Civil Law Review 2 A

G.R. No.
155173 November 23, 2004
LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON

CONTINENTAL LAND CORPORATION, CONTINENTAL OPERATING CORPORATION and
PHILIP ROSEBERG, petitioners,
vs.
CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and ANTHONY A.
MARIANO, respondents.
DECISION
PANGANIBAN, J.:
May defendants in civil cases implead in their counterclaims persons who were not parties to
the original complaints? This is the main question to be answered in this controversy.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the
May 22, 20022 and the September 3, 2002 Orders3 of the Regional Trial Court (RTC) of Quezon
City (Branch 80) in Civil Case No. Q-00-41103. The decretal portion of the first assailed Order
reads:
"WHEREFORE, in the light of the foregoing as earlier stated, the plaintiff's motion to
dismiss claims is granted. Accordingly, the defendants' claims against Mr. Lim and Mr.
Mariano captioned as their counterclaims are dismissed."4
The second challenged Order denied petitioners' Motion for Reconsideration.
The Facts
Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI) executed
by both parties on August 11, 1998, whereby Petitioner Lafarge Cement Philippines, Inc.
(Lafarge) -- on behalf of its affiliates and other qualified entities, including Petitioner Luzon
Continental Land Corporation (LCLC) -- agreed to purchase the cement business of
Respondent Continental Cement Corporation (CCC). On October 21, 1998, both parties entered
into a Sale and Purchase Agreement (SPA). At the time of the foregoing transactions,
petitioners were well aware that CCC had a case pending with the Supreme Court. The case
was docketed as GR No. 119712, entitled Asset Privatization Trust (APT) v. Court of Appeals
and Continental Cement Corporation.
In anticipation of the liability that the High Tribunal might adjudge against CCC, the parties,
under Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase price a portion of
the contract price in the amount of P117,020,846.84 -- the equivalent of US$2,799,140. This
amount was to be deposited in an interest-bearing account in the First National City Bank of
New York (Citibank) for payment to APT, the petitioner in GR No. 119712.
However, petitioners allegedly refused to apply the sum to the payment to APT, despite the
subsequent finality of the Decision in GR No. 119712 in favor of the latter and the repeated
instructions of Respondent CCC. Fearful that nonpayment to APT would result in the
foreclosure, not just of its properties covered by the SPA with Lafarge but of several other
properties as well, CCC filed before the Regional Trial Court of Quezon City on June 20, 2000,
a "Complaint with Application for Preliminary Attachment" against petitioners. Docketed as Civil
Case No. Q-00-41103, the Complaint prayed, among others, that petitioners be directed to pay
the "APT Retained Amount" referred to in Clause 2 (c) of the SPA.
Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on
forum-shopping. Respondent CCC had allegedly made the same claim it was raising in Civil
Case No. Q-00-41103 in another action, which involved the same parties and which was filed
earlier before the International Chamber of Commerce. After the trial court denied the Motion to
Dismiss in its November 14, 2000 Order, petitioners elevated the matter before the Court of
Appeals in CA-GR SP No. 68688.
In the meantime, to avoid being in default and without prejudice to the outcome of their appeal,
petitioners filed their Answer and Compulsory Counterclaims ad Cautelam before the trial court
in Civil Case No. Q-00-41103. In their Answer, they denied the allegations in the Complaint.
They prayed -- by way of compulsory counterclaims against Respondent CCC, its majority
stockholder and president Gregory T. Lim, and its corporate secretary Anthony A. Mariano -- for
the sums of (a) P2,700,000 each as actual damages, (b) P100,000,000 each as exemplary
damages, (c) P100,000,000 each as moral damages, and (d) P5,000,000 each as attorney's
fees plus costs of suit.
Petitioners alleged that CCC, through Lim and Mariano, had filed the "baseless" Complaint in
Civil Case No. Q-00-41103 and procured the Writ of Attachment in bad faith. Relying on this
Court's pronouncement in Sapugay v. CA,5 petitioners prayed that both Lim and Mariano be held
"jointly and solidarily" liable with Respondent CCC.
On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved to
dismiss petitioners' compulsory counterclaims on grounds that essentially constituted the very
issues for resolution in the instant Petition.
Ruling of the Trial Court
On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80) dismissed petitioners'
counterclaims for several reasons, among which were the following: a) the counterclaims
against Respondents Lim and Mariano were not compulsory; b) the ruling in Sapugay was not
applicable; and c) petitioners' Answer with Counterclaims violated procedural rules on the
proper joinder of causes of action.6
Acting on the Motion for Reconsideration filed by petitioners, the trial court -- in an Amended
Order dated September 3, 20027 -- admitted some errors in its May 22, 2002 Order, particularly
in its pronouncement that their counterclaim had been pleaded against Lim and Mariano only.
However, the RTC clarified that it was dismissing the counterclaim insofar as it impleaded
Respondents Lim and Mariano, even if it included CCC.
Hence this Petition.8
Issues
In their Memorandum, petitioners raise the following issues for our consideration:
"[a] Whether or not the RTC gravely erred in refusing to rule that Respondent CCC has
no personality to move to dismiss petitioners' compulsory counterclaims on Respondents
Lim and Mariano's behalf.
"[b] Whether or not the RTC gravely erred in ruling that (i) petitioners' counterclaims
against Respondents Lim and Mariano are not compulsory; (ii) Sapugay v. Court of
Appeals is inapplicable here; and (iii) petitioners violated the rule on joinder of causes of
action."9
For clarity and coherence, the Court will resolve the foregoing in reverse order.
The Court's Ruling
The Petition is meritorious.
First Issue:
Counterclaims and Joinder of Causes of Action.
Petitioners' Counterclaims Compulsory
Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as "any claim
which a defending party may have against an opposing party." They are generally allowed in
order to avoid a multiplicity of suits and to facilitate the disposition of the whole controversy in a
single action, such that the defendant's demand may be adjudged by a counterclaim rather than
by an independent suit. The only limitations to this principle are (1) that the court should have
jurisdiction over the subject matter of the counterclaim, and (2) that it could acquire jurisdiction
over third parties whose presence is essential for its adjudication.10
A counterclaim may either be permissive or compulsory. It is permissive "if it does not arise out
of or is not necessarily connected with the subject matter of the opposing party's claim." 11 A
permissive counterclaim is essentially an independent claim that may be filed separately in
another case.
A counterclaim is compulsory when its object "arises out of or is necessarily connected with the
transaction or occurrence constituting the subject matter of the opposing party's claim and does
not require for its adjudication the presence of third parties of whom the court cannot acquire
jurisdiction."12
Unlike permissive counterclaims, compulsory counterclaims should be set up in the same
action; otherwise, they would be barred forever. NAMARCO v. Federation of United Namarco
Distributors13 laid down the following criteria to determine whether a counterclaim is compulsory
or permissive: 1) Are issues of fact and law raised by the claim and by the counterclaim largely
the same? 2) Would res judicata bar a subsequent suit on defendant's claim, absent the
compulsory counterclaim rule? 3) Will substantially the same evidence support or refute
plaintiff's claim as well as defendant's counterclaim? 4) Is there any logical relation between the
claim and the counterclaim? A positive answer to all four questions would indicate that the
counterclaim is compulsory.
Adopted in Quintanilla v. CA14 and reiterated in Alday v. FGU Insurance Corporation,15 the

"compelling test of compulsoriness" characterizes a counterclaim as compulsory if there should
exist a "logical relationship" between the main claim and the counterclaim. There exists such a
relationship when conducting separate trials of the respective claims of the parties would entail
substantial duplication of time and effort by the parties and the court; when the multiple claims
involve the same factual and legal issues; or when the claims are offshoots of the same basic
controversy between the parties.
We shall now examine the nature of petitioners' counterclaims against respondents with the use
of the foregoing parameters.
Petitioners base their counterclaim on the following allegations:
"Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the
bad faith decisions for, and causing plaintiff to file this baseless suit and to procure an
unwarranted writ of attachment, notwithstanding their knowledge that plaintiff has no
right to bring it or to secure the writ. In taking such bad faith actions, Gregory T. Lim was
motivated by his personal interests as one of the owners of plaintiff while Anthony A.
Mariano was motivated by his sense of personal loyalty to Gregory T. Lim, for which
reason he disregarded the fact that plaintiff is without any valid cause.
"Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiff's co-joint
tortfeasors in the commission of the acts complained of in this answer and in the
compulsory counterclaims pleaded below. As such they should be held jointly and
solidarily liable as plaintiff's co-defendants to those compulsory counterclaims pursuant
to the Supreme Court's decision in Sapugay v. Mobil.
xxx xxx xxx
"The plaintiff's, Gregory T. Lim and Anthony A. Mariano's bad faith filing of this baseless
case has compelled the defendants to engage the services of counsel for a fee and to
incur costs of litigation, in amounts to be proved at trial, but in no case less than P5
million for each of them and for which plaintiff Gregory T. Lim and Anthony A. Mariano
should be held jointly and solidarily liable.
"The plaintiff's, Gregory T. Lim's and Anthony A. Mariano's actions have damaged the
reputations of the defendants and they should be held jointly and solidarily liable to them
for moral damages of P100 million each.
"In order to serve as an example for the public good and to deter similar baseless, bad
faith litigation, the plaintiff, Gregory T. Lim and Anthony A. Mariano should be held jointly
and solidarily liable to the defendants for exemplary damages of P100 million each." 16
The above allegations show that petitioners' counterclaims for damages were the result of
respondents' (Lim and Mariano) act of filing the Complaint and securing the Writ of Attachment
in bad faith. Tiu Po v. Bautista17 involved the issue of whether the counterclaim that sought
moral, actual and exemplary damages and attorney's fees against respondents on account of
their "malicious and unfounded" complaint was compulsory. In that case, we held as follows:
"Petitioners' counterclaim for damages fulfills the necessary requisites of a compulsory

counterclaim. They are damages claimed to have been suffered by petitioners as a
consequence of the action filed against them. They have to be pleaded in the same
action; otherwise, petitioners would be precluded by the judgment from invoking the
same in an independent action. The pronouncement in Papa vs. Banaag (17 SCRA
1081) (1966) is in point:
"Compensatory, moral and exemplary damages, allegedly suffered by the creditor in

consequence of the debtor's action, are also compulsory counterclaim barred by the
dismissal of the debtor's action. They cannot be claimed in a subsequent action by the
creditor against the debtor."
"Aside from the fact that petitioners' counterclaim for damages cannot be the subject of
an independent action, it is the same evidence that sustains petitioners' counterclaim
that will refute private respondent's own claim for damages. This is an additional factor
that characterizes petitioners' counterclaim as compulsory."18
Moreover, using the "compelling test of compulsoriness," we find that, clearly, the recovery of
petitioners' counterclaims is contingent upon the case filed by respondents; thus, conducting
separate trials thereon will result in a substantial duplication of the time and effort of the court
and the parties.
Since the counterclaim for damages is compulsory, it must be set up in the same action;
otherwise, it would be barred forever. If it is filed concurrently with the main action but in a
different proceeding, it would be abated on the ground of litis pendentia; if filed subsequently, it
would meet the same fate on the ground of res judicata.19
Sapugay v. Court of Appeals Applicable to the Case at Bar
Sapugay v. Court of Appeals finds application in the present case. In Sapugay, Respondent
Mobil Philippines filed before the trial court of Pasig an action for replevin against Spouses
Marino and Lina Joel Sapugay. The Complaint arose from the supposed failure of the couple to
keep their end of their Dealership Agreement. In their Answer with Counterclaim, petitioners
alleged that after incurring expenses in anticipation of the Dealership Agreement, they
requested the plaintiff to allow them to get gas, but that it had refused. It claimed that they still
had to post a surety bond which, initially fixed at P200,000, was later raised to P700,000.
The spouses exerted all efforts to secure a bond, but the bonding companies required a copy of
the Dealership Agreement, which respondent continued to withhold from them. Later, petitioners
discovered that respondent and its manager, Ricardo P. Cardenas, had intended all along to
award the dealership to Island Air Product Corporation.
In their Answer, petitioners impleaded in the counterclaim Mobil Philippines and its manager --
Ricardo P. Cardenas -- as defendants. They prayed that judgment be rendered, holding both
jointly and severally liable for pre-operation expenses, rental, storage, guarding fees, and
unrealized profit including damages. After both Mobil and Cardenas failed to respond to their
Answer to the Counterclaim, petitioners filed a "Motion to Declare Plaintiff and its Manager
Ricardo P. Cardenas in Default on Defendant's Counterclaim."
Among the issues raised in Sapugay was whether Cardenas, who was not a party to the original
action, might nevertheless be impleaded in the counterclaim. We disposed of this issue as
follows:
"A counterclaim is defined as any claim for money or other relief which a defending party
may have against an opposing party. However, the general rule that a defendant cannot
by a counterclaim bring into the action any claim against persons other than the plaintiff
admits of an exception under Section 14, Rule 6 which provides that 'when the presence
of parties other than those to the original action is required for the granting of complete
relief in the determination of a counterclaim or cross-claim, the court shall order them to
be brought in as defendants, if jurisdiction over them can be obtained.' The inclusion,
therefore, of Cardenas in petitioners' counterclaim is sanctioned by the rules."20
The prerogative of bringing in new parties to the action at any stage before judgment is intended
to accord complete relief to all of them in a single action and to avert a duplicity and even a
multiplicity of suits thereby.
In insisting on the inapplicability of Sapugay, respondents argue that new parties cannot be
included in a counterclaim, except when no complete relief can be had. They add that "[i]n the
present case, Messrs. Lim and Mariano are not necessary for petitioners to obtain complete
relief from Respondent CCC as plaintiff in the lower court. This is because Respondent CCC as
a corporation with a separate [legal personality] has the juridical capacity to indemnify
petitioners even without Messrs. Lim and Mariano."21
We disagree. The inclusion of a corporate officer or stockholder -- Cardenas in Sapugay or Lim

and Mariano in the instant case -- is not premised on the assumption that the plaintiff
corporation does not have the financial ability to answer for damages, such that it has to share
its liability with individual defendants. Rather, such inclusion is based on the allegations of fraud
and bad faith on the part of the corporate officer or stockholder. These allegations may warrant
the piercing of the veil of corporate fiction, so that the said individual may not seek refuge
therein, but may be held individually and personally liable for his or her actions.
In Tramat Mercantile v. Court of Appeals,22 the Court held that generally, it should only be the
corporation that could properly be held liable. However, circumstances may warrant the
inclusion of the personal liability of a corporate director, trustee, or officer, if the said individual is
found guilty of bad faith or gross negligence in directing corporate affairs.
Remo Jr. v. IAC23 has stressed that while a corporation is an entity separate and distinct from its
stockholders, the corporate fiction may be disregarded if "used to defeat public convenience,
justify a wrong, protect fraud, or defend crime." In these instances, "the law will regard the
corporation as an association of persons, or in case of two corporations, will merge them into
one." Thus, there is no debate on whether, in alleging bad faith on the part of Lim and Mariano
the counterclaims had in effect made them "indispensable parties" thereto; based on the alleged
facts, both are clearly parties in interest to the counterclaim.24
Respondents further assert that "Messrs. Lim and Mariano cannot be held personally liable
[because their assailed acts] are within the powers granted to them by the proper board
resolutions; therefore, it is not a personal decision but rather that of the corporation as
represented by its board of directors."25 The foregoing assertion, however, is a matter of defense
that should be threshed out during the trial; whether or not "fraud" is extant under the
circumstances is an issue that must be established by convincing evidence.26
Suability and liability are two distinct matters. While the Court does rule that the counterclaims
against Respondent CCC's president and manager may be properly filed, the determination of
whether both can in fact be held jointly and severally liable with respondent corporation is
entirely another issue that should be ruled upon by the trial court.
However, while a compulsory counterclaim may implead persons not parties to the original
complaint, the general rule -- a defendant in a compulsory counterclaim need not file any
responsive pleading, as it is deemed to have adopted the allegations in the complaint as its
answer -- does not apply. The filing of a responsive pleading is deemed a voluntary submission
to the jurisdiction of the court; a new party impleaded by the plaintiff in a compulsory
counterclaim cannot be considered to have automatically and unknowingly submitted to the
jurisdiction of the court. A contrary ruling would result in mischievous consequences whereby a
party may be indiscriminately impleaded as a defendant in a compulsory counterclaim; and
judgment rendered against it without its knowledge, much less participation in the proceedings,
in blatant disregard of rudimentary due process requirements.
The correct procedure in instances such as this is for the trial court, per Section 12 of Rule 6 of
the Rules of Court, to "order [such impleaded parties] to be brought in as defendants, if
jurisdiction over them can be obtained," by directing that summons be served on them. In this
manner, they can be properly appraised of and answer the charges against them. Only upon
service of summons can the trial court obtain jurisdiction over them.
In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but he did not file
any responsive pleading to the counterclaim leveled against him. Nevertheless, the Court gave
due consideration to certain factual circumstances, particularly the trial court's treatment of the
Complaint as the Answer of Cardenas to the compulsory counterclaim and of his seeming
acquiescence thereto, as evidenced by his failure to make any objection despite his active
participation in the proceedings. It was held thus:
"It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim against
him on the ground of lack of jurisdiction. While it is a settled rule that the issue of
jurisdiction may be raised even for the first time on appeal, this does not obtain in the
instant case. Although it was only Mobil which filed an opposition to the motion to
declare in default, the fact that the trial court denied said motion, both as to Mobil and
Cardenas on the ground that Mobil's complaint should be considered as the answer to
petitioners' compulsory counterclaim, leads us to the inescapable conclusion that the
trial court treated the opposition as having been filed in behalf of both Mobil and
Cardenas and that the latter had adopted as his answer the allegations raised in the
complaint of Mobil. Obviously, it was this ratiocination which led the trial court to deny
the motion to declare Mobil and Cardenas in default. Furthermore, Cardenas was not
unaware of said incidents and the proceedings therein as he testified and was present
during trial, not to speak of the fact that as manager of Mobil he would necessarily be
interested in the case and could readily have access to the records and the pleadings
filed therein.
"By adopting as his answer the allegations in the complaint which seeks affirmative
relief, Cardenas is deemed to have recognized the jurisdiction of the trial court over his
person and submitted thereto. He may not now be heard to repudiate or question that
jurisdiction."27
Such factual circumstances are unavailing in the instant case. The records do not show
that Respondents Lim and Mariano are either aware of the counterclaims filed against
them, or that they have actively participated in the proceedings involving them. Further,
in dismissing the counterclaims against the individual respondents, the court a quo --
unlike in Sapugay -- cannot be said to have treated Respondent CCC's Motion to
Dismiss as having been filed on their behalf.
Rules on Permissive Joinder of Causes

of Action or Parties Not Applicable
Respondent CCC contends that petitioners' counterclaims violated the rule on joinder of causes
of action. It argues that while the original Complaint was a suit for specific performance based
on a contract, the counterclaim for damages was based on the tortuous acts of respondents. 28 In
its Motion to Dismiss, CCC cites Section 5 of Rule 2 and Section 6 of Rule 3 of the Rules of Civil
Procedure, which we quote:
"Section 5. Joinder of causes of action. – A party may in one pleading assert, in the
alternative or otherwise, as many causes of action as he may have against an opposing
party, subject to the following conditions:
(a) The party joining the causes of action shall comply with the rules on joinder of
parties; x x x"
Section 6. Permissive joinder of parties. – All persons in whom or against whom any
right to relief in respect to or arising out of the same transaction or series of transactions
is alleged to exist whether jointly, severally, or in the alternative, may, except as
otherwise provided in these Rules, join as plaintiffs or be joined as defendants in one
complaint, where any question of law or fact common to all such plaintiffs or to all such
defendants may arise in the action; but the court may make such orders as may be just
to prevent any plaintiff or defendant from being embarrassed or put to expense in
connection with any proceedings in which he may have no interest."
The foregoing procedural rules are founded on practicality and convenience. They are meant to
discourage duplicity and multiplicity of suits. This objective is negated by insisting -- as the court
a quo has done -- that the compulsory counterclaim for damages be dismissed, only to have it
possibly re-filed in a separate proceeding. More important, as we have stated earlier,
Respondents Lim and Mariano are real parties in interest to the compulsory counterclaim; it is
imperative that they be joined therein. Section 7 of Rule 3 provides:
"Compulsory joinder of indispensable parties. – Parties in interest without whom no final
determination can be had of an action shall be joined either as plaintiffs or defendants."
Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners are being
consistent with the solidary nature of the liability alleged therein.
Second Issue:
CCC's Personality to Move to Dismiss the Compulsory Counterclaims
Characterizing their counterclaim for damages against Respondents CCC, Lim and Mariano as
"joint and solidary," petitioners prayed:
"WHEREFORE, it is respectfully prayed that after trial judgment be rendered:
"1. Dismissing the complaint in its entirety;
"2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and solidarily to
pay defendant actual damages in the sum of at least P2,700,000.00;
"3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano jointly and solidarily to
pay the defendants LPI, LCLC, COC and Roseberg:
"a. Exemplary damages of P100 million each;
"b. Moral damages of P100 million each; and
"c. Attorney's fees and costs of suit of at least P5 million each.
Other reliefs just and equitable are likewise prayed for."29
Obligations may be classified as either joint or solidary. "Joint" or "jointly" or "conjoint" means
mancum or mancomunada or pro rata obligation; on the other hand, "solidary obligations" may
be used interchangeably with "joint and several" or "several." Thus, petitioners' usage of the
term "joint and solidary" is confusing and ambiguous.
The ambiguity in petitioners' counterclaims notwithstanding, respondents' liability, if proven, is

solidary. This characterization finds basis in Article 1207 of the Civil Code, which provides that
obligations are generally considered joint, except when otherwise expressly stated or when the
law or the nature of the obligation requires solidarity. However, obligations arising from tort are,
by their nature, always solidary. We have assiduously maintained this legal principle as early as
1912 in Worcester v. Ocampo,30 in which we held:
"x x x The difficulty in the contention of the appellants is that they fail to recognize that
the basis of the present action is tort. They fail to recognize the universal doctrine that
each joint tort feasor is not only individually liable for the tort in which he participates, but
is also jointly liable with his tort feasors. x x x
"It may be stated as a general rule that joint tort feasors are all the persons who
command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet
the commission of a tort, or who approve of it after it is done, if done for their benefit.
They are each liable as principals, to the same extent and in the same manner as if they
had performed the wrongful act themselves. x x x
"Joint tort feasors are jointly and severally liable for the tort which they commit. The
persons injured may sue all of them or any number less than all. Each is liable for the
whole damages caused by all, and all together are jointly liable for the whole damage. It
is no defense for one sued alone, that the others who participated in the wrongful act are
not joined with him as defendants; nor is it any excuse for him that his participation in the
tort was insignificant as compared to that of the others. x x x
"Joint tort feasors are not liable pro rata. The damages can not be apportioned among
them, except among themselves. They cannot insist upon an apportionment, for the
purpose of each paying an aliquot part. They are jointly and severally liable for the whole
amount. x x x
"A payment in full for the damage done, by one of the joint tort feasors, of course
satisfies any claim which might exist against the others. There can be but satisfaction.
The release of one of the joint tort feasors by agreement generally operates to discharge
all. x x x
"Of course the court during trial may find that some of the alleged tort feasors are liable
and that others are not liable. The courts may release some for lack of evidence while
condemning others of the alleged tort feasors. And this is true even though they are
charged jointly and severally."
In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or
"joint and several" obligation, the relationship between the active and the passive subjects is so
close that each of them must comply with or demand the fulfillment of the whole obligation.31 The
fact that the liability sought against the CCC is for specific performance and tort, while that
sought against the individual respondents is based solely on tort does not negate the solidary
nature of their liability for tortuous acts alleged in the counterclaims. Article 1211 of the Civil
Code is explicit on this point:
"Solidarity may exist although the creditors and the debtors may not be bound in the
same manner and by the same periods and conditions."
The solidary character of respondents' alleged liability is precisely why credence cannot be
given to petitioners' assertion. According to such assertion, Respondent CCC cannot move to
dismiss the counterclaims on grounds that pertain solely to its individual co-debtors.32 In cases
filed by the creditor, a solidary debtor may invoke defenses arising from the nature of the
obligation, from circumstances personal to it, or even from those personal to its co-debtors.
Article 1222 of the Civil Code provides:
"A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which
are derived from the nature of the obligation and of those which are personal to him, or
pertain to his own share. With respect to those which personally belong to the others, he
may avail himself thereof only as regards that part of the debt for which the latter are
responsible." (Emphasis supplied).
The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss the
counterclaim on grounds that pertain only to its individual co-debtors -- is therefore allowed.
However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent CCC
filed it on behalf of Co-respondents Lim and Mariano; it did not pray that the counterclaim
against it be dismissed. Be that as it may, Respondent CCC cannot be declared in default.
Jurisprudence teaches that if the issues raised in the compulsory counterclaim are so
intertwined with the allegations in the complaint, such issues are deemed automatically
joined.33 Counterclaims that are only for damages and attorney's fees and that arise from the
filing of the complaint shall be considered as special defenses and need not be answered.34
CCC's Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano Not
Allowed
While Respondent CCC can move to dismiss the counterclaims against it by raising grounds
that pertain to individual defendants Lim and Mariano, it cannot file the same Motion on their
behalf for the simple reason that it lacks the requisite authority to do so. A corporation has a
legal personality entirely separate and distinct from that of its officers and cannot act for and on
their behalf, without being so authorized. Thus, unless expressly adopted by Lim and Mariano,
the Motion to Dismiss the compulsory counterclaim filed by Respondent CCC has no force and
effect as to them.
In summary, we make the following pronouncements:
1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A.

Mariano are compulsory.
2. The counterclaims may properly implead Respondents Gregory T. Lim and Anthony
A. Mariano, even if both were not parties in the original Complaint.
3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano) may
include, in a Motion to Dismiss, defenses available to their co-defendants; nevertheless,
the same Motion cannot be deemed to have been filed on behalf of the said co-
defendants.
4. Summons must be served on Respondents Lim and Mariano before the trial court can
obtain jurisdiction over them.
WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The court of
origin is hereby ORDERED to take cognizance of the counterclaims pleaded in petitioners'
Answer with Compulsory Counterclaims and to cause the service of summons on Respondents
Gregory T. Lim and Anthony A. Mariano. No costs.
SO ORDERED.
LAFARGE CEMENT PHILIPPINES v. CONTINENTAL CEMENT CORPORATION, GR No.
155173, 2004-11-23
Facts:
petitioners filed their Answer and Compulsory Counterclaims ad Cautelam before the trial court
in Civil Case No. Q-00-41103.
Petitioners alleged that CCC, through Lim and Mariano, had filed the "baseless" Complaint in
Civil Case No. Q-00-41103 and procured the Writ of Attachment in bad faith.
petitioners prayed... that both Lim and Mariano be held "jointly and solidarily" liable with
Respondent CCC.
On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved to
dismiss petitioners' compulsory counterclaims on grounds that essentially constituted the very
issues for resolution in the instant Petition.
Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the bad faith
decisions for, and causing plaintiff to file this baseless suit
Gregory T. Lim was motivated by his personal interests as one of the owners
Anthony A. Mariano was motivated by his sense of personal loyalty to Gregory T. Lim,... both
Gregory T. Lim and Anthony A. Mariano are the plaintiff's co-joint tortfeasors
In their Answer with Counterclaim, petitioners alleged that after incurring expenses in
anticipation of the Dealership Agreement, they requested the plaintiff to allow them to get gas,
but that it had refused.
It claimed that they still had to post a surety bond... the bonding companies required a copy of
the Dealership Agreement, which respondent continued to withhold from them. Later,
petitioners discovered that respondent and its manager, Ricardo P. Cardenas, had intended
all... along to award the dealership to Island Air Product Corporation.
petitioners impleaded in the counterclaim Mobil Philippines and its manager -- Ricardo P.
Cardenas -- as defendants. They prayed that judgment be rendered, holding both jointly and
severally liable
Issues:
counterclaims against Respondents Lim and Mariano are not compulsory;
Ruling:
allegations show that petitioners' counterclaims for damages were the result of respondents'
(Lim and Mariano) act of filing the Complaint and securing the Writ of Attachment in bad faith.
using the "compelling test of compulsoriness," we find that, clearly, the recovery of petitioners'
counterclaims is contingent upon the case filed by respondents; thus, conducting separate trials
thereon will result in a substantial duplication of the time and effort... of the court and the parties.
Sapugay v. Court of Appeals finds application
Principles:
The only limitations to this principle are (1) that the court should have jurisdiction over the
subject matter of the counterclaim, and
(2) that it could acquire jurisdiction over third parties whose presence is essential
A counterclaim may either be permissive or compulsory. It is permissive "if it does not arise out
of or is not necessarily connected with the subject matter of the opposing party's claim."
A counterclaim is compulsory when its object "arises out of or is necessarily connected with the
transaction or occurrence constituting the subject matter of the opposing party's claim and does
not require for its adjudication the presence of third parties of whom the court... cannot acquire
jurisdiction."... criteria to determine... whether a counterclaim is compulsory or permissive: 1)
Are issues of fact and law raised by the claim and by the counterclaim largely the same? 2)
Would res judicata bar a subsequent suit on defendant's claim, absent the compulsory
counterclaim rule? 3) Will substantially... the same evidence support or refute plaintiff's claim as
well as defendant's counterclaim? 4) Is there any logical relation between the claim and the
counterclaim? A positive answer to all four questions would indicate that the counterclaim is
compulsory.
"compelling test of compulsoriness" characterizes a counterclaim as compulsory if there should
exist a "logical relationship"... between the main claim and the counterclaim.
conducting separate trials of the respective claims of the parties would entail substantial
duplication of time and effort by the parties and the court; when the multiple claims involve the...
same factual and legal issues; or when the claims are offshoots of the same basic controversy
Since the counterclaim for damages is compulsory, it must be set up in the same action;
otherwise, it would be barred forever.
G.R. No. 138842 October 18, 2000
NATIVIDAD P. NAZARENO, MAXIMINO P. NAZARENO, JR., petitioners,

vs.
COURT OF APPEALS, ESTATE OF MAXIMINO A. NAZARENO, SR., ROMEO P.
NAZARENO and ELIZA NAZARENO, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision1 of the Court of Appeals in CA-GR CV
No. 39441 dated May 29, 1998 affirming with modifications the decision of the Regional Trial
Court, Branch 107, Quezon City, in an action for annulment of sale and damages.
The facts are as follows:
Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died on April 15,
1970, while Maximino, Sr. died on December 18, 1980. They had five children, namely,
Natividad, Romeo, Jose, Pacifico, and Maximino, Jr. Natividad and Maximino, Jr. are the
petitioners in this case, while the estate of Maximino, Sr., Romeo, and his wife Eliza Nazareno
are the respondents.
During their marriage, Maximino Nazareno, Sr. and Aurea Poblete acquired properties in
Quezon City and in the Province of Cavite. It is the ownership of some of these properties that is
in question in this case.
It appears that after the death of Maximino, Sr., Romeo filed an intestate case in the Court of
First Instance of Cavite, Branch XV, where the case was docketed as Sp. Proc. No. NC-28.
Upon the reorganization of the courts in 1983, the case was transferred to the Regional Trial
Court of Naic, Cavite. Romeo was appointed administrator of his father’s estate.
In the course of the intestate proceedings, Romeo discovered that his parents had executed
several deeds of sale conveying a number of real properties in favor of his sister, Natividad.
One of the deeds involved six lots in Quezon City which were allegedly sold by Maximino, Sr.,
with the consent of Aurea, to Natividad on January 29, 1970 for the total amount of ₱47,800.00.
The Deed of Absolute Sale reads as follows:
DEED OF ABSOLUTE SALE
KNOW ALL MEN BY THESE PRESENTS:

I, MAXIMINO A. NAZARENO, Filipino, married to Aurea Poblete-Nazareno, of legal age and a
resident of the Mun. of Naic, Prov. of Cavite, Philippines,
-WITNESSETH-
That I am the absolute registered owner of six (6) parcels of land with the improvements thereon
situated in Quezon City, Philippines, which parcels of land are herewith described and bounded
as follows, to wit:
"TRANS. CERT. OF TITLE NO. 140946"
"A parcel of land (Lot 3-B of the subdivision plan Psd-47404, being a portion of Lot 3, Block D-3
described on plan Bsd-10642, G.L.R.O. Record No.) situated in the Quirino District, Quezon
City. Bounded on the N., along line 1-2 by Lot 15, Block D-3 of plan Bsd - 10642; along line 2-3
by Lot 4, Block D-3 of plan Bsd-10642; along line 3-4 by Aurora Boulevard (Road Lot-1, Bsd-
10642); and along line 4-1 by Lot 3-D of the subdivision plan. Beginning at a point marked "1"
on plan, being S.29 deg. 26’E., 1156.22 m. from B.L.L.M. 9, Quezon City,
thence N. 79 deg. 53’E., 12.50 m. to point 2;
thence S. 10 deg. 07’E., 40.00 m. to point 3;
thence S. 79 deg. 53’W., 12.50 m. to point 4;
thence N. 10 deg. 07’W., 40.00 m. to the point
of beginning; containing an area of FIVE HUNDRED (500) SQUARE METERS. All points
referred to are indicated on the plan and are marked on the ground as follows: points "1" and "4"
by P.L.S. Cyl. Conc. Mons. bearings true; date of the original survey, April 8-July 15, 1920 and
that of the subdivision survey, March 25, 1956."
"A parcel of land (Lot 3, Block 93 of the subdivision plan Psd-57970 being a portion of Lot 6,
Pcs-4786, G.L.R.O. Rec. No. 917) situated in Quirino District Quezon City. Bounded on the
NW., along line 1-2, by Lot 1, Block 93; on the NE., along line 2-3, by Road Lot 101; on the SE.,
along line 3-4, by Road Lot 100; on the SW., along line 4-1, by Lot 4, Block 93; all of the
subdivision plan. Beginning at point marked "1" on plan, being S. 65 deg. 40’ 3339.92 m. from
B.L.L.M. No. 1, Marikina, Rizal;
thence N. 23 deg. 28 min. E., 11.70 m. to point "2";
thence S. 66 deg. 32 min. E., 18.00 m. to point "3";
thence S. 23 deg. 28 min. W., 11.70 m. to point "4";
thence N. 66 deg. 32. min. W., 18.00 m. to the point

of beginning; containing an area of TWO HUNDRED TEN SQUARE METERS AND SIXTY
SQUARE DECIMETERS (210.60). All points referred to are indicated on the plan and are
marked on the ground by B.L. Cyl. Conc. Mons. 15 x 60 cm.; bearings true; date of the original
survey, Nov. 10, 1920 and Jan. 31-March 31, 1924 and that of the subdivision survey, February
1 to September 30, 1954. Date approved - March 9, 1962."
"A parcel of land (Lot No. 10, of the consolidation and subdivision plan Pcs-988, being a portion
of the consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos. 27-A and 27-B, Psd-14901,
G.L.R.O. Record No. 917), situated in the District of Cubao, Quezon City, Island of Luzon.
Bounded on the NE., by Lot No. 4 of the consolidation and subdivision plan; on the SE., by Lot
No. 11 of the consolidation and subdivision plan; on the SW., by Lot No. 3 of the consolidation
and subdivision plan; and on the NW., by Lot No. 9 of the consolidation and subdivision plan.
Beginning at a point marked "1" on the plan, being S. 7 deg. 26’W., 4269.90 m. more or less
from B.L.L.M. No. 1, Mp. of Mariquina;
thence S. 25 deg. 00’E., 12.00 m. to point "2";
thence S. 64 deg. 59’W., 29.99 m. to point "3";
thence N. 25 deg. 00’W., 12.00 m to point "4";
thence N. 64 deg. 59’E., 29.99 m. to the point of
beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360), more or
less. All points referred to are indicated on the plan and on the ground are marked by P.L.S.
Conc. Mons. 15 x 60 cm.; bearings true; declination 0 deg. 50’E., date of the original survey,
April 8 to July 15, 1920, and that of the consolidation and subdivision survey, April 24 to 26,
1941."
No. 12 of the consolidation and subdivision plan; on the SW., by Lot No. 3 of the consolidation
and subdivision plan; on the NW., by Lot No. 10 of the consolidation and subdivision plan.
Beginning at a point marked "1" on plan, being S. 79 deg. 07’W., 4264.00 m. more or less from
B.L.L.M. No. 1, Mp. of Mariquina;
thence N. 25 deg. 00’W., 12.00 m. to point "3";
thence N. 64 deg. 59’E., 29.99 m. to point "4";
thence S. 26 deg. 00’E., 12.00 m. to the point of

less. All points referred to are indicated on the plan and on the ground, are marked by P.L.S.
Conc. Mons. 15 x 60 cm.; bearings true; declination 0 deg. 50’E.; date of the original survey,
1941."
"A parcel of land (Lot No. 13 of the consolidation and subdivision plan Pcs-988, being a portion
No. 14, of the consolidation; and subdivision plan; on the SW., by Lot No. 3 of the consolidation
and subdivision plan; and on the NW., by Lot No. 12, of the consolidation and subdivision plan.
Beginning at the point marked "1" on plan, being S.78 deg. 48’W., 4258.20 m. more or less from
thence N. 25 deg. 00’W., 12.00 m. to point "3";
thence N. 64 deg. 59’E., 29.99 m. to point "4";
thence S.25 deg. 00’E., 12.00 m. to point of
beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360, more or
1941."
No. 15, of the consolidation and subdivision plan; on the SW., by Lot No. 3 of the consolidation
and subdivision plan; and on the NW., by Lot No. 13 of the consolidation and subdivision plan.
Beginning at the point marked "1" on plan, being S.78 deg. 48’W., 4258.20 m. more or less from
thence S. 25 deg. 00’E., 12.00 m. to point "2";
thence N.64 deg. 58’E., 30.00 m. to the point of
1941."
That for and in consideration of the sum of FORTY THREE THOUSAND PESOS (P43,000.00)
PHILIPPINE CURRENCY, to me in hand paid by NATIVIDAD P. NAZARENO, Filipino, single, of
legal age and a resident of the Mun. of Naic, Prov. of Cavite, Philippines, the receipt whereof is
acknowledged to my entire satisfaction, I do hereby CEDE, SELL, TRANSFER, CONVEY and
ASSIGN unto the said Natividad P. Nazareno, her heirs, administrators and assigns, all my title,
rights, interests and participations to the abovedescribed parcels of land with the improvements
thereon, with the exception of LOT NO. 11 COVERED BY T.C.T. NO. 118886, free of any and
all liens and encumbrances; and
That for and in consideration of the sum of FOUR THOUSAND EIGHT HUNDRED PESOS
(P4,800.00) PHILIPPINE CURRENCY, to me in hand paid by NATIVIDAD P. NAZARENO,
Filipino, single, of legal age and a resident of the Mun. of Naic, Prov. of Cavite, Philippines, the
receipt whereof is acknowledged to my entire satisfaction, I do hereby CEDE, SELL,
TRANSFER, CONVEY and ASSIGN unto the said Natividad P. Nazareno, her heirs,
administrators and assigns, all my title, rights, interests and participations in and to Lot No. 11
covered by T.C.T. No. 118886 above-described, free of any and all liens and encumbrances,
with the understanding that the title to be issued in relation hereto shall be separate and distinct
from the title to be issued in connection with Lots Nos. 13 and 14, although covered by the
same title.
IN WITNESS WHEREOF, I have hereunto signed this deed of absolute sale in the City of
Manila, Philippines, this 29th day of January, 1970.2
By virtue of this deed, transfer certificates of title were issued to Natividad, to wit: TCT No.
162738 (Lot 3-B),3 TCT No. 162739 (Lot 3),4 TCT No. 162735 (Lot 10),5 TCT No. 162736 (Lot
11),6 and TCT No. 162737 (Lots 13 and 14),7 all of the Register of Deeds of Quezon City.
Among the lots covered by the above Deed of Sale is Lot 3-B which is registered under TCT No.
140946. This lot had been occupied by Romeo, his wife Eliza, and by Maximino, Jr. since 1969.
Unknown to Romeo, Natividad sold Lot 3-B on July 31, 1982 to Maximino, Jr.,8 for which reason
the latter was issued TCT No. 293701 by the Register of Deeds of Quezon City.9
When Romeo found out about the sale to Maximino, Jr., he and his wife Eliza locked Maximino,
Jr. out of the house. On August 4, 1983, Maximino, Jr. brought an action for recovery of
possession and damages with prayer for writs of preliminary injunction and mandatory injunction
with the Regional Trial Court of Quezon City. On December 12, 1986, the trial court ruled in
favor of Maximino, Jr. In CA-G.R. CV No. 12932, the Court of Appeals affirmed the decision of
the trial court.10
On June 15, 1988, Romeo in turn filed, on behalf of the estate of Maximino, Sr., the present
case for annulment of sale with damages against Natividad and Maximino, Jr. The case was
filed in the Regional Trial Court of Quezon City, where it was docketed as Civil Case No. 88-
58.11 Romeo sought the declaration of nullity of the sale made on January 29, 1970 to Natividad
and that made on July 31, 1982 to Maximino, Jr. on the ground that both sales were void for
lack of consideration.
On March 1, 1990, Natividad and Maximino, Jr. filed a third-party complaint against the spouses
Romeo and Eliza.12 They alleged that Lot 3, which was included in the Deed of Absolute Sale of
January 29, 1970 to Natividad, had been surreptitiously appropriated by Romeo by securing for
himself a new title (TCT No. 277968) in his name.13 They alleged that Lot 3 is being leased by
the spouses Romeo and Eliza to third persons. They therefore sought the annulment of the
transfer to Romeo and the cancellation of his title, the eviction of Romeo and his wife Eliza and
all persons claiming rights from Lot 3, and the payment of damages.
The issues having been joined, the case was set for trial. Romeo presented evidence to show
that Maximino and Aurea Nazareno never intended to sell the six lots to Natividad and that
Natividad was only to hold the said lots in trust for her siblings. He presented the Deed of
Partition and Distribution dated June 28, 1962 executed by Maximino Sr. and Aurea and duly
signed by all of their children, except Jose, who was then abroad and was represented by their
mother, Aurea. By virtue of this deed, the nine lots subject of this Deed of Partition were
assigned by raffle as follows:
1. Romeo - Lot 25-L (642 m2)
2. Natividad - Lots 23 (312 m2) and 24 (379 m2)
3. Maximino, Jr. - Lots 6 (338 m2) and 7 (338 m2)
4. Pacifico - Lots 13 (360 m2) and 14 (360 m2)
5. Jose - Lots 10 (360 m2) and 11 (360 m2)
Romeo received the title to Lot 25-L under his name,14 while Maximino, Jr. received Lots 6 and 7
through a Deed of Sale dated August 16, 1966 for the amount of ₱9,500.00.15 Pacifico and
Jose’s shares were allegedly given to Natividad, who agreed to give Lots 10 and 11 to Jose, in
the event the latter came back from abroad. Natividad’s share, on the other hand, was sold to
third persons16 because she allegedly did not like the location of the two lots. But, Romeo said,
the money realized from the sale was given to Natividad.
Romeo also testified that Lot 3-B was bought for him by his father, while Lot 3 was sold to him
for ₱7,000.00 by his parents on July 4, 1969.17 However, he admitted that a document was
executed by his parents transferring six properties in Quezon City, i.e., Lots 3, 3-B, 10, 11, 13,
and 14, to Natividad.
Romeo further testified that, although the deeds of sale executed by his parents in their favor
stated that the sale was for a consideration, they never really paid any amount for the supposed
sale. The transfer was made in this manner in order to avoid the payment of inheritance
taxes.18 Romeo denied stealing Lot 3 from his sister but instead claimed that the title to said lot
was given to him by Natividad in 1981 after their father died.
Natividad and Maximino, Jr. claimed that the Deed of Partition and Distribution executed in 1962
was not really carried out. Instead, in December of 1969, their parents offered to sell to them the
six lots in Quezon City, i.e., Lots 3, 3-B, 10, 11, 13 and 14. However, it was only Natividad who
bought the six properties because she was the only one financially able to do so. Natividad said
she sold Lots 13 and 14 to Ros-Alva Marketing Corp.19 and Lot 3-B to Maximino, Jr. for
₱175,000.00.20 Natividad admitted that Romeo and the latter’s wife were occupying Lot 3-B at
that time and that she did not tell the latter about the sale she had made to Maximino, Jr.
Natividad said that she had the title to Lot 3 but it somehow got lost. She could not get an
original copy of the said title because the records of the Registrar of Deeds had been destroyed
by fire. She claimed she was surprised to learn that Romeo was able to obtain a title to Lot 3 in
his name.
Natividad insisted that she paid the amount stated in the Deed of Absolute Sale dated January
29, 1970. She alleged that their parents had sold these properties to their children instead of
merely giving the same to them in order to impose on them the value of hardwork.
Natividad accused Romeo of filing this case to harass her after Romeo lost in the action for
recovery of possession (Civil Case No. Q-39018) which had been brought against him by
Maximino, Jr. It appears that before the case filed by Romeo could be decided, the Court of
Appeals rendered a decision in CA-GR CV No. 12932 affirming the trial court’s decision in favor
of Maximino, Jr.
On August 10, 1992, the trial court rendered a decision, the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered declaring the nullity of the Deed of Sale dated
January 29, 1970. Except as to Lots 3, 3-B, 13 and 14 which had passed on to third persons,
the defendant Natividad shall hold the rest in trust for Jose Nazareno to whom the same had
been adjudicated. The Register of Deeds of Quezon City is directed to annotate this judgment
on Transfer Certificate of Titles Nos. 162735 and 162736 as a lien in the titles of Natividad P.
Nazareno.
The defendants’ counterclaim is dismissed. Likewise, the third-party complaint is dismissed.
The defendants are hereby directed to pay to the plaintiff jointly and severally the sum of
₱30,000 as and for attorney’s fees. Likewise, the third-party plaintiff is directed to pay the third-
party defendant’s attorney’s fees of ₱20,000.
All other claims by one party against the other are dismissed.
SO ORDERED.21
Natividad and Maximino, Jr. filed a motion for reconsideration. As a result, on October 14, 1992
the trial court modified its decision as follows:
WHEREFORE, the plaintiff’s Partial Motion for Reconsideration is hereby granted. The
judgment dated August 10, 1992 is hereby amended, such that the first paragraph of its
dispositive portion is correspondingly modified to read as follows:
"WHEREFORE, judgment is hereby rendered declaring the nullity of the Deeds of Sale dated
January 29, 1970 and July 31, 1982.
"Except as to Lots 3, 13 and 14 which had passed on to third person, the defendant Natividad
shall hold the rest OF THE PROPERTIES COVERED BY THE DEED OF SALE DATED
JANUARY 29, 1970 (LOTS 10 and 11) in trust for Jose Nazareno to whom the same had been
adjudicated.
"The Register of Deeds of Quezon City is directed to annotate this judgment on Transfer
Certificates of Title No. 162735 and 162736 as a lien on the titles of Natividad P. Nazareno.
"LIKEWISE, THE SAID REGISTER OF DEEDS IS DIRECTED TO CANCEL TCT NO. 293701
(formerly 162705) OVER LOT 3-B AND RESTORE TCT NO. 140946 IN THE NAME OF
MAXIMINO NAZARENO SR. AND AUREA POBLETE."22
On appeal to the Court of Appeals, the decision of the trial court was modified in the sense that
titles to Lot 3 (in the name of Romeo Nazareno) and Lot 3-B (in the name of Maximino
Nazareno, Jr.), as well as to Lots 10 and 11 were cancelled and ordered restored to the estate
of Maximino Nazareno, Sr. The dispositive portion of the decision dated May 29, 1998 reads:
WHEREFORE, the appeal is GRANTED. The decision and the order in question are modified
as follows:
1. The Deed of Absolute Sale dated 29 January 1970 and the Deed of Absolute Sale
dated 31 July 1982 are hereby declared null and void;
2. Except as to Lots 13 and 14 ownership of which has passed on to third persons, it is

hereby declared that Lots 3, 3-B, 10 and 11 shall form part of the estate of the deceased
Maximino Nazareno, Sr.;
3. The Register of Deeds of Quezon City is hereby ordered to restore TCT No. 140946
(covering Lot 3-B), TCT No. 132019 (covering Lot 3), TCT No. 118885 (covering Lot 10),
and TCT No. 118886 (covering Lot 11).23
Petitioners filed a motion for reconsideration but it was denied in a resolution dated May 27,
1999. Hence this petition.
Petitioners raise the following issues:
1. WHETHER OR NOT THE UNCORROBORATED TESTIMONY OF PRIVATE

RESPONDENT ROMEO P. NAZARENO CAN DESTROY THE FULL FAITH AND
CREDIT ACCORDED TO NOTARIZED DOCUMENTS LIKE THE DEED OF ABSOLUTE
SALE DATED JANUARY 29, 1970 (EXH. 1) EXECUTED BY THE DECEASED
SPOUSES MAXIMINO A. NAZARENO, SR. AND AUREA POBLETE IN FAVOR OF
PETITIONER NATIVIDAD P. NAZARENO.
2. WHETHER OR NOT THE RESPONDENT COURT GROSSLY MISAPPRECIATED

THE FACTS OF THE CASE WITH RESPECT TO THE VALIDITY OF THE SAID DEED
OF ABSOLUTE SALE DATED JANUARY 29, 1970 (EXH. 1) IN THE LIGHT OF THE
FOLLOWING:
A) THE DOCUMENTARY EVIDENCE, ALL OF WHICH ARE NOTARIZED,

EXECUTED BY THE DECEASED SPOUSES DURING THEIR LIFETIME
INVOLVING SOME OF THEIR CONJUGAL PROPERTIES.
B) THE EXECUTION OF AN EXTRA-JUDICIAL PARTITION WITH WAIVER OF
RIGHTS AND CONFIRMATION OF SALE DATED MAY 24, 1975 (EXH. 14A) OF
THE ESTATE OF AUREA POBLETE BY THE DECEASED MAXIMINO A.
NAZARENO, SR. AND THEIR CHILDREN INVOLVING THE ONLY REMAINING
ESTATE OF AUREA POBLETE THUS IMPLIEDLY ADMITTING THE VALIDITY
OF PREVIOUS DISPOSITIONS MADE BY SAID DECEASED SPOUSES ON
THEIR CONJUGAL PROPERTIES, HALF OF WHICH WOULD HAVE BECOME
A PART OF AUREA POBLETE’S ESTATE UPON HER DEMISE.
C) THE ADMISSION MADE BY MAXIMINO A. NAZARENO, SR. IN HIS

TESTIMONY IN OPEN COURT ON AUGUST 13, 1980 DURING HIS LIFETIME
IN CIVIL CASE NO. NC-712 (EXH. 81, 81B) THAT HE HAD SOLD CERTAIN
PROPERTIES IN FAVOR OF NATIVIDAD P. NAZARENO THUS BELYING THE
CLAIM OF ROMEO P. NAZARENO THAT THE DEED OF ABSOLUTE SALE
DATED JANUARY 29, 1970 IS ONE AMONG THE DOCUMENTS EXECUTED
BY THE DECEASED SPOUSES TO BE WITHOUT CONSIDERATION.
D) THE ADMISSIONS MADE BY ROMEO P. NAZARENO HIMSELF

CONTAINED IN A FINAL DECISION OF THE RESPONDENT COURT IN CA-
GR CV NO. 12932 DATED AUGUST 31, 1992 AND AN ANNEX APPEARING IN
HIS ANSWER TO THE COMPLAINT IN CIVIL CASE NO. Q-39018 (EXH. 11-B)
INVOLVING LOT 3B, ONE OF THE PROPERTIES IN QUESTION THAT THE
SAID PROPERTY IS OWNED BY PETITIONER NATIVIDAD P. NAZARENO.
E) THE PARTIAL PROJECT OF PARTITION DATED MAY 24, 1995 WHICH

WAS APPROVED BY THE INTESTATE COURT IN SP. PROC. NO. NC-28 AND
EXECUTED IN ACCORDANCE WITH THE LATTER COURT’S FINAL ORDER
DATED JULY 9, 1991 DETERMINING WHICH WERE THE REMAINING
PROPERTIES OF THE ESTATE.
3. WHETHER OR NOT THE DEED OF ABSOLUTE SALE DATED JANUARY 29, 1970
EXECUTED BY THE DECEASED SPOUSES MAXIMINO A. NAZARENO, SR. AND
AUREA POBLETE DURING THEIR LIFETIME INVOLVING THEIR CONJUGAL
PROPERTIES IS AN INDIVISIBLE CONTRACT? AND IF SO WHETHER OR NOT
UPON THEIR DEATH, THE ESTATE OF MAXIMINO A. NAZARENO, SR. ALONE CAN
SEEK THE ANNULMENT OF SAID SALE?
4. WHETHER OR NOT THE SALE OF LOT 3 UNDER THE DEED OF ABSOLUTE

SALE DATED JANUARY 29, 1970 IN FAVOR OF PETITIONER NATIVIDAD P.
NAZARENO, IS VALID CONSIDERING THAT AS PER THE ORDER OF THE LOWER
COURT DATED NOVEMBER 21, 1990. ROMEO NAZARENO ADMITTED THAT HE
DID NOT PAY THE CONSIDERATION STATED IN THE DEED OF ABSOLUTE SALE
DATED JULY 4, 1969 EXECUTED BY THE DECEASED SPOUSES IN HIS FAVOR
(EXH. M-2).
5. WHETHER OR NOT AS A CONSEQUENCE, THE TITLE ISSUED IN THE NAME OF

ROMEO P. NAZARENO, TCT NO. 277968 (EXH. M) SHOULD BE CANCELLED AND
DECLARED NULL AND VOID AND A NEW ONE ISSUED IN FAVOR OF NATIVIDAD
P. NAZARENO PURSUANT TO THE DEED OF ABSOLUTE SALE EXECUTED IN THE
LATTER’S FAVOR ON JANUARY 29, 1970 BY THE DECEASED SPOUSES.24
We find the petition to be without merit.
First. Petitioners argue that the lone testimony of Romeo is insufficient to overcome the
presumption of validity accorded to a notarized document.
To begin with, the findings of fact of the Court of Appeals are conclusive on the parties and
carry even more weight when these coincide with the factual findings of the trial court. This
Court will not weigh the evidence all over again unless there is a showing that the findings of the
lower court are totally devoid of support or are clearly erroneous so as to constitute serious
abuse of discretion.25 The lone testimony of a witness, if credible, is sufficient. In this case, the
testimony of Romeo that no consideration was ever paid for the sale of the six lots to Natividad
was found to be credible both by the trial court and by the Court of Appeals and it has not been
successfully rebutted by petitioners. We, therefore, have no reason to overturn the findings by
the two courts giving credence to his testimony.
The fact that the deed of sale was notarized is not a guarantee of the validity of its contents. As
held in Suntay v. Court of Appeals:26
Though the notarization of the deed of sale in question vests in its favor the presumption of
regularity, it is not the intention nor the function of the notary public to validate and make binding
an instrument never, in the first place, intended to have any binding legal effect upon the parties
thereto. The intention of the parties still and always is the primary consideration in determining
the true nature of a contract.
Second. Petitioners make capital of the fact that in C.A.-G.R. CV No. 12932, which was
declared final by this Court in G.R. No. 107684, the Court of Appeals upheld the right of
Maximino, Jr. to recover possession of Lot 3-B. In that case, the Court of Appeals held:
As shown in the preceding disquisition, Natividad P. Nazareno acquired the property in dispute
by purchase in 1970. She was issued Transfer Certificate of Title No. 162738 of the Registry of
Deeds of Quezon City. When her parents died, her mother Aurea Poblete-Nazareno in 1970
and her father Maximino A. Nazareno, Sr. in 1980, Natividad P. Nazareno had long been the
exclusive owner of the property in question. There was no way therefore that the aforesaid
property could belong to the estate of the spouses Maximino Nazareno, Sr. and Aurea Poblete.
The mere fact that Romeo P. Nazareno included the same property in an inventory of the
properties of the deceased Maximino A. Nazareno, Sr. will not adversely affect the ownership of
the said realty. Appellant Romeo P. Nazareno’s suspicion that his parents had entrusted all their
assets under the care and in the name of Natividad P. Nazareno, their eldest living sister who
was still single, to be divided upon their demise to all the compulsory heirs, has not progressed
beyond mere speculation. His barefaced allegation on the point not only is without any
corroboration but is even belied by documentary evidence. The deed of absolute sale (Exhibit
"B"), being a public document (Rule 132, Secs. 19 and 23, Revised Rules on Evidence), is
entitled to great weight; to contradict the same, there must be evidence that is clear, convincing
and more than merely preponderant (Yturralde vs. Aganon, 28 SCRA 407; Favor vs. Court of
Appeals, 194 SCRA 308). Defendants-appellants’ own conduct disproves their claim of co-
ownership over the property in question. Being themselves the owner of a ten-unit apartment
building along Stanford St., Cubao Quezon City, defendants-appellants, in a letter of demand to
vacate addressed to their tenants (Exhibits "P", "P-1" and "P-2") in said apartment, admitted that
the house and lot located at No. 979 Aurora Blvd., Quezon City where they were residing did
not belong to them. Also, when they applied for a permit to repair the subject property in 1977,
they stated that the property belonged to and was registered in the name of Natividad P.
Nazareno. Among the documents submitted to support their application for a building permit
was a copy of TCT No. 162738 of the Registry of Deeds of Quezon City in the name of
Natividad Nazareno (Exhibit "O" and submarkings; tsn March 15, 1985, pp. 4-5).27
To be sure, that case was for recovery of possession based on ownership of Lot 3-B. The
parties in that case were Maximino, Jr., as plaintiff, and the spouses Romeo and Eliza, as
defendants. On the other hand, the parties in the present case for annulment of sale are the
estate of Maximino, Sr., as plaintiff, and Natividad and Maximino, Jr., as defendants. Romeo
and Eliza were named third-party defendants after a third-party complaint was filed by Natividad
and Maximino, Jr. As already stated, however, this third-party complaint concerned Lot 3, and
not Lot 3-B.
The estate of a deceased person is a juridical entity that has a personality of its own.28 Though
Romeo represented at one time the estate of Maximino, Sr., the latter has a separate and
distinct personality from the former. Hence, the judgment in CA-GR CV No. 12932 regarding the
ownership of Maximino, Jr. over Lot 3-B binds Romeo and Eliza only, and not the estate of
Maximino, Sr., which also has a right to recover properties which were wrongfully disposed.
Furthermore, Natividad’s title was clearly not an issue in the first case. In other words, the title to
the other five lots subject of the present deed of sale was not in issue in that case. If the first
case resolved anything, it was the ownership of Maximino, Jr. over Lot 3-B alone.
Third. Petitioners allege that, as shown by several deeds of sale executed by Maximino, Sr. and
Aurea during their lifetime, the intention to dispose of their real properties is clear.
Consequently, they argue that the Deed of Sale of January 29, 1970 should also be deemed
valid.
This is a non-sequitur. The fact that other properties had allegedly been sold by the spouses
Maximino, Sr. and Aurea does not necessarily show that the Deed of Sale made on January 29,
1970 is valid.
Romeo does not dispute that their parents had executed deeds of sale. The question, however,
is whether these sales were made for a consideration. The trial court and the Court of Appeals
found that the Nazareno spouses transferred their properties to their children by fictitious sales
in order to avoid the payment of inheritance taxes.
Indeed, it was found both by the trial court and by the Court of Appeals that Natividad had no
means to pay for the six lots subject of the Deed of Sale.
All these convince the Court that Natividad had no means to pay for all the lots she purportedly
purchased from her parents. What is more, Romeo’s admission that he did not pay for the
transfer to him of lots 3 and 25-L despite the considerations stated in the deed of sale is a
declaration against interest and must ring with resounding truth. The question is, why should
Natividad be treated any differently, i.e., with consideration for the sale to her, when she is
admittedly the closest to her parents and the one staying with them and managing their affairs?
It just seems without reason. Anyway, the Court is convinced that the questioned Deed of Sale
dated January 29, 1970 (Exh. "A" or "1") is simulated for lack of consideration, and therefore
ineffective and void.29
In affirming this ruling, the Court of Appeals said:
Facts and circumstances indicate badges of a simulated sale which make the Deed of Absolute
Sale dated 29 January 1970 void and of no effect. In the case of Suntay vs. Court of Appeals
(251 SCRA 430 [1995]), the Supreme Court held that badges of simulation make a deed of sale
null and void since parties thereto enter into a transaction to which they did not intend to be
legally bound.
It appears that it was the practice in the Nazareno family to make simulated transfers of
ownership of real properties to their children in order to avoid the payment of inheritance taxes.
Per the testimony of Romeo, he acquired Lot 25-L from his parents through a fictitious or
simulated sale wherein no consideration was paid by him. He even truthfully admitted that the
sale of Lot 3 to him on 04 July 1969 (Deed of Absolute Sale, Records, Vol. II, p. 453) likewise
had no consideration. This document was signed by the spouses Max, Sr. and Aurea as
vendors while defendant-appellant Natividad signed as witness.30
Fourth. Petitioners argue further:
The Deed of Absolute Sale dated January 29, 1970 is an indivisible contract founded on an
indivisible obligation. As such, it being indivisible, it can not be annulled by only one of them.
And since this suit was filed only by the estate of Maximino A. Nazareno, Sr. without including
the estate of Aurea Poblete, the present suit must fail. The estate of Maximino A. Nazareno, Sr.
can not cause its annulment while its validity is sustained by the estate of Aurea Poblete.31
An obligation is indivisible when it cannot be validly performed in parts, whatever may be the
nature of the thing which is the object thereof. The indivisibility refers to the prestation and not to
the object thereof.32 In the present case, the Deed of Sale of January 29, 1970 supposedly
conveyed the six lots to Natividad. The obligation is clearly indivisible because the performance
of the contract cannot be done in parts, otherwise the value of what is transferred is diminished.
Petitioners are therefore mistaken in basing the indivisibility of a contract on the number of
obligors.
In any case, if petitioners’ only point is that the estate of Maximino, Sr. alone cannot contest the
validity of the Deed of Sale because the estate of Aurea has not yet been settled, the argument
would nonetheless be without merit. The validity of the contract can be questioned by anyone
affected by it.33 A void contract is inexistent from the beginning. Hence, even if the estate of
Maximino, Sr. alone contests the validity of the sale, the outcome of the suit will bind the estate
of Aurea as if no sale took place at all.
Fifth. As to the third-party complaint concerning Lot 3, we find that this has been passed upon
by the trial court and the Court of Appeals. As Romeo admitted, no consideration was paid by
him to his parents for the Deed of Sale. Therefore, the sale was void for having been simulated.
Natividad never acquired ownership over the property because the Deed of Sale in her favor is
also void for being without consideration and title to Lot 3 cannot be issued in her name.
Nonetheless, it cannot be denied that Maximino, Sr. intended to give the six Quezon City lots to
Natividad. As Romeo testified, their parents executed the Deed of Sale in favor of Natividad
because the latter was the only "female and the only unmarried member of the family."34 She
was thus entrusted with the real properties in behalf of her siblings. As she herself admitted, she
intended to convey Lots 10 and 11 to Jose in the event the latter returned from abroad. There
was thus an implied trust constituted in her favor.1âwphi1 Art. 1449 of the Civil Code states:
There is also an implied trust when a donation is made to a person but it appears that although
the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial
interest or only a part thereof.
There being an implied trust, the lots in question are therefore subject to collation in accordance
with Art. 1061 which states:
Every compulsory heir, who succeeds with other compulsory heirs, must bring into the mass of
the estate any property or right which he may have received from the decedent, during the
lifetime of the latter, by way of donation, or any other gratuitous title, in order that it may be
computed in the determination of the legitime of each heir, and in the account of the partition.
As held by the trial court, the sale of Lots 13 and 14 to Ros-Alva Marketing, Corp. on April 20,
197935 will have to be upheld for Ros-Alva Marketing is an innocent purchaser for value which
relied on the title of Natividad. The rule is settled that "every person dealing with registered land
may safely rely on the correctness of the certificate of title issued therefor and the law will in no
way oblige him to go behind the certificate to determine the condition of the property."36
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Natividad Nazareno and Maximo Nazareno v. Court of Appeals, et.al.
G.R. No. 138842, October 18, 2000
Mendoza, J.
FACTS
During their marriage, Maximino Nazarano, Sr. and Aurea Poblete acquired properties in
Quezon City. After their death, Romeo, one of their children, filed an intestate case in the Court
of First Instance of Cavite. He was thereafter appointed as the administrator. In the course of
the intestate proceedings, Romeo discovered that his parents executed several deeds of sale in
January 1970 conveying a number of real properties to his sister, Natividad. One of the
properties involved six lots in Quezon City. By virtue of the said deed, transfer certificates of title
were issued to Natividad. Among the lots covered was Lot 3-B which was occupied by Romeo
and his wife, and by his brother, Maximino, Jr.
Unknown to Romeo, Natividad sold Lot 3-B to Maximino, Jr. When he found out of the sale,
Romeo and his wife locked Maximino, Jr. of of the house. As such, Maximino, Jr. filed an action
for recovery of possession and damages. The trial court ruled in favor of Maximino, Jr. which
the Court of Appeals affirmed. On Jun 1988, Romeo in turn filed for the annulment of sale
against Natividad and Maximino, Jr on the ground of lack of consideration. Natividad and
Maximino, Jr. then filed a third-party complaint seeking the annulment of the transfer to Romeo
and cancellation of his title.
During the trial, Romeo presented evidence to show that Maximino and Aurea never intended to
sell the six lots to Natividad and Natividad was only to hold the said lots in trust for her siblings.
He presented a Deed of Partition and Distribution dated June 1962. Further, Romeo testified
that the deeds were created for consideration, but they never really paid any amount for the
supposed sale in order to avoid payment of inheritance taxes. On the other hand, Natividad and
Maximino, Jr. claimed that she bought the properties because she was the one financially able
to do so.
The trial court declared thereafter the nullity of the January 1970 Deed of Sale and ordered that
the remaining properties were held in trust by Natividad in favor of his brother, Jose. On appeal,
the Court of Appeals modified the decision in the sense that the titles of Lot 3 and Lot 3-B were
canceled and restored to the estate of Maximino, Sr.
Hence, the petitioner filed a case before the Supreme Court.
ISSUE
Whether or not the Deed of Sale is valid, thus transferring ownership to Natividad.
HELD
NO. The Supreme Court held that the sale was simulated since there was lack of consideration.
The ownership therefore never transferred to Natividad. Nevertheless, the Court ruled that the
intention of Maximino, Sr. and Aurea to transfer the subject properties to Natividad was present
in order to escape payment of inheritance taxes. If at all, there was an implied trust constituted
under Art. 1449 of the Civil Code which states that there is implied trust when a donation is
made to a person but it appears that although the legal estate is transmitted to the donee, he
nevertheless is either to have no beneficial interest or only a part thereof.
Further, Art. 1061 provides that every compulsory heirs who succeeds with other compulsory
heirs must bring into the mass of the estate any property or right which may have received from
the decedent, during the lifetime of the latter, by way or donation or gratuituous title, for the
determination of the legitime of each hair.
RULING
Judgement of the Court of Appeals was affirmed.
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Facts:
"On February 20, 1980, the Social Security System, SSS for brevity, filed a complaint in the
Court of First Instance of Rizal against Moonwalk Development & Housing Corporation,
Moonwalk for short, alleging that the former had committed an error in failing to... compute the
12% interest due on delayed payments on the loan of Moonwalk --- resulting in a chain of errors
in the application of payments made by Moonwalk and, in an unpaid balance on the principal
loan agreement in the amount of P7,053.77 and, also in not reflecting in its... statement or
account an unpaid balance on the said penalties for delayed payments in the amount of
P7,517,178.21 as of October 10, 1979.
defendant's counsel told plaintiff that it had completely paid its obligations to SSS;
"10. The genuineness and due execution of the documents marked as Annex (sic) 'A' to 'O'
inclusive, of the Complaint and th... the trial court issued an order dismissing the complaint on
the ground that the obligation was already extinguished by the payment by Moonwalk of its
indebtedness to SSS
Moonwalk's obligation was... extinguished and affirmed the trial court.
Appellate Court, through Justice Eduardo P. Caguioa, held in the negative.
We find no reason to depart from the appellate court's decision. We, however, advance the
following reasons for the denial of this petition.
"Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay... the penalty or is
guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of
this Code."
Issues:
defendants-appellees, namely, Moonwalk Development and Housing Corporation, Rosita U.
Alberto, Rosita U. Alberto, JMA
House, Inc. still liable for the unpaid penalties as claimed by plaintiff-appellant or is their
obligation extinguished?"
The... respondent
Is the penalty demandable even after the extinguishment of the principal obligation?
Appellate Court, through Justice Eduardo P. Caguioa, held in the negative
Ruling:
It is noteworthy that in the present case... during all the period when the principal obligation was
still subsisting, although there were late amortizations there was no demand made by the
creditor, plaintiff-appellant for the payment of the penalty. Therefore up to the time of the letter
of plaintiff-appellant there was... no demand for the payment of the penalty, hence the debtor
was not in mora in the payment of the penalty.
However, on October 1, 1979, plaintiff-appellant issued its statement of account (Exhibit F)
showing the total obligation of Moonwalk as P15,004,905.74, and forthwith demanded payment
from defendant-appellee. Because of the demand for payment, Moonwalk made several...
payments on September 29, October 9 and 19, 1979 respectively, all in all totalling
P15,004,905.74 which was a complete payment of its obligation as stated in Exhibit F. Because
of this payment the obligation of Moonwalk was considered extinguished
For all purposes therefore the principal obligation of defendant-appellee was deemed
extinguished as well as the accessory obligation of real... estate mortgage
Now, besides the Real Estate Mortgages, the penal clause which is also an accessory
obligation, must also be deemed extinguished considering that the principal obligation was
considered extinguished, and the penal clause being an accessory obligation cannot exist...
without a principal obligation.
That being the case, the demand for payment of the penal clause made by plaintiff-appellant in
its demand letter dated November 28, 1979 and its follow up letter dated December 17, 1979
(which parenthetically are the only demands for... payment of the penalties) are therefore
ineffective as there was nothing to demand.
Let it be emphasized that at the time of the demand made in the letters of November 28, 1979
and December 17, 1979 as far as the penalty is concerned, the defendant-appellee was not in
default since there was no mora prior to the demand.
Let Us emphasize that the obligation of defendant-appellee was fully complied with by the
debtor, that is, the amount loaned together with the 12% interest has been fully paid by the
appellee. That being so, there is no basis for demanding the penal clause since he... obligation
has been extinguished. Here there has been a waiver of the penal clause as it was not
demanded before the full obligation was fully paid and extinguished.
We find no reason to depart from the appellate court's decision. We, however, advance the
following reasons for the denial of this petition.
"Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay... the penalty or is
guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of
this Code."
"Now when is the penalty deemed demandable in accordance with the provisions of the Civil
Code? We must make a distinction between a positive and a negative obligation. With regard to
obligations which are positive (to give and to do), the penalty is demandable when... the debtor
is in mora; hence, the necessity of demand by the debtor unless the same is excused.
Under the Civil Code, delay begins from the time the obligee judicially or extrajudicially
demands from the obligor the performance of the obligation.
"Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation."
There are only three instances when demand is not necessary to render the obligor in default.
These are the following:
"(1) When the obligation or the law expressly so declares;
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the... contract; or
(3) When the demand would be useless, as when the obligor has rendered it beyond his
power to perform."[
In order that the debtor may be in... default it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially and... extrajudicially.
[12] Default generally begins from the moment the creditor demands the performance of the
obligation.[13]
Nowhere in this case did it appear that SSS demanded from Moonwalk the payment of its
monthly amortizations. Neither did it show that petitioner demanded the payment of the
stipulated penalty upon the failure of Moonwalk to meet its monthly amortization.
complaint itself showed was that SSS tried to enforce the obligation sometime in September,
1977 by foreclosing the real estate mortgages executed by Moonwalk in favor of SSS. But this
foreclosure did not push through upon Moonwalk's requests and promises to pay in full.
The next demand for payment happened on October 1, 1979 when SSS issued a Statement of
Account to Moonwalk. And in accordance with said statement, Moonwalk paid its loan in full
What is clear, therefore, is that Moonwalk was never in default because SSS never... compelled
performance.
7. G.R. No. 137798 October 4, 2000
LUCIA R. SINGSON, petitioner,
vs.
CALTEX (PHILIPPINES), INC. respondent.
DECISION
GONZAGA-REYES, J.:
Petitioner seeks a review on certiorari of the decision of the former Special Second Division of the
Court of Appeals dated November 27, 1998, affirming the decision of the Regional Trial Court of
1
Manila, Branch 25 which dismissed petitioner's action for reformation of contract and adjustment of
2
rentals.
The facts of the case are undisputed ---
Petitioner and respondent entered into a contract of lease on July 16, 1968 over a parcel of land in
Cubao, Quezon City. The land, which had an area of 1,400 square meters and was covered by
Transfer Certificates of Title No. 43329 and 81636 issued by the Register of Deeds of Quezon City,
was to be used by respondent as a gasoline service station.
The contract of lease provides that the lease shall run for a period of twenty (20) years and shall
abide by the following rental rates:
x x x x x x x x x
Rental. --- The LESSEE agrees to pay the following rental for said premises:
P2.50/sq.m. per month from the 1st to 10th years and P3.00/sq.m. per month from the 11th to 20th
years, payable monthly in advance within the 1st 15 days of each month; provided that the rentals
for the 1st 5 years less a discount of eleven (11) percent per annum computed on a monthly
diminishing balance, shall be paid to LESSOR upon compliance of the three (3) conditions provided
in clause (2) above.
LESSEE also agrees to pay lessor, the sum of Six Thousand Pesos (P6,000.00) as demolition
expenses, upon effectivity of this lease.
The rental herein provided for is in any event the maximum rental which LESSOR may collect during
the term of this lease or any renewal or extension thereof. LESSEE further agrees for thirty (30) days
after written notice of such default has actually been delivered to the General Manager of Caltex
(Philippines), Inc. LESSOR shall then have the right to terminate this lease on thirty (30) days written
notice to LESSEE. xxx xxx xxx 3
Thus, based on the foregoing provisions of the lease contract, the monthly rental was fixed at
P3,500.00 for the first ten years, and at P4,200.00 for the succeeding ten years of the lease.
On June 23, 1983, or five years before the expiration of the lease contract, petitioner asked
respondent to adjust or increase the amount of rentals citing that the country was experiencing
extraordinary inflation. In a letter dated August 3, 1983, respondent refused petitioner's request and
declared that the terms of the lease contract are clear as to the rental amounts therein provided
being "the maximum rental which the lessor may collect during the term of the lease." 4
On September 21, 1983, petitioner instituted a complaint before the RTC praying for, among other
things, the payment by respondent of adjusted rentals based on the value of the Philippine peso at
the time the contract of lease was executed. The complaint invoked Article 1250 of the Civil Code,
stating that since the execution of the contract of lease in 1968 an extraordinary inflation had
supervened resulting from the deterioration of worldwide economic conditions, a circumstance that
was not foreseen and could not have been reasonably foreseen by the parties at the time they
entered into contract.
To substantiate its allegation of extraordinary inflation, petitioner presented as witness Mr. Narciso
Uy, Assistant Director of the Supervising and Examining Sector of the Central Bank, who attested
that the inflation rate increased abruptly during the period 1982 to 1985, caused mainly by the
devaluation of the peso. Petitioner also submitted into evidence a certification of the official inflation
5
rates from 1966 to 1986 prepared by the National Economic Development Authority ("NEDA") based
on consumer price index, which reflected that at the time the parties entered into the subject
contract, the inflation rate was only 2.06%; then, it soared to 34.51% in 1974, and in 1984, reached a
high of 50.34%. 6
In a decision rendered on July 15, 1991, the RTC dismissed the complaint for lack of merit. This
judgment was affirmed by the Court of Appeals. Both courts found that petitioner was unable to
prove the existence of extraordinary inflation from 1968 to 1983 (or from the year of the execution of
the contract up to the year of the filing of the complaint before the RTC) as to justify an adjustment or
increase in the rentals based upon the provisions of Article 1250 of the Civil Code.
The Court of Appeals declared that although, admittedly, there was an economic inflation during the
period in question, it was not such as to call for the application of Article 1250 which is made to apply
only to "violent and sudden changes in the price level or uncommon or unusual decrease of the
value of the currency. (It) does not contemplate of a normal or ordinary decline in the purchasing
power of the peso." 7
The Court of Appeals also found similarly with the trial court that the terms of rental in the contract of
lease dated July 16, 1968 are clear and unequivocal as to the specific amount of the rental rates and
the fact that the rentals therein provided shall be the "maximum rental" which petitioner as lessor
may collect. Absent any showing that such contractual provisions are contrary to law, morals, good
customs, public order or public policy, the Court of Appeals held that there was no basis for not
acknowledging their binding effect upon the parties. It also upheld the application by the trial court of
the ruling in Filipino Pipe and Foundry Corporation vs. National Waterworks and Sewerage
Authority, 161 SCRA 32, where the Court held that although there has been a decline in the
purchasing power of the Philippine peso during the period 1961 to 1971, such downward fall of the
currency could not be considered "extraordinary" and was simply a universal trend that has not
spared the Philippines.
Thus, the dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, in view of the foregoing, the appeal is hereby DISMISSED and the decision
appealed from is hereby AFFIRMED.
SO ORDERED. 8
Petitioner's motion for reconsideration of the above decision was denied by the Court of Appeals in a
resolution dated March 10, 1999.
Aggrieved, petitioner filed this petition for review on certiorari where she assails as erroneous the
decision of the Court of Appeals, specifically, (1) in ruling that Article 1250 of the Civil Code is
inapplicable to the instant case, (2) in not recognizing the applicability of the principle of rebus sic
stantibus, and (3) in applying the ruling in Filipino Pipe and Foundry Corporation vs. NAWASA.
Petitioner contends that the monthly rental of P3.00 per square meter is patently inequitable. Based
on the inflation rates supplied by NEDA, there was an unusual increase in inflation that could not
have been foreseen by the parties; otherwise, they would not have entered into a relatively long-term
contract of lease. She argued that the rentals in this case should not be regarded by their
quantitative or nominal value, but as "debts of value", that is, the rental rates should be adjusted to
reflect the value of the peso at the time the lease was contracted. 9
Petitioner also insists that the factual milieu of the present case is distinct from that in Filipino Pipe
and Foundry Corporation vs. NAWASA. She pointed out that the inflation experienced by the country
during the period 1961 to 1971 (the pertinent time period in the Filipino Pipe case) had a lowest of
1.35% in 1969 and a highest of 15.03% in 1971, whereas in the instant case, involving the period
1968 to 1983, there had been highly abnormal inflation rates like 34.51% in 1974 (triggered by the
OPEC oil price increases in 1973) and 50.34% in 1984 (caused by the assassination of Benigno
Aquino, Jr. in 1983). Petitioner argues that the placing of the country under martial rule in 1972, the
OPEC oil price increases in 1973, and the Aquino assassination which triggered the EDSA
revolution, were fortuitous events that drastically affected the Philippine economy and were beyond
the reasonable contemplation of the parties.
To further bolster her arguments, petitioner invokes by analogy the principle of rebus sic stantibus in
public international law, under which a vital change of circumstances justifies a state's unilateral
withdrawal from a treaty. In the herein case, petitioner posits that in pegging the monthly rental rates
of P2.50 and P3.00 per square meter, respectively, the parties were guided by the economic
conditions prevalent in 1968, when the Philippines faced robust economic prospects. Petitioner
contends that between her and respondent, a corporation engaged in high stakes business and
employing economic and business experts, it is the latter who had the unmistakable advantage to
analyze the feasibility of entering into a 20-year lease contract at such meager rates.
The only issue crucial to the present appeal is whether there existed an extraordinary inflation during
the period 1968 to 1983 that would call for the application of Article 1250 of the Civil Code and justify
an adjustment or increase of the rentals between the parties.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value
of the currency at the time of the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary.
Article 1250 was inserted in the Civil Code of 1950 to abate the uncertainty and confusion that
affected contracts entered into or payments made during World War II, and to help provide a just
solution to future cases. The Court has, in more than one occasion, been asked to interpret the
10
provisions of Article 1250, and to expound on the scope and limits of "extraordinary inflation".
We have held extraordinary inflation to exist when there is a decrease or increase in the purchasing
power of the Philippine currency which is unusual or beyond the common fluctuation in the value of
said currency, and such increase or decrease could not have been reasonably foreseen or was
manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. 11
An example of extraordinary inflation, as cited by the Court in Filipino Pipe and Foundry Corporation
vs. NAWASA, supra, is that which happened to the deutschmark in 1920. Thus:
"More recently, in the 1920s, Germany experienced a case of hyperinflation. In early 1921, the value
of the German mark was 4.2 to the U.S. dollar. By May of the same year, it had stumbled to 62 to
the U.S. dollar. And as prices went up rapidly, so that by October 1923, it had reached 4.2 trillion to
the U.S. dollar!" (Bernardo M. Villegas & Victor R. Abola, Economics, An Introduction [Third Edition]).
As reported, "prices were going up every week, then every day, then every hour. Women were paid
1âwphi1
several times a day so that they could rush out and exchange their money for something of value
before what little purchasing power was left dissolved in their hands. Some workers tried to beat the
constantly rising prices by throwing their money out of the windows to their waiting wives, who would
rush to unload the nearly worthless paper. A postage stamp cost millions of marks and a loaf of
bread, billions." (Sidney Rutberg, "The Money Balloon", New York: Simon and Schuster, 1975, p. 19,
cited in "Economics, An Introduction" by Villegas & Abola, 3rd Ed.)
The supervening of extraordinary inflation is never assumed. The party alleging it must lay down the
12
factual basis for the application of Article 1250.
Thus, in the Filipino Pipe case, the Court acknowledged that the voluminous records and statistics
submitted by plaintiff-appellant proved that there has been a decline in the purchasing power of the
Philippine peso, but this downward fall cannot be considered "extraordinary" but was simply a
universal trend that has not spared our country. Similarly, in Huibonhoa vs. Court of Appeals, the
13 14
Court dismissed plaintiff-appellant's unsubstantiated allegation that the Aquino assassination in 1983
caused building and construction costs to double during the period July 1983 to February 1984.
In Serra vs. Court of Appeals, the Court again did not consider the decline in the peso's purchasing
15
power from 1983 to 1985 to be so great as to result in an extraordinary inflation.
Like the Serra and Huibonhoa cases, the instant case also raises as basis for the application of
Article 1250 the Philippine economic crisis in the early 1980s --- when, based on petitioner's
evidence, the inflation rate rose to 50.34% in 1984. We hold that there is no legal or factual basis to
support petitioner's allegation of the existence of extraordinary inflation during this period, or, for that
matter, the entire time frame of 1968 to 1983, to merit the adjustment of the rentals in the lease
contract dated July 16, 1968. Although by petitioner's evidence there was a decided decline in the
purchasing power of the Philippine peso throughout this period, we are hard put to treat this as an
"extraordinary inflation" within the meaning and intent of Article 1250. Rather, we adopt with
approval the following observations of the Court of Appeals on petitioner's evidence, especially the
NEDA certification of inflation rates based on consumer price index:
xxx (a) from the period 1966 to 1986, the official inflation rate never exceeded 100% in any single
year; (b) the highest official inflation rate recorded was in 1984 which reached only 50.34%; (c) over
a twenty one (21) year period, the Philippines experienced a single-digit inflation in ten (10) years
(i.e., 1966, 1967, 1968, 1969, 1975, 1976, 1977, 1978, 1983 and 1986); (d) in other years (i.e.,
1970, 1971, 1972, 1973, 1974, 1979, 1980, 1981, 1982, 1984 and 1989) when the Philippines
experienced double-digit inflation rates, the average of those rates was only 20.88%; (e) while there
was a decline in the purchasing power of the Philippine currency from the period 1966 to 1986, such
cannot be considered as extraordinary; rather, it is a normal erosion of the value of the Philippine
peso which is a characteristic of most currencies.16
"Erosion" is indeed an accurate description of the trend of decline in the value of the peso in the past
three to four decades. Unfortunate as this trend may be, it is certainly distinct from the phenomenon
contemplated by Article 1250.
Moreover, this Court has held that the effects of extraordinary inflation are not to be applied without
an official declaration thereof by competent authorities.
17
Lastly, the provisions on rentals in the lease contract dated July 16, 1968 between petitioner and
respondent are clear and categorical, and we have no reason to suppose that such lease contract
does not reflect or express their true intention and agreement. The contract is the law between the
parties and if there is indeed reason to adjust the rent, the parties could have by themselves
negotiated the amendment of the contract. 18
WHEREFORE, the petition seeking the reversal of the decision of the Court of Appeals in CA-G.R.
CV No. 54115 is DENIED.
SO ORDERED.
7. Singson v Caltex (Phils.)
G.R. No. 137798 October 4, 2000
Art. 1250 – Extraordinary inflation or deflation
Facts:
· Singson and Caltex entered into a contract of lease over a parcel of land in Quezon City
to be used by respondent as a gasoline service station.
· The contract of lease provides that the lease shall run for a period of 20 years, and that
the monthly rental was fixed at P3,500.00 for the first 10 years, and at P4,200.00 for the
succeeding 10 years of the lease.
· Five years before the expiration of the lease contract, Singson asked Caltex to adjust or
increase the amount of rentals citing that the country was experiencing extraordinary inflation.
· Respondent refused on the basis of the clear provisions of rental fees.
· Petitioner instituted a complaint to adjust rentals, invoked Article 1250 of the Civil Code,
since the contract of lease was executed during extraordinary inflation.
· The RTC, as affirmed by the CA, dismissed the complaint for lack of merit.
Issue:
Won there existed an extraordinary inflation when the executed the contract that would call for
the application of Article 1250 of the Civil Code and justify an adjustment or increase of the
rentals between the parties.
Held:
No, the Court holds that Article 1250 of the Civil Code is inapplicable in the instant case
because such economic inflation during that period did not contemplate of a normal or ordinary
decline in the purchasing power of the peso, and there was no even an official declaration
thereof by competent authorities.
It decrees that extraordinary inflation to exist when there is a decrease or increase in the
purchasing power of the Philippine currency which is unusual or beyond the common fluctuation
in the value of said currency, and such increase or decrease could not have been reasonably
foreseen or was manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation.
Thus, the petition is DENIED.

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G.R. No.

155173 November 23, 2004

LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON

The second challenged Order denied petitioners' Motion for Reconsideration.

Ruling of the Trial Court

Hence this Petition.8

The Court's Ruling

The Petition is meritorious.

Counterclaims and Joinder of Causes of Action.

Petitioners' Counterclaims Compulsory

Adopted in Quintanilla v. CA14 and reiterated in Alday v. FGU Insurance Corporation,15 the

Petitioners base their counterclaim on the following allegations:

"Petitioners' counterclaim for damages fulfills the necessary requisites of a compulsory

"Compensatory, moral and exemplary damages, allegedly suffered by the creditor in

Sapugay v. Court of Appeals Applicable to the Case at Bar

We disagree. The inclusion of a corporate officer or stockholder -- Cardenas in Sapugay or Lim

Rules on Permissive Joinder of Causes

CCC's Personality to Move to Dismiss the Compulsory Counterclaims

"WHEREFORE, it is respectfully prayed that after trial judgment be rendered:

"1. Dismissing the complaint in its entirety;

"a. Exemplary damages of P100 million each;

"b. Moral damages of P100 million each; and

"c. Attorney's fees and costs of suit of at least P5 million each.

Other reliefs just and equitable are likewise prayed for."29

The ambiguity in petitioners' counterclaims notwithstanding, respondents' liability, if proven, is

In summary, we make the following pronouncements:

1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A.

NATIVIDAD P. NAZARENO, MAXIMINO P. NAZARENO, JR., petitioners,

The facts are as follows:

DEED OF ABSOLUTE SALE

KNOW ALL MEN BY THESE PRESENTS:

"TRANS. CERT. OF TITLE NO. 140946"

thence N. 79 deg. 53’E., 12.50 m. to point 2;

thence S. 10 deg. 07’E., 40.00 m. to point 3;

thence S. 79 deg. 53’W., 12.50 m. to point 4;

thence N. 10 deg. 07’W., 40.00 m. to the point

"TRANS. CERT. OF TITLE NO. 132019"

thence N. 23 deg. 28 min. E., 11.70 m. to point "2";

thence S. 66 deg. 32 min. E., 18.00 m. to point "3";

thence S. 23 deg. 28 min. W., 11.70 m. to point "4";

thence N. 66 deg. 32. min. W., 18.00 m. to the point

"TRANS. CERT. OF TITLE NO. 118885"

thence S. 25 deg. 00’E., 12.00 m. to point "2";

thence S. 64 deg. 59’W., 29.99 m. to point "3";

thence N. 25 deg. 00’W., 12.00 m to point "4";

thence N. 64 deg. 59’E., 29.99 m. to the point of

"TRANS. CERT. OF TITLE NO. 118886"

thence S. 64 deg. 59’W., 29.99 m. to point "2";

thence N. 25 deg. 00’W., 12.00 m. to point "3";

thence N. 64 deg. 59’E., 29.99 m. to point "4";

thence S. 26 deg. 00’E., 12.00 m. to the point of

thence S. 64 deg. 58’W., 30.00 m. to point "2";

thence N. 25 deg. 00’W., 12.00 m. to point "3";

thence N. 64 deg. 59’E., 29.99 m. to point "4";

thence S.25 deg. 00’E., 12.00 m. to point of

thence S. 25 deg. 00’E., 12.00 m. to point "2";

thence S. 65 deg. 00’W., 30.00 m. to point "3";

thence S. 65 deg. 00’W., 12.00 m. to point "4";

thence N.64 deg. 58’E., 30.00 m. to the point of

1. Romeo - Lot 25-L (642 m2)

2. Natividad - Lots 23 (312 m2) and 24 (379 m2)

3. Maximino, Jr. - Lots 6 (338 m2) and 7 (338 m2)

4. Pacifico - Lots 13 (360 m2) and 14 (360 m2)