned the building were
unnecessarily exposed to the insurable risk during the period of the insurance policies
referred to, and that in case of loss the defendants would not have collected the
proceeds on the insurance.

Plaintiff, also argued that it had insured the subject building with the Fortune Assurance
and Indemnity Corporation for the period of June 15, 1990 to June 15, 1991 with the
defendant as the beneficiary (Exhibit "J-1"). Examination of said insurance policy
(Exhibit "J") however, shows that it was dated June 1, 1990 or after the defendant
Modesta R. Sabeniano had written the plaintiff on May 28, 1990 (Exhibit "C") informing
the latter that their contract was considered terminated (under paragraph 19 of their
lease contract) by reason of violation of the terms thereof." cralaw virtua1aw library

Consequently, the trial court in its decision dated October 17, 1991 4 dismissed the
complaint, declared the lease contract terminated as of May 28, 1990, and ordered
petitioner to immediately return possession of the leased premises to private
respondents and pay monthly rentals of P250,000.00 commencing on May 28, 1990
with 10% interest per annum, P20,000.00 attorney’s fees and litigation expenses. chanroblesvirtual|awlibrary

Petitioner appealed to respondent Court of Appeals which, in its now-assailed decision

dated March 25, 1993 5 affirmed with modification the lower court’s decision. The
decretal portions provides: jgc:chanrobles.com.ph

"WHEREFORE, with the following modification: chanrob1es virtual 1aw library

(a) deleting the ten (10%) per cent interest per annum on the monthly rental or P250,
000.00; and

(b) deleting the award of P20,000.00 attorney’s fees,

the decision is hereby AFFIRMED in all other respects. No pronouncement as to costs. chanroblesvirtuallawlibrary

SO ORDERED.

Petitioner’s motion for reconsideration was likewise denied in a Resolution dated May 7,
1993. 6 Hence, this petition for review on certiorari with petitioner assigning the
following errors, to wit:
chanrob1es virtual 1aw library
 I

IN HOLDING THAT THE PETITIONER HAD VIOLATED PARAGRAPH 22 OF THE CONTRACT

OF LEASE DATED MARCH 4, 1988, ANNEX "D" HEREOF, AND THAT AS A
CONSEQUENCE, THE PRIVATE RESPONDENTS WERE JUSTIFIED IN RESCINDING THE
SAID CONTRACT OF LEASE, THE RESPONDENT COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN THAT IT DECIDED A QUESTION OF SUBSTANCE IN A WAY
PROBABLY NOT IN ACCORD WITH LAW, THE PETITIONER NOT HAVING COMMITTED
ANY VIOLATION WHATSOEVER OF THE CONTRACT OF LEASE. chanroblesvirtuallawlibrary

II

IN SUSTAINING RESCISSION ON ACCOUNT OF THE PETITIONER’S ALLEGED

VIOLATION OF PARAGRAPH 22 OF THE CONTRACT OF LEASE DATED MARCH 4, 1988,
ANNEX "D" HEREOF, ASSUMING, WITHOUT ADMITTING THAT THE PETITIONER HAD
VIOLATED PARAGRAPH 22 OF THE SAID CONTRACT, THE RESPONDENT COURT
COMMITTED A REVERSIBLE ERROR IN THAT IT DECIDED A QUESTION IN A WAY
PROBABLY NOT IN ACCORD WITH LAW, THE PETITIONER’S VIOLATION, IF ANY,
HAVING BEEN SLIGHT OR CASUAL TO PRELUDE RESCISSION.

III

IN GRANTING DAMAGES, THE RESPONDENT COURT OF APPEALS COMMITTED A

REVERSIBLE ERROR IN THAT THERE IS NO BASIS FOR THE AWARD OF DAMAGES.

IV

IN DISMISSING THE PETITIONER’S APPEAL, WHICH WAS MERITORIOUS, THE

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR. 7 chanroblesvirtual|awlibrary

The first assigned error touches on the issue of whether or not petitioner violated the
"insurance clause" (paragraph 22) of the lease contract. With an outright dismissal of
the petition in mind, private respondents argue that the question is purely factual no
longer reviewable by, and thus binding on the Court. Respondent Court of Appeals’
findings, as quoted hereunder, essentially affirming those made by the trial court that
petitioner committed a breach of the "insurance clause", should therefore be upheld
and left undisturbed.

"Assailing the trial court’s rationalization, appellant contends that while the lease
contract did call for the building to be insured, it was incumbent upon the lessors, the
defendants herein, to provide the plaintiff with the appraised value of the building to be
insured. But no such appraised value was furnished plaintiff appellee from the execution
of the contract in March 1988 up to the time the case reached the court. Nonetheless,
according to plaintiff-appellant, the building was insured for P2,500,000.00 from the
period June 15, 1988 to June 15, 1989; and for the period from June 15, 1989 to June
15, 1990 plaintiff-appellant obtained insurance for the building in the amount of
P2,500,000.00 (the sum of P1,250,000.00 for defendants-lessors, and P1,250,000.00
for plaintiff-lessee). And for the period from June 15, 1990 to June 15, 1991, plaintiff-
appellant continued the insurance on the building for P2,500,000.00, with one-half
thereof payable to defendants-lessors. Thus, according to plaintiff-appellant it had
substantially complied with par. 22 of the lease contract and if there was any delay in
the allocation of the amount of the insurance policy, such delay was attributable to
defendants who did not provide plaintiff-appellant with the appraised value of the
building.

We reject plaintiff-appellant’s proposition. Under the factual features of this case, for
the fire insurance policy for the period of June 15, 1988, to June 15, 1989, in the
amount of P5,000,000.00, the assured was only the Manila Bay Club Corporation,
plaintiff-appellant herein (Exhibit "K"). In the same vein, in the fire insurance policy for
June 15, 1989 to June 15, 1990 in the sum of P5,000,000.00, the assured was plaintiff-
appellant Manila Bay Club Corporation and no other else (Exhibit "L"). chanroblesvirtuallawlibrary

Clearly, from the inception of the contract of lease on March 4, 1990, or two years,
plaintiff-appellant already violated paragraph 22 of the contract that the building must
be insured and the insurance premium must be for the account of the lessors. In fact,
in its letter of May 21, 1990, plaintiff-appellant admitted that: jgc:chanrobles.com.ph

"We are still working out with an Insurance Company for segregating the coverage for
issuance of policy purposes , . . ." (par. III Exhibit "F" ; also Exhibit "3")

It will be noted that plaintiff-appellant filed the instant case on June 8, 1990 against
defendants-appellants for specific performance. At the time this action was instituted,
plaintiff-appellant had not yet segregated the coverage of the insurance for the benefit
of defendants-lessors. The fire insurance policy for P1,250,000.00 payable to
defendants-lessors (Exhibit "J") became effective only on June 15, 1990 when the case
was already being litigated in the court below. chanroblesvirtual|awlibrary

Consequently, We find no fault or error by the trial court when it ruled that plaintiff-
appellant violated the lease contract for failure to secure insurance policy on the leased
premises for the benefit of the defendants-lessors. Moreover, Mr. Danilo Aquino, a
witness for plaintiff-appellant admitted that there was a violation of paragraph 22 of the
lease contract, to wit: jgc:chanrobles.com.ph

"COURT: chanrob1es virtual 1aw library

Can you show to the Court, which particular insurance policy that complies with that
particular paragraph?

"WITNESS: chanrob1es virtual 1aw library

The Fortune Insurance Policy, June 15, 1988, 1989, that was the insurance policy we
get.chanrobles.com : virtual lawlibrary

"ATTY. VILLANUEVA: chanrob1es virtual 1aw library

So you are referring to Exhibit "K" ?

"WITNESS: chanrob1es virtual 1aw library

However, we were not able to make the necessary endorsement and we were able to
make it of the latest insurance policy upon receiving the notice from the lessor that
they are demanding the Corporation to secure the necessary fire insurance policy.

"COURT: chanrob1es virtual 1aw library

Repeat, it should be exclusively for the benefit of the lessor, did you or did you not
comply with that? chanroblesvirtuallawlibrary

"WITNESS: chanrob1es virtual 1aw library

We were not able to comply with that, Your Honor.

"ATTY. VILLANUEVA: chanrob1es virtual 1aw library

Now, under Exhibit "K", which pertains to insurance policy which you took for the year
1988 to 1989 , there was no mention about the compliance of this provision, am I
correct?

"WITNESS: chanrob1es virtual 1aw library

Yes, sir.

"ATTY. VILLANUEVA: chanrob1es virtual 1aw library

Same thing with the insurance policy for 1989 to 1990, there was no compliance of that
specific provision, am I correct? chanrobles.com : virtual lawlibrary

"WITNESS: chanrob1es virtual 1aw library

Yes, sir.

"ATTY. VILLANUEVA: chanrob1es virtual 1aw library

Now, were the lessors conveying that is a ground for termination that was the time you
secured an insurance policy with the corresponding endorsement in favor of the lessor,
am I correct?

"WITNESS: chanrob1es virtual 1aw library

Yes, sir.

" "ATTY. VILLANUEVA: chanrob1es virtual 1aw library

But was there any appraisal that you make to determine the value of the building then
existing without renovation?

"WITNESS: chanrob1es virtual 1aw library

There was an appraiser, sir.

"COURT: chanrob1es virtual 1aw library

Prior to the renovation? chanrobles.com : virtual lawlibrary

"WITNESS: chanrob1es virtual 1aw library

Yes, Your Honor.

"ATTY. VILLANUEVA: chanrob1es virtual 1aw library

What was the appraised value of the lessor’s property according to your appraisal now?

"WITNESS: chanrob1es virtual 1aw library

One Million Sixty Four Thousand Four Hundred Pesos Only (P1,064,400.00), sir." (TSN,
pp. 34-38, March 5, 1991).

Plaintiff-appellant further argues that it was the obligation of defendants-lessors to

provide plaintiff-appellant with the appraised value of the building for the insurance
purpose. chanrobles.com : virtual lawlibrary

We are not persuaded by this agreement. paragraph 22 of the contract of lease is clear
and explicit. This provision calls for the appraised value of the present status of the
building by the insurance company which shall be the amount of the insurance.
Nowhere in paragraph 22 of the lease contract is there stipulated that defendants-
lessors should furnish the plaintiff-appellant with the appraised value of the building to
be insured. The appraisal of the building is a task devolving upon the insurance
company. It is basic and fundamental that if the terms of the contract are plain and
readily understandable, there can be no room for interpretation. (Republic v. Sandigan ,
203 SCRA 310). When the terms of a contract leaves no doubt as to the intention of the
parties, the literal meaning of the stipulations shall control. (Hondrado, Jr. v. Court of
Appeals, 198 SCRA 326; Papa v. Allonzo, 198 SCRA 564). . . ." cralaw virtua1aw library
Petitioner on the other hand strongly maintains that it is a question of law reviewable
and reversible by the Court.

On this particular point, we agree with petitioner. What a question of law or a question
of fact is has been consistently defined by the Court in this wise: chanrobles virtual lawlibrary

"For a question to be one of law it must involve no examination of the probative value
of the evidence presented by the litigants or any of them. And the distinction is well-
known: There is a question of law in a given case when the doubt or difference arises
as to what the law is on a certain state of facts; there is a question of fact when the
doubt arises as to the truth or the falsehood of alleged facts." 8 chanrobles.com : virtual lawlibrary

Here, petitioner has made it very clear that it is not disputing respondent Court of
Appeals’ and the trial court’s findings vis-a-vis its failure to designate private
respondents as beneficiaries in the insurance policies it procured on the leased building
at the inception of the lease contract. And from the arguments raised herein by
petitioner, this Court is indeed not called upon to re-examine and appreciate anew any
evidence presented below, (e.g., the insurance policies, other documents and oral
testimony, etc.), and thereafter arrive at a contrary finding. What petitioner is
challenging is solely the respondent Court of Appeals’ conclusion drawn from these
undisputed facts, i.e., that petitioner’s omission to designate private respondents as
beneficiaries constituted a breach of paragraph 22 of the lease contract. This Court in
the early case of "Cunanan v. Lazatin" (74 Phil. 719) has ruled that: jgc:chanrobles.com.ph

"There is no question of facts here because the facts are admittedly proven. Whether or
not the conclusion drawn by the Court of Appeals from those facts is correct, is a
question of law which this Court is authorized to pass upon." cralaw virtua1aw library

"Dauan v. Sec. of Agriculture and Natural Resources" (19 SCRA 223) likewise held
that:jgc:chanrobles.com.ph

". . . it is a rule now settled that the conclusion drawn from the facts is a conclusion of
law which the courts may review." cralaw virtua1aw library

And in the relatively recent case of "Binalay v. Manalo" (195 SCRA 374 [1991]), the
Court, speaking thru Justice Feliciano, reiterated the rule: jgc:chanrobles.com.ph

"Jurisprudence is likewise settled that the Court of Appeals is the final arbiter of
questions of fact. But whether a conclusion drawn from such findings of fact is correct,
is a question of law cognizable by this Court." cralaw virtua1aw library

However, while a review of the case is in order, we are not inclined to reverse.

By insisting that it is not disputing facts, petitioner in effect bound itself to ALL factual
findings made by respondent Court of Appeals. This necessarily includes the testimony
of petitioner’s own witness, Mr. Danilo Aquino, declaring that petitioner indeed failed to
comply with paragraph 22 of the contract requiring that private respondents be made
beneficiaries of the insurance policies to be procured over the leased building, and that
petitioner is well-aware that non-compliance is a ground for termination. We quote
again that particular testimony.

"COURT: chanrob1es virtual 1aw library

Can you show to the Court, which particular insurance policy that complies with that
particular paragraph? chanroblesvirtuallawlibrary

"WITNESS: chanrob1es virtual 1aw library

The Fortune Insurance Policy, June 15, 1988, 1989, that was the insurance policy we
get . . .
"ATTY. VILLANUEVA: chanrob1es virtual 1aw library

So you are referring to Exhibit "K" ?

"WITNESS: chanrob1es virtual 1aw library

However, we were not able to make the necessary endorsement and we were able to
make it of the latest insurance policy upon receiving the notice from the lessor that
they are demanding the Corporation to secure the necessary fire insurance policy. chanroblesvirtual|awlibrary

"COURT: chanrob1es virtual 1aw library

Repeat, it should be exclusively for the benefit of the lessor, did you or did you not
comply with that?

"WITNESS: chanrob1es virtual 1aw library

We were not able to comply with that, Your Honor.

"ATTY. VILLANUEVA: chanrob1es virtual 1aw library

Now, under Exhibit "K", which pertains to insurance policy which you took for the year
1988 to 1989, there was no mention about the compliance of this provision, am I
correct? chanroblesvirtuallawlibrary

"WITNESS: chanrob1es virtual 1aw library

Yes, sir.

"ATTY. VILLANUEVA: chanrob1es virtual 1aw library

Same thing with the insurance policy for 1989 to 1990, there was no compliance of that
specific provision, am I correct?

"WITNESS: chanrob1es virtual 1aw library

Yes, sir. chanroblesvirtuallawlibrary

"ATTY. VILLANUEVA: chanrob1es virtual 1aw library

Now, were the lessors conveying that is a ground for termination that was the time you
secured an insurance policy with the corresponding endorsement in favor of the lessor,
am I correct?

"WITNESS: chanrob1es virtual 1aw library

Yes, sir." (Emphasis supplied)

Mr. Aquino’s testimony is clearly judicial admission against petitioner’s own interest
which estops petitioner from contending that its incipient failure to procure insurance
for the benefit of private respondents does not constitute a violation of the lease
contract, specifically the "insurance clause" (paragraph 22). This is so because under
Section 4, Rule 129 of the Rules of Court;

"An admission, verbal or written, made by a party in the course of the proceedings in
the same case, does not require proof. The admission may be contradicted only by
showing that it was made through palpable mistake or that no such admission was
made."  chanroblesvirtuallawlibrary

And that factual finding is as binding on this Court as it is on petitioner, for well-settled
is the general rule that the jurisdiction of this Court in cases brought before it from the
Court of Appeals is limited to reviewing or revising errors of law; findings of fact of the
latter are conclusive. 9

In assailing its imputed violation of the lease contract, petitioner now argues that from
a reading of paragraph 22 which provides that: jgc:chanrobles.com.ph

"22. The building must be insured and the insurance premium must be for the account
of the LESSEE. The appraised value of the present status of the building by the
insurance company shall be the amount of insurance of which the beneficiary shall be
for the benefit of the LESSOR. The appraised value of the improvement or renovation
made by the insurance company shall accrue to the benefit of the LESSEE."  chanroblesvirtuallawlibrary

nowhere is it expressly stated that the duty to procure the insurance on the leased
building for private respondents’ benefit devolves exclusively upon petitioner, thus
intimating that private respondents should likewise be faulted for not having obtained
the insurance themselves. Petitioner claims an ambiguity in the contract exists.

Petitioner’s argument fails to impress. First, the express admission made by petitioner’s
witness Mr. Danilo Aquino as to its non-compliance with the "insurance clause"
(paragraph 22) of the lease contract conclusively presupposes petitioner’s full-
awareness that such contractual duty rests on its shoulder. Second, to the May 17,
1990 letter of one private respondent, Modesta Sabeniano, reminding petitioner of its
repeated failure to deliver to private respondents the Original Policy of the leased
building as per the leased contract, 10 petitioner replied, in its letter dated May 21,
1990, 11 that it is "still working out with our Insurance Company for segregating the
coverage for issuance of policy purposes." The tenor of petitioner’s reply equally
indicates, though not as categorical as the admission, acknowledgment of a
responsibility on its part to insure the leased building. For if it were otherwise, in the
face of private respondents’ repeated demands on petitioner to secure the insurance,
petitioner should have explained to private respondents that it is not solely duty-bound
to insure the leased building and that private respondents might as well secure the
insurance themselves. But petitioner did not, and instead immediately secured
insurance policies for 1988-89 and 1989-90 with petitioner as beneficiary and not
private respondents. And third, petitioner cannot successfully argue that the lease
contract is a contract of adhesion solely prepared by private respondents and for which
reason the ambiguity should be resolved against the latter. Private respondents
Modesta Sabeniano testified that petitioner’s lawyer, one Atty. Rivera, participated in
the preparation of the lease contract.

"REDIRECT EXAMINATION BY

ATTY. VILLANUEVA

Q: Mrs. Sabeniano, who is this Efren Lim you mentioned in your cross examination? chanroblesvirtuallawlibrary

A: Chairman of the Manila Bay and the person whom I get in contact with Sir.

Q: And he is signatory to the contract?

A: Yes, sir.

Q: And this Atty. Rivera that you mentioned in the course of your cross examination
before the contract was made. chanroblesvirtuallawlibrary

A: He was introduced by Mr. Efren Lim as the lawyer of Manila Bay Sir, before the
contract was made.

Q: What contract are you referring to?

A: Lease contract. He made the preparation, my son is Romwell . . .

Q: Are you talking, about the last proposal, lease contract, Exhibit "H-1" ? chanroblesvirtuallawlibrary
A: The old contract. This was his proposal He suggested I have to draft a contract for
them to counter.

x          x           x

(T.S.N., April 25, 1991, pp. 56-57)" 12

It becomes clear that the lease contract was, as claimed by private respondents, indeed
the "product of mutual agreement between parties", and not a "take it or leave it"
proposition adhered to helplessly by petitioner. Private respondent Modesta Sabeniano’s
testimony being a factual matter should be taken on its face value, for, to emphasize
once again, petitioner is precluded from disputing facts. For these reasons, the
purported ambiguity is resolved, unfortunately against petitioner.

Petitioner likewise argues that despite its failure to endorse the first two (2) fire
insurance policies to private respondents, the latter are nonetheless amply protected
since the insurance proceeds are deemed to be held "in trust" for Private Respondents.
This issue of "trust" was, aptly pointed out by private respondents, never raised before
the trial court. Consequently, it cannot be raised before this Court, for no question will
be entertained on appeal unless it has been raised in the court below. 13 If this issue
was ever raised, petitioner did so only in its Motion for Reconsideration 14 of
respondents Court of Appeals’ decision, the effect of which is as if it was never duly
raised in that court at all. In "Delos Santos v. Reyes (205 SCRA 487), the issue of
estoppel was not raised by petitioner Delos Santos in the Brief he submitted before the
Court of Appeals. It was thus held that petitioner Delos Santos cannot raise it for the
first time in a petition for review before the Supreme Court.

Coming now to the second assignment of error, petitioner essentially contends that
private respondents cannot unilaterally rescind the lease contract because its purported
violation of the "insurance clause" (paragraph 22) was merely slight or casual.

We do not agree with petitioner. Under paragraph 19 of the lease contract, the lessee’s
(petitioner) failure or neglect to perform or comply with any of the covenants,
conditions agreements or restriction stipulated shall result in the automatic termination
and cancellation of the lease. It can be fairly judged from the tenor of paragraph 19
that the parties intended mandatory compliance with all the provisions of the contract.
Among such provisions requiring strict observance is the "insurance clause" (paragraph
22) which expressly provides that "the building must be insured and the insurance
premium must be for the account of the LESSEE . . ." (Emphasis supplied). Thus, upon
petitioner’s failure to comply with the mandatory requirement of paragraph 22, private
respondents were well-within their right to rescind the lease contract by express grant
of paragraph 19. Certainly, there is nothing wrong if the parties to the lease contract
agreed on certain mandatory provisions concerning their respective rights and
obligations, such as the procurement of the insurance and the rescission clause. For it is
well to recall that contracts are respected as the law between the contracting parties,
and they may establish such stipulations, clauses, terms and conditions as they may
want to include. As long as such agreements are not contrary to law, morals, good
customs, public policy or public order they shall have the force of law between them. 15

In this connection, none can be added to the respondent Court of Appeals’ correct
observation why petitioner’s omission to designate private respondents as beneficiaries
in the insurance policies it secures over the leased building is not merely a slight or
casual breach, but a substantial one allowing private respondents to rescind the lease
contract.

"Paragraph 22 of the lease contract demands that plaintiff-appellant must insure the
building subject of the lease with defendants-lessors as beneficiaries thereof. For two
years, the insurance policies taken on the properties were in the name of plaintiff-
appellant, as the beneficiary. Had the building suffered damages either by fire or other
calamities during the existence of the insurance coverage from 1988 to 1989, the
favored party would indeed be plaintiff-appellant. While the insurance coverage will
work injustice to defendants-lessors, it would unjustly enrich the plaintiff-appellant.
Certainly under such milieu, the defendants-lessors would be left in the open, holding
an empty bag. To Our mind, therefore, non-fulfillment of the stipulations in paragraph
22 of the lease contract is not a mere casual or slight breach but a substantial one that
goes into the very core of the contract of lease, next in priority to the payment of the
agreed rentals." 16

Petitioner in its third assignment of errors assails the P250,000.00 monthly rental
adjudged against it by the trial court and as affirmed by respondent Court of Appeals,
claiming that there was no basis for such finding. chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

Again, we disagree. In reaching that amount, the trial court took into consideration the
following factors: 1) prevailing rates in the vicinity 2) location of the property; 3) use of
the property; 4) inflation rate; and 5) the testimony of private respondent Modesta
Sabeniano that she was offered by a Japanese-Filipino investor a monthly rental of
P400,000.00 for the leased premises then occupied by petitioner. 17 Petitioner for its
part should have presented its controverting evidence below to support what it believes
to be the fair rental value of the leased building since the burden of proof to show that
the rental demanded is unconscionable or exorbitant rests upon the lessee. 18 But
petitioner failed to do so. Hence, the valuation made by the trial court, as affirmed by
respondent Court of Appeals, stands.

It is worth stressing at this juncture that the trial court had the authority to fix the
reasonable value for the continued use and occupancy of the leased premises after the
termination of the lease contract, and that it was not bound by the stipulated rental in
the contract of lease since it is equally settled that upon termination or expiration of the
contract of lease the rental stipulated therein may no longer be the reasonable value for
the use and occupation of the premises as a result or by reason of the charge or rise in
values. 19 Moreover, the trial court can take judicial notice of the general increase in
rentals of real estate especially of the business establishments 20 like the leased
building owned by private respondents.

The crux of the petition having been disposed of, petitioner’s last assignment of errors
requires no further discussion. chanroblesvirtuallawlibrary

WHEREFORE, for lack of merit, the petition is hereby DENIED, and the challenged
decision of respondent Court of Appeals is AFFIRMED in toto.

SO ORDERED.
 THIRD DIVISION

[G.R. No. 98467. July 10, 1992.]

NATIONAL DEVELOPMENT CO. and AMERICAN EXPRESS BANK,

LTD., Petitioners, v. HON. COURT OF APPEALS, HON. IGNACIO M. CAPULONG,
VICENTE T. TAN, VICTAN AND COMPANY, INC., TRANSWORLD INVESTMENT
CORP. FIRST INTERNATIONAL INVESTMENT CO., INC., FAR EAST PETROLEUM
AND MINERAL CORP., and PHILCONTRUST INTERNATIONAL
CORP., Respondents.

Office of the Government Corporate Counsel for petitioner NDC.

Sycip, Salazar, Hernandez & Gatmaitan for petitioner American Express Bank,
Ltd.

Marcial O.T. Balgos for Respondent.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; CAUSE OF ACTION FOR RECONVEYANCE OF

SHARES OF STOCK BASED ON CONSTRUCTIVE OR IMPLIED TRUST; CAN ONLY EXIST
AGAINST THE ORIGINAL ASSIGNEES IN CASE AT BAR. — On the question of cause of
action, the Court notes that as the complaint itself avers, the petitioners’ shares in the
Continental Bank were assigned to the firms already above specified (which Herminio
Disini allegedly controlled), and not to the Central Bank. It is therefore fairly obvious
that if any claim for reconveyance may be prosecuted, it should be prosecuted against
the Disini companies." This observation becomes even more appropriate in the case of
the petitioners because they did not have any transaction with either the private
respondents or the Disini companies. NDC and AMEX derived their rights from the CB
and the NDC, respectively. Except for the allegation in paragraph 22 of private
respondents’ complaint in Civil Case No. 15707 that petitioners herein, having actual or
constructive notice of the fraudulent acquisition of the shares by the Disini corporations,
are obligated under the principle of constructive trust to reconvey to them such shares
including the corresponding stock/cash dividends earned, there is nothing therein that
even remotely intimates that petitioners had violated any of the private respondents’
right. This is an essential element of a cause of action.

2. ID.; ID.; JOINDER OF INDISPENSABLE PARTIES; MANDATORY; PLEADING AMENDED

TO INCLUDE INDISPENSABLE PARTY; CONSEQUENCE OF FAILURE TO IMPLEAD
INDISPENSABLE PARTY; CASE AT BAR. — This Court cannot divine the reason or cause
why private respondents did not implead the original assignees in Civil Case No. 15707.
For purposes of reconveyance of the questioned shares of stock, they are the
indispensable parties. No final determination of the case between the private
respondents and the impleaded agents (CB, NDC and AMEX) can be had without the
said original assignees because the reliefs prayed for against said impleaded defendants
are precisely anchored on the voidability or nullity of the deeds of assignments flowing
from contracts to which these impleaded defendants are not parties. Joinder of
indispensable parties is mandatory and a complaint may be dismissed if an
indispensable party is not impleaded in the complaint. Section 7, Rule 3 of the Rules of
Court provides: "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." When an indispensable party is not before the court,
the action should be dismissed. Ordinarily, however, a reasonable opportunity to amend
the pleading must be given, and the action should not be dismissed, except when the
plaintiff fails or refuses to include said party, or the latter cannot be sued.

3. CIVIL LAW; PRESCRIPTION; OWNERSHIP OF MOVABLES; POSSESSOR IS IN GOOD

FAITH; POSSESSOR IS IN BAD FAITH; MOVABLE POSSESSED THROUGH A CRIME; IN
CASE AT BAR, ACTION FOR RECONVEYANCE NOT IMPRESCRIPTIBLE. — The rule anent
prescription on recovery of movables (shares of stock in this case) is expressed in
Article 1140 of the Civil Code, which we quote: Art. 1140. Actions to recover movables
shall prescribe eight years from the time the possession thereof is lost, unless the
possessor had acquired the ownership by prescription for a less period, according to
Article 1132, and without prejudice to the provisions of articles 559, 1505, and 1133.
As it provides, Article 1140 is subject to the provisions of Articles 1132 and 1133 of the
Code, governing acquisitive prescription, in relation to Articles 559 and 1505 thereof.
Under Article 1132: Art. 1132. The ownership of movables prescribes through
uninterrupted possession for four years in good faith. The ownership of personal
property also prescribes through uninterrupted possession for eight years, without need
of any other condition. With regard to the right of the owner to recover personal
property lost or of which he has been illegally deprived, as well as with respect to
movables acquired in a public sale, fair, or market, or from a merchant’s store the
provisions of Articles 559 and 1505 of this Code shall be observed. Acquisitive
prescription sets in after uninterrupted possession of four years, provided there is good
faith, and upon the lapse of eight years, if bad faith is present. Where, however, the
thing was acquired through a crime, the offender can not acquire ownership by
prescription under Article 1133, which we quote: Art. 1133. Movables possessed
through a crime can never be acquired through prescription by the offender. Please
note that under the above Article, the benefits of prescription are denied to the
offender; nonetheless, if the thing has meanwhile passed to a subsequent holder,
prescription begins to run (four or eight years, depending on the existence of good
faith). For purposes of extinctive prescription vis-a-vis movables, we therefore
understand the periods to be: 1. Four years, if the possessor is in good faith; 2. Eight
years in all other cases, except where the loss was due to a crime in which case, the
offender can not acquire the movable by prescription, and an action to recover it from
him is imprescriptible. It is evident, for purposes of the complaint in question, that the
petitioners had at most eight years within which to pursue a reconveyance, reckoned
from the loss of the shares in 1977, when the petitioner Vicente Tan executed the
various agreements in which he conveyed the same in favor of the Executive
Consultants, Inc., Orobel Property Management, Inc., and Antolum Trading
Corporation. We are hard put to say, in this regard, that the petitioners’ action is after
all, imprescriptible pursuant to the provisions of Article 1133 of the Civil Code,
governing actions to recover loss by means of a crime. For one thing, the complaint
was not brought upon this theory. For another, there is nothing there that suggests
that the loss of the shares was indeed made possible by a criminal act, other than
simple bad faith and probably abuse of right.

4. ID.; ID.; INTERRUPTION OF PRESCRIPTION; PRESCRIPTION NOT INTERRUPTED BY

PERIOD DURING WHICH AUTHORITARIAN RULE WAS IN FORCE; CASE AT BAR. — We
can not accept the petitioners’ contention that the period during which authoritarian
rule was in force had interrupted prescription and that the same began to run only on
February 25, 1986, when the Aquino government took power. It is true that under
Article 1154: Art. 1154. The period during which the obligee was prevented by a
fortuitous event from enforcing his right is not reckoned against him. Fortuitous events
have the effect of tolling the period of prescription. However, we can not say, as a
universal rule, that the period from September 21, 1972 through February 25, 1986
involves a force majeure. Plainly, we can not box in the ‘dictatorial’ period within the
term without distinction, and without, by necessity, suspending all liabilities, however
demandable, incurred during that period, including perhaps those ordered by this Court
to be paid. While this Court is cognizant of acts of the last regime, especially political
acts, that might have indeed precluded the enforcement of liability against that regime
and/or its minions, the Court is not inclined to make quite a sweeping pronouncement,
considering especially the unsettling effects such a pronouncement is likely to bring
about. It is our opinion that claims should be taken on a case-to-case basis. This
selective rule is compelled, among others, by the fact that not all those imprisoned or
detained by the past dictatorship were true political oppositionists, or, for that matter,
innocent of any crime or wrongdoing. Indeed, not a few of them were manipulators and
scoundrels. We are, therefore, convinced, from Vicente Tan’s very behavior, that
detention was not an impediment to a judicial challenge, and the fact of the matter was
that he was successful in obtaining judicial assistance. Under these circumstances, we
can not declare detention, or authoritarian rule for that matter, as a fortuitous event
insofar as he was concerned, that interrupted prescription. To be sure, there is nothing
in the petition which would remotely suggest, assuming that Vicente Tan could not have
freely and intelligently acted during the period of martial rule, that his co-petitioners
Victan & Company, Inc., Transworld Investment Corporation, First International
Investment Company, Inc., Far East Petroleum & Minerals Corporation, and Philcontrust
International Corporation, could not have similarly acted during the martial law regime
and shortly thereafter. As far as they are therefore concerned, the Court has even
better reason to invoke prescription because none of them acted and none now claims
that it could not have acted.

GUTIERREZ, JR., J., dissenting: chanrob1es virtual 1aw library

1. CIVIL LAW; CONSTRUCTIVE OR IMPLIED TRUST; USED WHENEVER NECESSARY TO

SATISFY THE DEMANDS OF JUSTICE; CAUSE OF ACTION BASED THEREON VALID IN
CASE AT BAR. — If NDC and AMEX had notice of the infirmities attendant to the sale
which never materialized for want of consideration, then they become constructive
trustees of the disputed shares and, at the very least, should justify in court their
alleged valid ownership of the shares acquired by them. There being a wrongful
dispossession of valuable properties, the transferee to whom the dispossessor turned
over the properties has to prove its alleged good faith in the face of allegations that it
was not a bona fide buyer. I believe there is a valid cause of action based on
constructive or implied trust which the trial court may examine for purposes of granting
legal and equitable relief. . . . . The precedents cited by the respondents show that in
constructive trust, the courts reserve the freedom to apply a remedy to whatever
knavery human ingenuity can invent. Constructive trust is used whenever necessary to
satisfy the demands of justice; its application is limited only by the inventiveness of
men who find new ways to enrich themselves unjustly by grasping what should not
belong to them.

2. ID.; PRESCRIPTION; ISSUE OF PRESCRIPTION A MATTER OF DEFENSE BEST

THRESHED OUT DURING HEARING ON THE MERITS; IN CASE AT BAR, PERIOD DURING
WHICH AUTHORITARIAN RULE WAS IN FORCE INTERRUPTED PRESCRIPTION OF
ACTION TO ENFORCE CLAIM. — Apart from the above exposition of the substantive
requirements on prescription, herein respondents submit that this issue is a matter of
defense which could be better appreciated in a hearing on the merits. After all
prescription is not a mere mathematical computation of a finite period. It involves
situations and events that will clearly establish whether a particular plaint is time-
barred. In this particular case there are abundant allegations spread out in the
complaint recounting events that could only show that private respondents could not
have filed the action for recovery, considering that the highest official of the land was
respondent Vicente Tan’s mortal enemy. Citing the dissenting opinion of Justice
Edgardo L. Paras in G.R. No. 90365 the correct period is five (5) years with certain
exclusions in the nature of force majeure. Thus, he opined, ‘The correct period is five
years under Art. 1149 of the Civil Code and not four years under Art. 1146 of the same
Code. And from this period of five years must be excluded the period during which the
action could not be brought because of a force majeure (Art. 1154 of the Civil Code), as
exemplified by the dictatorial regime which ruled the Philippines during the past
administration. The period of prescription therefore should be counted from Feb. 25,
1986 when the present administration of President Corazon Aquino took over the
control of the government. The action having been brought on Jan. 31, 1987, it is clear
that counted from Feb. 25, 1986, less than a year had elapsed, and therefore the action
has not yet prescribed.’ Indeed, if viewed even in another view point and considering
that the suit filed with the regional trial court for reconveyance was based on
constructive trust as earlier discussed, said action prescribes in ten years counted from
the release of respondent Vicente Tan from detention. Thus, the present complaint
dated December 27, 1977 has not prescribed." Under the circumstances of this case,
presentation of evidence, and not an automatic computation of number of years,
months, and days, is necessary.

DECISION
 DAVIDE, JR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
set aside the 11 April 1991 Resolution 1 of a Division of Five of the Court of Appeals
which reconsidered and nullified the 30 April 1990 Decision 2 of the former Sixth
Division thereof in C.A.-G.R. SP No. 18865 3 directing the Regional Trial Court (Branch
134, Makati) of the National Capital Judicial Region to dismiss private respondents’
complaint in Civil Case No. 15707.

The antecedents in this case are not disputed.

On 13 January 1987, private respondents filed a complaint in Civil Case No. 15707
against the Central Bank of the Philippines (CB), the National Development Company
(NDC) and the American Express Bank, Ltd. (AMEX) for the reconveyance of shares of
stock in the International Corporate Bank (Interbank), with damages and a prayer for
the issuance of a restraining order. 4 They alleged, inter alia, that:chanrob1es virtual 1aw library

(a) as of June 1974, plaintiffs (the herein private respondents) were the owners of
some 359,615 shares of stocks, with a par value of P100.00 per share, which constitute
75% of the outstanding shares, and controlling interest in Continental Bank, later
named Interbank; chanrobles law library : red

(b) on 15 and 16 June 1974, plaintiff Vicente T. Tan and other key officials of
Continental Bank were arrested by military agents on the strength of Arrest Search and
Seizure Orders (ASSOs) issued by then Defense Secretary Juan Ponce Enrile based on
charges filed before the PC Criminal Investigation Service and alleging, among others,
illegal transactions committed in the Continental Bank;

(c) on 17 June 1974 and several days thereafter, a composite team of PC-CIS-NISA
agents under orders from General Fabian Ver raided the Continental Bank offices in
Binondo, Manila, seized books, securities records and other vital credit documents and
sealed the bank’s security vault, the office of the bank’s Vice President and the room of
the Chief Accountant;

(d) the series of raids conducted by the military agents triggered a bank "run" on
Continental Bank causing chaos and confusion on its banking operations;

(e) defendant CB issued an order forbidding the Continental Bank from doing business
effective at the beginning of office hours on 24 June 1974, and designating the Director
of the Department of Commercial and Savings Banks as statutory receiver; thereafter,
it ordered a special examination of Continental Bank’s financial condition as of 24 June
1974;

(f) in a final report, dated 12 August 1974, on the special examination conducted, the
Supervising Bank Examiner of the CB reported that the "Continental Bank is in an
insolvent position in view of which, its continuance in business under the present
conditions, may no longer be safe to its creditors and depositing public" but added that
"the Bank may be allowed to reorganize under an entirely new management provided
there is an infusion of fresh funds to the Bank as well as the conversion and/or
restructuring of certain liabilities into equity and/or long-term liabilities (sic)" ;

(g) While still under military custody and detention, Vicente T. Tan, on his own behalf
and on behalf of his affiliate companies, was pressured into signing three (3)
agreements dated 2 February 1977, 12 May 1977 and 5 July 1977 under which he
transferred and conveyed by way of assignment their aforesaid 359,615 shares of
stock, including other assets, interests and properties in Continental Bank, to three (3)
corporations, alleged fronts for Herminio Disini, namely Executive Consultants, Inc.,
Orobel Property Management, Inc. and Antolum International Trading Corporation, in
consideration of the latter’s assumption of certain specified liabilities and obligations of
Tan and his group of companies;

(h) unknown to Vicente T. Tan, whose facilities of verification were severely restricted
by his detention, the combined paid-up capital of the three (3) aforementioned
assignee-corporations at the time of the assignment was only P2.5-Million, which made
them inherently incapable of performing the obligations they had assumed; chanrobles virtual lawlibrary

(i) by reason of the fraudulent acquisition by the Disini corporation of the 359,615
shares, a constructive trust has been constituted on said shares in favor of plaintiffs;

(j) the execution of the aforementioned agreements paved the way for the reopening of
the Continental Bank on 19 September 1977 under a new name, the International
Corporate Bank (Interbank), and under the management of the Herdis Group, which
became the owner of the bank’s controlling stock; this also paved the way for the
release from military custody, on 27 December 1977, of Vicente T. Tan and other
officers of the Continental Bank and the subsequent dismissal of the criminal cases filed
against them;

(k) Interbank’s new management totally ignored the existing rules and regulations of
the CB by milking the deposits with said Interbank dry through huge borrowings by the
Disini Group of companies, thereby pushing said Bank to the brink of total collapse; had
it not been for the huge infusion of funds by the CB in the form of emergency loans and
advances, Interbank would have completely collapsed;

(l) since the CB is prohibited from acquiring shares of any kind and participating in the
ownership or management of any enterprise, either directly or indirectly, it assigned the
emergency loans and advances extended to the Interbank to the National Development
Company (NDC) as a result of which the latter executed the corresponding promissory
note payable in 25 years, without interest, in favor of said CB; the said loans and
advances were then converted into equity thereby enabling the NDC to acquire 99% of
Interbank’s outstanding shares of stock from the Disini Group, including the 359,615
shares earlier mentioned, and the corresponding stock/cash dividends earned;

(m) defendant American Express Bank, Ltd. (AMEX) acquired from defendant NDC 40%
of the outstanding shares of stock of Interbank, but before the acquisition by AMEX of
the said interest, "it was placed on notice of the infirmities of the transfer of the shares
of plaintiffs in Continental Bank to the former owners of Interbank" and despite said
notice AMEX proceeded to convert, with the CB’s approval, its exposures to the
Philippine Government into equity in Interbank;

(n) defendants CB, NDC and AMEX, having actual or constructive notice of the
fraudulent acquisition by the aforesaid Disini corporations of the 359,615 shares of
stock of plaintiffs, are obligated under the principle of constructive trust to reconvey to
plaintiffs the latter’s original controlling shareholdings in the Continental Bank including
the stock/cash dividends earned;

(o) in view of the CB’s arbitrariness, Tan had been subjected to physical suffering,
mental anguish, besmirched reputation and social humiliation and said bank is therefore
liable for moral damages; plaintiffs were likewise compelled to engage the services of
counsel for a stipulated fee.

The amounts of moral damages and attorney’s fees sought were not specified’ however,
in their prayer, they asked the Court that the CB be ordered to pay them moral
damages and attorney’s fees in such amount as may be proved during the trial.

On 19 January 1987, the trial court, per Judge Ignacio Capulong, issued a temporary
restraining order prohibiting petitioners AMEX and NDC from disposing of or transferring
their shares of stock in Interbank. 5

On 26 January 1987, NDC and AMEX moved to dismiss the complaint alleging that: (a)
the trial court has no jurisdiction over the subject or nature of the action which is intra-
corporate in nature; (b) the complaint states no cause of action against them; (c) there
is another action pending between the same parties for the same cause; and (d) the
cause of action, if any, is barred by prescription. They likewise opposed the private
respondents’ application for preliminary injunction. 6 Judge Capulong denied the motion
in an order dated 6 February 1987. 7 chanroblesvirtualawlibrary

On 27 February 1987, petitioners’ co-defendant in Civil Case No. 15707, the CB, filed
its separate motion to dismiss, but Judge Capulong likewise denied it in his Order dated
15 May 1987. 8 Its motion for reconsideration having been denied, the CB filed with the
Court of Appeals a petition for certiorari which was docketed as C.A.-G.R. SP. No.
12706 9

On 14 April 1989, the NDC and AMEX filed a supplemental motion to dismiss on the
ground that Tan, Et. Al. had not paid the correct amount of filing fees. The said motion
was also denied by Judge Capulong in the Order dated 8 August 1989. 10

On 29 September 1989, NDC and AMEX filed with the Court of Appeals a petition
for certiorari and prohibition under Rule 65 challenging the adverse orders of the trial
court; they prayed for the dismissal of Civil Case No. 15707 and for the issuance of a
restraining order to enjoin further proceedings therein. The case was docketed as C.A.-
G.R. SP No. 18865. 11 As grounds therefore, they alleged that: jgc:chanrobles.com.ph

"a) A complaint for recovery of property on the ground of duress in the transaction by
which such property had been sold or assigned cannot be maintained against its
present holder for value, where the original assignments remain valid, no action for the
annulment thereof having been filed against the original assignees.

b) An action to recover corporate shares of stock by one claiming to be a stockholder

against another stockholder of the same corporation is within the original and exclusive
jurisdiction of the Securities and Exchange Commission (SEC).

c) Where the action to annul a contract of assignment based on duress has prescribed,
no further suit to recover the property assigned may be maintained by the alleged
assignor based on the same ground.

d) The doctrine of constructive trust on which the complaint is based is not applicable to
the case at bar.

x          x           x

g) Private respondents purposely omitted in the prayer of their complaint below the
value of the Interbank shares of stock sought to be recovered to evade payment of the
correct filing fees, hence the complaint cannot be deemed filed, and the lower court did
not acquire jurisdiction over the suit." cralaw virtua1aw library

The then former Sixth Division of the Court of Appeals gave the petition due course and
issued a restraining order.

Earlier however, more specifically on 5 April 1989, the respondent Court (First Division)
promulgated its decision in the petition filed by the CB, Ca-G.R. SP No. 12706, granting
the petition and ordering the dismissal of the complaint in Civil Case No. 15707 insofar
as the CB is concerned. 12 Herein private respondents then filed with this Court a
petition for review to set aside the said decision, which was docketed as G.R. No.
90365. 13

On 30 April 1990, the Sixth Division of the respondent Court promulgated its Decision
in C.A.-G.R. SP No. 18865 granting the petition and ordering the dismissal of Civil Case
No. 15707. 14 It ruled that: (a) NDC and AMEX are not the original assignees, but
subsequent transferees, of the questioned shares of stock; Tan, Et. Al. should have filed
the complaint for annulment of the assignments, which they claimed to have been
made under duress, against the original assignees. Assuming that duress did exist, it
merely made the assignments voidable; without a judgment for annulment on that
ground, the assignments remain valid and binding and may even be ratified under
Article 1390 of the Civil Code. There being no annulment declared by a competent
court, NDC’s and AMEX’s title of ownership over the shares cannot be collaterally
attacked. Besides, Civil Case No. 15707 is for reconveyance, not annulment; the
complaint does not allege any act or omission by NDC and AMEX in derogation of any
legal right belonging to Tan, Et. Al. Hence, the complaint fails to state a cause of action.
(b) the requisites of implied trust, an argument invoked in the complaint, are not
present. The original assignees were not fiduciaries with respect to the questioned
shares of stocks. The shares involved were assigned to them for value; said assignees
did not acquire, misapply or misappropriate the same by mistake or fraud. The
complaint makes no allegation that the shares were obtained by fraud or mistake. (c)
The cause of action, if any, is clearly barred by prescription. If indeed the consent of
Tan to the deeds of assignment was obtained through force or duress at a time when
he was under military detention and custody, such duress ceased when he was
eventually released by the military on 27 December 1977. Pursuant to Article 1391 of
the Civil Code, he should have filed the complaint for annulment within four (4) years
from such release. (d) Finally, Civil Case No. 15707 is an action involving corporate
shares of stock between parties who both claim to be stockholders of the same
corporation. Pursuant to Section 5 of P.D. No. 902-A, it is the Securities and Exchange
Commission which has original and exclusive jurisdiction thereon. chanrobles.com : virtual law library

Private respondents herein moved to reconsider said decision. An undated resolution

penned by Justice Nicolas Lapeña, Jr., 15 denied the motion; however, Associate
Justice Emeterio Cui indicated his dissent and submitted a dissenting opinion. 16
Pursuant to Section 11 of the Judiciary Reorganization Act of 1980 and Section 6, Rule I
of the Revised Internal Rules of Court of Appeals, two (2) Members of the Court,
Associate Justices Ricardo J. Francisco and Alicia V. Sempio Diy, were designated to sit
temporarily in a Division of Five. The two concurred with the dissenting opinion of
Justice Cui. Thereafter, the Division of Five promulgated on 11 April 1991 the
challenged resolution which granted the motion for reconsideration and dismissed the
petition. 17 This Division of Five of respondent Court held that Civil Case No. 15707
states a sufficient cause of action based on a constructive or implied trust; prescription
is a matter of defense that is best resolved by a resort to the parties’ evidence; and,
finally, no intra-corporate matters are involved in the case since private respondents
are neither claiming nor enforcing the rights incident to corporate stock ownership,
such as the right to vote at stockholders meetings, elect and remove directors, adopt
and repeal by-laws and other rights under the Corporation Code.

Unable to accept the Resolution, NDC and AMEX filed the herein petition on 14 June
1991. They aver that the respondent Court erred: chanrob1es virtual 1aw library

x          x           x

"4.1 . . . in holding, or holding in effect, that a seller claiming to have sold or assigned
property to another `under duress,’ may bring suit to recover it from a subsequent
purchaser with whom he has no privity, and even though the original sale or
assignment remains valid.

4.2 . . . in holding that prescription as ground (sic) for dismissal should be resolved at
the trial, even though the determinative facts appear on the face of the complaint.

4.3 . . . in holding that an action for reconveyance of corporate shares, between parties
claiming to be stockholders of the same corporation, is not a case within the SEC’s
jurisdiction.

4.4 . . . in not holding that the trial court in any case acquired no jurisdiction over the
complaint for reconveyance, where plaintiffs failed and refused to pay the required filing
fees therefor.

4.5 . . . in not holding that the trial court has issued an injunction with grave abuse of
discretion amounting to lack of jurisdiction." 18
After private respondents filed their Comment 19 to the petition on 22 August 1991 in
compliance with the Resolution of 3 July 1991, 20 this Court gave due course to the
petition and required the parties to file their respective Memoranda. Private
respondents filed their Memorandum on 24 October 1991 21 Petitioners AMEX and NDC
filed their separate Memoranda on 30 October 1991 and 12 November 1991,
respectively. 22

On 22 November 1991, private respondents filed a Reply to petitioners’ Memorandum

23 to which they attached as Annex "A" 24 thereof a certification by the Clerk of Court
of the Regional Trial Court of Makati to the effect that on 7 May 1990, private
respondent Tan paid the additional amount of P183,967.55 for the docketing and other
fees.

The petition is impressed with merit.

As to the lack of cause of action and prescription, the fate of the private respondents
had long been sealed.

In the 18 March 1991 decision of this Court entitled "Vicente T. Tan, Et. Al. versus The
Honorable Court of Appeals, Et Al.," 25 docketed as G.R. No. 90365 and resulting from
the private respondents’ petition for review of the respondent Court’s decision in C.A.-
G.R. SP No. 12706 granting the CB’s petition for certiorari and ordering the dismissal of
Civil Case No. 15707, this Court ruled that: (a) a cause of action for reconveyance of
the shares in question can only exist against the original assignees and (b) private
respondents’ cause of action, if any, had already prescribed. As to the first, it states: jgc:chanrobles.com.ph

"On the question of cause of action, the Court notes that as the complaint itself avers,
the petitioners’ shares in the Continental Bank were assigned to the firms already
above specified (which Herminio Disini allegedly controlled), and not to the Central
Bank. It is therefore fairly obvious that if any claim for reconveyance may be
prosecuted, it should be prosecuted against the Disini companies." 26

This observation becomes even more appropriate in the case of the petitioners because
they did not have any transaction with either the private respondents or the Disini
companies. NDC and AMEX derived their rights from the CB and the NDC, respectively.
Except for the allegation in paragraph 22 of private respondents’ complaint in Civil Case
No. 15707 that petitioners herein, having actual or constructive notice of the fraudulent
acquisition of the shares by the Disini corporations, are obligated under the principle of
constructive trust to reconvey to them such shares including the corresponding
stock/cash dividends earned, there is nothing therein that even remotely intimates that
petitioners had violated any of the private respondents’ right. This is an essential
element of a cause of action. 27

This Court cannot divine the reason or cause why private respondents did not implead
the original assignees in Civil Case No. 15707. For purposes of reconveyance of the
questioned shares of stock, they are the indispensable parties. No final determination of
the case between the private respondents and the impleaded agents (CB, NDC and
AMEX) can be had without the said original assignees because the reliefs prayed for
against said impleaded defendants are precisely anchored on the voidability or nullity of
the deeds of assignments flowing from contracts to which these impleaded defendants
are not parties.
chanrobles virtual lawlibrary

Joinder of indispensable parties is mandatory and a complaint may be dismissed if an

indispensable party is not impleaded in the complaint. Section 7, Rule 3 of the Rules of
Court provides: jgc:chanrobles.com.ph

"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."cralaw virtua1aw library

When an indispensable party is not before the court, the action should be dismissed. 28
Ordinarily, however, a reasonable opportunity to amend the pleading must be given,
and the action should not be dismissed, except when the plaintiff fails or refuses to
include said party, or the latter cannot be sued. 29

As to prescription, this Court, in said G.R. No. 90365, ruled: jgc:chanrobles.com.ph

"The next question is whether or not any action for reconveyance has nevertheless
prescribed, on the bases or provisions governing reconveyance.

The rule anent prescription on recovery of movables (shares of stock in this case) is
expressed in Article 1140 of the Civil Code, which we quote: chanrob1es virtual 1aw library

Art. 1140. Actions to recover movables shall prescribe eight years from the time the
possession thereof is lost, unless the possessor had acquired the ownership by
prescription for a less period, according to Article 1132, and without prejudice to the
provisions of articles 559, 1505, and 1133.

As it provides, Article 1140 is subject of the provisions of Articles 1132 and 1133 of the
Code, governing acquisitive prescription, in relation to Articles 559 and 1505 thereof.
Under Article 1132: chanrob1es virtual 1aw library

Art. 1132. The ownership of movables prescribes through uninterrupted possession for
four years in good faith.

The ownership of personal property also prescribes through uninterrupted possession

for eight years, without need of any other condition.

With regard to the right of the owner to recover personal property lost or of which he
has been illegally deprived, as well as with respect to movables acquired in a public
sale, fair, or market, or from a merchant’s store the provisions of articles 559 and 1505
of this Code shall be observed.

acquisitive prescription sets in after uninterrupted possession of four years, provided

there is good faith, and upon the lapse of eight years, if bad faith is present. Where,
however, the thing was acquired through a crime, the offender can not acquire
ownership by prescription under Article 1133, which we quote: chanrob1es virtual 1aw library

Art. 1133. Movables possessed through a crime can never be acquired through
prescription by the offender.

Please note that under the above Article, the benefits of prescription are denied to the
offender; nonetheless, if the thing has meanwhile passed to a subsequent holder,
prescription begins to run (four or eight years, depending on the existence of good
faith). 30

For purposes of extinctive prescription vis-a-vis movables, we therefore understand the

periods to be:chanrob1es virtual 1aw library

1. Four years, if the possessor is in good faith;

2. Eight years in all other cases, except where the loss was due to a crime in which
case, the offender can not acquire the movable by prescription, and an action to
recover it from him is imprescriptible.

It is evident, for purposes of the complaint in question, that the petitioners had at most
eight years within which to pursue a reconveyance, reckoned from the loss of the
shares in 1977, when the petitioner Vicente Tan executed the various agreements in
which he conveyed the same in favor of the Executive Consultants, Inc., Orobel
Property Management, Inc., and Antolum Trading Corporation.

We are hard put to say, in this regard, that the petitioners’ action is after all,
imprescriptible pursuant to the provisions of Article 1133 of the Civil Code, governing
actions to recover loss by means of a crime. For one thing, the complaint was not
brought upon this theory. For another, there is nothing there that suggests that the loss
of the shares was indeed made possible by a criminal act, other than simple bad faith
and probably abuse of right: chanrob1es virtual 1aw library

x          x           x

Since the complaint was filed on January 13, 1987, ten years more or less after the
petitioners transferred the shares in question, it is clear that the petitioners have come
to court too late.

We can not accept the petitioners’ contention that the period during which authoritarian
rule was in force had interrupted prescription and that the same began to run only on
February 25, 1986, when the Aquino government took power. It is true that under
Article 1154:chanrob1es virtual 1aw library

Art. 1154. The period during which the obligee was prevented by a fortuitous event
from enforcing his right is not reckoned against him.

fortuitous events have the effect of tolling the period of prescription. However, we can
not say, as a universal rule, that the period from September 21, 1972 through February
25, 1986 involves a force majeure. Plainly, we can not box in the ‘dictatorial’ period
within the term without distinction, and without, by necessity, suspending all liabilities,
however demandable, incurred during that period, including perhaps those ordered by
this Court to be paid. While this Court is cognizant of acts of the last regime, especially
political acts, that might have indeed precluded the enforcement of liability against that
regime and/or its minions, the Court is not inclined to make quite a sweeping
pronouncement, considering especially the unsettling effects such a pronouncement is
likely to bring about. It is our opinion that claims should be taken on a case-to-case
basis. This selective rule is compelled, among others, by the fact that not all those
imprisoned or detained by the past dictatorship were true political oppositionists, or, for
that matter, innocent of any crime or wrongdoing. Indeed, not a few of them were
manipulators and scoundrels. chanrobles virtual lawlibrary

The petitioner Vicente Tan claims that from June, 1974 through December, 1977, he
was under detention; that sometime in August, 1977, the Central Bank lodged six
criminal cases against him, along with several others, with Military Commission No. 5 in
connection with alleged violation of the Central Bank Act, falsification of documents,
and estafa, that while in detention, he was made to execute various agreements in
which he conveyed the shares of stock in question; and that `[u]nder the foregoing
factual setting . . . it would be foolhardy on the part of petitioners to institute . . . [any]
action for reconveyance . . .’

The records show, however, that although under detention, Vicente Tan: chanrob1es virtual 1aw library

1. Commenced, in July, 1976, Civil Case No. 103359 of (sic) the defunct Court of First
Instance of Manila, `to mandatorily enjoin the Central Bank as receiver of Continental
Bank, to takeover from `NISA’ the control and management and assets of Vicente Tan
and his affiliate corporations’;

2. Was ably represented by competent counsel, Atty. Norberto Quisumbing,

throughout;

3. Filed with this Court a petition to stop the trial of the criminal cases pending against
him with the Military Commission No. 5 and succeeded in obtaining a temporary
restraining order.

On top of those facts abovementioned, he: chanrob1es virtual 1aw library

1. Asked the Court of First Instance to order the Central Bank ‘to proceed to rehabilitate
Continental Bank by extending to it such emergency loans and advances as may be
needed for its rehabilitation . . .

‘2. Wrote, on July 15, 1977, the Central Bank expressing his approval in the reopening
and rehabilitation of Continental Bank.

We are, therefore, convinced, from Vicente Tan’s very behavior, that detention was not
an impediment to a judicial assistance. Under these circumstances, we can not declare
detention, or authoritarian rule for that matter, as a fortuitous event insofar as he was
concerned, that interrupted prescription.

To be sure, there is nothing in the petition which would remotely suggest, assuming
that Vicente Tan could not have freely and intelligently acted during the period of
martial rule, that his co-petitioners Victan & Company, Inc., Transworld Investment
Corporation, First International Investment Company, Inc., Far East Petroleum &
Minerals Corporation, and Philcontrust International Corporation, could not have
similarly acted during the martial law regime and shortly thereafter. As far as they are
therefore concerned, the Court has even better reason to invoke prescription because
none of them acted and none now claims that it could not have acted." 31

Private respondents’ motion to reconsider the above decision, especially insofar as it

dismissed Civil Case No. 15707, was denied with FINALITY in the resolution of this
Court of 8 May 1991. 32

The foregoing disquisitions render unnecessary further action on the remaining

assigned errors in this petition.

WHEREFORE, the petition is GRANTED. The Resolution of respondent Court in C.A.-G.R.

SP No. 18865 promulgated on 11 April 1991 is hereby REVERSED and SET ASIDE while
its Decision therein, promulgated on 30 April 1990, is REINSTATED.

Costs against the private respondents.

SO ORDERED.

Bidin and Romero, JJ., concur.

Feliciano, J., No part. One of parties is represented by my former firm.

Separate Opinions

GUTIERREZ, JR., J., dissenting opinion: chanrob1es virtual 1aw library

I find the situation in this case basically unfair and arbitrary. A remedy in law should
not be denied.

Respondent Vicente Tan was arrested on June 15, 1974 on the basis of a martial law
Arrest, Search and Seizure Order (ASSO). While under military detention, he insists
that he was forced to transfer 359,615 shares of stock in a commercial bank to three
corporations owned by Herminio Disini. Unknown to Tan, the paid-up capital of the
buyers was only P2.5 million. The buyers were unable to pay the consideration for the
forced sale. Eventually, the bank was sold to petitioners National Development Co.
(NDC) and American Express Bank Ltd. (AMEX).

The only issue before us is whether or not the efforts of Mr. Tan to recover his lost
properties should be summarily dismissed. Instead of ordering the trial court to dismiss
the complaint, will justice not be served if the respondents are given due process and
the parties are allowed to introduce their respective evidence and a decision on the
merits is rendered?

The doctrine of constructive or implied trust raised by the respondents to justify a

remand to the trial court deserves more than mere passing attention. If NDC and AMEX
had notice of the infirmities attendant to the sale which never materialized for want of
consideration, then they become constructive trustees of the disputed shares and, at
the very least, should justify in court their alleged valid ownership of the shares
acquired by them. There being a wrongful dispossession of valuable properties, the
transferee to whom the dispossessor turned over the properties has to prove its alleged
good faith in the face of allegations that it was not a bona fide buyer. I believe there is
a valid cause of action based on constructive or implied trust which trial court may
examine for purposes of granting legal and equitable relief.

The issue of prescription is likewise a matter which should be threshed out in court
instead of being arbitrarily assumed to the prejudice of the victim of the forced sale.

The respondents point out: jgc:chanrobles.com.ph

"For purposes of extinctive prescription vis-a-vis movables, we therefore understand

the periods to be:chanrob1es virtual 1aw library

1. Four years, if the possessor is in good faith;

2. Eight years in all other cases, except where the loss was due to a crime in which
case, the offender can not acquire the movable by prescription, and an action to
recover it from him imprescriptible.

It is evident, for purposes of the complaint in question, that the petitioners had at most
eight years within which to pursue a reconveyance, reckoned from the loss of the
shares in 1977, when the petitioner Vicente Tan executed the various agreements in
which he conveyed the same in favor of the Executive Consultants, Inc., Orobel
Property Management, Inc., and Antolun International Trading Corporation. But there
were several supervening events in the nature of force majeure that interrupted this. chanrobles law library

Apart from the above exposition of the substantive requirements on prescription, herein
respondents submit that this issue is a matter of defense which could be better
appreciated in a hearing on the merits. After all prescription is not a mere mathematical
computation of a finite period. It involves situations and events that will clearly
establish whether a particular plaint is time-barred. In this particular case there are
abundant allegations spread out in the complaint recounting events that could only
show that private respondents could not have filed the action for recovery, considering
that the highest official of the land was respondent Vicente Tan’s mortal enemy. Citing
the dissenting opinion of Justice Edgardo L. Paras in G.R. No. 90365 the correct period
is five (5) years with certain exclusions in the nature of force majeure. Thus, he opined,

The correct period is five years under Art. 1149 of the Civil Code and not four years
under Art. 1146 of the same Code. And from this period of five years must be excluded
the period during which the action could not be brought because of a force majeure
(Art. 1154 of the Civil Code), as exemplified by the dictatorial regime which ruled the
Philippines during the past administration. The period of prescription therefore should
be counted from Feb. 25, 1986 when the present administration of President Corazon
Aquino took over the control of the government. The action having been brought on
Jan. 31, 1987, it is clear that counted from Feb. 25, 1986, less than a year had
elapsed, and therefore the action has not yet prescribed.’

Indeed, if viewed even in another view point and considering that the suit filed with the
regional trial court for reconveyance was based on constructive trust as earlier
discussed, said action prescribes in ten years counted from the release of respondent
Vicente Tan from detention. Thus, the present complaint dated December 27, 1977 has
not prescribed." (Respondents; Memorandum, pp. 9-11)

Under the circumstances of this case, presentation of evidence, and not an automatic
computation of number of years, months, and days, is necessary.

The precedents cited by the respondents show that in constructive trust, the courts
reserve the freedom to apply a remedy to whatever knavery human ingenuity can
invent. Constructive trust is used whenever necessary to satisfy the demands of justice;
its application is limited only by the inventiveness of men who find new ways to enrich
themselves unjustly by grasping what should not belong to them.

I, therefore, vote to have the issues of constructive trust and prescription threshed out
in the trial court rather than summarily deny the respondents any remedy to recover
what they claim to have been wrongly taken from them.
 EN BANC

[G.R. No. L-17799. August 31, 1962.]

BENVENENCIO VALENCIA, ET AL., Plaintiffs-Appellants, v. THE CITY OF

DUMAGUETE, ET AL., Defendants-Appellees.

Medina, Medina & Associates, for Plaintiffs-Appellants.

The City Attorney. for defendant-appellee City of Dumaguete.

Amadeo D. Seno for defendant-appellee Eddie Go You Lee.

Ostervaldo Z. Emilia for defendant-appellees S. L. Teves, Inc.

SYLLABUS

1. CLASS SUIT; RECOVERY OF AMOUNTS REPRESENTING SURCHARGES PAID BY

CUSTOMERS OF MOVIE HOUSES; SUIT WILL NOT LIE IF NO ONE PLAINTIFF HAS RIGHT
TO AMOUNTS CLAIMED BY OTHERS. — A class suit will not lie in an action for the
recovery of amounts representing surcharges allegedly collected by the city from some
30,000 customers of four movie houses if no one plaintiff has any right to, or any share
in the amounts individually claimed by the others, each of them being entitled, if at all,
only to the return of what he had personally paid.

2. ID.; ID.; ID.; COURT MAY REQUIRE BILL OF PARTICULARS; DISMISSAL OF ACTION
UPON FAILURE TO OBEY COURT ORDER. — If a complaint avers that numerous other
parties have an interest in the issue, but does not allege and specify the amounts
claimed by, and payable to each of them or to each of the plaintiffs, named in the
complaint, the court may order the plaintiffs to file a bill of particulars. If it does and
the plaintiffs refuse to comply with the order, the action may, pursuant to Section 3,
Rule 30 of the Rules of Court, be dismissed.

DECISION

DIZON, J.:

It appears that on June 6, 1959, Benvenencio Valencia and 28 other residents of

different municipalities of Negros Oriental filed an action against the City of Dumaguete,
S. L. Teves, Inc., Lorenzo Roberto and Eddie Go You Lee to recover from them the
surcharges they had collected from the customers of four movie houses operated in
Dumaguete City, pursuant to City Ordinance No. 76, Series of 1954, as amended. The
complaint alleged, among other things, the following: jgc:chanrobles.com.ph

"5. That the subject matter of this case is one of common or general interest to about
thirty (30) thousand persons residing in the different municipalities of Negros Oriental
and the plaintiffs being so numerous it is impracticable to bring them all before the
Court and for that reason only 29 of the plaintiffs, (chosen one from every
municipality), appear in the title of this case in representation of all the others.

"6. That S. L. Teves, Inc. is the proprietor and operator of three movie houses or
cinematographs operated in the City of Dumaguete known as "MAIN", "PARK", and
"TOWN."

"7. Defendants Lorenzo Roberto and Eddie Go You Lee, were the joint managers and
operators of "Gets Theater", a cinematograph operated in Dumaguete City from
September 30, 1955 to December 31, 1956.

"8. That in 1954 defendant, the City of Dumaguete enacted City Ordinance No. 76,
series of 1954, which was amended by Ordinance No. 35, series of 1955, and required
the operators, managers and proprietors of all cinematographs operated in Dumaguete
City to collect from each and every movie-goer a surcharge of P.05 and P.10 in addition
to the regular admission fee required from every person.

"9. That in pursuance of said ordinance, defendant S. L. Teves, Inc., upon pressure
from defendant City of Dumaguete, exacted and illegally collected the sum of P.05 and
P.10 as stated above in addition to the regular admission fee from each and every
moviegoer, from July 1954 to December 1956, and was able to realize the total sum of
not less than P59,433.54 from the three cinematographs named MAIN, PARK and
TOWN; and, in like manner, defendants Lorenzo Roberto and Eddie Go You Lee
collected and realized the sum of P50,000.58 from Gets Theater from October 1955 to
December 31, 1956.

"10. That out of said sum of P59,433.54, collected from MAIN, PARK, and TOWN,
defendant S. L. Teves Inc. turned over by way of deposits to defendant City of
Dumaguete the sum of P47,344.14 on or about the middle of 1958 plus P6,017.60
delivered subsequently also by way of deposit, and retained in her possession the sum
of P6,071.80 in trust for the lawful owners thereof.

"11. That out of the sum of P15,000.58 collected from Gets Theater, defendants
Lorenzo Roberto and Eddie Go You Lee, in like manner, turned over to defendant, City
of Dumaguete, the sum of P10,624.03 on or about the middle of 1958, and shortly
thereafter delivered also P598.65 corresponding to the collection made from September
1, 1956 to September 15, 1956, but retained in their possession the sum of P3.877.90
corresponding to the collection covering September 16, 1956 to December 31, 1956.

"12. That defendant City of Dumaguete did not have any authority or power to enact an
ordinance imposing a surcharge of P.05 and P.10 per admission ticket in addition to the
regular admission fee, and City Ordinance No. 76-S of 1954 and Ordinance No. 35-S of
1955 are illegal and null and void from the beginning and therefore the collection of
said surcharge is ultra vires, illegal and null and void.

"13. That payment of said surcharge was forced upon the moviegoers who had no other
alternative than to pay as required under protest.

"14. That knowing the illegality of said surcharge, and aware of the fraud committed to
the public, defendants herein have stopped their nefarious and fraudulent exaction after
December 31, 1956; but have not refunded the money collected to the owners thereof.

"15. That defendants have no right to keep or retain, much less use any of the sums
abovementioned and are duty bound to return or refund said sums of money to the
plaintiffs herein without delay, together with interests thereon."
cralaw virtua1aw library

"16. That defendants have no right to keep or retain, much less use any of the sums
above-mentioned and are duty-bound to return or refund said sums of money to the
plaintiffs herein without delay, together with interests thereon."
cralaw virtua1aw library

On June 16, 1959, the City of Dumaguete filed a motion to compel the plaintiffs to
amend their complaint or to submit a Bill of Particulars specifying therein with
definiteness the following:
jgc:chanrobles.com.ph

"a. The exact sum or sums of money that each and every plaintiff moviegoer is seeking
to recover; the number of times he has attended cinematographic performance; the
date and/or dates of his attendance; and the moviehouse where he attended on each
particular date;

"b. The names of all the plaintiffs who paid the tax under protest, stating also the dates
and the amounts that they paid under protest; and to whom each protests were made;
"c. The computation whereby the plaintiffs arrived at the amounts of P59,433.54 and
P15,000.58." cralaw virtua1aw library

On June 27, 1959, defendant S. L. Teves, Inc. filed its answer to the complaint denying
its liability to the plaintiffs, and incorporating therein, as an affirmative defense, the
motion for a bill of particulars filed by co-defendant City of Dumaguete. Defendant
Eddie Go You Lee, for his part, moved to dismiss the complaint on the ground that the
case is not a proper class suit.

On July 6, 1959, plaintiffs filed an opposition to the motion for a bill of particulars,
alleging that the case is a class suit; that there were about 30,000 plaintiffs having a
common or general interest in its subject matter, and that it would be impracticable
and unnecessary to bring them all before the Court or to give out in detail all the names
and personal circumstances of each and every individual plaintiff or the exact date or
dates of payment and amounts collected individually from them by the defendants.

On July 14, 1959, the Court issued an order requiring the plaintiffs to comply with the
motion for a Bill of Particulars either by amending their complaint accordingly, or
submitting, within a period of ten days from notice thereof, a Bill of Particulars
regarding the matters set forth in said motion.

On July 31, 1959 plaintiffs filed an amended complaint with a motion for its admission.
As in the original complaint, it was alleged therein, inter alia, that City Ordinance No.
76, Series of 1954, as amended, of the City of Dumaguete, was ultra vires, illegal and
void and that plaintiffs had no alternative but to pay, as in fact they paid, the illegal
surcharge imposed by said ordinance. New allegations, however, were made to the
effect that defendants had "stopped their illegal and fraudulent collection after
December 31, 1956" upon orders from the Secretary of Finance, but that they had
failed to refund the money they had theretofore collected. A copy of the ruling of the
Secretary of Finance was attached to the amended complaint, as Annex C and the same
enjoined the City Treasurer of Dumaguete "to desist from further collecting the taxes in
question."

Considering the above stated circumstances, it seems clear that the validity of the city
ordinance already referred to was no longer an issue before the lower court, the
amended complaint having rendered the matter purely academic or moot. The case was
one, therefore, exclusively for the recovery of the surcharges collected by the
defendants from the 28 plaintiffs and their alleged more than 30,000 co-parties.

Section 12, Rule 3 of the Rules of Court — substantially the same as Section 118 of Act
190 — provides that when the subject matter of an action is of common or general
interest to many persons and these persons are so numerous that it is impracticable to
bring them all before the court, one or more of them may sue for the benefit of all.

We have held heretofore that in an action where numerous defendants, individually

occupying different portions of a big parcel of land, were sued as a class represented
only by some of them, a class suit would not lie because each of the defendants had an
interest only in the particular portion of the land he was actually, occupying, which was
completely different from the other portions individually occupied by the other
defendants (Berces v. Villanueva, 25 Phil. 473). Prior to this ruling we had also held
that a class suit does not lie in actions for the recovery of real property where separate
portions of the same parcel are occupied and claimed individually by different parties,
to the exclusion of each other (Rallonza v. Evangelista, 15 Phil. 531).

The case now before us is analogous to the two mentioned above in the sense that each
one of the herein plaintiffs and each of the more than 30,000 other parties in interest
referred to in the amended complaint, has an interest exclusively in the amounts
allegedly collected from each of them by the defendants. Under the facts alleged in the
amended complaint it is clear that no one plaintiff has any right to, or any share in the
amounts individually claimed by the others, each of them being entitled, if at all, only
to the return of what he had personally paid.
Moreover, assuming that the case is allowed to proceed as filed, and that judgment is
rendered sentencing the defendants to pay the amounts claimed in the amended
complaint, it is obvious that the plaintiffs — whether individually or as a group — would
not be entitled to appropriate for themselves the amounts so adjudged. And yet, while
the amended complaint avers that numerous other parties have an interest in the issue,
it does not allege and specify the amounts claimed by, and payable to each of them nor
to each of the plaintiffs named in the pleading.

All the foregoing considerations clearly support the order of the lower court requiring
the plaintiffs to submit a bill of particulars or to amend their complaint in the sense
prayed for in the motion filed by the defendant City of Dumaguete.

Upon the other hand, pursuant to the provisions of Section 3, Rule 30 of the Rules of
Court, an action may be dismissed when the plaintiff fails to comply with the Rules of
Court or any order of the court. It being obvious in this case that appellants had failed
to comply with the order of the lower court requiring them to submit a bill of
particulars, the order of dismissal appealed from must be, as it is hereby, upheld.
Without pronouncement as to costs.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera,

Paredes, Regala and Makalintal, JJ., concur.
G.R. No. 125509             January 31, 2007

PUBLIC INTEREST CENTER, INC., LAUREANO T. ANGELES, and JOCELYN P.

CELESTINO Petitioners
vs.
HONORABLE VICENTE Q. ROXAS, in his capacity as Presiding Judge, Regional Trial Court of
Quezon City, Branch 227, REPUBLIC OF THE PHILIPPINES, NATIONAL POWER
CORPORATION, WESTINGHOUSE ELECTRIC CORPORATION, WESTINGHOUSE ELECTRIC
S.A., WESTINGHOUSE INTERNATIONAL PROJECTS COMPANY, Respondents.

DECISION

CARPIO MORALES, J.:

Challenged via petition for certiorari is the Quezon City Regional Trial Court’s Resolution dated April
17, 1996 dismissing the Complaint of Public Interest Center, Inc., Laureano T. Angeles and Jocelyn
P. Celestino (petitioners) in Civil Case No. Q-95-25597, and Order dated June 18, 1996, denying
petitioners’ motion for reconsideration.

The antecedent facts, as culled from the records of the case, are as follows:

On February 9, 1976, respondent National Power Corporation (NPC) entered into a contract (the
Contract) with respondent Westinghouse Electric S.A. (WESA), an affiliate or subsidiary of
respondent Westinghouse Electric Corporation (WESTINGHOUSE), whereby WESA undertook to
construct in favor of the NPC a 620-megawatt nuclear power plant at Morong, Bataan and to supply
equipment, machineries and services therefor.1

WESA subsequently executed a deed of assignment transferring all its rights and responsibilities in
the Contract to its construction arm-agent, respondent Westinghouse International Projects
Company (WIPCO).2

In 1986, President Corazon Aquino issued Executive Order (E.O.) No. 55, which was later amended
by E.O. No. 98, transferring ownership of the already constructed power plant, which had become
known as the Bataan Nuclear Power Plant (BNPP), its equipment, materials and facilities, records
and uranium fuel, to the National Government or its duly constituted agency.3 Pursuant to E.O. No.
55, as amended, the National Government assumed all remaining foreign and local obligations
incurred by the NPC in financing the construction of the BNPP.4

In 1988, the Aquino administration instituted a complaint against WESTINGHOUSE in New Jersey,
U.S.A. Westinghouse later filed an arbitration case in Geneva, Switzerland.5

On September 27, 1995, President Fidel Ramos authorized the following government officials as
members of a Government Panel to conduct exploratory discussions with WESTINGHOUSE for the
possible settlement of pending legal proceedings: Chief Presidential Legal Counsel Antonio T.
Carpio,6 Solicitor General Raul T. Goco, Assistant Secretary Cyril Del Callar, General Counsel
Alberto L. Pangcog, and Counsel Mark Augenblick.7

Subsequently or on October 4, 1995, President Ramos issued E.O. No. 265, which amended E.O.
No. 315 dated January 1, 1988, creating the Presidential Committee on the Bataan Nuclear Power
Plant (PC-BNPP Committee).

E.O. No. 265 provided that the PC-BNPP Committee8 "shall be the coordinating and policy-making
body on the BNPP, including policies arising from negotiations for a fair commercial settlement of all
pending legal claims that will provide a substantial net benefit to the country," which "shall submit its
recommendations on BNPP-related policies to the President for approval."9

On October 11, 1995, the PC-BNPP Committee issued a "Resolution Adopting The Essential Terms
And Conditions Arrived At By The Government Panel And Westinghouse Representatives During
The Exploratory Discussions From September 29, 1995 To October 9, 1995 For A Compromise
Settlement Of The BNPP Controversy And Favorably Recommending Approval Thereof To His
Excellency, The President," the salient points of which Resolution follow:
 xxxx

NOTING that after a series of talks which started on September 29, 1995, the government panel and
Westinghouse representatives (Mr. Briskman and Mr. Robert Gross) on October 9,1995,
eventually agreed in principle on a settlement involving a package of more than $100 MILLION,
consisting of the following:

(1) $40 Million in cash (transferable by wire to a bank account specified by the Republic)

(2) Two (2) newly manufactured 501-F Econopac combustion turbines, FOB Houston, at 160
MW each or a total of 320 MW valued at $30 Million each, or a total of $60 Million

(3) Relinquishment by Westinghouse of the right to recover more than $200,000 in attorney’s
fees previously awarded by the New Jersey court.

NOTING that in exchange for the foregoing cash and utilities, the parties would secure a dismissal
with prejudice of the pending lawsuits, appeals and arbitration between the Republic and National
Power Corporation, on one hand, and Westinghouse, its affiliates and Burns & Roe, on the other
hand, involving the BNPP controversy and that the Republic would direct National Power
Corporation and other government agencies to lift the ban against Westinghouse equipment and
technology;

xxxx

OBSERVING that the present offer of Westinghouse of $40 Million in cash plus two (2) 501-F’s
worth $60 Million represents the highest cash offer (since its $10 Million cash offer in 1992) and the
most advantageous in kind offer (no discount/rebate component or any corresponding obligation on
the side of the Republic);

HAVING IN MIND the uncertainty of the results of the arbitration, the possibility that some of
Westinghouse’s counterclaims may partly offset any recovery, the prospect that even a favorable
arbitration award could be limited to the $40 million cap under the original BNPP contract and that
even if the government eventually wins the appeal of the New Jersey verdict, substantial costs would
have to be incurred to pursue a new trial, which result is also uncertain;

RECOGNIZING that the present offer of Westinghouse will result in greater net economic benefits to
the Republic than any previous settlement offer;

xxxx

NOW THEREFORE, BE IT RESOLVED AS IT IS HEREBY RESOLVED that PC-BNPP, with the

endorsement of the Republic’s lawyers and negotiating panel, adopts the foregoing essential terms
of the settlement agreement and respectfully recommends to His Excellency, President Fidel V.
Ramos, the acceptance and approval thereof.10 (Underscoring supplied)

On October 13, 1995, the Settlement Agreement reflected in the above-questioned Resolution of the
PC-BNPP was forged by the Republic and NPC on one hand, and respondent Westinghouse
corporations on the other.11

On November 14, 1995, petitioners, as taxpayers, filed with the Regional Trial Court (RTC) of
Quezon City a Complaint against herein private respondents, for declaration of nullity of the BNPP
contract with application for the issuance of a temporary restraining order and preliminary
injunction.12

Herein public respondent, Branch 227 of the Quezon City RTC, set the hearing of petitioners’
application for the issuance of a temporary restraining order on November 28, 1995 on which date
only petitioners and respondents Republic and NPC appeared. No representative of the
Westinghouse corporations having showed up, public respondent directed petitioners to secure a
certification from the Securities and Exchange Commission (SEC) on who the resident agent, if any,
of said corporations13 was.

On the same scheduled date of hearing, the Solicitor General, on behalf of respondents Republic
and NPC, moved for the dismissal of the Complaint on the ground that petitioners were engaged in
forum-shopping, their counsel Atty. Crispin T. Reyes having previously filed cases14 with causes of
action identical thereto.

While Atty. Reyes did not deny having previously filed, in Manila, a complaint, he argued that he was
not among the plaintiffs in the complaint filed in Quezon City. Nevertheless, he withdrew as counsel
for the plaintiffs – herein petitioners.15

On December 4, 1995, petitioners filed an Amended Complaint16 praying for the following reliefs:

WHEREFORE, it is most respectfully prayed [that]:

xxxx

(2) after due hearing, a preliminary mandatory injunction issue upon a bond executed to the
party enjoined in an amount to be fixed by the court ordering defendants National Power
Corporation and the Republic of the Philippines to stop and/or not to perform further
implementation/execution of their obligation/undertaking under the null and void [B]NPP
Nuclear Plant Contract between the National Power Corporation and Westinghouse
executed on February 9, 1976 in Manila, Philippines; likewise, from further continuing the
payments for the contracted loans/interest based thereon unless otherwise securitized; and
also from further implementing/executing their undertaking/obligations under the Settlement
Agreement between Republic of the Philippines-National Power Corporation and
Westinghouse negotiated on October 9, 1995 and allegedly executed on October 13, 1995;

(3) after hearing on the merits, judgment be rendered declaring the [B]NPP Nuclear Plant
Contract executed on February 9, 1976 in Manila and all amendments thereto, together with
the loan contracts based thereon, as well as the Settlement Agreement executed on October
13, 1995 by defendant Republic of the Philippines/NAPOCOR with Westinghouse,
as inexistent and void ab initio;

(4) ordering defendants NAPOCOR and the REPUBLIC OF THE PHILIPPINES

to reconvey/turn over the [B]NPP Nuclear Plant equipment and machineries to defendant
WESTINGHOUSE ELECTRIC CORPORATION and/or its corporate agents and to restitute
or refund to the former all payments paid for the [B]NPP Nuclear Plant to said Westinghouse,
with legal interest from the filing of this complaint;

(5) making the preliminary mandatory injunction permanent, and ordering defendant jointly
and severally to pay plaintiffs reasonable attorney’s fees pursuant to Article 2208 (2) and
(11), Civil Code of the Philippines, with costs against defendants; . . . (Underscoring
supplied)

In essence, the Amended Complaint assailed the validity of and sought to nullify the following
contracts:

(a) The BNPP Contract;

(b) The loan contracts entered into by the Republic and NPC to finance the construction of
the BNPP; and

(c) The Settlement Agreement entered into by the Republic and NPC with Westinghouse on
October 13, 1995 in settlement of the claims arising from the Contract.

The Republic filed a Motion to Dismiss (With Opposition to the Application for Preliminary Mandatory
Injunction)17 to petitioners’ Amended Complaint on the following grounds: (a) lis pendens and/or
forum-shopping; (b) lack of legal capacity of petitioners to sue; and (c) lack of cause of action.18

For its part, the NPC filed its Comment/Motion To Dismiss Plaintiffs’ Amended Complaint,19 alleging
that the Amended Complaint failed to state a cause of action against it.

By Order of January 25, 1996, public respondent directed, among other things, petitioners and the
Republic and NPC to file their respective memoranda.20
On February 26, 1996, petitioners, in compliance with public respondent’s order, filed a
manifestation that per certification of the SEC, the new resident agent of WIPCO was ACCRA
Agents, Inc. Summons was thereupon served upon ACCRA Agents, Inc.

WIPCO soon filed a Motion to Dismiss21 petitioners’ Amended Complaint on the following grounds:
(a) petitioners have no legal capacity to sue; (b) the Amended Complaint states no cause of action;
and (c) assuming the existence of a cause of action, the same is nonetheless barred by the statute
of limitations.

By the assailed Resolution of April 17, 1996, public respondent DISMISSED petitioners’ complaint,
holding as follows:

xxxx

I. that, with respect to the first cause of action

(i) plaintiffs have violated Supreme Court Administrative Circular 04-94, otherwise

known as the Anti-Forum Shopping Rule, which carries with it, among others, the
penalty of dismissal of the action;

II. that, with respect to the second cause of action,

(i) this Court has no territorial jurisdiction over foreign and international bodies
situated abroad, more so, if such bodies are foreign and international courts;

(ii) this Court has no original and exclusive jurisdiction over the issue of invalidating
compromise agreements entered into in foreign and international courts to settle
foreign lawsuits pending before such foreign and international courts;

(iii) this Court has no jurisdiction to enjoin court proceedings relative to the

compromise agreement entered into in foreign and international courts to settle
pending foreign lawsuits;

(iv) the application for preliminary mandatory injunction of plaintiffs is denied for lack

of merit . . .

(v) the second cause of action did not allege constitutional, public interest, and
judicial policy issues so as to qualify plaintiffs under the relaxed rule, as having
standing, . . .

(vi) this Court has not acquired jurisdiction over the persons of foreign defendants
WELCO and WESA. . . (Underscoring supplied)

Petitioners’ Motion for Reconsideration of public respondent’s Resolution dismissing their complaint
having been denied by the other assailed Order of June 18, 1996, they filed the present Petition for
Certiorari and Mandamus With Application for A Writ Of Preliminary Injunction And Prayer For A
Temporary Restraining Order directly with this Court in view of the "transcendental importance" of
the issues involved.

Petitioners contend that in dismissing their Amended Complaint, public respondent abdicated its
constitutional duty to exercise judicial review over the validity of the BNPP Contract, the loan
contracts, and the 1995 Settlement Agreement.

Petitioners further contend that, contrary to the finding of public respondent, petitioners did not
commit forum-shopping since there is no identity of parties and causes of action in the instant case
and in the complaint filed before the Manila RTC.

Finally, petitioners contend that they have sufficiently established that the injury caused to them by
the contracts are "actual, direct and immediate" to thus clothe them with standing.

The Solicitor General and WIPCO, opposing the petition, argue that no grave abuse of discretion
attended the issuance by public respondent of the assailed resolutions considering that, among
other things, petitioners are guilty of forum-shopping; petitioners have no legal standing; and the
propriety of entering into a settlement agreement involves a political question and is not subject to
judicial review.

The issues then are:

(1) Whether petitioners have legal standing;

(2) Whether petitioners are engaged in forum-shopping;

(3) Whether the validity of the Contract and the contracts of loan entered into by the Republic
and NPC with foreign banks to finance the construction of the BNPP, and the propriety of
entering into a Settlement Agreement are subject to judicial review; and

(4) Whether courts may set aside a final judgment rendered by a foreign court.

Legal Standing

In Integrated Bar of the Philippines v. Zamora,22 this Court defined legal standing as follows:

"Legal standing" or locus standi has been defined as a personal and substantial interest in the case
such that the party has sustained or will sustain direct injury as a result of the governmental act that
is being challenged. The term "interest" means a material interest, an interest in issue affected by
the decree, as distinguished from mere interest in the question involved, or a mere incidental
interest. The gist of the question of standing is whether a party alleges "such personal stake in the
outcome of the controversy as to assure that concrete adverseness which sharpens the presentation
of issues upon which the court depends for illumination of difficult constitutional questions."
(Citations omitted; emphasis supplied)

In public suits, the plaintiff, representing the general public, asserts a "public right" in assailing an
allegedly illegal official action. The plaintiff may be a person who is affected no differently from any
other person, and could be suing as a "stranger," or as a "citizen" or "taxpayer." To invest him with
locus standi, the plaintiff has to adequately show that he is entitled to judicial protection and has a
sufficient interest in the vindication of the asserted public right.23

In the case of taxpayers’ suits, the party suing as a taxpayer must prove that he has sufficient
interest in preventing the illegal expenditure of money raised by taxation. Thus, taxpayers have been
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 public funds are wasted through the enforcement of
an invalid or unconstitutional law.24

More particularly, the taxpayer must establish that he has a personal and substantial interest in the
case and that he has sustained or will sustain direct injury as a result of its enforcement25 or that he
stands to be benefited or injured by the judgment in the case, or is entitled to the avails of the suit.26

Petitioners’ allegations in their Amended Complaint that the loan contracts entered into by the
Republic and NPC are serviced or paid through a disbursement of public funds are not disputed by
respondents, hence, they are invested with personality to institute the same.

Forum-Shopping

Forum shopping exists when, as a result of an adverse opinion in one forum, a party seeks a
favorable opinion (other than by appeal or certiorari) in another, or when he institutes two or more
actions or proceedings grounded on the same cause, on the gamble that one or the other court
would make a favorable disposition.27

As explained by this Court in First Philippine International Bank v. Court of Appeals, forum-shopping
exists where the elements of litis pendentia are present, and where a final judgment in one case will
amount to res judicata in the other. Thus, there is forum-shopping when, between an action pending
before this Court and another one, there exist: "a) identity of parties, or at least such parties as
represent the same interests in both actions, b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts, and c) the identity of the two preceding particulars is such
that any judgment rendered in the other action, will, regardless of which party is successful amount
to res judicata in the action under consideration; said requisites also constitutive of the requisites for
auter action pendant or lis pendens." . . . [W]here a litigant sues the same party against whom
another action or actions for the alleged violation of the same right and the enforcement of the same
relief is/are still pending, the defense of litis pendentia in one case is a bar to the others; and, a final
judgment in one would constitute res judicata and thus would cause the dismissal of the rest."28

In determining whether forum shopping exists, it is important to consider the vexation caused the
courts and parties-litigants by a party who asks different courts and/or administrative agencies to
rule on the same or related causes and/or grant the same or substantially the same reliefs, in the
process creating the possibility of conflicting decisions being rendered by the different fora upon the
same issues.29

In the present case, it is evident that, vis a vis the above-mentioned complaint filed in Manila, there
exists identity of parties or interests represented, as well as identity of rights or causes of action and
reliefs sought.

Thus, the first complaint which was instituted before the Manila RTC by the Anti-Graft League of the
Philippines, et al. as taxpayers’ suit,30 "Anti-Graft League of the Philippines, Inc., et al. v.
Westinghouse Electric Corp., et al.," docketed as Civil Case No. 93-66916, sought to declare null
and void the Contract, as well as the same loan contracts entered into by herein respondents
Republic and NPC with foreign banks, and to restrain said respondents from making further
payments in compliance with the loan contracts.31

It appears that the first complaint was dismissed by the Manila RTC upon a motion to dismiss.32 It
further appears that instead of filing an appeal, the therein petitioners Anti-Graft League of the
Philippines, Inc. et al. filed a petition for certiorari with this Court, which was dismissed by Resolution
dated March 1, 1995,33 and that thereafter or on July 12, 1995, they filed a petition for
mandamus34 with the Court of Appeals praying for the following reliefs:

. . . that a temporary restraining order be ISSUED ex-parte enjoining respondent NATIONAL

POWER CORPORATION and the REPUBLIC OF THE PHILIPPINES from paying the loans in
question they contracted with respondent banks and insurance companies for a period of
TWENTY (20) DAYS from date of issuance; that after notice to respondents and within said period,
said temporary restraining order be CONVERTED into a preliminary injunction with bond as may be
fixed by the Court; that after hearing, judgment be RENDERED making the preliminary injunction
permanent and ordering respondent court to reinstate Civil Case No. 93-66916 and to declare
respondents WESTINGHOUSE ELECTRIC CORP. (WELCO) and WESTINGHOUSE
INTERNATIONAL PROJECTS CO. (WIPCO), respondents foreign banks and insurances companies
IN DEFAULT . . . (Emphasis supplied)

The above-said petition for mandamus was still pending before the appellate court when herein
petitioners filed their complaint, later amended, before the Quezon City RTC.

Petitioners do not deny that the first complaint and the petition for mandamus ("first set of cases")
and their complaint subject of the present petition involve the same causes of action, are founded
upon the same set of facts, and are taxpayers’ suits. Nevertheless, they argue that the first set of
cases and the present case do not have identity of parties since they were not among the petitioners
in the former.

Furthermore, petitioners assert that a taxpayer’s suit is not a class suit, hence, judgment in one case
does not amount to res judicata in the other.

At all events, petitioners contend that there is no absolute identity of causes of action since their
Amended Complaint includes the nullification of the Settlement Agreement, which was not raised in
the first set of cases.

Petitioner’s position does not impress.

A taxpayer’s action has been defined as follows:

A taxpayer's bill is essentially a class bill and can be filed only in the common interest of all
the taxpayers of the municipality, to prevent the wrongful expenditure of the money of the
municipality or the wasting of its assets.’ Schlanger v. West Berwick Borough, 261 Pa. 605, 608, 104
A. 764. ‘A class bill, as its name implies, is a bill by several members of a class, on behalf of
themselves and all others in the class, and no relief can be granted upon it, except upon a ground
which is common to all the members of the class. [Citing cases].’ Ashcom v. Westmont Borough,
298 Pa. 203, 208, 148 A. 112, 114.35 (Emphasis supplied)

As to plaintiffs, both suits are brought by the plaintiff as a citizen and taxpayer, besides as an
individual, and therefore they are taxpayer class actions. x x x,

In Holman v. Bridges, 165 Ga. 296(2), 140 S.E. 886, this court held: "Where a taxpayer or property
owner brings an action against a county or its officers upon a matter of public or general interest to
all other taxpayers of such political subdivision, and the action either expressly or by necessary
implication is on their behalf, they are equally bound by the adjudication , and a judgment is a bar
to any subsequent proceeding by them or any of them seeking similar relief upon the same
facts. x x x"36 (Emphasis supplied)

The general principle of class actions that a judgment in favor of or against the parties representing
the general class is, under the doctrine of res judicata, in favor of or against all who are thus
represented applies to litigations instituted by taxpayers.

Accordingly, in a suit brought by citizens and taxpayers to determine a public right or a matter of
public interest, all citizens and taxpayers are regarded as parties to the proceedings by
representation and are bound by the judgment rendered therein.37

The plaintiff there was another taxpayer of the city, suing in the status of ‘citizen and taxpayer,’ and
the city itself was a co-defendant. The action was instituted September 3, 1958. The first count of the
complaint, Inter alia, charged the affiliation agreement here in question to be ‘void, illegal and of no
effect because the City ignored the requirements of the ‘local budget law,’ N.J.S. 40:2-1 et seq.,
particularly 40:2-29 and the law pertaining to municipal contracts, particularly 40:50-6, as to the
necessity for either budgeting the contract or passing an appropriation ordinance * * *.' Subsequently
the plaintiff in that action made a motion for summary judgment on the first count alone, and
defendants moved for summary judgment on all counts. We have examined the briefs and affidavits
submitted to the trial court on those motions, and it appears therefrom that the matter of the alleged
invalidity of the affiliation agreement for alleged noncompliance with N.J.S.A. 40:2-29 and 40:50-
6 was argued to the court. The judgment of the court denied plaintiff's motion and granted those of
defendants. No appeal therefrom was taken.

xxxx

Petitioner first seeks to avoid the effect of the prior judgment on the ground that the subject matter of
the two respective proceedings differs. However, this is not, properly speaking, a case of different
subject matter, but of different causes of action. Such a difference is immaterial if a postulate of law
essential to the success of the party in the later proceeding has been distinctly put in issue and
adjudicated Contra in the earlier, particularly where, as here, the subject matter in both proceedings
arises out of the same transaction. See 30A Am.Jur., Judgments, s 360, p. 401; Restatement,
Judgments, ss 68, 70, comment pp. 319, 320; N.J. Highway Authority v. Renner, 18 N.J. 485, 493,
494, 114 A.2d 555 (1955); Mazzilli v. Accident, etc., Casualty Ins. Co., etc., 26 N.J. 307, 314, 139
A.2d 741 (1958) (quotation from City of Paterson v. Baker, 51 N.J.Eq. 49, 26 A. 324 (Ch.1893)).

Nor will it avail petitioner that the taxpayer in the earlier action was one other than herself. A
taxpayer attacking governmental action in which he has no peculiar personal or special
interest is taken to be suing as a representative of all taxpayers as a class. The general rule is
that in the absence of fraud or collusion a judgment for or against a governmental body in
such an action is binding and conclusive on all residents, citizens and taxpayers with respect
to matters adjudicated which are of general and public interest. 50 C.J.S. Judgments s 796, p.
337; cf. Edelstein v. Asbury Park, 51 N.J.Super. 368, 389, 143 A.2d 860 (App.Div.1958); see also 18
McQuillin, Municipal Corporations (3d ed. 1950), s 52.50, pp. 124, 125; 52 Am.Jur., Taxpayers'
Actions, s 38, p. 26.38 (Emphasis and underscoring supplied)

Hence, it is to no avail that petitioners invoke lack of identity of parties. For petitioners in the first set
of cases and in the instant case are suing under a common or general interest on a subject matter in
a representative capacity, for the benefit of all taxpayers as a class. As this Court has repeatedly
ruled, identity of parties needed to satisfy the requirement in lis pendens or res judicata requires only
an identity of interest, not a literal identity of parties.39
As regards identity of causes of action, petitioners do not deny that the first set of cases – the
complaint filed in Manila and the petition for mandamus filed before the Court of Appeals – involves
the same causes of action grounded on the same set of facts as that of the Amended Complaint filed
by them. Indeed, the petition for mandamus essentially sought to review the Manila RTC order
dismissing the first complaint. Petitioners’ incorporation of an additional cause of action in their
Amended Complaint filed before the Quezon City RTC, occasioned merely by subsequent events,
does not absolve petitioners from forum shopping.

Additionally, petitioners violated the requirement to report to the courts the fact that a similar action
had been filed or is already pending before the courts, regardless of who initiated such similar
action. For Section 5, Rule 7 of the Rules of Court requires:

SEC. 5. Certification against forum shopping. – The plaintiff or principal party shall certify under oath
in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification
annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any
action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and,
to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such
pending action or claim, a complete statement of the present status thereof; and (c) if he
should thereafter learn that the same or similar action or claim has been filed or is pending,
he shall report that fact within five (5) days therefrom to the court wherein his aforesaid
complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment
of the complaint or other initiatory pleading but shall be cause for the dismissal of the case
without prejudice, unless otherwise provided upon motion and after hearing. The submission
of a false certification or non-compliance with any of the undertakings therein shall constitute indirect
contempt of court, without prejudice to the corresponding administrative and criminal actions. If the
acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the same
shall be ground for summary dismissal with prejudice and shall constitute direct contempt, as well as
a cause for administrative sanctions. (Emphasis and underscoring supplied)

Granted that petitioners were initially unaware of the existence of the first set of cases, albeit their
counsel was one of the petitioners therein, such fact was already brought to their attention during the
hearing of their application for a temporary restraining order40 conducted after the filing of their
Complaint. When petitioners subsequently filed their Amended Complaint, however, they failed to
report the pendency of the petition for mandamus before the appellate court bearing on the dismissal
by the Manila RTC of the complaint filed by the Anti-Graft League of the Philippines, Inc. Public
respondent’s dismissal of the Amended Complaint on the ground of forum shopping is thus in order.

This leaves it unnecessary to pass on the rest of the issues.

WHEREFORE, the petition is DENIED.

Costs against petitioners.

SO ORDERED.
 SECOND DIVISION

[G.R. No. 104649. February 28, 1994.]

PHILIPPINE BANKING CORPORATION, Petitioner, v. HON. SALVADOR S.

TENSUAN, Judge of the Regional Trial Court, National Capital Region, Branch
146 Makati; BRINELL METAL WORKS CORP., SPS. JOSE & NALLY
ANG, Respondents.

DECISION

NOCON, J.:

On the strength of the provision in the promissory notes sued upon that Manila shall be
the venue of any action which may arise out of the promissory notes, the Regional Trial
Court of Makati, Metro Manila granted the motion to dismiss the complaint in Civil Case
No. 91-3366 entitled "Philippine Banking Corporation v. Brinell Metal Works Corp., Et.
Al." for improper venue. Supported by a plethora of decisions evincing a view contrary
to that of the trial court, petitioner comes to us on a petition for review on certiorari.

Briefly, the facts show that petitioner, Philippine Banking Corporation, filed a complaint
below with prayer for preliminary attachment on December 5, 1991 against private
respondents herein, Brinell Metal Works Corporation and Spouses Jose and Nally Ang,
for collection of a loan evidenced by two (2) promissory notes. cralawnad

On December 16, 1991, respondent Court issued an order granting the petitioner’s
prayer for the issuance of writ of preliminary attachment.

On January 28, 1992, private respondents filed with the respondent court a motion to
dismiss on the grounds of (a) lack of jurisdiction over the persons of the defendants;
and (b) improper venue. They claim that summons was served on defendant
corporation’s customer who was not authorized to receive the same for and in behalf of
the corporation. They likewise object to the venue claiming that the plaintiff’s complaint
is based on two promissory notes which commonly declare, among others: jgc:chanrobles.com.ph

"I/WE HEREBY EXPRESSLY SUBMIT TO THE JURISDICTION OF THE COURTS OF

MANILA, ANY LEGAL ACTION WHICH MAY ARISE OUT OF THIS PROMISSORY NOTE. 1

On February 28, 1992 respondent Court issued the following questioned order, to wit: jgc:chanrobles.com.ph

"Acting on defendants’ Motion to Dismiss dated January 28, 1992, on grounds of a) lack
of jurisdiction over the corporate defendant insofar as service of summons upon it was
effected on a person not authorized in law to receive the same; and b) improper venue;
and plaintiff having failed to appear for today’s hearing and/or to formally oppose the
same notwithstanding a showing of receipt of the subject motion as early as January
31, 1992.

"Finding the motion to be studiously well-taken particularly in connection with the

dismissal of this action on grounds of improper venue consistent with the provisions of
Sec. 13, Rule 14 of the Rules of Court, it appearing on the face of the actionable
document sued upon that venue had been by agreement of the parties laid in Manila. chanrobles law library : red

"WHEREFORE, said motion to dismiss is hereby granted forthwith on grounds of

impropriety of venue. The above-entitled case is accordingly dismissed without
pronouncement as to costs.

"SO ORDERED." 2
On March 2, 1992, petitioner moved for reconsideration of the aforesaid order granting
the motion to dismiss anchored on the ground that in view of the absence of qualifying
or restrictive words in the agreement which would indicate that Manila alone is the
venue agreed upon by the parties, the plaintiff still has the choice to file the action in
the place of his residence citing the case of Polytrade Corporation v. Blanco. 3

On March 11, 1992, respondent court denied petitioner’s motion for reconsideration and
remained steadfast in its position explaining that its dismissal order is predicated on the
doctrinal rule enunciated in Bautista v. Hon. Juan de Borja, Et. Al. 4 that the proper
court of Manila is the venue for an action upon a document stipulating such "in case of
any litigation herefrom, or in connection herewith," on a rationale that neither party
reserved the right to choose venue as provided for in Section 2(b), Rule 4 of the Rules
of Court, as would have been done had the parties intended to retain such right of
election.

Respondent court brushed aside Polytrade v. Blanco 5 stating that Bautista and
Polytrade appear not to square with each other and that perhaps, the clear parameters
on the rule vis-a-vis proper venue should be defined.

Thus, the sole issue to be resolved in this petition is whether or not the respondent
court erred in holding that the venue of the action was improperly laid.

Under Section 1(c), Rule of the Revised Rules of Court, a motion to dismiss an action
may be made within the time for pleading on the ground that venue is improperly laid.
Venue relates to the place of trial or geographical location in which an action or
proceeding should be brought and not to the jurisdiction of the court. The matter of
venue is regulated by the Rules of Court, so that the choice of venue is not left to the
caprices of plaintiff. 6

As a general rule, all personal actions may be commenced and tried where the
defendant or any of the defendants resides or may be found, or where the plaintiff or
any of the plaintiffs resides, at the election of the plaintiff. 7 However, by written
agreement of the parties, the venue of an action may be changed or transferred from
one province to another. 8 Besides, when improper venue is not objected to in a motion
to dismiss it is deemed waived. 9 In other words, venue is waivable. It is procedural,
not a jurisdictional matter. It is intended to provide convenience to the parties, rather
than restrict their access to the courts. The rules on venue simply arrange for the
convenient and effective transaction of business in the courts and do not relate to their
power, authority or jurisdiction over the subject matter of the action. chanrobles.com.ph : virtual law library

As early as the case of Central Azucarera de Tarlac v. De Leon, 10 this Court ruled that
an agreement in a contract fixing the venue of actions arising therefrom is a valid
waiver of the venue as fixed by law.

Interpreting a stipulation in the written contracts sued upon that "in case of any
litigation arising (t)herefrom or in connection (t)herewith, the venue of action shall be
in the City of Manila, Philippines," this Court held in Bautista v. De Borja, 11 that the
parties must reserve their right of election if they want to file in a place other than the
venue agreed upon, thus: jgc:chanrobles.com.ph

". . . We note that neither party to the contracts reserved the right to choose the venue
of action as fixed by law, i.e., where the plaintiff or defendant resides, at the election of
the plaintiff (par. [b], Section 2, Rule 4, Revised Rules of Court), as is usually done if
the parties to retain that right of election granted by the Rules. Such being the case, it
can reasonably be inferred that the parties intended to definitely fix the venue of
action, in connection with the written contracts sued upon in the proper courts of the
City of Manila only, notwithstanding that neither party is a resident of Manila. . . ." cralaw virtua1aw library

Subsequently, in Polytrade Corporation v. Blanco, 12 this Court expostulated a contrary

doctrine that as long as the stipulation does not set forth qualifying or restrictive words
to indicate that the agreed place alone and none other is the venue of the action, the
parties do not lose the option of choosing the venue, to wit: chanrobles virtual lawlibrary
". . . An accurate reading, however, of the stipulation.’The parties agree to sue and be
sued in the Courts of Manila,’ does not preclude the filing of suits in the residence of
plaintiff or defendant. The plain meaning is that the parties merely consented to be
sued in Manila. Qualifying or restrictive words which would indicate that Manila and
Manila alone is the venue are totally absent therefrom. We cannot read into that clause
that plaintiff and defendant bound themselves to file suits with respect to the last two
transactions in question only or exclusively in Manila. For, that agreement did not
change or transfer venue. It simply is permissive. The parties solely agreed to add the
courts of Manila as tribunals to which they may resort. They did not waive their right to
pursue remedy in the courts specifically mentioned in Section 2(b) of Rule 4.
Renuntiatio non praesumitur." cralaw virtua1aw library

The latter case made reference to Engel v. Shubert Theatrical Co. 13 where an
analogous stipulation which read: "In case of dispute, both contracting parties agree to
submit to the jurisdiction of the Vienna courts" was interpreted as follows: "By the
clause in question the parties do not agree to submit their dispute to the jurisdiction of
the Viennese court, and to those courts only. There is nothing exclusive in the language
used. They do agree to submit to the Viennese jurisdiction, but they say not a word in
restriction of the jurisdiction of courts elsewhere; and whatever may be said on the
subject of the legality of contracts to submit controversies to courts of certain
jurisdiction exclusively, it is entirely plain that such agreements should be strictly
construed, and should not be extended by implication." cralaw virtua1aw library

The doctrine in Polytrade was reiterated in Nicolas v. Reparations Commission 14 where

the issue posed was also whether the stipulation on venue is restrictive or merely
permissive. The Court therein held: jgc:chanrobles.com.ph

". . . venue in personal actions is fixed for the convenience of the plaintiff and his
witnesses and to promote the ends of justice. We cannot conceive how the interests of
justice may be served by confining the situs of the action to Manila, considering that
the residences or offices of all the parties, including the situs of the acts sought to be
restrained or required to be done, are all within the territorial jurisdiction of Rizal. chanrobles law library

"While the parties have agreed to submit their dispute to the jurisdiction of the Manila
courts, there is nothing in the language used in the aforecited stipulation which clearly
shows that the intention of the parties was to limit the venue of the action to the City of
Manila only. Such agreements should be construed reasonably and should not be
applied in such manner that it would work more to the inconvenience of the parties
without promoting the ends of justice." cralaw virtua1aw library

Without reference to Polytrade nor to Nicolas cases, this Court enunciated the same
doctrine in Tantoco v. Court of Appeals, 15 to wit: jgc:chanrobles.com.ph

"It is elementary that venue is waivable, since it is a procedural, not a jurisdictional,

matter. The record shows that the parties agreed that the courts of Manila shall have
jurisdiction to try this case. The agreement is evidenced by sales contracts duly
presented at the ex parte hearing of March 25, 1966, whereby the parties submitted
themselves to the jurisdiction of the courts of Manila for any legal action arising out of
their transaction. In short, the parties agreed to add the courts of Manila as tribunals to
which they may resort in the event of suit, and not only to the courts either of Rizal, of
which private respondent is a resident, or of Bulacan, where petitioner resides,
pursuant to Section 2(b) of Rule 4 of the Revised Rules of Court." cralaw virtua1aw library

On the other hand, private respondents cite the case of Hoechst Philippines, Inc. v.
Torres, 16 in support of the trial court’s decision. The stipulation: "In case of litigation
arising out of this agreement, the venue of any action shall be in the competent courts
of the Province of Rizal" was interpreted therein that any action by either of the parties
would have to be filed only in the competent courts of Rizal province exclusively.
Noteworthy, however, is the fact that on May 19, 1978, or the day following the
promulgation of the Hoechst case in May 18, 1978, this Court interpreted a similar
stipulation on venue as unenforceable in Sweet Lines, Inc. v. Teves. 17 Condition 14 of
the shipping ticket issued by Sweet Lines, Inc. which provides "that any and all actions
arising out of the condition and provisions of this ticket, irrespective of where it is
issued, shall be filed in the competent courts in the City of Cebu" was held subversive
of public policy on transfers of venue of actions. The Court therein explained that the
philosophy underlying the provisions on transfer of venue of actions is the convenience
of the plaintiffs as well as his witnesses and to promote the end of justice. Considering
the expense and trouble a passenger residing outside of Cebu City would incur to
prosecute a claim in the City of Cebu, he would most probably decide not to file the
action at all, the Court said.

The later cases of Lamis Ents. v. Lagamon 18 Capati v. Ocampo; 19 Western Minolco v.
Court of Appeals; 20 Moles v. Intermediate Appellate Court; 21 Hongkong and
Shanghai Banking Corporation v. Sherman; 22 Nasser v. Court of Appeals; 23 and just
recently, Surigao Century Sawmill Co. v. Court of Appeals, 24 all treaded the path
blazed by Polytrade. The conclusion to be drawn from all these is that the more recent
jurisprudence shall properly be deemed modificatory of the old ones. Restating the rule,
venue stipulations in a contract, while considered valid and enforceable, do not as rule
supersede the general rule set forth in Rule 4 of the Revised Rules of Court. In the
absence of qualifying or restrictive words, they should be considered merely as an
agreement on additional forum, not as limiting venue to the specified place. They are
not exclusive but, rather permissive. For, to restrict venue only to that place stipulated
in the agreement is a construction purely based on technicality which, on the contrary,
should be liberally construed. Thus, we hold that the petitioner in this case is not barred
nor proscribed from filing its case against private respondents in Makati where
petitioner holds its residence, pursuant to Section 2(b) of Rule 4 of the Revised Rules of
Court.chanrobles law library : red

WHEREFORE, the petition in this case is GRANTED and the orders of respondent
Presiding Judge of the Regional Trial Court Branch 146, at Makati, dated February 28,
1992 and March 11, 1992 dismissing the complaint and denying the motion for
reconsideration are hereby REVERSED and the complaint in the captioned civil case is
REINSTATED.

SO ORDERED.

Narvasa, C.J., Regalado and Puno, JJ., concur.

Separate Opinions

PADILLA, J., dissenting: chanrob1es virtual 1aw library

Section 3, Rule 4 of the Rules of Court allows the parties to agree on the change or
transfer of venue.

The doctrine in Polytrade Corporation v. Blanco, 30 SCRA 187 (1969) which is upheld
by the majority in this case, that the general rules on venue remain applicable in the
absence of qualifying or restrictive words in the agreement which indicate that the place
specified is the only venue agreed upon, was laid down to prevent undue hardship or
inconvenience to the parties.

In my view, the issue of whether or not an agreement fixing the venue of actions
prevents the application of the general rule on venue under Sections 1 and 2 of Rule 4,
of Rules of Court, should be settled by keeping the purpose of the doctrine in mind.

There is hardly any question that a stipulation in contracts of adhesion, fixing venue to
a specified place only, is void for, in such cases, there would appear to be no valid and
free waiver of the venue fixed by the Rules of Court. However, in cases where both
parties freely and voluntarily agree on a specified place to be the venue of actions, if
any, between them, then the only considerations should be whether the waiver (of the
venue fixed by the Rules of Court) is against public policy whether the parties would
suffer, by reason of such waiver, undue hardship and inconvenience; otherwise, such
waiver of venue should be upheld as binding on the parties. The waiver of venue in
such cases is sanctioned by the Rules of Court and would still be subject to and limited
by the rules on jurisdiction.
chanrobles virtual lawlibrary

In the case at bench, there is no showing that any party would, in any way, be unduly
inconvenienced in adhering to their agreed venue; besides, the two (2) venues
involved, namely Makati and Manila, are so geographically close to each other, such
that there is no perceivable reason why there would be any substantial difference
between the said two (2) venues. In such a case, the venue agreed by the parties
should control.

I therefore vote to DENY the petition and uphold the decision of the court a quo.
 THIRD DIVISION

[G.R. NO. 173979 : February 12, 2007]

AUCTION IN MALINTA, INC., Petitioner, v. WARREN EMBES

LUYABEN, Respondent.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this Petition for Review under Rule 45 of the Rules of Court is the May 31,
2005 Decision1 of the Court of Appeals in CA-G.R. CV No. 78456, which held that venue
was properly laid before the Regional Trial Court of Bulanao, Tabuk, Kalinga (Kalinga
RTC), and reversed the trial court's September 3, 2002 Resolution 2 dismissing the
complaint of respondent Warren Embes Lubayen in Civil Case No. 511, on the ground of
improper venue.

The facts show that on October 24, 2001, respondent, a resident of Magsaysay, Tabuk,
Kalinga, filed with the Kalinga RTC a complaint 3 for damages against petitioner Auction
in Malinta, Inc., a corporation with business address at Malinta, Valenzuela City, and
engaged in public auction of heavy equipments, trucks, and assorted machineries.
Respondent alleged that in an auction conducted by petitioner on May 29, 2001, he was
declared the highest bidder for a wheel loader T.C.M. 75B, series no. 3309. On June 7,
2001, respondent tendered the payment for the said item but petitioner could no longer
produce the loader. It offered a replacement but failed to deliver the same up to the
filing of the complaint. Hence, respondent instituted this case to recover actual, moral,
and exemplary damages plus attorney's fees.

Petitioner filed a motion to dismiss on the ground of improper venue. It argued that the
correct venue is the RTC of Valenzuela City pursuant to the stipulation in the Bidders
Application and Registration Bidding Agreement which states that:

All Court litigation procedures shall be conducted in the appropriate Courts of

Valenzuela City, Metro Manila.4

In a Resolution dated September 3, 2002, the Kalinga RTC held that the clear intention
of the parties was to limit the venue to the proper court of Valenzuela City and thus
dismissed respondent's complaint on the ground of improper venue. 5

Aggrieved, respondent appealed to the Court of Appeals which reversed the Resolution
of the Kalinga RTC and reinstated the complaint. The dispositive portion thereof, reads:

WHEREFORE, the Resolution appealed from is hereby REVERSED and SET ASIDE. The
case is remanded to the RTC which is ordered to reinstate plaintiff's complaint for
damages.

SO ORDERED.6

Petitioner's motion for reconsideration was denied; hence, the instant petition.

The sole issue is whether the stipulation in the parties' Bidders Application and
Registration Bidding Agreement effectively limited the venue of the instant case
exclusively to the proper court of Valenzuela City.

The Court rules in the negative.

The general rule on the venue of personal actions, as in the instant case for
damages7 filed by respondent, is embodied in Section 2, Rule 4 of the Rules of Court. It
provides:

Sec. 2. Venue of personal actions. - All other actions may be commenced and tried
where the plaintiff or any of the principal plaintiffs resides, or where the defendant or
any of the principal defendants resides, or in the case of a nonresident defendant,
where he may be found, at the election of the plaintiff.

The aforequoted rule, however, finds no application where the parties, before the filing
of the action, have validly agreed in writing on an exclusive venue. 8 But the mere
stipulation on the venue of an action is not enough to preclude parties from bringing a
case in other venues. It must be shown that such stipulation is exclusive.  In the
absence of qualifying or restrictive words, such as "exclusively" and "waiving for this
purpose any other venue,"9 "shall only" preceding the designation of venue, 10 "to the
exclusion of the other courts,"11 or words of similar import, the stipulation should be
deemed as merely an agreement on an additional forum, not as limiting venue to the
specified place.12

This has been the rule since the 1969 case of Polytrade Corporation v. Blanco. 13 It was
held therein that the clause - "[t]he parties agree to sue and be sued in the Courts of
Manila," does not preclude the filing of suits in the court which has jurisdiction over the
place of residence of the plaintiff or the defendant. The plain meaning of the said
provision is that the parties merely consented to be sued in Manila considering that
there are no qualifying or restrictive words which would indicate that Manila, and Manila
alone, is the agreed venue. It simply is permissive and the parties did not waive their
right to pursue remedy in the courts specifically mentioned in Section 2 of Rule 4 of the
Rules of Court.14

The Polytrade doctrine was further applied in the case of Unimasters Conglomeration,
Inc. v. Court of Appeals,15 which analyzed the various jurisprudence rendered after the
Polytrade case. In Unimasters, we held that a stipulation stating that "[a]ll suits arising
out of this Agreement shall be filed with/in the proper Courts of Quezon City," 16 is only
permissive and does not limit the venue to the Quezon City courts. As explained in the
said case:

In other words, unless the parties make very clear, by employing categorical and
suitably limiting language, that they wish the venue of actions between them to be laid
only and exclusively at a definite place, and to disregard the prescriptions of Rule 4,
agreements on venue are not to be regarded as mandatory or restrictive, but merely
permissive, or complementary of said rule. The fact that in their agreement the parties
specify only one of the venues mentioned in Rule 4, or fix a place for their actions
different from those specified by said rule, does not, without more, suffice to
characterize the agreement as a restrictive one. There must, to repeat, be
accompanying language clearly and categorically expressing their purpose and design
that actions between them be litigated only at the place named by them, regardless of
the general precepts of Rule 4; and any doubt or uncertainty as to the parties'
intentions must be resolved against giving their agreement a restrictive or mandatory
aspect. Any other rule would permit of individual, subjective judicial interpretations
without stable standards, which could well result in precedents in hopeless
inconsistency.17

The rule enunciated in Unimasters and Polytrade was reiterated in subsequent cases
where the following agreements on venue were likewise declared to be merely
permissive and do not limit the venue to the place specified therein, to wit:

1. "If court litigation becomes necessary to enforce collection, an additional equivalent

(sic) to 25% of the principal amount will be charged. The agreed venue for such action
is Makati, Metro Manila, Philippines."18
2. "In case of litigation hereunder, venue shall be in the City Court or Court of First
Instance of Manila as the case may be for determination of any and all questions arising
thereunder."19

Then too, the doctrine that absent qualifying or restrictive words, the venue shall either
be that stated in the law or rule governing the action or the one agreed in the contract,
was applied to an extra-judicial foreclosure sale under Act No. 3135. 20 In Langkaan
Realty Development, Inc. v. United Coconut Planters Bank   ,21 where the provision
ςηαñrοblεš  Î½Î¹r† Ï…αl   lαω  lιbrαrà ¿

on the venue employed the word "shall" to refer to the place where the foreclosure will
be held, the Court ruled that said provision "lack(s) qualifying or restrictive words to
indicate the exclusivity of the agreed forum," and therefore "the stipulated place is
considered only as an additional, not a limiting venue." 22 The said stipulation reads:

It is hereby agreed that in case of foreclosure of this mortgage under Act 3135, as
amended, and Presidential Decree No. 385, the auction sale shall be held at the capital
of the province, if the property is within the territorial jurisdiction of the province
concerned, or shall be held in the city, if the property is within the territorial jurisdiction
of the city concerned.23

In the instant case, the stipulation in the parties' agreement, i.e., "all Court litigation
procedures shall be conducted in the appropriate Courts of Valenzuela City, Metro
Manila," evidently lacks the restrictive and qualifying words that will limit venue
exclusively to the RTC of Valenzuela City. Hence, the Valenzuela courts should only be
considered as an additional choice of venue to those mentioned under Section 2, Rule 4
of the Rules of Court. Accordingly, the present case for damages may be filed with the
(a) RTC of Valenzuela City as stipulated in the bidding agreement; (b) RTC of Bulanao,
Tabuk, Kalinga which has jurisdiction over the residence of respondent (plaintiff); or
with the (c) RTC of Valenzuela City which has jurisdiction over the business address of
petitioner (defendant). The filing of the complaint in the RTC of Bulanao, Tabuk,
Kalinga, is therefore proper, respondent being a resident of Tabuk, Kalinga.

The case of Hoechst Philippines, Inc. v. Torres,24 promulgated in 1978, and invoked by

petitioner in its motion to dismiss, had already been superseded by current decisions on
venue. In the said case, the Court construed the proviso: "[i]n case of any litigation
arising out of this agreement, the venue of action shall be in the competent courts of
the Province of Rizal,"25 as sufficient to limit the venue to the proper court of Rizal.
However, in Supena v. De la Rosa,26 we ruled that Hoechst had been rendered obsolete
by recent jurisprudence applying the doctrine enunciated in Polytrade.

In sum, we find that the Court of Appeals correctly declared that venue in the instant
case was properly laid with the RTC of Bulanao, Tabuk, Kalinga. ςηαñrοblεš  Î½Î¹r† Ï…αl  lαω  lιbrαrà ¿

WHEREFORE, the petition is DENIED. The May 31, 2005 Decision of the Court of

Appeals in CA-G.R. CV No. 78456 which reversed the September 3, 2002 Resolution of
the Regional Trial Court of Bulanao, Tabuk, Kalinga; reinstated the complaint in Civil
Case No. 511; and remanded the case to the said court, is AFFIRMED.

Costs against petitioner.

SO ORDERED.
 FIRST DIVISION

[G.R. No. 144169. March 28, 2001.]

KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN
KHE, Petitioners, v. COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147,
MAKATI CITY and PHILAM INSURANCE CO., INC., Respondents.

DECISION

KAPUNAN, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45, seeking to set
aside the decision of the Court of Appeals dated April 10, 2000 and its resolution dated
July 11, 2000 denying the motion for reconsideration of the aforesaid decision. The
original complaint that is the subject matter of this case is an accion pauliana — an
action filed by Philam Insurance Company, Inc. (respondent Philam) to rescind or annul
the donations made by petitioner Khe Hong Cheng allegedly in fraud of creditors. The
main issue for resolution is whether or not the action to rescind the donations has
already prescribed. While the first paragraph of Article 1389 of the Civil Code states:
"The action to claim rescission must be commenced within four years . . ." the question
is, from which point or event does this prescriptive period commence to run? chanrob1es virtua1 1aw 1ibrary

The facts are as follows: chanrob1es virtual 1aw library

Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. It
appears that on or about October 4, 1985, the Philippine Agricultural Trading
Corporation shipped on board the vessel M/V PRINCE ERIC, owned by petitioner Khe
Hong Cheng, 3,400 bags of copra at Masbate, Masbate, for delivery to Dipolog City,
Zamboanga del Norte. The said shipment of copra was covered by a marine insurance
policy issued by American Home Insurance Company (respondent Philam’s assured).
M/V PRINCE ERIC, however, sank somewhere between Negros Island and Northeastern
Mindanao, resulting in the total loss of the shipment. Because of the loss, the insurer,
American Home, paid the amount of P354,000.00 (the value of the copra) to the
consignee.

Having been subrogated into the rights of the consignee, American Home instituted
Civil Case No. 13357 in the Regional Trial Court (RTC) of Makati, Branch 147 to recover
the money paid to the consignee, based on breach of contract of carriage. While the
case was still pending, or on December 20, 1989, petitioner Khe Hong Cheng executed
deeds of donations of parcels of land in favor of his children, herein co-petitioners
Sandra Joy and Ray Steven. The parcel of land with an area of 1,000 square meters
covered by Transfer Certificate of Title (TCT) No. T-3816 was donated to Ray Steven.
Petitioner Khe Hong Cheng likewise donated in favor of Sandra Joy two (2) parcels of
land located in Butuan City, covered by TCT No. RT-12838. On the basis of said deeds,
TCT No. T-3816 was cancelled and in lieu thereof, TCT No. T-5072 was issued in favor
of Ray Steven and TCT No. RT-12838 was cancelled and in lieu thereof, TCT No. RT-
21054 was issued in the name of Sandra Joy.

The trial court rendered judgment against petitioner Khe Hong Cheng in Civil Case No.
13357 on December 29, 1993, four years after the donations were made and the TCTs
were registered in the donees’ names. The decretal portion of the aforesaid decision
reads:jgc:chanrobles.com.ph

"Wherefore, in view of the foregoing, the Court hereby renders judgment in favor of the
plaintiff and against the defendant, ordering the latter to pay the former: chanrob1es virtual 1aw library

1) the sum of P354,000.00 representing the amount paid by the plaintiff to the
Philippine Agricultural Trading Corporation with legal interest at 12% from the time of
the filing of the complaint in this case;
2) the sum of P50,000.00 as attorney’s fees;

3) the costs. 1

After the said decision became final and executory, a writ of execution was forthwith,
issued on September 14, 1995. Said writ of execution, however, was not served. An
alias writ of execution was, thereafter, applied for and granted in October 1996. Despite
earnest efforts, the sheriff found no property under the name of Butuan Shipping Lines
and/or petitioner Khe Hong Cheng to levy or garnish for the satisfaction of the trial
court’s decision. When the sheriff, accompanied by counsel of respondent Philam, went
to Butuan City on January 17, 1997, to enforce the alias writ of execution, they
discovered that petitioner Khe Hong Cheng no longer had any property and that he had
conveyed the subject properties to his children.

On February 25, 1997, respondent Philam filed a complaint with the Regional Trial
Court of Makati City, Branch 147, for the rescission of the deeds of donation executed
by petitioner Khe Hong Cheng in favor of his children and for the nullification of their
titles (Civil Case No. 97-415). Respondent Philam alleged, inter alia, that petitioner Khe
Hong Cheng executed the aforesaid deeds in fraud of his creditors, including respondent
Philam. 2

Petitioners subsequently filed their answer to the complaint a quo. They moved for its
dismissal on the ground that the action had already prescribed. They posited that the
registration of the deeds of donation on December 27, 1989 constituted constructive
notice and since the complaint a quo was filed only on February 25, 1997, or more than
four (4) years after said registration, the action was already barred by prescription. 3

Acting thereon, the trial court denied the motion to dismiss. It held that respondent
Philam’s complaint had not yet prescribed. According to the trial court, the prescriptive
period began to run only from December 29, 1993, the date of the decision of the trial
court in Civil Case No. 13357. 4

On appeal by petitioners, the CA affirmed the trial court’s decision in favor of

respondent Philam. The CA declared that the action to rescind the donations had not
yet prescribed. Citing Articles 1381 and 1383 of the Civil Code, the CA basically ruled
that the four year period to institute the action for rescission began to run only in
January 1997, and not when the decision in the civil case became final and executory
on December 29, 1993. The CA reckoned the accrual of respondent Philam’s cause of
action on January 1997, the time when it first learned that the judgment award could
not be satisfied because the judgment creditor, petitioner Khe Hong Cheng, had no
more properties in his name. Prior thereto, respondent Philam had not yet exhausted all
legal means for the satisfaction of the decision in its favor, as prescribed under Article
1383 of the Civil Code. 5

The Court of Appeals thus denied the petition for certiorari filed before it, and held that
the trial court did not commit any error in denying petitioners’ motion to dismiss. Their
motion for reconsideration was likewise dismissed in the appellate court’s resolution
dated July 11, 2000.

Petitioners now assail the aforesaid decision and resolution of the CA alleging that: chanrob1es virtual 1aw library

PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE ABUSE OF DISCRETION

WHEN IT DENIED THE PETITION TO DISMISS THE CASE BASED ON THE GROUND OF
PRESCRIPTION. chanrob1es virtua1 1aw 1ibrary

II
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT
PRESCRIPTION BEGINS TO RUN WHEN IN JANUARY 1997 THE SHERIFF WENT TO
BUTUAN CITY IN SEARCH OF PROPERTIES OF PETITIONER FELIX KHE CHENG TO
SATISFY THE JUDGMENT IN CIVIL CASE NO. 13357 AND FOUND OUT THAT AS EARLY
AS DEC. 20, 1989, PETITIONERS KHE CHENG EXECUTED THE DEEDS OF DONATIONS
IN FAVOR OF HIS CO-PETITIONERS THAT THE ACTION FOR RESCISSION ACCRUED
BECAUSE PRESCRIPTION BEGAN TO RUN WHEN THESE DONATIONS WERE
REGISTERED WITH THE REGISTER OF DEEDS IN DECEMBER 1989, AND WHEN THE
COMPLAINT WAS FILED ONLY IN FEBRUARY 1997, MORE THAN FOUR YEARS HAVE
ALREADY LAPSED AND THEREFORE, IT HAS ALREADY PRESCRIBED. 6

Essentially, the issue for resolution posed by petitioners is this: When did the four (4)
year prescriptive period as provided for in Article 1389 of the Civil Code for respondent
Philam to file its action for rescission of the subject deeds of donation commence to
run?

The petition is without merit.

Article 1389 of the Civil Code simply provides that, "The action to claim rescission must
be commenced within four years." Since this provision of law is silent as to when the
prescriptive period would commence, the general rule, i.e, from the moment the cause
of action accrues, therefore, applies. Article 1150 of the Civil Code is particularly
instructive: chanrob1es virtual 1aw library

ARTICLE 1150. The time for prescription for all kinds of actions, when there is no
special provision which ordains otherwise, shall be counted from the day they may be
brought.

Indeed, this Court enunciated the principle that it is the legal possibility of bringing the
action which determines the starting point for the computation of the prescriptive
period for the action. 7 Article 1383 of the Civil Code provides as follows: chanrob1es virtual 1aw library

ARTICLE 1383. An action for rescission is subsidiary; it cannot be instituted except

when the party suffering damage has no other legal means to obtain reparation for the
same.

It is thus apparent that an action to rescind or an accion pauliana must be of last

resort, availed of only after all other legal remedies have been exhausted and have
been proven futile. For an accion pauliana to accrue, the following requisites must
concur:chanrob1es virtual 1aw library

1) That the plaintiff asking for rescission, has a credit prior to the alienation, although
demandable later; 2) That the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person; 3) That the creditor has no other legal remedy to
satisfy his claim, but would benefit by rescission of the conveyance to the third person;
4) That the act being impugned is fraudulent; 5) That the third person who received the
property conveyed, if by onerous title, has been an accomplice in the fraud. 8
(Emphasis ours)

We quote with approval the following disquisition of the CA on the matter: chanrob1es virtual 1aw library

An accion pauliana accrues only when the creditor discovers that he has no other legal
remedy for the satisfaction of his claim against the debtor other than an accion
pauliana. The accion pauliana is an action of a last resort. For as long as the creditor
still has a remedy at law for the enforcement of his claim against the debtor, the
creditor will not have any cause of action against the creditor for rescission of the
contracts entered into by and between the debtor and another person or persons.
Indeed, an accion pauliana presupposes a judgment and the issuance by the trial court
of a writ of execution for the satisfaction of the judgment and the failure of the Sheriff
to enforce and satisfy the judgment of the court. It presupposes that the creditor has
exhausted the property of the debtor. The date of the decision of the trial court against
the debtor is immaterial. What is important is that the credit of the plaintiff antedates
that of the fraudulent alienation by the debtor of his property. After all, the decision of
the trial court against the debtor will retroact to the time when the debtor became
indebted to the creditor. 9

Petitioners, however, maintain that the cause of action of respondent Philam against
them for the rescission of the deeds of donation accrued as early as December 27,
1989, when petitioner Khe Hong Cheng registered the subject conveyances with the
Register of Deeds. Respondent Philam allegedly had constructive knowledge of the
execution of said deeds under Section 52 of Presidential Decree No. 1529, quoted infra,
as follows:chanrob1es virtual 1aw library

SECTION 52. Constructive knowledge upon registration. — Every conveyance,

mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting
registered land shall, if registered, filed or entered in the Office of the Register of Deeds
for the province or city where the land to which it relates lies, be constructive notice to
all persons from the time of such registering, filing, or entering. chanrob1es virtua1 1aw 1ibrary

Petitioners argument that the Civil Code must yield to the Mortgage and Registration
Laws is misplaced, for in no way does this imply that the specific provisions of the
former may be all together ignored. To count the four year prescriptive period to
rescind an allegedly fraudulent contract from the date of registration of the conveyance
with the Register of Deeds, as alleged by the petitioners, would run counter to Article
1383 of the Civil Code as well as settled jurisprudence. It would likewise violate the
third requisite to file an action for rescission of an allegedly fraudulent conveyance of
property, i.e., the creditor has no other legal remedy to satisfy his claim.

An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance by

the trial court of a writ of execution for the satisfaction of the judgment, and 3) the
failure of the sheriff to enforce and satisfy the judgment of the court. It requires that
the creditor has exhausted the property of the debtor. The date of the decision of the
trial court is immaterial. What is important is that the credit of the plaintiff antedates
that of the fraudulent alienation by the debtor of his property. After all, the decision of
the trial court against the debtor will retroact to the time when the debtor became
indebted to the creditor.

Tolentino, a noted civilist, explained: jgc:chanrobles.com.ph

". . . [T]herefore, credits with suspensive term or condition are excluded, because the
accion pauliana presupposes a judgment and unsatisfied execution, which cannot exist
when the debt is not yet demandable at the time the rescissory action is brought.
Rescission is a subsidiary action, which presupposes that the creditor has exhausted the
property of the debtor which is impossible in credits which cannot be enforced because
of a suspensive term or condition.

While it is necessary that the credit of the plaintiff in the accion pauliana must be prior
to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if
the judgment be subsequent to the alienation, it is merely declaratory with retroactive
effect to the date when the credit was constituted." 10

These principles were reiterated by the Court when it explained the requisites of an
accion pauliana in greater detail, to wit: jgc:chanrobles.com.ph

"The following successive measures must be taken by a creditor before he may bring an
action for rescission of an allegedly fraudulent sale: (1) exhaust the properties of the
debtor through levying by attachment and execution upon all the property of the
debtor, except such as are exempt from execution; (2) exercise all the rights and
actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek
rescission of the contracts executed by the debtor in fraud of their rights (accion
pauliana). Without availing of the first and second remedies, i.e., exhausting the
properties of the debtor or subrogating themselves in Francisco Bareg’s transmissible
rights and actions. petitioners simply undertook the third measure and filed an action
for annulment of sale. This cannot be done." 11 (Emphasis ours)
In the same case, the Court also quoted the rationale of the CA when it upheld the
dismissal of the accion pauliana on the basis of lack of cause of action: jgc:chanrobles.com.ph

"In this case, plaintiff’s appellants had not even commenced an action against
defendants-appellees Bareng for the collection of the alleged indebtedness. Plaintiffs-
appellants had not even tried to exhaust the property of defendants-appellees Bareng.
Plaintiffs-appellants, in seeking the rescission of the contracts of sale entered into
between defendants-appellees, failed to show and prove that defendants-appellees
Bareng had no other property, either at the time of the sale or at the time this action
was filed, out of which they could have collected this (sic) debts." (Emphasis ours)

Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe
Hong Cheng had executed the deeds of donation in favor of his children, the complaint
against Butuan Shipping Lines and/or petitioner Khe Hong Cheng was still pending
before the trial court. Respondent Philam had no inkling, at the time, that the trial
court’s judgment would be in its favor and further, that such judgment would not be
satisfied due to the deeds of donation executed by petitioner Khe Hong Cheng during
the pendency of the case. Had respondent Philam filed his complaint on December 27,
1989, such complaint would have been dismissed for being premature. Not only were
all other legal remedies for the enforcement of respondent Philam’s claims not yet
exhausted at the time the deeds of donation were executed and registered. Respondent
Philam would also not have been able to prove then that petitioner Khe Hong Cheng
had no more property other than those covered by the subject deeds to satisfy a
favorable judgment by the trial court. chanrob1es virtua1 1aw 1ibrary

It bears stressing that petitioner Khe Hong Cheng even expressly declared and
represented that he had reserved to himself property sufficient to answer for his debts
contracted prior to this date:jgc:chanrobles.com.ph

"That the DONOR further states, for the same purpose as expressed in the next
preceding paragraph, that this donation is not made with the object of defrauding his
creditors having reserved to himself property sufficient to answer his debts contracted
prior to this date." 12

As mentioned earlier, respondent Philam only learned about the unlawful conveyances
made by petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the
sheriff to Butuan City to attach the properties of petitioner Khe Hong Cheng. There they
found that he no longer had any properties in his name. It was only then that
respondent Philam’s action for rescission of the deeds of donation accrued because then
it could be said that respondent Philam had exhausted all legal means to satisfy the
trial court’s judgment in its favor. Since respondent Philam filed its complaint for accion
pauliana against petitioners on February 25, 1997, barely a month from its discovery
that petitioner Khe Hong Cheng had no other property to satisfy the judgment award
against him, its action for rescission of the subject deeds clearly had not yet prescribed.

A final point. Petitioners now belatedly raise on appeal the defense of improper venue
claiming that respondent Philam’s complaint is a real action and should have been filed
with the RTC of Butuan City since the property subject matter of the donations are
located therein. Suffice it to say that petitioners are already deemed to have waived
their right to question the venue of the instant case. Improper venue should be
objected to as follows 1) in a motion to dismiss filed within the time but before the filing
of the answer; 13 or 2) in the answer as an affirmative defense over which, in the
discretion of the court, a preliminary hearing may be held as if a motion to dismiss had
been filed. 14 Having failed to either file a motion to dismiss on the ground of improper
of venue or include the same as an affirmative defense in their answer, petitioners are
deemed to have their right to object to improper venue.

WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.

SO ORDERED.