SECOND DIVISION

[G.R. No. 132684. September 11, 2002

HERNANI N. FABIA, Petitioner, v. COURT OF APPEALS, DEPARTMENT OF JUSTICE, OFFICE

OF THE CITY PROSECUTOR OF MANILA, RTC-Br. 22, MANILA and THE MARITIME TRAINING
CENTER OF THE PHILIPPINES (MTCP), Respondents.

RESOLUTION

BELLOSILLO, J.:

This resolves the 9 October 2001 Motion for Clarification of Judgment filed by private
respondent which seeks the elucidation of the 20 August 2001 Decision of this Court by
praying that the Regional Trial Court of Manila that will hear Crim. Case No. 98-162570 be
directed to arraign petitioner, try the case and render judgment thereon as the facts may
warrant.

It will be recalled that in the subject Decision of 20 August 2001 this Court reversed and set
aside the Decision of the Court of Appeals of 12 November 1997 as well as its Resolution of
9 February 1998, this Court holding that Crim. Case No. 98-162570 involves an intra-
corporate dispute over which the Securities and Exchange Commission (SEC) has
jurisdiction and not the regular courts. Cognizant however that The Securities Regulation
Code (RA 8799) amending PD 902-A has effectively vested upon the Regional Trial Courts
jurisdiction over all cases formerly cognizable by the SEC, this Court ordered that Crim.
Case No. 98-162570 be transferred to the appropriate branch of the Regional Trial Court of
Manila tasked to handle intra-corporate matters pursuant to A.M. No. 00-11-3-SC.

As the motion for clarification in effect urges the reversal of the questioned Decision of the
Court of Appeals, this Court in its Resolution of 12 November 2001 resolved to treat the
motion of private respondent MTCP as a motion for reconsideration and required petitioner
to file his comment thereon.

In his Comment petitioner Fabia prays for the denial of MTCPs motion, arguing that it does
not assign any error on the findings and conclusions of law made by this Court as it in fact
even accepted the ratio decidendi behind the resolution of the case. Petitioner likewise
insists that there is no ambiguity in the Decision as it clearly mandates the dismissal of the
criminal case for estafa filed against him after a finding that the matter involved an intra-
corporate dispute within the jurisdiction of the SEC.

In its Reply private respondent MTCP stresses that Crim. Case No. 98-162570 remains to be
a criminal proceeding and may not be converted into an administrative action. It reasons
that the substance of the assailed Decision of the Court of Appeals that there is probable
cause to indict petitioner for the crime of estafa was after all not reversed by the Decision of
this Court of 20 August 2001 as only the procedural aspect was modified.

In its Resolution of 17 April 2002 this Court set the case for oral argument on 16 June 2002
during which the principal issue was defined and discussed: Whether the prosecution for
violation of PD 902-A as amended by RA 8799 is without prejudice to any liability for
violation of The Revised Penal Code.
Petitioner Fabia argues that there is no ambiguity in the Decision as it clearly mandates the
dismissal of the criminal case filed before the RTC of Manila upon the Court's finding that
the matter involves an intra-corporate dispute within the jurisdiction of the SEC, and not of
the regular courts. Petitioner concedes that the dismissal of the criminal action is without
prejudice to the filing of an intra-corporate/civil case for violation of PD 902-A as amended
by RA 8799 before the RTC which currently exercises jurisdiction over corporate matters.
However, invoking the doctrine of primary jurisdiction, petitioner reasons that his
corporate/civil prosecution must first be resolved before the criminal action could be filed.
Citing Saavedra v. Securities and Exchange Commission,1 petitioner argues that under the
doctrine of primary jurisdiction the public prosecutor in the instant case has no authority to
rule in a preliminary investigation on a criminal charge arising from an intra-corporate
dispute absent prior resolution of the SEC on the matter. Petitioner notes that Saavedra
does not deprive the public prosecutors of their jurisdiction to determine the propriety of
filing criminal cases, but merely calls for a deferment of the exercise of such criminal
jurisdiction pending prior determination by the pertinent administrative agency of the issues
involved in the case. Petitioner contends that a violation of the doctrine of primary
jurisdiction is jurisdictional in nature and is not rendered moot by RA 8799.

Petitioner also avers that RA 8799 is not a curative statute and hence cannot apply
retroactively. He explains that curative statutes are intended to retroactively apply to cases
pending before their enactment to supply defects, abridge superfluities in the existing law
and curb certain evils, or to correct a situation involving conflicting jurisdictions - curative
effects which are not evident under RA 8799 as the legislative intent on the transfer of
jurisdiction over SEC cases to the regular courts is merely to enable the SEC to concentrate
more on its regulatory functions.

Petitioner stresses that prior to RA 8799 it was the SEC which had primary jurisdiction over
the instant controversy as the governing law then was PD 902-A. He argues that a
subsequent law cannot apply retroactively so as to confer jurisdiction upon the city
prosecutor and/or regular courts to render a decision which under the law applicable at the
time of the rendition of the decision was clearly outside the competence of the prosecutor or
the courts. He clarifies that RA 8799 has retroactive application only insofar as it applies to
cases pending before the SEC and have not yet been submitted for resolution upon its
effectivity.

Respondent MTCP does not agree. It maintains that Crim. Case No. 98-162570 subsists,
and simultaneously with it, a civil case may be filed for violation of RA 8799. It argues that
petitioner is being prosecuted for fraud defined and penalized under The Revised Penal Code
which is not a law administered by the SEC; hence, the SEC has no jurisdiction over the
criminal case as it lies with the regular courts. It contends however that a civil/intra-
corporate case may be filed and prosecuted simultaneously with the criminal case. It argues
that the doctrine of primary jurisdiction does not apply as there is no controversy between
petitioner and private respondent pending before the SEC or any administrative agency
since it filed a criminal complaint.

Respondent further claims that RA 8799 rendered the doctrine of primary jurisdiction moot
and academic since the rationale behind the prior referral of intra-corporate controversies to
the then SEC before the public prosecutor could act on them for purposes of criminal
prosecution, i.e., to implore the special knowledge, experience and services of the
administrative agency to ascertain technical and intricate matters, no longer stands since
the newly enacted law recognizes that the regular courts now have the legal competence to
decide intra-corporate disputes. Respondent also argues that Saavedra is not applicable
since it involved a pure and simple intra-corporate controversy, i.e., the ownership of stocks
in a corporation, which is far different from the criminal nature of the instant case.

MTCP likewise claims that RA 8799 has rendered moot and academic the issue of
jurisdiction. It argues that when a case is filed with the court which originally has no
jurisdiction over the case but in the meantime a law is passed vesting that court with
jurisdiction to try the case, the jurisdiction of that court will be sustained on the theory that
the enabling law is curative in nature and therefore has retroactive effect. It notes that
before the jurisdictional issue on the authority of the Office of the Public Prosecutor of
Manila to conduct a preliminary investigation of what was claimed to be an intra-corporate
controversy was resolved with finality, the criminal case had already been filed with the RTC
and, in the meantime, RA 8799 was enacted transferring the intra-corporate jurisdiction of
the SEC to the RTC. There is thus no cogent reason to divest the RTC of jurisdiction that it
has already acquired over the case.

Section 5 of PD 902-A pertinently provides that the SEC shall have jurisdiction to hear and
decide cases involving (a) devices or schemes employed by, or any acts of, the board of
directors, business associates, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public and/or of the
stockholders, partners, members of associations or organizations registered with the
Commission, and (b) controversies arising out of intra-corporate or partnership relations,
between and among stockholders, members or associates; between any or all of them and
the corporation, partnership or association of which they are stockholders, members or
associates, respectively.

In synthesis, Sec. 5 of PD 902-A mandates that cases involving fraudulent actions and
devices which are detrimental to the interest of stockholders, members or associates and
directors of the corporation are within the original and exclusive jurisdiction of the SEC.
Taken in conjunction with Sec. 6 of the same law, it will be gathered that the fraudulent
acts/schemes which the SEC shall exclusively investigate and prosecute are those "in
violation of any law or rules and regulations administered and enforced by the Commission"
alone. This investigative and prosecutorial powers of the SEC are further "without prejudice
to any liability for violation of any provision of The Revised Penal Code."

From the foregoing, it can thus be concluded that the filing of the civil/intra-corporate case
before the SEC does not preclude the simultaneous and concomitant filing of a criminal
action before the regular courts; such that, a fraudulent act may give rise to liability for
violation of the rules and regulations of the SEC cognizable by the SEC itself, as well as
criminal liability for violation of the Revised Penal Code cognizable by the regular courts,
both charges to be filed and proceeded independently, and may be simultaneously, with the
other.

It can be discerned from the affidavit-complaint of MTCP President Exequiel B. Tamayo that
he sufficiently alleged acts sufficient to constitute the crime of estafa as well as to give rise
to a prosecution for violation of PD 902-A. The affidavit-complaint alleged that petitioner
Fabia failed to liquidate his cash advances amounting to P1,291,376.61. These cash
advances were drawn by petitioner in his capacity as then president of the corporation and
include those which were taken purportedly for the purpose of buying office equipment and
appliances which petitioner however failed to deliver despite demands as he apparently had
converted or misappropriated it to his own use and benefit to the prejudice and damage of
respondent MTCP.
These incidents are cognizable not only by the then intra-corporate jurisdiction of the SEC
but could also very well fall within the criminal jurisdiction of the regular courts. The acts
charged may be in the nature of an intra-corporate dispute as they involve fraud committed
by virtue of the office assumed by petitioner as President, Director and stockholder in MTCP,
and committed against the MTCP corporation, and therefore violative of SEC rules and
regulations. An intra-corporate controversy involves fraudulent actions and devices which
are detrimental to the interest of stockholders, directors and the corporation. It is one which
arises between stockholders and the corporation. In Abejo v. de la Cruz,2 the Court held
that there is no distinction, qualification nor any exemption whatsoever, as the provision is
broad and covers all kinds of controversies between stockholders and corporations. The
alleged failure of petitioner to liquidate and settle his cash advances with respondent MTCP
despite demand qualifies as one such controversy.

In the same vein, the alleged fraudulent acts constitute the elements of abuse of
confidence, deceit or fraudulent means, and damage under Art. 315 of The Revised Penal
Code on estafa. In this case, the relationship of the party-litigants with each other or the
position held by petitioner as a corporate officer in respondent MTCP during the time he
committed the crime becomes merely incidental and holds no bearing on jurisdiction. What
is essential is that the fraudulent acts are likewise of a criminal nature and hence cognizable
by the regular courts.

Be that as it may, petitioner argues that a charge of estafa against him cannot prosper. He
insists that no finding of probable cause may be made against him during a preliminary
investigation as a question of accounting still exists between him and private respondent.
Respondent MTCP believes otherwise.

We hold for respondent. Probable cause has been defined as the existence of such facts and
circumstances as would excite the belief, in a reasonable mind, acting on the facts within
the knowledge of the prosecutor, that the person charged was guilty of the crime for which
he was prosecuted.3 It has been explained as a reasonable presumption that a matter is, or
may be, well founded, such a state of facts in the mind of the prosecutor as would lead a
person of ordinary caution and prudence to believe, or entertain an honest or strong
suspicion, that a thing is so. The term does not mean "actual and positive cause" nor does it
import absolute certainty. It is merely based on opinion and reasonable belief. Thus a
finding of probable cause does not require an inquiry into whether there is sufficient
evidence to procure a conviction. It is enough that it is believed that the act or omission
complained of constitutes the offense charged, as there is a trial for the reception of
evidence of the prosecution in support of the charge.4

Respondent MTCP through its President Exequiel B. Tamayo alleges that petitioner Fabia, as
then president of the corporation, drew cash advances from the corporation in huge
amounts which he failed to liquidate despite demand. Respondent also claims that certain
cash vouchers show that cash was received by petitioner for the purpose of procuring office
equipment and materials which upon inventory however failed to materialize. These
accusations infer that the acquisitions were facilitated through the office or position
occupied by petitioner and as a consequence of which respondent was in dire straits to pay
its loan of P850,000.00 owing to the Bank of the Philippine Islands (BPI) - circumstances
which make up the elements of abuse of confidence and damages and give rise to the
presumption or reasonable belief that the offense of estafa has been committed and thus
the filing of an Information against petitioner is warranted.
Petitioner disagrees and contends that a proper accounting of the amount owing from him
should first be conducted before probable cause for estafa can be established since a
discrepancy of the amounts allegedly owed by him exists, i.e., the Information for estafa
declares a balance of P1,291,376.61 while the audit report of MTCP's external auditor and
its Treasurer's report declare the amounts of P1,333,699.89 and P766,135.05 respectively.

Prior accounting is not an element of the offense and hence its absence would not preclude
the finding of probable cause for estafa against petitioner. In fact, accounting does not
seem to be inexistent in this case, as the records show that it has been conducted on two
(2) occasions by two (2) separate entities - the auditing firm of Mendoza Ignacio Corvera
and Company, and MTCP's own Treasurer, only that petitioner deems it defective due to the
divergent amounts computed by the two (2) entities as allegedly owed by him.

In his Reply-Affidavit petitioner admits that the auditing firm of Mendoza Ignacio Corvera
and Company determined his accountability to MTCP to be P1,291,376.61 but alleges that
he was not furnished copy of the audit report thus he doubts that it was ever conducted.
MTCP on the other hand claims that petitioner was notified thereof through an audit report,
a copy of which petitioner himself had attached in his Comment dated 15 May 1998 and his
Petition before the Court of Appeals dated 2 May 1997. Given that the defense mounted by
the petitioner calls for an inquiry into the authenticity of the documents he relies upon, a
judicial determination, not a preliminary investigation, would be the proper occasion to
ferret out the truth.

Petitioner's reliance on Perez v. People,5 U.S. v. Camara,6 and U.S. v. Berbari7 which held

that there can be no estafa where a previous settlement of an account is necessary to
determine the balance owing the offended party is misplaced. As correctly discerned by the
Department of Justice, the present case involves a determination of probable cause, while
the Perez, Camara and Berbari cases delved into an inquiry on guilt beyond reasonable
doubt. Therein, the accused had all undergone trial and were found guilty of the offense
charged but were acquitted on appeal for lack of proof beyond reasonable doubt. In the
present case, the only issue is whether or not there is probable cause to warrant the filing of
the Information for estafa, which issue is resolved in the affirmative.

Concededly, the proper case in point is Cruz v. People8 where the president of the
corporation was likewise charged with estafa through falsification of public documents for
fraud he committed against the corporation. During preliminary investigation, the president
invoked the defense that the cash advances were loans to him that he had already paid -
the same line of defense herein petitioner Fabia is pursuing. In that case, the Court ruled
that such a defense does not defeat probable cause and such is best ventilated in the trial
court. Thus, petitioner's defense of accounting does not ipso facto clear him of prima facie
guilt. Being a matter of defense, its validity needs to be tested in the crucible of a full-blown
trial.

In that connection, petitioner in his Reply-Affidavit vehemently disclaimed any liability for
the amount demanded from him as he had already fully liquidated his cash advances and
averred that the complaint was instigated by those who would like to discredit him and
tarnish his name, and had attached copies of vouchers and checks to prove his innocence.
The presence or absence of the elements of the crime are evidentiary in nature and are
matters of defense, the truth of which can best be passed upon after a full-blown trial on
the merits. Litigation will prove petitioner's innocence if his defense be true.
The criminal case for estafa currently pending before the RTC can then independently and
simultaneously proceed with a civil/intra-corporate case to be filed with the Regional Trial
Court vested with special jurisdiction pursuant to The Securities Regulation Code (RA 8799).
With RA 8799 signed into law on 19 July 2000, which effectively amended Sec. 5 of PD 902-
A, jurisdiction over intra-corporate disputes is now vested in the Regional Trial Courts
designated by this Court pursuant to A.M. No. 00-11-03-SC promulgated on 21 November
2000. However, while Sec. 5 of PD No. 902-A was amended by Sec. 5.2 of RA 8799, there is
no repeal of Sec. 6 thereof declaring that prosecution under the Decree, or any Act, law,
rules and regulations enforced and administered by the SEC shall be without prejudice to
any liability for violation of any provision of The Revised Penal Code.

Moreover, as pointed out by the Department of Justice, Sec. 54 on Administrative Sanctions

found in RA 8799 itself provides that the imposition of the sanctions shall be without
prejudice to the filing of criminal charges against the individuals responsible for the
violation.

From the foregoing, it could be concluded that the fraudulent devices, schemes or
representations which, originally, the Prosecution and Enforcement Department of the SEC
would exclusively investigate and prosecute, are those in violation of any law or rules and
regulations administered and enforced by the SEC and shall be without prejudice to any
liability for violation of any provision of The Revised Penal Code. Hence, if the fraudulent act
is punished under The Revised Penal Code, like estafa under Art. 315, the responsible
person may be criminally prosecuted before the regular courts in addition to proceedings
before the branches of the RTC designated by this Court to try and decide intra-corporate
controversies.

Therefore, since the alleged fraudulent acts committed by petitioner pertaining to the non-
liquidation of his cash advances amounting to P1,291,376.61 constitute the offense of
estafa under Art. 315 of The Revised Penal Code, the criminal case may be prosecuted
independently and simultaneously with the corporate/civil case that may be filed for
violation of Sec. 5 of PD 902-A, as amended by RA 8799.

In light of the amendment brought about by RA 8799, the doctrine of primary jurisdiction no
longer precludes the simultaneous filing of the criminal case with the corporate/civil case.

In cases involving specialized disputes, the practice has been to refer the same to an
administrative agency of special competence in observance of the doctrine of primary
jurisdiction. The Court has ratiocinated that it cannot or will not determine a controversy
involving a question which is within the jurisdiction of the administrative tribunal prior to the
resolution of that question by the administrative tribunal, where the question demands the
exercise of sound administrative discretion requiring the special knowledge, experience and
services of the administrative tribunal to determine technical and intricate matters of fact,
and a uniformity of ruling is essential to comply with the premises of the regulatory statute
administered.9 The objective of the doctrine of primary jurisdiction is to guide a court in
determining whether it should refrain from exercising its jurisdiction until after an
administrative agency has determined some question or some aspect of some question
arising in the proceeding before the court.10 It applies where claim is originally cognizable in
the courts and comes into play whenever enforcement of the claim requires the resolution of
issues which, under a regulatory scheme, has been placed within the special competence of
an administrative body; in such case, the judicial process is suspended pending referral of
such issues to the administrative body for its view.11
However, as correctly observed by respondent MTCP, the rationale behind the prior referral
of intra-corporate controversies to the SEC before the public prosecutor could act on them
for purposes of criminal prosecution loses significance since the newly enacted law
recognizes that the specially designated RTC branches now have the legal competence to
decide intra-corporate disputes.

To support its contention, petitioner cites the landmark case of Saavedra. However, the
doctrine of primary jurisdiction prevailed therein because the dispute comprehends a pure
and simple intra-corporate controversy involving the ownership of stocks of the corporation
arising between and among the principal stockholders, while the instant case involves non-
liquidation of corporate funds by a corporate officer as he had allegedly misappropriated the
same for his own use and benefit. It was the SEC's authority to issue a temporary
restraining order enjoining the petitioners therein from disposing of the company assets that
was being challenged, not that of the regular courts, and it was upheld as it was clear that
the SEC had properly acquired jurisdiction over the subject matter. Resort to the doctrine of
primary jurisdiction was essential as the matter of sales of stocks of the corporation, and
thus its ownership, necessitates the expertise and competence of the SEC. It is not so in the
instant case, as the liability of petitioner for the alleged fraudulent acts is the issue under
contention.

WHEREFORE, the Decision of this Court of 20 August 2001 is modified as follows: The

Decision of the Court of Appeals of 12 November 1997 annulling and setting aside the
Resolution of the Department of Justice of 2 December 1996 and accordingly directing the
filing of an Information for estafa against petitioner Hernani N. Fabia in Crim. Case No. 98-
162570, "People of the Philippines v. Hernani N. Fabia," is AFFIRMED. The Regional Trial
Court, Branch 22, Manila, to which this criminal case was previously raffled and assigned, or
any branch of the court to which the case may properly be assigned, is directed to
immediately arraign petitioner Hernani N. Fabia and try his case until decided and
terminated. No costs.

SO ORDERED.

Mendoza, Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

 THIRD DIVISION

G.R. No. 174669 : September 19, 2012

BELLE CORPORATION, Petitioner, v. ERLINDA DE LEON-BANKS, RHODORA DE LEON-TIATCO, BETTY DE LEON-

TORRES, GREGORIO DE LEON, ALBERTO DE LEON, EUFRONIO DE LEON, * and MARIA ELIZA DE LEON-DE
GRANO, Respondents.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse and
set aside the Decision1Ï‚rνll of the Court of Appeals (CA), dated May 18,2006 in CA-G.R. CV No. 74669. The assailed
Decision nullified the Order of the Regional Trial Court (RTC) of Tanauan, Batangas, Branch 6 in Civil Case No. T-1
046, which dismissed herein petitioner's Amended Complaint. The petition also seeks to reverse and set aside the
CAs Resolution denying petitioner's Motion for Reconsideration.

The factual and procedural antecedents of the case, as summarized by the CA, are as
follows:chanroblesvirtuallawlibrary

Plaintiffs-appellants herein respondents Erlinda De Leon-Banks, Rhodora De Leon-Tiatco, Betty De Leon-Torres,

Gregorio De Leon, Alberto De Leon, Eufronio De Leon, Jr. and defendant-appellee Nelia De Leon-Alleje were seven
of the eight children of the late spouses Eufronio and Josefa De Leon (LATE SPOUSES), while plaintiff Maria Eliza De
Leon-De Grano also one of herein respondents was the daughter and sole heir of the late Angelina De Leon-De
Grano, the eighth child.

Defendant-appellee Alfredo Alleje was the husband of Nelia De Leon-Alleje (both hereinafter referred to as
SPOUSES ALLEJE), both of whom were the principal stockholders and officers of defendant-appellee Nelfred
Properties Corporation (NELFRED). Meanwhile, defendantappellee herein petitioner Belle Corporation BELLE was
the purchaser of the disputed property.

The disputed property was a 13.29 hectare parcel of unregistered land originally belonging to the late spouses
Eufronio and Josefa De Leon. It is located at Paliparan, Talisay, Batangas and was covered by various tax
declarations.

On February 9, 1979, a Deed of Absolute Sale (1979 DEED) was executed between the LATE SPOUSES and
NELFRED, represented therein by defendant-appellee Nelia De Leon-Alleje, wherein ownership of the property was
conveyed to Nelia De Leon-Alleje for P 60,000.00. At that time, the disputed property was covered by Tax
Declarations No. 0359 and No. 0361.

On December 19, 1980, the 1979 DEED was registered with the Register of Deeds. As time passed, several tax
declarations over the disputed property were obtained by NELFRED in its own name.

On September 23, 1997, x x x herein petitioner BELLE, on one hand, and NELFRED and SPOUSES ALLEJE on the
other, executed a Contract to Sell covering the disputed property for the purchase price of P 53,124,000.00 to be
paid in four installments. When the final installment had been paid, a Deed of Absolute Sale (1998 DEED) was
executed on June 24, 1998 between BELLE and NELFRED wherein the latter transferred ownership of the disputed
property to the former.
Meanwhile, on January 19, 1998, x x x herein respondents filed a Complaint for "Annulment of Deed of Sale,
Reconveyance of Property with Prayer for Issuance of a Writ of Preliminary Injunction and Damages" against the
SPOUSES ALLEJE, NELFRED and BELLE] wherein they sought the annulment of the Contract to Sell. They alleged
that the 1979 DEED was simulated; that x x x NELFRED paid no consideration for the disputed property; that the
disputed property was to be held in trust by x x x Nelia De Leon-Alleje, through, NELFRED, for the equal benefit of
all of the LATE SPOUSES' children x x x herein respondents and x x x Nelia De Leon-Alleje; that in the event of any
sale, notice and details shall be given to all the children who must consent to the sale and that all amounts paid for
the property shall be shared equally by the children; that on September 3, 1997, x x x SPOUSES ALLEJE gave x x x
herein respondents P 10,400,000.00 in cash, representing a portion of the proceeds of the sale of the disputed
property; that it was only then that they were given notice of the sale; that their inquiries were ignored by the
SPOUSES ALLEJE; that a final payment was to be made by x x x BELLE to x x x SPOUSES ALLEJE sometime in January
1998; and that the x x x SPOUSES ALLEJE had refused to compromise.

On February 2, 1998, x x x SPOUSES ALLEJE and NELFRED filed a Motion to Dismiss wherein they alleged that herein
respondents' cause of action, the existence of an implied trust between them and NELFRED on the one hand and
the LATE SPOUSES on the other, was barred by prescription and laches because more than 10 years had passed
since the execution of the 1979 DEED.

On February 9, 1998, x x x BELLE filed a Motion to Dismiss wherein it alleged that the Complaint stated no cause of
action against BELLE, which was an innocent purchaser for value; that assuming, for the sake of argument, that
herein respondents had a cause of action against BELLE, the claim on which the Complaint is founded was
unenforceable; and assuming that the cause of action was based on an implied trust, the same had already been
barred by laches.

On September 23, 1998, the RTC promulgated an Order that dismissed the Complaint against x x x BELLE for failure
to state a cause of action on the ground that there was no allegation in the Complaint that BELLE was a purchaser
in bad faith. Herein respondents then filed a Motion for Reconsideration.

On November 11, 1998, pending the resolution of their Motion for Reconsideration of the September 23, 1998
Order, herein respondents filed a Manifestation/Motion to admit their Amended Complaint wherein they added
the allegations that x x x NELFRED did not effect the registration of the disputed property, which remained
unregistered land covered only by tax declarations; that at the time of the execution of the 1997 Contract to Sell,
the disputed property was still unregistered land and remained unregistered; that a Deed of Absolute Sale (1998
DEED) had already been executed in favor of x x x BELLE; that x x x BELLE purchased the land with the knowledge
that it was being claimed by other persons; and that x x x BELLE was in bad faith because when the 1998 DEED was
executed between it and NELFRED on June 24, 1998, the Complaint in the case at bench had already been filed.

On April 29, 1999, the RTC reconsidered its Order of September 23, 1998 and lifted the dismissal against BELLE. At
the same time, the RTC admitted the Amended Complaint of the plaintiffs-appellants.

On June 9, 1999, x x x BELLE filed a "Motion for Reconsideration or to Dismiss the Amended Complaint" wherein it
alleged that the claim in the Amended Complaint was unenforceable; that the Amended Complaint still stated no
cause of action against BELLE; and that the Amended Complaint was barred by prescription.

xxxxxxxxx

On December 16, 1999, the RTC promulgated its assailed Order in Civil Case No. T-1046 dismissing the Amended
Complaint.2ςrνll

Aggrieved by the Order of the RTC, herein respondents filed an appeal with the CA.
On May 18, 2006, the CA rendered its assailed Decision, the dispositive portion of which reads as
follows:chanroblesvirtuallawlibrary

WHEREFORE, premises considered, appeal is hereby GRANTED and the assailed December 16, 1999 Order of the
RTC of Tanauan, Batangas, Branch 6, in Civil Case No. T-1046, is hereby REVERSED and SET ASIDE and defendant-
appellee Belle Corporation is hereby DIRECTED within fifteen (15) days from finality of this Decision, to file its
Answer.ςrαlαωlιbrαr

SO ORDERED.3ςrνll

Herein petitioner filed a Motion for Reconsideration, but the CA denied it in its Resolution dated September 4,
2006.

Hence, the instant petition based on the following assignment of errors:

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING THAT PETITIONER HYPOTHETICALLY
ADMITTED RESPONDENTS' ALLEGATIONS THAT IT HAD FULL KNOWLEDGE OF THEIR CLAIM ON THE PROPERTY
AND, THEREFORE, PURCHASED THE SAME IN BAD FAITH.

II

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT THE TRUST CREATED BY THE LATE
SPOUSES IN FAVOR OF NELFRED WAS AN IMPLIED TRUST INSTEAD OF AN EXPRESS TRUST.

III

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT THE TEN-YEAR PRESCRIPTIVE PERIOD
FOR AN IMPLIED TRUST SHOULD BE RECKONED FROM THE EXECUTION OF THE DEED OF SALE BY NELFRED IN
FAVOR OF PETITIONER AND NOT FROM THE REGISTRATION OF THE SALE BETWEEN THE LATE SPOUSES AND
NELFRED WITH THE REGISTER OF DEEDS.

IV

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT BECAUSE THE SUBJECT OF THE SALE IS
UNREGISTERED LAND, PETITIONER'S GOOD FAITH IS IMMATERIAL AND BOUGHT THE PROPERTY AT ITS OWN PERIL
EVEN AS RESPONDENTS WERE RESPONSIBLE FOR CREATING SUCH PERIL.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT A TRUST WAS CREATED WHEN ITS VERY
PURPOSE WAS TO AVOID COMPLIANCE WITH TAX LAWS AND THE COMPREHENSIVE AGRARIAN REFORM
LAW.4ςrνll

The basic issue in the instant case is whether the CA was correct in reversing the Order of the RTC which dismissed
respondents' Amended Complaint on the ground of failure to state a cause of action.

The Court rules in the affirmative.

Section 2, Rule 2 of the Rules of Court defines cause of action as the acts or omission by which a party violates a
right of another.

A cause of action is a formal statement of the operative facts that give rise to a remedial right.5Ï‚rνll The question
of whether the complaint states a cause of action is determined by its averments regarding the acts committed by
the defendant.6Ï‚rνll Thus, it must contain a concise statement of the ultimate or essential facts constituting the
plaintiffs cause of action.7Ï‚rνll Failure to make a sufficient allegation of a cause of action in the complaint
warrants its dismissal.8ςrνll

The essential elements of a cause of action are (1) a right in favor of the plaintiff by whatever means and under
whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to
violate such right; and (3) an act or omission on the part of such defendant in violation of the right of the plaintiff
or constituting a breach of the obligation of the defendant to the plaintiff for which the latter may maintain an
action for recovery of damages or other appropriate relief.9ςrνll

In determining whether a complaint states a cause of action, the RTC can consider all the pleadings filed, including
annexes, motions, and the evidence on record.10Ï‚rνll The focus is on the sufficiency, not the veracity, of the
material allegations.11Ï‚rνll Moreover, the complaint does not have to establish facts proving the existence of a
cause of action at the outset; this will have to be done at the trial on the merits of the case.12ςrνll

Thus, the first paragraph of Section 1, Rule 8 of the Rules of Court provides that "every pleading shall contain in a
methodical and logical form, a plain, concise and direct statement of the ultimate facts on which the party pleading
relies for his claim or defense, as the case may be, omitting the statement of mere evidentiary facts."

Ultimate facts mean the important and substantial facts which either directly form the basis of the plaintiffs
primary right and duty or directly make up the wrongful acts or omissions of the defendant.13Ï‚rνll They refer to
the principal, determinative, constitutive facts upon the existence of which the cause of action rests.14ςrνll

In the instant case, pertinent portions of respondents' allegations in their Amended Complaint are as follows:

xxxx

5. Plaintiffs herein respondents Erlinda De Leon-Banks, Rhodora De Leon-Tiatco, Betty De Leon-Torres, Gregorio De
Leon, Alberto De Leon and Eufronio De Leon, Jr. and defendant Nelia De Leon-Alleje are seven (7) of the eight (8)
children of the late spouses Eufronio and Josefa De Leon, while plaintiff [also one of herein respondents] Maria
Eliza De Leon-De Grano is the daughter and sole heir of the late Angelina De Leon-De Grano, the eight[h] child.

xxxx

9. During their lifetime, the late Eufronio and Josefa Acquired several tracts of land located in the Province of
Batangas, the City of Manila, Tagaytay City and Baguio City. The properties acquired included a 13.29 hectare
property located at Paliparan, Talisay, Batangas covered by Tax Declaration Nos. 0359 and 0361 issued by the
Provincial Assessor of Batangas, Tanauan Branch ("Paliparan Property").

10. The spouses Eufronio and Josefa, to protect and to ensure during their lifetime the interest of their children in
the properties they acquired, planned and decided to transfer and in fact transferred without consideration several
properties to their children to be held in trust by whoever the transferee is for the equal benefit of all of the late
spouses' children with the specific instruction in the event of any subsequent sale, that notice and details of the
sale shall be given to all the children who must consent to the sale and that all amounts paid for the property shall
be shared equally by the children and the late spouses during their lifetime.
xxxx

13. Sometime in 1979, in accordance with their already established plan and purpose of property disposition, the
late spouses, during their lifetime, transferred to their daughter, defendant Nelia Alleje, the Paliparan Property,
through NELFRED which was represented in said act by defendant Nelia Alleje, under a Deed of Absolute Sale, x x x.

14. Defendant NELFRED paid no consideration for the transfer of the Paliparan Property although the Deed of
Absolute Sale mentioned P 60,000.00 as consideration for the alleged transfer, as defendant Nelia Alleje knew fully
well the nature and purpose of the transfer and the condition that, as in the case of earlier transfers made by the
decedent spouses, in the event of a subsequent sale by defendant Nelia Alleje, through NELFRED, the proceeds
thereof shall be distributed equally among all the children, the herein plaintiffs and defendant Nelia Alleje.

15. After the transfer in trust to defendant Nelia Alleje, through NELFRED, the late Eufronio and Josefa continued
to receive during their lifetime their share in the produce of the Paliparan Property as landowner and likewise
continued the payment of the real estate taxes due thereon. In accordance with the transfer in trust to defendant
Nelia Alleje, N[ELFRED] did not effect the registration of the Paliparan Property in its name and the same
remained to be unregistered land covered only by tax declarations.

16. In flagrant violation of the trust reposed on her and with intent to defraud the plaintiffs of their rightful share in
the proceeds of the sale of the Paliparan Property, defendant Spouses Alleje surreptitiously sold the Paliparan
Property to defendant Belle Corporation. At the time of the sale to Belle Corporation in September 1997, the
Paliparan Property was unregistered land covered only by tax declarations. Up to the present, the subject
property is unregistered.

xxxx

23. By their acts, defendant Spouses Alleje clearly acted and continues to act to deprive herein plaintiffs of their
lawful distributive share in the proceeds of the sale of the Paliparan Property. Moreover, defendant Nelia Alleje
repudiated the trust created over the Paliparan Property when said property was sold to Belle Corporation in
September 1997. Plaintiffs were put on notice of this act of repudiation only when defendant Nelia Alleje
tendered a total amount of P 10,400,000.00 to plaintiffs and their children on 3 September 1997. Said amount
turned out to be part of the proceeds of the sale of the Paliparan Property to Belle Corporation.

24. On the other hand, Belle Corporation knowingly purchased unregistered land covered only by tax declarations
and knew that persons other than the individual defendants were paying for the land taxes. It should not have
disregarded such knowledge, as well as other circumstances which pointed to the fact that its vendors were not
the true owners of the property. Since the Paliparan Property is unregistered, Belle Corporation should have
inquired further into the true ownership of the property.

25. Belle Corporation was likewise in bad faith when, despite having had notice of plaintiffs' claim over the
Paliparan Property on 19 January 1998 when it was impleaded as a co-defendant in this civil case, Belle
Corporation still entered into a Deed of Absolute Sale with defendant Spouses Alleje and NELFRED on 24 June
1998. Thus, Belle Corporation finalized its purchase of the subject property from its co defendants with knowledge
that some other persons are claiming and actually own the same.

x x x x15ςrνll

It is evident from the above allegations in the Amended Complaint that respondents specifically alleged that they
are owners of the subject property being held in trust by their sister, Nelia Alleje, and that petitioner acted in bad
faith when it bought the property from their sister, through her company, Nelfred, knowing that herein
respondents claim ownership over it.
Assuming the above allegations to be true, respondents can, therefore, validly seek the nullification of the sale of
the subject property to petitioner because the same effectively denied them their right to give or withhold their
consent if and when the subject property is intended to be sold, which right was also alleged by respondents to
have been provided for in the trust agreement between their parents and their sister, Nelia Alleje. The Court, thus,
finds no error on the part of the CA in ruling that the allegations in the complaint are sufficient to establish a cause
of action for the nullification of the sale of the subject property to herein petitioner.

Petitioner contends that "it may be held liable ONLY IF it is proven by preponderance of evidence that [it] indeed
acted in bad faith in dealing with the [subject] property."16ÏIndeed, bad faith is a question of fact and is
evidentiary.17ÏBad faith has to be established by the claimant with clear and convincing evidence, and this
necessitates an examination of the evidence of all the parties.18Ï‚This is best passed upon after a full-blown trial on
the merits.

Stated differently, the determination of whether or not petitioner is guilty of bad faith cannot be made in a mere
motion to dismiss. An issue that requires the contravention of the allegations of the complaint, as well as the full
ventilation, in effect, of the main merits of the case, should not be within the province of a mere motion to
dismiss.19ςrνll

The parties have gone to great lengths in discussing their respective positions on the merits of the main case.
However, there is yet no need to do so in the instant petition. There will be enough time for these disputations in
the lower court after responsive pleadings are filed and issues are joined for eventual trial of the case.

Indeed, the other assigned errors in the instant petition dwell on issues which are matters of defense on the part
of petitioner. The questions of whether or not there is an implied or express trust and whether the said trust is null
and void are assertions that go into the merits of the main case and still need to be proven or disproven by the
parties and resolved by the RTC. In the same manner, the issues on prescription and estoppel raised in
petitioner's Opposition to Manifestation/Motion with Supplemental Motion to Dismiss,20Ï‚rνll as well as in
its Motion for Reconsideration or to Dismiss the Amended Complaint,21Ïare matters of defense not proper in a
motion to dismiss for failure to state a cause of action. They should be pleaded in the answer, to be resolved after
the trial on the basis of the arguments and evidence submitted by the parties. As jurisprudence holds, so rigid is
the norm prescribed that if the court should doubt the truth of the facts averred, it must not dismiss the complaint
but require an answer and proceed to hear the case on the merits.22Ï‚This dictum is in line with the policy that
motions to dismiss should not be lightly granted where the ground invoked is not indubitable, as in the present
case.23Ï‚In such a situation, the objections to the complaint must be embodied in the answer as denials or special
and affirmative defenses and threshed out in a full-blown trial on the merits.24ςrνll

In sum, this Court finds that the CA did not commit error in reversing and setting aside the assailed Order of the
RTC.

WHEREFORE, the instant petition Is DENIED. The assailed Decision and Resolution of the Court of Appeals, dated
May 18, 2006 and September 4, 2006, respectively, in CA-G.R. CV No. 74669, are AFFIRMED.ςrαlαωlιbrαr

SO ORDERED.
 THE CITY OF BACOLOD, Plaintiff-Appellee, vs. SAN MIGUEL BREWERY, INC., Defendant-Appellant.

First Assistant City Fiscal Raymundo O. Rallos for plaintiff-appellee.

Picazo and Agcaoili for defendant-appellant.

BARREDO, J.:

An appeal from the decision of the Court of First Instance of Negros Occidental in its Civil Case No. 7355, ordering
the San Miguel Brewery, Inc. to pay to the City of Bacolod the sum of P36,519.10, representing surcharges on
certain fees which, under existing ordinances of the City of Bacolod, the San Miguel Brewery should have paid
quarterly to the treasurer of the said city for and/or during the period from July, 1959 to December, 1962, but
which were paid only on April 23, 1963.chanroblesvirtualawlibrarychanrobles virtual law library

On February 17, 1949, the City Council of Bacolod passed Ordinance No. 66, series of 1949 imposing upon "any
person, firm or corporation engaged in the manufacturer bottling of coca-cola, pepsi cola, tru orange, lemonade,
and other soft drinks within the jurisdiction of the City of Bacolod, ... a fee of ONE TWENTY-FOURTH (1/24) of a
centavo for every bottle thereof," plus "a surcharge of 2% every month, but in no case to exceed 24% for one
whole year," upon "such local manufacturers or bottler above-mentioned who will be delinquent on any amount of
fees due" under the ordinance.chanroblesvirtualawlibrarychanrobles virtual law library

In 1959, this ordinance was amended by Ordinance No. 150, series of 1959, by increasing the fee to "one-eighth
(1/8) of a centavo for every bottle thereof." In other words, the fee was increased from P0.01 to P0.03 per case of
soft drinks. Appellant refused to pay the additional fee and challenged the validity of the whole
ordinance.chanroblesvirtualawlibrarychanrobles virtual law library

Under date of March 23, 1960, appellee sued appellant in Civil Case No. 5693 of the Court of First Instance of
Negros Occidental, with the corresponding Complaint alleging, inter alia:

3. - That the defendant, Manager of the San Miguel Brewery, Bacolod Coca Cola Plant, Bacolod Branch since the
approval of Ordinance No. 66, Series of 1949 as amended by Ordinance No. 150, Series of 1959, which took effect
on July 1, 1959, only paid to the plaintiff herein the P0.01 bottling tax per case of soft drinks thereby refusing to
pay the P0.03 bottling tax per case of soft drinks which amounted to P26,306.54 at P0.02 per case of soft drinks
such as coca cola and tru orange manufactured or bottled by said company as per statement submitted by the
Assistant City Treasurer of Bacolod City herewith attached as Annex "C" of this complaint;

and praying

... that judgment be rendered for the plaintiff:

"(a) Ordering the defendant to pay the plaintiff the bottling taxes of P0.03 per case of soft drinks as provided for in
Section 1, Ordinance No. 66, Series of 1949, as amended by Ordinance No. 150, Series of 1959, as well as the sum
of P26,306.54 representing unpaid bottling taxes due with legal rate of interest thereon from the date of the filing
of this complaint until complete payment thereof; ... costs, etc."'

In due time, appellant filed its answer. This was followed by a stipulation of facts between the parties, whereupon,
the court rendered judgment on November 12, 1960; with the following dispositive portion:

WHEREFORE, San Miguel Brewery Inc. is ordered to pay to the plaintiff the sum of P26,306.54 and the tax at the
rate of three centavos per case levied in Ordinance No. 66 and 150 from March, 1960, and thereafter. Costs
against the defendant.
Appellant appealed from the said decision to this Court where it pressed the question of the invalidity of the
abovementioned taxing ordinances. In that appeal (G.R. No. L-18290), however, this Court affirmed the decision
appealed from and upheld the constitutionality of the questioned ordinances and the authority of the appellee to
enact the same. For reasons not extant in the record, it was already after this decision had become final when
appellee moved for the reconsideration thereof, praying that the same be amended so as to include the penalties
and surcharges provided for in the ordinances. Naturally, the said motion was denied, for the reason that "the
decision is already final and may not be amended." When execution was had before the lower court, the appellee
again sought the inclusion of the surcharges referred to; and once again the move was frustrated by the Court of
First Instance of Negros Occidental which denied the motion, as follows:

Acting upon the motion dated October 24, 1963, filed by the Assistant City Fiscal, Raymundo Rallos, counsel for the
plaintiff, and the opposition thereto filed by attorneys for the defendants dated November 9, 1963, as well as the
reply to the opposition of counsel for the defendants dated December 5, 1963, taking into consideration that the
decision of this Court as affirmed by the Supreme Court does not specifically mention the alleged surcharges
claimed by the plaintiff-appellee, the Court hereby resolves to deny, as it hereby denies, the aforesaid motion, for
not being meritorious.

Failing thus in its attempt to collect the surcharge provided for in the ordinances in question, appellee filed a
second action (Civil Case No. 7355) to collect the said surcharges. Under date of July 10, 1964, it filed the
corresponding complaint before the same Court of First Instance of Negros Occidental alleging, inter alia, that:

6. That soon after the decision of the Honorable Supreme Court affirming the decision of the Hon. Court, the
defendant herein on April 23, 1963 paid to the City of Bacolod, the amount of ONE HUNDRED FIFTY SIX THOUSAND
NINE HUNDRED TWENTY FOUR PESOS and TWENTY CENTAVOS (P156,924.20) as taxes from July, 1959 to
December, 1962 in compliance with the provision of Section 1, Ordinance No. 66, Series of 1949, as amended by
Ordinance No. 150, Series of 1959, which corresponds to the taxes due under said section in the amount of P0.03
per case of soft soft drinks manufactured by the defendant, but refused and still continued refusing to pay the
surcharge as provided for under Section 4 of Ordinance No. 66, Series of 1949, as amended by Ordinance No. 150,
Series of 1959, which reads as follows:

"SEC. 4 - A surcharge of 2% every month, but in no case to exceed 24% for one whole year, shall be imposed on
such local manufacturer or bottlers above mentioned who will be delinquent on any amount of fees under the
ordinance."

which up to now amounted to THIRTY SIX THOUSAND FIVE HUNDRED NINETEEN PESOS AND TEN CENTAVOS
(P36,519.10), as shown by the certified statement of the office of the City Treasurer of Bacolod City herewith
attached as Annex "E" and made an integral part of this complaint;chanrobles virtual law library

7. That the said interest and/or penalties to the said bottling taxes which defendant refused to pay have long been
overdue;

and again praying

... that judgment be rendered for the plaintiff:

(a) Ordering the defendant to pay the penalty and/or interest therein Section 4 of Ordinance No. 66, Series of
1949, as amended by Ordinance No. 150, Series of 1959 the total amount of THIRTY SIX THOUSAND FIVE HUNDRED
NINETEEN PESOS and TEN CENTAVOS (P36,519.10), representing the surcharges from August, 1959 to December,
1962, inclusive, and the 24% penalty computed as of June 30, 1964, from the amount of P152,162.90, with legal
rate of interest thereon from the date of the filing of this complaint until complete payment thereof;" plus costs,
etc.
On July 24, 1964, appellant filed a motion to dismiss the case on the grounds that: (1) the cause of action is barred
by a prior judgment, and (2) a party may not institute more than one suit for a single cause of action. This motion
was denied by the court a quo in its order dated August 22, 1964; so appellant filed its answer wherein it
substantially reiterated, as affirmative defenses, the above-mentioned grounds of its motion to dismiss.
Thereafter, the parties submitted the case for judgment on the pleadings, whereupon, the court rendered
judgment on March 11, 1965 with the following dispositive portion: .

IN VIEW THEREOF, judgment is hereby rendered ordering the defendant San Miguel Brewery, Inc. to pay to the
plaintiff the sum of P36,519.10 representing the surcharges as provided in section 4 of Ordinance 66, series of
1949 of the City of Bacolod. No costs.

Appellants moved for reconsideration but its motion was denied, hence, the instant
appeal.chanroblesvirtualawlibrarychanrobles virtual law library

Appellant has only one assignment of error, to wit:

THE LOWER COURT ERRED IN FINDING THE APPELLANT LIABLE TO THE APPELLEE FOR THE SUM OF P36,519.10
REPRESENTING SURCHARGES AS PROVIDED IN TAX ORDINANCE NO. 66, SERIES OF 1949, AS AMENDED, OF THE
CITY OF BACOLOD.

Under this, it argues that the action of appellee cannot be maintained because (1) a party may not institute more
than one suit for a single cause of action; and (2) appellee's action for recovery of the surcharges in question is
barred by prior judgment.chanroblesvirtualawlibrarychanrobles virtual law library

We find appellant's position essentially correct. There is no question that appellee split up its cause of action when
it filed the first complaint on March 23, 1960, seeking the recovery of only the bottling taxes or charges plus legal
interest, without mentioning in any manner the surcharges.chanroblesvirtualawlibrarychanrobles virtual law
library

The rule on the matter is clear. Sections 3 and 4 of Rule 2 of the Rules of Court of 1940 which were still in force
then provided:

SEC. 3. Splitting a cause of action, forbidden. - A single cause of action cannot be split up into two or more parts so
as to be made the subject of different complaints. .chanroblesvirtualawlibrarychanrobles virtual law library

SEC. 4. Effect of splitting. - If separate complaints were brought for different parts of a single cause of action, the
filing of the first may be pleaded in abatement of the others, and a judgment upon the merits in either is available
as a bar in the others.

Indeed, this rule against the splitting up of a cause of action is an old one. In fact, it preceded the Rules of Court or
any statutory provision. In Bachrach Motor Co., Inc. vs. Icarangal et al.,1 this Court already explained its meaning,
origin and purpose, thus:

But, even if we have no such section 708 of our Code of Civil Procedure, or section 59 of the Insolvency Law, we
have still the rule against splitting a single cause of action. This rule, though not contained in any statutory
provision, has been applied by this court in all appropriate cases. Thus, in Santos vs. Moir (36 Phil. 350, 359), we
said: "It is well recognized that a party cannot split a single cause of action into parts and sue on each part
separately. A complaint for the recovery of personal property with damages for detention states a single cause of
action which cannot be divided into an action for possession and one for damages; and if suit is brought for
possession only a subsequent action cannot be maintained to recover the damages resulting from the unlawful
detention." In Rubio de Larena vs. Villanueva (53 Phil. 923, 927), we reiterated the rule by stating that "... a party
will not be permitted to split up a single cause of action and make it the basis for several suits" and that when a
lease provides for the payment of the rent in separate installments, each installment constitutes an independent
cause of action, but when, at the time the complaint is filed, there are several installments due, all of them
constitute a single cause of action and should be included in a single complaint, and if some of them are not so
included, they are barred. The same doctrine is stated in Lavarro vs. Labitoria (54 Phil. 788), wherein we said that
"a party will not be permitted to split up a single cause of action and make it a basis for several suits" and that a
claim for partition of real property as well as for improvements constitutes a single cause of action, and a
complaint for partition alone bars a subsequent complaint for the improvements. And in Blossom & Co. vs. Manila
Gas Corporation (55 Phil. 226-240), we held that "as a general rule a contract to do several things at several times
is divisible in its nature, so as to authorize successive actions; and a judgment recovered for a single breach of a
continuing contract or covenant is no bar to suit for a subsequent breach thereof. But where the covenant or
contract is entire, and the breach total, there can be only one action, and plaintiff must therein recover all his
damages.chanroblesvirtualawlibrarychanrobles virtual law library

The rule against splitting a single cause of action is intended "to prevent repeated litigation between the same
parties in regard to the same subject of controversy; to protect defendant from unnecessary vexation; and to avoid
the costs and expenses incident to numerous suits." (1 C.J. 1107) It comes from that old maxim nemo debet bis
vexare pro una et eadem causa (no man shall be twice vexed for one and the same cause). (Ex parte Lange, 18 Wall
163, 168; 21 Law Ed. 872; also U.S. vs. Throckmorton, 98 U.S. 61; 25 Law Ed. 93). And it developed, certainly not as
an original legal right of the defendant, but as an interposition of courts upon principles of public policy to prevent
inconvenience and hardship incident to repeated and unnecessary litigations. (1 C. J. 1107).

In the light of these precedents, it cannot be denied that appellant's failure to pay the bottling charges or taxes and
the surcharges for delinquency in the payment thereof constitutes but one single cause of action which under the
above rule can be the subject of only one complaint, under pain of either of them being barred if not included in
the same complaint with the other. The error of appellee springs from a misconception or a vague comprehension
of the elements of a cause of action. The classical definition of a cause of action is that it is "a delict or wrong by
which the rights of the plaintiff are violated by the defendant." Its elements may be generally stated to be (1) a
right existing in favor of the plaintiff; (2) a corresponding obligation on the part of the defendant to respect such
right; and (3) an act or omission of the plaintiff which constitutes a violation of the plaintiff's right which defendant
had the duty to respect. For purposes, however, of the rule against splitting up of a cause of action, a clearer
understanding can be achieved, if together with these elements, the right to relief is
considered.chanroblesvirtualawlibrarychanrobles virtual law library

In the last analysis, a cause of action is basically an act or an omission or several acts or omissions. A single act or
omission can be violative of various rights at the same time, as when the act constitutes juridically a violation of
several separate and distinct legal obligations. This happens, for example, when a passenger of a common carrier,
such as a taxi, is injured in a collision thereof with another vehicle due to the negligence of the respective drivers of
both vehicles. In such a case, several rights of the passenger are violated, inter alia, (1) the right to be safe from the
negligent acts of either or both the drivers under the law on culpa-acquiliana or quasi-delict; (2) the right to be safe
from criminal negligence of the said drivers under the penal laws; and (3) the right to be safely conducted to his
destination under the contract of carriage and the law covering the same, not counting anymore the provisions of
Article 33 of the Civil Code. The violation of each of these rights is a cause of action in itself. Hence, such a
passenger has at least three causes of action arising from the same act. On the other hand, it can happen also that
several acts or omissions may violate only one right, in which case, there would be only one cause of action. Again
the violation of a single right may give rise to more than one relief. In other words, for a single cause of action or
violation of a right, the plaintiff may be entitled to several reliefs. It is the filing of separate complaints for these
several reliefs that constitutes splitting up of the cause of action. This is what is prohibited by the
rule.chanroblesvirtualawlibrarychanrobles virtual law library

In the case at bar, when appellant failed and refused to pay the difference in bottling charges from July 1, 1959,
such act of appellant in violation of the right of appellee to be paid said charges in full under the Ordinance, was
one single cause of action, but under the Ordinance, appellee became entitled, as a result of such non-payment, to
two reliefs, namely: (1) the recovery of the balance of the basic charges; and (2) the payment of the corresponding
surcharges, the latter being merely a consequence of the failure to pay the former. Stated differently, the
obligation of appellant to pay the surcharges arose from the violation by said appellant of the same right of
appellee from which the obligation to pay the basic charges also arose. Upon these facts, it is obvious that appellee
has filed separate complaints for each of two reliefs related to the same single cause of action, thereby splitting up
the said cause of action.chanroblesvirtualawlibrarychanrobles virtual law library

The trial court held that inasmuch as there was no demand in the complaint in the first case for the payment of the
surcharges, unlike in the case of Collector of Internal Revenue vs. Blas Gutierrez, et al., G.R. No. L-13819. May 25,
1960, wherein there was such a demand, there is no bar by prior judgment as to said surcharges, the same not
having been "raised as an issue or cause of action in Civil Case No. 5693." This holding is
erroneous.chanroblesvirtualawlibrarychanrobles virtual law library

Section 4 of Rule 2, above-quoted, is unmistakably clear as to the effect of the splitting up of a cause of action. It
says, "if separate complaints are brought for different parts (reliefs) of a single cause of action, the filing of the first
(complaint) may be pleaded in abatement of the others, and a judgment upon the merits in either is available as a
bar in the others." In other words, whenever a plaintiff has filed more than one complaint for the same violation of
a right, the filing of the first complaint on any of the reliefs born of the said violation constitutes a bar to any action
on any of the other possible reliefs arising from the same violation, whether the first action is still pending, in
which event, the defense to the subsequent complaint would be litis pendentia, or it has already been finally
terminated, in which case, the defense would be res adjudicata.2 Indeed,  litis pendentia  and res adjudicata, on the
one hand, and splitting up a cause of action on the other, are not separate and distinct defenses, since either of the
former is by law only the result or effect of the latter, or, better said, the sanction for or behind
it.chanroblesvirtualawlibrarychanrobles virtual law library

It thus results that the judgment of the lower court must be, as it is hereby, reversed and the complaint of appellee
is dismissed. No costs.chanroblesvirtualawlibrarychanrobles virtual law library

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando and Teehankee, JJ., concur.
G.R. No. 157616. July 22, 2005

ISIDRO PEREZ and NARCISO A. RAGUA, Petitioners,

vs.
HON. COURT OF APPEALS, HON. VIVENCIO S. BACLIG and SPOUSES GAUDENCIO DIGOS, JR. and RHODORA
DIGOS, Respondents.

DECISION

CALLEJO, SR., J.:

The spouses Gaudencio Digos, Jr. and Rhodora Digos secured a loan of ₱5,800,000.00 from the International Exchange
Bank in December 1996, to finance their project for the construction of townhouses on their property covered by Transfer
Certificate of Title (TCT) No. 168790 located in Tandang Sora, Quezon City. To secure the payment of the loan, the spouses
Digos executed a Real Estate Mortgage over the said property. However, the completion of their project was delayed, partly
because some homeowners in the Pillarville Subdivision (which abutted the subject property) refused to allow them to build
an access road through the subdivision to the property. Thus, the equipment to be used for the project could not pass
through the Pillarville Subdivision.

Because of the spouses Digos’ failure to pay the amortizations on their loan, the bank caused the extrajudicial foreclosure of
their real estate mortgage. Consequently, the property was sold at public auction, with the bank as the highest bidder at
₱4,500,000.00, which appeared to be the account of the spouses Digos at the time. The Certificate of Sale executed by the
sheriff was, thereafter, registered at the Office of the Register of Deeds on September 7, 1998.1

In the meantime, the spouses Digos referred the matter of the right of way to the barangay captain for settlement. Due to the
vehement objections of some Pillarville Subdivision homeowners, the barangay captain failed to resolve the matter.2

On July 2, 1999, the spouses Digos wrote the bank, requesting for a period of six (6) months from September 7, 1999 within
which to redeem the property.3 However, the bank denied the request. On August 3, 1999, the spouses again wrote to the
bank, pleading for an extension of at least three (3) months to redeem the property.4 In a Letter5 to the spouses dated
August 30, 1999, the bank granted the spouses Digos a period of one month from September 8, 1999 (or until October 8,
1999) within which to redeem the property. However, the bank consolidated its title over the property, and on September 19,
1999, the Register of Deeds issued TCT No. 206979 in the name of the bank.

Instead of repurchasing the property on or before October 8, 1999, the spouses Digos filed a Complaint6 against the bank on
October 7, 1999 with the Regional Trial Court (RTC) of Quezon City, for the nullification of the extrajudicial foreclosure of the
real estate mortgage and sale at public auction and/or redemption of the property, with a prayer for a temporary restraining
order and a writ of preliminary injunction to enjoin the bank from consolidating its title over the property. The spouses Digos
also sought judgment for damages.

In their complaint, the spouses Digos alleged, inter alia, that they were denied their right to due process because the
foreclosure of the real estate mortgage was extrajudicial; the sale of their property at public auction was without prior notice
to them; the property was sold for only ₱4,500,000.00, the balance of their account with the bank, but about 400% lower
than the prevailing price of the property; the bank rejected their plea for a five-month extension to redeem, and their offer of
₱1,000,000.00 in partial payment of their loan account to reduce the same to ₱3,500,000.00, but the bank granted them an
extension of only one month to redeem the property, designed to divest them of the same and enrich some characters at
their expense; because of the foregoing acts of the bank, they suffered sleepless nights, nervous tension and the rise in their
blood pressure for which they were entitled to moral damages in the amount of ₱500,000.00, aside from the exemplary
damages they were entitled to in the amount of ₱100,000.00.

The spouses Digos prayed for a temporary restraining order to enjoin the bank from consolidating its title over the property,
and that judgment be rendered in their favor, thus:

2. Ordering the defendant Bank to allow plaintiffs to redeem their property;

3. Making the writ of injunction permanent;

4. Ordering the defendant Bank to pay moral damages of ₱500,000.00;

5. Ordering defendant Bank to pay exemplary damages of ₱200,000.00;

6. Ordering defendant Bank to pay attorney’s fee of ₱30,000.00 plus ₱2,000.00 for every appearance in Court;

Plaintiffs further pray for such other reliefs and remedies available within the premises.7

The case (first complaint, for brevity) was docketed as Civil Case No. Q-99-38941. The spouses Digos caused the
annotation of a notice of lis pendens at the dorsal portion of TCT No. 206979. The trial court, however, did not issue a
temporary restraining order or writ of preliminary injunction.

Meanwhile, the bank filed a motion to dismiss the complaint and for the cancellation of the notice of lis pendens on the
following grounds:

1. The action for injunction has already been rendered moot and academic, title to the foreclosed property having been
consolidated in iBank’s name;

2. Assuming arguendo that title to the foreclosed property has not yet been consolidated, still plaintiffs have no cause of
action for injunction against iBank.8

The spouses Digos opposed the motion. The bank filed a reply, appending thereto a copy of TCT No. 206979 in its name.

In an Order dated December 9, 1999, the trial court granted the motion and dismissed the complaint. It found that the
spouses Digos admitted in their complaint that the period for the redemption of the property was about to expire, and that
they were given up to October 8, 1999 within which to do so. The court held that it had no authority to extend the period for
redemption, and since it had already expired, the spouses had no more right to redeem the property; as such, the defendant
had the right to consolidate its title over the property, and had, in fact, been issued TCT No. 206979. The court also declared
that the spouses Digos had no right to demand that they be allowed to redeem the property.

Finally, since the act sought to be enjoined – the consolidation of the bank’s title – was already fait accompli, the spouses
Digos had no cause of action for injunction.9 The trial court ruled that a writ of injunction cannot issue to enjoin a
consummated act.10 It, thus, ordered the cancellation of the notice of lis pendens annotated at the dorsal portion of TCT No.
206979.

The spouses Digos failed to appeal the order; instead, they filed a petition for certiorari with the Court of Appeals (CA),
assailing the Order of the RTC. The CA dismissed the petition because it was filed out of time. The petitioners then filed a
motion for reconsideration thereof, which they later withdrew via a motion. The CA then resolved to grant the motion; hence,
the CA resolution dismissing the petition became final and executory on May 7, 2001. Entry of judgment was made of
record.11

Meanwhile, the bank sold the property to Isidro Perez and Narciso Ragua to whom the Register of Deeds issued TCT No.
211888. The vendees caused the subdivision of the property into eighteen (18) lots. The Register of Deeds issued titles for
each subdivision lot in favor of Perez and Ragua.12

On June 4, 2001, the spouses Digos filed a Complaint13 with the RTC of Quezon City, this time, against the bank, Perez and
Ragua, for the cancellation and annulment of the extrajudicial foreclosure of the real estate mortgage executed by them in
favor of the bank, the sale at public auction as well as the certificate of sale executed by the sheriff, and the Torrens title
issued to them. The spouses Digos prayed for a writ of preliminary injunction and a temporary restraining order. The petitory
portion of the complaint reads:

WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court that immediately upon the filing
of the instant complaint, a temporary restraining order be issued, and after hearing, a writ of preliminary injunction issue,
enjoining defendants PEREZ and RAGUA from further disposing of the subject property.

Likewise, it is most respectfully prayed of this Honorable Court that, after due hearing, judgment be rendered ordering the
CANCELLATION and ANNULMENT of the extrajudicial foreclosure of sale, the Sheriff’s Certificate of Sale and the
consolidated title under the name of defendant bank, as well as the transfer certificate/s of title issued or under the name of
defendants iBANK, PEREZ and RAGUA;

Further, it is most respectfully prayed also that judgment be rendered ordering the defendants:
1. to pay plaintiffs the amount of FIVE HUNDRED THOUSAND [PESOS] (₱500,000.00), as and by way of actual expenses:

2. to pay plaintiffs the amount of ONE MILLION AND FIVE HUNDRED THOUSAND PESOS (₱1,500,000.00), as and by way
of moral damages;

3. to pay plaintiffs the amount of ONE HUNDRED THOUSAND PESOS (₱100,000.00), as and by way of exemplary
damages;

4. to pay plaintiffs the amount of FIVE HUNDRED THOUSAND PESOS (₱500,000.00), as and by way of attorney’s fees;
and,

5. to pay the expenses of litigation and costs of suit.

Plaintiffs further pray for other reliefs, just and equitable, under the circumstances.14

The spouses Digos reiterated the allegations in their complaint in Civil Case No. Q-99-38941 that they were not notified of
the sale at public auction, and that the bank’s ₱4,500,000.00 bid for the property was unconscionably low compared to the
prevailing market price of ₱25,000,000.00. They also admitted their failure to pay their amortization on their loans. However,
they alleged this time that the extrajudicial foreclosure of the real estate mortgage and the sale at public auction
were illegal because the bank charged much more than the amount due on their loan account, to wit: interest of 26% per
annum on the loan account covering January 2, 1998, whereas under the promissory note executed in favor of the bank, the
new interest rate should commence only on March 4, 1993; penalty charges of 26% of the account, and 5% penalty charges
on top of the 26% interest per annum, as shown by the bank’s statement of account. The spouses Digos also averred that
although they pleaded for a restructuring of their loan account and a moratorium on the payment of their account, they were
unaware of the erroneous computation of the balance of their loan account. They maintained that the bank’s consolidation of
its title over the property on September 19, 1999 was premature because they were given until October 8, 1999 to redeem
the property.

The spouses Digos also alleged that as a consequence of the bank’s acts, they incurred actual damages of ₱500,000.00,
sustained moral damages of ₱1,500,000.00, and were entitled to exemplary damages for ₱100,000.00.15

The case was docketed as Civil Case No. Q-01-44227. The defendant bank filed a motion to dismiss the complaint on the
following grounds:

A. THE PLAINTIFFS HAVE NO CAUSE OF ACTION AGAINST DEFENDANTS, THEY BEING ESTOPPED FROM
QUESTIONING THE REGULARITY OF THE EXTRAJUDICIAL FORECLOSURE SALE.

B. PLAINTIFFS HAVE VIOLATED THE RULE AGAINST SPLITTING A SINGLE CAUSE OF ACTION UNDER SECTION 4,
RULE 2 OF THE RULES OF COURT IN INSTITUTING THE INSTANT CASE.

C. PLAINTIFFS ARE GUILTY OF FORUM SHOPPING.

D. PLAINTIFFS ARE GUILTY OF FALSE CERTIFICATION AGAINST FORUM SHOPPING, IN VIOLATION OF SECTION 5,
RULE 7 OF THE RULES OF COURT.16

The bank alleged that the spouses Digos admitted in their complaint that, after the extrajudicial foreclosure of the real estate
mortgage and the sale of the property at public auction, they pleaded to redeem the property but failed to do so and were
granted a one-month extension. The bank averred that, based on the said allegations, the spouses were estopped from
assailing the extrajudicial foreclosure of the real estate mortgage, the sale at public auction and the Torrens title issued to it;
hence, they had no cause of action. It further alleged that the spouses Digos already assailed the extrajudicial foreclosure of
the real estate mortgage and the sale of the property at public auction on account of lack of due process and arbitrary abuse
in their first complaint; they again sought to do so in this case, this time grounded on the invalid foreclosure of the real estate
mortgage, and the sale at public auction of the property for an amount in excess of the balance of the loan account. The
bank argued that, in so doing, the spouses Digos were guilty of splitting a single cause of action which is proscribed by Rule
2, Section 4 of the Rules of Court; they were, likewise, barred by res judicata from filing the second complaint for the same
causes of action, even if additional defendants were impleaded. Consequently, the spouses Digos were also guilty of forum
shopping.17

Perez and Ragua filed a motion to dismiss on similar grounds of res judicata, splitting of a single cause of action and forum
shopping.18
On June 29, 2001, the trial court issued an Order19 denying the motion, ruling that there was no identity of issue in the two
actions because, in the second complaint (docketed as Civil Case No. Q-01-44227), the spouses Digos assailed the legality
of the extrajudicial foreclosure, on the sole ground that the bank had unlawfully increased their obligation, contrary to the
terms and conditions of the loan contract. The court held that the causes of action in the two complaints were not identical:
in the first case, it was for the redemption of the mortgaged property, distinct and separate from their cause of action in the
second case which is rooted on the erroneous computation of the balance of their loan account with the bank. The court also
declared that in the first complaint, the spouses Digos assailed the validity or regularity of the extrajudicial foreclosure of the
real estate mortgage and the sale at public auction. Consequently, the court concluded, the complaint was not barred by res
judicata; nor are they guilty of forum shopping.

The trial court denied the defendants’ motion for reconsideration in its Order20 dated December 6, 2001; hence, they filed a
petition21 for certiorari, prohibition and mandamus with the CA, alleging therein that the respondent judge committed a grave
abuse of his discretion amounting to excess or lack of jurisdiction in denying their motion to dismiss the complaint.

On November 25, 2002, the CA rendered judgment dismissing the petition and affirming the assailed orders. The appellate
court declared that there was no identity of causes of action in the two cases because the first action was one for injunction
and redemption of the property, whereas the second action was for the nullification of the extrajudicial foreclosure of the real
estate mortgage and the sale at public auction due to the erroneous computation of the balance on the respondents’
account with the bank; hence, the spouses Digos were not estopped from filing their second action.22 The petitioners filed a
motion for a reconsideration of the said decision, which the appellate court denied.23

Petitioners Isidro Perez and Narciso Ragua forthwith filed the instant petition for review on certiorari, raising the following
issues:

WHETHER OR NOT THE JUDGMENT IN CIVIL CASE NO. Q-99-[38941] (REDEMPTION OF MORTGAGE) IS RES
JUDICATA TO CIVIL CASE NO. Q-01-44227 (CANCELLATION AND ANNULMENT OF FORECLOSURE SALE)?

WHETHER OR NOT THE PRIVATE RESPONDENTS ARE ALREADY ESTOPPED FROM ATTACKING THE VALIDITY OF
THE FORECLOSURE SALE?24

It is the contention of the petitioners that the private respondents (the plaintiffs in both actions in the RTC) are guilty of
splitting their cause of action. The petitioners point out that the private respondents failed to pray for the nullification of the
extrajudicial foreclosure and sale at public auction in their first action, and did so only in their second complaint. For such
failure, the second action was barred by res judicata, conformably with Section 4, Rule 2 of the Rules of Court. The
petitioners point out that the issue of the computation of the respondents’ balance on their loan account had already been
passed upon and resolved by the court in the first case, and, as such, can no longer be assailed in the second case. The
petitioners likewise maintain that the validity of the foreclosure of the real estate mortgage and sale at public auction was
raised and resolved in the first case. The petitioners insist that the private respondents were barred from assailing the
extrajudicial foreclosure of the real estate mortgage and the sale at public auction of the property in favor of the bank. They
further point out that the private respondents repeatedly requested the bank for extensions to redeem the property; such
requests were eventually granted but the private respondents still failed to redeem the property.

For their part, the private respondents aver that their action in the first case was for the grant of an extension to redeem the
property and avert the bank’s act of consolidating its title over the property, while their action in the second case was for the
nullification of the extrajudicial foreclosure of the real estate mortgage and the sale of the property at public auction on
account of the arbitrary, unlawful and baseless imposition of unconscionable re-priced interest rates on their loan account.
They aver that there can be no conclusiveness of judgment in the first action because the issues in the two cases are not
identical. They insist that the issues in the first case are not being relitigated in the second case; hence, their second action
is not barred by res judicata, nor did they split their cause of action.

The Ruling of the Court

Splitting a single cause of action consists in dividing a single or indivisible cause of action into several parts or claims and
instituting two or more actions therein.25 A single cause of action or entire claim or demand cannot be split up or divided so
as to be made the subject of two or more different actions.26

A single act or omission may be violative of various rights at the same time, such as when the act constitutes a violation of
separate and distinct legal obligations.27 The violation of each of these rights is a cause of action in itself. However, if only
one right may be violated by several acts or omissions, there would only be one cause of action. Otherwise stated, if two
separate and distinct primary rights are violated by one and the same wrong; or if the single primary right should be violated
by two distinct and separate legal wrongs; or when the two primary rights are each broken by a separate and distinct
wrongs; in either case, two causes of action would result.28 Causes of action which are distinct and independent, although
arising out of the same contract, transaction or state of fact may be sued separately, recovery on one being no bar to
subsequent actions on the others.

The mere fact that the same relief is sought in the subsequent action will not render the judgment in the prior action as res
judicata.29 Causes of action are not distinguishable for purposes of res judicata by difference in the claims for relief.30

Comparing the material averments of the two complaints, it would appear that separate primary rights of the respondents
were violated by the bank’s institution of a petition for extrajudicial foreclosure of the real estate mortgage and the sale at
public auction; hence, the respondents had separate and independent causes of action against the bank, to wit: (a) the first
complaint relates to the violation by the bank of the right to a judicial, not extrajudicial, foreclosure of the real estate
mortgage and for an extension of the period for the respondents to redeem the property with damages; (b) the second
complaint relates to the breach by the bank of its loan contract with the respondents by causing the extrajudicial foreclosure
of the real estate mortgage for ₱4,500,000.00 which was in excess of their unpaid account with the bank.

However, we are convinced that the institution by the respondents of their second complaint anchored on their claim that the
bank breached its loan contracts with them by erroneously computing the actual and correct balance of their account when
the petition for extrajudicial foreclosure of the real estate mortgage was filed by it designed to avert the dismissal of their
complaint due to splitting causes of action and res judicata, following the dismissal of their first complaint and the dismissal
of their appeal through their negligence. The Court is constrained to conclude that this was a last-ditch attempt to resuscitate
their lost cause, a brazen violation of the principle of res judicata.

Section 49(b)(c), Rule 39 of the Rules of Court provides in part:

SEC. 49. Effect of judgments. – The effect of a judgment or final order rendered by a court or judge of the Philippines,
having jurisdiction to pronounce the judgment or order, may be as follows:

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

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

Section 49(b) enunciates the first concept of res judicata, known as bar by prior judgment or estoppel by judgment, which
refers to a theory or matter that has been definitely and finally settled on its merits by a court of competent jurisdiction
without fraud or collusion.

There are four (4) essential requisites which must concur for the application of this doctrine:

(a) finality of the former judgment;

(b) the court which rendered it had jurisdiction over the subject matter and the parties;

(c) it must be a judgment on the merits; and

(d) there must be, between the first and second actions, identity of parties, subject matter and causes of action.31

A judgment or order is on the merits of the case when it determines the rights and liabilities of the parties based on the
ultimate facts as disclosed by the pleadings or issues presented for trial. It is not necessary that a trial, actual hearing or
argument on the facts of the case ensued. For as long as the parties had the full legal opportunity to be heard on their
respective claims and contentions, the judgment or order is on the merits.32 An order of the trial court on the ground that the
complaint does not state a cause of action is a determination of the case on its merits.33 Such order whether right or wrong
bars another action based upon the same cause of action.34 The operation of the order as res judicata is not affected by a
mere right of appeal where the appeal has not been taken or by an appeal which never has been perfected.35
Indeed, absolute identity of parties is not a condition sine qua non for the application of res judicata. It is sufficient that there
is a shared identity of interest.36 The rule is that, even if new parties are found in the second action, res judicata still applies if
the party against whom the judgment is offered in evidence was a party in the first action; otherwise, a case can always be
renewed by the mere expedience of joining new parties in the new suit.37

The ultimate test to ascertain identity of causes of action is whether or not the same evidence fully supports and establishes
both the first and second cases. The application of the doctrine of res judicata cannot be excused by merely varying the
form of the action or engaging a different method of presenting the issue.38

Section 49(c) of Rule 39 enumerates the concept of conclusiveness of judgment. This is the second branch, otherwise
known as collateral estoppel or estoppel by verdict. This applies where, between the first case wherein judgment is rendered
and the second case wherein such judgment is involved, there is no identity of causes of action. As explained by this Court:

It has been held that in order that a judgment in one action can be conclusive as to a particular matter in another action
between the same parties or their privies, it is essential that the issues be identical. If a particular point or question is in issue
in the second action, and the judgment will depend on the determination of that particular point or question, a former
judgment between the same parties will be final and conclusive in the second if that same point or question was in issue and
adjudicated in the first suit; but the adjudication of an issue in the first case is not conclusive of an entirely different and
distinct issue arising in the second. In order that this rule may be applied, it must clearly and positively appear, either from
the record itself or by the aid of competent extrinsic evidence that the precise point or question in issue in the second suit
was involved and decided in the first. And in determining whether a given question was an issue in the prior action, it is
proper to look behind the judgment to ascertain whether the evidence necessary to sustain a judgment in the second action
would have authorized a judgment for the same party in the first action.39

In the present case, before the private respondents filed their first complaint, they already knew that the balance of their
account with the bank was ₱4,500,000.00. They even offered to make a ₱1,000,000.00 partial payment of their loan to
reduce their account to ₱3,500,000.00. These are gleaned from the averments in the first complaint:

7. That the long process of negotiation for the right-of-way has unnecessarily delayed the project of the plaintiffs and has
nearly caused the foreclosure of the mortgage property by the private defendant Bank, however, the said foreclosure was
held in abeyance when plaintiffs offered to pay the additional amount of ₱1,000,000.00 which should leave a balance of the
loan in the amount of ₱3,500,000.00;40

10. That as the auction sale was highly irregular, obviously, the only bidder is the defendant Bank for the price limited to the
remaining balance of the loan in the amount of ₱4,500,000.00, no more, no less;41

More telling is the private respondents’ failure to object to the extrajudicial foreclosure of the real estate mortgage and the
sale at public auction; they even pleaded to be allowed to redeem the property after it had already been sold at public
auction. Patently then, the respondents were proscribed from claiming that the foreclosure of the real estate mortgage was
for an amount in excess of the balance of their account and that the sale at public auction was irregular/illegal. As the Court
held in Aclon v. Court of Appeals:42

In the absence of evidence proving that a judgment debtor was merely trying to protect himself or save his property, and that
no reliance could or should have been placed upon his action in so doing, an attempt to redeem from an execution sale has
been construed as a waiver of defects or irregularities therein, precluding him from relying upon them for the purpose of
challenging its validity. When Aclon sought to redeem his property from PNB he never made any reservation with respect to
his right to question the validity of the auction sale and to seek alternative relief before the courts. In other words, there was
no indication whatsoever that he does not recognize the validity of the sale. If petitioner indeed felt that the assailed
foreclosure proceedings were attended with any irregularity he should have filed the appropriate action with the court.
Instead, he offered to repurchase the subject properties without any condition or reservation. Nevertheless, Aclon failed to
comply with his undertaking and instead defaulted in his subsequent payments.

Redemption is inconsistent with the claim of invalidity of the sale. Redemption is an implied admission of the regularity of the
sale and would estop the respondents from later impugning its validity on that ground.43 Thus, the private respondents’ pleas
for extensions of time to redeem the subject property are of the same genre.

The private respondents admitted in their complaint in the first case that the bank only gave a one-month extension to
redeem the property. Indeed, they made this declaration in their letter to the bank, dated July 2, 1999, copy of which was
appended to their complaint (and thus made an integral part thereof), to wit:
Mr. Sonny Justiniano

Acquired Assets

International Exchange Bank

Salcedo Tower

169 H.V. De la Costa St.,

Salcedo Village, Makati City

Dear Sir:

Your deadline of September 7, 1999 is already fast approaching. Our action program to redeem the property has been
stalled due to the infighting of the homeowners’ association members. We were not permitted to build access road to the
property. They won’t allow our equipment to pass and start work unless we get the approval of all the members. At present,
there are two factions and they are at odds with each. Either side does not recognize the existence of the other. Our only
option at the moment is to go to court and you know very well that this takes time.

Our interested buyers won’t budge unless they see improvements in the property like in place drainage system and access
road. We are ready to start work, however, the association has prevented us based on [the] above-stated reasons.

We have no other alternative but to once again appeal to you. We respectfully request for an extension of six months from
September 7, 1999 to enable us to sort the association problem by court proceedings and place in motion our action
program to redeem the property.

We pray that your kind heart will once again grant our request.

Thank you very much.

Very truly yours,

(Sgd.)

GAUDENCIO DIGOS44

If indeed the bank made an erroneous computation of the balance of their account as claimed by the private respondents in
their second complaint, this should have been alleged in the first complaint as one of their causes of action. They failed to do
so. The private respondents unequivocably admitted in their first complaint that the balance of their account with the bank
was ₱4,500,000.00 which was the precise amount for which the bank sought the foreclosure of the real estate mortgage and
the sale of the property at public auction; they even sought judicial recourse to enable them to redeem the property despite
the lapse of the one-year period therefor.

Relying on these admissions on the part of the private respondents, and the fact that the bank has already consolidated its
title over the property, the Court thus dismissed their first complaint. The Order of the Court dismissing the first complaint is
a judgment of the case on the merits.

The attempt of the respondents in their second complaint to avoid the application of the principle of res judicata by claiming
the nature of their account on the ground therefor and their legal theory cannot prosper. Case law has it that where a right,
question or fact is distinctly put in issue and directly determined by a court of competent jurisdiction in a first case, between
the same parties or their privies, the former adjudication of that fact, right or question is binding on the parties or their privies
in a second suit irrespective of whether the causes of action are the same.45 The ruling of the CA that the action of the
private respondents and their legal theory in their second complaint were different from their causes of action and legal
theory in the first complaint is not correct. A different cause of action is one that proceeds not only on a sufficiently different
legal theory, but also on a different factual footing as not to require the trial of facts material to the former suit; that is, an
action that can be maintained even if all disputed factual issues raised in the plaintiff’s original complaint are concluded in
defendant’s favor.46
In this case, the private respondents’ second complaint cannot be maintained without trying the facts material to the first
case, and the second case cannot be maintained if all the disputed factual issues raised in the first complaint are considered
in favor of the bank.

The principle of res judicata applies when the opportunity to raise an issue in the first complaint exists but the plaintiff failed
to do so. Indeed, if the pleading of a different legal theory would have convinced the trial court to decide a particular issue in
the first action which, with the use of diligence the plaintiffs could have raised therein but failed to do so, they are barred
by res judicata.47 Nor do legal theories operate to constitute a cause of action. New legal theories do not amount to a new
cause of action so as to defeat the application of the principle of res judicata.48

Indeed, in Siegel v. Knott,49 it was held that the statement of a different form of liability is not a different cause of action,
provided it grows out of the same transaction or act and seeks redress for the wrong. Two actions are not necessarily for
different causes of action simply because the theory of the second would not have been open under the pleadings in the
first. A party cannot preserve the right to bring a second action after the loss of the first, merely by having circumscribed and
limited theories of recovery opened by the pleadings in the first.50

It bears stressing that a party cannot divide the grounds for recovery.51 A plaintiff is mandated to place in issue in his
pleading, all the issues existing when the suit began. A lawsuit cannot be tried piecemeal.52 The plaintiff is bound to set forth
in his first action every ground for relief which he claims to exist and upon which he relied, and cannot be permitted to rely
upon them by piecemeal in successive action to recover for the same wrong or injury.53

A party seeking to enforce a claim, legal or equitable, must present to the court, either by the pleadings or proofs, or both, on
the grounds upon which to expect a judgment in his favor. He is not at liberty to split up his demands, and prosecute it by
piecemeal or present only a portion of the grounds upon which a special relief is sought and leave the rest to the
presentment in a second suit if the first fails. There would be no end to litigation if such piecemeal presentation is allowed.54

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision and Resolution of the Court of Appeals and
the assailed Order of the RTC are SET ASIDE. The Regional Trial Court is ORDERED to dismiss the complaint in Civil Case
No. Q-01-44227.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

 HEIRS OF MATILDE CENIZAL ARGUSON, represented by ALBERTO ARGUSON, Plaintiffs-
Appellants, v. REMEDIOS MICLAT, Defendant-Appellee.

Baltazar J. Llamas, for Plaintiffs-Appellants.

Oscar O. Reyes, for Defendant-Appellee.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; RES JUDICATA; TEST OF IDENTITY OF CAUSE OF ACTION. — The
test of identity of causes of action is whether the same evidence would support and establish both the
former and the present causes of action. (Peñalosa v. Tuason, 22 Phil. 303; Garcia v. Court of Appeals, 14
SCRA 721 and Viray v. Mariñas, 49 SCRA 44). Likewise, it is a firmly established rule that a different remedy
sought or a diverse form of action does not prevent the estoppel of the former adjudication.

2. ID.; ID.; ID.; ID.; CASE AT BAR. — We find the stand of the appellee to be well taken. The cause of
action in the complaint for annulment of the instrument of recognition and confirmation is anchored on the
right of ownership. It cannot be denied that the cause of action in the second complaint for partial
reconveyance of property is likewise right of ownership. Applying the test for determining the existence of
res judicata, we find that the same evidence would support and establish both the present and former
causes of action. The second action may no longer be allowed. As ruled in Sarabia v. Secretary of
Agriculture and Natural Resources, (supra), parties should not be permitted to litigate the same issue more
than once, that when a right or fact has been judicially determined, the judgment of the court, so long as it
remains unreversed, is conclusive upon the parties and those in privity with them in law or estate.

DECISION

GUTIERREZ, JR., J.:

This is an appeal from an order of the Court of First Instance of Cavite which dismissed a complaint for
reconveyance on grounds of res judicata. The appeal was filed with the former Court of Appeals but it was
certified to this Court on a finding that only a pure question of law was involved. The Court of Appeals, now
Intermediate Appellate Court, limited itself to summarizing the facts and the issues. It refrained from, in any
way, passing upon any of the questions raised. chanrobles law library

On February 25, 1980, the plaintiffs-appellants filed a complaint against Remedios Miclat with the Court of
First Instance of Cavite for the conveyance and surrender to the plaintiffs of a one-half portion of the land
now covered by Transfer Certificate of Title No. 80392 and the payment of actual damages, moral damages,
exemplary damages, attorney’s fees, and costs.

The plaintiffs averred that during the lifetime of the late Matilde Cenizal Arguson, she and her brother
Apolinar Cenizal inherited jointly from their father Gregorio Cenizal, a one-half portion of the lot located at
Biwas, Tanza, Cavite. It appears however, that on February 29, 1972, the defendants father and the heirs of
Apolinar Cenizal executed an instrument of recognition and confirmation whereby they made it appear that
Gregorio Cenizal had sold the land to Juan Miclat, predecessor of defendant Remedios Miclat. After the
execution of the instrument, Juan Miclat allegedly sold the land to his daughter, defendant Remedios Miclat,
who secured TCT 80392 over the land. The plaintiffs averred that in a decision dated June 13, 1978 of the
Court of First Instance of Cavite, the instrument of recognition and confirmation was declared null and void,
thereby rendering all transactions emanating from it similarly void. The plaintiffs averred that Apolinar
Cenizal could lawfully dispose of only one-half of the disputed property and, therefore, the transfer of the
entire disputed area to Remedios Miclat was improper and in bad faith. Hence, the plaintiffs asked for
reconveyance and surrender of a one-half portion of the land plus the damages, attorney’ s fees, and costs
earlier mentioned.

On April 11, 1980, the defendant-appellee filed a motion to dismiss based on the ground that the plaintiffs’
cause of action is barred by prior judgment.

According to the defendant, the plaintiffs had earlier filed on April 14, 1976 a case for the annulment of an
"Instrument of Recognition and Confirmation" against Juan Miclat who was later substituted upon his death
by Remedios Miclat and the other heirs. This earlier case, Civil Case No. NC-676, was decided on June 13,
1978. The dispositive portion of the decision reads: jgc:chanrobles.com.ph

"WHEREFORE, under our present imperatives, judgment is hereby rendered and this Court declares the
defendants’ Instrument of Recognition and Confirmation dated February 29, 1972 (Exh. J) null and void and
inoperative, without prejudice to the present ownership of defendant Remedios Miclat Manalo." cralaw virtua1aw library

According to the defendant-appellee, the issue of ownership was already resolved in Civil Case No. NC-676.
The following portion of the decision was cited: chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

"Nevertheless, this court is prepared to recognize the present real ownership of the land subject matter of
the same false documents under the name of defendant Remedios Miclat Manalo, it appearing that methods
of revelations during the trial in this case involved questions of ownership concerning the same parcel of
land, and this court should go along the cherished rule of procedure to the effect that all disputes should be
settled in one single proceeding leaving no root or branch to produce the seeds of inevitable litigation.
(Ledesma Oversees Shipping Corporation v. Avelino, Et. Al. GR. No. L-47698, April 28, 1978). Although
plaintiffs do not agree with the defendants’ postulations about the presumption about the sale of the land
subject matter in controversy by deceased Juan Miclat on July 31, 1941, nevertheless his possession over
the same land for thirty four years has gained from his advantage the ownership thereof in the concept of
an owner. Under the Code of Civil Procedure, ten years of actual and adverse possession by any person
claiming to be the owner for that time of any land in whatever way his occupancy might have commended
or continued and under a claim of title exclusive of any other right and adverse to all other claimants, could
result in the acquisition of title thereto by prescription. (De Lima versus Tio, 32 SCRA 516). AFORTIORI,
under the positivisms of the case of Juan Sindiong versus Commission on Burnt areas and improvement of
Cebu (10 SCRA 715), the rights of defendant Remedios Miclat Manalo should now be upheld for the reason
that she acquired the land in good faith and for value. She was not aware of any claim against the property
subject matter of the falsified documents now sought to be annulled." cralaw virtua1aw library

On May 16, 1980, the lower court upheld the res judicata argument and granted the motion to dismiss.

The plaintiffs-appellants raised the following assignment of error in their appeal: chanrob1es virtual 1aw library

THE LOWER COURT ERRED IN HOLDING THAT THE PLAINTIFFS’ CAUSE OF ACTION HAS BEEN BARRED BY A
PRIOR JUDGMENT ON JUNE 13, 1978 IN CIVIL CASE NO. NC-676 OF THE SAME COURT, HENCE THE
PRINCIPLE OF RES ADJUDICATA APPLIES IN THIS CASE.

According to the appellants, the cause of action in the 1978 decision was annulment of an instrument while
the cause of action in the instant case is partial reconveyance of property.

The appellee contends otherwise. She alleges that what was actually controverted and determined in the
previous suit relates to the propriety of her ownership over the disputed property. She claims that the
question of ownership was resolved in her favor. The decision became final and is now allegedly res judicata
to the present action. She prays in this appeal that the order of dismissal be affirmed in toto.

In Philippine Commercial and Industrial Bank v. Pfleider (65 SCRA 13), this Court stated that the requisites
of res judicata are:
chanrob1es virtual 1aw library

x           x           x

". . . (1) the presence of a final former judgment (which is in Civil Case No. 2860); (2) the former judgment
was rendered by a court having jurisdiction over the subject matter and the parties; (3) the former
judgment is a judgment on the merits; and (4) there is, between the first (Civil Case No. 2860) and the
second (the case at bar) actions, identity of parties, of subject matter, and of cause of action. (See Licup v.
Manila Railroad Co., Et. Al. G. R. No. L-16196, May 30, 1961; 2 SCRA 267; Nator, Et. Al. v. Court of
Industrial Relations, Et Al., G. R. No. L-16671, March 30, 1962, 4 SCRA 727; Malvar, Et. Al. v. Pallingayan,
Et Al., G. R. No. L-24736, September 27, 1966, 18 SCRA 121; Suarez v. Municipality of Naujan, Oriental
Mindoro, Et. Al. G. R. No. 22282, November 21, 1966, 18 SCRA 682)." cralaw virtua1aw library
In Sy Kao v. Court of Appeals (132 SCRA 302), we ruled: jgc:chanrobles.com.ph

"Time and again, we have enumerated the elements of res judicata as follows: (1) identity of parties or at
least such as representing the same interest in both cases: (2) identity of rights asserted and reliefs being
founded on the same facts; and (3) identity in the two 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 judicata in the action under consideration (See Marapao v. Mendoza, 119 SCRA 99)." cralaw virtua1aw library

There is no dispute in this case as to the jurisdiction of the court which rendered the first judgment nor as to
the finality of that judgment on the merits. There is also no question as to the identity of parties and subject
matter. The plaintiffs-appellants limit themselves to the allegation that the cause of action in the earlier
case, and the present case are entirely different. For them, there is no identity of rights asserted. chanroblesvirtualawlibrary

The test of identity of causes of action is whether the same evidence would support and establish both the
former and the present causes of action. (Peñalosa v. Tuason, 22 Phil. 303; Garcia v. Court of Appeals, 14
SCRA 721 and Viray v. Mariñas, 49 SCRA 44).

Likewise, it is a firmly established rule that a different remedy sought or a diverse form of action does not
prevent the estoppel of the former adjudication (Peñalosa v. Tuason, supra; Juan v. Go Cotoy, 26 Phil. 328;
Chua Tan v. Del Rosario, 57 Phil. 411; Francisco v. Blas, 93 Phil. 1; Sarabia v. Secretary of Agriculture and
Natural Resources, 2 SCRA 54; and Kidpalos v. Baguio Gold Mining Company, 14 SCRA 913).

We find the stand of the appellee to be well taken. The cause of action in the complaint for annulment of the
instrument of recognition and confirmation is anchored on the right of ownership. It cannot be denied that
the cause of action in the second complaint for partial reconveyance of property is likewise right of
ownership.

Applying the test for determining the existence of res judicata, we find that the same evidence would
support and establish both the present and former causes of action. The second action may no longer be
allowed. As ruled in Sarabia v. Secretary of Agriculture and Natural Resources, (supra), parties should not
be permitted to litigate the same issue more than once, that when a right or fact has been judicially
determined, the judgment of the court, so long as it remains unreversed, is conclusive upon the parties and
those in privity with them in law or estate.

We find the cause of action in both cases identical. chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

WHEREFORE, the order granting the motion to dismiss on the ground for res judicata is hereby AFFIRMED.
The appeal is DISMISSED.

SO ORDERED.

Melencio-Herrera, Plana, Relova, De la Fuente and Alampay, JJ., concur.

G.R. No. 208928               July 8, 2015

ANDY ANG, Petitioner,
vs.
SEVERINO PACUNIO, TERESITA P. TORRALBA, SUSANA LOBERANES, CHRISTOPHER N. PACUNIO, and PEDRITO
P. AZARCON, represented by their attorney-in-fact, GALILEO P. TORRALBA, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari  under Rule 45 of the Rules of Court are the Decision  dated September 28,
1 2

2012 and the Resolution  dated August 13, 2013 of the Court of Appeals (CA) in CA-G.R. CV No. 00992-MIN, which affirmed
3

the Summary Judgment  dated September 12, 2006 of the Regional Trial Court of Cagayan de Oro City, Branch 38 (RTC) in
4

Civil Case No. 2003-115 with modification declaring, inter alia, the Deed of Absolute Sale between petitioner Andy Ang
(petitioner) and Felicisima Udiaan (Udiaan) null and void.

The Facts

The instant case arose from a Complaint  dated March I 9, 2003 for Declaration of Nullity of Sale, Reconveyance, and
5

Damages filed by Pedrito N. PaGunio, Editha P. Yaba, and herein respondents Severino Pacunio, Teresita P. Torralba,
Susana Loberanes, Christopher N. Pacunio, and Pedrito P. Azaron (respondents) against petitioner before the RTC
involving a 98,851 square meter (sq. m.) parcel of land originally registered in Udiaan's name as evidenced by Original
Certificate of Title (OCT) No. T-3593  (subject land). In their Complaint, respondents alleged that they are the grandchildren
6

and successors-in-interest of Udiaan who died  on December 15, 1972 in Cagayan de Oro City and left the subject land as
7

inheritance to her heirs. However, on July 12, 1993, an impostor falsely representing herself as Udiaan sold the subject land
to petitioner, as evidenced by a Deed of Absolute Sale  of even date (Questioned Deed of Absolute Sale). Consequently,
8

OCT No. T-3593 was cancelled and Transfer Certificate of Title (TCT) No. T-79051  was issued in the latter's name. In 1997,
9

petitioner entered the subject land and used the same in his livestock business. Respondents then informed petitioner that
he did not validly acquire the subject land, and thereafter, demanded for its return, but to no avail.  Hence, they filed the
10

aforesaid complaint, essentially contending that Udiaan could not have validly sold the subject land to petitioner considering
that she was already dead for more than 20 years when the sale occurred. 11

In his Answer,  petitioner denied respondents' allegations and countered that: (a) at first, he bought the subject land from a
12

person representing herself as Udiaan who showed a community tax certificate as proof of identity, has in her possession
OCT No. T-3593, knew the location of the subject land, and was not afraid to face the notary public when they executed the
Questioned Deed of Absolute Sale; ( b) he was initially prevented from entering the subject land since it was being occupied
by the Heirs of Alfredo Gaccion (Heirs of Gaccion); (c) in order to buy peace, he had to "buy" the subject land anew from the
Heirs of Gaccion; (d) he was a buyer in good faith, for value, and was without any knowledge or participation in the alleged
defects of the title thereof; and ( e) respondents were never in possession of the subject land and they never paid real
property taxes over the same. Ultimately, petitioner claimed that he was duped and swindled into buying the subject land
twice.13

After the pre-trial conference, the parties submitted the case for summary judgment on the basis of the documents and
pleadings already filed.  The RTC then ordered the parties to simultaneously submit their memoranda in support of their
1awp++i1

respective positions.14

The RTC Ruling

In a Summary Judgment  dated September 12, 2006, the RTC ruled in petitioner's favor and accordingly, dismissed the
15

case for lack of merit.  It found that while respondents claimed to be Udiaan's successors-in-interest over the subject land,
16

there is dearth of evidence proving their successional rights to Udiaan's estate, specifically, over the subject land. As such,
the RTC concluded that respondents are not the real parties in interest to institute an action against petitioner, warranting
the dismissal of their complaint. 17

Dissatisfied, respondents appealed  to the CA. 18

The CA Ruling
In a Decision  dated September 28, 2012, the CA affirmed with modification the RTC ruling in that: (a) it nullified the
19

Questioned Deed of Absolute Sale; (b) declared valid the deed of absolute sale between petitioner and the Heirs of Gaccion
over a 3,502-sq. m. portion of the subject land; and ( c) distributed portions of the subject land to the Heirs of Gaccion and to
the children of Udiaan. 20

It agreed with the RTC's finding that respondents are not real parties in interest to the instant case, considering that, as mere
grandchildren of Udiaan, they have no successional rights to Udiaan's estate. In this regard, the CA ratiocinated that
respondents could only succeed from said estate by right of representation if their mother, who is one of Udiaan's
children,  predeceased Udiaan. However, such fact was not established.
21 22

This notwithstanding, the CA nullified the Questioned Deed of Absolute Sale because it was clearly executed by a person
other than Udiaan, who died more than 20 years before such sale occurred.  Considering, however, that some of Udiaan's
23

heirs had already sold a 9,900-sq. m. portion of the subject land to the Heirs of Gaccion, who in turn, sold a 3,502-sq. m.
portion to petitioner, the CA apportioned the subject land as follows: (a) 3,502 sq. m. to petitioner; (b) 6,398 sq. m. to the
Heirs of Gaccion; and (c) the remainder of the subject land to Udiaan's children. 24

Aggrieved, petitioner moved for reconsideration,  but was denied in a Resolution  dated August 13, 2013; hence, this
25 26

petition.

The Issue Before the Court

The core issue for the Court's resolution is whether or not the CA correctly declared the nullity of the Questioned Deed of
Absolute Sale and distributed portions of the subject land to different parties, among others, despite ruling that respondents
are not real parties in interest to the instant case.

The Court's Ruling

The petition is meritorious.

Section 2, Rule 3 of the Rules of Court lays down the definition of a real party in interest as follows:

SEC. 2. Parties in interest. - A real party in interest is the party who stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit. Unless otherwise provided by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest.

The rule on real parties in interest has two (2) requirements, namely: (a) to institute an action, the plaintiff must be the real
party in interest; and (b) the action must be prosecuted in the name of the real party in interest. Interest within the meaning
of the Rules of Court means material interest or an interest in issue to be affected by the decree or judgment of the case, as
distinguished from mere curiosity about the question involved. One having no material interest cannot invoke the jurisdiction
of the court as the plaintiff in an action. When the plaintiff is not the real party in interest, the case is dismissible on the
ground of lack of cause of action.  In Spouses Oco v. Limbaring,  the Court expounded on the purpose of this rule, to wit:
27 28

Necessarily, the purposes of this provision are 1) to prevent the prosecution of actions by persons without any right, title or
interest in the case; 2) to require that the actual party entitled to legal relief be the one to prosecute the action; 3) to avoid
multiplicity of suits; and 4) discourage litigation and keep it within certain bounds, pursuant to public policy. 29

In the instant case, respondents claim to be the successors-in-interest of the subject land just because they are Udiaan's
grandchildren.  Under the law, however, respondents will only be deemed to have a material interest over the subject land -
1âwphi1

and the rest of Udiaan' s estate for that matter - if the right of representation provided under Article 970,  in relation to Article
30

982,  of the Civil Code is available to them. In this situation, representatives will be called to the succession by the law and
31

not by the person represented; and the representative does not succeed the person represented but the one whom the
person represented would have succeeded. 32

For such right to be available to respondents, they would have to show first that their mother: (a) predeceased Udiaan; (b) is
incapacitated to inherit; or (c) was disinherited, if Udiaan died testate.  However, as correctly pointed out by the CA, nothing
33

in the records would show that the right of representation is available to respondents. Hence, the RTC and the CA correctly
found that respondents are not real parties in interest to the instant case. It is well-settled that factual findings of the RTC,
when affirmed by the CA, are entitled to great weight and respect by the Court and are deemed final and conclusive when
supported by the evidence on record,  as in this case.
34
Having established that respondents are not the real parties in interest to the instant suit, the proper course of action was for
the CA to merely affirm the RTC's dismissal of their complaint. It therefore erred in proceeding to resolve the other
substantive issues of the case and granting one of the principal reliefs sought by respondents, which is the declaration of the
nullity of the Questioned Deed of Absolute Sale.  In the same vein, the CA erred in awarding portions of the subject land to
35

various non-parties to the case, such as the Heirs of Gaccion and Udiaan's children. Basic is the rule that no relief can be
extended in a judgment to a stranger or one who is not a party to a case. 36

In sum, the CA transgressed prevailing law and jurisprudence in resolving the substantive issues of the instant case despite
the fact that respondents are not real parties in interest to the same. Necessarily, a reinstatement of the R TC ruling is in
order.

WHEREFORE, the petition is GRANTED. Accordingly, the Decision dated September 28, 2012 and the Resolution dated
August 13, 2013 of the Court of Appeals in CA-G.R. CV No. 00992-MIN are hereby REVERSED and SET ASIDE.
Accordingly, the Summary Judgment dated September 12, 2006 of the Regional Trial Court of Cagayan de Oro City, Branch
38 in Civil Case No. 2003-115 is REINSTATED.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice
G.R. No. 164801 August 18, 2005

PHILIPPINE NATIONAL BANK, Petitioners, Present: Davide, Jr., C.J. (Chairman),

vs.
HEIRS OF ESTANISLAO MILITAR AND DEOGRACIAS MILITAR, Quisumbing, Ynares-Santiago, Carpio, and
Azcuna, JJ. represented by TRANQUILINA MILITAR, Respondent.

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

G.R. No. 165165

SPOUSES JOHNNY LUCERO AND NONA ARIETE, Petitioners,

vs.
HEIRS OF ESTANISLAO MILITAR, DEOGRACIAS MILITAR, and TRANQUILINA MILITAR (deceased), now
represented by AZUCENA MILITAR, FREDDIE MILITAR, EDUARDO MILITAR, ROMEO L. MILITAR, NELLY LY
BOLANIO, LETICIA LY and DELIA LY SI ASOYCO, Respondent.

DECISION

YNARES-SANTIAGO, J.:

These consolidated petitions for review under Rule 45 of the Revised Rules of Civil Procedure assail the June 4, 2004
decision of the Court of Appeals in CA-G.R. CV No. 54831, which reversed the decision of the Regional Trial Court of Iloilo
1 

City, Branch 38, in Civil Case No. 18836, and its August 4, 2004 resolution denying reconsideration thereof.

The facts are as follows:

Deogracias, Glicerio, Tomas and Caridad, all surnamed Militar, were heirs of Estanislao Militar and the registered co-owners
of Lot Nos. 3011 and 3017 covered by OCT No. T-8238-A (0-16879) and OCT No. 94-(0-16878).

On August 16, 1941, Deogracias sold his undivided share in Lot No. 3011 to Pedro Golez, and in Lot No. 3017 to spouses
Sofronio and Lourdes Lumagbas. Golez annotated the sale at the back of the title thereof while spouses Lumagbas caused
the subdivision of Lot No. 3017 into Lot No. 3017-A and Lot No. 3017-B, with Lot No. 3017-A registered in their names under
TCT No. 8239.

Notwithstanding the sale, Deogracias continued to occupy a portion of Lot No. 3011 and Lot No. 3017-B until his death on
March 17, 1964. Glicerio died on March 22, 1939, Tomas on August 20, 1959 and Caridad on April 29, 1957. Glicerio and
Caridad died without issue. Deogracias was survived by Teodorico and Remedios, while Tomas was survived by Wenceslao
and Ladislao.

However, in a Deed of Absolute Sale dated April 24, 1975, Deogracias, Glicerio, Tomas and Caridad purportedly sold Lot
No. 3011 to spouses Rodolfo and Nilda Jalbuna. In another Deed of Sale dated April 25, 1975, Glicerio, Tomas and Caridad
purportedly sold Lot No. 3017-B to the same spouses. Consequently, titles to Lot Nos. 3011 and 3017-B were cancelled and
new titles, TCT Nos. 39083 and 39082, respectively, were issued to spouses Jalbuna.

Subsequently, Lot No. 3011 was subdivided into Lot No. 3011-A and Lot No. 3011-B, with Lot No. 3011-A registered in the
name of spouses Jalbuna and Lot No. 3011-B in the name of Golez.

On June 5, 1975, spouses Jalbuna mortgaged Lot No. 3017-B to Philippine National Bank (PNB) as security for a loan.
When they defaulted, PNB extrajudicially foreclosed the mortgage and sold Lot No. 3017-B at public auction, with PNB as
the highest bidder. Title thereto was consolidated in the name of PNB and was issued TCT No. T-61465.

Thereafter, PNB sold the lot to spouses Johnny and Nona Lucero, who were issued TCT No. 76938. As the new owners of
Lot No. 3017-B, they filed an ejectment case against Tranquilina, Azucena, Freddie and Eduardo, all surnamed Militar, the
actual occupants therein.

On October 2, 1989, Tranquilina, Azucena, Freddie and Eduardo as surviving heirs of Teodorico and Deogracias Militar,
filed a complaint against spouses Jalbuna, PNB, and spouses Lucero for Reconveyance of Title, Annulment of Sale,
Cancellation of Titles and Damages. Other heirs of Deogracias on the side of Remedios filed a complaint-in-intervention to
join the plaintiffs. They prayed for: 1) the declaration of nullity of the two (2) deeds of sale dated April 24, 1975 and April 25,
1975 covering Lot No. 3011 and Lot No. 3017-B, respectively; 2) the cancellation of title covering Lot No. 3017-B in the
name of spouses Lucero; 3) the cancellation of title covering Lot No. 3011-A in the name of spouses Jalbuna; 4) the
reconveyance of Lot 3011-A and Lot No. 3017-B to the heirs of Deogracias Militar; and 5) actual, exemplary and moral
damages. 2

Spouses Jalbuna invoked prescription, non-inclusion of indispensable parties and lack of cause of action since their
predecessor, Deogracias, no longer had interest over the properties having sold them to third parties.

PNB claimed that it was a mortgaee in good faith and for value; that the title of spouses Jalbuna was free from all liens and
encumbrances when they secured the loan; and that it conducted verification and inspection of the property before granting
the loan.

Spouses Lucero alleged that the complaint was commenced without the real party in interest; that the cause of action has
prescribed; and that they were innocent purchasers in good faith and for value.

The trial court rendered a decision dated October 18, 1995, dismissing the complaint, complaint-in-intevention, as well as
3 

the cross claim of PNB. It held that the case was not brought in the name of all indispensable parties and although the two
(2) deeds of sale were void for being simulated or fictitious, their nullity cannot be invoked against PNB and spouses Lucero
because they were buyers in good faith. It found that the action for reconveyance had prescribed as it was filed more than
fourteen (14) years from the execution of the Deeds of Sale covering the disputed properties. An action for reconveyance
prescribes after ten (10) years from the issuance of title, which operates as a constructive notice.

On appeal, the Court of Appeals reversed the decision of the trial court. It held that ultimate issue is the propriety of
reconveyance and not the shares of the respective heirs which is proper in a case for partition. Thus, a final determination of
the case can be had despite non-inclusion of other heirs because their interests may be severed and proceeded with
separately. Further, it held that PNB and spouses Lucero were not buyers in good faith; and that the action for reconveyance
based on implied trust does not prescribe. The dispositive portion reads as follows:

WHERERFORE, premises considered, the Decision dated October 18, 1995, of the Regional Trial Court of Iloilo City, Sixth
Judicial Region, Branch 38, in Civil Case No. 18836, is hereby REVERSED and SET ASIDE. The Certificate of Title
covering Lot 3011-A in the names of Spouses Jalbuna and the Certificate of Title covering Lot 3017-B in the names of
Spouses Lucero-Ariete are hereby declared null and void. Spouses Jalbuna and Spouses Lucero-Ariete are directed to
reconvey the subject properties to its original owners, namely Glicerio, Tomas and Caridad, as the undivided property, of the
aforestated co-owners.

SO ORDERED. 4

Hence, the instant consolidated petitions, the resolution of which hinges on three pivotal questions: 1) whether or not the
case was brought by all indispensable parties; 2) whether or not petitioners PNB and spouses Lucero were mortgagee and
purchasers in good faith, respectively; and 3) whether or not action for reconveyance has prescribed or is barred by laches.

We are not persuaded by PNB’s claim that the case was not brought by all indispensable parties as other heirs of Glicerio,
Tomas and Caridad have not been named as parties therein.

An indispensable party is one whose interest will be affected by the court's action in the litigation, and without whom no final
determination of the case can be had. The party's interest in the subject matter of the suit and in the relief sought are so
inextricably intertwined with the other parties' that his legal presence as a party to the proceeding is an absolute necessity.
In his absence there cannot be a resolution of the dispute of the parties before the court which is effective, complete, or
equitable.5

Conversely, a party is not indispensable to the suit if his interest in the controversy or subject matter is distinct and divisible
from the interest of the other parties and will not necessarily be prejudiced by a judgment which does complete justice to the
parties in court. He is not indispensable if his presence would merely permit complete relief between him and those already
parties to the action or will simply avoid multiple litigation.
6

There are two essential tests of an indispensable party: (1) can relief be afforded the plaintiff without the presence of the
other party?; and, (2) can the case be decided on the merits without prejudicing the rights of the other party? There is,
however, no fixed formula for determining who is an indispensable party; this can only be determined in the context and by
the facts of the particular suit or litigation.
7
In the case at bar, the ultimate relief sought by the action is the reconveyance of titles to their rightful owners. The records
reveal that prior to the forgery, the disputed properties were registered in the names of the co-owners, Glicerio, Tomas and
Caridad, whose interests remained undivided. Thus, if reconveyance of the titles is granted, the titles will revert back to the
estates of the deceased co-owners and not to their individual heirs, whose interests are divisible and may properly be
ventilated in another proceeding. Therefore, a co-heir may bring such action without necessarily joining all the other co-heirs
as co-plaintiffs because the suit is deemed to be instituted for the benefit of all. As correctly held by the Court of Appeals:

It should be remembered, nevertheless, that the ultimate issue herein is the propriety of reconveyance and not the shares of
the respective heirs of the co-owners, the latter being determined in a case for partition. An action for partition is the action
where co-ownership is declared and the segregation and conveyance of a determinate portion of the property is made. The
heirs of the co-owners, (Glicerio, Tomas and Caridad), if there are any, including the appellants herein may claim their
respective shares in an action for partition. Any claim of interest, by way of succession, from the co-owners may be severed
and proceeded with separately and a final determination in the action for recoveyance can be had despite the non-inclusion
of other heirs because the interest of the respective heirs of the co-owners, may be severed. Corollary, the instant case,
may proceed without the other heirs, if there are any, because they are mere necessary parties. Moreover, in a co-
ownership, the act of one benefits all the co-owners, unless the former repudiates the co-ownership. Thus, if the appellants
herein prevail in the case for reconveyance, it will also redound to the benefit of the other co-owners or co-heirs. 8

PNB next argues that since Deogracias sold his shares in the disputed lots, his heirs, herein respondents, do not have a
cause of action against it, spouses Jalbuna and spouses Lucero.

This argument is proper had Deogracias died ahead of the other co-owners. However, records show that Glicerio, Tomas
and Caridad predeceased Deogracias. Glicerio died on March 22, 1939, Tomas on August 20, 1959, Caridad on April 29,
1957, while Deogracias died on March 17, 1964.

Article 1003 of the Civil Code provides:

Art. 1003. If there are no descendants, ascendants, illegitimate children, or a surviving spouse, the collateral relatives shall
succeed to the entire estate of the deceased in accordance with the following articles.

Clearly, when Glicerio and Caridad died intestate and without issue, their shares in the disputed properties were inherited by
Deogracias and Tomas. It is this portion that respondents, as heirs of Deogracias, have an interest on and which vested
them with personality to institute the present case.

PNB and spouses Lucero claim to be mortgagee and buyers in good faith, respectively, since title to Lot No. 3017-B
appeared to be free from any encumbrance. They argue that a person dealing with a registered land may rely on the
correctness of the certificate of title and is not required to go beyond it to determine the condition of the property.

Whether petitioners are innocent mortgagee or purchasers in good faith and for value, is a factual matter, which cannot be
raised in a petition for review on certiorari under Rule 45. Settled is the rule that this Court is not a trier of facts and does not
9 

normally embark on a re-examination of the evidence adduced by the parties during trial. In Heirs of the Late Spouses
10 

Aurelio and Esperanza Balite v. Lim, we held that factual findings of the Court of Appeals are binding and conclusive upon
11 

us. These findings may be reviewed only under exceptional circumstances such as when the inference is manifestly
mistaken; the judgment is based on a misapprehension of facts; findings of the trial court contradict those of the appellate
court; or the latter manifestly overlooked relevant and undisputed facts that, if properly considered, would justify a different
conclusion.

The Court of Appeals reversed the decision of the trial court based on its findings of facts which are in accord with the
documents on record. Thus, we affirm the Court of Appeals’ finding that petitioners were not mortgagee or buyers in good
faith.

Moreover, the burden of proving the status of a purchaser in good faith and for value lies upon him who asserts that
status. In discharging the burden, it is not enough to invoke the ordinary presumption of good faith. The rule is settled that a
12  13 

buyer of real property in possession of persons other than the seller must be wary and should investigate the rights of those
in possession. Without such inquiry, the buyer can hardly be regarded as buyer in good faith and cannot have any right over
the property.14

PNB claims that it conducted the necessary inquiry and investigation on the subject lot and was convinced that Nilda
Jalbuna, as one of the heirs of Estanislao Militar, had every right to mortgage the same, even if she was not in actual
possession thereof.
However, considering that the land was in the possession of persons other than the mortgagors, PNB should have inquired
whether the possessors knew that the lot is being mortgaged, and the circumstances surrounding the acquisition of the lot
by the mortgagors. Indeed, while PNB is not expected to conduct an exhaustive investigation on the history of the
mortgagor’s title, it cannot be excused from the duty of exercising the due diligence required of a banking institution.
In Tomas v. Tomas, we noted that it is standard practice for banks, before approving a loan, to send representatives to the
15 

property offered as collateral to assess its actual condition and to investigate who are the real owners thereof. We held that
banks are expected to exercise more care and prudence than private individuals in their dealings, even those involving
registered lands, for their business is affected with public interest. Verily, PNB was remiss in the exercise of due diligence
required of a banking institution, hence it cannot be considered as mortgagee in good faith.

Neither could spouses Lucero be considered buyers in good faith. As respondents’ neighbors, they could have verified the
status of the property they were buying by inquiring from the possessors thereof. This, they failed to do; hence they cannot
be considered buyers in good faith.

As to whether the action for reconveyance has prescribed, we held in Santos v. Santos, citing Lacsamana v. CA, that the
16  17 

right to file an action for reconveyance on the ground that the certificate of title was obtained by means of a fictitious deed of
sale is virtually an action for the declaration of its nullity, which does not prescribe.

In the case at bar, the complaint filed was for the reconveyance of the properties in question to the estates of Deogracias,
Glicerio, Tomas and Caridad, considering that the deeds of sale were simulated and fictitious. The complaint thus amounts
to an action for declaration of nullity of a void contract, which does not prescribe.

Neither could laches be successfully invoked. Laches is a doctrine in equity which has been aptly described as "justice
outside legality", and applied only in the absence of, and never against, statutory law. Aequetas nunguam contravenit
legis. The positive mandate of Art. 1410 of the Civil Code conferring imprescriptibility to actions or defense for the
declaration of the inexistence of a contract should pre-empt and prevail over all abstract arguments based only on equity.
Certainly, laches cannot be set up to resist the enforcement of an imprescriptible legal right; thus, respondents can validly
vindicate their inheritance despite the lapse of time.18

Finally, while certificates of title are indefeasible, unassailable and binding against the whole world, they merely confirm or
record title already existing and vested. They cannot be used to protect a usurper from the true owner, nor can they be used
for the perpetration of fraud; neither do they permit one to enrich himself at the expense of others. 19

WHEREFORE, the petitions are DENIED. The decision of the Court of Appeals dated June 4, 2004 in CA-G.R. CV No.
54831 and its resolution dated August 4, 2004, are hereby AFFIRMED in toto.

SO ORDERED.

CONSUELO YNARES-SANTIAGO