SECOND DIVISION

January 30, 2017

G.R. No. 206617
PHILIPPINE NUMISMATIC AD ANTIQUARIAN SOCIETY, Petitioner
vs.
GENESIS AQUINO, ANGELO BERNARDO, JR., EDUARDO M. CHUA, FERNANDO
FRANCISCO, JR., FERMIN S. CARINO, PERCIVAL M. MANUEL, FERNANDO M. GAITE,
JR., JOSE CHOA, TOMAS DE GUZMAN, JR., LI VI JU, CATALINO M. SILANGIL,
RAMUNDO SANTOS, PETER SY, and WILSON YULOQUE, Respondents
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
which seeks the reversal of the Decision2 dated September 6, 2012, and
Resolution3 dated March 19, 2013 of the Court of Appeals (CA) in CA-G.R. SP No.
113864, which affirmed the dismissal of Civil Case No. 09- 122709 entitled Philippine
Numismatic and Antiquarian Society. Inc. v. Genesis Aquino, et al. by the Regional Trial
Court (RTC), Branch 24, Manila.
The factual antecedents are as follows:
Petitioner Philippine Numismatic and Antiquarian Society, Inc. (PNAS) is a non-stock,
non-profit domestic corporation duly organized in accordance with Philippine
Laws. 4 On October 29, 2009, petitioner filed a complaint with the RTC, Branch 24,
Manila docketed as Civil Case No. 09- 122388 5 praying for the issuance of a writ of a
preliminary injunction against respondent Angelo Bernardo, Jr. The complaint was
verified by respondents Eduardo M. Chua, Catalino M. Silangil and Percival M. Manuel
who claimed to be the attorneys-in-fact of petitioner as per Secretary's Certificate
attached to the complaint. Petitioner was represented by Atty. Faustino S. Tugade as
counsel. 6
On December 22, 2009, another complaint 7 was filed by petitioner against respondents
Genesis Aquino, Angelo Bernardo, Jr., Eduardo M. Chua, Fernando Francisco, Jr., Fermin
S. Carino, Percival M. Manuel, Fernando M. Gaite, Jr., Jose Choa, Tomas De Guzman, Jr., Li
Vi Ju, Catalino M. Silangil, Raymundo Santos, Peter Sy, and Wilson Yuloque docketed as
Civil Case No. 09-122709 praying that the Membership Meeting conducted by
defendants on November 25, 2008 be declared null and void. It is, likewise prayed that a
temporary restraining order or a writ of preliminary injunction be issued for the
defendants to desist from acting as the true members, officers and directors of
petitioner. The verification was signed by Atty. William L. Villareal. 8 The petitioner was
represented by Siguion Reyna Montecillo and Ongsiako Law Office. 9
On January 26, 2010, considering that there were two different paiiies claiming to be the
representative of petitioner, the RTC issued a Joint Order directing the parties to submit
within fifteen (15) days from notice the appropriate pleadings as to who are the true
officers of PNAS and to submit all the documentary exhibits in support of their
respective positions. 10
Only respondents Eduardo M. Chua, Tomas De Guzman, Jr., Catalino M. Silangil, Peter Sy,
Fernando Francisco, Jr., and Percival M. Manuel in Civil Case No. 09-122709 complied
with the aforesaid Joint Order. In their Memorandum, they alleged that Atty. William F.
Villareal who signed the verification in the complaint was not authorized by the Board
of Directors of PNAS to institute the complaint in behalf of petitioner corporation, and
that his action in filing the complaint is an ultra vires act and was in violation of Section
23 of the Corporation Code. 11 The aforesaid respondents also filed their Answer dated
January 29, 2010.
On the part of respondents Genesis Aquino, Angelo Bernardo, Jr., Li Vi Ju, and Raymundo
Santos, they filed a Special Entry of Appearance to Question the Issue of Improper
Service of Summons and Notices and Motion to Defer the Proceedings Until All the Said
Issues Have Been Resolved. Petitioner then filed a Motion to Declare Defendants in
Default and for Judgment Based on the Complaint dated February 10, 2010. Petitioner
likewise filed a Request for Admission 12 dated February 17, 2010.
Subsequently, on March 15, 2010, the RTC issued a Joint Order 13 dismissing the
complaint, thus:
The failure of plaintiff represented by Atty. William F. Villareal who alleged in the
complaint that he is the President of Philippine Numismatic and Antiquarian Society,
Inc. and its duly-authorized representative to file the appropriate pleadings and submit
documentary exhibits relative to his authority to file the instant complaint for and in
behalf of plaintiff Philippine Numismatic and Antiquarian Society, Inc. as mandated by
the order of this Court during the hearing on January 26, 2010 lends credence to the
assertion of defendants that he has no authority to represent plaintiff and to file the
complaint in Civil Case No. 09- 122709. Consequently, the court has no other recourse
but to order the dismissal of Civil Case No. 09-122709
Accordingly, Civil Case No. 09-122709 entitled Philippine Numismatic and Antiquarian
Society, Inc. versus Genesis Aquino, Angelo Bernardo, Jr., Eduardo M. Chua, Fernando
Francisco, Jr., Fermin S. Carino, Percival M. Manuel, Fernando M. Gaite, Jr., Jose Choa,
Tomas De Guzman, Jr., Li Vi Ju, Catalino M. Silangil, Raymundo Santos, Peter Sy, and
Wilson Yuloque is hereby ordered DISMISSED.
This Order likewise renders moot and academic the Motion to Declare Defendants in
Default and For Judgment Based on the Complaint filed by plaintiff in Civil Case No. 09-
122709.
SO ORDERED. 14
Petitioner then filed a Petition for Review15 dated May 12, 2010 with the CA under Rule
43 of the Rules of Court, in relation to A.M. No. 04-09- 07 dated September 14, 2004. In a
Decision dated September 6, 2012, the CA dismissed the petition.
Petitioner filed a motion for reconsideration, 16 but the same was denied by the CA on
March 19, 2013.
Hence, this petition, raising the following issues:
I
THE COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT UPHELD THE
DISMISSAL OF THE INTRA-CORPORATE CASE FOR PURPORTEDLY BEING A NUISANCE
SUIT;
II
THE COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT REFUSED TO
CONSIDER, CONTRARY TO ESTABLISHED JURISPRUDENCE, A BOARD
RESOLUTION/SECRETARY'S CERTIFICATE AS PROOF OF AUTHORITY TO FILE
INITIATORY PLEADINGS FOR AND ON A COMPANY'S BEHALF;
III
THE COURT OF APPEALS DEPARTED FROM THE USUAL COURSE OF PROCEDURE
WHEN IT DISMISSED THE CASE ON PROCEDURAL GROUNDS RATHER THAN ON THE
MERITS AND THUS PRECLUDING PETITIONER FROM A JUST AND PROPER
DETERMINATION OF ITS CASE. 17
We deny the petition.
There is no question that a litigation should be disallowed immediately if it involves a
person without any interest at stake, for it would be futile and meaningless to still
proceed and render a judgment where there is no actual controversy to be thereby
determined. Courts of law in our judicial system are not allowed to delve on academic
issues or to render advisory opinions. They only resolve actual controversies involving
rights that are legally demandable and enforceable.18
The Rules of Court, specifically Section 2 of Rule 3 thereof, requires that unless
otherwise authorized by law or the Rules of Court, every action must be prosecuted or
defended in the name of the name of the real party-in-interest, thus:
Sec. 2. Parties-in-interest. - A real party-in-interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of the
suit. Unless otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party-in-interest.
This provision has two requirements: (1) to institute an action, the plaintiff must be the
real party-in-interest; and (2) the action must be prosecuted in the name of the real
party-in-interest. Interest within the meaning of the Rules of Court means material
interest or an interest in issue to be affected by the decree or judgment of the case, as
distinguished from mere curiosity about the question involved. One having no material
interest to protect cannot invoke the jurisdiction of the court as the plaintiff in an
action.19 The Interim Rules of Procedure for Intra-Corporate Controversies under
Republic Act No. 8799 in A.M. No. 01-2-04-SC, effective on April 1, 2001 considers the
suppletory application of the Rules of Court under Section 2, Rule 1, thus:
Section 2. Suppletory application of the Rules of Court. - The Rules of Court, in so far as
they may be applicable and are not inconsistent with these Rules, are hereby adopted to
form an integral part of these Rules.
Moreover, We consider the summary nature of the proceedings governed by the Interim
Rules which is premised on one objective which is the expeditious disposition of cases.20
The purposes of the requirement for the real party in interest prosecuting or defending
an action at law are: (a) to prevent the prosecution of actions by persons without any
right, title or interest in the case; (b) to require that the actual party entitled to legal
relief be the one to prosecute the action; (c) to avoid a multiplicity of suits; and (d) to
discourage litigation and keep it within certain bounds, pursuant to sound public
policy. 21
The rule on real party-in-interest ensures, therefore, that the party with the legal right
to sue brings the action, and this interest ends when a judgment involving the nominal
plaintiff will protect the defendant from a subsequent identical action. Such a rule is
intended to bring before the court the party rightfully interested in the litigation so that
only real controversies will be presented and the judgment, when entered, will be
binding and conclusive and the defendant will be saved from further harassment and
vexation at the hands of other claimants to the same demand. 22
In the case at bar, PNAS, as a corporation, is the real party-in-interest because its
personality is distinct and separate from the personalities of its stockholders.1âwphi1 A
corporation has no power, except those expressly conferred on it by the Corporation
Code and those that are implied or incidental to its existence. In tum, a corporation
exercises said powers through its board of directors and/or its duly-authorized officers
and agents. Thus, it has been observed that the power of a corporation to sue and be
sued in any court is lodged with the board of directors that exercises its corporate
powers. In tum, physical acts of the corporation, like the signing of documents, can be
performed only by natural persons duly authorized for the purpose by corporate by-
laws or by a specific act of the board of directors. 23 It necessarily follows that "an
individual corporate officer cannot solely exercise any corporate power pertaining to
the corporation without authority from the board of directors".24
Section 23, in relation to Sec. 25 of the Corporation Code, clearly enunciates that all
corporate powers are exercised, all business conducted, and all properties controlled by
the board of directors. A corporation has a separate and distinct personality from its
directors and officers and can only exercise its corporate powers through the board of
directors. Thus, it is clear that an individual corporate officer cannot solely exercise any
corporate power pertaining to the corporation without authority from the board of
directors.25 Absent the said board resolution, a petition may not be given due course.
The application of the rules must be the general rule, and the suspension or even mere
relaxation of its application, is the exception. This Court may go beyond the strict
application of the rules only on exceptional cases when there is truly substantial
compliance with the rule.26
Hence, since petitioner is a corporation, the certification attached to its complaint filed
with the RTC must be executed by an officer or member of the board of directors or by
one who is duly authorized by a resolution of the board of directors; otherwise, the
complaint will have to be dismissed. 27 Courts are not, after all, expected to take judicial
notice of corporate board resolutions or a corporate officers' authority to represent a
corporation.28 Petitioner's failure to submit proof that Atty. William L. Villareal has been
authorized by PNAS to file the complaint is a sufficient ground for the dismissal thereof.
In Tamondong v. Court of Appeals,29 we held that if a complaint is filed for and in behalf
of the plaintiff who is not authorized to do so, the complaint is not deemed filed. An
unauthorized complaint does not produce any legal effect. Hence, the court should
dismiss the complaint on the ground that it has no jurisdiction over the complaint and
the plaintiff. 30
In the present case, the real issue is whether Atty. William L. Villareal who claimed to be
the President of PNAS in 2009, was indeed authorized through a Board Resolution to
represent PNAS in filing Civil Case No. 09- 122709.
Respondents Genesis Aquino, Angelo Bernardo, Jr., Li Vi Ju, and Raymundo Santos aver
that Atty. Villareal was President in 2007 and was never reelected from then on. They
presented the notarized Certificate of Elections dated November 25, 2008 which shows
that respondent Angelo Bernardo, Jr. was the one elected as President, while
respondent Francisco Fernando, Jr. was elected as Secretary for the year 2009 during
the election 31 . held on November 25, 2008. Though the election of officers on
November 25, 2008 was the subject of the complaint that was dismissed, Atty. Villareal
did not present any proof that indeed he was President in 2009 when he filed the
complaint.
As correctly ruled by the CA, Atty. Villareal was given the opportunity to prove his
authority to institute the complaint considering that there were two different parties
representing the petitioner in two cases filed before the RTC, Branch 24, Manila. If
indeed Atty. Villareal was authorized to file the complaint, he could have simply
presented a Board Resolution to prove that he was authorized. Neither did he file the
appropriate pleadings and submit documentary exhibits relative to his authority to file
the complaint for and in behalf of petitioner as mandated by the Joint Order of the RTC
during its hearing on January 26, 2010. As correctly stated by the RTC, such failure on
the part of Atty. Villareal gave credence to the assertion of respondents herein that he
has no authority to represent petitioner and to file the complaint in Civil Case No. 09-
122709.
Moreover, the records would show that Atty. Villareal ceased to be a director in 2009,
not in 2008 as erroneously found by the CA. But what is material is that he was not
anymore a director in 2009 at the time he filed the complaint. This is evidenced by the
notarized Certificate of Elections32 dated November 23, 2008 which shows that he was
not among the eleven(11) Directors elected for 2009. The Board of Directors elected
were respondents Fernando Gaite, Angelo Bernardo, Jr., Fermin S. Carifio, Eduardo M.
Chua, Catalino M. Silangil, Peter Sy, Fernando Francisco, Jr., Tomas De Guzman, Jr., Li Vi
Ju, Jose Choa and Percival M. Manuel. Also the General Information Sheet (GJS) 33 filed
on November 27, 2008 shows that respondent Angelo Bernardo, Jr. 34 was the one
elected as President for the year 2009, while respondent Francisco Fernando, Jr. was
elected as Secretary.
Assuming the officers for 2009 were illegally elected as claimed by Atty. Villareal, We
note that Atty. Villareal could not even be President in a hold-over capacity because he
was not the one elected as President in 2008. From his own evidence attached to the
petition as Annex "A", the GIS filed on July 10, 200835 shows that it was respondent
Tomas Z. De Guzman who was elected as President and respondent Eduardo M. Chua as
Secretary for the year 2008.
The said fact was also stated by the respondents Eduardo M. Chua, Fernando Francisco,
Jr., Fermin S. Carifio, Percival M. Manuel, Tomas De Guzman, Jr., Catalino M. Silangil and
Peter Sy in their comment to the instant petition. They aven-ed that Atty. William
Villareal was 2007 President of PNAS. In the year 2008, he was still elected as one of the
eleven (11) members of the Board of Directors during the election on November 25,
2007 held at the Manila Yacht Club at Roxas Boulevard, Manila. But, he was not anymore
elected president. It was respondent Tomas Z. De Guzman who was elected by a vote of
six directors36 as against five votes for Atty. William Villareal.37 The other officers
elected were respondents Catalino M. Silangil (Vice President), Eduardo M. Chua
(Secretary), Genesis Aquino (Treasurer) and Angelo Bernardo, Jr. (Auditor).
The aforesaid respondents further averred that Atty. William Villareal and his minority
group of directors, namely, Antonio Carinan, Edward Nocom, Rufino Fermin and Albert
Dealino, refused to honor the new set of officers.38 Also, Atty. William Villareal allegedly
refused to tum-over and submit an accounting of all the records. Thus, respondents
Catalino M. Silangil, Eduardo M. Chua, Angelo Bernardo, Jr. and Fernando M. Gaite, Jr.
filed a Complaint for Annulment of Corporate Acts, Accounting, Inventory, Recovery of
Corporate Items, Funds and Properties and for Damages with Prayer for TRO and
Preliminary Injunction before RTC, Branch 46, Manila docketed as Civil Case No. 08-
120341.39
Furthermore, it was alleged in the instant petition that Atty. Villareal is a member of the
Board of Directors since 2001 to present. The General Information Sheet (GIS) for the
years 2008 to 201140 were attached to the petition to prove the allegation. We wonder,
however, why these documents were not presented in the RTC nor attached to the
petition filed with the CA. We also observe that there were no elected officers for the
year 2008 as appearing on the GIS which was accomplished and filed only in May 18,
2011.41 Likewise, the GIS for the years 2009 to 2011 where it was stated that Atty.
Villaruel was the President appears no indication that it was filed with the SEC. As
stated in the instructions on the GIS, a GIS Form is required to be filed within thirty (30)
days following the date of the annual or a special meeting, and must be certified and
sworn to by the corporate secretary, or by the president, or any duly authorized officer
of the corporation. 42
Indeed, there was no proof submitted that Atty. Villareal was duly authorized by
petitioner to file the complaint and sign the verification and certification against forum
shopping 43 dated December 21, 2009. Where the plaintiff is not the real party-in-
interest, the ground for the motion to dismiss is lack of cause of action. The reason for
this is that the courts ought not to pass upon questions not derived from any actual
controversy. Truly, a person having no material interest to protect cannot invoke the
jurisdiction of the court as the plaintiff in an action. Nor does a court acquire
jurisdiction over a case where the real party- in- interest is not present or imp leaded. 44
Under our procedural rules, "a case is dismissible for lack of personality to sue upon
proof that the plaintiff is not the real party-ininterest, hence, grounded on failure to
state a cause of action." 45 Indeed, considering that all civil actions must be based on a
cause of action, definedas the act or omission by which a party violates the right of
another, the former as the defendant must be allowed to insist upon being opposed by
the real party-in-interest so that he is protected from further suits regarding the same
claim. Under this rationale, the requirement benefits the defendant because "the
defendant can insist upon a plaintiff who will afford him a setup providing good res
judicata protection if the struggle is carried through on the merits to the end.46
Procedural rules are not to be disdained as mere technicalities that may be ignored at
will to suit the convenience of a party. Adjective law is important in ensuring the
effective enforcement of substantive rights through the orderly and speedy
administration of justice. These rules are not intended to hamper litigants or complicate
litigation but, indeed to provide for a system under which a suitor may be heard in the
correct form and manner and at the prescribed time in a peaceful confrontation before a
judge whose authority they acknowledge. 47
WHEREFORE, the petition is DENIED. The Decision of Court Appeals dated September
6, 2012, and its Resolution dated March19, 2013 in CA-G.R. SP No. 113864 are
hereby AFFIRMED.
SO ORDERED.
 EN BANC
G.R. No. 156228 : December 10, 2003
MA. TERESA VIDAL, LULU MARQUEZ, and CARLOS SOBREMONTE, petitioners, vs.
MA. TERESA O. ESCUETA, represented by HERMAN O. ESCUETA, respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review of the Decision1 dated July 23, 2002 of the Court of Appeals
in CA-G.R. SP NO. 68895 which affirmed the decision2 of the Regional Trial Court (RTC)
of Mandaluyong City, Branch 208, which reversed and set aside the decision3 of the
Metropolitan Trial Court of Mandaluyong City (MTC), Branch 60; and granted the
motion for execution filed by private respondent Ma. Teresa O. Escueta in Civil Case No.
17520.
The petition at bar stemmed from the following antecedents:
When Abelardo Escueta died intestate on December 3, 1994, he was survived by his
widow Remedios Escueta and their six children, including Ma. Teresa O. Escueta and her
brother Herman O. Escueta. Part of his estate was a parcel of land located at No. 14
Sierra Madre corner Kanlaon Streets, Barangay Highway Hills, Mandaluyong City,
covered by Transfer Certificate of Title (TCT) No. (77083) - 27568, and the house
thereon. The property was leased to Rainier Llanera, who sublet the same to 25
persons. The heirs executed an extra-judicial settlement of estate over the property.
They also executed a special power of attorney authorizing Ma. Teresa Escueta to sell
the said property.4
Sometime in 1999, Ma. Teresa Escueta, as a co-owner of the property, filed an ejectment
case against Llanera and the sub-lessees before the Lupon of Barangay Highway Hills,
docketed as Barangay Case No. 99-09.5cräläwvirtualibräry
In the meantime, on April 15, 1999, the heirs of Abelardo Escueta executed a deed of
conditional sale6 over the property including the house thereon, to Mary Liza Santos
for P13,300,000.00 payable as follows:
Down payment ONE MILLION FIVE HUNDRED THOUSAND (P1,500,000.00) which the
HEIRS-SELLERS acknowledged receipt thereof with complete and full satisfaction;
Second payment - TEN MILLION EIGHT HUNDRED THOUSAND (P10,800,000.00) after
publication of the Extra-Judicial Settlement of the Estate of the late Abelardo Escueta
and payment of the taxes with the Bureau of Internal Revenue by the Attorney-in-Fact;
and
The balance of ONE MILLION (P1,000,000.00) upon vacation of all the occupants of the
subject property within SIX (6) months from date hereof.7cräläwvirtualibräry
The parties further agreed that:
Ms. Maria Teresa Escueta shall deliver unto the BUYER the Owners Duplicate Copy of
the title upon receipt of the down payment while the original copies of the Special
Power of Attorney shall be delivered upon payment of the Second Payment stated
above.
The ATTORNEY-IN-FACT-SELLER shall be responsible for the ejectment of all the
tenants in the said subject property.
The ATTORNEY-IN-FACT-SELLER shall pay the estate tax, capital gains tax and
documentary stamp tax including the telephone, water and Meralco bills and the
publication for the Extra-Judicial Settlement of the estate of the late ABELARDO
ESCUETA while the registration and transfer fees shall be shouldered by the BUYER.
On May 5, 1999, Escueta and Llanera, and the sub-lessees, executed an Amicable
Settlement,9 where they agreed that (a) the owners of the property would no longer
collect the rentals due from the respondents therein (lessee and sub-lessees) starting
May 1999, with the concomitant obligation of the respondents to vacate the property on
or before December 1999; (b) time was the essence of the agreement, and that
consequently, if the lessee and sub-lessees fail or refuse to vacate the property on or
before December 1999, the barangay chairman was authorized without any court order
to cause the eviction and removal of all the respondents on the property.10 The amicable
settlement was attested by Pangkat Chairman Jose Acong. The parties did not repudiate
the amicable settlement within ten days from the execution thereof. Neither did any of
the parties file any petition to repudiate the settlement.
The vendees having paid the down payment and second installment of the price of the
property, the vendors caused the cancellation on December 17, 1999, of TCT No. 27568
and the issuance of TCT No. 15324 to and under the names of the vendees Mary Liza
Santos, Susana Lim and Johnny Lim.11 However, Escueta and the other vendors had yet
to receive the balance of the purchase price of P1,000,000.00 because the respondents
were still in the property.
Llanera vacated the leased premises. Later, twenty of the sub-lessees also vacated the
property. By January 2000, five sub-lessees, namely, Ma. Teresa Vidal, Lulu Marquez,
Marcelo Trinidad, Carlos Sobremonte,12 and Jingkee Ang remained in the property, and
requested Escueta for extensions to vacate the property. Escueta agreed, but despite the
lapse of the extensions granted them, the five sub-lessees refused to vacate the
property.
Escueta opted not to have the sub-lessees evicted through the Punong Barangay as
provided for in the amicable settlement. Neither did she file a motion with the Punong
Barangay for the enforcement of the settlement. Instead, she filed on May 12, 2000, a
verified Motion for Execution against the recalcitrant sub-lessees with the MTC for the
enforcement of the amicable settlement and the issuance of a writ of execution. The
pleading was docketed as Civil Case No. 17520, with Teresa Escueta as plaintiff, and the
sub-lessees as defendants.
The defendants opposed the motion14 alleging that they were enveigled into executing
the amicable settlement despite the fact that they had not violated any of the terms and
conditions of the verbal lease of the property; they were coerced and forced to enter
into such amicable settlement as it was the only way of prolonging their stay in the
leased premises; and that they had been paying faithfully and religiously the monthly
rentals in advance.
They also contended that the plaintiff came to court with unclean hands, as the property
had been sold by the co-owners thereof on June 8, 1999, without notifying them. The
real parties-in-interest as plaintiffs, would be the new owners of the property, and not
the Escuetas. The defendants further asserted that the amicable settlement was not
elevated to or approved by the MTC as required by Section 419 of the Local Government
Code (LGC), nor approved by a competent court; hence, there was no judgment to
enforce by a new motion for a writ of execution. As such, the plaintiffs motion was
premature and procedurally improper. The defendants asserted that the plaintiff must
first secure a certification to file action from the barangay and thereafter, file an action
for ejectment against them as required by Section 417 of the LGC. The amicable
settlement of the parties before the Lupon cannot be a substitute for an action for
ejectment. Finally, they averred that they had been sub-lessees for more than ten years
already; hence, had the right of first refusal under Section 6 of the Urban Land Reform
Law (P.D. No. 1517). For her part, the plaintiff asserted that there having been no
execution of the amicable settlement on or before November 6, 1999 by the Lupon, the
settlement may now be enforced by action in the proper city or municipal court.
On February 22, 2001, the court issued an Order15 denying the Motion for Execution.
The court held that the plaintiff was not the real party-in-interest as the subject
property had already been sold and titled to Susana Lim, Johnny Lim and Mary Liza
Santos. Only the vendees had the right to demand the ejectment of the defendants from
the said property. The court further ruled that the defendants had the right of first
refusal to purchase the property under Presidential Decree No. 1517. The MTC,
however, did not rule on the issue of whether or not the plaintiffs motion for execution
was premature.
Aggrieved, the plaintiff, now the appellant, appealed the order to the RTC where she
contended that:
THE METROPOLITAN TRIAL COURT COMMITTED THE REVERSIBLE ERROR IN
FINDING AND IN CONCLUDING THAT PLAINTIFF IS NO LONGER THE REAL PARTY-IN-
INTEREST.
THE METROPOLITAN TRIAL COURT COMMITTED THE REVERSIBLE ERROR IN
FINDING AND IN CONCLUDING THAT DEFENDANTS CANNOT BE EJECTED AND CAN
EXERCISE THE RIGHT OF FIRST REFUSAL.
THE METROPOLITAN TRIAL COURT COMMITTED THE REVERSIBLE ERROR IN NOT
FINDING AND IN NOT MAKING THE CONCLUSION THAT DEFENDANTS HAVE
VIOLATED THE FINAL AND EXECUTORY THE WRITTEN AMICABLE SETTLEMENT
BETWEEN PARTIES EXECUTED IN THEIR BARANGAY CONFRONTATION.
THE METROPOLITAN TRIAL COURT COMMITTED THE REVERSIBLE ERROR IN NOT
ORDERING THE EJECTMENT OF THE DEFENDANTS AND IN NOT ORDERING SAID
DEFENDANTS TO PAY THEIR ARREARAGES IN RENTAL PAYMENTS FROM MAY 1999
UP TO THE DAY THEY ACTUALLY LEAVE THE PREMISES AS WELL AS ATTORNEYS
FEES AND DAMAGES.
On August 31, 2001, the RTC rendered a decision holding that the plaintiff-appellant
was still the owner of the property when the ejectment case was filed in the office of the
barangay captain, and, as such, was the real party-in-interest as the plaintiff in the MTC.
Moreover, under the deed of conditional sale between her and the buyers, it was
stipulated therein that the purchase price of P1,000,000.00 would be delivered to the
vendors only upon the vacation of all the occupants of the subject property within six (6)
months from date hereof. She was duty-bound to cause the eviction of the defendant
from the property; hence, the appellant, as a co-owner, had a substantial interest in the
property. The MTC further held that the sale, having been executed while the appellants
complaint was pending with the Lupon, the action in the MTC may be continued by the
plaintiff-appellant.
As to the right of first refusal being asserted by the appellees, the court ruled that there
was no showing that the land leased had been proclaimed to be within a specific Urban
Land Reform Zone. In fact, the Housing and Land Use Regulatory Board had certified
that the subject property was outside the area for priority development; thus, the
appellees may not claim that they had been deprived of their preemptive right when no
such right existed in the first place. The court did not rule on the third and fourth issues
on the ground that the said issues were never raised by the parties. The decretal portion
of the RTC decision reads as follows:
PREMISES CONSIDERED, the appeal is GRANTED. The Order dated February 2, 2001
issued by the Metropolitan Trial Court of Mandaluyong City, Branch 60, in Civil Case No.
17520 is hereby REVERSED and SET ASIDE, and a new one is entered granting the
Motion for Execution.
Let the Record of this case be remanded to the court a quo for proper disposition.
SO ORDERED.
A petition for review under Rule 42 was filed with the Court of Appeals by three of the
appellees, now petitioners Ma. Teresa Vidal, Lulu Marquez and Carlos Sobremonte. The
court, however, dismissed the petition on (1) procedural grounds, and (2) for lack of
merit. y
On procedural grounds, the CA ruled that the petitioners failed to indicate the specific
material dates, showing that their petition was filed on time as required by the rules,
and in declaring that they failed to justify their failure to do so.
On the merits of the petition, the appellate court upheld the ruling of the RTC. The
decretal portion of the decision of the CA reads:
WHEREFORE, the instant petition is hereby DISMISSED. The assailed Decision of the
Regional Trial Court of Mandaluyong City, Branch 208, rendered in Civil Case No. MC01-
333-A, dated August 31, 2001 is hereby AFFIRMED.
SO ORDERED.19
In their petition at bar, the petitioners assert that the CA erred as follows: (1) in not
applying the rules of procedure liberally; (2) in declaring that there was no need for the
respondents to file an ejectment case for the eviction of the petitioners; (3) that the real
parties-in-interest as plaintiffs in the MTC were the new owners of the property, Susana
Lim, Johnny Lim and Mary Liza Santos; (4) in not finding that the Amicable Settlement
was obtained through deceit and fraud; and (5) in ruling that the petitioners had no
right of first refusal in the purchase and sale of the subject property under Presidential
Decree No. 1517.
The petition is bereft of merit.
On the procedural issue, the CA dismissed the petition before it for the petitioners
failure to comply with Section 2, par. 1, Rule 42 of the 1997 Rules of Civil
Procedure.20 The CA ratiocinated that there was no justification for a relaxation of the
Rules, thus:
Petitioners cited decisions of the Supreme Court where a relaxation of procedural rules
was allowed. However, a reading of those cases shows that they are not exactly similar
with the present case. In the case of Mactan Cebu International Airport Authority vs.
Francisco Cuizon Mangubat, the Supreme Court allowed the late payment of docket fee
by the Solicitor General on the ground that the 1997 Rules of Civil Procedure regarding
payment of docket fees was still new at that time. The same cannot be said in the
present case. The petition was filed on February 28, 2002, almost five years from the
issuance of the 1997 Rules of Civil Procedure. The circumstances of typhoon and
holiday for failure to obtain a certified true copy of the DOJs Decision, in the case of
Hagonoy Market Vendor Association vs. Municipality of Hagonoy, Bulacan, were present
in the instant petition. The case of Salazar vs. Court of Appeals is also not similar with
the present case.21cräläwvirtualibräry
The petitioners aver in this case that the failure of their counsel to include the material
dates in their petition with the CA was, as stated in their Amended Manifestation,
because the said counsel was suffering from a slight heart attack. The Court finds the
petitioners pretext flimsy. If the petitioners counsel was able to prepare their petition
despite her condition, there was no valid reason why she failed to include the material
dates required under the Rules of Court. Besides, the petitioners stated in their petition
that they had appended a copy of their Amended Manifestation, but failed to do so. If the
rules were to be applied strictly, the CA could not be faulted for dismissing the petition.
However, in order to promote their objective of securing a just, speedy and inexpensive
dispensation of every action and proceedings, the Rules are to be liberally
construed.22 Rules of procedure are intended to promote, not to defeat substantial
justice and, therefore, should not be applied in a very rigid and technical sense. This
Court ruled in Buenaflor vs. Court of Appeals, et al.23 that appeal is an essential part of
our judicial system and trial courts and the Court of Appeals are advised to proceed
with caution so as not to deprive a party of the right to appeal and that every party
litigant should be afforded the amplest opportunity for the proper and just disposition
of his cause, free from the constraints of technicalities. The Court has given due course
to petitions where to do so would serve the demands of substantial justice and in the
exercise of its equity jurisdiction.24 In this case, the Court opts to apply the rules
liberally to enable it to delve into and resolve the cogent substantial issues posed by the
petitioners.
We agree with the contention of the petitioners that under Section 416 of the LGC, the
amicable settlement executed by the parties before the Lupon on the arbitration award
has the force and effect of a final judgment of a court upon the expiration of ten (10)
days from the date thereof, unless the settlement is repudiated within the period
therefor, where the consent is vitiated by force, violence or intimidation, or a petition to
nullify the award is filed before the proper city or municipal court.25 The repudiation of
the settlement shall be sufficient basis for the issuance of a certification to file a
complaint.26cräläwvirtualibräry
We also agree that the Secretary of the Lupon is mandated to transmit the settlement to
the appropriate city or municipal court within the time frame under Section 418 of the
LGC and to furnish the parties and the Lupon Chairman with copies thereof.27 The
amicable settlement which is not repudiated within the period therefor may be
enforced by execution by the Lupon through the Punong Barangay within a time line of
six months, and if the settlement is not so enforced by the Lupon after the lapse of the
said period, it may be enforced only by an action in the proper city or municipal court as
provided for in Section 417 of the LGC of 1991, as amended, which reads:
SEC. 417. Execution. The amicable settlement or arbitration award may be enforced by
execution by the Lupon within six (6) months from the date of the settlement. After the
lapse of such time, the settlement may be enforced by action in the proper city or
municipal court. (Underlining supplied).
Section 417 of the Local Government Code provides a mechanism for the enforcement
of a settlement of the parties before the Lupon. It provides for a two-tiered mode of
enforcement of an amicable settlement executed by the parties before the Lupon,
namely, (a) by execution of the Punong Barangay which is quasi-judicial and summary
in nature on mere motion of the party/parties entitled thereto;28 and (b) by an action in
regular form, which remedy is judicial. Under the first remedy, the proceedings are
covered by the LGC and the Katarungang Pambarangay Implementing Rules and
Regulations. The Punong Barangay is called upon during the hearing to determine solely
the fact of non-compliance of the terms of the settlement and to give the defaulting
party another chance at voluntarily complying with his obligation under the settlement.
Under the second remedy, the proceedings are governed by the Rules of Court, as
amended. The cause of action is the amicable settlement itself, which, by operation of
law, has the force and effect of a final judgment.
Section 417 of the LGC grants a party a period of six months to enforce the amicable
settlement by the Lupon through the Punong Barangay before such party may resort to
filing an action with the MTC to enforce the settlement. The raison d etre of the law is to
afford the parties during the six-month time line, a simple, speedy and less expensive
enforcement of their settlement before the Lupon.
The time line of six months is for the benefit not only of the complainant, but also of the
respondent. Going by the plain words of Section 417 of the LGC, the time line of six
months should be computed from the date of settlement. However, if applied to a
particular case because of its peculiar circumstance, the computation of the time line
from the date of the settlement may be arbitrary and unjust and contrary to the intent of
the law. To illustrate: Under an amicable settlement made by the parties before
the Lupon dated January 15, 2003, the respondents were obliged to vacate the subject
property on or before September 15, 2003. If the time line of six months under Section
417 were to be strictly and literally followed, the complainant may enforce the
settlement through the Lupon only up to July 15, 2003. But under the settlement, the
respondent was not obliged to vacate the property on or before July 15, 2003; hence,
the settlement cannot as yet be enforced. The settlement could be enforced only
after September 15, 2003, when the respondent was obliged to vacate the property. By
then, the six months under Section 417 shall have already elapsed. The complainant can
no longer enforce the settlement through the Lupon, but had to enforce the same
through an action in the MTC, in derogation of the objective of Section 417 of the LGC.
The law should be construed and applied in such a way as to reflect the will of the
legislature and attain its objective, and not to cause an injustice. As Justice Oliver
Wendell Holmes aptly said, courts are apt to err by sticking too closely to the words of
the law where these words support a policy that goes beyond them. The Court should
not defer to the latter that killeth but to the spirit that vivifieth.29cräläwvirtualibräry
In light of the foregoing considerations, the time line in Section 417 should be construed
to mean that if the obligation in the settlement to be enforced is due and demandable on
the date of the settlement, the six-month period should be counted from the date of the
settlement; otherwise, if the obligation to be enforced is due and demandable on a date
other than the date of the settlement, the six-month period should be counted from the
date the obligation becomes due and demandable.
Parenthetically, the Katarungang Pambarangay Implementing Rules and Regulations,
Rule VII, Section 2 provides:
SECTION 2. Modes of Execution. - The amicable settlement or arbitration award may be
enforced by execution by the Lupon within six [6] months from date of the settlement or
date of receipt of the award or from the date the obligation stipulated in the settlement
or adjudged in the arbitration award becomes due and demandable. After the lapse of
such time, the settlement or award may be enforced by the appropriate local trial court
pursuant to the applicable provisions of the Rules of Court . An amicable settlement
reached in a case referred by the Court having jurisdiction over the case to
the Lupon shall be enforced by execution by the said court. (Underlining supplied).
By express provision of Section 417 of the LGC, an action for the enforcement of the
settlement should be instituted in the proper municipal or city court. This is regardless
of the nature of the complaint before the Lupon, and the relief prayed for therein. The
venue for such actions is governed by Rule 4, Section 1 of the 1997 Rules of Civil
Procedure, as amended. An action for the enforcement of a settlement is not one of
those covered by the Rules on Summary Procedure in civil cases;30 hence, the rules on
regular procedure shall apply, as provided for in Section 1, Rule 5 of the Rules of Civil
Procedure, as amended.
As to the requisite legal fees for the filing of an action in the first level court under
Section 417 of the Local Government Code, indigents-litigants (a) whose gross income
and that of their immediate family do not exceed ten thousand (P10,000.00) pesos a
month if residing in Metro Manila, and five thousand (P5,000.00) pesos a month if
residing outside Metro Manila, and (b) who do not own real property with an assessed
value of more than fifty thousand (P50,000.00) pesos shall be exempt from the payment
of legal fees. Section 18, Rule 141 of the Revised Rules of Court, as amended by A.M. No.
00-2-01-SC, is hereby further amended accordingly.
In this case, the parties executed their Amicable Settlement on May 5, 1999. However,
the petitioners were obliged to vacate the property only in January 2000, or seven
months after the date of the settlement; hence, the respondent may enforce the
settlement through the Punong Barangay within six months from January 2000 or until
June 2000, when the obligation of the petitioners to vacate the property became due.
The respondent was precluded from enforcing the settlement via an action with the
MTC before June 2000. However, the respondent filed on May 12, 2000 a motion for
execution with the MTC and not with the Punong Barangay. Clearly, the respondent
adopted the wrong remedy. Although the MTC denied the respondents motion for a writ
of execution, it was for a reason other than the impropriety of the remedy resorted to by
the respondent. The RTC erred in granting the respondents motion for a writ of
execution, and the CA erred in denying the petitioners petition for review.
Normally, the Court would remand the case to the Punong Barangay for further
proceedings. However, the Court may resolve the issues posed by the petitioners, based
on the pleadings of the parties to serve the ends of justice. It is an accepted rule of
procedure for the Court to strive to settle the existing controversy in a single
proceeding, leaving no root or branch to bear the seeds of future litigation.32
In this case, there is no question that the petitioners were obliged under the settlement
to vacate the premises in January 2000. They refused, despite the extensions granted by
the respondent, to allow their stay in the property. For the court to remand the case to
the Lupon and require the respondent to refile her motion for execution with
the Lupon would be an idle ceremony. It would only unduly prolong the petitioners
unlawful retention of the premises.33
The RTC and the CA correctly ruled that the respondent is the real party-in-interest to
enforce amicable settlement. Rule 3, Section 2 of the Rules of Court, as amended, reads:
SEC. 2. Parties in interest. - A real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of the
suit. Unless otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest.
The party-in-interest applies not only to the plaintiff but also to the defendant. Interest
within the meaning of the rules means material interest, an interest in issue and to be
affected by the decree as distinguished from mere interest in the question involved, or a
mere incidental interest.34 A real party in interest is one who has a legal right.35 Since a
contract may be violated only by the parties thereto as against each other, in an action
upon that contract, the real parties-in-interest, either as plaintiff or as defendant, must
be parties to the said contract.36 The action must be brought by the person who, by
substantive law, possesses the right sought to be enforced.37 In this case, the respondent
was the party in the amicable settlement. She is the real party-in-interest to enforce the
terms of the settlement because unless the petitioners vacate the property, the
respondent and the other vendors should not be paid the balance of P1,000,000.00 of
the purchase price of the property under the Deed of Conditional Sale.
The petitioners are estopped from assailing the amicable settlement on the ground of
deceit and fraud. First. The petitioners failed to repudiate the settlement within the
period therefor. Second. The petitioners were benefited by the amicable settlement.
They were allowed to remain in the property without any rentals therefor until
December 1998. They were even granted extensions to continue in possession of the
property. It was only when the respondent filed the motion for execution that the
petitioners alleged for the first time that the respondents deceived them into executing
the amicable settlement.38
On the petitioners claim that they were entitled to the right of first refusal under P.D.
No. 1517, we agree with the disquisition of the trial court, as quoted by the Court of
Appeals:
We likewise find no reversible error on the part of [the] RTC in rejecting that the
petitioners have a right of first refusal in the purchase and sale of the subject property.
As ratiocinated by the court:
xxx. Presidential Decree No. 1517 (The Urban Land Reform Law) does not apply where
there is no showing that the land leased has been proclaimed to be within a specific
Urban Land Reform Zone. In the instant case, the annex attached to the Proclamation
1967 creating the areas declared as priority development and urban land reform zone ...
does not indicate that the barangay where the subject property is located is included
therein. This is bolstered by the certification issued by the Housing and Land Regulatory
Board to the effect that the location of the property is outside the area of Priority
Development. It is therefore a reversible error for the lower court to conclude that
defendants-appellees were deprived of their preemptive right when no right exists in
the first place.
Indeed, before a preemptive right under PD 1517 can be exercised, the disputed land
should be situated in an area declared to be both an APD (Areas for Priority
Development) and a ULRZ (Urban Land Reform Zones). Records show, and as not
disputed by the petitioners, the disputed property is not covered by the aforementioned
areas and zones.39
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The petitioners and all
those acting for and in their behalf are directed to vacate, at their own expense, the
property covered by Transfer Certificate of Title No. 15324 of the Register of Deeds of
Muntinlupa City and deliver possession of the property to the vendees Mary Liza Santos,
Susana Lim and Johnny Lim. This is without prejudice to the right of the vendees to
recover from the petitioners reasonable compensation for their possession of the
property from January 2000 until such time that they vacate the property. Costs against
the petitioners.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 102900 October 2, 1997

MARCELINO ARCELONA, TOMASA ARCELONA-CHIANG and RUTH ARCELONA,
represented by their attorney-in-fact, ERLINDA PILE, petitioners,
vs.
COURT OF APPEALS, REGIONAL TRIAL COURT OF DAGUPAN CITY, Branch XL, and
MOISES FARNACIO, respondents.

PANGANIBAN, J.:
What are the remedies and the grounds therefor to invalidate a final and executory
judgment? May extraneous matters, not found in the records of the original case, be
used to void such final judgment? Procedurally, may an independent action for
annulment of a decision filed in the Court of Appeals prosper in the face of a claim that
the remedy of intervention could have been availed of in the regional trial court during
the original proceedings? Are all the co-owners pro indiviso of a real property
indispensable parties? Does the non-inclusion of some of such co-owners in a suit
involving tenancy over said property constitute sufficient ground to nullify the final
decision rendered in such case?
The Case
These are the main questions raised in this petition for review of the Decision1 in CA
G.R. SP No. 24846 promulgated on July 16, 1991 by the Court of Appeals2 denying
petitioners' plea for annulment of a final and executory judgment rendered by the
Regional Trial Court of Dagupan City, Branch 40, in Civil Case No. D-7240, and the
Resolution3 promulgated on November 21, 1991 by the appellate court denying their
motion for reconsideration.
The Facts
Petitioners Marcelino Arcelona, Tomasa Arcelona-Chiang and Ruth Arcelona are
natural-born Filipinos who are now naturalized Americans residing in California, U.S.A.
Petitioner Ruth Arcelona is the surviving spouse and legal heir of the deceased
Benedicto Arcelona, brother of Marcelino and Tomasa. Together with their three sisters
— Pacita Arcelona-Olanday, Maria Arcelona-Arellano and Natividad Arcelona-Cruz
(hereinafter collectively referred to as Olanday, et al.) — petitioners are co-owners pro-
indiviso of a fishpond which they inherited from their deceased parents.4 The six
Arcelonas (two brothers and four sisters) are named as co-owners in Transfer
Certificate of Title No. 34341 which evidences ownership over the fishpond.
On March 4, 1978, a contract of lease over the fishpond was executed between Cipriano
Tandoc and Olanday, et al. The lease contract was for a period of three (3) years but was
renewed up to February 2, 1984.5
Private Respondent Moises Farnacio was appointed in turn by Tandoc as caretaker-
tenant of the same fishpond, effective on the date the contract of lease was executed.
After the termination of the lease contract, the lessee (Tandoc) surrendered possession
of the leased premises to the lessors, Olanday, et al.
Three days thereafter, on February 7, 1984, Private Respondent Farnacio instituted
Civil Case D-7240 for "peaceful possession, maintenance of security of tenure plus
damages, with motion for the issuance of an interlocutory order" against Olanday, et al.,
before Respondent Regional Trial Court of Dagupan City, Branch 40. The case was
intended to maintain private respondent as tenant of the fishpond.6
On October 31, 1984, the trial court rendered a decision in favor of private respondent,
the dispositive portion of which reads:7
WHEREFORE, in the light of the foregoing considerations, this Court hereby renders
judgment as follows; to wit:
1. Declaring and recognizing Moises Farnacio as tenant-caretaker over the fishpond in
question located at Lomboy District, Dagupan City;
2. Ordering the defendants to maintain plaintiff in the peaceful possession and
cultivation of said fishpond, with all the rights accorded and obligations imposed upon
him by law;
3. Ordering the Branch Clerk of Court to withdraw and deliver to the plaintiff all the
amounts deposited with this Court; and
4. All others claims of the parties are hereby denied for lack of merit.
Olanday, et al. elevated the decision to the then Intermediate Appellate Court
(IAC)8 which affirmed with slight modification the decision of the trial court on May 31,
1985. On appeal, this Court9 sustained the IAC decision in G.R. No. 71217. On May 25,
1991, after remand of the case to the court of origin, private respondent was placed in
possession of the entire property covered by TCT 34341.
Petitioners then filed with Respondent Court of Appeals a petition for annulment of the
aforesaid judgment against private respondent and the implementing sheriff.10 The case
was docketed as CA GR SP No. 24846. On May 8, 1991, Respondent Court issued a
resolution directing petitioners "to implead as party defendant the Regional Trial Court
of Dagupan City, Branch 50, Dagupan City."11 Respondent Court promulgated in due
course the assailed Decision and Resolution.
Dissatisfied, petitioners lodged this petition for review before us on May 10, 1992. On
August 24, 1992, due course was granted to the petition, and the parties filed their
respective memoranda.
The Issues
In their Memorandum dated November 7, 1992, petitioners allege that Respondent
Court of Appeals has committed the following errors:12
I. The Respondent Court of Appeals erred in ruling that the sole and only ground for
annulment of judgment is extrinsic fraud.
II. The Respondent Court of Appeals erred when it failed to consider that lack of due
process and jurisdiction over the persons of the petitioners are also valid grounds for
annulment of judgment.
III. In annulment of judgment the grounds should be based solely on the records of the
case. It is then an error for the Respondent Court of Appeals to consider matters
extraneous to the records of the case.
IV. The Respondent Court of Appeals erred in ruling that petitioners should have
intervened in the proceedings for issuance of writ of execution before the lower court.
V. The Respondent Court of Appeals erred in ruling that the petitioners are estopped or
are guilty of laches in questioning the decision of the lower court.
The Court believes that these five assigned errors may be condensed into three issues:
(1) May a final judgment be annulled on the ground of lack of jurisdiction (over the
subject matter and/or over the person of indispensable parties) and denial of due
process, aside from extrinsic fraud?
(2) May extraneous matters, not found in the records of the original case, be used in
voiding or defending the validity of such final judgment?
(3) Procedurally, will an independent action for annulment of the decision of the
regional trial court (which was affirmed both by the Court of Appeals and the Supreme
Court) filed before the Court of Appeals prosper, or is intervention before the court of
origin the only remedy?
The Court's Ruling
The petition is meritorious.
First Issue: Grounds for Annulment of Final Judgment
Petitioners contend that Respondent Court of Appeals erred in decreeing "the all-
sweeping and categorical pronouncement that the sole and only ground for annulment
of judgment is extrinsic fraud," and in thereby ignoring various Supreme Court rulings
that a final judgment may also be annulled for "a) lack of jurisdiction over the subject
matter; b) lack of jurisdiction over the persons of necessary or indispensable parties;
and c) lack of due process."13 Petitioners argue that, being co-owners of the subject
property, they are "indispensable parties."14 Inasmuch as they were not impleaded in
Civil Case D-7240, "the questioned judgment of the lower court is void insofar as the
petitioners are concerned for want of jurisdiction over their persons and [for] lack of
due process."15 Petitioners "do not see any reason why a person who was not made a
party at all could not assail the same proceedings involving his property and affecting
his rights and interests."16
Petitioners further maintain that since "the case involves the personal status of the
private respondent, or relates to, or the subject of which is property within the
Philippines, then the petitioners as non-residents" are entitled to extra-territorial
service,17 which is a "due process requirement." As they were never served with
summons, to "bar them [from] questioning the proceedings of the lower court will be
compounding injustice . . . . If a party to a case can assail the proceedings for defective
service of summons," the same right should be afforded to a person who was not made a
party at all.18
Public respondent disposed of petitioners' above contention in this
wise:19
First. Annulment of judgment, as the Supreme Court had occasion to rule, rests on a
single ground: extrinsic fraud (Canlas vs. Court of Appeals, 170 [sic] SCRA 160,
170). Islamic Da' Wah Council of the Phils. vs. Court of Appeals, 178, 186, citing Anuran
vs. Aquino, 38 Phil. 29, emphatically announced that there can be no question as to the
right of any person adversely affected by a judgment to maintain an action to enjoin its
enforcement and to have it declared a nullity on the ground of fraud and collusion
practiced in obtaining the judgment when such fraud is extrinsic or collateral to the
matters involved in the issues raised at the trial which resulted in such judgment.
xxx xxx xxx
Clearly, there is nothing in the petition that extrinsic fraud, as Macabingkil defines it,
indeed vitiated the proceedings during the trial of Civil Case No. D-7240.
The essence of the instant petition is worded by the petitioners as follows:
The common property involved in this case is covered by a Torrens Title, specifically
mentioning the co-owners thereof. To bind the entire property and the owners thereof,
all the registered owners must be impleaded. The private respondent ONLY
IMPLEADED the three co-owners, excluding the petitioners herein. For the petitioners
to be bound by the questioned decision, such would really be a derogation of their
constitutional right to due process. The questioned decision, too, suffers the fatal defect
of utter want of jurisdiction.
Accordingly, since the petition for annulment of judgment is not based on the ground of
extrinsic fraud, the petition suffers from a basic and fundamental infirmity that deprives
petitioners of a valid cause of action against respondents herein.
We hold that the Court of Appeals erred in limiting the ground(s) for annulment of
judgment to only one, namely, extrinsic fraud. While it is true that in the cited cases
of Canlas vs. CA20 and Islamic Da' Wah Council of the Philippines vs. Court of
Appeals,21 this Court said that a judgment "may be annulled on the ground of extrinsic or
collateral fraud,"22 we should hasten to add that in Macabingkil vs. People's Homesite and
Housing Corporation,23 where the above ruling on annulment of judgment was based,
we held that there are really three ways by which a final judgment may be attacked: 24
Under existing rules, there are three (3) ways by which a final and executory judgment
may be set aside. The first is by petition for relief from judgment under Rule 38 of the
Revised Rules of Court, when judgment has been taken against the party through fraud,
accident, mistake or excusable negligence, in which case the petition must be filed
within sixty (60) days after the petitioner learns of the judgment, but not more than six
(6) months after such judgment was entered. The second is by direct action to annul
and enjoin the enforcement of the judgment. This remedy presupposes that the
challenged judgment is not void upon its face, but is entirely regular in form, and the
alleged defect is one which is not apparent upon its face or from the recitals contained
in the judgment.[fn: Abbain v. Chua, 22 SCRA 798; Cadano v. Cadano, 49 SCRA 33;
Anuran v. Aquino, 38 Phil. 329] As explained in Banco Español-Filipino v. Palanca, [fn:
37 Phil. 291, 949] "under accepted principles of law and practice, long recognized in
American courts, the proper remedy in such case, after the time for appeal or review
has passed, is for the aggrieved party to bring an action enjoining the judgment, if not
already carried into effect; or if the property has already been disposed of, he may
institute suit to recover it." The third is either a direct action, as certiorari, or by a
collateral attack against the challenged judgment (which is) is void upon its face, or that
the nullity of the judgment is apparent by virtue of its own recitals. As aptly explained
by Justice Malcolm in his dissent in Banco Español-Filipino v. Palanca, supra, "A
judgment which is void upon its face, and which requires only an inspection of the
judgment roll to demonstrate its want of vitality is a dead limb upon the judicial tree,
which should be lopped off, if the power so to do exists."
Since the aforementioned decision in Civil Case No. Q-5866 is not void upon its face, it
may only be annulled by direct action on the ground of fraud.
It is only extrinsic or collateral fraud, as distinguished from intrinsic fraud, however,
that can serve as a basis for the annulment of judgment. [Aring v. Original, 6 SCRA 1021,
1025; Velasco v. Velasco, 2 SCRA 736] Fraud has been regarded as extrinsic or
collateral, within the meaning of the rule, "where it is one the effect of which prevents a
party from having a trial, or real contest, or from presenting all of his case to the court,
or where it operates upon matters pertaining, not to the judgment itself, but to the
manner in which it was procured so that there is not a fair submission of the
controversy." [46 Am. Jur. 913] . . . .
It is clear then that to set aside a final and executory judgment, there are three remedies
available to a litigant: first, a petition for relief from judgment under Rule 38 of the Rules
of Court25 on grounds of fraud, accident, mistake and excusable negligence filed within
sixty (60) days from the time petitioner learns of the judgment but not more than six (6)
months from the entry thereof; second, a direct action to annul the judgment on the
ground of extrinsic fraud; and third, a direct action for certiorari or collateral attack to
annul a judgment that is void upon its face or void by virtue of its own recitals.
Thus, Macabingkil did not preclude the setting aside of a decision that
is patently void where mere inspection of the judgment is enough to demonstrate its
nullity on grounds of want of jurisdiction or non-compliance with due process of law.
This doctrine is recognized in other cases: 26
. . . . There is no question that a final judgment may be annulled. There are, however,
certain requisites which must be established before a judgment can be the subject of an
action for annulment. "Under the present procedure, aside from the reliefs provided in
these two sections (Secs. 1 & 2, Rule 38), there is no other means whereby the defeated
party may procure final and executory judgment to be a set aside with a view to the
renewal of the litigation, unless (a) the judgment is void for want of jurisdiction or for
lack of due process of law, or (b) it has been obtained by fraud." (I Moran's Rule of Court
1950 Ed., 697, citing Anuran v. Aquino, 38 Phil. 29; Banco Español-Filipino v. Palanca,
37 Phil. 921). Reason of public policy which favors the stability of judicial decisions are
(sic) mute in the presence of fraud which the law abhors (Garchitorena vs. Sotelo, 74
Phil. 25).
On the one hand, extrinsic fraud is the ground to annul a voidable final judgment; the
declaration of nullity of a patently void final judgment, on the other, is based on grounds
other than extrinsic fraud. To say, then, that petitioners can avail themselves only of the
ground of extrinsic fraud and no other is to fail to appreciate the true meaning and
ramifications of annulment/nullity.
Jurisdiction is conferred by law. Its exercise must strictly comply with the legal
requisites; otherwise, a challenge on the ground of lack of jurisdiction may be brought
up anytime. Such jurisdiction normally refers to jurisdiction over the subject. As an
example, in a case involving the issuance of a new owner's duplicate certificate of title,
the original of which was lost, stolen or destroyed, the court must strictly comply with
the requisites of Section 109 of P.D. 1529; otherwise, its jurisdiction may be attacked
anytime. Thus, we ruled in New Durawood Co. Inc. vs. Court of Appeals:27
In Demetriou vs. Court of Appeals, et al., [238 SCRA 158, at 162 (November 14, 1994)]
this Court ruled:
In Serra Serra v. Court of Appeals (195 SCRA 482 [1991]), on facts analogous to those
involved in this case, this Court already held that if a certificate of title has not been lost
but is in fact in the possession of another person, the reconstituted title is void and the
court rendering the decision has not acquired jurisdiction. Consequently the decision
may be attacked any time.
In the instant case, the owner's duplicate certificates of title were in the possession of
Dy Quim Pong, the petitioner's chairman of the board and whose family controls the
petitioner corporation. Since said certificates were not in fact "lost or destroyed," there
was no necessity for the petition filed in the trial court for the "Issuance of New Owner's
Duplicate Certificates of Title . . . ," In fact, the said court never acquired jurisdiction to
order the issuance of new certificates. Hence, the newly issued duplicates are
themselves null and void.
It is obvious that this lapse happened because private respondents and respondent
judge failed to follow the procedure set forth in P.D. No. 1529 which, as already stated,
governs the issuance of new owner's duplicate certificates of title.
Section 109 of the said law provides, inter alia, that "due notice under oath" of the loss
or theft of the owner's duplicate certificate "shall be sent by the owner or by someone in
his behalf to the Register of Deeds . . ." (emphasis supplied). In this case, while an
affidavit of loss was attached to the petition in the lower court, no such notice was sent
to the Register of Deeds.
Private respondents tried to convince the Court that by their failure to locate Francis
Dytiongsee, they had no other recourse but to file a petition for reconstitution. Sec. 107
of the P.D. 1529, however, states that the remedy, in case of the refusal or failure of the
holder — in this case, the petitioner — to surrender the owner's duplicate certificate of
title, is a "petition in court to compel surrender of the same to the Register of Deeds,"
and not a petition for reconstitution.
Ineluctably, a judgment rendered without jurisdiction over the subject matter is void. As
we elucidated in Leonor vs. CA:28
Clearly and unequivocally, the summary procedure under Rule 108, and for that matter
under Art. 412 of the Civil Code, cannot be used by Mauricio to change his and Virginia's
civil status from married to single and of their three children from legitimate to
illegitimate. Neither does the trial court, under said Rule, have any jurisdiction to
declare their marriage null and void and as a result thereof, to order the local civil
registrar to cancel the marriage entry in the civil registry. Further, the respondent trial
judge gravely and seriously abused his discretion in unceremoniously expanding his
very limited jurisdiction under such rule to hear evidence on such a controversial
matter as nullity of a marriage under the Civil Code and/or Family Code, a process that
is proper only in ordinary adversarial proceedings under the Rules.
Jurisdiction over the Persons
of Indispensable Parties
True, the above dispositions refer to jurisdiction over the subject matter. Basic
considerations of due process, however, impel a similar holding in cases involving
jurisdiction over the persons of indispensable parties which a court must acquire before
it can validly pronounce judgments personal to said defendants. Courts acquire
jurisdiction over a party plaintiff upon the filing of the complaint. On the other hand,
jurisdiction over the person of a party defendant is assured upon the service of
summons in the manner required by law or otherwise by his voluntary appearance. As a
rule, if a defendant has not been summoned, the court acquires no jurisdiction over his
person, and a personal judgment rendered against such defendant is null and void.29 A
decision that is null and void for want of jurisdiction on the part of the trial court is not a
decision in the contemplation of law and, hence, it can never become final and
executory.30
Rule 3, Section 7 of the Rules of Court, defines indispensable parties as parties-in-
interest without whom there can be no final determination of an action. As such, they
must be joined either as plaintiffs or as defendants. The general rule with reference to
the making of parties in a civil action requires, of course, the joinder of all necessary
parties where possible, and the joinder of all indispensable parties under any and all
conditions, their presence being a sine qua non for the exercise of judicial power.31 It is
precisely "when an indispensable party is not before the court (that) the action should
be dismissed."32 The absence of an indispensable party renders all subsequent actions
of the court null and void for want of authority to act, not only as to the absent parties
but even as to those present.33
Petitioners are co-owners of a fishpond. Private respondent does not deny this fact, and
the Court of Appeals did not make any contrary finding. The fishpond is undivided; it is
impossible to pinpoint which specific portion of the property is owned by Olanday, et al.
and which portion belongs to petitioners. Thus, it is not possible to show over which
portion the tenancy relation of private respondent has been established and ruled upon
in Civil Case D-7240. Indeed, petitioners should have been properly impleaded as
indispensable parties. Servicewide Specialists, Incorporated vs. Court of Appeals34 held
that no final determination of a case could be made if an indispensable party is not
impleaded:
. . . . An indispensable party is one whose interest will be affected by the court's action in
the litigation, and without whom no final determination of the case can be had. The
party's interest in the subject matter of the suit and in the relief sought are so
inextricably intertwined with the other parties that his legal presence as a party to the
proceeding is an absolute necessity. In his absence there cannot be a resolution of the
dispute of the parties before the court which is effective, complete, or equitable.
Formerly, Article 487 of the old Civil Code provided that "any one of the co-owners may
bring an action in ejectment." It was subsequently held that a co-owner could not
maintain an action in ejectment without joining all the other co-owners. Former Chief
Justice Moran, an eminent authority on remedial law, explains:35
. . . . As held by the Supreme Court, were the courts to permit an action in ejectment to
be maintained by a person having merely an undivided interest in any given tract of
land, a judgment in favor of the defendants would not be conclusive as against the other
co-owners not parties to the suit, and thus the defendant in possession of the property
might be harassed by as many succeeding actions of ejectment, as there might be co-
owners of the title asserted against him. The purpose of this provision was to prevent
multiplicity of suits by requiring the person asserting a right against the defendant to
include with him, either as co-plaintiffs or as co-defendants, all persons standing in the
same position, so that the whole matter in dispute may be determined once and for all
in one litigation.
Contrariwise, it is logical that a tenant, in an action to establish his status as such, must
implead all the pro-indiviso co-owners; in failing to do so, there can be no final
determination of the action. In other words, a tenant who fails to implead all the co-
owners cannot establish with finality his tenancy over the entire co-owned land.
Co-owners in an action for the security of tenure of a tenant are encompassed within
the definition of indispensable parties; thus, all of them must be impleaded. As
defined:36
An indispensable party is a party who has such an interest in the controversy or subject
matter that a final adjudication cannot be made, in his absence, without injuring or
affecting that interest, a party who has not only an interest in the subject matter of the
controversy, but also has an interest of such nature that a final decree cannot be made
without affecting his interest or leaving the controversy in such a condition that its final
determination may be wholly inconsistent with equity and good conscience. It has also
been considered that an indispensable party is a person in whose absence there cannot
be a determination between the parties already before the court which is effective,
complete, or equitable. Further, an indispensable party is one who must be included in
an action before it may properly go forward.
A person is not an indispensable party, however, if his interest in the controversy or
subject matter is separable from the interest of the other parties, so that it will not
necessarily be directly or injuriously affected by a decree which does complete justice
between them. Also, a person is not an indispensable party if his presence would merely
permit complete relief between him and those already parties to the action, or if he has
no interest in the subject matter of the action. It is not a sufficient reason to declare a
person to be an indispensable party that his presence will avoid multiple litigation.
Clearly, the decision in Civil Case D-7240 cannot bind petitioners and cannot adjudicate
the entire co-owned property, not even that portion belonging to Olanday et al.,
ownership of the property being still pro-indiviso. Obviously, the failure to implead
petitioners barred the lower court from making a final adjudication. Without the
presence of indispensable parties to a suit or proceeding, a judgment therein cannot
attain finality.37
Ergo, res inter alios judicatae nullum aliis praejudicarium faciunt.38 Thus, the Court,
through former Chief Justice Marcelo B. Fernan, held that a person who was not
impleaded in the complaint cannot be bound by the decision rendered therein, for no
man shall be affected by a proceeding in which he is a stranger.39
Admittedly, in this case, the want of jurisdiction of the trial court in rendering its
decision in Civil Case No. D-7240 is not patent on the face of said judgment. However,
there were glaring documentary and testimonial pieces of evidence referred to by the
trial court in its decision which should have prompted it to inquire further whether
there were other indispensable parties who were not impleaded. These facts and
circumstances should have forewarned the trial court that it had not acquired
jurisdiction over a number of indispensable parties. In American jurisprudence, the
nullity of a decision arising from lack of jurisdiction may be determined from the record
of the case, not necessarily from the face of the judgment only.40 We believe that this
rule should be applied to this case, considering that in the assailed trial court's decision,
referrals were made to crucial evidence which if scrutinized would readily reveal that
there were indispensable parties omitted.
First, the decision referred to the subject property "as Lot No. 3312 of the Cadastral
Survey."41 This lot was particularly described in private respondent's Complaint dated
February 6, 1984 filed in Civil Case D-7240.42 Obviously such description was copied by
private respondent from the transfer certificate of title over the subject fishpond issued
on August 12, 1975 naming all the co-owners, including the herein petitioners and the
fact of their foreign residences, thus:43
IT IS HEREBY CERTIFIED that certain land situated in the City of Dagupan, formerly in
the Province of Pangasinan bounded and described as follows:
A parcel of land (Lot 3312 of the Cadastral Survey of Dagupan), situated in the City of
Dagupan . . . .
is registered in accordance with the provisions of the Land Registration Act in the name
of PACITA ARCELONA, married to Miguel Ulanday; TOMASA ARCELONA, married to
Tung Ming Chiang; MARCELINO V. ARCELONA, married to Soledad Tiongco; MARIA V.
ARCELONA, married to Oreste Arellano; BENEDICTO V. ARCELONA, married to Ruth
Suget; and NATIVIDAD ARCELONA, married to Agrimero Cruz; all of legal age, Filipinos,
the second and fifth named residents of Los Angeles, California, U.S.A., third & fourth of
Manila; first of Villasis, Pangasinan & the last named of Lingayen, Pangasinan as owner
thereof in fee simple, subject to such of the incumbrances mentioned in Section 39 of said
Act as may be subsisting, and to
xxx xxx xxx
Entered at the City of
Dagupan Philippines, on the
12th day of August in the year
nineteen hundred and seventy
five at 4:00 p m.
(Emphasis supplied).
Considering that private respondent was suing to establish his status as a tenant over
the subject fishpond, the responsibility for impleading all the indispensable parties
undeniably rested on him as provided under Rule 3 of the Rules of Court. Section 2 of
Rule 3 requires that "every action must be prosecuted and defended in the name of the
real party in interest. All persons having an interest in the subject of the action and in
obtaining the relief demanded shall be joined as plaintiffs." Further, Section 7 of the
same rule states that "(p)arties in interest without whom no final determination can be
had of an action shall be joined either as plaintiffs or defendants."
Second, Respondent Court of Appeals ruled that private respondent "in his motion to
dismiss (before said Court) alleged that petitioners knew of the lessee as revealed by
the testimony of Pacita Olanday, one of the defendants in Civil Case No. D-7240 and a
sister of petitioners. (TSN, pp. 15-16, hearing of October 2, 1984, Civil Case No. D-
7240)." That being so, why did private respondent fail to include petitioners as
defendants in the case below? It should be noted that the lease contract was between
Cipriano Tandoc and Olanday, et al. Private respondent, a caretaker-tenant of Tandoc,
knew or should have known that there were co-owners other than Olanlday, et al. And
even conceding arguendo that petitioners had authorized Olanday, et al. to enter into a
lease contract with Tandoc, this fact did not authorize the latter to represent petitioners
in the civil case he brought. Under Rule 9, Section 9 of the Rules of Court, the pleader is
required to set forth the names, if known to him, of persons who ought to be parties, if
complete relief is to be accorded to those who are already parties but who are not
joined; and to state why they have been omitted. Surely, he brought suit to establish his
status as a tenant. It is thus his responsibility to state the names of all the persons
against whom he wants to establish his status as tenant.
Third, both the private respondent and the trial court knew of the obvious omission of
petitioners as party defendants. Telling is the fact that, by reciting part of the transcript
of stenographic notes, private respondent himself provided clear evidence in his
memorandum that he knew of the existence of other co-owners who were not
impleaded in his case against Olanday et al.:44
As admitted by Pacita Olanday, one of the defendants in Civil Case No. D-7240, the
petitioners know of the lease with Cipriano Tandoc; they were authorized to lease the
shares of the petitioners. Here is the testimony of Pacita Olanday:
ATTY. VINLUAN:
Q. You made mentioned that you were authorized by your brothers and sister who are
(sic) residing in the United States to enter into a contract. Did these brothers and sister
of yours make any special power of attorney authorizing you to that effect?
xxx xxx xxx
A. I talked with my brothers when they "balik-bayan", they said I will make an
agreement. (tsn. October 2, 1984 pp. 15 and 16 — CV# D-7240).
He also knew that in executing the lease, Pacita Olanday represented only her sisters
(Maria and Natividad) who were residing in the Philippines. Definitely, at the time of the
execution of the contract, she had no brother residing in the Philippines because her
only brothers, Marcelino and Benedicto Arcelona, (the latter now deceased and
represented in this case by Petitioner Ruth Arcelona) were living in California. This fact
can be deduced from the recitals of the RTC decision:45
It is undisputed in the records that the defendants (referring to Olanday, et al.) are co-
owners and civil law lessors of a fishpond otherwise known as Lot No. 3312 of the
Cadastral Survey of Dagupan City; that as owners, they entered into a Contract of Lease
(Exh. "1") with one Cipriano Tandoc dated March 4, 1978 for a term of three (3) years
from February 2, 1982, which contract was renewed for another two (2) years up to
February 2, 1984. On the 31st of January, 1984, Exhibit "3", an "Affidavit of Surrender of
Rights and Possession of Lessee over a Fishpond" was executed between Cipriano
Tandoc and Pacita Olanday who signed for herself and in behalf of her two (2) sisters.
Plaintiff Moises Farnacio was however, instituted as caretaker-tenant over the same
fishpond by Cipriano Tandoc on the date of the Contract of Lease was entered into
between the owners-lessors and Cipriano Tandoc. The private agreement (Exh. "D")
signed by Cipriano Tandoc and Moises Farnacio is, however, assailed in a criminal case
for falsification in the Fiscal's Office." (Emphasis supplied).
In fact, only these co-owners who are residing in the Philippines were joined as
defendants in Civil Case D-7240. But the mention of Pacita's relatives who were residing
abroad should have made the trial court aware of the existence of indispensable parties
who were not yet impleaded.
Despite this knowledge of the apparent defect in the complaint and in its jurisdiction,
the trial court did not take the initiative to implead petitioners as defendants or to order
private respondent to do so, contrary to the clear mandate of Rule 3, Sec. 11 of the Rules
of Court46 which provides:
Sec. 11. Misjoinder and non-joinder of parties. — Misjoinder of parties is not ground for
dismissal of an action. Parties may be dropped or added by order of the court on motion
of any party or on its own initiative at any stage of the action and on such terms as are
just. Any claim against a party may be severed and proceeded with separately.
The foregoing testimony on the existence of other co-owners was a clear signal that
indispensable parties had not yet been impleaded. Indeed, this knowledge should have
put the private respondent and the trial court on guard. The burden to implead or to
order the impleading of indispensable parties is placed on private respondent and on
the trial court, respectively. Since no evidence was presented to prove that petitioners
were aware of the civil case filed against Olanday et al., they cannot be faulted for not
intervening therein.
In sum, we hold that the nullity of a judgment grounded on lack of jurisdiction may be
shown not only by what patently appears on the face of such decision but also by
documentary and testimonial evidence found in the records of the case and upon which
such judgment is based.
Before ending our discussion on the first issue, we must stress that the then
Intermediate Appellate Court and this Court, in affirming the RTC decision in Civil Case
No. D-7240 which we here nullify, had not been given the occasion to rule on the issue
of the trial court's jurisdiction over the persons of indispensable parties; verily, this
question had not been raised before the two appellate courts. The review of civil cases
by appellate courts is confined only to the issues raised by the parties. Hence, appellate
courts do not have the privilege or the opportunity afforded the trial courts to consider
matters beyond the specifically contested issues, e.g., jurisdiction over indispensable
parties, as in this case. Such lack of jurisdiction could not have been known by the
appellate courts, including this Court, as it was not patent from the documents or
submissions filed before them. The issue raised before the then Intermediate Appellate
Court and this Court was formulated in this wise: "(t)he validity of private respondent's
claim that he is a tenant of the petitioners' fishpond, with security of tenure as such
assured under the law, is the basic question presented in this appeal."47 We underscore
the fact that the issue of whether all the indispensable parties had been validly
impleaded, if at all, had not been raised at that time. In any event, whether the
indispensable parties were actually impleaded and jurisdiction over them was acquired
was a factual question for the trial court to determine. Consistent with the basic
doctrine that factual findings of lower courts are binding on appellate courts unless
covered by the recognized exceptions,48 appellate courts must be able to rely on the
implied affirmation of the trial court that jurisdiction had been acquired over
indispensable parties, especially when this was not raised as an issue on appeal. The
responsibility for impleading indispensable parties for the exhaustive trial of a case
cannot rest on this forum or on the then Intermediate Appellate Court. Indeed, the
Decision of this Court affirming the said trial court's decision is captioned only as
"Pacita A. Olanday, Maria A. Arellano and Natividad A. Cruz, petitioners, vs. Intermediate
Appellate Court and Moises Farnacio, respondents", clearly indicating that petitioners
herein had been omitted as indispensable parties in the proceedings before the trial
court and before the appellate tribunals. Substantial justice requires that this error be
now rectified.
Second Issue: Estoppel and Laches
Apart from holding that there was only one ground to annul a judgment, namely,
extrinsic fraud, the appellate court — using extraneous evidence — also found that
estoppel and laches had set in against petitioners, thereby barring them from asserting
lack of jurisdiction over their persons. These "extraneous matters" are stated by the
Respondent Court in this wise:
. . . True, indeed, that petitioners were not original parties to the action and that the
decision embraces half of the property in dispute belonging to petitioners as co-owners
thereof. But they cannot now complain they were denied due process. It will be recalled
that the contract of lease was entered with one Cipriano Tandoc on March 4, 1978 for a
term of three years, which contract was renewed for another two years up to February
2, 1984. During all the years of the existence of the lease contract, it would be
incredulous for petitioners to assert that they never knew of such lease agreement from
their three sisters, the defendants herein. Petitioners raised no overt protest against the
lease contract executed by their sisters with Cipriano Tandoc in 1978 and renewed in
1982. Petitioners took no direct action to promptly disavow or disaffirm the action
taken by their sisters to lease the entire property to Tandoc.
It is likewise unbelievable that during all the years that the subject property (fishpond)
is under litigation in Civil Case No. D-7240 from 1984 to 1991, petitioners were not
aware that their property is subject of the controversy. By their continued silence, they
have permitted the acts of their sisters in leasing the property and they cannot now be
heard, after a prolonged period of time, to denounce such acts as done without their
knowledge and consent. The rule of acquiescence by silence has estopped petitioners to
deny the reality of the state of things which they made to appear to exist and upon
which others have been led to reply. Parties must take the consequences of the position
they assume. Sound ethics require that the apparent in its effects and consequences
should be as if it were real, and the law properly so regards. (Metro Manila Transit
Corporation vs. Morales, 173 SCRA 629, 633).
In Santiago Syjuco, Inc. vs. Castro, 175 SCRA 171, 192, it was held, inter alia:
xxx xxx xxx
. . . . Likewise, in Criminal Case No. 16866 for falsification against respondent Farnacio
before Branch 3 of the Municipal Trial Court of Dagupan City, witness Juan Bernal
testified that the petitioners herein Tomasa Arcelona, Marcelino Arcelona and Ben
Arcelona authorized their sisters Natividad Cruz, Corazon Arcelona, Pacita Olanday to
lease the fishpond to Cipriano Tandoc. (TSN, pp. 5-6, hearing of August 10, 1987 in
Criminal Case No. 16866).49
Petitioners balk at these pronouncements, arguing that in annulment of judgments, "the
grounds thereof must be based solely on the records of the case." They contend that "to
permit the court's record to be contradicted or varied by evidence dehors would render
such records of no avail." Petitioners contend that Respondent Court of Appeals erred in
taking into account "the proceedings in Criminal Case No. 16866 to show alleged
knowledge of the petitioners herein of the lease of the property to Cipriano
Tandoc."50 Petitioners submit that the bone of contention in this case is
not knowledge of the petitioners of the Lease Contract executed by Pacita Olanday et al.
and Cipriano Tandoc, but whether the petitioners knew of the case filed by private
respondent against Pacita Olanday et al. involving their common property.
Petitioners stress that Private Respondent Farnacio is "a total stranger" and has
absolutely no privity of interest with them because it was Tandoc, not Farnacio, who
entered into a lease contract with Olanday, et al.51
Petitioners deny any concealment or deception on their part that would constitute
estoppel. They contend that in the transfer certificate of title, their names "were
specifically mentioned as co-owners of the property on which the private respondent
sought to be installed in physical possession as tenant."52 They aver that Respondent
Court of Appeals' finding that they had knowledge of the lease contract "is based on
presumption not on clear and convincing evidence." Assuming, according to petitioners,
that they can be held in estoppel, it can only be as against Cipriano Tandoc, not private
respondent who "was never a party to the lease contract."53
Since the judgment is void "insofar as the petitioner are concerned for lack of
jurisdiction [over] their persons and for want of due process," and since they "were
never given the opportunity to institute any action to protect their interest," petitioners
contend that to bar them now by laches and estoppel "will create an unfair and unjust
situation." For as petitioners candidly state, they "do not question the pronouncement
that private respondent is the tenant of Pacita Olanday et al."; however, they submit that
the issue in this case is whether private respondent "is also the tenant of herein
petitioners entitled to be placed in physical possession and cultivation of their
undetermined share in the property without [petitioners] being made parties in the
case."54
Private respondent counters that "Pacita Olanday . . . testified that she was authorized to
lease the share of . . . petitioners." According to private respondent, while petitioners
were in the Philippines, they were informed of the appointment of private respondent
as caretaker-tenant of the entire fishpond, and they did not object to such
appointment.55 Further, private respondent contends that petitioners failed to intervene
in the case before the writ of execution was granted on "May 5, 1991" despite the
"appearance . . . of their counsel, Atty. Marina Cruz, when the motion for issuance of said
writ was heard." Private respondent adds that he was "impliedly recognized" as a
tenant when petitioners "received their corresponding shares [i]n the lease rental of the
property from the private respondent, through Olanday, et al. and their counsel, Atty.
Marina Cruz."56
As correctly put by petitioners, we hold that Respondent Court of Appeals, in deciding
the petition to declare the judgment void, cannot consider extraneous matters to vary
what the records bear. In other words, the Court of Appeals cannot annul or declare null
the assailed decision with such extraneous matters. The validity or nullity of the said
decision must stand or fall on its own face and the evidence on record.
In an action to declare a judgment void because of lack of jurisdiction over the parties or
subject matter, only evidence found in the records of the case can justify the annulment of
the said judgment. Contrariwise, the nullity of the judgment due to lack of jurisdiction
may be proved at most by the evidence on record but never by extraneous evidence.
Sen. Vicente J. Francisco aptly explains this in his treatise on the Rules of Court:57
The validity of a final judgment may be attacked on the ground that the judgment or
order is null and void, because the court had no power or authority to grant the relief or
no jurisdiction over the subject matter or over the parties or both. The aggrieved party
may attack the validity of the final judgment by a direct action or proceeding in order to
annul the same, as certiorari, which is not incidental to, but is the main object of the
proceeding. The validity of a final judgment may also be attacked collaterally as when a
party files a motion for the execution of the judgment and the adverse party resists the
motion by claiming that the court has no authority to pronounce the judgment and that
the same is null and void for lack of jurisdiction over the subject matter or over the
parties.
In cases of collateral attack, the principles that apply have been stated as follows: "The
legitimate province of collateral impeachment is void judgments. There and there alone
can it meet with any measure of success. Decision after decision bears this import: "In
every case the field of collateral inquiry is narrowed down to the single issue
concerning the void character of the judgment and the assailant is called upon to satisfy
the court that such is the fact. To compass his purpose of overthrowing the judgment, it
is not enough that he shows a mistaken or erroneous decision or a record disclosing
non-jurisdictional irregularities in the proceedings leading up to the judgment. He must
go beyond this and show to the court, generally from the fact of the record itself, and not
by extraneous evidence that the judgment complained of is utterly void. If he can do that
his attack will succeed for the cases leave no doubt respecting the right of a litigant to
collaterally impeach a judgment that he can prove to be void.
The reason for the rule of exclusion of extraneous proof to show that the judgment
complained of is utterly void for lack of jurisdiction has been expressed in the following
words: "The doctrine that the question of jurisdiction is to be determined by the record
alone, thereby excluding extraneous proof seems to be the natural unavoidable result of
that stamp of authenticity which, from the earliest times, was placed upon the "record,"
and which gave it such "uncontrollable credit and verity that no plea, proof, or averment
could be heard to the contrary." . . . Any rule, . . . would be disastrous in its results, since
to permit the court's record to be contradicted or varied by evidence dehors would
render such records of no avail and definite sentences would afford but slight
protection to the rights of parties once solemnly adjudicated.
We should add, however, that where an action for annulment of judgment is grounded
on extrinsic fraud, extraneous evidence is admitted. We have held that, although a
person need not be a party to the judgment sought to be annulled by reason of extrinsic
fraud, he must prove his allegation that the judgment was obtained by the use of fraud
and collusion and that he would be adversely affected thereby.58 Fraud must be
extraneous, otherwise, there would be no end to litigation. Extrinsic fraud refers to any
fraudulent act committed by a prevailing party outside the trial of the case, whereby the
defeated party has been prevented from fully exhibiting his side of the case, because of
fraud or deception practiced on him by his opponent.59 As distinctly defined in Cosmic
Lumber Corporation vs. Court of Appeals, et al.:60
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is
one the effect of which prevents a party from hearing a trial, or real contest, or from
presenting all of his case to the court, or where it operates upon matters, not pertaining
to the judgment itself, but to the manner in which it was procured so that there is not a
fair submission of the controversy. In other words, extrinsic fraud refers to any
fraudulent act of the prevailing party in the litigation which is committed outside of the
trial of the case, whereby the defeated party has been prevented from exhibiting fully
his side of the case by fraud or deception practiced on him by his opponent. (fn:
Makabingkil v. PHHC, No. L-29080, 17 August 1976, 72 SCRA 326, 343-344) Fraud is
extrinsic where the unsuccessful party has been prevented from exhibiting fully his
case, by fraud or deception practiced on him by his opponent, as keeping him away from
court, a false promise of a compromise; or where the defendant never had knowledge of
the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney
fraudulently or without authority connives at his defeat; these and similar cases which
show that there has never been a real contest in the trial or hearing of the case are
reasons for which a new suit may be sustained to set aside and annul the former
judgment and open the case for a new and fair hearing. (fn: Id., p. 344 citing U.S. v.
Throckmorton, 25 L. Ed. 93, 95)
In deciding the "petition for annulment of judgment" — which should be a "petition to
declare judgment void" — Respondent Court of Appeals should not have considered the
following matters which find no support from the records and are thus considered
"extraneous": (1) the assumption that petitioners knew of the five-year lease contract
with private respondent and the pendency of Civil Case No. D-7240 from 1984 to 1991;
and (2) the testimony of Juan Bernal in a separate criminal case before another court
concerning the authority granted to Olanday et al. and where petitioners were not
parties. The rule is that the nullity of the decision arising from want of jurisdiction
and/or due process should appear from the records of the case. And the validity of the
judgment cannot be anchored on mere suppositions or speculations, as Respondent
Court did.
Equally important, the finding of estoppel and laches by Respondent Court is not
supported by the evidence on record. The silence of petitioners can easily be explained
by the fact that they were not in the country during the pendency of the subject civil
case. Such absence from the country was never rebutted by private respondent. Even in
the proceedings antecedent to this case before us now, petitioners were merely
represented by their attorney-in-fact.61 Moreover, they were not at all impleaded as
parties in the judgment sought to be voided. Neither were they properly served
summons. The indelible fact is that they were completely ignored.
In any event, we ruled in Alabang Development Corporation vs. Valenzuela62 that no
laches attach when the judgment is null and void for want of jurisdiction:
The herein respondents attribute laches to the petitioners for not appealing from the
order of the lower court denying their motion to intervene and motion for new trial
hence allowing the said order/decision to become final. There is no laches nor finality of
any decision to speak of since the decision under question is herein pronounced null
and void for having been rendered without jurisdiction. Prescinding therefrom, as
admitted by themselves in their comment, the judgment of reconstitution is
"ineffective" against the owners of lands covered thereby who were not joined as
parties in the proceeding. As the Court ruled in Bernal case on the matter of
intervention [fn: 93 SCRA at pp. 247, 248] "a valid judgment cannot even be rendered
where there is want of indispensable parties' such as petitioners who hold subsisting
Torrens Title to the properties in question and "this aspect of the case commands the
joinder of indispensable parties to allow them to uphold their interests based upon the
Torrens titles they hold overrides any question of later intervention." Petitioners have
precisely availed of the proper, speedy and adequate remedy of the present special civil
action of certiorari and prohibition to annul and set aside for want of jurisdiction the
decision and all proceedings of respondent judge.
On the other hand, the doctrine of estoppel is predicated on and finds its roots in equity
which, broadly defined, is justice according to natural law and right. It is a principle
intended to prevent a clear case of injustice. The term is hardly separable from a waiver
of right. Estoppel, like laches, must be intentional and unequivocal, for when misapplied,
it can easily become a most convenient and effective means of injustice. Estoppel is a
principle that, as a rule, can be invoked only in highly exceptional and legitimate
cases.63 In Cruz vs. Court of Appeals,64 we reiterated the requisites of estoppel:
In Kalalo vs. Luz, [fn: 34 SCRA 337] We held that the essential elements of estoppel in
respect to the party claiming it are: (a) lack of knowledge and of the means of
knowledge of the truth as the facts in question; (b) reliance, in good faith, upon the
conduct or statements of the party to be estopped; and (c) action or inaction based
thereon of such character as to change the position or status of the party claiming the
estoppel, to his injury, detriment, or prejudice.
The herein facts ineluctably show the absence of the first element in this case. Inasmuch
as there is no proof that petitioners had knowledge of the pending tenancy case filed by
private respondent, it is only fair that they should not be held in estoppel for failing to
intervene in and to question the jurisdiction of the trial court in Civil Case No. D-7240.
Thus, private respondent may not say that he was misled into believing that petitioners
knew of the lease contract and of the litigation of Civil Case No. D-7240. Undisputedly,
from the evidence on record, petitioners had no such knowledge.
Petitioners' receipt of lease rentals cannot be used as proof of recognition of private
respondent as a caretaker-tenant. This issue was not raised in the lower court and is
being alleged for the first time before us. Well-settled is the doctrine that questions not
raised in the lower courts cannot be raised for the first time on appeal.65
Third Issue: Intervention as a Remedy of Petitioners
Petitioners contend that Respondent Court of Appeals erred when it ruled that their
only remedy was intervention during the execution stage of Civil Case No. D-7240.
Inasmuch as "annulment of judgment could be made either collaterally or directly,"
petitioners insist that their resort to "direct action in annulling the Decision of the lower
court should not be taken against them."66 Moreover, petitioners argue that "in
proceedings for execution of a final decision or judgment, it is the ministerial duty of the
court of origin to issue the writ."67 Petitioners add that because their action would
result in the "modification, alteration, and annulment of the judgment, the specific
provision of law that annulment of judgment of the Regional Trial Court is within the
exclusive jurisdiction of the Court of Appeals should prevail."68
Private respondent counters that petitioners deliberately did not intervene "to afford
them opportunity to question, as they now question, the validity of any decision to be
rendered in said case, . . . in the event of an adverse decision."69
We hold that intervention is not the only remedy to assail a void final judgment. There is
no procedural rule prescribing that petitioners' intervention in the hearing for the
issuance of a writ is the only way to question a void final judgment. As already stated,
petitioners were not aware of such hearing. Besides, as already discussed, a direct
action is available in assailing final judgments grounded on extrinsic fraud, while a
direct or a collateral action may be used to show lack of jurisdiction.
The assailed Decision of Respondent Court of Appeals cites certain cases allowing
intervention as follows:70
A case in which an execution has been issued is regarded as still pending so that all
proceedings in the execution are proceedings in the suit. There is no question that the
court which rendered the judgment has a general supervisory control over its process of
execution and this power carries with it the right to determine every question of fact
and law which may be involved in the execution. (Suson vs. Court of Appeals, 172 SCRA
70, 75, citing Paman vs. Severis, 115 SCRA 709; Seavan Carrier vs. GTI Sportswear, 137
SCRA 580)
These cases, which require intervention of parties who may be adversely affected by the
decision, are not applicable. In the cited Suson vs. Court of Appeals,71 the parties, though
not impleaded, knew of the case and were in fact directed by the trial court to intervene,
but they refused to do so. These particular facts are absent in the instant case where, to
repeat, petitioners were abroad when Civil Case D-7240 was prosecuted.
In any event, as earlier pointed out, jurisprudence upholds the soundness of an
independent action to declare as null and void a judgment rendered without jurisdiction
as in this case. In Leonor vs. Court of Appeals,72 Petitioner Virginia A. Leonor, through a
"petition for certiorari, prohibition and mandamus . . . sought the nullification of both
the decision dated December 14, 1992 and the order dated February 24, 1993 of the
trial court for having been issued in excess of jurisdiction and/or with grave abuse of
discretion."73 We held in that case that:74
A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of
any right nor the creator of any obligation. All acts performed pursuant to it and all
claims emanating from it have no legal effect. Hence, it can never become final and any
writ of execution based on it is void: ". . . it may be said to be a lawless thing which can
be treated as an outlaw and slain at sight, or ignored wherever and whenever it exhibits
its head."
WHEREFORE, the petition for certiorari is GRANTED. The Decision of Respondent Court
of Appeals is hereby REVERSED and SET ASIDE. The decisions in Civil Case No. D-7240,
AC-G.R. SP-05237-CAR and G.R. No. L-71217 are ANNULLED and SET ASIDE for lack of
jurisdiction. No costs. SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 174353 September 10, 2014
NESTOR CHING and ANDREW WELLINGTON, Petitioners,
vs.
SUBIC BAY GOLF AND COUNTRY CLUB, INC., HU HO HSIU LIEN alias SUSAN HU, HU
TSUNG CHIEH alias JACK HU, HU TSUNG HUI, HU TSUNG TZU and REYNALD R.
SUAREZ, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking
the review of the Decision1 dated October 27, 2005 of the Court of Appeals in CA-G.R. CV
No. 81441, which affirmed the Order2 dated July 8, 2003 of the Regional Trial Court
(RTC), Branch 72 of Olongapo City in Civil Case No. 03-001 dismissing the Complaint
filed by herein petitioners.
On February 26, 2003, petitioners Nestor Ching and Andrew Wellington filed a
Complaint3 with the RTC of Olongapo City on behalf of the members of Subic Bay Golf
and Country Club, Inc. (SBGCCI) against the said country club and its Board of Directors
and officers under the provisions of Presidential Decree No. 902-A in relation to Section
5.2 of the Securities Regulation Code. The Subic Bay Golfers and Shareholders
Incorporated (SBGSI), a corporation composed of shareholders of the defendant
corporation, was also named as plaintiff. The officers impleaded as defendants were the
following: (1) itsPresident, Hu Ho Hsiu Lien alias Susan Hu; (2) its treasurer, Hu Tsung
Chieh alias Jack Hu; (3) corporate secretary Reynald Suarez; and (4) directors Hu Tsung
Hui and Hu Tsung Tzu. The case was docketed as Civil Case No. 03-001. The complaint
alleged that the defendant corporation sold shares to plaintiffs at US$22,000.00 per
share, presenting to them the Articles of Incorporation which contained the following
provision:
No profit shall inure to the exclusive benefit of any of its shareholders, hence, no
dividends shall be declared in their favor. Shareholders shall be entitled only to a pro-
rata share of the assets of the Club at the time of its dissolution or liquidation.4
However, on June 27, 1996, an amendment to the Articles of Incorporation was
approved by the Securities and Exchange Commission (SEC), wherein the above
provision was changed as follows:
No profit shall inure to the exclusive benefit of any of its shareholders, hence, no
dividends shall be declared in their favor. In accordance with the Lease and
Development Agreement by and between Subic Bay Metropolitan Authority and The
Universal International Group of Taiwan, where the golf courseand clubhouse
component thereof was assigned to the Club, the shareholders shall not have
proprietary rights or interests over the properties of the Club.5 x x x. (Emphasis
supplied.)
Petitioners claimed in the Complaint that defendant corporation did not disclose to
them the above amendment which allegedly makes the shares non-proprietary, as it
takes away the rightof the shareholders to participate in the pro-rata distribution of the
assets of the corporation after its dissolution. According to petitioners, this is in fraud of
the stockholders who only discovered the amendment when they filed a case for
injunction to restrain the corporation from suspending their rights to use all the
facilities of the club. Furthermore, petitioners alleged that the Board of Directors and
officers of the corporation did not call any stockholders’ meeting from the time of the
incorporation, in violation of Section 50 of the Corporation Code and the By-Laws of the
corporation. Neither did the defendant directors and officers furnish the stockholders
with the financial statements of the corporation nor the financial report of the operation
of the corporation in violation of Section 75 of the Corporation Code. Petitioners also
claim that on August 15, 1997, SBGCCI presented to the SEC an amendment to the By-
Laws of the corporation suspending the voting rights of the shareholders except for the
five founders’ shares. Said amendment was allegedly passed without any stockholders’
meeting or notices to the stockholders in violation of Section 48 of the Corporation
Code.
The Complaint furthermore enumerated several instances of fraud in the management
of the corporation allegedly committed by the Board of Directors and officers of the
corporation, particularly:
a. The Board of Directors and the officers of the corporation did not indicate in its
financial report for the year 1999 the amount of ₱235,584,000.00 collected from the
subscription of 409 shareholders who paid U.S.$22,000.00 for one (1) share of stock at
the then prevailing rate of ₱26.18 to a dollar. The stockholders were not informed how
these funds were spent or its whereabouts.
b. The Corporation has been collecting green fees from the patrons of the golf course at
an average sum of ₱1,600.00 per eighteen (18) holes but the income is not reported in
their yearly report. The yearly report for the year 1999 contains the report of the
Independent Public Accountant who stated that the company was incorporated on April
1, 1996 but has not yet started its regular business operation. The golf course has been
in operation since 1997 and as such has collected green fees from non-members and
foreigners who played golf in the club. There is no financial report as to the income
derived from these sources.
c. There is reliable information that the Defendant Corporation has not paid its rentals
to the Subic Bay Metropolitan Authority which up to the present is estimated to be not
less than one (1) million U.S. Dollars. Furthermore, the electric billings of the
corporation [have] not been paid which amounts also to several millions of pesos.
d. That the Supreme Court sustained the pre-termination of its contract with the SBMA
and presently the club is operating without any valid contract with SBMA. The
defendant was ordered by the Supreme Court to yield the possession, the operation and
the management of the golf course to SBMA. Up to now the defendants [have] defied this
Order.
e. That the value of the shares of stock of the corporation has drastically declined from
its issued value of U.S.$22,000.00 to only Two Hundred Thousand Pesos, (₱200,000.00)
Philippine Currency. The shareholders [have] lost in terms ofinvestment the sum
estimated to be more than two hundred thousand pesos.This loss is due to the fact that
the Club is mismanaged and the golf course is poorly maintained. Other amenities of the
Club has (sic) not yet been constructed and are not existing despite the lapse of
morethan five (5) years from the time the stocks were offered for sale to the public. The
cause of the decrease in value of the sharesof stocks is the fraudulent mismanagement
of the club.6
Alleging that the stockholders suffered damages as a result of the fraudulent
mismanagement of the corporation, petitioners prayed in their Complaint for the
following:
WHEREFORE, it is most respectfully prayed that upon the filing of this case a temporary
restraining order be issued enjoining the defendants from acting as Officers and Board
of Directors of the Corporation. After hearing[,] a writ of preliminary injunction be
issued enjoining defendants to act as Board of Directors and Officers of the Corporation.
In the meantime a Receiver be appointed by the Court to act as such until a duly
constituted Board of Directors and Officers of the Corporation be elected and qualified.
That defendants be ordered to pay the stockholders damages in the sum of Two
Hundred Thousand Pesos each representing the decrease in value of their shares of
stocks plus the sum of ₱100,000.00 as legal expense and attorney’s fees, as well as
appearance fee of ₱4,000.00 per hearing.7
In their Answer, respondents specifically denied the allegations of the Complaint and
essentially averred that:
(a) The subscriptions of the 409 shareholders were paid to Universal International
Group Development Corporation (UIGDC), the majority shareholder of SBGCCI, from
whom plaintiffs and other shareholders bought their shares;8
(b) Contrary to the allegations in the Complaint, said subscriptions were reflected
inSBGCCI’s balance sheets for the fiscal years 1998 and 1999;9
(c) Plaintiffs were never presented the original Articles of Incorporation of SBGCCI since
their shares were purchased after the amendment of the Articles of Incorporation and
such amendment was publicly known to all members prior and subsequent to the said
amendment;10
(d) Shareholders’ meetingshad been held and the corporate acts complained of were
approved at shareholders’ meetings;11
(e) Financial statements of SBGCCI had always been presented to shareholders
justifiably requesting copies;12
(f) Green fees collected were reported in SBGCCI’s audited financial statements;13
(g) Any unpaid rentals are the obligation of UIGDC with SBMA and SBGCCI continued to
operate under a valid contract with the SBMA;14 and
(h) SBGCCI’s Board of Directors was not guilty of any mismanagement and in fact the
value of members’ shares have increased.15
Respondents further claimed by way ofdefense that petitioners failed (a) to show that it
was authorized by SBGSI to file the Complaint on the said corporation’s behalf; (b) to
comply with the requisites for filing a derivative suit and an action for receivership; and
(c) to justify their prayer for injunctive relief since the Complaint may be considered a
nuisance or harassment suit under Section 1(b), Rule1 of the Interim Rules of Procedure
for Intra-Corporate Controversies.16 Thus, they prayed for the dismissal of the
Complaint.
On July 8, 2003, the RTC issued an Order dismissing the Complaint. The RTC held that
the action is a derivative suit, explaining thus:
The Court finds that this case is intended not only for the benefit of the two petitioners.
This is apparentfrom the caption of the case which reads Nestor Ching, Andrew
Wellington and the Subic Bay Golfers and Shareholders, Inc., for and in behalf of all its
members as petitioners. This is also shown in the allegations of the petition[.] x x x.
On the bases of these allegations of the petition, the Court finds that the case is a
derivative suit. Being a derivative suit in accordance with Rule 8 of the Interim Rules,
the stockholders and members may bring an action in the name of the corporation or
association provided that he (the minority stockholder) exerted all reasonable efforts
and allege[d] the same with particularity in the complaint to exhaust of (sic) all
remedies available under the articles of incorporation, by-laws or rules governing the
corporation or partnership to obtain the reliefs he desires. An examination of the
petition does not show any allegation that the petitioners applied for redress to the
Board of Directors of respondent corporation there being no demand, oralor written on
the respondents to address their complaints. Neither did the petitioners appl[y] for
redress to the stockholders of the respondent corporation and ma[k]e an effort to
obtain action by the stockholders as a whole. Petitioners should have asked the Board of
Directors of the respondent corporation and/or its stockholders to hold a meeting for
the taking up of the petitioners’ rights in this petition.17
The RTC held that petitioners failed to exhaust their remedies within the respondent
corporation itself. The RTC further observed that petitioners Ching and Wellington were
not authorized by their co-petitioner Subic Bay Golfers and Shareholders Inc. to filethe
Complaint, and therefore had no personality to file the same on behalf ofthe said
shareholders’ corporation. According to the RTC, the shareholdings of petitioners
comprised of two shares out of the 409 alleged outstanding shares or 0.24% is an
indication that the action is a nuisance or harassment suit which may be dismissed
either motu proprio or upon motion in accordance with Section 1(b) of the Interim
Rules of Procedure for Intra-Corporate Controversies.18
Petitioners Ching and Wellington elevated the case to the Court of Appeals, where it was
docketed as CA-G.R. CV No. 81441. On October 27, 2005, the Court of Appeals rendered
the assailed Decision affirming that of the RTC.
Hence, petitioners resort to the present Petition for Review, wherein they argue that the
Complaint they filed with the RTC was not a derivative suit. They claim that they filed
the suit in their own right as stockholders against the officers and Board of Directors of
the corporation under Section 5(a) of Presidential DecreeNo. 902-A, which provides:
Sec. 5. In addition tothe regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:
(a) Devices or schemes employed by or any acts of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or of the stockholders, partners,
members of associations or organizations registered with the Commission.
According to petitioners, the above provision (which should be read in relation to
Section 5.2 of the Securities Regulation Code which transfers jurisdiction over such
cases to the RTC) allows any stockholder to file a complaint against the Board of
Directors for employing devices or schemes amounting to fraud and misrepresentation
which is detrimental to the interest of the public and/or the stockholders.
In the alternative, petitioners allege that if this Court rules that the Complaint is a
derivative suit, it should nevertheless reverse the RTC’s dismissal thereof on the ground
of failure to exhaust remedies within the corporation. Petitioners cite Republic Bank v.
Cuaderno19 wherein the Court allowed the derivative suit even without the exhaustion
of said remedies as it was futile to do so since the Board ofDirectors were all members
of the same family. Petitioners also point out that in Cuadernothis Court held that the
fact that therein petitioners had only one share of stock does not justify the denial of the
relief prayed for.
To refute the lower courts’ ruling that there had been non-exhaustion of intra-corporate
remedies on petitioners’ part, they claim that they filed in Court a case for Injunction
docketed as Civil Case No. 103-0-01, to restrain the corporation from suspending their
rights to use all the facilities of the club, on the ground that the club cannot collect
membership fees until they have completed the amenities as advertised when the
shares of stock were sold to them. They allegedly asked the Club to produce the minutes
of the meeting of the Board of Directors allowing the amendments of the Articles of
Incorporation and By-Laws. Petitioners likewise assail the dismissal of the Complaint
for being a harassment ornuisance suit before the presentation of evidence. They claim
that the evidence they were supposed to present will show that the members of the
Board of Directors are not qualified managers of a golf course.
We find the petition unmeritorious.
At the outset, it should be noted thatthe Complaint in question appears to have been
filed only by the two petitioners, namely Nestor Ching and Andrew Wellington, who
each own one stock in the respondent corporation SBGCCI. While the caption of the
Complaint also names the "Subic Bay Golfers and Shareholders Inc. for and in behalf of
all its members," petitioners did not attach any authorization from said alleged
corporation or its members to file the Complaint. Thus, the Complaint is deemed filed
only by petitioners and not by SBGSI.
On the issue of whether the Complaint is indeed a derivative suit, we are mindful of the
doctrine that the nature of an action, as well as which court or body has jurisdiction
over it, isdetermined based on the allegations contained in the complaint of the plaintiff,
irrespective of whether or not the plaintiff is entitled to recover upon all or some of the
claims asserted therein.20
We have also held that the body rather than the title of the complaint determines the
nature of an action.21
In Cua, Jr. v. Tan,22 the Court previously elaborated on the distinctions among a
derivative suit, anindividual suit, and a representative or class suit:
A derivative suit must be differentiated from individual and representative or class
suits, thus:
"Suits by stockholders or members of a corporation based on wrongful or fraudulent
acts of directors or other persons may be classified intoindividual suits, class suits, and
derivative suits. Where a stockholder or member is denied the right of inspection, his
suit would be individual because the wrong is done to him personally and not to the
other stockholders or the corporation. Where the wrong is done to a group of
stockholders, as where preferred stockholders’ rights are violated, a class or
representative suitwill be proper for the protection of all stockholders belonging to the
same group. But where the acts complained of constitute a wrong to the corporation
itself, the cause of action belongs to the corporation and not to the individual
stockholder or member. Although in most every case of wrong to the corporation, each
stockholder is necessarily affected because the value of his interest therein would be
impaired, this fact of itself is not sufficient to give him an individual cause of action since
the corporation is a person distinct and separate from him, and can and should itself sue
the wrongdoer. Otherwise, not only would the theory of separate entity be violated, but
there would be multiplicity of suits as well as a violation of the priority rights of
creditors. Furthermore,there is the difficulty of determining the amount of damages that
should be paid to each individual stockholder.
However, in cases of mismanagement where the wrongful acts are committed by the
directors or trustees themselves, a stockholder or member may find that he has no
redress because the former are vested by law with the right to decide whether or notthe
corporation should sue, and they will never be willing to sue themselves. The
corporation would thus be helpless to seek remedy. Because of the frequent occurrence
of such a situation, the common law gradually recognized the right of a stockholder to
sue on behalf of a corporation in what eventually became known as a "derivative suit." It
has been proven to be an effective remedy of the minority against the abuses of
management. Thus, an individual stockholder is permitted to institute a derivative suit
on behalf of the corporation wherein he holds stock in order to protect or vindicate
corporate rights, whenever officials of the corporation refuse to sue orare the ones to be
sued or hold the control of the corporation. In such actions, the suing stockholder is
regarded as the nominal party, with the corporation as the party in interest."
xxxx
Indeed, the Court notes American jurisprudence to the effect that a derivative suit, on
one hand, and individual and class suits, on the other, are mutually exclusive, viz.:
"As the Supreme Court has explained: "A shareholder’s derivative suit seeks to recover
for the benefit of the corporation and its whole body of shareholders when injury is
caused to the corporation that may not otherwise be redressed because of failureof the
corporation to act. Thus, ‘the action is derivative, i.e., in the corporate right, if the
gravamen of the complaint is injury to the corporation, or to the whole body of its stock
and property without any severance or distribution among individual holders, or it
seeks to recover assets for the corporation or to prevent the dissipation of its assets.’ x x
x. In contrast, "a directaction [is one] filed by the shareholder individually (or on behalf
of a classof shareholders to which he or she belongs) for injury to his or her interestas a
shareholder. x x x. [T]he two actions are mutually exclusive: i.e., the right of action and
recovery belongs to either the shareholders (direct action) *651 or the
corporation(derivative action)." x x x.
Thus, in Nelson v. Anderson(1999), x x x, the **289 minority shareholder alleged that
the other shareholder of the corporation negligently managed the business, resulting in
its total failure. x x x. The appellate court concluded that the plaintiff could not maintain
the suit as a direct action: "Because the gravamen of the complaint is injury to the whole
body of its stockholders, it was for the corporation to institute and maintain a remedial
action. x x x. A derivative action would have been appropriate if its responsible officials
had refused or failed to act." x x x. The court wenton to note that the damages shown at
trial were the loss of corporate profits. x x x. Since "[s]hareholders own neither the
property nor the earnings of the corporation," any damages that the plaintiff alleged
that resulted from such loss of corporate profits "were incidental to the injury to the
corporation." (Citations omitted.)
The reliefs sought in the Complaint, namely that of enjoining defendants from acting as
officers and Board of Directors of the corporation, the appointment of a receiver, and
the prayer for damages in the amount of the decrease in the value of the sharesof stock,
clearly show that the Complaint was filed to curb the alleged mismanagement of
SBGCCI. The causes of action pleaded by petitioners do not accrue to a single
shareholder or a class of shareholders but to the corporation itself.
However, as minority stockholders, petitioners do not have any statutory right to
override the business judgments of SBGCCI’s officers and Board of Directors on the
ground of the latter’s alleged lackof qualification to manage a golf course. Contraryto the
arguments of petitioners, Presidential Decree No. 902-A, which is entitled
REORGANIZATION OF THE SECURITIES AND EXCHANGE COMMISSION WITH
ADDITIONAL POWERS AND PLACING THE SAID AGENCY UNDER THE
ADMINISTRATIVE SUPERVISION OF THE OFFICE OF THE PRESIDENT, does not grant
minority stockholders a cause of action against waste and diversion by the Board of
Directors, but merely identifies the jurisdiction of the SEC over actionsalready
authorized by law or jurisprudence. It is settled that a stockholder’s right to institute a
derivative suit is not based on any express provisionof the Corporation Code, or even
the Securities Regulation Code, but is impliedly recognized when the said laws make
corporate directors or officers liable for damages suffered by the corporation and its
stockholders for violation of their fiduciary duties.23
At this point, we should take note that while there were allegations in the Complaint of
fraud in their subscription agreements, such as the misrepresentation of the Articles of
Incorporation, petitioners do not pray for the rescission of their subscription or seekto
avail of their appraisal rights. Instead, they ask that defendants be enjoined from
managing the corporation and to pay damages for their mismanagement. Petitioners’
only possible cause of action as minority stockholders against the actions of the Board
of Directors is the common law right to file a derivative suit. The legal standing of
minority stockholders to bring derivative suits is not a statutory right, there being no
provision in the Corporation Code or related statutes authorizing the same, but is
instead a product of jurisprudence based on equity. However, a derivative suit cannot
prosper without first complying with the legal requisites for its institution.24
Section 1, Rule 8 of the Interim Rules of Procedure Governing IntraCorporate
Controversies imposes the following requirements for derivative suits:
(1) He was a stockholder or member at the time the acts or transactions subject of the
action occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-laws,
laws or rules governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
The RTC dismissed the Complaint for failure to comply with the second and fourth
requisites above.
Upon a careful examination of the Complaint, this Court finds that the same should not
have been dismissed on the ground that it is a nuisance or harassment suit. Although
the shareholdings of petitioners are indeed only two out of the 409 alleged outstanding
shares or 0.24%, the Court has held that it is enough that a member or a minority of
stockholders file a derivative suit for and in behalf of a corporation.25
With regard, however, to the second requisite, we find that petitioners failed to state
with particularity in the Complaint that they had exerted all reasonable efforts to
exhaust all remedies available under the articles of incorporation, by-laws, and laws or
rules governing the corporation to obtain the relief they desire. The Complaint
contained no allegation whatsoever of any effort to avail of intra-corporate remedies.
Indeed, even if petitioners thought it was futile to exhaust intra-corporate remedies,
they should have stated the same in the Complaint and specified the reasons for such
opinion. Failure to do so allows the RTC to dismiss the Complaint, even motu proprio, in
accordance with the Interim Rules. The requirement of this allegation in the Complaint
is not a useless formality which may be disregarded at will.1âwphi1 We ruled in Yu v.
Yukayguan26:
The wordings of Section 1, Rule8 of the Interim Rules of Procedure Governing Intra-
Corporate Controversies are simple and do not leave room for statutory construction.
The second paragraph thereof requires that the stockholder filing a derivative suit
should have exerted all reasonable efforts to exhaust all remedies availableunder the
articles of incorporation, by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires; and to allege such fact with particularityin
the complaint. The obvious intent behind the rule is to make the derivative suit the final
recourse of the stockholder, after all other remedies to obtain the relief sought had
failed.
WHEREFORE, the Petition for Review is hereby DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 81441 which affirmed the Order of the Regional Trial Court
(RTC) of Olongapo City dismissing the Complaint filed thereon by herein petitioners is
AFFIRMED.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. L-42699 to L-42709 May 26, 1981
THE HEIRS OF THE LATE FLORENTINA NUGUID VDA. DE HABERER, petitioner,
vs.
COURT OF APPEALS, ** FEDERICO MARTINEZ, BALDOMERO MANALO, FAUSTINO
BAGALAWIS, FEDERICO STA. TERESA, ANGELITO KING, GREGORIO DEL ROSARIO,
LEODOVICO TORRES, LEON SORIANO, SANTIAGO TUMANG, LUIS PASTOR and
CRISTINO LIBRAMANTE, respondents.

TEEHANKEE, J.:
The Court grants the petition for review by way of appeal from the Resolutions of
respondent Court of Appeals dated November 24, 1975 and January 15, 1976
dismissing the appeal of the late Florentino Nuguid Vda. de Haberer in CA-G. R. No.
53680—90-R and ordering all pleadings filed in said cases after the death of said
appellant stricken off the records, for having been issued with grave error of law if not
with grave abuse of discretion and remands the case for proper proceedings and
determination of the appeal on the merits.
This case originated from the Court of First Instance of Rizal where the late Florentina
Nuguid Vda. de Haberer as the duly registered owner filed in 1964 and 1965 (11)
complaints for recovery of possession of the parcel of land evidenced by Transfer
Certificate of Title No. 15043 of the Register of Deeds of Rizal issued in her name,
situated at Mandaluyong, Rizal, alleging that private respondents had surreptitiously
entered the land and built their houses thereon.
The lower court, after trial on the merits, rendered a consolidated decision, dated May
26, 197 l, dismissing all the complaints. On motion of the late Florentina Nuguid Vda. de
Haberer the cases were reopened and retried on grounds of newly discovered evidence.
On September 15, 1972, the lower court issued an order reviving its decision of May 26,
1971. The decision was thus appealed to the Court of Appeals.
In the Court of Appeals, the cases were erroneously dismissed once before, on the
ground that the appeal was allegedly filed out of time. The issue was brought to this
Court in Cases Nos. L-39366 and L-39620-29, entitled "Florentina Nuguid Vda. de
Haberer vs. Federico Martinez, et al., 1 On January 29, 1975, this Court rendered its
judgment setting aside the appellate court's dismissal of the appeal and ordering the
reinstatement of the same for proper disposition on the merits, having found "that
contrary to respondent court's erroneous premises and computation, petitioner duly
and timely perfected her appeal within the reglementary period and in compliance with
the material data rule requiring that the Record on Appeal state such data as will show
that the appeal was perfected on time. "
The cases were remanded to the Court of Appeals where appellant was required to file
printed brief within forty-five days from her receipt of notice. Three days before the
period was to expire, or on June 18, 1975, appellant's counsel requested for an
extension of time within which to file appellant's brief. Respondent court in a resolution
dated June 23, 1975 granted the request and gave appellant a 90-day extension (with
warning of no further extension) from receipt on June 27, 1975 or up to September 25,
1975 within which to file the appellant's printed brief. On June 23, 1975, private
respondent opposed the extension by filing a "Motion to Set Aside Order Granting
Extension of Time to File Brief." Appellant was directed by respondent court to
comment on the said opposition and appellant's counsel complied by submitting its
comments on July 15, 1975.
In the meantime, appellant Florentina Nuguid Vda. de Haberer had died on May 26,
1975. Appellant's counsel Attorneys Bausa, Ampil and Suarez accordingly gave
respondent court notice of the death of their client in their motion of June 28, 1975 and
asked for the suspension of the running of the period within which to file the appellant's
brief pending the appointment of an executor of the estate left by their client in the
Court of First Instance of Quezon City (Sp. Proc. No. Q-2026) where a petition for the
probate of the alleged will of the deceased had been filed by another lawyer, Atty. Sergio
Amante. Respondents in turn contended that the lawyers of he deceased had "no longer
any legal standing and her atorneys could no longer act for and in her behalf for the
reason that their client-attorney relationship had been automatically erminated or
severed" and asked that the appeal be dismissed for failure to prosecute." 2
Since their motion of June 28, 1975 remained unacted upon and the original extension
granted by the respondent court for the deceased appellant to file her printed brief was
about to expire, her counsel filed on September 18, 1975 a manifestation and/or motion
asking either for an extension of sixty (60) days and/or resolution suspending the
running of the period within which to submit appellant's printed brief. Still, respondent,
court remained silent.
Not certain whether their services would still be retained by the heirs of the deceased,
counsel for the late Florentina Nuguid Vda. de Haberer reiterated their request in a
motion dated November 14, 1975 either for an extension of time to file appellant's brief
or for the issuance of a resolution suspending the running of the period for filing the
same, pending the appointment of an administrator or executor of the estate of the
deceased appellant.
Finally, acting on counsel's motion of November 14, 1975, respondent court denied the
request for extension and at the same time dismissed the appeal, ruling in its resolution
dated November 24, 1975 as follows:1äwphï1.ñët
Upon consideration of the manifestation and/or for another extension to file appellant's
brief dated November 14, 1975, filed by counsel for the appellant on the grounds
therein stated, and considering that appellant has already been given a total of one
hundred ninety-five (195) days within which to file brief, the Court Resolved to deny
the motion for another extension to file brief and to dismiss the appeal.
Counsel for the deceased appellant forthwith filed their urgent motion for
reconsideration of December 8, 1975 explaining their predicament that the requests for
extension/suspension of period to file brief was due to the uncertainty that their
services may no longer be retained by the heirs or legal representatives of their
deceased client but they felt obligated to preserve the right of such heirs/successors to
continue the appeal pursuant to Rule 3, Section 17 of the Rules of Court, pending the
settlement of the question of who among them should be the executor of the deceased's
estate and presented therewith, for admission, the printed "brief for the appellant" the
printing of which they had deferred "for professional ethical considerations," pending
respondent court's action on their request for suspension of the period. They further
submitted therewith copies of 2 separate orders of September 3, 1975 and August 26,
1975 issued by the Court of Agrarian Relations and the Court of First Instance both at
Guimba, Nueva Ecija, respectively, wherein the deceased Florentina Nuguid Vda. de
Haberer was party-defendant, granting the deceased's counsel's prayer to hold in
abeyance further proceedings therein pending the appointment of an administrator for
the estate of the deceased.
Respondent court, however, denied reconsideration, per its Resolution of January 15,
1976 citing the general principle that "litigants have no right to assume that such
extensions will be granted as a matter of course." But respondent court erred in
applying this general principle and summarily denying reconsideration and denying
admission of the appellant's brief conditioned upon the administrator of the deceased's
estate making his appearance upon his appointment and being granted leave to file his
supplemental brief/memorandum, 3 in view of the intervening event of appellant's
death and the interposition of the equally established principle that the relation of
attorney and client is terminated by the death of the client, as acknowledged by
respondent court itself as well as respondents. ln the absence of a retainer from the
heirs or authorized representatives of his deceased client, the attorney would thereafter
have no further power or authority to appear or take any further action in the case, save
to inform the court of the client's death and take the necessary steps to safeguard the
deceased's rights in the case.
This is what the deceased's counsel did in the case at bar. They properly informed
respondent court of the death of the appellant and sought suspension of the
proceedings and of the period for filing appeliant's brief pending the appointment of the
executor of the deceased's estate in the proper probate proceedings filed with the Court
of First Instance of Quezon City. Section 17, Rule 3 of the Rules of Court 4 sets the rule on
substitution of parties in case of death of any of the parties. Under the Rule, it is the
court that is called upon, after notice of a party's death and the claim is not thereby
extinguished, to order upon proper notice the legal representative of the deceased to
appear within a period of 30 days or such tlnie as it may grant. Since no administrator of
the estate of the deceased appellant had yet been appointed as the same was still
pending determination in the Court of First Instance of Quezon City, the motion of the
deceased's counsel for the suspension of the running of the period within which to file
appellant's brief was well-taken. More, under the Rule, it should have set a period for
the substitution of the deceased party with her legal representative or heirs, failing
which, the court is called upon to order the opposing party to procure the appointment
of a legal representative of the deceased at the cost of the deceased's estate, and such
representative shall then "immediately appear for and on behalf of the interest of the
deceased."
Respondent court gravely erred in not following the Rule and requiring the appearance
of the legal representative of the deceased and instead dismissing the appeal of the
deceased who yet had to be substituted in the pending appeal. Thus, it has been held
that when a party dies in an action that survives, and no order is issued by the court for
the appearance of the legal representative or of the heirs of the deceased in substitution
of the deceased, and as a matter of fact no such substitution has ever been effected, the
trial held by the court without such legal representatives or heirs and the judgment
rendered after such trial are null and void because the court acquired no jurisdiction
over the persons of the legal representatives or of the heirs upon whom the trial and the
judgment would be binding. 5
Respondent court therefore erred in ruling that since upon the demise of the party-
appellant, the attorney-client relationship between her and her counsels "was
automatically severed and terminated," whatever pleadings filed by said counsel with it
after the death of said appellant "are mere scraps of paper." 6 If at all, due to said death
on May 25, 1975 and severance of the attorney-client relationship, further proceedings
and specifically the running of the original 45-day period for filing the appellnt's brief
should be legally deemed as having been automatically suspended, until the proper
substitution of the deceased appellant by her executor or administrator or her heirs
shall have been effected within the time set by respondent court pursuant to the cited
Rule.
Respondent court likewise gravely erred in dismissing the appeal on "(its) belief that
the supervening death of the appellant Florentina Nuguid Vda. de Haberer rendered the
continuance of the appeal unnecessary" on the basis of a totally inapplicable citation of
a ruling in Velasco vs. Rosenberg, 29 Phil. 212, 214 that "If pending appeal, an event
occurs which renders it impossible for the appellate court to grant any relief, the appeal
will be dismissed." Manifestly, the appenant's death in no way impedes that the
deceased's appeal to recover the parcel of land registered in her name be continued and
determined for the benefit of her estate and heirs.
Prescinding from the foregoing, justice and equity dictate under the circumstances of
the case at bar that the rules, while necessary for the speedy and orderly administration
of justice, should not be applied with the rigidity and inflexibility of respondent court's
resolutions. 7 What should guide judicial action is the principle that a party litigant is to
be given the fullest opportunity to establish the merits of his complaint or defense
rather than for him to lose life, liberty, honor or property on technicalities. 8 A liberal,
rather than a strict and inflexible adherence to the Rules, is justified not only because
appellant (in this case, her estate and/or heirs) should be given every opportunity to be
heard but also because no substantial injury or prejudice can well be caused to the
adverse parties principally, since they are in actual possession of the disputed
land. 9 The better and certainly the more prudent course of action in every judicial
proceeding is to hear both sides and decide on the merits rather than dispose of a case
on technicalities, 10 especially where no substantial prejudice is caused to the adverse
party. 11
The dismissal of an appeal based on the appellant's failure to file brief is based on a
power granted to respondent Court of Appeals and not on a specific and mandatory
duty imposed upon it by the Rules. 12 Since the power or authority is not mandatory but
merely directory, the exercise thereof requires a great deal of circumspection,
considering all the attendant circumstances. 13 The failure of an appellant to file his brief
within the time prescribed does not have the effect of dismissing the appeal
automatically. 14 Rather, the Court of Appeals has the discretion to dismiss or not to
dismiss appellant's appeal, which discretion must be a sound one to be exercised in
accordance with the tenets of justice and fair play having in mind the circumstances
obtaining in each case. l5
Paraphrasing what the Court stressed in the leading case of Berkenkotter vs. Court of
Appeals, 16 a reading of the appellant's brief discloses that petitioners-appellants have
a prima facie meritorious case which should be properly determined on the merits and
"the element of rigidity should not be affixed to procedural concepts and made to cover
the matter," 17 for to dismiss the appeal would not serve the ends of justice.
A final note: On March 19, 1976, counsels submitted with their Manifestation the
written authority dated January 20, 1976 individually signed by instituted heirs and/or
legal representatives of the testate estate of the deceased Florentina Nuguid Vda. de
Haberer granting said counsels full authority to file and prosecute the case and any
other incidental cases for and in their behalf, 18 which was duly noted in the Court's
Resolution of March 26, 1976. Such manifestation and authority may be deemed the
formal substitution of the deceased by her heirs, as in fact they appear as petitioners in
the title of the case at bar. Hence, the proper determination of the pending appeal may
now proceed, as herein directed.
ACCORDINGLY, the petition is granted and respondent court's resolutions of November
24, 1975 and January 15, 1976 are set aside. The appellant's brief filed with respondent
court in the pending appeal in CA-G.R. Nos. 53680-90-R is ordered admitted and the
cases are remanded to respondent, Court of Appeals for further proceedings and proper
determination of the appeal on the merits. With costs against private respondents.
The Court has noted that upon recommendation of the Solicitor General in Adm. Case
No. 2148 entitled "Francisco Ortigas, Jr., et al. vs. Atty. Felipe C. Navarro" that counsel for
respondents Felipe C. Navarro be disbarred for "gross misconduct and/or malpractice,"
he has been suspended from the practice of law during the pendency of said
proceedings. The Court, however, directs that copy of this decision be served on said
counsel for the sole purpose of apprising private respondents through him of the
promulgation of this judgment and to require respondents (1) to inform the Court of
their new counsel, if any, and to direct him to enter his appearance or (2) if they have no
new or other counsel, to inform the Court of their respective addresses for purposes of
service of the Court's processes, within ten (10) days from notice hereof.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11567 July 17, 1958
ARSENIO FERRERIA, ET AL., petitioners-appellees,
vs.
MANUELA IBARRA VDA. DE GONZALES, ET AL., respondents-appellants.
F. M. Ejercito for respondents.
Pedro R. Manago for petitioner.
MONTEMAYOR, J.:
This is quite an old case, about a landlord and some of her tenants, which had its origin
in a complaint filed by some of said tenants was back on February 3, 1947. The thing
involved is about twenty cavans of palay. But under the present law, the appeal from a
resolution of the Court of Agrarian Relations had to come directly to this Tribunal.
Manuela Ibarra Vda. de Gonzales presumably owned a parcel of land in Umingan,
Pangasinan, cultivated by tenants. After the sharing of the crop for the agricultural year
1946-47 by her overseer, Luis Tecson, a number of the tenants, dissatisfied with their
share on the basis of 60-40, claiming that they were entitled to 70% of said crop, filed
complaints with the Tenancy Division of the Department of Justice. It would appear,
however, that only tenant Arsenio Ferreria continued with his complaint, his co-
complainants having withdrawn theirs. Ferreria's complaint was filed not only against
Manuela Ibarra, but also against the overseer, Luis Tecson. During the pendency of the
case, Manuela died on November 27, 1948. Counsel for Ferreria filed a petition for
substitution which was granted by order of the Department of Justice, dated December
9, 1948, which also set the case for hearing on January 6, 1949.
The said order of December 9, 1948, at the bottom thereof, made mention of Manolita
Gonzales as residing at 272 Buendia St., Rizal City. The return of service of said order
supposedly by the Sheriff (Annex C), shows that a copy of the same was left with one
Aurora Gonzales, niece of Manolita Gonzales, apparently living in said address. It may be
stated in passing that Manolita Gonzales claims that she did not own the land in
question; that her only right and interest in it was as an heir, being one of the five
surviving children of Manuel.
The scheduled hearing was held in the absence of Manolita Gonzales. Decision was
finally rendered in the case on May 18, 1951. On May 23, 1952, the Court of Industrial
Relations, then in charge of tenancy cases, issued a writ of execution of the judgment,
the dispositive part of said decision in part reading as follows:
IN VIEW OF ALL THE FOREGOING, the respondent landlord and/or her duly authorized
representative is/are hereby ordered to deliver to the petitioner-tenant Arsenio C.
Ferreria the balance of 20.6 cavanes of palay equivalent to 10% of his share to complete
his 70% participation in the crop harvested for the agricultural year 1946-1947, or its
money value at the Naric price of palay in the locality, within 15 days from receipt of
this decision.
Another portion of the dispositive part reproduced, states that the complaints of the
other complainants were dismissed.
On receipt of a copy of this writ of execution, Luis Tecson and Manolita Gonzales each
filed a petition to set aside said writ. Luis claimed that it was true that he was an
overseer of Manuela Ibarra, but that upon her death on November 27, 1948, the
possession that he held of the land as overseer passed on to the administrator of the
estate; that thereafter, he no longer had anything to do with said property, and that in
the distribution of the crop for 1946-1947, the share of Manuela was duly delivered by
him to her, and that any claim by Ferreria should be filed with and against her estate. On
her part, Manolita claimed that she was surprised to receive a copy of the writ of
execution because she was never made a party to the case and had never been served
any process or notice of hearing therein, and that an examination of the record of the
case would show that from the inception of the case up to the rendering of the decision,
her name was never mentioned by any of the parties, and that it was a surprise to find
her name included in the title of the decision as one of the defendants, although the
body of said decision never mentioned her name; that although she was one of the five
heirs of Manuel Ibarra, she, Manolita, was not the actual owner of the estate which was
then under probate proceedings in the Court of First Instance of Rizal; and that if
Ferreria had any claim against the estate, he should file the same to be passed upon by
the probate court. Both Luis and Manolita asked that the writ of execution be set aside.
It would seem that nothing was done about the petitions, and after the creation of the
Court of Agrarian Relations, Judge Tomas P. Panganiban finally took action on the same,
and by order of August 23, 1956, overruled the same, holding that under the law
creating the Court of Agrarian Relations, said court had exclusive and original
jurisdiction to try, investigate, and settle all cases, matters and disputes arising between
landlord and tenant, and that the case at bar was purely a dispute between landlord and
tenant. Both petitioners Luis and Manolita asked for reconsideration of the order,
Manolita emphasizing her contention that she was deprived of her day in court due to
the failure of plaintiff Ferreria to make the proper substitution, citing Rule 3, Section 17,
above-reproduced. In a resolution dated October 29, 1956, the Agrarian Court held that
Manuela Ibarra had been duly substituted by Manolita Gonzales, and that service of the
order of substitution was duly served upon her. We reproduce the pertinent portion of
the resolution:
Anent the first ground, it appears that respondent Manuela Ibarra Vda. de Gonzales was
duly substituted upon her death by Manolita Gonzales Vda. de Carungcong in a petition
filed by counsel for the petitioners on December 9, 1948, and granted by the
representative of the former Tenancy Division, now Court of Agrarian Relations, on the
same date. A copy of the order granting the petition for substitution was sent to
Manolita Gonzales Vda. de Carungcong, through the Chief of Police of Rizal City, by
registered mail on December 9, 1948. Therefore, respondent Manolita was duly notified
of the hearing set on January 6, January 26, March 26, April 21, May 7, June 7, and July 1,
all in the year 1949, but these hearings had to be cancelled due to the absence of the
respondents on January 6, 1949 and their several motions for postponement on the
subsequent dates. On July 2, 1949, the hearing proceeded in the absence of the
respondents during which petitioners presented their evidence. Notwithstanding
several chances given to the respondents to present their evidence on August 5, 1949
and September 20, 1949, respondents persistently failed to appear. However, on
February 3, 1950, counsel for the respondents cross examined one witness of the
petitioners and finally, on March 4, 1950 respondents presented their evidence, with
the exception of Manolita Gonzales de Carungcong (who) never appeared.
The Agrarian Court further said that if Manolita did not care to appear before the former
Tenancy Division, she cannot now complain that she was deprived of her day in court;
and that as to Luis Tecson, since the decision orders "the respondent landlord and/or
her duly authorized representative" to deliver to the petitioner Ferreria the balance of
20.6 cavans of palay, Luis Tecson, as overseer and duly authorized representative of the
landlord, must comply with the decision of the court, and that his counsel's contention
that the property involved was within the jurisdiction of the probate court was
incorrect, for the reason that the palay ordered to be delivered, properly belonged to
Ferreria as his share in the crop and, therefore, it was not part of the estate under
administration, neither was it a claim against the estate.
Both Manolita and Luis have filed the present petition to review the order of August 23,
1956, denying the petitions to lift the writ of execution and the order of October 29,
1956, denying the petition for reconsideration. The petition was given due course and
appellee Ferreria was required to answer, which he did. Thereafter, both parties filed
memoranda in support of their contentions.
The first question to be determined is whether or not there was a valid notification or
service of the order granting the petition for substitution on Manolita Gonzales. It will
be remembered that a copy of the order was never served on Manolita personally, but
upon her niece, Aurora Gonzales. In other words it was substituted service. Section 8,
Rule 7, regarding the service of summons, provides as follows:
SEC. 8. Substituted service. — If the defendant cannot be promptly served as required in
the preceding, service may be effected by leaving copies of the summons at the
defendant's dwelling house or usual place of abode with some person of suitable age
and discretion then residing there or by leaving the copies at defendant's office or
regular place of business with some competent person in charge thereof or upon the
defendant by registered mail.
As to the service of court orders, we have Sections 3 and 4 of Rule 27, which read as
follows:
SEC. 3. Modes of service. — Service of pleadings, motions, notices, orders, judgments and
other papers, shall be made either personally or by mail.
SEC. 4. Personal service. — Service of the papers may be made by delivering personally a
copy to the party or his attorney, or by leaving it in his office with his clerk or with a
person having charge thereof. If no person is found in his office, or his office is not
known, then by leaving the copy, between the hours of eight in the morning and six in
the evening, at the party's or attorney's residence, if known, with a person of sufficient
discretion to receive the same.
We find that under none of these above-quoted provisions of the Rules of Court had
Manolita been duly served with the order of substitution. According to her, at the time,
she was not living at 272 Buendia St., where copy of the order was left with Aurora who
lived in that place. The rules require that the copy should be left at the residence or
office of the one served, or with someone living therein. Furthermore, Manolita claims
that she never received the copy left with her niece and that they were not living
together.
The other question is whether or not there had been a valid substitution. Rule 3, Section
17, of the Rule of Court provides as follows:
SEC. 17. Death of party. — After a party die and the claim in not thereby extinguished,
the court shall order, upon proper notice, the legal representative of the deceased to
appear and to be substituted for the deceased, within a period of thirty (30) days, or
within such time as may be granted. If the legal representative fails to appear within
said time, the court may order the opposing party to procure the appointment of a legal
representative of the decease within a time to be specified by the court, and the
representative shall immediately appear for and on behalf of the interest of the
deceased. The court charges involved in procuring such appointment, if defrayed by the
opposing party, may be recovered as costs. The heirs of the deceased may be allowed to
be substituted for the deceased, without requiring the appointment of an executor or
administrator and the court may appoint guardian litem for the minor heirs.
In the present case, there is no question that there had been no court order for the legal
representative of Manuela Ibarra to appear, nor had any such legal representative ever
appeared in court to be substituted for the deceased; neither had complainant Ferreria
ever procured the appointment of such legal representative of the deceased, nor had the
heirs of the deceased, including Manolita ever asked to be allowed to be substituted for
the deceased Manuela. As a result, the hearings were held without the presence of
Manolita Gonzales. True, Atty. Emilio Fernandez, it seems, originally represented
Manuela and apparently, Luis Tecson, and continued within their representation, but
Manolita now argues that with the death of Manuela Ibarra, his relationship as counsel
for Manuela ceased, and what is more, he was never authorized to appear for Manolita
Gonzales. Inasmuch as Manolita Gonzales was never validly served a copy of the order
granting the substitution and that, furthermore, a valid substitution was never effected,
consequently, the court never acquired jurisdiction over Manolita Gonzales for the
purpose of making her a party to the case and making the decision binding upon her,
either personally or as legal representative of the estate of her mother Manuela.
However, we agree with the Agrarian Court in so far as it holds that it has exclusive
jurisdiction over cases involving tenancy. The fact that the landlord dies not mean that
the relation of landlord and tenant ends, because the estate continues to be the landlord
and if, as in this case, it is found that during the lifetime of Manuela Ibarra, the sharing of
crop for the agricultural year 1946-1947 should have been on the basis of 70-30,
instead of 60-40, and therefore, the owed Ferreria 10% of said crop, then said obligation
remained a charge on her estate after she died and there was no necessity for the tenant
to file a claim for this 10% with the probate court in charge of the estate.
As to Luis Tecson, we agree with him in his contention that in the sharing of the crop for
the agricultural year 1946-1947, he acted merely as an overseer and that he gave the
share corresponding to the owner to Manuela, and that since then, specially after her
death, he had nothing more to do with the land. It is clear that the obligation to deliver
to tenant Ferreria 10% of that crop of the agricultural year, should it be later found that
the basis should have been 70-30, instead of 60-40, rests with the estate of Manuela
through the administrator and not with Luis Tecson, whose relation as overseer had
long ceased.
In connection with the basis of sharing of the crop for the agricultural year 1946-1947,
Manolita in her pleadings claims that her mother furnished the work animals, seeds, and
other facilities used in the cultivation and that consequently, the share should have been
on the 50-50 basis. Ferreria claims the contrary. These conflicting claims should be
finally determined by the Agrarian Court.
In view of the foregoing, we hereby set aside not only the writ of execution, the
resolution of the Agrarian Court and its order denying the motion for reconsideration of
the same, now sought to be reviewed, but also the original decision of the Tenancy
Division for lack of jurisdiction. The case is hereby ordered remanded to the Court of
Agrarian Relations for further proceedings, in which proceedings, the Agrarian Court
may bear in mind and consider the rulings and holdings contained in this decision,
specially with regards to substitution of parties and the liability of Luis Tecson in
relation to any palay which Ferreria may be found to be entitled to. No costs.
 FIRST DIVISION
G.R. No. 160347 November 29, 2006
ARCADIO and MARIA LUISA CARANDANG, Petitioners,
vs.
HEIRS OF QUIRINO A. DE GUZMAN, namely: MILAGROS DE GUZMAN, VICTOR DE
GUZMAN, REYNALDO DE GUZMAN, CYNTHIA G. RAGASA and QUIRINO DE GUZMAN,
JR., Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari assailing the Court of Appeals Decision1 and
Resolution affirming the Regional Trial Court (RTC) Decision rendering herein
petitioners Arcadio and Luisa Carandang [hereinafter referred to as spouses Carandang]
jointly and severally liable for their loan to Quirino A. de Guzman.
The Court of Appeals summarized the facts as follows:
[Quirino de Guzman] and [the Spouses Carandang] are stockholders as well as
corporate officers of Mabuhay Broadcasting System (MBS for brevity), with equities at
fifty four percent (54%) and forty six percent (46%) respectively.
On November 26, 1983, the capital stock of MBS was increased, from ₱500,000 to P1.5
million and ₱345,000 of this increase was subscribed by [the spouses Carandang].
Thereafter, on March 3, 1989, MBS again increased its capital stock, from ₱1.5 million to
₱3 million, [the spouses Carandang] yet again subscribed to the increase. They
subscribed to ₱93,750 worth of newly issued capital stock.
[De Guzman] claims that, part of the payment for these subscriptions were paid by him,
₱293,250 for the November 26, 1983 capital stock increase and ₱43,125 for the March
3, 1989 Capital Stock increase or a total of ₱336,375. Thus, on March 31, 1992, [de
Guzman] sent a demand letter to [the spouses Carandang] for the payment of said total
amount.
[The spouses Carandang] refused to pay the amount, contending that a pre-
incorporation agreement was executed between [Arcadio Carandang] and [de Guzman],
whereby the latter promised to pay for the stock subscriptions of the former without
cost, in consideration for [Arcadio Carandang’s] technical expertise, his newly
purchased equipment, and his skill in repairing and upgrading radio/communication
equipment therefore, there is no indebtedness on their part [sic].
On June 5, 1992, [de Guzman] filed his complaint, seeking to recover the ₱336,375
together with damages. After trial on the merits, the trial court disposed of the case in
this wise:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of [de
Guzman]. Accordingly, [the spouses Carandang] are ordered to jointly and severally pay
[de Guzman], to wit:
(1) ₱336,375.00 representing [the spouses Carandang’s] loan to de Guzman;
(2) interest on the preceding amount at the rate of twelve percent (12%) per annum
from June 5, 1992 when this complaint was filed until the principal amount shall have
been fully paid;
(3) ₱20,000.00 as attorney’s fees;
(4) Costs of suit.
The spouses Carandang appealed the RTC Decision to the Court of Appeals, which
affirmed the same in the 22 April 2003 assailed Decision:
WHEREFORE, in view of all the foregoing the assailed Decision is hereby AFFIRMED. No
costs.2
The Motion for Reconsideration filed by the spouses Carandang was similarly denied by
the Court of Appeals in the 6 October 2003 assailed Resolution:
WHEREFORE, in view thereof, the motion for reconsideration is hereby DENIED and our
Decision of April 22, 2003, which is based on applicable law and jurisprudence on the
matter is hereby AFFIRMED and REITERATED.3
The spouses Carandang then filed before this Court the instant Petition for Review on
Certiorari, bringing forth the following issues:
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED MANIFEST
ERROR IN FAILING TO STRICTLY COMPLY WITH SECTION 16, RULE 3 OF THE 1997
RULES OF CIVIL PROCEDURE.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ITS
FINDING THAT THERE IS AN ALLEGED LOAN FOR WHICH PETITIONERS ARE LIABLE,
CONTRARY TO EXPRESS PROVISIONS OF BOOK IV, TITLE XI, OF THE NEW CIVIL CODE
PERTAINING TO LOANS.
III.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
FINDING THAT THE RESPONDENTS WERE ABLE TO DISCHARGE THEIR BURDEN OF
PROOF, IN COMPLETE DISREGARD OF THE REVISED RULES ON EVIDENCE.
IV.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR WHEN IT FAILED TO APPLY SECTIONS 2 AND 7, RULE 3 OF THE 1997 RULES
OF CIVIL PROCEDURE.
V.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
FINDING THAT THE PURPORTED LIABILITY OF PETITIONERS ARE JOINT AND
SOLIDARY, IN VIOLATION OF ARTICLE 1207 OF THE NEW CIVIL CODE.4
Whether or not the RTC Decision is void for failing to comply with Section 16, Rule 3 of
the Rules of Court
The spouses Carandang claims that the Decision of the RTC, having been rendered after
the death of Quirino de Guzman, is void for failing to comply with Section 16, Rule 3 of
the Rules of Court, which provides:
SEC. 16. Death of party; duty of counsel. – Whenever a party to a pending action dies,
and the claim is not thereby extinguished, it shall be the duty of his counsel to inform
the court within thirty (30) days after such death of the fact thereof, and to give the
name and address of his legal representative or representatives. Failure of counsel to
comply with this duty shall be a ground for disciplinary action.
The heirs of the deceased may be allowed to be substituted for the deceased, without
requiring the appointment of an executor or administrator and the court may appoint a
guardian ad litem for the minor heirs.
The court shall forthwith order the legal representative or representatives to appear
and be substituted within a period of thirty (30) days from notice.
If no legal representative is named by the counsel for the deceased party, or if the one so
named shall fail to appear within the specified period, the court may order the opposing
party, within a specified time, to procure the appointment of an executor or
administrator for the estate of the deceased and the latter shall immediately appear for
and on behalf of the deceased. The court charges in procuring such appointment, if
defrayed by the opposing party, may be recovered as costs.
The spouses Carandang posits that such failure to comply with the above rule renders
void the decision of the RTC, in adherence to the following pronouncements in Vda. de
Haberer v. Court of Appeals5 and Ferreria v. Vda. de Gonzales6 :
Thus, it has been held that when a party dies in an action that survives and no order is
issued by the court for the appearance of the legal representative or of the heirs of the
deceased in substitution of the deceased, and as a matter of fact no substitution has ever
been effected, the trial held by the court without such legal representatives or heirs and
the judgment rendered after such trial are null and void because the court acquired no
jurisdiction over the persons of the legal representatives or of the heirs upon whom the
trial and judgment would be binding.7
In the present case, there had been no court order for the legal representative of the
deceased to appear, nor had any such legal representative appeared in court to be
substituted for the deceased; neither had the complainant ever procured the
appointment of such legal representative of the deceased, including appellant, ever
asked to be substituted for the deceased. As a result, no valid substitution was effected,
consequently, the court never acquired jurisdiction over appellant for the purpose of
making her a party to the case and making the decision binding upon her, either
personally or as a representative of the estate of her deceased mother.8
However, unlike jurisdiction over the subject matter which is conferred by law and is
not subject to the discretion of the parties,9 jurisdiction over the person of the parties to
the case may be waived either expressly or impliedly.10 Implied waiver comes in the
form of either voluntary appearance or a failure to object.11
In the cases cited by the spouses Carandang, we held that there had been no valid
substitution by the heirs of the deceased party, and therefore the judgment cannot be
made binding upon them. In the case at bar, not only do the heirs of de Guzman
interpose no objection to the jurisdiction of the court over their persons; they are
actually claiming and embracing such jurisdiction. In doing so, their waiver is not even
merely implied (by their participation in the appeal of said Decision), but express (by
their explicit espousal of such view in both the Court of Appeals and in this Court). The
heirs of de Guzman had no objection to being bound by the Decision of the RTC.
Thus, lack of jurisdiction over the person, being subject to waiver, is a personal defense
which can only be asserted by the party who can thereby waive it by silence.
It also pays to look into the spirit behind the general rule requiring a formal substitution
of heirs. The underlying principle therefor is not really because substitution of heirs is a
jurisdictional requirement, but because non-compliance therewith results in the
undeniable violation of the right to due process of those who, though not duly notified
of the proceedings, are substantially affected by the decision rendered therein.12 Such
violation of due process can only be asserted by the persons whose rights are claimed to
have been violated, namely the heirs to whom the adverse judgment is sought to be
enforced.
Care should, however, be taken in applying the foregoing conclusions. In People v.
Florendo,13 where we likewise held that the proceedings that took place after the death
of the party are void, we gave another reason for such nullity: "the attorneys for the
offended party ceased to be the attorneys for the deceased upon the death of the latter,
the principal x x x." Nevertheless, the case at bar had already been submitted for
decision before the RTC on 4 June 1998, several months before the passing away of de
Guzman on 19 February 1999. Hence, no further proceedings requiring the appearance
of de Guzman’s counsel were conducted before the promulgation of the RTC Decision.
Consequently, de Guzman’s counsel cannot be said to have no authority to appear in
trial, as trial had already ceased upon the death of de Guzman.
In sum, the RTC Decision is valid despite the failure to comply with Section 16, Rule 3 of
the Rules of Court, because of the express waiver of the heirs to the jurisdiction over
their persons, and because there had been, before the promulgation of the RTC Decision,
no further proceedings requiring the appearance of de Guzman’s counsel.
Before proceeding with the substantive aspects of the case, however, there is still one
more procedural issue to tackle, the fourth issue presented by the spouses Carandang
on the non-inclusion in the complaint of an indispensable party.
Whether or not the RTC should have dismissed the case for failure to state a cause of
action, considering that Milagros de Guzman, allegedly an indispensable party, was not
included as a party-plaintiff
The spouses Carandang claim that, since three of the four checks used to pay their stock
subscriptions were issued in the name of Milagros de Guzman, the latter should be
considered an indispensable party. Being such, the spouses Carandang claim, the failure
to join Mrs. de Guzman as a party-plaintiff should cause the dismissal of the action
because "(i)f a suit is not brought in the name of or against the real party in interest, a
motion to dismiss may be filed on the ground that the complaint states no cause of
action."14
The Court of Appeals held:
We disagree. The joint account of spouses Quirino A de Guzman and Milagros de
Guzman from which the four (4) checks were drawn is part of their conjugal property
and under both the Civil Code and the Family Code the husband alone may institute an
action for the recovery or protection of the spouses’ conjugal property.
Thus, in Docena v. Lapesura [355 SCRA 658], the Supreme Court held that "x x x Under
the New Civil Code, the husband is the administrator of the conjugal partnership. In fact,
he is the sole administrator, and the wife is not entitled as a matter of right to join him
in this endeavor. The husband may defend the conjugal partnership in a suit or action
without being joined by the wife. x x x Under the Family Code, the administration of the
conjugal property belongs to the husband and the wife jointly. However, unlike an act of
alienation or encumbrance where the consent of both spouses is required, joint
management or administration does not require that the husband and wife always act
together. Each spouse may validly exercise full power of management alone, subject to
the intervention of the court in proper cases as provided under Article 124 of the Family
Code. x x x."
The Court of Appeals is correct. Petitioners erroneously interchange the terms "real
party in interest" and "indispensable party." A real party in interest is the party who
stands to be benefited or injured by the judgment of the suit, or the party entitled to the
avails of the suit.15 On the other hand, an indispensable party is a party in interest
without whom no final determination can be had of an action,16 in contrast to a
necessary party, which is one who is not indispensable but who ought to be joined as a
party if complete relief is to be accorded as to those already parties, or for a complete
determination or settlement of the claim subject of the action.17
The spouses Carandang are indeed correct that "(i)f a suit is not brought in the name of
or against the real party in interest, a motion to dismiss may be filed on the ground that
the complaint states no cause of action."18 However, what dismissal on this ground
entails is an examination of whether the parties presently pleaded are interested in the
outcome of the litigation, and not whether all persons interested in such outcome are
actually pleaded. The latter query is relevant in discussions concerning indispensable
and necessary parties, but not in discussions concerning real parties in interest. Both
indispensable and necessary parties are considered as real parties in interest, since
both classes of parties stand to be benefited or injured by the judgment of the suit.
Quirino and Milagros de Guzman were married before the effectivity of the Family Code
on 3 August 1988. As they did not execute any marriage settlement, the regime of
conjugal partnership of gains govern their property relations.19
All property acquired during the marriage, whether the acquisition appears to have
been made, contracted or registered in the name of one or both spouses, is presumed to
be conjugal unless the contrary is proved.20 Credits are personal properties,21 acquired
during the time the loan or other credit transaction was executed. Therefore, credits
loaned during the time of the marriage are presumed to be conjugal property.
Consequently, assuming that the four checks created a debt for which the spouses
Carandang are liable, such credits are presumed to be conjugal property. There being no
evidence to the contrary, such presumption subsists. As such, Quirino de Guzman, being
a co-owner of specific partnership property,22 is certainly a real party in interest.
Dismissal on the ground of failure to state a cause of action, by reason that the suit was
allegedly not brought by a real party in interest, is therefore unwarranted.
So now we come to the discussion concerning indispensable and necessary parties.
When an indispensable party is not before the court, the action should likewise be
dismissed.23 The absence of an indispensable party renders all subsequent actuations of
the court void, for want of authority to act, not only as to the absent parties but even as
to those present.24 On the other hand, the non-joinder of necessary parties do not result
in the dismissal of the case. Instead, Section 9, Rule 3 of the Rules of Court provides for
the consequences of such non-joinder:
Sec. 9. Non-joinder of necessary parties to be pleaded. – Whenever in any pleading in
which a claim is asserted a necessary party is not joined, the pleader shall set forth his
name, if known, and shall state why he is omitted. Should the court find the reason for
the omission unmeritorious, it may order the inclusion of the omitted necessary party if
jurisdiction over his person may be obtained.
The failure to comply with the order for his inclusion, without justifiable cause, shall be
deemed a waiver of the claim against such party.
The non-inclusion of a necessary party does not prevent the court from proceeding in
the action, and the judgment rendered therein shall be without prejudice to the rights of
such necessary party.
Non-compliance with the order for the inclusion of a necessary party would not warrant
the dismissal of the complaint. This is an exception to Section 3, Rule 17 which allows
the dismissal of the complaint for failure to comply with an order of the court, as Section
9, Rule 3 specifically provides for the effect of such non-inclusion: it shall not prevent
the court from proceeding in the action, and the judgment rendered therein shall be
without prejudice to the rights of such necessary party. Section 11, Rule 3 likewise
provides that the non-joinder of parties is not a ground for the dismissal of the action.
Other than the indispensable and necessary parties, there is a third set of parties: the
pro-forma parties, which are those who are required to be joined as co-parties in suits
by or against another party as may be provided by the applicable substantive law or
procedural rule.25 An example is provided by Section 4, Rule 3 of the Rules of Court:
Sec. 4. Spouses as parties. – Husband and wife shall sue or be sued jointly, except as
provided by law.
Pro-forma parties can either be indispensable, necessary or neither indispensable nor
necessary. The third case occurs if, for example, a husband files an action to recover a
property which he claims to be part of his exclusive property. The wife may have no
legal interest in such property, but the rules nevertheless require that she be joined as a
party.
In cases of pro-forma parties who are neither indispensable nor necessary, the general
rule under Section 11, Rule 3 must be followed: such non-joinder is not a ground for
dismissal. Hence, in a case concerning an action to recover a sum of money, we held that
the failure to join the spouse in that case was not a jurisdictional defect.26 The non-
joinder of a spouse does not warrant dismissal as it is merely a formal requirement
which may be cured by amendment.27
Conversely, in the instances that the pro-forma parties are also indispensable or
necessary parties, the rules concerning indispensable or necessary parties, as the case
may be, should be applied. Thus, dismissal is warranted only if the pro-forma party not
joined in the complaint is an indispensable party.
Milagros de Guzman, being presumed to be a co-owner of the credits allegedly extended
to the spouses Carandang, seems to be either an indispensable or a necessary party. If
she is an indispensable party, dismissal would be proper. If she is merely a necessary
party, dismissal is not warranted, whether or not there was an order for her inclusion in
the complaint pursuant to Section 9, Rule 3.
Article 108 of the Family Code provides:
Art. 108. The conjugal partnership shall be governed by the rules on the contract of
partnership in all that is not in conflict with what is expressly determined in this
Chapter or by the spouses in their marriage settlements.
This provision is practically the same as the Civil Code provision it superceded:
Art. 147. The conjugal partnership shall be governed by the rules on the contract of
partnership in all that is not in conflict with what is expressly determined in this
Chapter.
In this connection, Article 1811 of the Civil Code provides that "[a] partner is a co-owner
with the other partners of specific partnership property." Taken with the presumption
of the conjugal nature of the funds used to finance the four checks used to pay for
petitioners’ stock subscriptions, and with the presumption that the credits themselves
are part of conjugal funds, Article 1811 makes Quirino and Milagros de Guzman co-
owners of the alleged credit.
Being co-owners of the alleged credit, Quirino and Milagros de Guzman may separately
bring an action for the recovery thereof. In the fairly recent cases of Baloloy v.
Hular28 and Adlawan v. Adlawan,29 we held that, in a co-ownership, co-owners may
bring actions for the recovery of co-owned property without the necessity of joining all
the other co-owners as co-plaintiffs because the suit is presumed to have been filed for
the benefit of his co-owners. In the latter case and in that of De Guia v. Court of
Appeals,30 we also held that Article 487 of the Civil Code, which provides that any of the
co-owners may bring an action for ejectment, covers all kinds of action for the recovery
of possession.31
In sum, in suits to recover properties, all co-owners are real parties in interest.
However, pursuant to Article 487 of the Civil Code and relevant jurisprudence, any one
of them may bring an action, any kind of action, for the recovery of co-owned
properties. Therefore, only one of the co-owners, namely the co-owner who filed the
suit for the recovery of the co-owned property, is an indispensable party thereto. The
other co-owners are not indispensable parties. They are not even necessary parties, for
a complete relief can be accorded in the suit even without their participation, since the
suit is presumed to have been filed for the benefit of all co-owners.32
We therefore hold that Milagros de Guzman is not an indispensable party in the action
for the recovery of the allegedly loaned money to the spouses Carandang. As such, she
need not have been impleaded in said suit, and dismissal of the suit is not warranted by
her not being a party thereto.
Whether or not respondents were able to prove the loan sought to be collected from
petitioners
In the second and third issues presented by the spouses Carandang, they claim that the
de Guzmans failed to prove the alleged loan for which the spouses Carandang were held
liable. As previously stated, spouses Quirino and Milagros de Guzman paid for the stock
subscriptions of the spouses Carandang, amounting to ₱336,375.00. The de Guzmans
claim that these payments were in the form of loans and/or advances and it was agreed
upon between the late Quirino de Guzman, Sr. and the spouses Carandang that the latter
would repay him. Petitioners, on the other hand, argue that there was an oral pre-
incorporation agreement wherein it was agreed that Arcardio Carandang would always
maintain his 46% equity participation in the corporation even if the capital structures
were increased, and that Quirino de Guzman would personally pay the equity
shares/stock subscriptions of Arcardio Carandang with no cost to the latter.
On this main issue, the Court of Appeals held:
[The spouses Carandang] aver in its ninth assigned error that [the de Guzmans] failed to
prove by preponderance of evidence, either the existence of the purported loan or the
non-payment thereof.
Simply put, preponderance of evidence means that the evidence as a whole adduced by
one side is superior to that of the other. The concept of preponderance of evidence
refers to evidence that is of greater weight, or more convincing, than that which is
offered in opposition to it; it means probability of truth.
[The spouses Carandang] admitted that it was indeed [the de Guzmans] who paid their
stock subscriptions and their reason for not reimbursing the latter is the alleged pre-
incorporation agreement, to which they offer no clear proof as to its existence.
It is a basic rule in evidence that each party must prove his affirmative allegation. Thus,
the plaintiff or complainant has to prove his affirmative allegations in the complaints
and the defendant or respondent has to prove the affirmative allegations in his
affirmative defenses and counterclaims.33
The spouses Carandang, however, insist that the de Guzmans have not proven the loan
itself, having presented evidence only of the payment in favor of the Carandangs. They
claim:
It is an undeniable fact that payment is not equivalent to a loan. For instance, if Mr. "A"
decides to pay for Mr. "B’s" obligation, that payment by Mr. "A" cannot, by any stretch of
imagination, possibly mean that there is now a loan by Mr. "B" to Mr. "A". There is a
possibility that such payment by Mr. "A" is purely out of generosity or that there is a
mutual agreement between them. As applied to the instant case, that mutual agreement
is the pre-incorporation agreement (supra) existing between Mr. de Guzman and the
petitioners --- to the effect that the former shall be responsible for paying stock
subscriptions of the latter. Thus, when Mr. de Guzman paid for the stock subscriptions
of the petitioners, there was no loan to speak of, but only a compliance with the pre-
incorporation agreement.34
The spouses Carandang are mistaken. If indeed a Mr. "A" decides to pay for a Mr. "B’s"
obligation, the presumption is that Mr. "B" is indebted to Mr. "A" for such amount that
has been paid. This is pursuant to Articles 1236 and 1237 of the Civil Code, which
provide:
Art. 1236. The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the debtor.
Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the
will of the latter, cannot compel the creditor to subrogate him in his rights, such as those
arising from a mortgage, guarantee, or penalty.
Articles 1236 and 1237 are clear that, even in cases where the debtor has no knowledge
of payment by a third person, and even in cases where the third person paid against the
will of the debtor, such payment would produce a debt in favor of the paying third
person. In fact, the only consequences for the failure to inform or get the consent of the
debtor are the following: (1) the third person can recover only insofar as the payment
has been beneficial to the debtor; and (2) the third person is not subrogated to the
rights of the creditor, such as those arising from a mortgage, guarantee or penalty.35
We say, however, that this is merely a presumption. By virtue of the parties’ freedom to
contract, the parties could stipulate otherwise and thus, as suggested by the spouses
Carandang, there is indeed a possibility that such payment by Mr. "A" was purely out of
generosity or that there was a mutual agreement between them. But such mutual
agreement, being an exception to presumed course of events as laid down by Articles
1236 and 1237, must be adequately proven.
The de Guzmans have successfully proven their payment of the spouses Carandang’s
stock subscriptions. These payments were, in fact, admitted by the spouses Carandang.
Consequently, it is now up to the spouses Carandang to prove the existence of the pre-
incorporation agreement that was their defense to the purported loan.
Unfortunately for the spouses Carandang, the only testimony which touched on the
existence and substance of the pre-incorporation agreement, that of petitioner Arcardio
Carandang, was stricken off the record because he did not submit himself to a cross-
examination of the opposing party. On the other hand, the testimonies of Romeo
Saavedra,36 Roberto S. Carandang,37 Gertrudes Z. Esteban,38 Ceferino Basilio,39 and Ma.
Luisa Carandang40 touched on matters other than the existence and substance of the
pre-incorporation agreement. So aside from the fact that these witnesses had no
personal knowledge as to the alleged existence of the pre-incorporation agreement, the
testimonies of these witnesses did not even mention the existence of a pre-
incorporation agreement.
Worse, the testimonies of petitioners Arcadio Carandang and Ma. Luisa Carandang even
contradicted the existence of a pre-incorporation agreement because when they were
asked by their counsel regarding the matter of the check payments made by the late
Quirino A. de Guzman, Sr. in their behalf, they said that they had already paid for it
thereby negating their own defense that there was a pre-incorporation agreement
excusing themselves from paying Mr. de Guzman the amounts he advanced or loaned to
them. This basic and irrefutable fact can be gleaned from their testimonies which the
private respondents are quoting for easy reference:
a. With respect to the testimony of Ma. Luisa Carandang
Q: Now, can you tell this Honorable Court how do you feel with respect to the Complaint
of the plaintiff in this case charging you that you paid for this year and asking enough to
paid (sic) your tax?
A: We have paid already, so, we are not liable for anything payment (sic).41
b. With respect to the testimony of Arcadio Carandang
"Q: How much?
A: ₱40,000.00 to ₱50,000.00 per month.
Q: The plaintiff also claimed thru witness Edgar Ragasa, that there were receipts issued
for the payment of your shares; which receipts were marked as Exhibits "G" to "L"
(Plaintiff).
I’m showing to you these receipts so marked by the plaintiff as their exhibits which
were issued in the name of Ma. Luisa Carandang, your wife; and also, Arcadio M.
Carandang. Will you please go over this Official Receipt and state for the records, who
made for the payment stated in these receipts in your name?
A: I paid for those shares."42
There being no testimony or documentary evidence proving the existence of the pre-
incorporation agreement, the spouses Carandang are forced to rely upon an alleged
admission by the original plaintiff of the existence of the pre-incorporation agreement.
Petitioners claim that the late Quirino A. de Guzman, Sr. had admitted the existence of
the pre-incorporation agreement by virtue of paragraphs 13 and 14 of their Answer and
paragraph 4 of private respondents’ Reply.
Paragraphs 13 and 14 of petitioners’ Answer dated 7 July 1992 state in full:
13. Sometime in November, 1973 or thereabout, herein plaintiff invited defendant
Arcadio M. Carandang to a joint venture by pooling together their technical expertise,
equipments, financial resources and franchise. Plaintiff proposed to defendant and
mutually agreed on the following:
1. That they would organize a corporation known as Mabuhay Broadcasting Systems,
Inc.
2. Considering the technical expertise and talent of defendant Arcadio M. Carandang and
his new equipments he bought, and his skill in repairing and modifying
radio/communication equipments into high proficiency, said defendant would have an
equity participation in the corporation of 46%, and plaintiff 54% because of his financial
resources and franchise.
3. That defendant would always maintain his 46% equity participation in the
corporation even if the capital structures are increased, and that plaintiff would
personally pay the equity shares/stock subscriptions of defendant with no cost to the
latter.
4. That because of defendant’s expertise in the trade including the marketing aspects, he
would be the President and General Manager, and plaintiff the Chairman of the Board.
5. That considering their past and trustworthy relations, they would maintain such
relations in the joint venture without any mental reservation for their common benefit
and success of the business.
14. Having mutually agreed on the above arrangements, the single proprietorship of
plaintiff was immediately spun-off into a corporation now known as Mabuhay
Broadcasting System, Inc. The incorporators are plaintiff and his family
members/nominees controlling jointly 54% of the stocks and defendant Arcadio M.
Carandang controlling singly 46% as previously agreed.43
Meanwhile, paragraphs 3 and 4 of private respondents’ Reply dated 29 July 1992 state
in full:
3. Plaintiffs admits the allegation in paragraph 13.1 of the Answer only insofar the
plaintiff and defendant Arcadio M. Carandang organized a corporation known as
Mabuhay Broadcasting Systems, Inc. Plaintiff specifically denies the other allegations in
paragraph 13 of the Answer, the same being devoid of any legal or factual bases. The
truth of the matter is that defendant Arcadio M. Carandang was not able to pay plaintiff
the agreed amount of the lease for a number of months forcing the plaintiff to terminate
lease. Additionally, the records would show that it was the defendant Arcadio M.
Carandang who proposed a joint venture with the plaintiff.
It appears that plaintiff agreed to the formation of the corporation principally because
of a directive of then President Marcos indicating the need to broaden the ownership of
radio broadcasting stations. The plaintiff owned the franchise, the radio transmitter, the
antenna tower, the building containing the radio transmitter and other equipment.
Verily, he would be placed in a great disadvantage if he would still have to personally
pay for the shares of defendant Arcadio M. Carandang.
4. Plaintiff admits the allegations in paragraph 14 of the Answer.44
In effect, the spouses Carandang are relying on the fact that Quirino de Guzman stated
that he admitted paragraph 14 of the Answer, which incidentally contained the opening
clause "(h)aving mutually agreed on the above arrangements, x x x."
Admissions, however, should be clear and unambiguous. This purported admission by
Quirino de Guzman reeks of ambiguity, as the clause "(h)aving mutually agreed on the
above arrangements," seems to be a mere introduction to the statement that the single
proprietorship of Quirino de Guzman had been converted into a corporation. If Quirino
de Guzman had meant to admit paragraph 13.3, he could have easily said so, as he did
the other paragraphs he categorically admitted. Instead, Quirino de Guzman expressly
stated the opposite: that "(p)laintiff specifically denies the other allegations of
paragraph 13 of the Answer."45 The Reply furthermore states that the only portion of
paragraph 13 which Quirino de Guzman had admitted is paragraph 13.1, and only
insofar as it said that Quirino de Guzman and Arcardio Carandang organized Mabuhay
Broadcasting Systems, Inc.46
All the foregoing considered, we hold that Quirino de Guzman had not admitted the
alleged pre-incorporation agreement. As there was no admission, and as the testimony
of Arcardio Carandang was stricken off the record, we are constrained to rule that there
was no pre-incorporation agreement rendering Quirino de Guzman liable for the
spouses Carandang’s stock subscription. The payment by the spouses de Guzman of the
stock subscriptions of the spouses Carandang are therefore by way of loan which the
spouses Carandang are liable to pay.1âwphi1
Whether or not the liability of the spouses Carandang is joint and solidary
Finally, the Court of Appeals also upheld the RTC Decision insofar as it decreed a
solidary liability. According to the Court of Appeals:
With regards (sic) the tenth assigned error, [the spouses Carandang] contend that:
"There is absolutely no evidence, testimonial or documentary, showing that the
purported obligation of [the spouses Carandang] is joint and solidary. x x x
"Furthermore, the purported obligation of [the spouses Carandang] does not at all
qualify as one of the obligations required by law to be solidary x x x."
It is apparent from the facts of the case that [the spouses Carandang] were married way
before the effectivity of the Family Code hence; their property regime is conjugal
partnership under the Civil Code.
It must be noted that for marriages governed by the rules of conjugal partnership of
gains, an obligation entered into by the husband and wife is chargeable against their
conjugal partnership and it is the partnership, which is primarily bound for its
repayment. Thus, when the spouses are sued for the enforcement of the obligation
entered into by them, they are being impleaded in their capacity as representatives of
the conjugal partnership and not as independent debtors, such that the concept of joint
and solidary liability, as between them, does not apply.47
The Court of Appeals is correct insofar as it held that when the spouses are sued for the
enforcement of the obligation entered into by them, they are being impleaded in their
capacity as representatives of the conjugal partnership and not as independent debtors.
Hence, either of them may be sued for the whole amount, similar to that of a solidary
liability, although the amount is chargeable against their conjugal partnership property.
Thus, in the case cited by the Court of Appeals, Alipio v. Court of Appeals,48 the two sets
of defendant-spouses therein were held liable for ₱25,300.00 each, chargeable to their
respective conjugal partnerships.
WHEREFORE, the Decision of the Court of Appeals, affirming the judgment rendered
against the spouses Carandang, is hereby AFFIRMED with the following
MODIFICATION: The spouses Carandang are ORDERED to pay the following amounts
from their conjugal partnership properties:
(1) ₱336,375.00 representing the spouses Carandang’s loan to Quirino de Guzman; and
(2) Interest on the preceding amount at the rate of twelve percent (12%) per annum
from 5 June 1992 when the complaint was filed until the principal amount can be fully
paid; and
(3) ₱20,000.00 as attorney’s fees.
No costs.
SO ORDERED.
 THIRD DIVISION
G.R. No. 150135 October 30, 2006
SPOUSES ANTONIO F. ALGURA and LORENCITA S.J. ALGURA, petitioners,
vs.
THE LOCAL GOVERNMENT UNIT OF THE CITY OF NAGA, ATTY. MANUEL TEOXON,
ENGR. LEON PALMIANO, NATHAN SERGIO and BENJAMIN NAVARRO,
SR., respondents.

DECISION

VELASCO, JR., J.:

Anyone who has ever struggled with poverty
knows how extremely expensive it is to be poor.
–– James Baldwin
The Constitution affords litigants—moneyed or poor—equal access to the courts;
moreover, it specifically provides that poverty shall not bar any person from having
access to the courts.1 Accordingly, laws and rules must be formulated, interpreted, and
implemented pursuant to the intent and spirit of this constitutional provision. As such,
filing fees, though one of the essential elements in court procedures, should not be an
obstacle to poor litigants' opportunity to seek redress for their grievances before the
courts.
The Case
This Petition for Review on Certiorari seeks the annulment of the September 11, 2001
Order of the Regional Trial Court (RTC) of Naga City, Branch 27, in Civil Case No. 99-
4403 entitled Spouses Antonio F. Algura and Lorencita S.J. Algura v. The Local
Government Unit of the City of Naga, et al., dismissing the case for failure of petitioners
Algura spouses to pay the required filing fees.2 Since the instant petition involves only a
question of law based on facts established from the pleadings and documents submitted
by the parties,3 the Court gives due course to the instant petition sanctioned under
Section 2(c) of Rule 41 on Appeal from the RTCs, and governed by Rule 45 of the 1997
Rules of Civil Procedure.
The Facts
On September 1, 1999, spouses Antonio F. Algura and Lorencita S.J. Algura filed a
Verified Complaint dated August 30, 19994 for damages against the Naga City
Government and its officers, arising from the alleged illegal demolition of their
residence and boarding house and for payment of lost income derived from fees paid by
their boarders amounting to PhP 7,000.00 monthly.
Simultaneously, petitioners filed an Ex-Parte Motion to Litigate as Indigent Litigants,5 to
which petitioner Antonio Algura's Pay Slip No. 2457360 (Annex "A" of motion) was
appended, showing a gross monthly income of Ten Thousand Four Hundred Seventy
Four Pesos (PhP 10,474.00) and a net pay of Three Thousand Six Hundred Sixteen Pesos
and Ninety Nine Centavos (PhP 3,616.99) for [the month of] July 1999.6 Also attached as
Annex "B" to the motion was a July 14, 1999 Certification7 issued by the Office of the
City Assessor of Naga City, which stated that petitioners had no property declared in
their name for taxation purposes.
Finding that petitioners' motion to litigate as indigent litigants was meritorious,
Executive Judge Jose T. Atienza of the Naga City RTC, in the September 1, 1999
Order,8 granted petitioners' plea for exemption from filing fees.
Meanwhile, as a result of respondent Naga City Government's demolition of a portion of
petitioners' house, the Alguras allegedly lost a monthly income of PhP 7,000.00 from
their boarders' rentals. With the loss of the rentals, the meager income from Lorencita
Algura's sari-sari store and Antonio Algura's small take home pay became insufficient
for the expenses of the Algura spouses and their six (6) children for their basic needs
including food, bills, clothes, and schooling, among others.
On October 13, 1999, respondents filed an Answer with Counterclaim dated October 10,
1999,9 arguing that the defenses of the petitioners in the complaint had no cause of
action, the spouses' boarding house blocked the road right of way, and said structure
was a nuisance per se.
Praying that the counterclaim of defendants (respondents) be dismissed, petitioners
then filed their Reply with Ex-Parte Request for a Pre-Trial Setting10 before the Naga
City RTC on October 19, 1999. On February 3, 2000, a pre-trial was held wherein
respondents asked for five (5) days within which to file a Motion to Disqualify
Petitioners as Indigent Litigants.
On March 13, 2000, respondents filed a Motion to Disqualify the Plaintiffs for Non-
Payment of Filing Fees dated March 10, 2000.11 They asserted that in addition to the
more than PhP 3,000.00 net income of petitioner Antonio Algura, who is a member of
the Philippine National Police, spouse Lorencita Algura also had a mini-store and a
computer shop on the ground floor of their residence along Bayawas St., Sta. Cruz, Naga
City. Also, respondents claimed that petitioners' second floor was used as their
residence and as a boarding house, from which they earned more than PhP 3,000.00 a
month. In addition, it was claimed that petitioners derived additional income from their
computer shop patronized by students and from several boarders who paid rentals to
them. Hence, respondents concluded that petitioners were not indigent litigants.
On March 28, 2000, petitioners subsequently interposed their Opposition to the
Motion12 to respondents' motion to disqualify them for non-payment of filing fees.
On April 14, 2000, the Naga City RTC issued an Order disqualifying petitioners as
indigent litigants on the ground that they failed to substantiate their claim for
exemption from payment of legal fees and to comply with the third paragraph of Rule
141, Section 18 of the Revised Rules of Court—directing them to pay the requisite filing
fees.13
On April 28, 2000, petitioners filed a Motion for Reconsideration of the April 14, 2000
Order. On May 8, 2000, respondents then filed their Comment/Objections to petitioner's
Motion for Reconsideration.
On May 5, 2000, the trial court issued an Order14 giving petitioners the opportunity to
comply with the requisites laid down in Section 18, Rule 141, for them to qualify as
indigent litigants.
On May 13, 2000, petitioners submitted their Compliance15 attaching the affidavits of
petitioner Lorencita Algura16 and Erlinda Bangate,17 to comply with the requirements of
then Rule 141, Section 18 of the Rules of Court and in support of their claim to be
declared as indigent litigants.
In her May 13, 2000 Affidavit, petitioner Lorencita Algura claimed that the demolition of
their small dwelling deprived her of a monthly income amounting to PhP 7,000.00. She,
her husband, and their six (6) minor children had to rely mainly on her husband's salary
as a policeman which provided them a monthly amount of PhP 3,500.00, more or less.
Also, they did not own any real property as certified by the assessor's office of Naga City.
More so, according to her, the meager net income from her small sari-sari store and the
rentals of some boarders, plus the salary of her husband, were not enough to pay the
family's basic necessities.
To buttress their position as qualified indigent litigants, petitioners also submitted the
affidavit of Erlinda Bangate, who attested under oath, that she personally knew spouses
Antonio Algura and Lorencita Algura, who were her neighbors; that they derived
substantial income from their boarders; that they lost said income from their boarders'
rentals when the Local Government Unit of the City of Naga, through its officers,
demolished part of their house because from that time, only a few boarders could be
accommodated; that the income from the small store, the boarders, and the meager
salary of Antonio Algura were insufficient for their basic necessities like food and
clothing, considering that the Algura spouses had six (6) children; and that she knew
that petitioners did not own any real property.
Thereafter, Naga City RTC Acting Presiding Judge Andres B. Barsaga, Jr. issued his July
17, 200018 Order denying the petitioners' Motion for Reconsideration.
Judge Barsaga ratiocinated that the pay slip of Antonio F. Algura showed that the
"GROSS INCOME or TOTAL EARNINGS of plaintiff Algura [was] ₧10,474.00 which
amount [was] over and above the amount mentioned in the first paragraph of Rule 141,
Section 18 for pauper litigants residing outside Metro Manila."19 Said rule provides that
the gross income of the litigant should not exceed PhP 3,000.00 a month and shall not
own real estate with an assessed value of PhP 50,000.00. The trial court found that, in
Lorencita S.J. Algura's May 13, 2000 Affidavit, nowhere was it stated that she and her
immediate family did not earn a gross income of PhP 3,000.00.
The Issue
Unconvinced of the said ruling, the Alguras instituted the instant petition raising a
solitary issue for the consideration of the Court: whether petitioners should be
considered as indigent litigants who qualify for exemption from paying filing fees.
The Ruling of the Court
The petition is meritorious.
A review of the history of the Rules of Court on suits in forma pauperis (pauper litigant)
is necessary before the Court rules on the issue of the Algura spouses' claim to
exemption from paying filing fees.
When the Rules of Court took effect on January 1, 1964, the rule on pauper litigants was
found in Rule 3, Section 22 which provided that:
Section 22. Pauper litigant.—Any court may authorize a litigant to prosecute his action
or defense as a pauper upon a proper showing that he has no means to that effect by
affidavits, certificate of the corresponding provincial, city or municipal treasurer, or
otherwise. Such authority[,] once given[,] shall include an exemption from payment of
legal fees and from filing appeal bond, printed record and printed brief. The legal fees
shall be a lien to any judgment rendered in the case [favorable] to the pauper, unless the
court otherwise provides.
From the same Rules of Court, Rule 141 on Legal Fees, on the other hand, did not
contain any provision on pauper litigants.
On July 19, 1984, the Court, in Administrative Matter No. 83-6-389-0 (formerly G.R. No.
64274), approved the recommendation of the Committee on the Revision of Rates and
Charges of Court Fees, through its Chairman, then Justice Felix V. Makasiar, to revise the
fees in Rule 141 of the Rules of Court to generate funds to effectively cover
administrative costs for services rendered by the courts.20 A provision on pauper
litigants was inserted which reads:
Section 16. Pauper-litigants exempt from payment of court fees.—Pauper-litigants
include wage earners whose gross income do not exceed P2,000.00 a month or
P24,000.00 a year for those residing in Metro Manila, and P1,500.00 a month or
P18,000.00 a year for those residing outside Metro Manila, or those who do not own
real property with an assessed value of not more than P24,000.00, or not more than
P18,000.00 as the case may be.
Such exemption shall include exemption from payment of fees for filing appeal bond,
printed record and printed brief.
The legal fees shall be a lien on the monetary or property judgment rendered in favor of
the pauper-litigant.
To be entitled to the exemption herein provided, the pauper-litigant shall execute an
affidavit that he does not earn the gross income abovementioned, nor own any real
property with the assessed value afore-mentioned [sic], supported by a certification to
that effect by the provincial, city or town assessor or treasurer.
When the Rules of Court on Civil Procedure were amended by the 1997 Rules of Civil
Procedure (inclusive of Rules 1 to 71) in Supreme Court Resolution in Bar Matter No.
803 dated April 8, 1997, which became effective on July 1, 1997, Rule 3, Section 22 of
the Revised Rules of Court was superseded by Rule 3, Section 21 of said 1997 Rules of
Civil Procedure, as follows:
Section 21. Indigent party.—A party may be authorized to litigate his action, claim or
defense as an indigent if the court, upon an ex parte application and hearing, is satisfied
that the party is one who has no money or property sufficient and available for food,
shelter and basic necessities for himself and his family.
Such authority shall include an exemption from payment of docket and other lawful
fees, and of transcripts of stenographic notes which the court may order to be furnished
him. The amount of the docket and other lawful fees which the indigent was exempted
from paying shall be a lien on any judgment rendered in the case favorable to the
indigent, unless the court otherwise provides.
Any adverse party may contest the grant of such authority at any time before judgment
is rendered by the trial court. If the court should determine after hearing that the party
declared as an indigent is in fact a person with sufficient income or property, the proper
docket and other lawful fees shall be assessed and collected by the clerk of court. If
payment is not made within the time fixed by the court, execution shall issue for the
payment thereof, without prejudice to such other sanctions as the court may impose.
At the time the Rules on Civil Procedure were amended by the Court in Bar Matter No.
803, however, there was no amendment made on Rule 141, Section 16 on pauper
litigants.
On March 1, 2000, Rule 141 on Legal Fees was amended by the Court in A.M. No. 00-2-
01-SC, whereby certain fees were increased or adjusted. In this Resolution, the Court
amended Section 16 of Rule 141, making it Section 18, which now reads:
Section 18. Pauper-litigants exempt from payment of legal fees.—Pauper litigants (a)
whose gross income and that of their immediate family do not exceed four thousand
(P4,000.00) pesos a month if residing in Metro Manila, and three thousand (P3,000.00)
pesos a month if residing outside Metro Manila, and (b) who do not own real property
with an assessed value of more than fifty thousand (P50,000.00) pesos shall be exempt
from the payment of legal fees.
The legal fees shall be a lien on any judgment rendered in the case favorably to the
pauper litigant, unless the court otherwise provides.
To be entitled to the exemption herein provided, the litigant shall execute an affidavit
that he and his immediate family do not earn the gross income abovementioned, nor do
they own any real property with the assessed value aforementioned, supported by an
affidavit of a disinterested person attesting to the truth of the litigant's affidavit.
Any falsity in the affidavit of a litigant or disinterested person shall be sufficient cause to
strike out the pleading of that party, without prejudice to whatever criminal liability
may have been incurred.
It can be readily seen that the rule on pauper litigants was inserted in Rule 141 without
revoking or amending Section 21 of Rule 3, which provides for the exemption of
pauper litigants from payment of filing fees. Thus, on March 1, 2000, there were two
existing rules on pauper litigants; namely, Rule 3, Section 21 and Rule 141, Section
18.
On August 16, 2004, Section 18 of Rule 141 was further amended in Administrative
Matter No. 04-2-04-SC, which became effective on the same date. It then became Section
19 of Rule 141, to wit:
Sec. 19. Indigent litigants exempt from payment of legal fees.– INDIGENT LITIGANTS
(A) WHOSE GROSS INCOME AND THAT OF THEIR IMMEDIATE FAMILY DO NOT
EXCEED AN AMOUNT DOUBLE THE MONTHLY MINIMUM WAGE OF AN
EMPLOYEE AND (B) WHO DO NOT OWN REAL PROPERTY WITH A FAIR MARKET
VALUE AS STATED IN THE CURRENT TAX DECLARATION OF MORE THAN THREE
HUNDRED THOUSAND (P300,000.00) PESOS SHALL BE EXEMPT FROM PAYMENT OF
LEGAL FEES.
The legal fees shall be a lien on any judgment rendered in the case favorable to the
indigent litigant unless the court otherwise provides.
To be entitled to the exemption herein provided, the litigant shall execute an
affidavit that he and his immediate family do not earn a gross income
abovementioned, and they do not own any real property with the fair value
aforementioned, supported by an affidavit of a disinterested person attesting to
the truth of the litigant's affidavit. The current tax declaration, if any, shall be
attached to the litigant's affidavit.
Any falsity in the affidavit of litigant or disinterested person shall be sufficient cause to
dismiss the complaint or action or to strike out the pleading of that party, without
prejudice to whatever criminal liability may have been incurred. (Emphasis supplied.)
Amendments to Rule 141 (including the amendment to Rule 141, Section 18) were
made to implement RA 9227 which brought about new increases in filing fees.
Specifically, in the August 16, 2004 amendment, the ceiling for the gross income of
litigants applying for exemption and that of their immediate family was increased from
PhP 4,000.00 a month in Metro Manila and PhP 3,000.00 a month outside Metro Manila,
to double the monthly minimum wage of an employee; and the maximum value of the
property owned by the applicant was increased from an assessed value of PhP
50,000.00 to a maximum market value of PhP 300,000.00, to be able to accommodate
more indigent litigants and promote easier access to justice by the poor and the
marginalized in the wake of these new increases in filing fees.
Even if there was an amendment to Rule 141 on August 16, 2004, there was still no
amendment or recall of Rule 3, Section 21 on indigent litigants.
With this historical backdrop, let us now move on to the sole issue—whether
petitioners are exempt from the payment of filing fees.
It is undisputed that the Complaint (Civil Case No. 99-4403) was filed on September 1,
1999. However, the Naga City RTC, in its April 14, 2000 and July 17, 2000
Orders, incorrectly applied Rule 141, Section 18 on Legal Fees when the applicable
rules at that time were Rule 3, Section 21 on Indigent Party which took effect on July
1, 1997 and Rule 141, Section 16 on Pauper Litigants which became effective on July
19, 1984 up to February 28, 2000.
The old Section 16, Rule 141 requires applicants to file an ex-parte motion to litigate as
a pauper litigant by submitting an affidavit that they do not have a gross income of PhP
2,000.00 a month or PhP 24,000.00 a year for those residing in Metro Manila and PhP
1,500.00 a month or PhP 18,000.00 a year for those residing outside Metro Manila or
those who do not own real property with an assessed value of not more than PhP
24,000.00 or not more than PhP 18,000.00 as the case may be. Thus, there are two
requirements: a) income requirement—the applicants should not have a gross monthly
income of more than PhP 1,500.00, and b) property requirement––they should not own
property with an assessed value of not more than PhP 18,000.00.
In the case at bar, petitioners Alguras submitted the Affidavits of petitioner Lorencita
Algura and neighbor Erlinda Bangate, the pay slip of petitioner Antonio F. Algura
showing a gross monthly income of PhP 10,474.00,21 and a Certification of the Naga City
assessor stating that petitioners do not have property declared in their names for
taxation.22 Undoubtedly, petitioners do not own real property as shown by the
Certification of the Naga City assessor and so the property requirement is met. However
with respect to the income requirement, it is clear that the gross monthly income of PhP
10,474.00 of petitioner Antonio F. Algura and the PhP 3,000.00 income of Lorencita
Algura when combined, were above the PhP 1,500.00 monthly income threshold
prescribed by then Rule 141, Section 16 and therefore, the income requirement was not
satisfied. The trial court was therefore correct in disqualifying petitioners Alguras as
indigent litigants although the court should have applied Rule 141, Section 16 which
was in effect at the time of the filing of the application on September 1, 1999. Even if
Rule 141, Section 18 (which superseded Rule 141, Section 16 on March 1, 2000) were
applied, still the application could not have been granted as the combined PhP
13,474.00 income of petitioners was beyond the PhP 3,000.00 monthly income
threshold.
Unrelenting, petitioners however argue in their Motion for Reconsideration of the April
14, 2000 Order disqualifying them as indigent litigants23 that the rules have been
relaxed by relying on Rule 3, Section 21 of the 1997 Rules of Civil procedure which
authorizes parties to litigate their action as indigents if the court is satisfied that the
party is "one who has no money or property sufficient and available for food, shelter
and basic necessities for himself and his family." The trial court did not give credence to
this view of petitioners and simply applied Rule 141 but ignored Rule 3, Section 21 on
Indigent Party.
The position of petitioners on the need to use Rule 3, Section 21 on their application to
litigate as indigent litigants brings to the fore the issue on whether a trial court has to
apply both Rule 141, Section 16 and Rule 3, Section 21 on such applications or should
the court apply only Rule 141, Section 16 and discard Rule 3, Section 21 as having been
superseded by Rule 141, Section 16 on Legal Fees.
The Court rules that Rule 3, Section 21 and Rule 141, Section 16 (later amended as Rule
141, Section 18 on March 1, 2000 and subsequently amended by Rule 141, Section 19
on August 16, 2003, which is now the present rule) are still valid and enforceable rules
on indigent litigants.
For one, the history of the two seemingly conflicting rules readily reveals that it was not
the intent of the Court to consider the old Section 22 of Rule 3, which took effect on
January 1, 1994 to have been amended and superseded by Rule 141, Section 16, which
took effect on July 19, 1984 through A.M. No. 83-6-389-0. If that is the case, then the
Supreme Court, upon the recommendation of the Committee on the Revision on Rules,
could have already deleted Section 22 from Rule 3 when it amended Rules 1 to 71 and
approved the 1997 Rules of Civil Procedure, which took effect on July 1, 1997. The fact
that Section 22 which became Rule 3, Section 21 on indigent litigant was retained in the
rules of procedure, even elaborating on the meaning of an indigent party, and was also
strengthened by the addition of a third paragraph on the right to contest the grant of
authority to litigate only goes to show that there was no intent at all to consider said
rule as expunged from the 1997 Rules of Civil Procedure.
Furthermore, Rule 141 on indigent litigants was amended twice: first on March 1, 2000
and the second on August 16, 2004; and yet, despite these two amendments, there was
no attempt to delete Section 21 from said Rule 3. This clearly evinces the desire of the
Court to maintain the two (2) rules on indigent litigants to cover applications to litigate
as an indigent litigant.
It may be argued that Rule 3, Section 21 has been impliedly repealed by the recent 2000
and 2004 amendments to Rule 141 on legal fees. This position is bereft of merit. Implied
repeals are frowned upon unless the intent of the framers of the rules is unequivocal. It
has been consistently ruled that:
(r)epeals by implication are not favored, and will not be decreed, unless it is manifest
that the legislature so intended. As laws are presumed to be passed with deliberation
and with full knowledge of all existing ones on the subject, it is but reasonable to
conclude that in passing a statute[,] it was not intended to interfere with or abrogate
any former law relating to same matter, unless the repugnancy between the two is not
only irreconcilable, but also clear and convincing, and flowing necessarily from the
language used, unless the later act fully embraces the subject matter of the earlier, or
unless the reason for the earlier act is beyond peradventure removed. Hence, every
effort must be used to make all acts stand and if, by any reasonable construction they
can be reconciled, the later act will not operate as a repeal of the earlier.24 (Emphasis
supplied).
Instead of declaring that Rule 3, Section 21 has been superseded and impliedly amended
by Section 18 and later Section 19 of Rule 141, the Court finds that the two rules can and
should be harmonized.
The Court opts to reconcile Rule 3, Section 21 and Rule 141, Section 19 because it is a
settled principle that when conflicts are seen between two provisions, all efforts must
be made to harmonize them. Hence, "every statute [or rule] must be so construed and
harmonized with other statutes [or rules] as to form a uniform system of
jurisprudence."25
In Manila Jockey Club, Inc. v. Court of Appeals, this Court enunciated that in the
interpretation of seemingly conflicting laws, efforts must be made to first harmonize
them. This Court thus ruled:
Consequently, every statute should be construed in such a way that will harmonize it
with existing laws. This principle is expressed in the legal maxim 'interpretare et
concordare leges legibus est optimus interpretandi,' that is, to interpret and to do it in
such a way as to harmonize laws with laws is the best method of interpretation.26
In the light of the foregoing considerations, therefore, the two (2) rules can stand
together and are compatible with each other. When an application to litigate as an
indigent litigant is filed, the court shall scrutinize the affidavits and supporting
documents submitted by the applicant to determine if the applicant complies with the
income and property standards prescribed in the present Section 19 of Rule 141—that
is, the applicant's gross income and that of the applicant's immediate family do not
exceed an amount double the monthly minimum wage of an employee; and the
applicant does not own real property with a fair market value of more than Three
Hundred Thousand Pesos (PhP 300,000.00). If the trial court finds that the applicant
meets the income and property requirements, the authority to litigate as indigent
litigant is automatically granted and the grant is a matter of right.
However, if the trial court finds that one or both requirements have not been met, then
it would set a hearing to enable the applicant to prove that the applicant has "no money
or property sufficient and available for food, shelter and basic necessities for himself
and his family." In that hearing, the adverse party may adduce countervailing evidence
to disprove the evidence presented by the applicant; after which the trial court will rule
on the application depending on the evidence adduced. In addition, Section 21 of Rule 3
also provides that the adverse party may later still contest the grant of such authority at
any time before judgment is rendered by the trial court, possibly based on newly
discovered evidence not obtained at the time the application was heard. If the court
determines after hearing, that the party declared as an indigent is in fact a person with
sufficient income or property, the proper docket and other lawful fees shall be assessed
and collected by the clerk of court. If payment is not made within the time fixed by the
court, execution shall issue or the payment of prescribed fees shall be made, without
prejudice to such other sanctions as the court may impose.
The Court concedes that Rule 141, Section 19 provides specific standards while Rule 3,
Section 21 does not clearly draw the limits of the entitlement to the exemption.
Knowing that the litigants may abuse the grant of authority, the trial court must use
sound discretion and scrutinize evidence strictly in granting exemptions, aware that the
applicant has not hurdled the precise standards under Rule 141. The trial court must
also guard against abuse and misuse of the privilege to litigate as an indigent litigant to
prevent the filing of exorbitant claims which would otherwise be regulated by a legal fee
requirement.
Thus, the trial court should have applied Rule 3, Section 21 to the application of the
Alguras after their affidavits and supporting documents showed that petitioners did not
satisfy the twin requirements on gross monthly income and ownership of real property
under Rule 141. Instead of disqualifying the Alguras as indigent litigants, the trial court
should have called a hearing as required by Rule 3, Section 21 to enable the petitioners
to adduce evidence to show that they didn't have property and money sufficient and
available for food, shelter, and basic necessities for them and their family.27 In that
hearing, the respondents would have had the right to also present evidence to refute the
allegations and evidence in support of the application of the petitioners to litigate as
indigent litigants. Since this Court is not a trier of facts, it will have to remand the case to
the trial court to determine whether petitioners can be considered as indigent litigants
using the standards set in Rule 3, Section 21.
Recapitulating the rules on indigent litigants, therefore, if the applicant for exemption
meets the salary and property requirements under Section 19 of Rule 141, then the
grant of the application is mandatory. On the other hand, when the application does not
satisfy one or both requirements, then the application should not be denied outright;
instead, the court should apply the "indigency test" under Section 21 of Rule 3 and use
its sound discretion in determining the merits of the prayer for exemption.
Access to justice by the impoverished is held sacrosanct under Article III, Section 11 of
the 1987 Constitution. The Action Program for Judicial Reforms (APJR) itself, initiated
by former Chief Justice Hilario G. Davide, Jr., placed prime importance on 'easy access to
justice by the poor' as one of its six major components. Likewise, the judicial philosophy
of Liberty and Prosperity of Chief Justice Artemio V. Panganiban makes it imperative that
the courts shall not only safeguard but also enhance the rights of individuals—which
are considered sacred under the 1987 Constitution. Without doubt, one of the most
precious rights which must be shielded and secured is the unhampered access to the
justice system by the poor, the underprivileged, and the marginalized.
WHEREFORE, the petition is GRANTED and the April 14, 2000 Order granting the
disqualification of petitioners, the July 17, 2000 Order denying petitioners' Motion for
Reconsideration, and the September 11, 2001 Order dismissing the case in Civil Case
No. RTC-99-4403 before the Naga City RTC, Branch 27 are ANNULLED and SET ASIDE.
Furthermore, the Naga City RTC is ordered to set the "Ex-Parte Motion to Litigate as
Indigent Litigants" for hearing and apply Rule 3, Section 21 of the 1997 Rules of Civil
Procedure to determine whether petitioners can qualify as indigent litigants.
No costs.
SO ORDERED.