1.

Republic of the Philippines However, on 30 September 1981, petitioners filed an Answer With
SUPREME COURT Counterclaim and a Motion to Admit Third-Party Complaint against Worldwide
Manila Insurance Co., Inc. with which they insured against loss or damage the cargo
truck for P180,000.00. The Pasig court granted this motion on 15 October 1981.
THIRD DIVISION
On 15 October 1981, IFC filed its reply to the Answer. On 27 October 1981,
G.R. No. 81239 December 4, 1991 petitioners filed a motion to reconsider the default Order of 25 September 1981,
which the court granted on 30 October 1981.
NELSON L. YOUNG and VIOLETA YOUNG, petitioners,
vs. On 4 December 1981, the Third-Party defendant filed its Answer with
THE HONORABLE COURT OF APPEALS and INDUSTRIAL FINANCE Compulsory Counterclaim.
CORPORATION, respondents.
Then, on 17 December 1981, the Pasig court set the case for pre-trial conference
Nuyda & Associates for petitioners. on 29 March 1982 at 8:00 A.M.
Santos S. Carlos for private respondent.
When the case was called for pre-trial on 28 March 1982, neither petitioners
nor their counsel appeared despite due notice. Upon motion of IFC, the Pasig
court issued an Order declaring petitioners in default, allowing IFC to present its
evidence ex-parte before a Commissioner and dismissing the third-party
complaint without prejudice; however, since petitioners arrived shortly
DAVIDE, JR., J.:
thereafter, the court gave them five (5) days from receipt of the Order within
which to file any motion they may deem necessary.
This is a petition for review on certiorari under Rule 45 of the Rules of Court to
set aside the decision 1 of 24 August 1987 of respondent Court of Appeals in
At 2:35 o'clock in the afternoon of 30 March 1982, IFC presented its evidence
C.A.-G.R. CV No. 07484 2 Which affirmed in toto the decision of Branch 135 of the
before the Commissioner designated by the Pasig court and rested its case.
Regional Trial Court of Makati, Metro Manila of 3 May 1985 in Civil Case No.
1219.
On 7 April 1982, petitioners filed a motion to reconsider the 29 March 1982
Order declaring them in default and dismissing the third-party complaint. They
The factual and procedural antecedents are not disputed.
prayed that the order be lifted and that the case be set for pre-trial conference.
On 20 May 1982, the Pasig court issued the following Order:
On 3 July 1981, herein private respondent (hereinafter referred to as IFC), as
assignee of a deed of sale with chattel mortgage and the accompanying
Finding the motion for reconsideration filed by the defendants dated
promissory note, filed a complaint against the petitioners with the then Court of
April 6, 1982, to be well-taken and in the interest of justice, the Court
First Instance (now Regional Trial Court) of Rizal (at Pasig, Metro Manila) for
grants the same. The Order dated March 29, 1982 declaring defendants
the payment of the total sum of P157,588.39 which became due on the note by
in default and dismissing the third party complaint is hereby
reason of its acceleration clause, the interest thereon, and of attorney's fees. The
reconsidered and set aside. Plaintiff's evidence, however, stands.
note was executed by petitioners in favor of Baroq Motor Sales, Inc. in
(emphasis supplied)
connection with their purchase of a cargo truck on installment basis. The case
was docketed as Civil Case No. 41881 and was assigned to Branch VI of said
court. Upon manifestation of IFC on 21 July 1982, the Pasig court set the case for
hearing on 15 October 1982. In a Notice of Hearing dated 11 October 1982, the
hearing was reset to 21 January 1983. Then, on 14 December 1982, on the
For failure to file their Answer within the reglementary period, the Pasig court,
ground that the presiding judge was on leave, a notice was issued resetting "the
upon motion of IFC, declared petitioners in default in its order of 25 September
case" for 9 March 1983. No hearing took place on the latter date because of the
1981 and allowed IFC to present its evidence  ex-parte on 30 October 1981.
reorganization of the judiciary in January 1983.
The case was subsequently transferred to Branch 135 of the Regional Trial
Court of Makati, Metro Manila, then presided over by Judge Rafael T. Mendoza,
and was docketed therein as Civil Case No. 1219. This Branch (hereinafter
referred to as the Makati Court) issued on 20 April 1983 a Notice of Hearing
(Pre-Trial Conference setting the hearing of the case for 24 June 1983 at 8:30
A.M.; however, due to the absence of the third-party defendant, the court, upon
agreement of the parties present, reset the pre-trial conference to 2 September
1983.
On 2 September 1983, IFC, its counsel and the third-party defendant did not
appear thus prompting the Makati court to issue the following Order:
For failure of the plaintiff and counsel to appear today, despite due
notice, as well as the third party defendant and counsel, as prayed for
by the defendant, through counsel, the complaint is hereby dismissed,
and the third party defendant declared as in default and third party
plaintiff is allowed to present its. evidence ex parte on September 8,
1983, at 2:00 P.M. in support of his third party complaint.
IFC received a copy of this Order on 20 September 1983.
Petitioners did not present their evidence.
On 25 May 1984, the Makati court issued the following Order:
It appearing that despite the lapse of time plaintiff has failed to take the
necessary steps to prosecute its case, this Court hereby orders the
instant case dismissed for lack of interest to prosecute.
Upon IFC's motion for reconsideration of 13 September 1984, wherein it gave as
reason for its failure to actively prosecute the case its occasional substitution of
counsel and the transfer of the case from Pasig to Makati, 3 the Makati court
issued on 25 September 1984 an Order reading as follows:
Motu proprio this Court hereby modifies its order dated May 25, 1984
in the sense that between the words "time" and "plaintiff", the words
"third-party" should be inserted. In all other aspect (sic), the aforesaid
order stands.
Accordingly, the motion of the plaintiff thru counsel dated September
11, 1984 is deemed moot and academic.
As thus modified, the 25 May 1984 Order was then clearly directed against
herein petitioners who did not present, ex-parte, their evidence on 8 September
1983.
On 27 September 1984, IFC filed with the Makati court a manifestation and
motion praying that the latter's Order of 2 September 1983 dismissing the
complaint be reconsidered and set aside, the case be submitted for decision
based on the evidence presented by the IFC and that petitioners' right to
present their evidence be considered to have been waived.
Petitioners on the other hand assert that they were not furnished with copies of
the manifestation and motion and of the order of the court of 12 October 1984
requiring them to comment thereon which was sent to their counsel, but
returned to the court with the stamped notation "Unclaimed." 4
On 14 February 1985, IFC filed a manifestation and motion reiterating its prayer that the case be submitted for decision on the basis of the
evidence it had presented. Reacting, petitioners again claim that neither they nor their counsel received a copy thereof. 5
 Pursuant
thereto, the Makati court issued on 25 February 1985 an Order directing the
court stenographer who took down the stenographic notes of the proceedings in
the case before the Pasig court to submit the transcripts thereof within ten (10)
days from notice, after which "the instant case will be deemed submitted for
decision."
On 3 May 1985, the Makati court rendered its decision in Civil Case No. 1219,
the Dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendants, ordering the latter to pay plaintiff jointly and
severally:
1. The amount of P134,472.34 plus penalty charges there on at the rate
of 3% per month from the filing of the complaint until fully paid;
2. The sum of P10,000.00 as attorney's fees;
3. Costs of suit. 6
Petitioners appealed from the decision to the Court of Appeals, which docketed the case as C.A.-G.R. CV No. 07484. They asserted therein
that the Makati court erred in setting aside its 2 September 1983 Order dismissing IFC's complaint and thereafter rendering a decision in
the latter's favor, and contended in support thereof that said order had long become final and had the effect of an adjudication on the
merits pursuant to Section 3, Rule 117 of the Rules of Court. 7
The respondent court defined the issue before it in this wise: We then gave the petition due course and required the parties to submit their respective Memoranda, 15
 which petitioners
complied with on 28 October 1988 16 and the IFC only on 17 July 1990. 17

... whether plaintiffs' [IFC's] failure to appear at the hearing set on September 2, 1983—during which for such failure the

Order dismissing the complaint was issued—may be considered a failure to prosecute or a failure to comply with the rules The principal issue in this case is whether or not the Makati court's order of 2 September 1983 dismissing IFC's complaint for failure to

or with an order of the court below on the part of the plaintiff within the contemplation of Rule 17, Section 3, supra. 8 appear on said date had long become final such that it was error for the former to issue its order of 25 February 1985 granting IFC's 27

September 1984 motion (to set aside said order of 2 September 1983 and to decide the case on the basis of the evidence it earlier

Respondent court rejected the petitioners' contention. It held that pre-trial was set by the Pasig court for 29 March 1982. However, presented ex-parte pursuant to the default order of 29 March 1982). The issue in turn revolves on the propriety and validity of the said

petitioners were declared in default; it was at that stage that the requirement of Section 1, Rule 20 of the Rules of Court was deemed to dismissal order. If such order is valid, then certainly it became final upon the lapse of fifteen (15) days from receipt thereof by IFC. Both

have been complied with, and what was subsequently set by the Makati court, first on 24 June 1983 and then on 2 September 1983 upon a IFC and petitioners agree that the former received the order on 20 September 1983. Accordingly, per Section 39 of B.P. Blg. 129, IFC had

so-called "Notice of Hearing/ Pre-Trial Conference," "was and should have been a hearing and not a pre-trial," considering "that at that until 5 October 1983 within which to either file a motion to reconsider the order or to appeal therefrom. Upon the other hand, if the Order

particular stage (on September 2, 1983) all of the pleadings had already been submitted by the parties and plaintiff had already adduced was null and void, as IFC claims, it never became final.

its evidence." Furthermore, it was held in Jalover vs. Ytoriaga 9

 that where the plaintiff had already
As to be expected, petitioners assert that the Order was valid since what was set for 2 September 1983 was the pre-trial of the case; it was
adduced evidence and rested its case before the dismissal of said case, the
a re-setting of the pre-trial scheduled on 24 June 1983. Indeed, the Order of 24 June 1983 reads:
absence of the plaintiff at a subsequent hearing cannot be considered a failure
to prosecute on plaintiffs' part; it can only be construed as a waiver of the right
to cross-examine the witnesses which the opposite party might present at the
hearing and to object to the admissibility of the evidence of the
latter. 10 Moreover, respondent court considered as satisfactory IFC's By agreement, pre-trial is reset to September 2, 1983. 18
explanation for its failure to prosecute the case. Hence, in the decision
promulgated on 24 August 1987, respondent Court of Appeals affirmed in
toto the decision of the Makati court. Their motion for its reconsideration
having been denied in the resolution of 21 December 1987, petitioners came to
Since IFC accepted the notice of pre-trial for 24 June 1983 and agreed to its re-setting, it is now estopped from claiming that the Makati
this Court via this petition for review which they filed on 5 February
1988. 11 They urge Us to set aside respondent court's decision because it erred: court should not have set the case for pre-trial since one had already been had on 29 March 1982. Petitioners then conclude that since IFC

failed to appear for pre-trial on 2 September 1983, the Makati court correctly dismissed the complaint pursuant to Section 2, Rule 20 of

the Rules of Court which provides:

(1) in not passing upon the issue of finality of the order dated
September 2, 1983—dismissing plaintiff-appellee's complaint;
SECTION 2. Failure to appear at pre-trial conference. — A party who fails to appear at a pre-trial conference may be non-

suited or considered as in default.

(2) in not concluding that the order dated September 2,1983 ... being
final and executory, the lower court has lost jurisdiction to set aside the
and that such dismissal amounts to an adjudication on the merits per Section 3, Rule 17 of the Rules of Court, which reads as follows:
same;

SECTION 3. Failure to prosecute.—If plaintiff fails to appear at the time of the trial, or to prosecute his action for an
(3) in misapplying the doctrine enunciated ... in the case of Jalover vs.
unreasonable length of time, or to comply with these rules or any order of the court, the action may be dismissed upon
Ytoriaga, 80 SCRA 100, to the case at bar;
motion of the defendant or upon the court's own motion. This dismissal shall have the effect of an adjudication upon the

merits, unless otherwise provided by court.

(4) in not concluding that after the order dated September 2, 1983 ...
became final and executory, the subsequent proceedings and the
Hence, it was error for the Makati court to set aside this Order in its 25 February 1985 Order on the basis of IFC's 27 September 1984
decision rendered anew by the trial court dated May 3, 1985 are null
and void. 12 manifestation and motion.

We required the respondents to comment on the petition; 13

 IFC complied with the order on 27 July
1988. 14
IFC does not dispute the fact that it neither filed a motion to reconsider or appealed from the order of 2 September 1983. It, however,
Philippine jurisprudence has laid down the legal doctrine that while it
claims that the Makati court erred in dismissing the case on 2 September 1983 since it had already offered its evidence on 30 March 1982
is true that it is mandatory for the parties and their attorneys to appear
pursuant to the default order of 28 March 1982 and that per the Order of 20 May 1982, while the default order was set aside, the court
before the trial court for a pre-trial conference to consider inter alia the
explicitly stated therein that "plaintiffs evidence, however, stands." In short, a party cannot be said "to have failed to prosecute when his
possibility of an amicable settlement, the rule was by no means
evidence is already a part of the records of the case and the court can decide the case based on the evidence already presented."  19
 It intended as an implacable bludgeon but as a tool to assist the trial court
then went on to conclude that the 2 September 1983 Order is null and void and in the orderly and expeditious conduct of trials. The rule is addressed to
a void order is no order at all. Hence, even if it was received by IFC on 20 the sound discretion of the trial court. (Rice and Corn Administration
September 1983, it never became final and did not produce any legal or binding vs. Ong Ante, et al., G.R. No. L-30558, Oct. 4, 1971).
effect. 20
Both client and counsel must appear at the pre-trial. This is mandatory.
Failure of the client to appear is a ground for dismissal. (American Ins.
Co. vs. Republic, 1967D Phil. 63; Hone Ins. Co. vs. United States Lines
Two (2) earlier cases decided eleven (1 1) years apart aid Us in resolving the issue in this case. Co., 1967D Phil. 401, cited in Saulog vs. Custombuilt Manufacturing
Corp., No. L-29612, Nov. 15, 1968; Taroma v. Sayo, L-37296, Oct. 30,
1975 (67 SCRA 508).

In Pioneer Insurance and Surety Corp., et al. vs. Hontanosas et al., 21

 decided on 31 August 1977, a pre-trial
was conducts between original plaintiffs and Pioneer on 5 May 1971. The latter
opposed any amicable settlement; thereupon, plaintiffs marked their pre-trial
exhibits, objections to which were re served by Pioneer. The parties then agreed
to set the trial on the merits on 11 June 1971. However, after the complaint was
amended to include an additional party defendant, the court set the case again
for pre-trial on the basis of the amended complaint, and because defendants
failed to appear at such pretrial, it declared them as in default, allowed the
plaintiffs to present their evidence ex-parte and thereafter rendered a decision
in favor of the plaintiffs. This Court set aside the default order and ruled that the
judge issued it with grave and serious abuse of discretion and in excess of
jurisdiction since:
... there is nothing in the Rules that empowers or authorizes the court to
call a second pre-trial hearing after it has called a first pre-trial duly
attended by the parties, and lacking such authority, the court perforce
lacks authority to declare a failure to prosecute on the part of the
plaintiff for failing to attend such second pre-trial; it also lacks the
authority to declare the defendant "as in default " by reason of the
latter's failure to be present at the said second pre-trial.
The extended disquisition of the Court reads:
Unquestionably, the present Rules make pre-trial mandatory. And the
reason for making pre-trial mandatory is that pre-trial conferences
bring the parties together, thus making possible an amicable settlement
or doing away with at least the non-essentials of a case from the
beginning. (Borja vs. Roxas, 73 Phil. 647).
In the case of Insurance Co. of North America vs. Republic, et al., G.R. No.
L-26794, Nov. 15, 1967, 21 SCRA 887, the Supreme Court, speaking
thru Justice Bengzon, held that Sec. 1, Rule 20 of the Rules requires the
court to hold a pre-trial before the case is heard and since in this case, a
pre-trial has already been had, the fact that an amended complaint was
later filed, did not necessitate another pre-trial. It would have been
impractical, useless and time-consuming to call another pre-trial.
x x x           x x x          x x x
The defendant Pioneer Insurance & Surety Corp. having complied with
the order of the Court to appear and attend this pre-trial, and had
manifested its opposition to settling the case amicably, said party may
no longer be compelled to attend a second pre-trial hearing, and neither
may it be punished by the court by its order declaring said defendant as
in default. The mandatory character of a pre-trial and the serious
consequences confronting the parties in the event that each party fails
to attend the same must impose a strict application of the Rule such
that where we find no authority for the Court to call another pre-trial
hearing, as in fact there is none in said Rule, the conclusion is
inescapable that the respondent Judge committed a grave and serious
abuse of discretion and acted in excess of jurisdiction in declaring
defendant Pioneer Insurance & Surety Corp. "as in default" for failure to
attend the second pre-trial called by the Judge on February 29, 1972, In
other words, there is nothing in the Rules that empowers or authorizes
the court to call a second pre-trial hearing after it has called a first pre-
trial duly attended by the parties, and lacking such authority, the court
perforce lacks the authority to declare a failure to prosecute on the part
of the plaintiff for failing to attend such second pre-trial; it also lacks

the authority to declare the defendant "as in default" by reason of the
latter's failure to be present at the said second pre-trial.
It serves no purpose for the court to call again another pre-trial where
the parties had previously agreed to disagree, where the issues had
been joined and where the court itself had been satisfied that a hearing
on the merits is the next step to conduct as in the instant case where
the court, after the pre-trial on May 5, 1971, set the trial of the case on
its merits for June 11, 1971. Indeed, a second pre-trial is impractical,
useless and time-consuming.
x x x           x x x          x x x
In Development Bank of the Philippines vs. Court of Appeals, et al., 22 decided on
26 January 1989, at a first pre-trial conference, the defendants were declared by
the trial court to be as in default and the plaintiff Development Bank of the
Philippines (DBP) was allowed, as in fact it did, present its evidence ex-
parte. But on motion of defendants, the order of default was set aside and the
case re-scheduled for pre-trial on which occasion, however, DBP was declared
non-suited because the challenge of defendants concerning the "adequacy and
efficacy" of the power of attorney granted by DBP to its Assistant Manager to
appear for it at pre-trial was sustained by the trial court. The Court of Appeals
having sustained the court a quo, this Court ruled that the effect of the following
successive incidents therein, to wit: the joinder of the issues, the scheduling of
the pre-trial conference, the failure of defendants to appear at pre-trial, the
declaration of defendant, and the ex-parte presentation of evidence by the
plaintiff was "to terminate the pre-trial stage of the action and to limit the effect
of the subsequent lifting of the order of default issued against the private
respondents to the restoration of their right to notice of subsequent
proceedings and to take part in the trial. 23 Such lifting, as has also been held by
this Court on another occasion, did not revert the action to the pre-trial stage or
authorize, much less render mandatory, a second pre-trial. 24
We went on to say that:
The scheduling of a second pre-trial after DBP had finished presenting its evidence frustrated, rather than advanced, the
primary purpose of pre-trials of abbreviating trial by limitation and simplification of the issues, if not indeed of dispensing
altogether with the necessity of trial. Neither is that purpose served by non-suiting a plaintiff at such a stage of the action.
The correct course would have been to proceed with the trial, in fact already well under way, allowing the defendants
(private respondents) to cross-examine the plaintiffs (DBP's) witnesses and thereafter to offer their evidence.
In the present case, it is quite obvious that the Pasig court had no intention of reverting the case to its pre-trial stage. This is easily borne
out by the fact that its Order of 20 May 1982 is silent as to the prayer in petitioner's motion of 7 April 1982 that "the case be set for pre-
trial conference with due notice to all parties concerned." Moreover, it subsequently sent a notice of hearing setting the hearing of the case
on 15 October 1982, which was reset to 21 January 1983 in the notice dated 11 October 1982. Yet, while this may be so, the parties herein
and the Makati court failed to fully comprehend the situation, which could have been due to the transfer of the case from the Pasig court
and their failure to examine the records.
Thus, it is not clear whether the Makati court initially set the case for pre-trial or for hearing. The heading of its 20 April 1983 Notice is
rather vague, if not misleading. It read; "Notice of Hearing/Pre-Trial Conference." But, as the respondent court noted, its body refers to a
setting of the, "hearing of the case" on 24 June 1983. 25
 Its personnel in charge of notices may have
used the mimeographed blank forms but forgot to cancel in appropriate words
in the heading. In any case, the parties considered the notice as one for pre-trial
for, on 24 June 1983, due to the absence of the third-party defendant, IFC and
the petitioners agreed to reset the pre-trial to 2 September 1983 and the court
issued the corresponding order. In essence, therefore, the parties in this case
had voluntarily agreed that the case be set anew for pre-trial. And the Makati
court, by its order, yielded, in effect, to the agreement of the parties. This fact
brings this case out of the doctrine enunciated in the Pioneer and DBP cases,
and ingrafts, an exception thereto. No one can question the soundness and
wisdom of the doctrine that the pre-trial stage is completed after a party had
been ordered non-suited or declared as in default, as the case may be, and that
an order lifting it does not revert the action to its pre-trial stage, or authorize,
much less, a second pre-trial. However, neither the Rules nor the doctrine bars
the parties from agreeing, after such lifting, to hold a pre-trial and to effectively
accomplish its objectives which could not have been done at the first pre-trial
because of the absence of the plaintiff, resulting in his non-suit, or the absence
of the defendant, resulting in his being declared as in default. The necessity for a
second pre-trial may have been felt by the parties in this case considering that
defendant had a third-party complaint and the third-party defendant had set up
a compulsory counterclaim. At such pre-trial, the parties could consider the
matter of an amicable settlement, the simplification of the issues and the
possibility of obtaining stipulations or admissions of facts and of documents to
avoid unnecessary proof which would, at the very least, shorten the
proceedings. It must be remembered that the factual milieu surrounding the
default order in this case is entirely different from the Pioneer where the
defaulted party attended the first pre-trial and rejected any amicable settlement
of the case. DBP involved the non-suit at the second pre-trial of a party which
had already adduced its evidence ex-parte at the first pre-trial after defendant
was declared in default and was present at the second pre-trial; DBP was
declared non-suited simply because the authority of its representative was
challenged.
Elsewise stated, IFC had waived the effect of the lifting of the order of default definite date fixed by law. 29 To allow courts to amend final judgments will result
and had voluntarily agreed to have another pre-trial. in endless litigation. 30

For its failure to appear at the pre-trial on 2 September 1983, IFC could be
validly non-suited and its complaint dismissed. Even if We follow the arguments
of the respondent court and the IFC that the Makati court could not validly set The foregoing discussions are more than sufficient to abort the theory of IFC that the Order of 2 September 1983 was null and void and

the case for pre-trial and that the 2 September 1983 setting was in fact for a never had any binding effect because it had already presented its evidence and, per Jalover vs. Ytoriaga, supra., such a party can not be

hearing—and, therefore, for the cross-examination of the witness for IFC whose considered to have failed to prosecute. Jalover is not applicable in this case.

evidence had been adduced ex-parte on 30 March 1982—the Makati court could

undoubtedly dismiss the complaint under Section 3, Rule 17 of the Rules of The conclusion We have reached may be harsh on IFC. But, it is quite clear from the records that it slept on its rights. It did nothing —
Court because neither IFC nor its counsel appeared and worse, its witness could absolutely nothing — for more than a year after receipt of the dismissal order of 2 September 1983. It slept too long on whatever right it
not be cross-examined. Said section reads: had. Laws come to the assistance of the vigilant, not to those who sleep on their rights. Vigilantibus, non dormientibus, jura subveniunt. If

IFC's counsel neglected his duties, appropriate action under the Code of Professional Responsibility may be taken against him.

SECTION 3. Failure to prosecute.—If plaintiff fails to appear at the time

of the trial, or to prosecute his action for an unreasonable length of
time, or to comply with these rules or any order of the court, the action
may be dismissed upon motion of the defendant or upon the court's
own motion. This dismissal shall have the effect of an adjudication on
the merits, unless otherwise provided by court.
It follows then that the Order of the Makati court of 25 February 1985 setting aside its 2 September 1983 order and considering the case
submitted for decision on the basis of the evidence of IFC, and said court's decision of 3 May 1985 are null and void. Respondent court
then committed a reversible error in affirming such decision.
WHEREFORE, the instant petition is GRANTED. The decision of the respondent court in C.A.-G.R. CV No. 07484 promulgated on 24 August

1987, and its resolution of 21 December 1987 in C.A.-G.R. CV No. 07484, and the decision of the Regional Trial Court of Makati, Branch
When cross-examination is not done or completed due to causes attributable to 135, of 3 May 1985 in Civil Case No. 1219 are hereby SET ASIDE.
the party offering the witness, the uncompleted testimony is rendered
incompetent and should be stricken from the record. 26 Costs against private respondent.

In the instant case, the Makati court did not provide in its order of 2 September 1983 that the dismissal of the complaint was without
IT IS SO ORDERED.
prejudice. Hence, it had the effect of an adjudication on the merits. 27
 This Order was received by IFC on 20
September 1983. IFC knew that it was an order issued in connection with the 2
September 1983 pre-trial conference — or hearing on the merits if it forgot the
agreement it entered into with the adverse party on 24 June 1983. Its counsel
knew, or was supposed to know, that it had only fifteen (15) days from receipt
of a copy thereof within which to either move for its reconsideration or appeal
therefrom. Yet, it did nothing until 27 September 1984, when it filed a
manifestation and motion to set aside the order and decide the case on the basis
of the evidence it had presented on 30 March 1982.

Undoubtedly, at the time it filed the manifestation and motion, the 2 September
1983 order had long become final. Neither appeal nor a petition for relief from
judgment was available to IFC. The Makati court had lost jurisdiction over the
case. It had no authority to modify, annul or set aside the final order. Once a
decision becomes final and executory, it is removed from the power and
jurisdiction of the court which rendered it to further alter or amend it, much
less revoke it. 28 This doctrine of finality of judgment is grounded on
fundamental considerations of public policy and sound practice that at the risk
of occasional error, the judgments of the courts must become final at some
 2. TANTUICO v. REPUBLIC Sandiganbayan:

Petitioners: Francisco Tantuico Motion for production and inspection of documents denied

Respondents: REPUBLIC OF THE PHILIPPINES, PRESIDENTIAL COMMISSION Petitioner filed for Bill of Particulars, alleging that as he is being sued as public
ON GOOD GOVERNMENT, MATEO A. T. CAPARAS, AND THE SANDIGANBAYAN officer and private person, he deserves to have been furnished averments by
plaintiff- denied stating that the grounds are evidentiary in nature
December 2, 1991
SC:
Padilla, J.
Certiorari, prohibition, mandamus w/ prayer for issuance of prelim injcunction
and/or restraining order.

Topic: Pleadings, Alleging Cause of Action

ISSUE:
Provisions: Sec. 1, Rule 12
1. WON Sandiganbayan erred in not granting the bill of particulars as prayed for
by the plaintiff (YES)

FACTS: HELD:

July 31, 1987: The Republic filed a case (reconveyance, revision, accounting,
restitution and damages) against Kokoy Romualdez, Ferdinand Marcos and
Imelda Marcos. Petitioner Tantuico was also included based on a couple of
theories
(1) He acted in unlawful concert w/ other defendants in misappropriation
of public funds
(2) Acted as dummy by allowing himself to be incorporator, director
among other capacities in companies held by defendants
(3) Acted in flagrant breach of public trust and fiduciary obligations as
public officers
(4) As COA chair, failed to do his duties
(5) Dummy as instrument of accumulated ill-gotten wealth through the
corporations
__________________________
PROCEDURAL HISTORY:
1. YES. Bill of particulars must be granted.
A complaint is defined as a concise statement of the ultimate facts constituting
the plaintiff's cause or causes of action. Like all other pleadings allowed by the
Rules of Court,  the complaint shall contain in a methodical and logical form a
plain, concise and direct statement of the ultimate facts on which the plaintiff
relies for his claim, omitting the statement of mere evidentiary facts. Its office,
purpose or function is to inform the defendant clearly and definitely of the
claims made against him so that he may be prepared to meet the issues at the
trial. The complaint should inform the defendant of all the material facts on
which the plaintiff relies to support his demand; it should state the theory of a
cause of action which forms the bases of the plaintiff's claim of liability.
Where the complaint states ultimate facts that constitute the three (3) essential
elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the
correlative obligation of the defendant, and (3) the act or omission of the
defendant in violation of said legal right, the complaint states a cause of action,
otherwise, the complaint must succumb to a motion to dismiss on that ground
of failure to state a cause of action. However, where the allegations of the
complaint are vague, indefinite, or in the form of conclusions, the proper
recourse would be, not a motion to dismiss, but a motion for a bill of
particulars. Thus, Section 1, Rule 12 of the Rules of Court provides:
Before responding to a pleading or, if no responsive pleading is permitted by
these rules, within ten (10) days after service of the pleading upon him, a party
may move for a more definite statement or for a bill of particulars of any matter
which is not averred with sufficient definiteness or particularity to enable him
properly to prepare his responsive pleading or to prepare for trial. Such motion
shall point out the defects complained of and the details desired.
In this connection, the following allegations have been held as mere
conclusions of law, inferences from facts not alleged or opinion of the pleader:
(a) the allegations that defendants appellees were "actuated by ulterior motives,
contrary to law and morals, with abuse of their advantageous position as
employers, in gross and evident bad faith and without giving plaintiff . . . his due,
wilfully, maliciously, unlawfully, and in summary and arbitrary manner", are
conclusions of law, inferences from facts not alleged and expressions of opinion
unsupported by factual premises;
(b) an allegation of duty in terms unaccompanied by a statement of facts
showing the existence of the duty, is a mere conclusion of law, unless there is a
relation set forth from which the law raises the duty; 
the said position effective 1 July 1960" is a mere conclusion of law unsupported
by factual premises. 
Dispositive:
WHEREFORE, the petition is GRANTED and the resolutions dated 21 April 1989
and 29 May 1989 are hereby ANNULLED and SET ASIDE. The respondents are
hereby ordered to PREPARE and FILE a Bill of Particulars containing the facts
prayed for by petitioner within TWENTY (20) DAYS from notice, and should
they fail to submit the said Bill of Particulars, respondent Sandiganbayan is
ordered TO EXCLUDE the herein petitioner as defendant in Civil Case No. 0035.
SO ORDERED.
Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Bidin, Griño-
Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.
Romero, J., took no part.
Fernan, C.J., is on leave.

(c) an averment . . . that an act was "unlawful" or "wrongful" is a mere legal

conclusion or opinion of the pleader; 

(d) the allegation that there was a violation of trust was plainly a conclusion of
law, for "a mere allegation that it was the duty of a party to do this or that, or
that he was guilty of a breach of duty, is a statement of a conclusion, not of a
fact;" 

(e) an allegation that a contract is valid or void, is a mere conclusion of law; 

 (f) the averment in the complaint that "defendant usurped the office of Senator
of the Philippines" is a conclusion of law — not a statement of fact — inasmuch
as the particular facts on which the alleged usurpation is predicated are not set
forth therein;  and

(g) the averment that "with intent of circumventing the constitutional

prohibition that 'no officer or employee in the civil service shall be removed or
suspended except for cause as provided by law', respondents maliciously and
illegally for the purpose of political persecution and political vengeance,
reverted the fund of the salary item . . . and furthermore eliminated or abolished
 3. G.R. No. 81123 February 28, 1989
CRISOSTOMO REBOLLIDO, FERNANDO VALENCIA and EDWIN REBOLLIDO
vs.
HONORABLE COURT OF APPEALS and PEPSICO, INC.
FACTS:
The petitioners filed a case for damages against Pepsi Cola Bottling Company of
the Philippines, Inc. and Alberto Alva.
The case arose out of a vehicular accident involving a Mazda Minibus used as a
schoolbus owned and driven by petitioners Crisostomo Rebollido and Fernando
Valencia, respectively and a truck trailer with Plate Number NRH-522 owned at
that time by Pepsi Cola and driven by Alberto Alva. (p. 37, Rollo)
The sheriff of the lower court served the summons addressed to the defendants.
It was received by one Nanette Sison who represented herself to be the
authorized person receiving court processes as she was the secretary of the
legal department of Pepsi Cola.
Pepsi Cola failed to file an answer and was later declared in default. The lower
court heard the case ex-parte and adjudged the defendants jointly and severally
liable for damages.
When the default judgment became final and executory, the petitioners filed a
motion for execution, a copy of which was received no longer by the defendant
Pepsi Cola but by private respondent PEPSICO, Inc. At that time, the private
respondent was already occupying the place of business of Pepsi Cola.. Private
respondent, a foreign corporation held offices here for the purpose, among
others, of settling Pepsi Cola's debts, liabilities and obligations which it assumed
in a written undertaking, preparatory to the expected dissolution of Pepsi Cola.
Realizing that the judgment of the lower court would eventually be executed
against it, respondent PEPSICO, Inc., opposed the motion for execution and
moved to vacate the judgment on the ground of lack of jurisdiction. The private
respondent questioned the validity of the service of summons to a mere clerk. It
invoked Section 13, Rule 14 of the Rules of Court on the manner of service upon
a private domestic corporation and Section 14 of the same rule on service upon
a private foreign corporation.
The lower court denied the motion of the private respondent.
Upon motion, the Court of Appeals granted the petition on the ground of lack of
jurisdiction ruling that there was no valid service of summons.
ISSUE:
Whether or not there was valid service of summons through Nanette Sison,
allegedly the secretary of the legal department of Pepsi Cola.
RULING:
At the time of the issuance and receipt of the summons, Pepsi Cola was already
dissolved. The Court is of the opinion that service is allowed in such a situation.
In the American case of Crawford v. Refiners Cooperative Association,
Incorporation it was held that a "defendant corporation is subject to suit and
service of process even though dissolved."
The Rules of Court on service of summons upon a private domestic corporation
is applicable to a corporation which is no longer a going concern.
Section 13, Rule 14 mandates:
Service upon private domestic corporation or partnership. - If
the defendant is a corporation organized under the laws of the
Philippines or a partnership duly registered, service may be
made on the president, manager, secretary , cashier, agent or
any of its directors.
The case of Castle's Administrator v. Acrogen Coal Co. (supra), is illustrative of
the manner by which service can nevertheless be made despite the death of the
entity:
[W]hen an action that might have been instituted against a
foreign or domestic corporation while it was a going concern is
instituted after its dissolution, process in the action may be
served upon the same person upon whom the process could be
served before the dissolution.
This Court has ruled that service on a mere employee or clerk of a corporation is
not sufficient. The persons who should receive the summons should be those
named in the statute; otherwise, those who have charge or control of the
operations of the company or who may be relied upon to deliver the papers
served upon them.
The fact that the summons was received through Miss Sison is not disputed by
the parties. For which corporation was she actions. After the dissolution and
during the pendency of the case, private respondent PEPSICO held office at the
same address of Pepsi Cola where Miss Sison was working.

Whomsoever Miss Sison was acting for in receiving the summons there is no
question that the notice of the action was promptly delivered either to Pepsi
Cola or PEPSICO with whom she is admittedly connected. We rule that there
was substantial compliance with Section 13, Rule 14 because the purpose of
notice was satisfied..

In view of the above, the valid service of summons upon Pepsi Cola operated as
a sufficient service of summons upon the private respondent.

Go to Rule 14, Section 12 of the Amended Rules!

 4. OPOSA VS FACTORAN, JR.
224 SCRA 792
Date of Promulgation: July 30, 1993
Ponente: Davide, Jr., J.
Keywords: taxpayers’ class suit; intergenerational responsibility; right to
a balanced and healthful ecology; timber license agreements
QuickGuide: Petitioner’s personality to sue in behalf of the succeeding
generations is based on the concept of intergenerational responsibility
insofar as the right to a balanced and healthful environment is
concerned.
Facts:
- The controversy begun as Civil Case No. 90-77 which was filed
before the RTC of Makati City Branch 66.
- The principal petitioners, are all minors duly represented and
joined by their respective parents. Impleaded as an additional
plaintiff is the Philippine Ecological Network, Inc. (PENI), a
domestic, non-stock and non-profit corporation organized for
the purpose of, inter alia, engaging in concerted action geared for
the protection of our environment and natural resources.
- The original defendant was the Honorable Fulgencio S. Factoran,
Jr., then Secretary of the Department of Environment and Natural
Resources (DENR). His substitution in this petition by the new
Secretary, the Honorable Angel C. Alcala, was subsequently
ordered upon proper motion by the petitioners.
- The complaint was instituted as a taxpayers' class suit and
alleges that the plaintiffs "are all citizens of the Republic of the
Philippines, taxpayers, and entitled to the full benefit, use and
enjoyment of the natural resource treasure that is the country's
virgin tropical forests."
- The same was filed for themselves and others who are equally
concerned about the preservation of said resource but are "so
numerous that it is impracticable to bring them all before the
Court."
- The minors further asseverate that they "represent their
generation as well as generations yet unborn."
- It is prayed for that judgment be rendered
ordering defendant, his agents, representatives and other
persons acting in his behalf to:
(1) Cancel all existing timber license agreements (TLAs) in the
country;
(2) Cease and desist from receiving, accepting, processing,
renewing or approving new TLAs.
and
(3) granting the plaintiffs such other reliefs just and equitable
under the premises.
- The complaint starts off with the general averments that the
Philippine archipelago of 7,100 islands has a land area of thirty
million (30,000,000) hectares and is endowed with rich, lush and
verdant rainforests in which varied, rare and unique species of
flora and fauna may be found.
- These rainforests contain a genetic, biological and chemical pool
which is irreplaceable; they are also the habitat of indigenous
Philippine cultures which have existed, endured and flourished
since time immemorial.
- Scientific evidence reveals that in order to maintain a balanced
and healthful ecology, the country's land area should be utilized
on the basis of a ratio of fifty-four per cent (54%) for forest cover
and forty-six per cent (46%) for agricultural, residential,
industrial, commercial and other uses.
- The distortion and disturbance of this balance as a consequence
of deforestation have resulted in a host of environmental
tragedies.
- Plaintiffs further assert that the adverse and detrimental
consequences of continued and deforestation are so capable of
unquestionable demonstration that the same may be submitted
as a matter of judicial notice.
- On 22 June 1990, the original defendant, Secretary Factoran, Jr.,
filed a Motion to Dismiss the complaint based on two (2)
grounds, namely: (1) the plaintiffs have no cause of action
against him and (2) the issue raised by the plaintiffs is a political
question which properly pertains to the legislative or executive
branches of Government.
- In their 12 July 1990 Opposition to the Motion, the petitioners
maintain that (1) the complaint shows a clear and unmistakable
cause of action, (2) the motion is dilatory and (3) the action
presents a justiciable question as it involves the defendant's
abuse of discretion.
- Respondents:
- On 18 July 1991, respondent Judge issued an order granting the
aforementioned motion to dismiss. In the said order, not only
was the defendant's claim — that the complaint states no cause
of action against him and that it raises a political question —
sustained, the respondent Judge further ruled that the granting
of the relief prayed for would result in the impairment of
contracts which is prohibited by the fundamental law of the land.
- Plaintiffs thus filed the instant special civil action for certiorari
under Rule 65 of the Revised Rules of Court and asked the Court
to rescind and set aside the dismissal order on the ground that
the respondent Judge gravely abused his discretion in dismissing
the action.
- Petitioners:
o Contend that the complaint clearly and unmistakably
states a cause of action as it contains sufficient
allegations concerning their right to a sound
environment, the right of the people to a balanced and
healthful ecology, the concept of generational genocide
and the concept of man's inalienable right to self-
preservation and self-perpetuation.
o Rely on the respondent's correlative obligation per
Section 4 of E.O. No. 192, to safeguard the people's right
to a healthful environment.
o It is further claimed that the issue of the respondent
Secretary's alleged grave abuse of discretion in granting
Timber License Agreements (TLAs) to cover more areas
for logging than what is available involves a judicial
question.
o Non-impairment clause does not apply in this case
because TLAs are not contracts.
o Even if TLAs may be considered protected by the said
clause, it is well settled that they may still be revoked by
the State when the public interest so requires.
o Aver that the petitioners failed to allege in their
complaint a specific legal right violated by the
respondent Secretary for which any relief is provided by
law. They see nothing in the complaint but vague and
nebulous allegations concerning an "environmental
right" which supposedly entitles the petitioners to the
"protection by the state in its capacity as parens patriae."
Such allegations, according to them, do not reveal a valid
cause of action.
o They then reiterate the theory that the question of
whether logging should be permitted in the country is a
political question which should be properly addressed to
the executive or legislative branches of Government.
They therefore assert that the petitioners' resources is
 not to file an action to court, but to lobby before Congress
for the passage of a bill that would ban logging totally.
o As to the matter of the cancellation of the TLAs,
respondents submit that the same cannot be done by the
State without due process of law. Once issued, a TLA
remains effective for a certain period of time — usually
for twenty-five (25) years. During its effectivity, the same
can neither be revised nor cancelled unless the holder
has been found, after due notice and hearing, to have
violated the terms of the agreement or other forestry
laws and regulations. Petitioners' proposition to have all
the TLAs indiscriminately cancelled without the requisite
hearing would be violative of the requirements of due
process.
Issue/s:
- Whether or not the petitioners have a cause of action to prevent
the misappropriation or impairment of Philippine rainforests
and arrest the unabated hemorrhage of the country's vital life
support systems and continued rape of Mother Earth.
(YES.)
Ruling:
- The instant Petition is granted, and the challenged Order of
respondent Judge is set aside. The petitioners may therefore
amend their complaint to implead as defendants the holders or
grantees of the questioned timber license agreements.
Ratio:
LOCUS STANDI:
- The said civil case is indeed a class suit. The subject matter of the
complaint is of common and general interest not just to several,
but to all citizens of the Philippines.
- Consequently, since the parties are so numerous, it, becomes
impracticable, if not totally impossible, to bring all of them
before the court. The SC likewise declares that the plaintiffs
therein are numerous and representative enough to ensure the
full protection of all concerned interests. Hence, all the requisites
for the filing of a valid class suit under Section 12, Rule 3 of the
Revised Rules of Court are present both in the said civil case and
in the instant petition, the latter being but an incident to the
former.
- This case, however, has a special and novel element. Petitioners
minors assert that they represent their generation as well as
generations yet unborn. The SC finds no difficulty in ruling that
they can, for themselves, for others of their generation and for
the succeeding generations, file a class suit. Their personality to
sue in behalf of the succeeding generations can only be based on
the concept of intergenerational responsibility insofar as the
right to a balanced and healthful ecology is concerned. Such a
right considers the "rhythm and harmony of nature."
- Nature means the created world in its entirety. Such rhythm and
harmony indispensably include, inter alia, the judicious
disposition, utilization, management, renewal and conservation
of the country's forest, mineral, land, waters, fisheries, wildlife,
off-shore areas and other natural resources to the end that their
exploration, development and utilization be equitably accessible
to the present as well as future generations. Needless to say,
every generation has a responsibility to the next to preserve that
rhythm and harmony for the full enjoyment of a balanced and
healthful ecology.
- The minors' assertion of their right to a sound environment
constitutes, at the same time, the performance of their obligation
to ensure the protection of that right for the generations to come.
RIGHT TO A BALANCED AND HEALTHFUL ECOLOGY:
- The complaint focuses on the right to a balanced and healthful
ecology which, for the first time in our nation's constitutional
 history, is solemnly incorporated in the fundamental law
(Section 16, Article II of the 1987 Constitution).
- This right unites with the right to health which is provided for in
the Section 15 of the same article.
- While the right to a balanced and healthful ecology is to be found
under the Declaration of Principles and State Policies and not
under the Bill of Rights, it does not follow that it is less important
than any of the civil and political rights enumerated in the latter.
- Such a right belongs to a different category of rights altogether
for it concerns nothing less than self-preservation and self-
perpetuation the advancement of which may even be said to
predate all governments and constitutions.
- As a matter of fact, these basic rights need not even be written in
the Constitution for they are assumed to exist from the inception
of humankind.
- If they are now explicitly mentioned in the fundamental charter,
it is because of the well-founded fear of its framers that unless
the rights to a balanced and healthful ecology and to health are
mandated as state policies by the Constitution itself, thereby
highlighting their continuing importance and imposing upon the
state a solemn obligation to preserve the first and protect and
advance the second, the day would not be too far when all else
would be lost not only for the present generation, but also for
those to come — generations which stand to inherit nothing but
parched earth incapable of sustaining life.
- The right to a balanced and healthful ecology carries with it the
correlative duty to refrain from impairing the environment.
- The said right implies, among many other things, the judicious
management and conservation of the country's forests.
- Without such forests, the ecological or environmental balance
would be irreversiby disrupted.
- Conformably with the enunciated right to a balanced and
healthful ecology and the right to health, then President Corazon
C. Aquino promulgated on 10 June 1987 E.O. No. 192, Section 4
of which expressly mandates that the Department of
Environment and Natural Resources "shall be the primary
government agency responsible for the conservation,
management, development and proper use of the country's
environment and natural resources, specifically forest and
grazing lands, mineral, resources, including those in reservation
and watershed areas, and lands of the public domain, as well as
the licensing and regulation of all natural resources as may be
provided for by law in order to ensure equitable sharing of the
benefits derived therefrom for the welfare of the present and
future generations of Filipinos."
- This policy declaration is substantially re-stated it Title XIV, Book
IV of the Administrative Code of 1987. It stresses "the necessity
of maintaining a sound ecological balance and protecting and
enhancing the quality of the environment." Section 2 of the same
Title, on the other hand, specifically speaks of the mandate of the
DENR; however, it makes particular reference to the fact of the
agency's being subject to law and higher authority.
- Both E.O. NO. 192 and the Administrative Code of 1987 have set
the objectives which will serve as the bases for policy
formulation, and have defined the powers and functions of the
DENR.
- On 6 June 1977, P.D. No. 1151 (Philippine Environmental Policy)
and P.D. No. 1152 (Philippine Environment Code) were issued.
As its goal, it speaks of the "responsibilities of each generation as
trustee and guardian of the environment for succeeding
generations." The latter statute, on the other hand, gave flesh to
the said policy.
 - Thus, the right of the petitioners (and all those they represent) to
a balanced and healthful ecology is as clear as the DENR's duty —
under its mandate and by virtue of its powers and functions
under E.O. No. 192 and the Administrative Code of 1987 — to
protect and advance the said right.
- A denial or violation of that right by the other who has the
correlative duty or obligation to respect or protect the same
gives rise to a cause of action.
CAUSE OF ACTION:
- A cause of action is defined as:
. . . an act or omission of one party in violation of the legal right or
rights of the other; and its essential elements are legal right of the
plaintiff, correlative obligation of the defendant, and act or
omission of the defendant in violation of said legal right.
- The question submitted to the court for resolution involves the
sufficiency of the facts alleged in the complaint itself.
- Falsity of the said allegations is beside the point for the truth
thereof is deemed hypothetically admitted.
- It bears stressing, however, that insofar as the cancellation of the
TLAs is concerned, there is the need to implead, as party
defendants, the grantees thereof for they are indispensable
parties.
POLITICAL QUESTION:
- The foregoing considered, Civil Case No. 90-777 be said to raise a
political question. Policy formulation or determination by the
executive or legislative branches of Government is not squarely
put in issue. What is principally involved is the enforcement of a
right vis-a-vis policies already formulated and expressed in
legislation.
- It must, nonetheless, be emphasized that the political question
doctrine is no longer, the insurmountable obstacle to the
exercise of judicial power or the impenetrable shield that
protects executive and legislative actions from judicial inquiry or
review.
NON-IMPAIRMENT OF CONTRACTS:
- The last ground invoked by the trial court in dismissing the
complaint is the non-impairment of contracts clause found in the
Constitution.
- The court declared that to cancel all existing timber license
agreements in the country and to cease and desist from
receiving, accepting, processing, renewing or approving new
timber license agreements amount to impairment of contracts
abhorred by the fundamental law.
- The respondent Secretary did not even invoke in his motion to
dismiss the non-impairment clause. If he had done so, he would
have acted with utmost infidelity to the Government by
providing undue and unwarranted benefits and advantages to
the timber license holders because he would have forever bound
the Government to strictly respect the said licenses according to
their terms and conditions regardless of changes in policy and
the demands of public interest and welfare.
- Section 20 of the Forestry Reform Code (P.D. No. 705) which
provides:
. . . Provided, That when the national interest so requires, the
President may amend, modify, replace or rescind any contract,
concession, permit, licenses or any other form of privilege
granted herein . . .
- Tan vs. Director of Forestry: . . . A timber license is an instrument
by which the State regulates the utilization and disposition of
forest resources to the end that public welfare is promoted. A
timber license is not a contract within the purview of the due
process clause; it is only a license or privilege, which can be validly
withdrawn whenever dictated by public interest or public welfare
as in this case.
- Since timber licenses are not contracts, the non-impairment
clause cannot be invoked.

- Even if it is to be assumed that the same are contracts, the

instant case does not involve a law or even an executive issuance
declaring the cancellation or modification of existing timber
licenses. Hence, the non-impairment clause cannot as yet be
invoked.

- Abe vs. Foster Wheeler Corp.: The freedom of contract, under our
system of government, is not meant to be absolute. The same is
understood to be subject to reasonable legislative regulation
aimed at the promotion of public health, moral, safety and welfare.
In other words, the constitutional guaranty of non-impairment of
obligations of contract is limited by the exercise of the police
power of the State, in the interest of public health, safety, moral
and general welfare.

- In short, the non-impairment clause must yield to the police

power of the state.
 5. Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 165433             February 6, 2007
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, Petitioner,
vs.
THE HONORABLE COURT OF APPEALS and MCS CONSTRUCTION and
DEVELOPMENT CORPORATION, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of
Civil Procedure, assailing the Decision1 of the Court of Appeals in CA-G.R. SP No.
76198, dated 19 July 2004, which dismissed Philippine National Construction
Corporation’s (PNCC’s) Petition for Review of the Decision2 of the Construction
Industry Arbitration Commission (CIAC) Arbitral Tribunal awarding herein
respondent MCS Construction and Development Corporation (MCS) the amount
of ₱6,352,791.33, with interest at the rate of 6% per annum from 6 June 1999
up to the date of award and an interest rate of 12% per annum as of the date the
decision becomes final and executory until fully paid.
A contract for the construction of the Philippine Merchant Marine Academy’s
(PMMA’s) Replication Project located in San Marcelino, Zambales, was entered
into between the PNCC and PMMA. Included in the scope of works for the
Replication Project was the construction of a gymnasium building. The
construction of said gymnasium was subcontracted by PNCC to MCS under a
Subcontract Agreement dated 28 September 1998 for a consideration in the
amount of ₱19,483,572.65.
In a Certificate of Acceptance dated 6 April 2000, PNCC certified that MCS had
satisfactorily completed the construction of the gymnasium building based on
the plans, drawings, and specifications thereof on March 1999. However,
despite several demands made by MCS, PNCC failed to pay the balance of the
contract price left after deducting the partial payments made by the latter.
Hence, on 6 September 2002, MCS filed with the CIAC Arbitral Tribunal a
Request for Adjudication praying for the award of various sums of money,
including interest and damages, against PNCC in the total amount of
₱24,988,597.44. MCS maintained that notwithstanding the fact that the
construction of the gymnasium had been satisfactorily completed as early as
1999, PNCC still failed to fully satisfy its obligation to pay the price of the
construction project under the Subcontract Agreement despite several written
demands.
For its defense, PNCC alleged that the request for arbitration was premature, as
MCS had no cause of action against PNCC since the latter is still in the process of
paying its obligation to MCS. Furthermore, PNCC claimed that although its
payments were made in installments, said payments were made regularly,
contrary to the claim of MCS that said installment payments were irregular and
took a very long period of time.1awphi1.net
In a preliminary conference held on 4 December 2002, the parties defined the
issues to be resolved in the proceedings before the CIAC Arbitral Tribunal as
follows:
-1. Was the filing of this case before CIAC premature for lack of cause of action?
1.1 In the event this case is proven to have been prematurely filed, is
Respondent entitled to its claim to be compensated for the alleged bad
reputation suffered? If so, how much?
1.2 If the filing of the case is not premature, is Claimant entitled to its claim for
the balance of the contract price, damages and interest? If so, how much?
2. Who between the parties is entitled to attorney’s fees?
3. Who between the parties shall shoulder the cost of arbitration? 3
On 10 March 2003, the CIAC Arbitral Tribunal rendered a Decision in favor of
MCS, the decretal portion of which reads:
PNCC contends that Article IV of the Subcontract Agreement (Exhibit A) shows
that MCS’ cause of action is premature because the corresponding payments
from PMMA had not been received. The pertinent portion of Article IV reads as
follows:
Manner of Payment
4.1. The price referred to in Article 111 above shall be paid by PNCC to
Subcontractor in the following manner and subject to receipt by PNCC of
corresponding payment/s from PMMA:
xxxx
PNCC submitted in evidence a summary of the accounts payable to MCS and the
payments made thereunder as of October 10, 2002 (Exhibit 14). Unfortunately
for PNCC, the same document also listed down the payments it had received
from PMMA on the "gymnasium building" project – the very same building for
which MCS has been engaged to construct on behalf of PNCC.
Exhibit 14 clearly showed that PNCC had received a total of P31,249,223.30
from PMMA on the "gymnasium building", with a further balance of
P6,972,043.44 still due from PMMA. Parenthetically, PNCC did not submit in
evidence in these proceedings any copy of its contract or contracts with PMMA.
Other than Exhibit 14, PNCC did not submit any evidence to show that the
payments made to it by PMMA had reference to other accounts between PMMA
and PNCC, or that said payments were inadequate to warrant PNCC’s payment
in full of the amounts due MCS.
On the contrary, having already received a total of P31,249,233.30 from PMMA
on the "gymnasium building" project, PNCC saw fit to consider the same
sufficient to justify payment to MCS of only P9,965,465.98 (as adjusted by this
arbitral tribunal). Since there still appeared a receivable of P6,972,043.44 from
PMMA, PNCC chose to relegate such receivable to the payment of the balance
due MCS, in the amount of P6,352,791.33. In other words, PNCC opted to reap
and enjoy its margins from the PMMA contract before satisfying its obligations
to its sub-contractor MCS. This, the arbitral tribunal finds to have been done in
bad faith on the part of PNCC.
Noteworthy also is the fact that PNCC did not raise this defense in its answer
nor among the special and affirmative defenses included in said answer. PNCC
merely invoked its "financial difficulties" in trying to justify its belated
payments due MCS.
The arbitral tribunal therefore holds that MCS’ cause was not prematurely filed,
and that its claim for payment of the balance of the contract consideration made
in these proceedings was proper.
Aside from the said unpaid balance, to what other amount or amounts is MCS
entitled arising from PNCC’s breach in bad faith?
xxxx
xxx MCS is entitled to interest, attorney’s fees and reimbursement of the costs of
arbitration – which (aside from its claims on the deterioration of the value of the
Phil. Peso) were all that MCS prayed for.
xxxx
It is the ruling of this arbitral tribunal that, there having been unwarranted and
baseless delay in the payment required of the respondent PNCC, the claimant is
entitled to interest at the legal rate of 6% p.a. on the amount of P6,352,791.33
adjudicated in its favor, computed from the date of first extrajudicial demand,
which was on June 6, 1999 (Exhibit C). However, when the award herein
becomes executory, the amount thereof will then partake of the nature of a
forebearance of credit and will thereupon be entitled therefrom to the interest
rate of 12% p.a. until fully paid (Eastern Shipping Lines, Inc. vs. Court of
Appeals, 234 SCRA 78, 95-97 [1994]); reiterated in Bangko Sentral ng Pilipinas
vs. Santamaria, G.R. No. 139885, Jan. 13, 2003, page 13).
In respect of the costs of arbitration, Sec. 5, Article XV of the Rules of Procedure
Governing Construction Arbitration states:
Decision as to Cost of Arbitration. – In the case of non-monetary claims or where
the parties agreed that the sharing of fees shall be determined by the
Arbitrator(s), the award shall, in addition to dealing with the merits of the case,
fix the cost of arbitration, and/or decide which of the parties shall bear the
cost(s) or in what proportion the cost(s) shall be borne by each.
Rule 142 of the Revised Rules of Court of the Philippines governing the
imposition of costs likewise provides the following:
Section 1. Costs Ordinarily follow the result of suit. Unless otherwise provided in
these rules, costs shall be allowed to the prevailing party as a matter of course,
but the court shall have power for special reasons, to adjudge that either party
shall pay the cost of an action, or that the same shall be divided, as may be
equitable.
Since the institution of this arbitration case was necessitated by respondent
PNCC’s refusal to pay claimant MCS the amounts due the latter, this tribunal
holds that respondent PNCC should exclusively bear the costs of arbitration.
PNCC had refused to satisfy MCS’ valid and demandable claims; consequently,
MCS had been compelled to institute the present proceedings to protect its
interests. Furthermore, PNCC was in gross and evident bad faith in delaying the
payment of MCS’ claim. It is, therefore, only just and equitable that respondent
PNCC be ordered to pay the costs of arbitration and to refund to MCS all the
amounts the latter had advanced in instituting and pursuing these arbitration
proceedings.
The same aforementioned circumstances warranting the award of arbitration
costs in favor of the claimant likewise constitute justification for an award of
attorney’s fees by way of damages, also in favor of claimant (Art. 2208 [5] and
[11]. Considering the years of travail which claimant went through in waiting
and following-up the payment of the contract consideration to which claimant
was lawfully entitled, eventually culminating in these arbitration proceedings,
the arbitral tribunal finds that an amount equivalent to ten per cent (10%) of
the principal claim plus the interests accruing thereon up to the date of payment
is just; equitable and reasonable in the premises.
WHREFORE, arbitral award is hereby rendered in favor of claimant MCS
Construction and Development Corp. and against respondent Philippine
National Construction Corporation, ordering the latter to pay the former the
following amounts:
(a) The principal claim of P6,352,791.33, with interest thereon at 6% per annum
computed from June 6, 1999 provided however that said rate shall be increased
to 12% per annum effective as of the date that the decision herein becomes final
and executory, until the aforesaid principal amount is paid in full;
(b) Attorney’s fees equivalent to ten per cent (10%) of such principal claim and
the interests accruing thereon until all of such principal claim and interests are
paid in full; and,
(c) To reimburse the claimant the costs of arbitration paid and/or advanced
thereby.
Respondent’s counterclaim is dismissed for lack of basis. 4
Asserting that the CIAC Arbitral Tribunal committed error in ruling that the
claim of MCS is not premature, PNCC filed a Petition for Review before the Court
of Appeals, which was dismissed by the appellate court in a Decision dated 19
July 2004. According to the Court of Appeals:
Petitioner PNCC avers that the claims of respondent MCS are not yet ripe for
court and/or legal action because petitioner PNCC has yet to violate the rights of
respondent MCS, since, before the filing of the complaint, petitioner was already
in the process of paying its obligations to respondent MCS. In fact, petitioner
PNCC argues that its last installment payment was made in July 2002 while
respondent MCS’ last written demand was in April 2002.
We disagree.
As alleged in the complaint of respondent MCS, in pursuance to the agreement,
the latter made billings for various amounts on different dates. However, aside
from making its payments irregularly, petitioner also took a long time to make
the payments, so much so, that even after the lapse of more [than] three years
from the time the gymnasium project was satisfactorily completed in 1999,
petitioner has not been able to fully settle its obligation without lawful ground.
It has been held that a cause of action is defined as an act or omission of one
party in violation of the legal rights of the other which causes the latter injury
(Rebollido v. Court of Appeals, 170 SCRA 800 [1989]).
In determining whether or not a cause of action exists the following elements
must be present: (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
defendant to respect or not 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 (Relucio v. Lopez, 373 SCRA 578
[2002]).
In the instant case, respondent MCS has a right to be paid for its services in
constructing the gymnasium and petitioner PNCC recognized this right under
the Subcontractors Agreement. Notwithstanding several written demands made
by the respondent MCS and considering the lapse of a considerable period of
time since the project was completed, petitioner PNCC has not complied with its
duty to pay respondent for its services. Petitioner maintains that it was
suffering from "financial difficulties" but no evidence was shown to substantiate
the same.
Well-settled is that rule that the cause of action does not accrue until the party
obligated refuses, expressly or impliedly, to comply with his duty (Summit
Guaranty and Insurance Company, Inc. v. De Guzman, 151 SCRA 389 [1987]).
Note should be taken on the arbitral tribunal’s finding of the existence of a cause
of action by respondent MCS. Thus:
"Unfortunately for PNCC, the same document also listed down the payments it
had received from PMMA on the "gymnasium building" project – the very same
building for which MCS has been engaged to construct on behalf of PNCC.
xxx
Exhibit 14 clearly showed that PNCC had received a total of P31,249,223.30
from PMMA on the "gymnasium building", with a further balance of
P6,972,043.44 still due from PMMA. xxx Other than Exhibit 14, PNCC did not
submit any evidence to show that the payments made to it by PMMA had
reference to other accounts between PMMA and PNCC, or that said payments
were inadequate to warrant PNCC’s payment in full of the amounts due MCS."
(Rollo, p. 124)
Also, it has been held that where a contract is to be performed periodically, as
by installments, each failure to pay an installment constitutes a cause of action
and can be subject of a separate suit as the installment falls due, or can be
included in the pending or supplemental pleading (Larena v. Villanueva, 53 Phil.
923 [1928]).
xxxx
The arbitral tribunal ruled that petitioner PNCC was guilty of gross and evident
bad faith in delaying payment of respondent’s claims, and as such, it was only
just and equitable that petitioner PNCC should bear the costs of arbitration.
In the instant case, the arbitral tribunal found that because petitioner PNCC had
unjustifiably refused to satisfy MCS’ valid and demandable claims,
notwithstanding the presence of sufficient funds at its disposal, respondent MCS
was compelled to institute the present action in order to protect its interests.
xxx
xxxx
Contrary to petitioner’s argument that the body of the decision of the arbitral
tribunal failed to state legal and factual bases for the award of attorney’s fees,
the decision stated the following basis to justify the award of attorney’s fees:
"The same aforementioned circumstances warranting the award of arbitration
costs in favor of the claimant likewise constitute justification for an award of
attorney’s fees by way of damages, also in favor of claimant (Art. 2208 [5] and
[11], Civil Code)." (Rollo, p. 126)
In administrative or quasi-judicial bodies like the CIAC, a fact may be
established if supported by substantial evidence or that amount of relevant
evidence which a reasonable mind might accept as adequate to justify a
conclusion (MegaWorld Globus Asia, Inc. v. DSM Construction and Development
Corporation, et al., G.R. No. 153310, March 2, 2004).
xxxx
We are convinced that the CIAC Arbitral Tribunal considered the evidence at
hand and the records clearly show that its decision is amply supported by
substantial evidence; thus, we find no reason to disturb the same.
WHEREFORE, premises considered, the petition is DISMISSED. The Decision
dated March 10, 2003 of the CIAC Arbitral Tribunal is AFFIRMED. The motion
for reconsideration assailing the October 1, 2003 Resolution of this Court is
likewise DENIED.5
Aggrieved by the aforequoted Decision, PNCC filed the instant petition raising as
issues the alleged prematurity of respondent’s action and the impropriety of the
award of attorney’s fees and arbitration fees.
While petitioner does not dispute the fact that MCS has remaining receivables
from PNCC under the Subcontract Agreement, PNCC insists that such obligation
of petitioner to pay respondent the remaining balance of the contract price is
not yet ripe for court or legal action as no cause of action exists, since PNCC has
not yet violated the rights of respondent. PNCC maintains that before the filing
of the complaint for arbitration, petitioner was in the process of paying its
obligations with claimant, thus the complaint for arbitration filed by MCS was
premature.
In its Memorandum, petitioner rationalizes its position that the Request for
Adjudication made by MCS before the CIAC Arbitral Tribunal is premature in
view of the fact that PNCC’s last installment payment to MCS was in July 2002,
after the latter’s last demand for payment in April 2002. Petitioner further
highlights its efforts to fulfill its obligations to MCS by stressing the fact that it
had paid MCS a substantial amount under the Subcontract Agreement, inasmuch
as out of the contract price of ₱19,483,572.65, only the balance of ₱6,352,791.33
remains unpaid. PNCC argues that it has never refused, expressly nor impliedly,
to comply with its responsibility under the Subcontract Agreement, thus, MCS
lacks a cause of action as against petitioner.
Petitioner’s contention is without merit.
It is unmistakable that PNCC’s obligation to MCS has not been discharged by the
amount it has already paid, no matter how substantial it may be. Nevertheless,
PNCC seems to insist that said obligation may not be a subject of a court action
as MCS is yet to attain a cause of action since PNCC still continues to pay part of
its obligation under the Subcontract Agreement. We cannot agree in petitioner’s
position as this will imply that PNCC’s obligation to pay may not at all become a
proper subject of any court action as long as PNCC continues to tender irregular
installment payments, regardless of the amount, even to the prejudice of MCS.
A careful perusal of the Subcontract Agreement entered into by the parties will
reveal the clear manner of payment by which PNCC’s obligation to pay MCS for
the construction of the PMMA gymnasium is to be made. According to Article IV
of said Subcontract Agreement:
Manner of Payment
4.2. The price referred to in Article 111 above shall be paid by PNCC to
Subcontractor in the following manner and subject to receipt by PNCC of
corresponding payment/s from PMMA:
xxxx
b. thru semi-monthly progress billings computed based on accomplishment as
approved/accepted by PNCC/Owner and the agreed unit prices;6
From the facts of the case, it is undisputed that the gymnasium building project
subject of the Subcontract Agreement had been satisfactorily completed by MCS
as early as March 1999 and correspondingly acknowledged by PNCC in a
Certificate of Acceptance dated 6 April 2000. It is also admitted by both parties
that in accordance with the provisions of the Subcontract Agreement, MCS had
sent PNCC, on several dates, billings for various amounts which petitioner paid
on installment basis. However, despite the lapse of more than three years from
the completion of the construction project, PNCC still failed to settle its
obligation in full, leaving an unpaid balance of ₱6,352,791.33 as of the time of
filing of the instant case.
PNCC justifies its failure to completely settle its obligation to MCS by citing its
"financial difficulties." However, apart from failing to present any competent
evidence to substantiate its claim of financial difficulties, it has been found by
the CIAC Arbitral Tribunal that PNCC has already received a total of
₱31,249,233.30 from PMMA on the "gymnasium building" project. Nonetheless,
PNCC only saw it fit to pay MCS ₱9,965,465.98. Evidently, PNCC lacks any
reasonable defense for its continued neglect of its obligations to MCS.
This conduct demonstrated by PNCC in refusing to expeditiously settle its
obligation to MCS, despite the latter’s satisfactory completion of its duties under
the Subcontract Agreement, is clearly violative of the Subcontract Agreement.
Under the pertinent portion of the said contract cited above, PNCC shall pay
MCS thru semi-monthly progress billings upon PNCC’s receipt of corresponding
payments from PMMA. As found by the CIAC Arbitral Tribunal, based on the
evidence presented by PNCC itself, petitioner has already received from PMMA
a total of ₱31,249,233.30 for the construction of the gymnasium building. This
amount is evidently sufficient to pay the whole subcontract price in the amount
of only ₱19,483,572.65, and still leave PNCC the amount of ₱11,765,660.65 as
margin/profit from the contract.
Petitioner’s contention that its failure to fully pay MCS is because it still has a
receivable of ₱6,972,043.44 from PMMA is untenable. Notwithstanding this fact
that PNCC still has a receivable in an amount sufficient to fulfill its remaining
obligation to MCS, it is not adequate a reason to justify the irregular installment
payments PNCC has been making to MCS in light of the CIAC Arbitral Tribunal’s
finding that PNCC had already received more than a substantial amount from
PMMA to satisfy the whole of its obligation to MCS. As deduced by the CIAC
Arbitral Tribunal, this act of PNCC in opting to reap and enjoy its margins from
the PMMA contract before satisfying its obligations to its Subcontractor MCS is
an illustration of bad faith on the part of PNCC.
Having said all these, it is now apparent that MCS has a cause of action as
against PNCC for the full satisfaction of the remaining balance of the contract
price. As stated in the case of Navoa v. Court of Appeals: 7
A cause of action is the fact or combination of facts which affords a party a right
to judicial interference in his behalf. The requisites for a cause of action are: (a)
a right in favor of the plaintiff by whatever means and under whatever law it While it is true that under the aforementioned provision of law, attorney’s fees
arises or is created, (b) an obligation on the part of the defendant to respect and is not an arbitrable issue, yet, the same also provides that it may be the subject
not to violate such right; and, (c) an act or omission on the part of the defendant of arbitration if the parties agree to submit the same for arbitration. In the case
constituting a violation of the plaintiff’s right or breach of the obligation of the it bar, it must be underscored that under the Terms of Reference agreed to by
defendant to the plaintiff. Briefly stated, it is the reason why the litigation has the parties during the arbitration proceedings, PNCC agreed that one of the
come about, it is the act or omission of defendant resulting in the violation of issues to be determined in the proceedings is who between the parties is
someone’s rights.8 entitled to attorney’s fees. Clearly, petitioner has acquiesced to the submission
of the issue of attorney’s fees to arbitration. What's more, in petitioner’s very
In continuing to delay the full satisfaction of its obligation under the own Answer submitted before the CIAC Arbitral Tribunal, petitioner asked for
Subcontract Agreement despite satisfactory completion by MCS of the attorney’s fees as part of its own compulsory counterclaim. This act of petitioner
gymnasium project almost three years earlier and adequate payment by PMMA, clearly negates its further assertion that it never agreed to submit the issue of
PNCC has clearly breached the provisions of the Subcontract Agreement, attorney’s fees for arbitration.
entitling MCS resort to the courts for protection of its interest.
WHEREFORE, premises considered, the instant petition is hereby DENIED. The
On the issue of the propriety of the award of attorney’s fees and arbitration Decision of the Court of Appeals in CA G.R. SP No. 76198 dated 19 July 2004 is
costs, petitioner maintains that the Decision of the CIAC Arbitral Tribunal failed hereby AFFIRMED. Costs against petitioner.
to state the legal and factual basis for the same. We do not agree. As correctly
stated by the Court of Appeals, the CIAC Arbitral Tribunal Decision amply SO ORDERED.
explained the bases for the awards of attorney’s fees and arbitration cost. As
pointed out by the appellate court, on the basis of its findings that PNCC
exercised gross and evident bad faith in delaying its payment of MCS’ claims and
the law applicable in such cases, the CIAC Arbitral Tribunal adjudged PNCC
liable for attorney’s fees and cost of arbitration. Furthermore, we agree with the
Court of Appeals when it said that that there is no justifiable reason to disturb
the findings of the CIAC Arbitral Tribunal as said quasi-judicial body has
considered the evidence at hand and the records clearly show that its decision is
amply supported by substantial evidence.

Petitioner’s argument that the CIAC Arbitral Tribunal should not have passed
upon the issue of attorney’s fees as said issue is non-arbitrable under Section 2
of Article IV of the Rules Governing Construction Arbitration is rejected. Under
the Section 2, Article IV of the Rules of Procedure Governing Construction
Arbitration:

Section 2. Non-Arbitrable Issues – Pursuant to Section 4 of Executive Order No.

1008, claims for moral damages, exemplary damages, opportunity/business
losses in addition to liquidated damages, and attorney’s fees are not arbitrable
except when the parties acquiesce or mutually agree to submit the same for
arbitration and to abide by the decision of the arbitrator thereon. [Emphasis
ours]
 6. THIRD DIVISION
[ G.R. NO. 159831, October 14, 2005 ]
PILIPINAS SHELL PETROLEUM CORPORATION, PETITIONER, VS. JOHN
BORDMAN LTD. OF ILOILO, INC., RESPONDENT.
DECISION
PANGANIBAN, J.:
Deeply imbedded in our jurisprudence is the doctrine that the factual findings of
the Court of Appeals (CA) affirming those of the trial court are, subject to some
exceptions, binding upon this Court. Otherwise stated, only questions of law, not
of facts, may be raised before this Court in petitions for review under Rule 45 of
the Rules of Court. Nonetheless, in the interest of substantial justice, the Court
delved into both the factual and the legal issues raised in the present case and
found no reason to overturn the CA's main Decision. Furthermore, under the
peculiar factual circumstances of the instant appeal, this Court holds that the
period for reckoning the prescription of the present cause of action began only
when respondent discovered with certainty the short deliveries made by
petitioner.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing
the August 20, 2002 Decision[2] and August 29, 2003 Resolution[3] of the Court of
Appeals (CA) in CA-GR CV No. 46974. The challenged Decision disposed as
follows:
"WHEREFORE, premises considered, the assailed decision dated August 30,
1991 of the RTC, Branch 26, Manila in Civil Case No. 13419 is
hereby AFFIRMED with the MODIFICATION that the award of exemplary
damages and attorney's fees be both reduced to P100,000.00.
"The order dated December 9, 1991 is likewise AFFIRMED."[4]
The assailed Resolution denied reconsideration.
The Facts
Petitioner Pilipinas Shell Petroleum Corporation ("Pilipinas Shell") is a
corporation engaged in the business of refining and processing petroleum
products.[5] The invoicing of the products was made by Pilipinas Shell, but
delivery was effected through Arabay, Inc., its sole distributor at the time
material to the present case.[6] From 1955 to 1975, Respondent John Bordman
Ltd. of Iloilo, Inc. ("John Bordman") purchased bunker oil in drums from Arabay.
[7]
 When Arabay ceased its operations in 1975, Pilipinas Shell took over and
directly marketed its products to John Bordman.[8]
On August 20, 1980, John Bordman filed against Pilipinas Shell a civil case for
specific performance. The former demanded the latter's short deliveries of fuel
oil since 1955; as well as the payment of exemplary damages, attorney's fees
and costs of suit.[9] John Bordman alleged that Pilipinas Shell and Arabay had
billed it at 210 liters per drum, while other oil companies operating in Bacolod
had billed their customers at 200 liters per drum. On July 24, 1974, when
representatives from John Bordman and Arabay conducted a volumetric test to
determine the quantity of fuel oil actually delivered, the drum used could only
fill up to 190 liters, instead of 210 liters, or a short delivery rate of 9.5%. [10] After
this volumetric test, Arabay reduced its billing rate to 200 (instead of 210) liters
per drum, except for 4 deliveries between August 1 and September 9, 1974,
when the billing was at 190 liters per drum. [11]
On January 23, 1975, another volumetric test allegedly showed that the drum
could contain only 187.5 liters.[12] On February 1, 1975, John Bordman
requested from Pilipinas Shell that 640,000 liters of fuel oil, representing the
latter's alleged deficient deliveries, be credited to the former's account. [13] The
volume demanded was adjusted to 780,000 liters, upon a realization that the
billing rate of 210 liters per drum had been effective since 1966.
On October 24, 1977 and November 9, 1977, representatives from John
Bordman, the auditor of the Iloilo City Commission on Audit, pump boat
carriers, and truck drivers conducted actual measurements of fuel loaded on
tanker trucks as transferred to dented drums at mouth full. They found that the
drums could contain 180 liters only.[14] In its Complaint, John Bordman prayed
for the appointment of commissioners to ascertain the volume of short
deliveries.[15]
On October 21, 1980, Pilipinas Shell and Arabay filed their Answer with
Counterclaim.[16] They specifically denied that fuel oil deliveries had been less
than those billed.[17] Moreover, the drums used in the volumetric tests were
allegedly not representative of the ones used in the actual deliveries. [18]
By way of affirmative defense, Pilipinas Shell and Arabay countered that John
Bordman had no cause of action against them.[19] If any existed, it had been
waived or extinguished; or otherwise barred by prescription, laches, and
estoppel.[20]
During the pretrial, the parties agreed to limit the issues to the following: (1)
whether the action had prescribed, and (2) whether there had been short
deliveries in the quantities of fuel oil.[21] John Bordman's Motion for Trial by
Commissioner was granted by the RTC,[22] and the court-appointed
commissioner submitted her Report on April 20, 1988. [23]
On April 3, 1989, Pilipinas Shell and Arabay filed a Motion for Resolution of
their affirmative defense of prescription.[24] Because prescription had not been
established with certainty, the RTC ordered them on November 6, 1989, to
present evidence in support of their defense.[25]
On August 30, 1991, the RTC issued a Decision in favor of respondent.
[26]
 Pilipinas Shell and Arabay were required to deliver to John Bordman
916,487.62 liters of bunker fuel oil, to pay actual damages of
P1,000,000; exemplary damages of P500,000; attorney's fees of P500,000; and
the costs of suit.[27] The basis of the trial court's decision was predicated on the
following pronouncement:
"Since [respondent] had fully paid their contract price at 210 liters per drum,
then the [petitioner] should deliver to the [respondent] the undelivered volume
of fuel oil from 1955 to 1974, which is 20 liters per drum; and 10 liters per
drum from 1974 to 1977. Per the invoice receipts submitted, the total volume of
fuel oil which [petitioner] have failed to deliver to [respondent] is 916,487.62
liters."[28]
Pilipinas Shell appealed to the CA, alleging that John Bordman had failed to
prove the short deliveries; and that the suit had been barred by estoppel, laches,
and prescription.[29]
Ruling of the Court of Appeals
Upholding the trial court, the CA overruled petitioner's objections to the
evidence of respondent in relation to the testimonies of the latter's witnesses
and the results of the volumetric tests.[30] The CA noted that deliveries from
1955 to 1977 had been admitted by petitioner; and the fact of deficiency,
established by respondent.[31]
The appellate court also debunked petitioner's claims of estoppel and laches. It
held that the stipulation in the product invoices stating that respondent had
received the products in good order was not controlling.[32] On the issue of
prescription, the CA ruled that the action had been filed within the period
required by law.[33]
[34]
Hence, this Petition.
The Issues
Petitioner states the issues in this wise:
"I.
Respondent's allegation that the Petition must be summarily dismissed for
containing a false, defective and unauthorized verification and certification
against forum shopping is patently unmeritorious, as the requisites for a valid
verification and certification against forum shopping have been complied with.
"II.
The Decisions of the court a quo and of the Honorable Court of Appeals were
clearly issued with grave abuse of discretion, based as they are on an
unmistakable misappreciation of facts clearly appearing in the records of the
case.
A.
The Honorable Court of Appeals erred giving full faith and credence to the
testimony of respondent's sole witness, who was neither an "expert witness"
nor one with personal knowledge of the material facts.
B.
The Honorable Court of Appeals erred in ruling that the testimony of
respondent's sole witness was not controverted and that the results of his
volumetric tests were not disproved by petitioner as the records of the court a
quo indubitably show that petitioner disputed the testimony of said witness in
every material respect.
C.
The court a quo and the Honorable Court of Appeals erred when it failed to hold
that the results of the volumetric tests conducted by respondent's sole witness
are not worthy of full faith and credence, considering that drums subjected to
said tests in 1974 and 1975 were not the same with, or otherwise similar
to those used by petitioner in the deliveries made to respondent since 1955.
D.
The Honorable Court of Appeals erred in holding that petitioner's unilateral
reduction of billing rates constitutes an implied admission of the fact of short
deliveries. The reduction was made for no other purpose than as a business
accommodation of a valued client.
"III.
The court a quo, as well as the Honorable Court of Appeals, gravely erred in not
ruling that respondent's claims of alleged short deliveries for the period 1955 to
1976 were already barred by prescription.
"IV.
The Honorable Court of Appeals and the court a quo erred in not ruling that
respondent's claims are barred by estoppel and laches considering that
respondent failed to assert its claim for about twenty-five (25) years.
"V.
The Honorable Court of Appeals erred in awarding to respondent compensatory
damages, exemplary damages, attorney's fees and cost of suit, when petitioner
has not otherwise acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner."[35]
The Court's Ruling
In the main, the Petition has no merit, except in regard to the CA's grant of
exemplary damages.
First Issue:
Validity of Verification and Certification
Preliminarily, the Court shall tackle respondent's allegation that petitioner's
verification and certification against forum shopping had not complied with,
and were in fact made in contravention of, Section 4 of Rule 45 of the Rules of
Court.[36] Respondent alleges that Romeo B. Garcia, vice-president of Pilipinas
Shell, had no authority to execute them.[37]
The records, however, show that petitioner's president conferred upon its vice-
president the power to institute actions. As certified by the assistant board
secretary, the delegation was authorized by petitioner's board of directors.
[38]
 The power to institute actions necessarily included the power to execute the
verification and certification against forum shopping, as required in a petition
for review before this Court.
In any event, the policy of liberal interpretation of procedural rules compels us
to give due course to the Petition.[39] There appears to be no intention to
circumvent the need for proper verification and certification, which are
intended to assure the truthfulness and correctness of the allegations in the
Petition and to discourage forum shopping.[40]
Second Issue:
Appreciation of Facts
As a general rule, questions of fact may not be raised in a petition for review.
[41]
 The factual findings of the trial court, especially when affirmed by the
appellate court, are binding and conclusive on the Supreme Court.
[42]
 Nevertheless, this rule has certain exceptions, [43] which petitioner asserts are
present in this case.[44] The Court reviewed the evidence presented and revisited
the applicable pertinent rules. Being intertwined, the issues raised by petitioner
relating to the evidence will be discussed together.
Objection to Respondent's Witness
Petitioner claims that the trial court erred in giving credence to the testimony of
respondent's witness, Engineer Jose A. Macarubbo. The testimony had allegedly
consisted of his personal opinion. Under the Rules of Evidence, the opinion of a
witness is not admissible, unless it is given by an expert. [45] Macarubbo was
allegedly not an expert witness; neither did he have personal knowledge of
material facts.[46]
We clarify. Macarubbo testified that sometime in May 1974, respondent had
contacted him to review the reception of fuel at its lime plant. He discovered
that Arabay had been billing respondent at 210 liters per drum, while other oil
companies billed their customers at 200 liters per drum. [47] On July 24, 1974, he
and Jerome Juarez, branch manager of Pilipinas Shell, conducted a volumetric
test to determine the amount of fuel that was actually being delivered to
respondent.[48] On January 25, 1975, the test was again conducted in the
presence of Macarubbo, Juarez and Manuel Ravina (Arabay's sales supervisor).
[49]
From the foregoing facts, it is evident that Macarubbo did not testify as an
expert witness. The CA correctly noted that he had testified based on his
personal knowledge and involvement in discovering the short deliveries. [50] His
testimony as an ordinary witness was aptly allowed by the appellate court
under the following rule on admissibility:
"Sec. 36. Testimony generally confined to personal knowledge; hearsay
excluded. - A witness can testify only to those facts which he knows of his
personal knowledge; that is, which are derived from his own perception, except
as otherwise provided in these rules."[51]
Challenge to Volumetric Tests
Petitioner disputes the CA's finding that it had failed to disprove the results of
the volumetric tests conducted by respondent. The former claims that it was
able to controvert the latter's evidence.[52]

During the July 24, 1974 volumetric test, representatives of both petitioner and
respondent allegedly agreed to conduct two tests using drums independently
chosen by each.[53] Respondent allegedly chose the worst-dented drum that
could fill only up to 190 liters. The second drum, which was chosen by
petitioner, was not tested in the presence of Macarubbo because of heavy rain.
[54]
 It supposedly filled up to 210 liters, however.[55]
The issue, therefore, relates not to the submission of evidence, but to its weight
and credibility. While petitioner may have submitted evidence, it failed to
disprove the short deliveries. The lower courts obviously gave credence to the
volumetric tests witnessed by both parties as opposed to those done solely by
petitioner.
Petitioner also challenges the reliability of the volumetric tests on the grounds
of failure to simulate the position of the drums during filling[56] and the fact that
those tested were not representative of the ones used from 1955 to 1974.
[57]
 These contentions fail to overturn the short deliveries established by
respondent.
The evidence of petitioner challenging the volumetric tests was wanting. It did
not present any as regards the correct position of the drums during loading.
Notably, its representative had witnessed the two tests showing the short
deliveries.[58] He therefore had the opportunity to correct the position of the
drums, if indeed they had been incorrectly positioned. Further, there was no
proof that those used in previous years were all good drums with no defects.
Neither was there evidence that its deliveries from 1955 had been properly
measured.
From the foregoing observations, it is apparent that the evidence presented by
both parties preponderates in favor of respondent. The Court agrees with the
following observations of the CA:
"[Petitioner] posits that its fuel deliveries were properly measured and/or
calibrated. To the mind of this Court, regardless of what method or manner the
deliveries were made, whether pre-packed drums, by the dip stick method or
through ex-jetty, the fact remains that [petitioner] failed to overcome the
burden of proving that indeed the drums used during the deliveries contain 210
liters. The [petitioner], to support its claim, adduced no evidence. Moreover, it
failed to disprove the results of the volumetric tests."[59]
Having sustained the finding of short deliveries, the Court finds it no longer
necessary to address the contention of petitioner that its subsequent reduction
of billings constituted merely a business accommodation. [60]
Third Issue:
Prescription
Action Based on Contract
Petitioner avers that respondent's action -- a claim for damages as a result of
over-billing -- has already prescribed. Respondent's claim supposedly
constitutes a quasi-delict, which prescribes in four years. [61]
We do not agree. It is elementary that a quasi-delict, as a source of an obligation,
occurs only when there is no preexisting contractual relation between the
parties.[62] The action of respondent for specific performance was founded on
short deliveries, which had arisen from its Contract of Sale with petitioner, and
from which resulted the former's obligation in the present case. Any action to
enforce a breach of that Contract prescribes in ten years. [63]
Prescriptive Period Counted from
the Accrual of the Cause of Action
Petitioner avers that the action of respondent, even if based on a Contract, has
nevertheless already prescribed, because more than ten years had lapsed since
1955 to August 20, 1970 -- the period of short deliveries that the latter seeks to
recover.[64] Respondent's request for fuel adjustments on October 24, 1974,
February 1, 1975, April 3, 1975, and September 22, 1975, were not formal
demands that would interrupt the prescriptive period, says petitioner.
The Court shall first address the contention that formal demands were not
alleged in the Complaint. This argument was not raised in the courts a quo; thus,
it cannot be brought before this tribunal.[65] Well settled is the rule that issues
not argued in the lower courts cannot be raised for the first time on appeal. [66] At
any rate, it appears from the records that respondent's letters to petitioner
dated October 24, 1974 and February 1, 1975 were formal and written
extrajudicial demands that interrupted the prescriptive period. [67] Nevertheless,
the interruption has no bearing on the prescriptive period, as will be shown
presently.
Cause of Action Defined
Actions based upon a written contract should be brought within ten years from
the time the right of action accrues.[68] This accrual refers to the cause of action,
which is defined as the act or the omission by which a party violates the right of
another.[69]
Jurisprudence is replete with the elements of a cause of action: (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 the right; and (3) an act or omission on the part of the defendant
violative of the right of the plaintiff or constituting a breach of an obligation to
the latter.[70] It is only when the last element occurs that a cause of action arises.
[71]
Applying the foregoing elements, it can readily be determined that a cause of
action in a contract arises upon its breach or violation. [72] Therefore, the period
of prescription commences, not from the date of the execution of the contract,
but from the occurrence of the breach.
The cause of action resulting from a breach of contract is dependent on the facts
of each particular case. The following cases involving prescription illustrate this
statement.
Nabus v. Court of Appeals[73] dealt with an action to rescind a Contract of Sale.
The cause of action arose at the time when the last installment was not paid.
Since the case was filed ten years after that date, the action was deemed to have
prescribed.[74]
In Elido v. Court of Appeals,[75] the overdraft Agreement stipulated that the
obligation was payable on demand. Thus, the breach started only when that
judicial demand was made. This rule was applied recently to China Banking
Corporation v. Court of Appeals,[76] which held that the prescriptive period
commenced on the date of the demand, not on the maturity of the certificate of
indebtedness. In that case, the certificate had stipulated that payment should be
made upon presentation.
Banco Filipino Savings & Mortgage Bank v. Court of Appeals[77] involved a
Contract of Loan with real estate mortgages, whereby the creditor could
unilaterally increase the interest rate. When the debtor failed to pay the loan,
the creditor foreclosed on the mortgage. The Court ruled that the cause of action
for the annulment of the foreclosure sale should be counted from the date the
debtor discovered the increased interest rate. [78]
In Cole v. Gregorio,[79] the agreement to buy and sell was conditioned upon the
conduct of a preliminary survey of the land to verify whether it contained the
area stated in the Tax Declaration. Both the agreement and the survey were
made in 1963. The Court ruled that the right of action for specific performance
arose only in 1966, when the plaintiff discovered the completion of the survey.
[80]
Serrano v. Court of Appeals[81]dealt with money claims arising from a Contract of
Employment, which would prescribe in three years from the time the cause of
action accrued.[82] The Court noted that the cause of action had arisen when the
employer made a definite denial of the employee's claim. It was deemed that the
issues had not yet been joined prior to the definite denial of the claim, because
the employee could have still been reinstated.[83]
Naga Telephone Co. v. Court of Appeals[84] involved the reformation of a
Contract. Among others, the grounds for the action filed by the plaintiff included
allegations that the contract was too one-sided in favor of the defendant, and
that certain events had made the arrangement inequitable. [85] The Court ruled
that the cause of action for a reformation would arise only when the contract
appeared disadvantageous.[86]
Cause of Action in
the Present Case
The Court of Appeals noted that, in the case before us, respondent had been
negotiating with petitioner since 1974. Accordingly, the CA ruled that the cause
of action had arisen only in 1979, after a manifestation of petitioner's denial of
the claims.[87]
The nature of the product in the present factual milieu is a major factor in
determining when the cause of action has accrued. The delivery of fuel oil
requires the buyer's dependence upon the seller for the correctness of the
volume. When fuel is delivered in drums, a buyer readily assumes that the
agreed volume can be, and actually is, contained in those drums.
Buyer dependence is common in many ordinary sale transactions, as when
gasoline is loaded in the gas tanks of motor vehicles, and when beverage is
purchased in bottles and ice cream in bulk containers. In these cases, the buyers
rely, to a considerable degree, on the sellers' representation that the agreed
volumes are being delivered. They are no longer expected to make a meticulous
measurement of each and every delivery.
To the mind of this Court, the cause of action in the present case arose on July
24, 1974, when respondent discovered the short deliveries with certainty. Prior
to the discovery, the latter had no indication that it was not getting what it was
paying for. There was yet no issue to speak of; thus, it could not have brought an
action against petitioner. It was only after the discovery of the short deliveries
that respondent got into a position to bring an action for specific performance.
Evidently then, that action was brought within the prescriptive period when it
was filed on August 20, 1980.
Fourth Issue:
Estoppel
Petitioner alleges, in addition to prescription, that respondent is estopped from
claiming short deliveries.[88] It is argued that, since the initial deliveries had been
made way back in 1955, the latter belatedly asserted its right only in 1980, or
after twenty-five years. Moreover, respondent should allegedly be bound by the
Certification in the delivery Receipts and Invoices that state as follows:
"RECEIVED ABOVE PRODUCT(S) IN GOOD CONDITION. I HAVE INSPECTED THE
COMPARTMENTS OF THE BULK LORRY, WHEN FULL AND EMPTY, AND FOUND
THEM IN ORDER."[89]
Estoppel by Laches
Estoppel by laches is the failure or neglect for an unreasonable length of time to
do that which, by the exercise of due diligence, could or should have been done
earlier.[90] Otherwise stated, negligence or omission to assert a right within a
reasonable time warrants a presumption that the party has abandoned or
declined the right.[91] This principle is based on grounds of public policy, which
discourages stale claims for the peace of society.[92]
Respondent cannot be held guilty of delay in asserting its right during the time
it did not yet know of the short deliveries. The facts in the present case show
that after the discovery of the short deliveries, it immediately sought to recover
the undelivered fuel from petitioner.[93] Laches refers, inter alia, to the length of
time in asserting a claim. The Court, therefore, agrees with the lower courts that
respondent's claim was not lost by laches.
Alleged Certification Not a Bar
It is not disputed that the alleged Certification stating that respondent received
the fuel oil in good condition is in the nature of a contract of adhesion. [94] The
statement was in fine print at the lower right of petitioner's invoices. [95] It was
made in the form and language prepared by petitioner. The latter's customers,
including respondent, were required to sign the statement upon every delivery.
The primary purpose of an invoice, however, is merely to evidence delivery and
receipt of the goods stated in it.
While the Court has sustained the validity of similar stipulations in other
contracts, it has also recognized that reliance on them cannot be favored when
the facts and circumstances warrant the contrary. [96] Noting the nature of the
product in the present factual milieu, as discussed earlier in the claim of
prescription, the dependence of the buyer upon the seller makes the stipulation
inapplicable.
Indeed, it would be too cumbersome and impractical for respondent to measure
the fuel oil in each and every drum delivered. Nonetheless, upon delivery by
petitioner, the former was obliged to sign the Certification in the invoice. In
signing it, respondent could not have waived the right to a legitimate claim for
hidden defects. Thus, it is not estopped from recovering short deliveries.
Doubts in the interpretation of stipulations in contracts of adhesion should be
resolved against the party that prepared them. This principle especially holds
true with regard to waivers, which are not presumed, but which must be clearly
and convincingly shown.[97]
Fourth Issue:
Exemplary Damages and Attorney's Fees
In the last error assigned, petitioner challenges the Order for specific
performance and the awards of exemplary damages and attorney's fees in favor
of respondent.[98] The directive for the delivery of 916,487.62 liters of bunker oil
will no longer be taken up because, as discussed earlier, this fact is borne out by
the evidence.
The CA sustained the award of exemplary damages because of petitioner's
wanton refusal to deliver the shortages of fuel oil after the demand was made.
[99]
 Similarly, attorney's fees were imposed, because respondent had been
compelled to litigate to protect its interests.[100] Both awards, however, were
each reduced from P500,000 to P100,000.[101]
Exemplary Damages Not Proper
Exemplary damages are imposed as a corrective measure [102] when the guilty
party has acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.[103] These damages are awarded in accordance with the sound
discretion of the court.[104]
Petitioner argues that its refusal to deliver the shortages of fuel was premised
on good faith.[105] Indeed, records reveal that it had reviewed respondent's
requests for the delivery of shortages before declining them. [106] It likewise
readily granted respondent's requests to conduct volumetric tests. It simply had
the mistaken belief that it was not liable for any shortages. Unfortunately, the
evidence showed the contrary.
Absent any showing of bad faith on the part of petitioner, exemplary damages
cannot be imposed upon it.
Attorney's Fees Allowed
Petitioner claims that the award of attorney's fees was tied up with the award
for exemplary damages.[107] Since those damages were not recoverable, then the
attorney's fees allegedly had no legal basis.
While attorney's fees are recoverable when exemplary damages are awarded,
the former may also be granted when the court deems it just and equitable.
[108]
 The grant of attorney's fees depends on the circumstances of each case and
lies within the discretion of the court. They may be awarded when a party is
compelled to litigate or to incur expenses to protect its interest by reason of an
unjustified act by the other.[109]

The Court agrees that the award of P100,000 as attorney's fees is very
reasonable;[110] in fact, it is almost symbolic, as it will not totally recompense
respondent for the actual fees spent to prosecute its cause. The case has
dragged on unnecessarily despite petitioner's failure to present countervailing
evidence during the trial. Moreover, respondent was compelled to litigate,
notwithstanding its attempt at an amicable settlement from the time it
discovered the shortages in 1974 until the actual filing of the case in 1980. [111]

WHEREFORE, the Petition is hereby DENIED. The assailed Decision and

Resolution are AFFIRMED with the slight MODIFICATION that the award of
exemplary damages is deleted. Costs against petitioner.

SO ORDERED.
 8. Philippine Daily inquirer vs. Almeda, 550 SCRA 199
Facts
The Philippine Daily Inquirer, in its August 1, 2000 issue, published an article
with the heading “After Bong, who’s next?” The article narrates the death of
Expedito “Bong” Cadez, a photo correspondent of the PDI in Cagayan. In said
article, the family of the deceased correspondent laments the death of their
loved one due to the alleged erroneous diagnosis of Dr. Luz Babaran. Later, in its
September 29, 2000 issue, the PDI published another article with the heading
“DOH orders probe of fotog’s death.” In said article, it was reported that the
regional Department of Health (DOH) in Tuguegarao City has started
investigating the death of Expedito Caldez following and order from the DOH’s
Bureau of Licensing and Regulation. Based on the two PDI column articles, Dr.
Babaran filed a complaint for Damages. The articles portrayed her as
incompetent and whose alleged diagnosis caused the death of Expedito Caldez,
and, in causing the articles to be published, petitioners acted in bad faith.
Petitioners filed their Answer with counterclaims. Petitioners raised the
following defenses: that the complaint states no cause of action against them;
that the complaints fails and omits to state the factual premises to support a
conclusion that there was malice on the part of the petitioners; that the case for
actionable libel with claims for damages has not been adequately stated in the
complaint; and, that the complaint fails to establish the basis of petitioners’
liability.
RTC opined that private respondent’s allegations in her complaint, as well as
her documentary evidence, show that there is sufficient cause of action. It added
that the documentary evidence discloses facts which are sufficient to enable the
court to go beyond the disclosures in the complaint. Considering that the facts
alleged in the complaint which make out the principal cause of action and relief
are sufficient, the case should not be dismissed. Petitioners filed a Motion for
Reconsideration but it was denied in the order.
Aggrieved, petitioners filed a Petition for Certiorari and Prohibition with the CA.
The CA issued a resolution, dismissing the petition for being insufficient in form
and substance and for presenting no justiciable issue needing serious
consideration by the court.
Issues
Whether or not a complaint which fails to validly and sufficiently state a cause
of action for libel because:
a. The participation of each defendant (petitioner) in the writing, editing,
printing, and publication of the news articles in question is not
specifically set out in the complaint.
b. The material allegations of the complaint are purely legal conclusions
and opinions of private respondent, and not statements of ultimate
facts; and
c. The complaint is violative of petitioners’ constitutional rights to free
press and to free speech.
Ruling
As defined in Section 2, Rules of Court, a cause of action is the act or omission by
which a party violates the right of another. In relation to a complaint, it is the
formal statement of the operative facts that give rise to a remedial right. The
question of whether the complaint states a cause of action is determined by the
averments regarding the acts committed by the defendant. Thus, it must contain
a concise statement of the ultimate and essential facts constituting the plaintiff’s
cause of action. As such, the failure to make a sufficient allegation of a cause of
action in the complaint warrants its dismissal. Its essential elements are as
follows:
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. 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.
On the three, the most important is the last element. In determining whether an
initiatory pleading states a cause of action, “the test is as follows: admitting the
truth of the facts alleged, can the court render a valid judgment in accordance
with the prayer?” To be taken into account are only the material allegations in
the complaint, extraneous facts and circumstances or other means aliunde are
not considered. The court may however consider, in addition to the complaint,
the appended annexes or documents, other pleadings of the plaintiff, or
admissions in the records.

This Court finds that petitioners raised the threshold question of whether the
complaint sufficiently alleges a cause of action. Hence, the trial court should’ve
granted petitioners’ motion for a preliminary hearing on the affirmative
defenses raised in the answer based on failure to state a cause of action.
Wherefore, petition is granted.
 9. GOODYEAR PHILIPPINES vs. SY & LEE
FACTS:
 The subject case involves a motor vehicle (1984 Isuzu JCR 6-Wheeler)
originally owned by Goodyear Philippines,Inc. which it purchased from
Industrial and Transport Equipment, Inc. in 1983.
 It had since been in the service of Goodyear until April 30, 1986 when
it was hijacked. This hijacking was reported to the PNP which issued
out an alert alarm on the said vehicle as a stolen one. It was later
recovered in 1986.
 The vehicle was used by Goodyear until 1996, when it sold it to
Anthony Sy on Sept. 12, 1996. Sy, in turn, sold it to Jose L. Lee on
January 29, 1997 but the latter filed an action for rescission of contract
with damages against Sy because he could not register the vehicle in his
name due to the certificate on from the PNP Regional Traffic
Management Office in Legazpi City that it was a stolen vehicle and the
alarm covering the same was not lifted. PNP in Legazpi City, instead
impounded the vehicle and charged Lee criminally.
 Upon being informed by Sy if the denial of the registration of the vehicle
in Lee’s nam, Goodyear requested on July 10, 1997 the PNP to lift the
stolen vehicle alarm status notwithstanding the fact that Goodyear was
impleaded as third-party defendant in the third-party complaint filed
by Sy on January 9, 1998.
PROCEDURE:
 TRIAL COURT:
 Goodyear filed a motion to dismiss on March 24, 1998 on the
twin grounds that the third-party complaint failed to state a
cause of action and even if it did such cause of action was
already extinguished. An opposition was interposed by Sy on
April 17, 1998.
 The RTC resolved to dismiss the third party complaint and
ratiocinated that the complaint does not expressly show any
act or omission committed by the 3rd party defendant
which violates a right of the third party complainant. The
3rd party complaint failed to show that the vehicle in question
belongs to a person other than the 3rd party defendant at the
time the said motor vehicle was sold by the third party
defendant to the third party plaintiff. On the contrary, the
third party defendant has not denied having sold to the
third party plaintiff the said motor vehicle which had been
in its possession as owner from 1986 to 1996. The vehicle
was included by the PNP in its alert status when it was hijacked
but when the said motor vehicle was recovered, the third party
defendant (Goodyear) informed PNP about the recovery and
requested that the alert status as stolen vehicle be lifted.
If the PNP has not removed the said vehicle from its alert status as stolen
vehicle, then it does not make Goodyear not the owner consequently, not guilty
of any breach resulting from any flaw in the title over the vehicle. This is
confirmed by the allegation of the 3 rd party plaintiff as answering defendant in
par. 6 of its Answer with Counterclaim and Affirmative Defenses, quoted:
“6. Defendant specifically denies the allegations contained in paragraph
9 of plaintiff’s complaint, the truth of the matter is that defendant helped
plaintiff in removing the impediments in the registration and transfer of
ownership and that defendant had no knowledge of any flaw in the title of
Goodyear Philippines, Inc.”
Under Rules 16, a motion to dismiss may be made on any of the following
grounds:
“g. That the pleading asserting claim states no cause of action.”
 COURT OF APPEALS:
  The CA granted the appeal and reasoned that the third-party
complaint had stated a cause of action for two reasons. First,
petitioner did not make good its warranty in the Deed of Sale: FALLO: WHEREFORE, the petition is GRANTED and the assailed decision and
to convey the vehicle to Respondent Anthony Sy free from all resolution are REVERSED. The Order of the RTC is REINSTATED.
liens, encumbrances and legal impediments. The reported
hijacking was a legal impediment that prevented its
subsequent sale. Second, respondent Sy had a right to protect
and a warranty to enforce, while petitioner had the
corresponding obligation to honor that warranty.

ISSUE/S:

Whether or not the complaint states a cause of action

RULING:

No. The Court ruled that the third party complaint filed by Sy is inadequate,
because it did not allege any act or omission that petitioner had committed in
violation of his right to the subject vehicle hence, the third element is missing.
As emphasized by the Court, a cause of action, which is an act or omission by
which a party violates the right of another has the following elements: the legal
right of the plaintiff, the correlative obligation of the defendant to respect that
legal right, and an act or omission of the defendant that violates such right.
The complaint capitalized merely on the fact that the vehicle based on the
records of the PNP, considered a stranger to the case- was “a stolen vehicle”. In
addition, the pleading did not contain “sufficient notice of the cause of action”
against the petitioner. The complaint is insufficient on its face and failed to lay
out the connection between the owner’s sale of the vehicle and the impounding
by the PNP. Additionally, the fact that the police did not lift the alert status did
not make the petitioner less of an owner. The Deed of Sale attached to the third
party complaint filed by Sy against Goodyear stated that the latter was the
absolute owner of the vehicle. It is worth noting that no contrary assertion was
made in the complaint hence, the trial court correctly observed that the
complaint failed to show that at the time of its sale to Respondent Sy, the vehicle
belonged to a person other than petitioner. To reiterate, the Third Party
Complaint absolutely failed to state an act or omission of petitioner that had
proximately caused injury or prejudice to Sy.
 10. CHINA BANKING CORPORATION, petitioner, vs. HON. COURT OF
APPEALS and ARMED FORCES AND POLICE SAVINGS & LOAN
ASSOCIATION, INC. (AFPSLAI), respondents.
23 June 2005 | Quisumbing, J.
FACTS: R AFPSLAI filed a complaint for sum of money against P China Banking
Corporation with RTC QC Br 216.
P admitted being the registered owner of the Home Notes, which are
instruments of indebtedness issued in favor of Fund Centrum Finance, Inc. and
were sold, transferred and assigned to R. P filed MtD alleging that the real party
in interest was FCFI (not joined in the complaint) and P was mere trustee of
FCFI.
RTC: denied MtD and denied MR.
CA: denied Petition for Certiorari and Prohibition
SC: dismissed Petition for Certiorari, under Rule 65 for being an improper
remedy
P filed another MtD, invoking prescription.
RTC: denied for lack of merit – not apparent in the complaint W/N prescription
had set in; directed P to present its evidence; denied MR – there are conflicting
claims on the issue of W/N issue has prescribed, full-blown trial in order
CA: dismissed the Petition for Certiorari under Rule 65
ISSUE: W/N the date of maturity of the instruments is the date of accrual of
cause of action
P: Upon the face of the complaint, prescription has set in. The Home Notes
annexed to the pleading bearing a uniform maturity date of 2 Dec 1983 indicate
the date of accrual of the cause of aciton. Hence, Rs filing of the complain on 24
Sept 1996 is way beyond the prescriptive period of 10 years under NCC 1144.
Soriano v. Ubat: Prescriptive period starts from the time when the creditor may
file an action, not from the time he wishes to do so.
R: Prescription is not apparent in the complaint because the maturity date of the
Home Notes attached thereto is not the time of accrual of P’s action. Accrued
only on 20 July 1995 when demand to pay was made on P. Since both RTC and
CA found that prescription is not apparent on the face of the complaint, such
factual finding should be binding on SC.
SC: CA validly dismissed the petition, there being no GAD committed by RTC in
denying P’s MtD on ground of prescription.
Since a cause of action requires, as essential elements, not only a legal right of
the plaintiff and a correlative duty of the defendant but also an act or omission
of the defendant in violation of said legal right, the cause of action does not
accrue until the party obligated refuses, expressly or impliedly, to comply with
its duty.
(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 violative of the right of the
plaintiff or constituting a breach of the obligation of the defendant to the
plaintiff.
It is only when the last element occurs that a cause of action arises. Accordingly,
a cause of action on a written contract accrues only when an actual breach or
violation thereof occurs.
R’s cause of action accrued only on 20 July 1995 when its demand for payment
of the Home Notes was refused by P. It was only at that time, and not before
that, when the written contract was breached and private respondent could
properly file an action in court.
The cause of action cannot be said to accrue on the uniform maturity date of the
Home Notes as petitioner posits because at that point, the third essential
element of a cause of action, namely, an act or omission on the part of petitioner
violative of the right of private respondent or constituting a breach of the
obligation of petitioner to private respondent, had not yet occurred.
The subject Home Notes, in fact, specifically states that payment of the principal
and interest due on the notes shall be made only upon presentation for notation
and/or surrender for cancellation of the notes.1

Thus, the maturity date of the Home Notes is not controlling as far as accrual of
cause of action is concerned. What said date indicates is the time when the
obligation matures, when payment on the Notes would commence, subject to
presentation, notation and/or cancellation of those Notes. The date for
computing when prescription of the action for collection begins to set in is
properly a function related to the date of actual demand by the holder of the
Notes for payment by the obligor, herein petitioner bank.

Since the demand was made only on July 20, 1995, while the civil action for
collection of a sum of money was filed on September 24, 1996, within a period
of not more than ten years, such action was not yet barred by prescription.

1
Payment of the principal amount and interest due on this Note shall be made by the
Company at the principal office of the Trustee herein referred to or at such other
office or agency that the Company may designate for the purpose, in such coin or
currency of the Republic of the Philippines as at the time of payment shall be legal
tender for payment of public and private debts, upon presentation for notation and/or
surrender for cancellation of this Note
11. Swagman Hotels and Travel, Inc. v. CA
G.R. No. 161135
April 8, 2005
Sec. 2, Rule 2
Aira Marie M. Andal
FACTS:
In 1996 and 1997, Swagman Hotels and Travel, Inc. through its
President Atty. Infante and its Vice President Rodney Hegerty, obtained loans
from Neal Christian evidenced by 3 promissory notes with an amount of $50,
000 each, payable after three years from its date, and with an interest of 15%
per annum payable every 3 months. The PNs are dated (1) August 7, 1996, (2)
March 14, 1997, and (3) July 14, 1997.
On December 16, 1998, Christian wrote to Infante and Hegerty that he is
terminating the loans and asked Swagman to pay the $150,000 and the unpaid
interest of $13, 500. Christian filed with the Baguio RTC a complaint for sum of
money and damages on February 2, 1999. He averred that starting January
1998, Swagman only paid 6% interest instead of the 15%. Swagman claimed
that: (1) Christian has no cause of action because the loans are not yet due and
demandable when Christian filed the complaint, and (2) there actually was a
novation because both parties agreed on changing the interest rate. Petitioner
relayed that after the Asian financial crisis in December 1997, Christian agreed
to waive the 15% interest and accept the loans in installment basis.
The trial court ruled for Christian holding that under Sec. 5 of Rule 10 of
the 1997 Rules of Civil Procedure, a complaint which states no cause of action
may be cured by evidence presented without objection. Thus, even if the
plaintiff had no cause of action at the time he filed the instant complaint, as
defendants’ obligation are not yet due and demandable then, he may
nevertheless recover on the first two promissory notes in view of the
introduction of evidence showing that the obligations covered by the two
promissory notes are now due and demandable. When the instant case was filed
on Feb. 2, 1999, none of the promissory notes was due and demandable, but the
first and the second promissory notes have already matured during the course
of the proceeding. Hence, payment is already due. Moreover, both parties
agreed on the 6% and there was technically no novation because an implied
novation is created only if the old and the new obligation be on every point
incompatible with one another. The court also ruled that Infante and Hegerty
cannot be held personally liable.
The CA affirmed the RTC’s decision adding that Infante and Hegerty
failed to object to Christian’s representation of evidence that the PN became due
and demandable.
Thus, this petition.
ISSUES:
1. W/N there is a cause of action
2. W/N a cause of action can be cured by subsequent events
HELD/RATIO:
1. NO, at the time the complaint was filed, no PN was yet due.
Cause of action is the act or omission by which a party violates the right of
another. Its essential elements are as follows:
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. 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.
It is only upon the occurrence of the last element that a cause of action arises,
giving the plaintiff the right to maintain an action in court for recovery of
damages or other appropriate relief. It is undisputed that the three promissory
notes were for the amount of P50,000 each and uniformly provided for (1) a
term of three years; (2) an interest of 15 % per annum, payable quarterly; and
(3) the repayment of the principal loans after three years from their respective
dates. Thus, when the complaint for a sum of money and damages was filed with
the trial court on Feb. 2, 1999, no cause of action has as yet existed because
Swagman had not committed any act in violation of the terms of the three
promissory notes as modified by the renegotiation in Dec. 1997. Without a
cause of action, the private respondent had no right to maintain an action in
court, and the trial court should have therefore dismissed his complaint.
2. NO, a cause of action which has not yet accrued cannot be cured by
an amended pleading.
Amendments of pleadings are allowed under Rule 10 of the 1997 Rules of Civil
Procedure in order that the actual merits of a case may be determined in the
most expeditious and inexpensive manner without regard to technicalities, and
that all other matters included in the case may be determined in a single
proceeding, thereby avoiding multiplicity of suits. Sec. 5 thereof applies to
situations wherein evidence not within the issues raised in the pleadings is
presented by the parties during the trial, and to conform to such evidence the
pleadings are subsequently amended on motion of a party. Thus, a complaint
which fails to state a cause of action may be cured by evidence presented during
the trial. HOWEVER, the curing effect under Sec. 5 is applicable only if a cause of
action in fact exists at the time the complaint is filed, but the complaint is
defective for failure to allege the essential facts.
A complaint whose cause of action has not yet accrued cannot be cured or
remedied by an amended or supplemental pleading alleging the existence or
accrual of a cause of action while the case is pending. Such an action is
prematurely brought and is, therefore, a groundless suit, which should be
dismissed by the court upon proper motion seasonably filed by the defendant.
The underlying reason for this rule is that a person should not be summoned
before the public tribunals to answer for complaints which are immature.
It is a rule of law to which there is, perhaps, no exception, either at law or in
equity, that to recover at all there must be some cause of action at the
commencement of the suit. Unless the plaintiff has a valid and subsisting
cause of action at the time his action is commenced, the defect cannot be
cured or remedied by the acquisition or accrual of one while the action is
pending, and a supplemental complaint or an amendment setting up such
after-accrued cause of action is not permissible.
Since Swagman did not renege on its obligation to pay the monthly installments
conformably with their new agreement and even continued paying during the
pendency of the case, the private respondent had no cause of action to file the
complaint. It is only upon petitioner’s default in the payment of the monthly
amortizations that a cause of action would arise and give the private respondent
a right to maintain an action against the petitioner.
WHEREFORE, the petition is GRANTED. The Decision of 5 September 2003 of
the Court of Appeals in CA-G.R. CV No. 68109, which affirmed the Decision of 5
May 2000 of the Regional Trial Court of Baguio, Branch 59, granting in part
private respondent’s complaint for sum of money and damages, and its
Resolution of 4 December 2003, which denied petitioner’s motion for
reconsideration are hereby REVERSED and SET ASIDE. The complaint docketed
as Civil Case No. 4282-R is hereby DISMISSED for lack of cause of action.
On the issue of novation (in case he asks): There was a novation of the terms of
the three promissory notes in that the interest was waived and the principal
was payable in monthly installments of US$750. Alterations of the terms and
conditions of the obligation would generally result only in modificatory
novation unless such terms and conditions are considered to be the essence of
the obligation itself.The resulting novation in this case was, therefore, of the
modificatory type, not the extinctive type, since the obligation to pay a sum of
money remains in force.
 12. Nabus vs CA (Mariano Lim)
193 SCRA 732
Regalado; February 7, 1991
NATURE
Petition for certiorari to review CA decision
FACTS
- Albert Nabus, the petitioner/plaintiff, sold a parcel of land covered and
embrace in OCT No. P-136 (Free Patent No. V48737) to Mariano Lim on June
23, 1965 as evidenced by a deed of absolute sale. The total purchase price was
Pesos 258,000.00 which was to be amortized. There was however an unpaid
balance of Pesos 75,000.00
- That on June 8, 1970 (or 4 years, 11 months and 15 days from June 23, 1965);
plaintiff through counsel offered to repurchase the above-described parcel of
land, pursuant to Sec. 119 of the Public Land Law (C.A. No. 141, as amended), as
evidenced by a letter of the undersigned counsel to defendant, . . .; and which
was confirmed by the plaintiff in his letter to defendant, dated June 12, 1970
- The defendant moved to dismiss the action on the ground that there was no
tender of the repurchase price and of prescription. On February 5, 1980 the trial
court issued an order for Nabus to deposit the repurchase price. As plaintiff
failed to obey the court order, Lim moved to dismiss the case. While there was a
motion filed for the extension of time within which to file an opposition to the
motion to dismiss, the same was never filed due to the death of the counsel of
Nabus. Hence the case was dismissed with prejudice.
- Nabus filed another civil case for the annulment of the order above on the
ground that he was deprived due process and that the denial of his subsequent
motion for reconsideration constituted grave abuse of discretion tantamount to
lack of jurisdiction on the part of the trial court. This Complaint was amended to
allege grounds for rescission and damages as additional causes of action.
- Lim on August 8, 1986, filed a motion to dismiss on the ground that the same
was barred by prior judgment or res judicata and that the action had already
prescribed. The lower court ordered the dismissal on the two grounds.
- The appeal to the CA was denied and the oder to dismiss was sustained. The
CA said:
“It is within the power of the trial court to dismiss the appellant's
complaint in Civil Case No. 2159(24) for failure to comply with its order to
deposit the repurchase price of the parcel of land in question. And such
dismissal, rightly or wrongly, has the effect of an adjudication upon the
merits, it not having been provided otherwise (Section 3, Rule 17. Revised
Rules of Court). Dismissal on a technicality is no different in effect and
consequences from a dismissal on the merits under the cited provision of
the Rules (General Offset Press, Inc. vs. Anatalio, 17 SCRA 688, 691). So too
is the order of dismissal, with prejudice, res judicata upon finality under
Section 49, Rule 39, of the Revised Rules of Court, . . .” .
- Hence the petition to the SC.
ISSUE
WON (1) the complaint for rescission and damages is barred by the order of
dismissal of petitioner's action for reconveyance under the principle of res
judicata; (2) petitioner's action for rescission has prescribed.
HELD
1. No. The doctrine of res judicata2 will not apply. The cause of action asserted
by petitioner in the former suit was anchored upon his right to repurchase the
2
The principle of res judicata actually embraces two different concepts: (1) bar by former judgment and (2)
conclusiveness of judgment. There is "bar by former judgment" when, between the first case where the judgment was
rendered, and the second case where such judgment is invoked, there is identity of parties, subject matter and cause
of action. When the three identities are present, the judgment on the merits rendered in the first constitutes an
absolute bar to the subsequent action. It is final as to the claim or demand in controversy, including the parties and
those in privity with them, not only as to every matter which was offered and received to sustain or defeat the claim or
demand, but as to any other admissible matter which might have been offered for that purpose. But where between
the first case wherein judgment is rendered and the second case wherein such judgment is invoked, there is identity
of parties, but there is no identity of cause of action, the judgment is conclusive in the second case, only as to those
matters actually and directly controverted and determined, and not as to matters merely involved therein. This is what
is termed conclusiveness of the judgment.
subject lot. The cause of action sought to be enforced in the present action is
predicated upon the failure of private respondent to pay the last three
installments of the purchase price. It is a cause of action which is wholly
independent of, and entirely separate and discrete from, the alleged cause of
action asserted by petitioner in the former suit. Since petitioner seeks relief in
the instant case upon a cause of action different from the one asserted by him in
the former suit, the judgment in the former suit is conclusive only as to such
points or questions as were actually in issue or adjudicated therein. And this
brings us to the rule on conclusiveness of judgment.
In determining whether causes of action are identical so as to warrant
application of the rule of res judicata, the test most commonly stated is to
ascertain whether the same evidence which is necessary to sustain the second
action would have been sufficient to authorize a recovery in the first, even if the
forms or nature of the two actions be different. If the same facts or evidence
would sustain both, the two actions are considered the same within the rule that
the judgment in the former is a bar to the subsequent action; otherwise it is not.
It has been said that this method is the best and most accurate test as to
whether a former judgment is a bar in subsequent proceedings between the
same parties, and it has even been designated as infallible.
It will be observed that Civil Case No. 2159(24) is based on petitioner's light to
repurchase the subject property under Section 119 of the Public Land Act, while
Civil Case No. 4293 involves the rescission of the contract of sale by reason of
the failure of private respondent to pay in full the value of the property,
pursuant to Article 1191 of the Civil Code. The former, in order to prosper,
requires proof that the land was granted under a free patent, that the land was
sold within five years from the grant thereof, and that the action for
reconveyance was filed within five years from the execution of the deed of sale.
A case is said to be barred by a former judgment when the following requisites concur: (1) the presence of a final
former judgment; (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 and the second
actions, identity of parties, subject matter, and causes of action.There is no dispute as to the existence of and
compliance with the first two elements of res judicata in the case at bar. In issue are the alleged absence of a
judgment on the merits in the first case and the identity of causes of action in both cases.
1. Elemental is the rule that in order that a judgment may operate as a bar to a subsequent suit on the same cause of
action it must have been based on the merits of the case. And a judgment is on the merits when it determines the
rights and liabilities of the parties based on the disclosed facts, irrespective of formal, technical, or dilatory objections.
It is not necessary, however, that there should have been a trial. If the judgment is general, and not based on any
technical defect or objection, and the parties had a full legal opportunity to be heard on their respective claims and
contentions, it is on the merits although there was no actual hearing or arguments on the facts of the case. Such is
one of the situations contemplated in Section 3, Rule 17 of the Rules of Court, where a complaint is dismissed for
failure of the plaintiff to comply with a lawful order of the court which dismissal, as correctly argued by private
respondent, has the effect of an adjudication upon the merits.
In the second case, proof of the unpaid installments is the only evidence
necessary to sustain the action for rescission. It is thus apparent that a different
set of evidence is necessary to sustain and establish the variant causes of action
in the two cases.
In addition, causes of action which are distinct and independent, although
arising out of the same contract, transaction, or state of facts, may be sued on
separately, recovery on one being no bar to subsequent actions on others. 19
Also, the mere fact that the same relief is sought in the subsequent action will
not render the judgment in the prior action operative as res judicata, 20 such as
where the two actions are brought on different statutes, 21 as in the case at bar.
2. Yes. We, however, find and so hold that in the controversy now before us the
action for rescission has prescribed and should consequently be dismissed on
said ground. There can be no dispute that actions based on written contracts
prescribe after ten years from the time the right of the action accrues. 26 It is
elementary that the computation of the period of prescription of any cause of
action, which is the same as saying prescription of the action, should start from
the date when the cause of action accrues or from the day the right of the
plaintiff is violated. This is as it should be.
A cause of action has three elements, namely: (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 violative of the
right of the plaintiff or constituting a breach of the obligation of the defendant to
the plaintiff. It is only when the last element occurs or takes place that it can be
said in law that a cause of action has arisen. Translated in terms of a
hypothetical situation regarding a written contract, no cause of action arises
until there is a breach or violation thereof by either party. 27 Conversely, upon
the occurrence of a breach, a cause of action exists and the concomitant right of
action may then be enforced.
In the present case, petitioner's position is that the last three installments which
he claims were not paid by private respondent, allegedly fell due on July 1, 1968,
July 1, 1969, and July 1,1970, respectively. 28 Indulging petitioner in his own
submissions, therefore, the breach committed by private respondent occurred,
at the earliest, on July 1, 1968 or, at the latest, on July 1, 1970.
Now, even taking the non-payment of the last installment as the basis, an
actionable breach of the contract was already committed on said date, hence, as
of that time there arose and existed a cause of action for petitioner to file a case
for rescission. This remedy could already have been availed of by petitioner for,
as earlier discussed, there has been no legal obstacle thereto. Since the ten-year
period had started to run on July 2, 1970, petitioner should have filed the action
before July 2, 1980 when the prescriptive period expired. Considering that the
amended complaint in Civil Case No. 4293, invoking petitioner's right to rescind
the contract, was filed only on May 3, 1985, the action therefor has obviously
and ineluctably prescribed.

Disposition Petition DENIED.

13. COLE V VDA. DE GREGORIO

FACTS:
In August 1963, parents of plaintiffs (William Cole Sr. and Angelina Cole)
entered into an agreement to buy and sell a parcel of land with spouses Angel
Gregorio and Potenciana Casuga. Said lot was priced at P6,000 but P1,000 was
paid in advance by Cole and the balance of P5,000 was to be paid in full after the
preliminary survey of the land by a private surveyor for the purpose of
ascertaining the exact size of the lot.
The prescriptive period cannot be counted from the date of execution of the
deed of promise to buy and sell where it was stipulated that the balance of the
price shall be paid after the results of the land survey. According to the deed of
promise to buy and sell, the balance of P5,000 of the purchase price of subject
property was to be “paid in full after the preliminary survey of the land by a
private surveyor, for the purpose of verifying whether or not said parcel of land
contains the same area as declared in the Tax declaration. Because of this
stipulation, it cannot be said that the prescriptive period of the petitioner’s
action begins on the date of they entered into the agreement.

In the same month, Salanga, a land surveyor, was hired. He conducted a survey
of the land on September 24 and October 7, 1963 and submitted his survey
plans to the Bureau of Lands on June 22, 1964. Salanga left for the US. He
received the approval only on June 29, 1965.

Cole Sr. wrote two demand letters to Salanga to speed up the process (October
20, 1964 and April 1, 1965). Plaintiffs Cole found out that their parents had an
unpaid balance on the subject property; they tried to pay off the balance but
discovered that the property was transferred to Gregorio’s daughter, Josefina
Hufano. When Cole discovered that the lot only contained an area of 23,408
square meters instead of 32,976 as stated in the Tax Declaration, Cole rescinded
the contract and Gregorio returned the P1,000 advanced payments. Cole never
took possession of the land nor registered it under their names.

ISSUE: Whether or not the rescission is valid

RULING:

NO. In the instant case, the Agreement to Buy and Sell constitutes a conditional
obligation (Art. 1181) since it clearly stipulates that the balance will be paid
AFTER a surveyor has ascertained the exact size of the subject property. The
accomplishment, then, of said survey gives rise to the acquisition of rights by
the contracting party (Cole) and the acquisition of said rights depends upon the
results of the survey. (SUSPENSIVE OBLIGATION)

If the contract was really rescinded and the P1,000 returned to Cole a few days
after the surveyor was hired, William Cole would not have written demand
letters to Salanga to finish the survey. Furthermore, no receipt was presented
by Potenciana proving their allegations.
14. Dolores Macaslang vs Renato and Melba Zamora
Gr 156375
Facts:
Zamora filed an unlawful detainer with MTCC alleging among others:
a. Macaslang sold to them a residential lot in Sabang, Davao City including
a residential house, where Macaslang was then living.
b. After the sale, Macaslang requested to be allowed to live in the house.
Zamora granted the request on the reliance of Macaslang’s promise to
vacate as soon as she would be able to find a new residence.
c. After 1year, Zamora’s demanded upon the defendant to vacate but she
failed and refused.
d. Zamora sought the help of the Lupon, but no settlement was reached as
shown by certification to file.
Despite the due service of summons, Macaslang did not file an answer. Hence
MTCC declared her in default. The MTCC ordered Macaslang to vacate, pay the
Attorney’s fee and rental until they shall have vacated the properties in
question.
Macaslang appealed to the RTC alleging that there is extrinsic fraud. The RTC
ruled in favor of Macaslang and dismissed Zamora’s complaint for failure to
state a COA. The CA reversed the decision of RTC for having no basis in fact and
law. MTCC decision reinstated.
Issues:
Whether or not in an action for unlawful detainer, where there was no prior
demand to vacate and comply with the condition of the lease, a valid COA exixts.
Whether or not there was a violation of the Rules on Summary Procedure.
Held:
A complaint has sufficient COA for unlawful detainer of it states the following:
1. Initial possession by defendant was by contract or tolerance
2. Eventually possession became illegal upon notice regarding
termination
3. Defendant still remained in possession and deprived plaintiff of its
enjoyment
4. Complaint was instituted within one year from last demand to vacate.
The TEST for sufficiency of complaint is “whether or not the court can render a
valid judgment based on facts alleged in complaint.
According to the Supreme Court, complaint sufficiently stated a COA. The
complaint complied with 1-4. But fail to state and lack of COA are different.
Ejectment was not proper due to defense of ownership. Zamora’s COA is based
on the right to possess resulting from ownership but exhibits show that the real
transaction is one of equitable mortgage not sale. The land was sold for 100k,
when the demand letter was for a sum of 1.6M and the price is inadequate. Then
the vendor remained in possession of the property. Deed of sale was
executed as a result or by reason of loan.
In this case, the MTCC committed a procedural lapses.
MTC granted Motion to Declare Macaslang in default for failure to file an
answer.
a. What MTC should have done was provided for in Rule 70: to simply
render judgment as maybe warranted by the facts alleged in the
complaint and limited to what is prayed for therein.
b. Failure to file an answer under Rule 70, result only to a judgment by
default not a declaration of default.
c. This motion is expressly prohibited under Rule70
MTC’s reception of oral testimony is also a procedural lapse. Rule 70 envisions
the submission only of affidavits of the witnesses and other proofs of the factual
issues defined in the order issued within five days from the termination of the
preliminary conference; and has permitted the trial court, should it find the
need to clarify material facts, to thereafter issue an order during the 30-day
period from submission of the affidavits and other proofs specifying the matters
to be clarified, and requiring the parties to submit affidavits or other evidence
upon such matters within ten days from receipt of the order.

The procedural lapses committed in this case are beyond comprehension. The
MTCC judge could not have been unfamiliar with the prevailing procedure,
considering that the revised version of Rule 70, although taking effect only on
July 1, 1997, was derived from the 1991 Revised Rule on Summary Procedure,
in effect since November 15, 1991. It was not likely, therefore, that the MTCC
judge committed the lapses out of his unfamiliarity with the relevant rule.

It is timely, therefore, to remind all MTC judges to display full and enthusiastic
compliance with all the rules of procedure, especially those intended for
expediting proceedings.
Test of the sufficiency of a cause of action
15. MISAMIS OCCIDENTAL II COOPERATIVE, INC. vs DAVID G.R. No.
129928, August 25, 2005
Facts: Private respondent David, a supplier of electrical hardware, filed a
case for specific performance and damages against MOELCI II, a rural
electric cooperative in Misamis Occidental. The said case, which was
essentially a collection suit, pending before Judge Felixberto Olalia
(hereinafter, Judge Olalia) of the RTC Manila, was predicated on a
document and that according to David is the contract pursuant to which
he sold to MOELCI II one (1) unit of 10 MVA Transformer.
MOELCI II filed its Answer to Amended Complaint which pleaded, among
others, affirmative defenses which also constitute grounds for dismissal
of the complaint. These grounds were lack of cause of action, there being
allegedly no enforceable contract between David and MOELCI II under
the Statute of Frauds pursuant to Section 1 (g) and (i), Rule 16 of the
Rules of Court, and improper venue. MOELCI II filed with the trial court a
Motion (For Preliminary Hearing of Affirmative Defenses and Deferment
of PreTrial Conference) (hereinafter referred to as Motion) arguing that
the document attached as Annex "A" to the Amended Complaint was
only a quotation letter and not a contract as alleged by David. Thus, it
contends that David’s Amended Complaint is dismissible for failure to
state a cause of action. David contended in the main that because a
motion to dismiss on the ground of failure to state a cause of action is
required to be based only on the allegations of the complaint, the
"quotation etter," being merely an attachment to the complaint and not
part of its allegations, cannot be inquired into. MOELCI II filed a
rejoinder to the opposition in which it asserted that a complaint cannot
be separated from its annexes; hence, the trial court in resolving a
motion to dismiss on the ground of failure to state a cause of action must
consider the complaint’s annexes. Judge Olalia issued an order denying
MOELCI II’s motion for preliminary hearing of affirmative defenses.
MOELCI II’s motion for reconsideration of the said order was likewise
denied in another order. MOELCI II elevated this incident to the Court of
Appeals by way of a special civil action for certiorari, alleging grave
abuse of discretion on the part of Judge Olalia in the issuance of the two
aforesaid orders.
Court of Appeals dismissed MOELCI II’s petition holding that the
allegations in David’s complaint constitute a cause of action. With regard
to MOELCI II’s contention that David’s Amended Complaint is
dismissible as the document, attached thereto as Annex "A," upon which
David’s claim is based is not a contract of sale but rather a quotation
letter, the Court of Appeals ruled that the interpretation of the document
requires evidence aliunde which is not allowed in determining whether
or not the complaint states a cause of action.
The appellate court further declared that when the trial court is
confronted with a motion to dismiss on the ground of lack of cause of
action, it is mandated to confine its examination for the resolution
thereof to the allegations of the complaint and is specifically enjoined
from receiving evidence for that purpose. With the denial of its Motion
for Reconsideration, petitioner is now before this Court seeking a review
of the appellate court’s pronouncements.
MOELCI II asserts that the Court of Appeals committed serious error in:
(1) ruling that the resolution of its motion to dismiss on the ground of
lack of cause of action necessitated hearings by the trial court with the
end in view of determining whether or not the document attached as
Annex "A" to the Amended Complaint is a contract as alleged in the body
of said pleading; and (2) not ordering the trial court to dismiss the
Amended Complaint on the ground of lack of cause of action. Anent the
first ground, MOELCI II further claims that with the denial of its Petition,
the appellate court in effect exhorted the trial court to defer the
resolution of its motion to dismiss until after the hearing of the case on
the merits contrary to Rule 16 of the Rules of Court and well settled
jurisprudence.
Issue: Whether or not the Court of Appeals erred in dismissing the
petition for certiorari and in holding that the trial court did not commit
grave abuse of discretion in denying petitioner’s Motion.
Held: No. To determine the existence of a cause of action, only the
statements in the complaint may be properly considered. It is error for
the court to take cognizance of external facts or hold preliminary
hearings to determine their existence. If the allegations in a complaint
furnish sufficient basis by which the complaint can be maintained, the
same should not be dismissed regardless of the defenses that may be
averred by the defendants. The test of sufficiency of facts alleged in the
complaint as constituting a cause of action is whether or not admitting
the facts alleged, the court could render a valid verdict in accordance
with the prayer of said complaint. It has been hypothetically admitted
that the parties had entered into a contract sale David bound himself to
supply MOELCI II (1) unit 10 MVA Power transformer with accessories
for a total price of P5,200,000.00 plus 69 KV Line Accessories for a total
price of P2,169,500.00; that despite written and verbal demands,
MOELCI II has failed to pay the price thereof plus the custom duties and
incidental expenses of P272,722.27; and that apart from the previously
stated contract of sale, David regularly delivered various electrical
hardware to MOELCI II which, despite demands, has an outstanding
balance of P281,939.76. The court believed all the foregoing sufficiently
lay out a cause of action. Even extending our scrutiny to Annex "A,"
which is after all deemed a part of the Amended Complaint, will not
result to a change in our conclusion. The interpretation of a document
requires introduction of evidence which is precisely disallowed in
determining whether or not a complaint states a cause of action. The
Court of Appeals therefore correctly dismissed MOELCI II’s petition and
upheld the trial court’s ruling.