EN BANC
granted to it under the loan agreement.[12]
G.R. No. 202836, June 19, 2018 ]
FIRST SARMIENTO PROPERTY HOLDINGS, INC., PETITIONER, VS.
PHILIPPINE BANK OF COMMUNICATIONS, RESPONDENT.
DECISION
LEONEN, J.:
To determine the nature of an action, whether or not its subject matter is
capable or incapable of pecuniary estimation, the nature of the principal
action or relief sought must be ascertained. If the principal relief is for the
recovery of a sum of money or real property, then the action is capable of
pecuniary estimation. However, if the principal relief sought is not for the
recovery of sum of money or real property, even if a claim over a sum of
money or real property results as a consequence of the principal relief, the
action is incapable of pecuniary estimation.
This resolves the Petition for Review[1] filed by First Sarmiento Property
Holdings, Inc. (First Sarmiento) assailing the April 3, 2012 Decision[2] and
July 25, 2012 Order[3] of Branch 11, Regional Trial Court, Malolos City,
Bulacan in Civil Case No. 04-M-2012.
The facts as established by the parties are as follows:
On June 19, 2002,[4] First Sarmiento obtained from Philippine Bank of
Communications (PBCOM) a P40,000,000.00 loan, which was secured by a
real estate mortgage[5] over 1,076 parcels of land.[6]
On March 15, 2003,[7] the loan agreement was amended[8] with the increase
of the loan amount to P51,200,000.00. On September 15, 2003, the loan
agreement was further amended[9] when the loan amount was increased to
P100,000,000.00.
On January 2, 2006,[10] PBCOM filed a Petition for Extrajudicial Foreclosure
of Real Estate Mortgage.[11] It claimed in its Petition that it sent First
Sarmiento several demand letters, yet First Sarmiento still failed to pay the
principal amount and accrued interest on the loan. This prompted PBCOM
to resort to extrajudicial foreclosure of the mortgaged properties, a recourse
On December 27, 2011, First Sarmiento attempted to file a Complaint for
annulment of real estate mortgage with the Regional Trial Court. However,
the Clerk of Court refused to accept the Complaint in the absence of the
mortgaged properties' tax declarations, which would be used to assess the
docket fees.[13]
On December 29, 2011, Executive Judge Renato C. Francisco (Judge
Francisco), First Vice-Executive Judge Ma. Theresa A. Mendoza Arcega,
Second Vice-Executive Judge Ma. Belen R. Liban, and Third Vice-Executive
Judge Basilio R. Gabo, Jr. of the Regional Trial Court of City of Malolos,
Bulacan, granted First Sarmiento's Urgent Motion to Consider the Value of
Subject Matter of the Complaint as Not Capable of Pecuniary Estimation,
and ruled that First Sarmiento's action for annulment of real estate
mortgage was incapable of pecuniary estimation.[14]
Also on December 29, 2011, the mortgaged properties were auctioned and
sold to PBCOM as the highest bidder.[15]
On January 2, 2012, First Sarmiento filed a Complaint for annulment of real
estate mortgage and its amendments, with prayer for the issuance of
temporary restraining order and preliminary injunction.[16] It paid a filing
fee of P5,545.00.[17]
First Sarmiento claimed in its Complaint that it never received the loan
proceeds of P100,000,000.00 from PBCOM, yet the latter still sought the
extrajudicial foreclosure of real estate mortgage. It prayed for the issuance
of a temporary restraining order and preliminary injunction to enjoin the
Ex-Officio Sheriff from proceeding with the foreclosure of the real estate
mortgage or registering the certificate of sale in PBCOM's favor with the
Registry of Deeds of Bulacan.[18]
That same day, Judge Francisco issued an ex-parte temporary restraining
order for 72 hours, enjoining the registration of the certificate of sale with
the Registry of Deeds of Bulacan.[19]
On January 4, 2012, the Regional Trial Court directed the parties to observe
the status quo ante.[20]
On January 24, 2012, the Clerk of Court and Ex-Officio Sheriff of Malolos
City, Bulacan issued a certificate of sale to PBCOM.[21]
In its Opposition (Re: Application for Issuance of Temporary Restraining
Order),[22] PBCOM asserted that the Regional Trial Court failed to acquire
jurisdiction over First Sarmiento's Complaint because the action for
annulment of mortgage was a real action; thus, the filing fees filed should
have been based on the fair market value of the mortgaged properties.[23]
PBCOM also pointed out that the Regional Trial Court's directive to maintain
the status quo order beyond 72 hours constituted an indefinite extension of
the temporary restraining order, a clear contravention of the rules.[24]
On April 3, 2012, Branch 11, Regional Trial Court,[25] Malolos City, Bulacan
dismissed the Complaint for lack of jurisdiction:
Following the High Court's ruling in the case of Home Guaranty Corporation
v. R. II Builders, Inc. and National Housing Authority, G.R. No. 192549,
March 9, 2011, cited by the bank in its Rejoinder, which appears to be the
latest jurisprudence on the matter to the effect that an action for annulment
or rescission of contract does not operate to efface the true objective and
nature of the action which is to recover real property, this Court hereby
RESOLVES TO DISMISS the instant case for lack of jurisdiction, plaintiff
having failed to pay the appropriate filing fees.
Accordingly, the instant case is hereby DISMISSED.
SO ORDERED.[26]
On July 25, 2012, the Regional Trial Court[27] denied First Sarmiento's
motion for reconsideration.[28]
On August 17, 2012, First Sarmiento sought direct recourse to this Court
with its Petition for Review[29] under Rule 45. It insists that its Complaint
for the annulment of real estate mortgage was incapable of pecuniary
estimation.[30] It points out that the Executive Judge and Vice-Executive
Judges of the Regional Trial Court likewise acknowledged that its action was
incapable of pecuniary estimation.[31]
Petitioner highlights that the Supreme Court En Banc in Lu v. Lu Ym held
"that an action for declaration of nullity of issuance of shares or an action
questioning the legality of a conveyance is one not capable of pecuniary
estimation."[32] Furthermore, petitioner maintains that the Supreme
Court En Banc in Bunayog v. Tunas also established that a complaint
questioning the validity of a mortgage is an action incapable of pecuniary
estimation.[33]
It emphasizes that Home Guaranty Corporation v. R-II Builders, which the
Regional Trial Court relied on to dismiss its complaint for lack of jurisdiction,
was rendered by a division of the Supreme Court; hence, it cannot modify
or reverse a doctrine or principle of law laid down by the Supreme Court En
Banc.[34]
On September 19, 2012,[35] this Court directed respondent PBCOM to
comment on the petition.
In its Comment,[36] respondent contends that petitioner's action to annul
the real estate mortgage and enjoin the foreclosure proceedings did not
hide the true objective of the action, which is to restore petitioner's
ownership of the foreclosed properties.[37]
Respondent maintains that this Court has already settled that "a complaint
for cancellation of sale which prayed for both permanent and preliminary
injunction aimed at the restoration of possession of the land in litigation is
a real action."[38]
It likewise stresses that since petitioner's primary objective in filing its
Complaint was to prevent the scheduled foreclosure proceedings over the
mortgaged properties and the conveyance of their ownership to the highest
bidder, the case was a real action.[39]
Finally, it denies that Home Guaranty Corporation modified and reversed Lu
v. Lu Ym because the factual and legal milieus of these two (2) cases were
different.[40]
On November 26, 2012,[41] this Court required petitioner to file a reply to
the comment.
On February 1, 2013, petitioner filed its Reply[42] where it denies that its
Complaint was for the annulment of the foreclosure sale, because when it
filed its Complaint, the foreclosure sale had not yet happened.[43]

It proclaims that its Complaint sought the removal of the lien on the
mortgaged properties and was not intended to recover ownership or
possession since it was still the registered owner with possession of the
mortgaged properties when it filed its Complaint.[44]
On February 27, 2013,[45] this Court noted petitioner's reply and directed
the parties to submit their respective memoranda.
On May 30, 2013, the parties filed their respective memoranda.[46]
In its Memorandum,[47] petitioner continues to insist that it did not receive
the loan proceeds from PBCOM which is why it filed its Complaint for
annulment of real estate mortgage in response to the latter's Petition for
Extrajudicial Foreclosure of Real Estate Mortgage.[48]
Petitioner reiterates that its Complaint for annulment of real estate
mortgage was an action incapable of pecuniary estimation because it merely
sought to remove the lien on its properties, not the recovery or
reconveyance of the mortgaged properties.[49]
It states that it never expressly or impliedly sought the conveyance of the
mortgaged properties because it was still the registered owner of the
mortgaged properties when its Complaint was first presented for filing with
the Clerk of Court.[50]
On the other hand, respondent in its Memorandum[51] restates its stand that
petitioner's Complaint involved a real action; hence, the estimated value of
the mortgaged properties should have been alleged and used as the basis
for the computation of the docket fees.[52]
Respondent claims that the allegations in petitioner's Complaint reveal the
latter's real intention to assert its title and recover the real properties sold
at the public auction.[53]
The only issue for this Court's resolution is whether or not the Regional Trial
Court obtained jurisdiction over First Sarmiento Corporation, Inc.'s
Complaint for annulment of real estate mortgage.
I
Rule 45 of the Rules of Court allows for a direct recourse to this Court by
appeal from a judgment, final order, or resolution of the Regional Trial
Court. Rule 45, Section 1 provides:
Section 1. Filing of petition with Supreme Court. — A party desiring to
appeal by certiorari from a judgment or final order or resolution of the Court
of Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified
petition for review on certiorari. The petition shall raise only questions of
law which must be distinctly set forth.
Rule 41, Section 2(c) likewise provides:
Section 2. Modes of appeal. —
....
(c) Appeal by certiorari. — In all cases where only questions of law are
raised or involved, the appeal shall be to the Supreme Court by petition for
review on certiorari in accordance with Rule 45.
Thus, there is no question that a petitioner may file a verified petition for
review directly with this Court if only questions of law are at issue; however,
if both questions of law and of facts are present, the correct remedy is to
file a petition for review with the Court of Appeals.[54]
Doña Adela Export International v. Trade and Investment Development
Corp.[55] differentiated between a question of law and a question of fact as
follows:
We stress that a direct recourse to this Court from the decisions, final
resolutions and orders of the RTC may be taken where only questions of
law are raised or involved. There is a question of law when the doubt or
difference arises as to what the law is on a certain state of facts, which does
not call for an examination of the probative value of the evidence presented
by the parties-litigants. On the other hand, there is a question of fact when
the doubt or controversy arises as to the truth or falsity of the alleged facts.
Simply put, when there is no dispute as to fact, the question of whether the
conclusion drawn therefrom is correct or not, is a question of
law.[56] (Citation omittedIn the case at bar, the underlying question for this
Court's resolution pertains to jurisdiction, or to be more precise, whether
the Regional Trial Court attained jurisdiction over petitioner's Complaint
with the amount of docket fees paid.
Considering that the issue of jurisdiction is a pure question of
law,[57] petitioner did not err in filing its appeal directly with this Court
pursuant to law and prevailing jurisprudence.
II
Petitioner contends that its Complaint for annulment of real estate
mortgage has a subject incapable of pecuniary estimation because it was
not intended to recover ownership or possession of the mortgaged
properties sold to respondent during the auction sale.[58] It insists that it
had ownership and possession of the mortgaged properties when it filed its
Complaint; hence, it never expressly or impliedly sought recovery of their
ownership or possession.[59]
The petition is meritorious.
Jurisdiction is "the power and authority of a court to hear, try and decide a
case"[60] brought before it for resolution.
Courts exercise the powers conferred on them with binding effect if they
acquire jurisdiction over: "(a) the cause of action or the subject matter of
the case; (b) the thing or the res; (c) the parties; and (d) the remedy."[61]
Jurisdiction over the thing or the res is a court's authority over the object
subject of litigation.[62] The court obtains jurisdiction or actual custody over
the object through the seizure of the object under legal process or the
institution of legal proceedings which recognize the power and authority of
the court.[63]
Jurisdiction over the parties is the court's power to render judgment that
are binding on the parties. The courts acquire jurisdiction over the plaintiffs
when they file their initiatory pleading, while the defendants come under
the court's jurisdiction upon the valid service of summons or their voluntary
appearance in court.[64]
Jurisdiction over the cause of action or subject matter of the case is the
court's authority to hear and determine cases within a general class where
the proceedings in question belong. This power is conferred by law and
cannot be acquired through stipulation, agreement between the
parties,[65] or implied waiver due to the silence of a party.[66]
Jurisdiction is conferred by the Constitution, with Congress given the
plenary power, for cases not enumerated in Article VIII, Section 5[67] of the
Constitution, to define, prescribe, and apportion the jurisdiction of various
courts.[68]
Batas Pambansa Blg. 129, or the Judiciary Reorganization Act of 1980 as
amended by Republic Act No. 7691, provided for the jurisdictional division
between the first and second level courts by considering the complexity of
the cases and the experience needed of the judges assigned to hear the
cases.
In criminal cases, first level courts are granted exclusive original jurisdiction
to hear complaints on violations of city or municipal ordinances[69] and
offenses punishable with imprisonment not exceeding six (6) years.[70] In
contrast, second level courts, with more experienced judges sitting at the
helm, are granted exclusive original jurisdiction to preside over all other
criminal cases not within the exclusive jurisdiction of any other court,
tribunal, or body.[71]
The same holds true for civil actions and probate proceedings, where first
level courts have the power to hear cases where the value of personal
property, estate, or amount of the demand does not exceed P100,000.00
or P200,000.00 if in Metro Manila.[72] First level courts also possess the
authority to hear civil actions involving title to, possession of, or any interest
in real property where the value does not exceed P20,000.00 or P50,000.00
if the real property is situated in Metro Manila.[73] Second level courts then
assume jurisdiction when the values involved exceed the threshold amounts
reserved for first level courts[74] or when the subject of litigation is incapable
of pecuniary estimation.[75]
First level courts were also conferred with the power to hear the relatively
uncomplicated cases of forcible entry and unlawful detainer,[76] while
second level courts are authorized to hear all actions in admiralty and
maritime jurisdiction[77] with claims above a certain threshold amount.
Second level courts are likewise authorized to hear all cases involving the
contract of marriage and marital relations,[78] in recognition of the expertise
and probity required in deciding issues which traverse the marital sphere.
Section 19(1) of Batas Pambansa Blg. 129, as amended, provides Regional
Trial Courts with exclusive, original jurisdiction over "all civil actions in which
the subject of the litigation is incapable of pecuniary estimation."

Lapitan v. Scandia [79]
instructed that to determine whether the subject
matter of an action is incapable of pecuniary estimation, the nature of the
principal action or remedy sought must first be established. This finds
support in this Court's repeated pronouncement that jurisdiction over the
subject matter is determined by examining the material allegations of the
complaint and the relief sought.[80] Heirs of Dela Cruz v. Heirs of
Cruz[81] stated, thus:
It is axiomatic that the jurisdiction of a tribunal, including a quasi-judicial
officer or government agency, over the nature and subject matter of a
petition or complaint is determined by the material allegations therein and
the character of the relief prayed for, irrespective of whether the petitioner
or complainant is entitled to any or all such reliefs.[82]
However, Lapitan stressed that where the money claim is only a
consequence of the remedy sought, the action is said to be one incapable
of pecuniary estimation:
A review of the jurisprudence of this Court indicates that in determining
whether an action is one the subject matter of which is not capable of
pecuniary estimation, this Court has adopted the criterion of first
ascertaining the nature of the principal action or remedy sought. If it is
primarily for the recovery of a sum of money, the claim is considered
capable of pecuniary estimation, and whether jurisdiction is in the municipal
courts or in the courts of first instance would depend on the amount of the
claim. However, where the basic issue is something other than the right to
recover a sum of money, or where the money claim is purely incidental to,
or a consequence of, the principal relief sought like in suits to have the
defendant perform his part of the contract (specific performance) and in
actions for support, or for annulment of a judgment or to foreclose a
mortgage, this Court has considered such actions as cases where the
subject of the litigation may not be estimated in terms of money, and are
cognizable exclusively by courts of first instance. The rationale of the rule
is plainly that the second class cases, besides the determination of
damages, demand an inquiry into other factors which the law has deemed
to be more within the competence of courts of first instance, which were
the lowest courts of record at the time that the first organic laws of the
Judiciary were enacted allocating jurisdiction (Act 136 of the Philippine
Commission of June 11, 1901).[83] (Citation omitted)
Heirs of Sebe v. Heirs of Sevilla[84] likewise stressed that if the primary
cause of action is based on a claim of ownership or a claim of legal right to
control, possess, dispose, or enjoy such property, the action is a real action
involving title to real property.[85]
A careful reading of petitioner's Complaint convinces this Court that
petitioner never prayed for the reconveyance of the properties foreclosed
during the auction sale, or that it ever asserted its ownership or possession
over them. Rather, it assailed the validity of the loan contract with real
estate mortgage that it entered into with respondent because it supposedly
never received the proceeds of the P100,000,000.00 loan
agreement.[86] This is evident in its Complaint, which read:
GROUNDS FOR THE APPLICATION OF PRELIMINARY INJUNCTION AND
TEMPORARY RESTRAINING ORDER
7. Defendant PBCOM knows fully well that plaintiff did not receive from it
the loan it (PBCOM) alleged to have granted in its favor.
8. Despite this, defendant PBCOM has filed with the Ex-Officio Sheriff of
Bulacan, a petition for extra judicial foreclosure of real estate mortgage,
bent on foreclosing the real estate properties of plaintiff, photocopy of the
petition is hereto attached as Annex "F".
9. The auction sale of the properties is set on December 29, 2011.
10. Defendant PBCOM, well knowing the facts narrated above and willfully
disregarding the property rights of plaintiff, wrongfully filed an extra judicial
foreclosure of real estate mortgage and pursuant to said petition, the Ex-
Officio Sheriff now does offer for sale, the real estate properties of the
plaintiff as set forth in its (PBCOM) said petition.
11. Unless defendants PBCOM and Ex-Officio Sheriff are restrained by this
Honorable Court, they will infringe the property rights of the plaintiff in the
manner herein before related.[87]
Far East Bank and Trust Company v. Shemberg Marketing
Corporation[88] stated that an action for cancellation of mortgage has a
subject that is incapable of pecuniary estimation:
Here, the primary reliefs prayed for by respondents in Civil Case No. MAN-
4045 is the cancellation of the real estate and chattel mortgages for want
of consideration. In Bumayog v. Tumas, this Court ruled that where the
issue involves the validity of a mortgage, the action is one incapable of
pecuniary estimation. In the more recent case of Russell v. Vestil, this
Court, citing Bumayog, held that an action questioning the validity of a
mortgage is one incapable of pecuniary estimation. Petitioner has not shown
adequate reasons for this Court to revisit Bumayog and Russell. Hence,
petitioner's contention [cannot] be sustained. Since respondents paid the
docket fees, as computed by the clerk of court, consequently, the trial court
acquired jurisdiction over Civil Case No. MAN-4045.[89]
It is not disputed that even if the Complaint were filed a few days after the
mortgaged properties were foreclosed and sold at auction to respondent as
the highest bidder, the certificate of sale was only issued to respondent
after the Complaint was filed.
Section 6 of Act No. 3135,[90] as amended, provides that a property sold
through an extrajudicial sale may be redeemed "at any time within the term
of one year from and after the date of the sale":
Section 6. In all cases in which an extrajudicial sale is made under the
special power hereinbefore referred to, the debtor, his successors in interest
or any judicial creditor or judgment creditor of said debtor, or any person
having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within
the term of one year from and after the date of the sale; and such
redemption shall be governed by the provisions of sections four hundred
and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil
Procedure, in so far as these are not inconsistent with the provisions of this
Act.
Mahinay v. Dura Tire & Rubber Industries Inc.[91] clarified that "[t]he date
of the sale' referred to in Section 6 is the date the certificate of sale is
registered with the Register of Deeds. This is because the sale of registered
land does not 'take effect as a conveyance, or bind the land' until it is
registered."[92]
The registration of the certificate of sale issued by the sheriff after an
extrajudicial sale is a mandatory requirement; thus, if the certificate of sale
is not registered with the Registry of Deeds, the property sold at auction is
not conveyed to the new owner and the period of redemption does not begin
to run.[93]
In the case at bar, the Ex-Officio Sheriff of the City of Malolos, Bulacan was
restrained from registering the certificate of sale with the Registry of Deeds
of Bulacan and the certificate of sale was only issued to respondent after
the Complaint for annulment of real estate mortgage was filed. Therefore,
even if the properties had already been foreclosed when the Complaint was
filed, their ownership and possession remained with petitioner since the
certificate of sale was not registered with the Registry of Deeds. This
supports petitioner's claim that it never asked for the reconveyance of or
asserted its ownership over the mortgaged properties when it filed its
Complaint since it still enjoyed ownership and possession over them.
Considering that petitioner paid the docket fees as computed by the clerk
of court, upon the direction of the Executive Judge, this Court is convinced
that the Regional Trial Court acquired jurisdiction over the Complaint for
annulment of real estate mortgage.
Furthermore, even if it is assumed that the instant case were a real action
and the correct docket fees were not paid by petitioner, the case should not
have been dismissed; instead, the payment of additional docket fees should
have been made a lien on the judgment award. The records attest that in
filing its complaint, petitioner readily paid the docket fees assessed by the
clerk of court; hence, there was no evidence of bad faith or intention to
defraud the government that would have rightfully merited the dismissal of
the Complaint.[94]
III
Although not raised in the Petition, this Court nonetheless deems it proper
to pass upon the legality of the Regional Trial Court January 4, 2012 Order,
which directed the parties to observe the status quo ante,[95] effectively
extending indefinitely its 72-hour ex-parte temporary restraining order
issued on January 2, 2012.[96]
Rule 58, Section 5 of the Rules of Court provides the instances when a
temporary restraining order may be issued:
Section 5. Preliminary injunction not granted without notice; exception. —
No preliminary injunction shall be granted without hearing and prior notice
to the party or person sought to be enjoined. If it shall appear from facts
shown by affidavits or by the verified application that great or irreparable
injury would result to the applicant before the matter can be heard on
notice, the court to which the application for preliminary injunction was
made, may issue a temporary restraining order to be effective only for a
period of twenty (20) days from service on the party or person sought to
be enjoined, except as herein provided. Within the said twenty-day period,
the court must order said party or person to show cause, at a specified time
and place, why the injunction should not be granted, determine within the
same period whether or not the preliminary injunction shall be granted, and
accordingly issue the corresponding order.
However, and subject to the provisions of the preceding sections, if the
matter is of extreme urgency and the applicant will suffer grave injustice
and irreparable injury, the executive judge of a multiple-sala court or the
presiding judge of a single-sala court may issue ex-parte a temporary
restraining order effective for only seventy-two (72) hours from issuance
but he shall immediately comply with the provisions of the next preceding
section as to service of summons and the documents to be served
therewith. Thereafter, within the aforesaid seventy-two (72) hours, the
judge before whom the case is pending shall conduct a summary hearing to
determine whether the temporary restraining order shall be extended until
the application for preliminary injunction can be heard. In no case shall the
total period of effectivity of the temporary restraining order exceed twenty
(20) days, including the original seventy-two hours provided herein.
In the event that the application for preliminary injunction is denied or not
resolved within the said period, the temporary restraining order is deemed
automatically vacated. The effectivity of a temporary restraining order is
not extendible without need of any judicial declaration to that effect and no
court shall have authority to extend or renew the same on the same ground
for which it was issued.
However, if issued by the Court of Appeals or a member thereof, the
temporary restraining order shall be effective for sixty (60) days from
service on the party or person sought to be enjoined. A restraining order
issued by the Supreme Court or a member thereof shall be effective until
further orders.
It is clear that a temporary restraining order may be issued by a trial court
in only two (2) instances: first, when great or irreparable injury would result
to the applicant even before the application for writ of preliminary injunction
can be heard; and second, if the matter is of extreme urgency and the
applicant will suffer grave injustice and irreparable injury. The executive
judge of a multi-sala court or the presiding judge of a single-sala court may
issue a 72-hour temporary restraining order.
In both instances, the temporary restraining order may be issued ex parte.
However, in the first instance, the temporary restraining order has an
effectivity of only 20 days to be counted from service to the party sought
to be enjoined. Likewise, within those 20 days, the court shall order the
enjoined party to show why the injunction should not be granted and shall
then determine whether or not the injunction should be granted.
In the second instance, when there is extreme urgency and the applicant
will suffer grave injustice and irreparable injury, the court shall issue a
temporary restraining order effective for only 72 hours upon issuance.
Within those 72 hours, the court shall conduct a summary hearing to
determine if the temporary restraining order shall be extended until the
application for writ of preliminary injunction can be heard. However, in no
case shall the extension exceed 20 days.
If the application for preliminary injunction is denied or not resolved within
the given periods, the temporary restraining order is automatically vacated
and the court has no authority to extend or renew it on the same ground of
its original issuance.
Despite the clear wording of the rules, the Regional Trial Court issued a
status quo ante order dated January 4, 2012, indefinitely extending the
temporary restraining order on the registration of the certificate of sale with
the Registry of Deeds.
Petitioner applied for a writ of preliminary injunction, yet the Regional Trial
Court did not conduct any hearing for that purpose and merely directed the
parties to observe the status quo ante.
Miriam College Foundation, Inc v. Court of Appeals[97] explained the
difference between preliminary injunction and a restraining order as
follows:
Preliminary injunction is an order granted at any stage of an action or
proceeding prior to the judgment or final order, requiring a party or a court,
agency or a person to perform to refrain from performing a particular act
or acts. As an extraordinary remedy, injunction is calculated to preserve or
maintain the status quo of things and is generally availed of to prevent
actual or threatened acts, until the merits of the case can be heard. A
preliminary injunction persists until it is dissolved or until the termination
of the action without the court issuing a final injunction.
The basic purpose of restraining order, on the other hand, is to preserve
the status quo until the hearing of the application for preliminary injunction.
Under the former A§5, Rule 58 of the Rules of Court, as amended by A§5,
Batas Pambansa Blg. 224, a judge (or justice) may issue a temporary
restraining order with a limited life of twenty days from date of issue. If
before the expiration of the 20-day period the application for preliminary
injunction is denied, the temporary order would thereby be deemed
automatically vacated. If no action is taken by the judge on the application
for preliminary injunction within the said 20 days, the temporary restraining
order would automatically expire on the 20th day by the sheer force of law,
no judicial declaration to that effect being necessary. In the instant case,
no such preliminary injunction was issued; hence, the TRO earlier issued
automatically expired under the aforesaid provision of the Rules of
Court.[98] (Citations omitted)
A temporary restraining order cannot be extended indefinitely to take the
place of a writ of preliminary injunction, since a temporary restraining order
is intended only to have a limited lifespan and is deemed automatically
vacated upon the expiration of 72 hours or 20 days, as the case may be. As
such, the temporary restraining order has long expired and, in the absence
of a preliminary injunction, there was nothing to stop the sheriff from
registering the certificate of sale with the Registry of Deeds.
This Court has repeatedly expounded on the nature of a temporary
restraining order[99] and a preliminary injunction.[100] Yet lower courts
consistently interchange these ancillary remedies and disregard the sunset
clause[101] inherent in a temporary restraining order by erroneously
extending it indefinitely. Such ignorance or defiance of basic remedial
measures is a gross disservice to the public, who look towards the court for
legal guidance and legal remedy. More importantly, this cavalier attitude
towards these injunctive reliefs might even be construed as a deliberate
effort to look the other way to favor a party, which will then sully the image
of the entire judiciary. Henceforth, this Court will demand stricter
compliance with the rules from the members of the bench as regards their
issuances of these injunctive reliefs.
IV
Finally, there is a need to reassess the place of Home Guaranty v. R-II
Builders[102] in our jurisprudence.
In Home Guaranty, R-II Builders, Inc. (R-II Builders) filed a Complaint for
the rescission of the Deed of Assignment and Conveyance it entered into
with Home Guaranty Corporation and National Housing Authority. The
Complaint was initially determined to have a subject that is incapable of
pecuniary estimation and the docket fees were assessed and paid
accordingly.[103]
R-II Builders later filed a motion to admit its Amended and Supplemental
Complaint, which deleted its earlier prayer for the resolution of its Deed of
Assignment and Conveyance, and prayed for the conveyance of title to
and/or possession of the entire Asset Pool. The Regional Trial Court ruled
that the Amended and Supplemental Complaint involved a real action and
directed R-II Builders to pay the correct docket fees.[104]
Instead of paying the additional docket fees, R-II Builders withdrew its
Amended and Supplemental Complaint and instead filed a motion to admit
its Second Amended Complaint, which revived the prayer in its original
Complaint to resolve the Deed of Assignment and Conveyance and deleted
the causes of action for conveyance of title to and/or possession of the
entire Asset Pool in its Amended and Supplemental Complaint.[105] The
Regional Trial Court granted the motion to admit the Second Amended
Complaint, ratiocinating that the docket fees to the original Complaint had
been paid; that the Second Amended Complaint was not intended to delay
the proceedings; and that the Second Amended Complaint was consistent
with R-II Builders' previous pleadings.[106]
The Court of Appeals upheld the ruling of the Regional Trial Court and
reiterated that the case involved a subject that was incapable of pecuniary
estimation.[107] However, Home Guaranty reversed the Court of Appeals
Decision, ruling that the Complaint and the Amended and Supplemental
Complaint both involved prayers for the conveyance and/or transfer of
possession of the Asset Pool, causes of action which were undoubtedly real
actions. Thus, the correct docket fees had not yet been paid:[108]
Although an action for resolution and/or the nullification of a contract, like
an action for specific performance, fall squarely into the category of actions
where the subject matter is considered incapable of pecuniary estimation,
we find that the causes of action for resolution and/or nullification of the
[Deed of Assignment and Conveyance] was erroneously isolated by the
[Court of Appeals] from the other causes of action alleged in R-II Builders'
original complaint and Amended and Supplemental Complaint which prayed
for the conveyance and/or transfer of possession of the Asset Pool. In
Gochan v. Gochan, this Court held that an action for specific performance
would still be considered a real action where it seeks the conveyance or
transfer of real property, or ultimately, the execution of deeds of
conveyance of real property.
....
Granted that R-II Builders is not claiming ownership of the Asset Pool
because its continuing stake is, in the first place, limited only to the residual
value thereof, the conveyance and/or transfer of possession of the same
properties sought in the original complaint and Amended and Supplemental
Complaint both presuppose a real action for which appropriate docket fees
computed on the basis of the assessed or estimated value of said properties
should have been assessed and paid. . . .[109] (Citations omitted)
Home Guaranty stated that to determine whether an action is capable or
incapable of pecuniary estimation, the nature of the principal action or
remedy prayed for must first be determined.[110] Nonetheless, in citing Ruby
Shelter Builders v. Formaran, Home Guaranty looked beyond R-II Builder's
principal action for annulment or rescission of contract to purportedly
unmask its true objective and nature of its action, which was to recover real
property.[111]
In a dissenting opinion in the Home Guaranty[112] June 22, 2011 Resolution
that dismissed R-II Builders' motion for reconsideration, Associate Justice
Presbitero Velasco, Jr. stressed that one must first look at the principal
action of the case to determine if it is capable or incapable of pecuniary
estimation:
Whether or not the case is a real action, and whether or not the proper
docket fees were paid, one must look to the main cause of action of the
case. In all instances, in the original Complaint, the Amended and
Supplemental Complaint and the Amended Complaint, it was all for the
resolution or rescission of the [Deed of Assignment and Conveyance], with
the prayer for the provisional remedy of injunction and the appointment of
a trustee and subsequently a receiver. In the Second Amended Complaint,
the return of the remaining assets of the asset pool, if any, to respondent
R-II Builders would only be the result of the resolution or rescission of the
[Deed of Assignment and Conveyance].
Even if real property in the Asset Pool may change hands as a result of the
case in the trial court, the fact alone that real property is involved does not
make that property the basis of computing the docket fees. De Leon v.
Court of Appeals has already settled the matter. That case, citing Bautista
v, Lim, held that a case for rescission or annulment of contract is not
susceptible of pecuniary estimation. On the other hand, in the Decision We
rendered on July 25, 2005 in Serrano v. Delica, We ruled that the action for
cancellation of contracts of sale and the titles is a real action. Similarly, on
February 10, 2009, We ruled in Ruby Shelter Builders and Realty
Development Corporation v. Formaran III (Ruby Shelter) that an action for
nullification of a Memorandum of Agreement which required the lot owner
to issue deeds of sale and cancellation of the. Deeds of Sale is a real
action.[113] (Citations omitted)
Whatever confusion there might have been regarding the nature of actions
for nullity of contracts or legality of conveyances, which would also involve
recovery of sum of money or real property, was directly addressed by Lu v.
Lu Ym.[114] Lu underscored that "where the basic issue is something other
than the right to recover a sum of money, the money claim being only
incidental to or merely a consequence of, the principal relief sought, the
action is incapable of pecuniary estimation."[115]
This finds support in numerous decisions where this Court proclaimed that
the test to determine whether an action is capable or incapable of pecuniary
estimation is to ascertain the nature of the principal action or relief sought.
Thus, if the principal relief sought is the recovery of a sum of money or real
property, then the action is capable of pecuniary estimation. However, if
the principal relief sought is not for the recovery of money or real property
and the money claim is only a consequence of the principal relief, then the
action is incapable of pecuniary estimation.[116]
Considering that the principal remedy sought by R-II Builders was the
resolution of the Deed of Assignment and Conveyance, the action was
incapable of pecuniary estimation and Home Guaranty erred in treating it
as a real action simply because the principal action was accompanied by a
prayer for conveyance of real property. In light of the foregoing, this Court reaffirms that the nature of an action is
determined by the principal relief sought in the complaint, irrespective of
It is clear that subject matter jurisdiction cannot be dependent on the the other causes of actions that may also crop up as a consequence of the
supposed ultimate motive or true objective of the complaint because this principal relief prayed for. The contrary rule espoused in Home Guaranty is
will require the judge to speculate on the defenses of the plaintiff beyond thereby set aside.
the material allegations contained in the complaint. Likewise, in attempting
to pinpoint the true objective of the complaint at the initial stages of trial, WHEREFORE, this Court resolves to GRANT the Petition. The assailed April
the judge might end up dictating the result outside of the evidence still to 3, 2012 Decision and July 25, 2012 Order of Branch 11, Regional Trial Court,
be presented during the trial, opening up the judge to charges of partiality City of Malolos, Bulacan in Civil Case No. 04-M-2012
and even impropriety. Furthermore, the judge is not aware of the evidence are REVERSED and SET ASIDE.
to be presented by either party when the complaint is filed; thus, there is
no reliable basis that can be used to infer the true objective of the The case is ordered REMANDED to Branch 11, Regional Trial Court, City of
complaint. It is imperative then that the competing claims as basis of Malolos, Bulacan for continued trial on First Sarmiento Property Holdings,
subject matter jurisdiction be textually based, finding its basis in the body Inc.'s Complaint for annulment of real estate mortgage and its
of the complaint and the relief sought without reference to extraneous facts amendments.
not alleged or evidence still to be presented.
SO ORDERED.
Nonetheless, if subject matter jurisdiction is assailed during the course of
the trial and evidence is presented to prove the defense's allegation of lack
of jurisdiction, this will lead to an anomaly where the defense's evidence,
instead of the complaint, will effectively determine the remedy and cause
of action.

In the case at bar, petitioner contends that its complaint prayed for the
annulment of the real estate mortgage it entered into with respondent and
not for the recovery or reconveyance of the mortgaged properties because
it was still the registered owner when it filed its complaint. The evidence on
record supports petitioner's claim; hence, there was no reason for the
dismissal of its Complaint for lack of jurisdiction.

Home Guaranty likewise erred in dismissing the action because of non-

payment of the correct filing fees. Fedman Development Corporation v.
Agcaoili[117] reiterated that where the assessed docket fees have been paid
and the assessment turns out to be insufficient, the court still acquires
jurisdiction over the case, subject to payment of the deficiency
assessment.[118] The only exception is when the deficiency in docket fees is
accompanied with bad faith and an intention to defraud the
government.[119] It is not disputed that R-II Builders paid the assessed
docket fees when it filed its Complaint, negating bad faith or intent on its
part to defraud the government.
G.R. No. 201248 March 11, 2015
LETICIA NAGUIT AQUINO, MELVIN NAGUIT, ROMMEL NAGUIT, ELMA NAGUIT
TAYAG, YSSEL L. NAGUIT, ROSALINA NAGUIT AUMENTADO, RIZEL NAGUIT
CUNANAN, CARIDAD NAGUIT PARAJAS, MILLIE NAGUIT FLORENDO, MARNEL
NAGUIT, EDUARDO NAGUIT, JOSE NAGUIT, ZOILO NAGUIT, AND AMELIA
NAGUIT DIZON, represented by YSSEL L. NAGUIT, Petitioners,
vs.
CESAR B. QUIAZON, AMANDA QUIAZON, JOSE B. QUIAZON AND REYNALDO
B. QUIAZON, represented by JAIME B. QUIAZON, Respondents.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the March 13, 2012 Decision of the Court of Appeals (CA), in CA-G.R.
1
CV No. 92887, which affirmed the Orders of the Regional Trial Court (RTC), Angeles
2
City, Branch 59, in SP Civil Case No. 05-076, dismissing the complaint for quieting of
title filed by the petitioners.
The Facts
On December 16, 2005, a complaint for Annulment and Quieting of Title was filed
3 and OCT No. RO-1138 (11376) was issued on May 12, 1922. Hence, it was much too
before the RTC-Branch59 by the petitioners, namely, Leticia Naguit Aquino, Melvin
Naguit, Rommel Naguit, Elma Naguit Tayag, Yssel L. Naguit, Rosalina Naguit
Aumentado, Rizel Naguit Cunanan, Caridad Naguit Parajas, Millie Naguit Florendo,
Marnel Naguit, Eduardo Naguit, Jose Naguit, Zoilo Naguit, and AmeliaNaguit Dizon,
represented by Yssel L. Naguit (petitioners). They alleged that they were the heirs of
the late Epifanio Makam and Severina Bautista, who acquired a house and lot situated
in Magalang, Pampanga, consisting of 557 square meters, by virtue of a Deed of Sale,
dated April 20, 1894; that since then, they and their predecessors-in-interest had been
in open, continuous, adverse, and notorious possession for more than a hundred
years, constructing houses and paying real estate taxes on the property;that sometime
in June 2005, they received various demand letters from the respondents, namely,
Cesar B. Quiazon, Amanda Quiazon, Jose B. Quiazon, and Reynaldo B. Quiazon,
represented by Jaime B. Quiazon (respondents), claiming ownership over the subject
property and demanding that they vacate the same; that upon inquiry with the Register
of Deeds of San Fernando, Pampanga, they confirmed that the property had been titled
in the name of respondents under Transfer Certificate of Title (TCT) No. 213777-R;
that the said title was invalid, ineffective, voidable or unenforceable; and that they were
the true owners of the property.
Hence, they prayed that the title be cancelled and a new title be issued in their favor.
In their Answer, respondents asserted that they were the absolute owners of the
4
subject land as per TCT No. 213777-R; that they had inherited the same from their
predecessor-in-interest, Fausta Baluyut, one of the registered owners under Original
Certificate of Title (OCT) No. RO-1138 (11376), as per the Project of Partition and
Deed of Agreement, dated January 2, 1974; and that petitioners had been occupying
the property by mere tolerance. They denied the allegations in the complaint and
proffered affirmative defenses with counterclaims.
They argued that: First, the petitioners "have no valid, legal and sufficient cause of
action" against them, because their deed of sale was spurious and could not prevail
5
over Land Registration Decree No. 122511 issued on June 28, 1919 in Land
Registration Case No. 5, LRC Records No. 128, by the Court of First Instance of
Pampanga, in favor of their predecessor-in-interest. The predecessors-in-interest of
petitioners were among the oppositors in the land registration proceeding but,
nevertheless, after the trial, the subject lot was awarded, decreed and titled in favor of
respondents’ predecessor-in-interest, as per OCT No. RO-1138 (11376) of the
Registry of Deeds of Pampanga. Second, the action was barred by prescription and
that petitioners were guilty of laches in asserting their interest over the subject lot,
considering that Land Registration Decree No. 122511 was issued on June 28, 1919
late for petitioners to institute the action after more than 80 years. They also raised the
settled rule that a title registered under the Torrens system could not be defeated by
adverse, open and notorious possession, or by prescription. Third, the action was also
barred by res judicata and violated the prohibition against forum shopping, considering
that petitioners had earlier filed a similar case for quieting of title against respondents,
docketed as Civil Case No. 5487, which the RTC-Br. 56 dismissed. Petitioners filed
their Comment to Defendant’s Affirmative Defenses. Anent the alleged lack of cause
6
of action due to the spurious deed of sale, petitioners argued that this contention was
a matter of evidence which might only be resolved in a full-blown trial. They insisted
that the deed of sale was genuine and authentic and was issued and certified by the
Deputy Clerk of Court of the RTC. They added that the settled rule was that to
determine the sufficiency of the cause of action, only the facts alleged in the complaint
should be considered, and that the allegations in their complaint sufficiently stated a
cause of action.
As regards the allegation of prescription, the petitioners countered that an action to
quiet title did not prescribe if the plaintiffs were in possession of the property in
question. They argued that they were neither guilty of laches nor were they in
possession of the property by mere tolerance, their possession being in the concept of
owner for more than a hundred years.
Lastly, regarding the argument on res judicata, petitioners explained that they were not
the same plaintiffs in Civil Case No. 5487 and that the case was dismissed without
prejudice.
The RTC set a preliminary hearing on the affirmative defenses.
Respondents presented Atty. Charlemagne Tiqui Calilung, RTC Clerk of Court of San
Fernando, Pampanga, who presented the record of Cadastral Case No. 5, dated June
28, 1919, as well as Decree No. 122511. They also presented Luis Samuel Ragodon,
the Registration Examiner of the Registry of Deeds of San Fernando, Pampanga, who
presented the original copy of OCT No. 11376, reconstituted as RO-1138, and testified
that the title was derived from Decree No. 122511. He further testified that the original
title had been cancelled pursuant to a project of partition, which was registered on
December 17, 1984, and in lieu thereof, TCT Nos. 213775, 213776, 213777, 213778,
213779, 213780, and 213781 were issued. He presented the original copy of TCT No.
213777-R issued in the names of respondents.
Henry Y. Bituin, the court interpreter who translated the June 28, 1919 decision of the
Court of First Instance of Pampanga in Land Registration Case No. 5 from Spanish to
English, also testified.
Petitioners manifested that they were opting to submit the incident for resolution
without presenting evidence, relying on their position that only the facts alleged in the
complaint should be considered.
In their formal offer of evidence, respondents offered the following documents: (1) the
7 from the moment the said decision was rendered and an OCT was issued. Finding that
June 28, 1919 Decision and its English translation; (2) Transmittal Letter, dated May
6, 1922; (3) Decree No. 122511; (4) OCT No. RO-1138; (5) TCT No. 213777-R; (6) the
petition, dated July 29, 1988, and its annexes in Civil Case No. 5487;(7) the September
7, 1990 Order dismissing Civil Case No. 5487, without prejudice; and (8) the July 29,
1916 Decision in Expediente No. 132, G.L.R.O. Record No. 11958 and its English
translation.
In their comment/opposition to the formal offer of evidence, petitioners argued (1) that
8 relation to Section 6, Rule 16 of the Rules of Court, a preliminary hearing on the
the claims of Epifanio Makam and Severina Bautista, their predecessors-in-interest,
were not adjudicated in the June 28, 1919 decision and, thus, res judicata was
inapplicable; (2) that Civil Case No. 5487 was dismissed without prejudice and that
they were not the plaintiffs therein; (3) that the allegedly spurious nature of the deed of
sale and the supposed in defeasibility of respondents’ title were matters of evidence to
be resolved in a full-blown trial and the trial court was only confined to the allegations
in the complaint; (4) that their action was not barred by prescription because an action
toquiet title did not prescribe if the plaintiffs were in possession of the subject property
and that they had been in possession in the concept of owner for more than 100 years;
and (5) that respondents were guilty of laches having taken more than 80 years to
attempt to enforce their claimed title to the property.
Ruling of the RTC
On July 14, 2008, the RTC-Br. 59 issued the Order dismissing petitioners’ complaint.
It found that based on the decision, dated June 28, 1919, in Cadastral Case No. 5, the
Baluyut siblings, respondents’ predecessors-in-interest, were declared the absolute
owners of the subject property, over the claim of Jose Makam, the predecessor-in-
interest of petitioners, who was one of the oppositors in the said case. From this
decision, OCT No. RO-1138 (11376) was derived, which later became the subject of a
project of partition and deed of agreement among the Baluyut siblings, dated January
2, 1972, which, in turn, was annotated on the OCT as Entry No. 8132. TCT No. 213777-
R, covering the subject lot, was later derived from the partition. The RTC-Br. 59 also
noted that it was stated in the said decision that in 1907, a warehouse was constructed
on the subject lot by virtue of an agreement between the Chairman of Magalang and
Enrique Baluyut, with no objection from the Makams. It was further noted that the deed
of sale being asserted by petitioners was not mentioned in the 1919 decision despite
the claim of their predecessors-in-interest.
The RTC-Br. 59, thus, ruled that the deed of sale had become invalid by virtue of the
June 28, 1919 decision. It held that although the deed of sale dated, April 20, 1894,
was never challenged, it was nevertheless unenforceable by virtue of the June 28,
1919 decision. It found that petitioners had lost whatever right they had on the property
petitioners were not holders of any legal title over the property and were bereft of any
equitable claim thereon, the RTC-Branch 59 stated that the first requisite of an action
to quiet title was miserably wanting. It also found the second requisite to be wanting
because respondents had proved that the TCT registered in their names was valid.
Anent petitioners’ argument that only the complaint may be considered in determining
the sufficiency of the cause of action, the RTC Br. 59 ruled that under Section 2 in
affirmative defense in the answer might be had at the discretion of the court, during
which the parties could present their arguments and their evidence.
On December 22, 2008, the RTC-Br. 59 denied petitioners’ motion for reconsideration.
It stated that the court may consider evidence presented in hearings related to the
case, which was an exception to the general rule that only the complaint should be
taken into consideration. It stated that petitioners were without legal or equitable title
to the subject property, thus, lacking the legal personality to file an action for quieting
of title and, therefore, "the complaint was properly dismissed for failing to state a cause
of action."
9
Ruling of the CA
In the assailed Decision, dated March 13, 2012, the CA dismissed petitioners’ appeal.
It explained that under Section 6, Rule 16 of the Rules of Court, a court is allowed to
conduct a preliminary hearing, motu proprio, on the defendant’s affirmative defenses,
including the ground of "lack of cause of action or failure to state a cause of action." It
10
gave the reason that because the rule spoke in general terms, its manifest intention
was to apply it to all grounds for a motion to dismiss under the rules which were pleaded
as affirmative defenses in the responsive pleading. Thus, it held that the trial court
might consider other evidence aside from the averments in the complaint in
determining the sufficiency of the cause of action. The CA explained:
But as shown in the foregoing rule, the holding of a preliminary hearing on any of the
grounds for a motion to dismiss which is pleaded as an affirmative defense is within
the full discretion of the trial court. The rule speaks of affirmative defenses that are
grounds for a motion to dismiss. Indubitably, lack of cause of action or failure to state
a cause of action, being one of the grounds for a motion to dismiss, is included thereby.
Since the rule allows the trial court to conduct a preliminary hearing on this kind of an
affirmative defense, it follows then that evidence could be submitted and received
during the proceedings which the court may consider in forming its decision. It would
be plain absurdity if the evidence already presented therein would not be allowed to
be considered in resolving whether the case should be dismissed or not. To rule
otherwise would render nugatory the provision of Section 6, Rule 16 and would make
the holding of a preliminary hearing a plain exercise in futility. No well-meaning judge
would hold a preliminary hearing and receive evidence only to disregard later the
evidence gathered in the course thereof. If the intention of the rule is for the trial court
to confine itself to the allegations in the complaint in determining the sufficiency of the
cause of action, as the plaintiffs-appellants would want to impress upon this Court, then
it should have been so expressly stated by barring the court from conducting a
preliminary hearing based on the said ground. The fact, however, that the said rule
speaks in general terms, it is its manifest intention to apply it in all grounds for a motion
to dismiss under the rules which are pleaded as an affirmative defense in the
responsive pleading. Thus, we find that that trial court did not err in considering the
evidence already presented and in not confining itself to the allegations in the plaintiffs-
appeallants’ complaint. 11
The CA gave credence to the evidence presented by respondents and noted that,
except for petitioners’ bare allegation that respondents’ title was invalid, there was
nothing more to support the same. It further noted that the deed of sale was written in
a local dialect without the translation and with no ascertainable reference to the area
of the property being conveyed. The CA, therefore, found that petitioners did not have
the title required to avail of the remedy of quieting of title, while respondents had
sufficiently proven the validity of their Torrens title. Hence, the subject petition.
ISSUE
Whether the CA erred in affirming the dismissal of
petitioners’ complaint on the ground of lack of cause of
action or failure to state a cause of action.
Petitioners argue that the CA gravely erred in considering external factors beyond the
allegations in the petition. They aver that it is a settled rule that to determine the
sufficiency of a cause of action, only facts alleged in the complaint shall be considered,
and it is error for the court to take cognizance of external facts or hold a preliminary
hearing to determine their existence. Respondents, on the other hand, echo the ruling
of the CA that it was within the disrection of the trial court to conduct a preliminary
hearing on the affirmative defense of lack of cause of action or failure to state a cause
of action, where both parties were given the chance to submit arguments and evidence
for or against the dismissal of the complaint. Furthermore, they argue that the Court
has previously upheld cases where the court took into account external factors in the
dismissal of the complaint on the ground of lack of cause of action. They assert that
since petitioners were given reasonable opportunity to present evidence to prove their
cause of action, they are now estopped from invoking the rule that only allegations in
the complaint should be considered. 12
Petitioners reiterate that they have been in possession of the property in the concept
of owner for more than 119 years, where they built their houses, reared their families,
and paid realty taxes thereon. They point out that their possession was never disputed
by respondents, and that respondents had only attempted to enforce their supposed
rights over the property in 2005, or 86 years after the purported decree awarding the
property to them. Petitioners argue that respondents had abandoned their right to the
subject property which, thus, rendered invalid whatever title they might have had. They
argue that it has been held that a registered owner’s right to recover possession and
title to property may be converted into a stale demand by virtue of laches. They also
claim that the allegations contained in their complaint sufficiently state a cause of
action, and that it was an error for the trial court to declare it unenforceable considering
that the deed of sale should be considered hypothetically admitted when determining
whether the complaint sufficiently states a cause of action. 13
Ruling of the Court
Preliminary matters
The Court notes that respondents raised the affirmative defense in their Answer that
petitioners "have no valid, legal and sufficient cause of action," raising factual
matters, which is effectively the ground of "lack of cause of action." Respondents’
14
arguments made no assertion that the complaint failed to state a cause of action. The
ground of "lack of cause of action" has been frequently confused with the ground of
"failure to state a cause of action," and this is the situation prevailing in the present
case. The terms were, in fact, used interchangeably by both the respondents and the
lower courts.
The distinction between the grounds of "failure to state a cause of action" and "lack of
cause of action" was aptly discussed in Dabuco vs. Court of Appeals, to wit:
As a preliminary matter, we wish to stress the distinction between the two grounds for
dismissal of an action: failure to state a cause of action, on the one hand, and lack of
cause of action, on the other hand. The former refers to the insufficiency of allegation
in the pleading, the latter to the insufficiency of factual basis for the action. Failure to
state a cause may be raised in a Motion to Dismiss under Rule 16, while lack of cause
may be raised any time. Dismissal for failure to state a cause can be made at the
earliest stages of an action. Dismissal for lack of cause is usually made after questions
of fact have been resolved on the basis of stipulations, admissions or evidence
presented. 15
Although the two grounds were used interchangeably, it can be gleaned from the
decisions of both the trial court and the CA that respondents’ defense of "lack of cause
of action" was actually treated as a "failure to state a cause of action," which is a ground
for a motion to dismiss under Rule 16. This is apparent from their reliance on Section
6 of Rule 16, which pertains to grounds of a motion to dismiss raised as affirmative
defenses; as well as the doctrines cited in resolving the case. The CA even referred to
both as one and the same ground for a motion to dismiss when it stated that:
"Indubitably, lack of cause of action or failure to state a cause of action, being one of
the grounds for a motion to dismiss, is included thereby." 16
Also confused, respondents, on their part, asserted that "it is within the discretion of
the Court a quo to conduct a preliminary hearing on the affirmative defense of lack of
cause of action or failure to state a cause of action," the very basis of their argument
17
being hinged on the application of Section 6. They also insisted on the applicability of
the exceptions to the general rule that only averments in the complaint must be
considered, which pertains to the ground of "failure to state a cause of action."
The trial court held a preliminary hearing resolving the ground of "lack of cause of
action" pursuant to Section 6 of Rule 16, which allows the court to hold a preliminary
hearing on grounds for dismissal provided in the same rule that have been raised as
an affirmative defense in the answer. The ground of "lack of cause of action," as
18
already explained, however, is not one of the grounds for a motion to dismiss under
Rule 16, and hence, not proper for resolution during a preliminary hearing held
pursuant to Section 6. On this point alone, the trial court clearly erred in receiving
evidence on the ground of "lack of cause of action" during the preliminary hearing. The
factual matters raised by respondents in their affirmative defense arguing the non-
existence of a cause of action, should have been duly resolved during a trial on the
merits of the case.
In any case, even if the Court were to treat respondents’ argument as a "failure to state
a cause of action," their defense would still fail. Court limited to averments in the
complaint
Rule 16 of the Rules of Court enumerates the grounds for a motion to dismiss. The
pertinent ground is found under Section 1(g), which reads as follows:
xxxx
(g) That the pleading asserting the claim states no cause of action; xxxx (Emphasis
supplied) The test for determining the existence of a cause of action was amply
discussed in Insular Investment and Trust Corporation v. Capital One Equities
Corporation, citing Perpetual Savings Bank v. Fajardo, to wit:
19 20
The familiar test for determining whether a complaint did or did not state a cause of
action against the defendants is whether or not, admitting hypothetically the truth of
the allegations of fact made in the complaint, a judge may validly grant the relief
demanded in the complaint. In Rava Development Corporation v. Court of Appeals,
the Court elaborated on this established standard in the following manner:
"The rule is that a defendant moving to dismiss a complaint on the ground of lack of
cause of action is regarded as having hypothetically admitted all the averments thereof.
The test of the sufficiency of the facts found in a petition as constituting a cause of
action is whether or not, admitting the facts alleged, the court can render a valid
judgment upon the same in accordance with the prayer thereof (Consolidated Bank
and Trust Corp. v. Court of Appeals, 197 SCRA 663 [1991]).
In determining the existence of a cause of action, only the statements in the complaint
may properly be considered. It is error for the court to take cognizance of external facts
or hold preliminary hearings to determine their existence. If the allegation in a complaint
furnish sufficient basis by which the complaint may be maintained, the same should
not be dismissed regardless of the defenses that may be assessed by the defendants
(supra).21
Thus, in determining the existence of a cause of action, only the allegations in the
complaint may properly be considered. For the court to do otherwise would be a
procedural error and a denial of the plaintiff’s right to due process.22
In the case at bench, petitioners’ cause of action relates to an action to quiet title under
Article 476 of the Civil Code, which provides:
Article 476. Whenever there is a cloud on title to real property or any interest therein,
by reason of any instrument, record, claim, encumbrance or proceeding which is
apparently valid or effective but is in truth and in fact invalid, ineffective, voidable, or
unenforceable, and may be prejudicial to said title, an action may be brought to remove
such cloud or to quiet title.
An action may also be brought to prevent a cloud from being cast upon title to real
property or any interest therein.
A "cloud on title" is an outstanding instrument, record, claim, encumbrance or
proceeding which is actually invalid or inoperative, but which may nevertheless impair
or affect injuriously the title to property. The matter complained of must have a prima
facie appearance of validity or legal efficacy. The cloud on title is a semblance of title
which appears in some legal form but which is in fact unfounded. The invalidity or in
operativeness of the instrument is not apparent on the face of such instrument, and it
has to be proved by extrinsic evidence. 23
In order that an action for quieting of title may prosper, two requisites must concur: (1)
the plaintiff or complainant has a legal or equitable title or interest in the real property
subject of the action; and (2) the deed, claim, encumbrance, or proceeding claimed to
be casting cloud on his title must be shown to be in fact invalid or inoperative despite
its prima facie appearance of validity or legal efficacy.
24
Turning then to petitioners’ complaint, the relevant allegations as to the cause of action
for quieting of title read as follows:
3. Plaintiffs are the heirs of the late Epifanio Makam and Severina Bautista
who acquired a house and lot on 20 April 1894 situated in Magalang,
Pampanga, consisting of Five Hundred Seventy Seven (577) square meters
more or less, by virtue of a Deed of Sale, hereby quoted for ready reference:
xxx
4. From 1894 and up to the present, plaintiffs and through their predecessors-
in-interest have been in open, continuous, adverse and notorious possession
for more than a hundred years of the piece of property mentioned above,
constructed their houses thereon and dutifully and faithfully paid the real
estate taxes on the said property;
5. That sometime in June 2005, plaintiffs received various demand letters
from defendants demanding plaintiffs to vacate the premises, claiming
ownership of the subject property;
6. That when plaintiffs inquired from the Office of the Register of Deeds of
San Fernando, Pampanga, they were able to confirm that their property had
been titled in the name of herein defendants under TCT No. 213777-R;
7. That the said title is in fact invalid, ineffective, voidable or unenforceable,
the existence of which is pre-judicial to the ownership and possession of
plaintiffs who are the true owners and actual possessors of the above
described real property;
8. That equity demands that the said title be surrendered by defendants and
cancelled as it is a cloud upon the legal or equitable title to or interest of
plaintiffs over the subject property.
25
It is readily apparent from the complaint that petitioners alleged that (1) they had an
interest over the subject property by virtue of a Deed of Sale, dated April 20, 1894; and
that (2) the title of respondents under TCT No. 213777-R was invalid, ineffective,
voidable or unenforceable. Hypothetically admitting these allegations as true, as is
required in determining whether a complaint fails to state a cause of action, petitioners
may be granted their claim. Clearly, the complaint sufficiently stated a cause of action.
In resolving whether or not the complaint stated a cause of action, the trial court should
have limited itself to examining the sufficiency of the allegations in the complaint. It
was proscribed from inquiring into the truth of the allegations in the complaint or the
authenticity of any of the documents referred or attached to the complaint, as these
were deemed hypothetically admitted by the respondents. 26
Evangelista v. Santiago elucidates:
The affirmative defense that the Complaint stated no cause of action, similar to a
motion to dismiss based on the same ground, requires a hypothetical admission of the
facts alleged in the Complaint. In the case of Garcon v. Redemptorist Fathers, this
Court laid down the rules as far as this ground for dismissal of an action or affirmative
defense is concerned:
It is already well-settled that in a motion to dismiss a complaint based on lack of cause
of action, the question submitted to the court for determination is the sufficiency of the
allegations of fact made in the complaint to constitute a cause of action, and not on
whether these allegations of fact are true, for said motion must hypothetically admit the
truth of the facts alleged in the complaint; that the test of the sufficiency of the facts
alleged in the complaint is whether or not, admitting the facts alleged, the court could
render a valid judgment upon the same in accordance with the prayer of said
complaint. Stated otherwise, the insufficiency of the cause of action must appear in
1âwphi1
the face of the complaint in order to sustain a dismissal on this ground, for in the
determination of whether or not a complaint states a cause of action, only the facts
alleged therein and no other matter may be considered, and the court may not inquire
into the truth of the allegations, and find them to be false before a hearing is had on
the merits of the case; and it is improper to inject in the allegations of the complaint
facts not alleged or proved, and use these as basis for said motion. (Emphasis and
27
underscoring supplied)
Exceptions and Section 6 of Rule 16 not applicable
The Court does not discount, however, that there are exceptions to the general rule
that allegations are hypothetically admitted as true and inquiry is confined to the face
of the complaint. First, there is no hypothetical admission of (a) the veracity of
allegations if their falsity is subject to judicial notice; (b) allegations that are legally
impossible; (c) facts inadmissible in evidence; and (d) facts which appear, by record or
document included in the pleadings, to be unfounded. Second, inquiry is not confined
28
to the complaint if culled (a) from annexes and other pleadings submitted by the
parties; (b) from documentary evidence admitted by stipulation which disclose facts
29
sufficient to defeat the claim; or (c) from evidence admitted in the course of hearings
related to the case.30
Pointing to the exception that inquiry was not confined to the complaint if evidence had
been presented in the course of hearings related to the case, the CA ruled that it was
within the trial court’s discretion to receive and consider other evidence aside from the
allegations in the complaint in resolving a party’s affirmative defense. It held that this
discretion was recognized under Section 6 of Rule 16 of the Rules of Court, which
allowed the court to conduct a preliminary hearing, motu proprio, on the defendant’s
affirmative defense if no corresponding motion to dismiss was filed. This section reads
in part:
Section 6. Pleading grounds as affirmative defenses. – If no motion to dismiss has
been filed, any of the grounds for dismissal provided for in this Rule may be pleaded
as an affirmative defense in the answer and, in the discretion of the court, a preliminary
hearing may be had thereon as if a motion to dismiss had been filed.
In their answer, respondents raised the affirmative defenses of "lack of cause of action,
prescription, and res judicata," stated in the following manner:
31
xxxx
6. Plaintiffs have no valid, legal and sufficient cause of action against the defendants.
The alleged "deed of sale" (Annex "B" – Amended Complaint) is spurious and the same
cannot prevail over the Land Registration Decree No. 122511 issued on June 28, 1919
in Land Registration Case No. 5, LRC Record No. 128, by the Court of First Instance
of Pampanga, in favor of defendants’ predecessor-in-interest. In fact, plaintiffs’
predecessors-in-interest were among the oppositors in that land registration
proceeding but after trial the lot in question was awarded, decreed and titled in favor
and in the names of defendants’ predecessors-in-interest, as per Original Certificate of
Title No. RO-1138 (11376) of the Registry of Deeds of Pampanga;
7. The instant action, which is actually an action of reconveyance, is already barred by
prescription. Moreover, plaintiffs are guilty of laches in asserting their alleged title or
interest over the subject lot. Said Land Registration Decree No. 122511 was issued on
June 28, 1919 and OCT No. RO 1138 (11376) was issued on May 12, 1922. Clearly,
it is much too late for the plaintiffs, after more than eighty (80) long years to institute
this action against the defendants;
xxxx
9. The present action is also barred by res judicata and violates the prohibition against
forum shopping. There was already a prior similar case for quieting of title filed by
plaintiffs’ predecessor-in-interest against defendant Jaime Quiazon and his co-owners,
before Branch 56 of this Honorable Court, docketed as Civil Case No. 5487, which was
dismissed; x x x x (Emphases supplied)
32
A review of the first ground under paragraph 6 of the answer reveals that respondents
alleged that "[p]laintiffs have no valid, legal and sufficient cause of action against the
defendants." It is at this point that it must again be emphasized that it is not "lack or
absence of cause of action" that is a ground for dismissal of the complaint under Rule
16, but rather, that "the complaint states no cause of action." The issue submitted to
33
the court was, therefore, the determination of the sufficiency of the allegations in the
complaint to constitute a cause of action and not whether those allegations of fact were
true, as there was a hypothetical admission of facts alleged in the complaint. An 34
affirmative defense, raising the ground that there is no cause of action as against the
defendants poses a question of fact that should be resolved after the conduct of the
trial on the merits. A reading of respondents’ arguments in support of this ground
35
readily reveals that the arguments relate not to the failure to state a cause of action,
but to the existence of the cause of action, which goes into the very crux of the
controversy and is a matter of evidence for resolution after a full-blown hearing.
The trial court may indeed elect to hold a preliminary hearing on affirmative defenses
as raised in the answer under Section 6 of Rules 16 of the Rules of Court. It has been
held, however, that such a hearing is not necessary when the affirmative defense is
failure to state a cause of action, and that it is, in fact, error for the court to hold a
36
preliminary hearing to determine the existence of external facts outside the
complaint. The reception and the consideration of evidence on the ground that the
37
complaint fails to state a cause of action, has been held to be improper and
impermissible. Thus, in a preliminary hearing on a motion to dismiss or on the
38
affirmative defenses raised in an answer, the parties are allowed to present evidence
except when the motion is based on the ground of insufficiency of the statement of the
cause of action which must be determined on the basis only of the facts alleged in the
complaint and no other. Section 6, therefore, does not apply to the ground that the
39
complaint fails to state a cause of action. The trial court, thus, erred in receiving and
considering evidence in connection with this ground.
The lower courts also relied on the exception that external evidence may be considered
when received "in the course of hearings related to the case," which is rooted in the
case of Tan v. Director of Forestry (Tan). In said case, a hearing was conducted on
40
the prayer for preliminary injunction where evidence was submitted by the parties. In
the meantime, a motion to dismiss was filed by the defendant, citing as one of the
grounds that the petition did not state a cause of action. The trial court resolved the
prayer for the issuance of a writ of preliminary injunction simultaneously with the motion
to dismiss. It dismissed the petition for failure to state a cause of action on the basis of
the evidence presented during the hearing for preliminary injuction. On appeal, this
Court ruled that the trial court was correct in considering the evidence already
presented and in not confining itself to the allegations in the petition.
Tan, however, is not on all fours with the present case. First, the trial court therein
considered evidence presented during a preliminary hearing on an injunction and not
during a hearing on a motion to dismiss. As discussed, a preliminary hearing on a
motion to dismiss is proscribed when the ground is failure to state a cause of action.
The exception of "hearings related to the case," therefore, pertains to hearings other
than the hearing on a motion to dismiss on the ground of failure to state a cause of
action. To reiterate, the ground that the complaint fails to state a cause of action should
be tested only on the allegations of facts contained in the complaint, and no other. If
the allegations show a cause of action, or furnish sufficient basis by which the
complaint can be maintained, the complaint should not be dismissed regardless of the
defenses averred by the defendants. The trial court may not inquire into the truth of
41
the allegations, and find them to be false before a hearing is conducted on the merits
of the case. If the court finds the allegations to be sufficient but doubts their veracity,
42
the veracity of the assertions could be asserted during the trial on the merits. 43
Second, Tan noted that the plaintiff had readily availed of his opportunity to introduce
evidence during the hearing and, as a result, was estopped from arguing that the court
is limited to the allegations in the complaint. This is in contrast to the present case,
44
where petitioners steadfastly argued from the beginning that the trial court was limited
to the allegations in the complaint. Petitioners maintained their stance during the
preliminary hearing on the affirmative defenses, opting not to file rebuttal evidence and
opposing respondents’ formal offer of evidence on the same ground. Having been
consistent in their position from the start, petitioners cannot be estopped from arguing
that the trial court was precluded from considering external evidence in resolving the
motion to dismiss.
Third, it was noted in Tan that the documentary evidence given credence by the trial
court had effectively been admitted by stipulation during the hearing, and another had
45
been an annex to the complaint, both of which are exceptions to the general rule that
46
external facts cannot be considered. Neither of the said exceptions is availing in the
present case. The Court notes that only the OCT of respondents was attached as an
annex to their answer. The June 28, 1919 Decision in the Cadastral case, which was
given considerable weight by the trial court, was not attached and was only presented
during the preliminary hearing.
Fourth, Tanruled that the rigid application of the rules could not be countenanced
considering the overriding public interest involved, namely, the welfare of the
inhabitants of the province whose lives and properties would be directly and
immediately imperilled by forest denudation. There appears to be no overriding public
47

interest in the present case to justify a similar relaxation of the rules.

It is of note that although the trial court might not have erred in holding a preliminary
hearing on the affirmative defenses of prescription and res judicata, it is readily
apparent from the decisions of the lower courts that no disquisition whatsoever was
made on these grounds. It cannot be denied that evidence in support of the ground of
"lack of cause of action" was received and given great weight by the trial court. In fact,
all the evidence given credence by the trial court were only in support of the ground of
"lack of cause of action." This all the more highlights that the trial court erred in
receiving evidence to determine whether the complaint failed to state a cause of action.

Although neither the RTC or the CA ruled on the affirmative defenses of prescription
and res judicata, it appears that this case could not have been dismissed on these
grounds. First, an action to quiet title is imprescriptible if the plaintiffs are in possession
of the property, which is the situation prevailing in the present case. Second, there
48

appears to be no res judicata nor a violation of the prohibition against forum shopping
considering that Civil Case No. 5487 had been dismissed, without prejudice, years
before petitioners initiated their complaint for quieting of title.

In sum, the trial court erred in dismissing the complaint on the ground of failure to state
a cause of action. Evidence should have been received not during a preliminary
hearing under Section 6 of Rule 16, but should have been presented during the course
of the trial. The case should, thus, be remanded to the RTC-Br. 59 for trial on the
merits.

WHEREFORE, the petition is GRANTED. The March 13, 2012 Decision of the Court
of Appeals, in CA-G.R. CV No. 92887 is REVERSED and SET ASIDE. The case is
ordered REMANDED to the Regional Trial Court for trial on the merits of the case.

SO ORDERED.

FIRST DIVISION
[ G.R. No. 223451, March 14, 2018 ]
ANTONIO F. TRILLANES IV, PETITIONER, VS. HON. EVANGELINE C.
CASTILLO-MARIGOMEN, IN HER CAPACITY AS PRESIDING JUDGE
OF THE REGIONAL TRIAL COURT, QUEZON CITY, BRANCH 101 AND
ANTONIO L. TIU, RESPONDENTS.
DECISION
TIJAM, J.:
This is a Petition for Certiorari[1] under Rule 65 of the Rules of Court over
public respondent's Order[2] dated May 19, 2015 which denied petitioner's
motion to dismiss premised on the special and affirmative defenses in his
Answer, and public respondent's Order[3] dated December 16, 2015 which
denied petitioner's Motion for Reconsideration, both issued in Civil Case No.
R-QZN-14-10666-CV entitled "Antonio L. Tiu v. Antonio F. Trillanes IV."
The Facts
Petitioner, as a Senator of the Republic of the Philippines, filed Proposed
Senate Resolution No. 826 (P.S. Resolution No. 826) directing the Senate's
Committee on Accountability of Public Officials and Investigations to
investigate, in aid of legislation, the alleged P1.601 Billion overpricing of the
new 11-storey Makati City Hall II Parking Building, the reported overpricing
of the 22-storey Makati City Hall Building at the average cost of
P240,000.00 per square meter, and related anomalies purportedly
committed by former and local government officials.[4]
Petitioner alleged that at the October 8, 2014 Senate Blue Ribbon Sub-
Committee (SBRS) hearing on P.S. Resolution No. 826, former Makati Vice
Mayor Ernesto Mercado (Mercado) testified on how he helped former Vice
President Jejomar Binay (VP Binay) acquire and expand what is now a 350-
hectare estate in Barangay Rosario, Batangas, which has been referred to
as the Hacienda Binay, about 150 hectares of which have already been
developed, with paved roads, manicured lawns, a mansion with resort-style
swimming pool, man-made lakes, Japanese gardens, a horse stable with
practice race tracks, an extensive farm for fighting cocks, green houses and
orchards.[5]
According to petitioner, Mercado related in said hearing that because VP
Binay's wife would not allow the estate's developer, Hillmares' Construction
Corporation (HCC), to charge the development expenses against VP Binay's
13% share in kickbacks from all Makati infrastructure projects, HCC was
compelled to add the same as "overprice" on Makati projects, particularly
the Makati City Hall Parking Building.[6]
Petitioner averred that private respondent thereafter claimed "absolute
ownership" of the estate, albeit asserting that it only covered 145 hectares,
through his company called Sunchamp Real Estate Corporation
(Sunchamp), which purportedly entered into a Memorandum of Agreement
(MOA) with a certain Laureano R. Gregorio, Jr. (Gregorio, Jr.), the alleged
owner of the consolidated estate and its improvements.[7]
Petitioner further averred that private respondent testified before the SBRS
on the so-called Hacienda Binay on October 22 and 30, 2014, and at the
October 30, 2014 hearing, the latter presented a one-page
Agreement[8] dated January 18, 2013 between Sunchamp and
Gregorio.[9] On its face, the Agreement covered a 150-hectare property in
Rosario, Batangas and showed a total consideration of P400 Million, payable
in tranches and in cash and/or listed shares, adjustable based on the fair
market value. The Agreement likewise ostensibly showed that Gregorio is
obligated to cause the registration of improvements in the name of
Sunchamp and within two years, to deliver titles/documents evidencing the
real and enforceable rights of Sunchamp, and the latter, in the interim, shall
have usufruct over the property, which is extendible.
Petitioner admitted that during media interviews at the Senate, particularly
during gaps and breaks in the plenary hearings as well as committee
hearings, and in reply to the media's request to respond to private
respondent's claim over the estate, he expressed his opinion that based on
his office's review of the documents, private respondent appears to be a
"front" or "nominee" or is acting as a "dummy" of the actual and beneficial
owner of the estate, VP Binay.[10]
On October 22, 2014, private respondent filed a Complaint for
Damages[11] against petitioner, docketed as Civil Case No. R-QZN-14-
10666-CV, for the latter's alleged defamatory statements before the media
from October 8 to 14, 2014, specifically his repeated accusations that
private respondent is a mere "dummy" of VP Binay.
Private respondent alleged that he is a legitimate businessman engaged in
various businesses primarily in the agricultural sector, and that he has
substantial shareholdings, whether in his own name or through his holding
companies, in numerous corporations and companies, globally, some of
which are publicly listed. He averred that because of petitioner's defamatory
statements, his reputation was severely tarnished as shown by the steep
drop in the stock prices of his publicly listed companies, AgriNurture, Inc.
(AgriNurture), of which he is the Executive Chairman, and Greenergy
Holdings, Inc. (Greenergy), of which he is the Chairman, President and
Chief Executive Officer. To illustrate this, private respondent alleged that
on October 7, 2014, the price of a share of stock of Greenergy was P0.011
per share and the volume of trading was at 61 Million, while on October 8,
2014, the price dropped to P0.0099 per share (equivalent to a 10%
reduction) and the volume of trading increased by more than seven times
(at 475.7 Million), with the price continuing to drop thereafter. Similarly,
private respondent alleged that on October 8, 2014, AgriNurture
experienced a six percent (6%) drop from its share price of October 7, 2014
(from P2.6 to P2.45) and an increase of more than six times in the volume
of trading (from 68,000 to 409,000), with the share price continuing to drop
thereafter. According to private respondent, the unusual drop in the share
price and the drastic increase in trading could be attributed to the
statements made by petitioner, which caused the general public to doubt
his capability as a businessman and to unload their shares, to the detriment
of private respondent who has substantial shareholdings therein through
his holding companies.
Denying that he is a "dummy," private respondent alleged that he possesses
the requisite financial capacity to fund the development, operation and
maintenance of the "Sunchamp Agri-Tourism Park." He averred that
petitioner's accusations were defamatory, as they dishonored and
discredited him, and malicious as they were intended to elicit bias and
prejudice his reputation. He further averred that such statements were not
absolutely privileged since they were not uttered in the discharge of
petitioner's functions as a Senator, or qualifiedly privileged under Article
354 of the Revised Penal Code,[12] nor constitutive of fair commentaries on
matters of public interest. He added that petitioner's statement that he was
willing to apologize if proven wrong, showed that he spoke without a
reasonable degree of care and without regard to the gravity of his sweeping
accusation.
Claiming that petitioner's statements besmirched his reputation, and
caused him sleepless nights, wounded feelings, serious anxiety, mental
anguish and social humiliation, private respondent sought to recover P4
Million as moral damages, P500,000.00 as exemplary damages and
attorney's fees in the amount of P500,000.00.
In his Answer with Motion to Dismiss,[13] petitioner raised the following
Special and Affirmative Defenses:
First, petitioner averred that private respondent failed to state and
substantiate his cause of action since petitioner's statement that private
respondent was acting as a "front," "nominee" or "dummy" of VP Binay for
his Hacienda Binay is a statement of fact.[14]
Petitioner asserted that private respondent was unable to prove his alleged
ownership of the subject estate, and that Mercado had testified that VP
Binay is the actual and beneficial owner thereof, based on his personal
knowledge and his participation in the consolidation of the property.
Petitioner noted that the titles covering the estate are in the names of
persons related to or identified with Binay. He argued that the one-page
Agreement submitted by private respondent hardly inspires belief as it was
unnotarized and lacked details expected in a legitimate document such as
the technical description of the property, the certificates of title, tax
declarations, the area of the property and its metes and bounds, schedule
of payments, list of deliverables with their due dates, warranties and
undertakings and closing date. He also pointed out that while the total
consideration for the Agreement was P446 Million, the downpayment was
only P5 Million. With a yearly P30 Million revenue from the orchard,
petitioner questioned why Gregorio would agree to part with his possession
for a mere one percent (1%) of the total consideration.[15] Petitioner
likewise disputed private respondent's supposed claim that Sunchamp had
introduced improvements in the estate amounting to P50 Million, stressing
that it took over the estate only in July 2014 and that it did not own the
property and probably never would given the agrarian reform issues.
Petitioner claimed that it was based on the foregoing and the report of his
legal/legislative staff that he made his statement that private respondent is
a front, nominee or dummy of VP Binay.[16]
Second, petitioner posited that his statements were part of an ongoing
public debate on a matter of public concern, and private respondent, who
had freely entered into and thrust himself to the forefront of said debate,
has acquired the status of a public figure or quasi-public figure. For these
reasons, he argued that his statements are protected by his constitutionally
guaranteed rights to free speech and freedom of expression and of the
press.[17]
Third, petitioner contended that his statements, having been made in the
course of the performance of his duties as a Senator, are covered by his
parliamentary immunity under Article VI, Section 11 of the 1987
Constitution.[18]
Citing Antero J Pobre v. Sen. Miriam Defensor-Santiago,[19] petitioner
argued that the claim of falsity of statements made by a member of
Congress does not destroy the privilege of parliamentary immunity, and the
authority to discipline said member lies in the assembly or the voters and
not the courts.
Petitioner added that he never mentioned private respondent's two
companies in his interviews and it was private respondent who brought
them up. Petitioner pointed out that private respondent only had an eight
percent (8%) shareholding in one of said companies and no shareholding in
the other, and that based on the records of the Philippine Stock Exchange,
the share prices of both companies had been on a downward trend long
before October 8, 2014. Petitioner described the Complaint as a mere media
ploy, noting that private respondent made no claim for actual damages
despite the alleged price drop. This, according to petitioner, showed that
private respondent could not substantiate his claim.[20]
Petitioner prayed for the dismissal of the Complaint and for the award of his
Compulsory Counterclaims consisting of moral and exemplary damages and
attorney's fees.[21]
Petitioner subsequently filed a Motion (to Set Special and Affirmative
Defenses for Preliminary Hearing)[22] on the strength of Section 6, Rule 16
of the Rules of Court, which allows the court to hold a preliminary hearing
on any of the grounds for dismissal provided in the same rule, as may have
been pleaded as an affirmative defense in the answer.[23]
Private respondent opposed the motion on the grounds that the motion
failed to comply with the provisions of the Rules of Court on motions, and
a preliminary hearing on petitioner's special and affirmative defenses was
prohibited as petitioner had filed a motion to dismiss.
On May 19, 2015, public respondent issued the Order[24] denying
petitioner's motion to dismiss premised on the special and affirmative
defenses in his Answer. The Order, in pertinent part, states:
FIRST ISSUE: The Complaint failed to state a cause of action.
Whether true or false, the allegations in the complaint, would show that the
same are sufficient to enable the court to render judgment according to the
prayer/s in the complaint.
SECOND ISSUE: The defendant's parliamentary immunity.
The defense of parliamentary immunity may be invoked only on special
circumstances such that the special circumstance becomes a factual issue
that would require for its establishment the conduct of a full blown trial.
With the defense invoking the defendant's parliamentary immunity from
suit, it claims that this Court has no jurisdiction over the instant case. Again,
whether or not the courts have jurisdiction over the instant case is
determined based on the allegations of the complaint.
xxxx
Subject to the presentation of evidence, the complaint alleged that the
libelous or defamatory imputations (speech) committed by the defendant
against the plaintiff were made not in Congress or in any committee thereof.
This parliamentary immunity, again, is subject to special circumstances
which circumstances must be established in a full blown trial.
xxxx
FOURTH. Whether or not a motion to dismiss was filed to prevent a
preliminary hearing on the defendant's special and affirmative defenses.

xxxx
Said 'answer with motion to dismiss' of the defendant did not contain any
notice of hearing and was not actually heard. To the mind of the Court, the
use of the phrase 'with motion to dismiss' highlights the allegations of
special and affirmative defenses which are grounds for a motion to dismiss.
Thus, absent any motion to dismiss as contemplated by law, the preliminary
hearing on the special and affirmative defenses of the defendant may be
conducted thereon.
Petitioner's motion for reconsideration was denied in public respondent's
Order[25] dated December 16, 2015. Public respondent held that:
xxxx
To reiterate the ruling in the assailed order, parliamentary immunity is
subject to special circumstances which must be established in a full blown
trial.
In the complaint, the plaintiff stated that the defamatory statements were
made in broadcast and print media, not during a Senate hearing. Hence,
between the allegations in the complaint and the affirmative defenses in the
answer, the issue on whether or not the alleged defamatory statements
were made in Congress or in any committee thereof arises. It would be then
up to the Court to determine whether the alleged defamatory statements
are covered by parliamentary immunity after trial.
Petitioner subsequently filed the instant Petition for Certiorari, assailing
public respondent's May 19, 2015 and December 16, 2015 Orders on the
ground of grave abuse of discretion amounting to lack or excess of
jurisdiction. In ascribing grave abuse of discretion against public
respondent, petitioner reiterates the special and affirmative defenses in his
Answer with Motion to Dismiss, and asks that the assailed Orders be
nullified, reversed and set aside and a new one be issued dismissing the
Complaint.
In his Comment,[26] private respondent points out that the petition violates
the doctrine of hierarchy of courts. He contends that petitioner cannot
invoke parliamentary immunity as his utterances were made in various
media interviews, beyond the scope of his official duties as Senator, and
that the constitutional right to free speech can be raised only against the
government, not against private individuals.
Private respondent asserts that his Complaint sufficiently stated a cause of
action as petitioner's imputations, as alleged therein, were defamatory,
malicious and made public, and the victim was clearly identifiable. According
to him, petitioner's claim that his imputations were statements of fact,
covered by his parliamentary immunity and not actionable under the
doctrine of fair comment, are irrelevant as his motion to dismiss, based on
failure to state a cause of action, hypothetically admitted the allegations in
the Complaint. At any rate, he argues that truth is not a defense in an action
for defamation.
Private respondent further contends that he is not a public figure as to apply
the doctrine of fair comment, and that it was petitioner who brought up his
name, out of nowhere, at the October 8, 2014 SBRS hearing. He asserts
that contrary to petitioner's claim, the Courts, not the Senate, has
jurisdiction over the case. Finally, he avers that because failure to state a
cause of action and lack of jurisdiction over the subject matter are
determined solely by the allegations of the complaint, a preliminary hearing
is unnecessary.
The Court's Ruling
Hierarchy of courts should have been observed
In justifying his direct recourse to the Court, petitioner alleges that there is
a clear threat to his parliamentary immunity as well as his rights to freedom
of speech and freedom of expression, and he had no other plain, speedy
and adequate remedy in the ordinary course of law that could protect him
from such threat. Petitioner argues that the doctrine of hierarchy of courts
is not an iron-clad rule, and direct filing with the Court is allowed when there
are genuine issues of constitutionality that must be addressed at the most
immediate time. Petitioner asserts that the case encompasses an issue
which would require an interpretation of Section 11, Article VI of the 1987
Constitution.
The Court is not persuaded.
The power to issue writs of certiorari, prohibition, and mandamus is not
exclusive to this Court.[27] The Court shares the jurisdiction over petitions
for these extraordinary writs with the Court of Appeals and the Regional
Trial Courts.[28] The hierarchy of courts serves as the general determinant
of the appropriate forum for such petitions.[29] The established policy is that
"petitions for the issuance of extraordinary writs against first level (inferior)
courts should be filed with the Regional Trial Court, and those against the
latter, with the Court of Appeals," and "[a] direct invocation of the Supreme
Court's original jurisdiction to issue these writs should be allowed only when
there are special and important reasons therefor, clearly and specifically set
out in the petition."[30] The parties, therefore, do not have an unfettered
discretion in selecting the forum to which their application will be
directed.[31]
Adherence to the doctrine on hierarchy of courts ensures that every level
of the judiciary performs its designated role in an effective and efficient
manner.[32] This practical judicial policy is established to obviate "inordinate
demands upon the Court's time and attention which are better devoted to
those matters within its exclusive jurisdiction," and to prevent the
congestion of the Court's docket.[33] The Court must remain as a court of
last resort if it were to satisfactorily perform its duties under the
Constitution.[34]
After all, trial courts are not limited to the determination of facts upon
evaluation of the evidence presented to them.[35] They are likewise
competent to determine issues of law which may include the validity of an
ordinance, statute, or even an executive issuance in relation to the
Constitution.[36]
It is true that the doctrine of hierarchy of courts is not an iron-clad rule,
and this Court has allowed a direct application to this Court for a writ
of certiorari when there are genuine issues of constitutionality that must be
addressed at the most immediate time.[37]
However, the issue of what parliamentary immunity encompasses, in
relation to a lawmaker's speech or words spoken in debate in Congress, has
been addressed as early as 1966 in the case of Nicanor T. Jimenez v.
Bartolome Cabangbang,[38] where the Court succinctly held:
The determination of the first issue depends on whether or not the
aforementioned publication falls within the purview of the phrase "speech
or debate therein"-that is to say, in Congress used in this provision.
Said expression refers to utterances made by Congressmen in the
performance of their official functions, such as speeches delivered,
statements made, or votes cast in the halls of Congress, while the same is
in session, as well as bills introduced in Congress, whether the same is in
session or not, and other acts performed by Congressmen, either in
Congress or outside the premises housing its offices, in the official
discharge of their duties as members of Congress and of
Congressional Committees duly authorized to perform its functions
as such, at the time of the performance of the acts in question. (Citations
omitted and emphasis ours.)[39]
In Jimenez, a civil action for damages was filed against a member of the
House of Representatives for the publication, in several newspapers of
general circulation, of an open letter to the President which spoke of
operational plans of some ambitious officers of the Armed Forces of the
Philippines (AFP) involving a "massive political build-up" of then Secretary
of National Defense Jesus Vargas to prepare him to become a presidential
candidate, a coup d'etat, and a speech from General Arellano challenging
Congress' authority and integrity to rally members of the AFP behind him
and to gain civilian support. The letter alluded to the plaintiffs, who were
members of the AFP, to be under the control of the unnamed "planners,"
"probably belong(ing) to the Vargas-Arellano clique," and possibly
"unwitting tools" of the plans.
Holding that the open letter did not fall under the privilege of speech or
debate under the Constitution, the Court declared:
The publication involved in this case does not belong to this category.
According to the complaint herein, it was an open letter to the President of
the Philippines, dated November 14, 1958, when Congress presumably was
not in session, and defendant caused said letter to be published in several
newspapers of general circulation in the Philippines, on or about said date.
It is obvious that, in thus causing the communication to be so published, he
was not performing his official duty, either as a member of Congress
or as officer or any Committee thereof. Hence, contrary to the finding
made by His Honor, the trial Judge, said communication is not absolutely
privileged. (Emphasis ours.)
Albeit rendered in reference to the 1935 constitutional grant of
parliamentary immunity, the Jimenez pronouncement on what constitutes
privileged speech or debate in Congress still applies. The same privilege of
"speech or debate" was granted under the 1973 and 1987 Philippine
Constitutions, with the latter Charters specifying that the immunity
extended to lawmakers' speeches or debates in any committee of the
legislature. This is clear from the "speech or debate" clauses in the
parliamentary immunity provisions of the 1935, 1973 and 1987
Constitutions which respectively provide:
Section 15. The Senators and Members of the House of Representatives
shall in all cases except treason, felony, and breach of the peace, be
privileged from arrest during their attendance at the session of the
Congress, and in going to and returning from the same; and for any
speech or debate therein, they shall not be questioned in any other
place.[40] (Emphasis ours.)
Section 9. A Member of the National Assembly shall, in all offenses
punishable by not more than six years imprisonment, be privileged from
arrest during his attendance at its sessions, and in going to and returning
from the same; but the National Assembly shall surrender the Member
involved to the custody of the law within twenty-four hours after its
adjournment for a recess or its next session, otherwise such privilege shall
cease upon its failure to do so. A Member shall not be questioned or
held liable in any other place for any speech or debate in the
Assembly or in any committee thereof.[41] (Emphasis ours.)
Section 11. A Senator or Member of the House of Representatives shall, in
all offenses punishable by not more than six years imprisonment, be
privileged from arrest while the Congress is in session. No Member shall
be questioned nor be held liable in any other place for any speech
or debate in the Congress or in any committee thereof.[42] (Emphasis
ours.)
Clearly, settled jurisprudence provides sufficient standards and guidelines
by which the trial and appellate courts can address and resolve the issue of
parliamentary immunity raised by petitioner. The Court is, thus,
unconvinced that petitioner has presented an "exceptionally compelling
reason"[43] to justify his direct application for a writ of certiorari with this
Court.
Even assuming arguendo that direct recourse to this Court is permissible,
the petition must still be dismissed.
Petitioner's statements in media interviews are not covered by the
parliamentary speech or debate" privilege
Petitioner admits that he uttered the questioned statements, describing
private respondent as former VP Binay's "front" or "dummy" in connection
with the so-called Hacienda Binay, in response to media interviews during
gaps and breaks in plenary and committee hearings in the
Senate.[44] With Jimenez as our guidepost, it is evident that petitioner's
remarks fall outside the privilege of speech or debate under Section 11,
Article VI of the 1987 Constitution. The statements were clearly not part of
any speech delivered in the Senate or any of its committees. They were also
not spoken in the course of any debate in said fora. It cannot likewise be
successfully contended that they were made in the official discharge or
performance of petitioner's duties as a Senator, as the remarks were not
part of or integral to the legislative process.
The Speech or Debate Clause under the 1935 Constitution "was taken or is
a copy of sec. 6, clause 1 of Art. 1 of the Constitution of the United
States."[45] Such immunity has come to this country from the practices of
the Parliamentary as construed and applied by the Congress of the United
States.[46]
The U.S. Supreme Court's disquisition in United States v. Brewster[47] on
the scope of the privilege is of jurisprudential significance:
Johnson thus stand as a unanimous holding that a Member of Congress may
be prosecuted under a criminal statute provided that the Government's case
does not rely on legislative acts or the motivation for legislative acts. A
legislative act has consistently been defined as an act generally
done in Congress in relation to the business before it. In sum, the
Speech or Debate Clause prohibits inquiry only into those things generally
said or done in the House or the Senate in the performance of official duties
and into the motivation for those acts.
It is well known, of course, that Members of the Congress engage in many
activities other than the purely legislative activities protected by the Speech
or Debate Clause. These include a wide range of legitimate "errands"
performed for constituents, the making of appointments with Government
agencies, assistance in securing Government contracts, preparing so-called
"newsletters" to constituents, news releases, and speeches delivered
outside the Congress. The range of these related activities has grown over
the years. They are performed in part because they have come to be
expected by constituents, and because they are a means of
developing continuing support for future elections. Although these
are entirely legitimate activities, they are political in nature, rather
than legislative, in the sense that term has been used by the Court in
prior cases. But it has never been seriously contended that these political
matters, however appropriate, have the protection afforded by the Speech
or Debate Clause. Careful examination of the decided cases reveals that the
Court has regarded the protection as reaching only those things
"generally done in a session of the House by one of its members in
relation to the business before it," Kilbourn v. Thompson, supra, at 204,
or things "said or done by him, as a representative, in the exercise of the
functions of that office," Coffin v. Coffin, 4 Mass. 1, 27 ( 1808).
xxxx
xxx In stating that those things "in no wise related to the due functioning
of the legislative process" were not covered by the privilege, the Court did
not in any sense imply as a corollary that everything that "related" to the
office of a Member was shielded by the Clause. Quite the contrary,
in Johnson we held, citing Kilbourn v. Thompson, supra, that only acts
generally done in the course of the process of enacting legislation
were protected.
xxxx
In no case has this Court ever treated the Clause as protecting all con
duct relating to the legislative process. In every case thus far before this
Court, the Speech or Debate Clause has been limited to an act which
was clearly a part of the legislative process - the due functioning of
the process.
xxxx
(c) We would not think it sound or wise, simply out of an abundance of
caution to doubly insure legislative independence, to extend the privilege
beyond its intended scope, its literal language, and its history, to include all
things in any way related to the legislative process. Given such a sweeping
reading, we have no doubt that there are few activities in which a legislator
engages that he would be unable somehow to "relate" to the legislative
process. Admittedly, the Speech or Debate Clause must be read broadly to
effectuate its purpose of protecting the independence of the Legislative
Branch, but no more than the statutes we apply, was its purpose to
make Members of Congress super-citizens, immune from criminal
responsibility. In its narrowest scope, the Clause is a very large, albeit
essential, grant of privilege. It has enabled reckless men to slander and
even destroy others with impunity, but that was the conscious choice of the
Framers.
xxxx
xxx.The authors of our Constitution were well aware of the history of both
the need for the privilege and the abuses that could flow from too sweeping
safeguards. In order to preserve other values, they wrote the privilege so
that it tolerates and protects behavior on the part of Members not tolerated
and protected when done by other citizens. but the shield does not
extend beyond what is necessary to preserve the integrity of the
legislative process. Moreover, unlike England, with no formal written
constitutional limitations on the monarch, we defined limits on the
coordinate branches, providing other checks to protect against abuses of
the kind experienced in that country. (Emphasis ours.)
xxxx
In Gravel v. United States,[48] the U.S. Supreme Court ruled that a
Senator's private publication of certain classified documents (popularly
known as the Pentagon Papers), which the latter had taken up at a Senate
subcommittee hearing and placed in the legislative record, did not
constitute "protected speech or debate," holding that it "was in no way
essential to the deliberations of the Senate," and was "not part and parcel
of the legislative process." Explaining the scope of the Speech or Debate
Clause, the U.S. Supreme Court declared:
But the Clause has not been extended beyond the legislative sphere.
That Senators generally perform certain acts in their official capacity as
Senators does not necessarily make all such acts legislative in nature.
Members of Congress are constantly in touch with the Executive Branch of
the Government and with administrative agencies - they may cajole, and
exhort with respect to the administration of a federal statute - but such
conduct, though generally done, is not protected legislative activity. xxx
xxxx
Legislative acts are not all-encompassing. The heart of the Clause is
speech or debate in either House. Insofar as the Clause is construed
to reach other matters, they must be an integral part of the
deliberative and communicative processes by which Members
participate in committee and House proceedings with respect to the
consideration and passage or rejection of proposed legislation or
with respect to other matters which the Constitution places within
the jurisdiction of either House. xxx (Emphasis ours.)
It is, thus, clear that parliamentary non-accountability cannot be invoked
when the lawmaker's speech or utterance is made outside sessions,
hearings or debates in Congress, extraneous to the "due functioning of the
(legislative) process."[49] To participate in or respond to media interviews is
not an official function of any lawmaker; it is not demanded by his sworn
duty nor is it a component of the process of enacting laws. Indeed, a
lawmaker may well be able to discharge his duties and legislate without
having to communicate with the press. A lawmaker's participation in media
interviews is not a legislative act, but is "political in nature,"[50] outside the
ambit of the immunity conferred under the Speech or Debate Clause in the
1987 Constitution. Contrary to petitioner's stance, therefore, he cannot
invoke parliamentary immunity to cause the dismissal of private
respondent's Complaint. The privilege arises not because the statement is
made by a lawmaker, but because it is uttered in furtherance of legislation.
The Speech or Debate Clause in our Constitution did not turn our Senators
and Congressmen into "super-citizens"[51] whose spoken words or actions
are rendered absolutely impervious to prosecution or civil action. The
Constitution conferred the privilege on members of Congress "not for their
private indulgence, but for the public good."[52] It was intended to protect
them against government pressure and intimidation aimed at influencing
their decision-making prerogatives.[53] Such grant of legislative privilege
must perforce be viewed according to its purpose and plain language.
Indeed, the privilege of speech or debate, which may "(enable) reckless
men to slander and even destroy others,"[54] is not a cloak of unqualified
impunity; its invocation must be "as a means of perpetuating inviolate the
functioning process of the legislative department."[55] As this Court
emphasized in Pobre,[56] "the parliamentary non-accountability thus
granted to members of Congress is not to protect them against
prosecutions for their own benefit, but to enable them, as the people's
representatives, to perform the functions of their office without fear of
being made responsible before the courts or other forums outside the
congressional hall."
Jurisdiction lies with the courts, not the Senate
Petitioner argues that the RTC had no jurisdiction over the case, and
citing Pobre, asserts that the authority to discipline a member of Congress
lies in the assembly or the voters and not the courts.
Petitioner's reliance on Pobre is misplaced. The statements questioned in
said disbarment case were part of a lawyer-Senator's privilege speech
delivered on the Senate floor professedly with a view to future remedial
legislation. By reason of the Senator's parliamentary immunity, the Court
held that her speech was "not actionable criminally or in a disciplinary
proceeding under the Rules of Court." The questioned statements in this
case, however, were admittedly made in response to queries from the
media during gaps in the Senate's plenary and committee hearings, thus,
beyond the purview of privileged speech or debate under Section 11, Article
VI of the Constitution.
The Court held in Pobre:
Courts do not interfere with the legislature or its members in the
manner they perform their functions in the legislative floor or in
committee rooms. Any claim of an unworthy purpose or of the falsity
and mala fides of the statement uttered by the member of the Congress
does not destroy the privilege. The disciplinary authority of the assembly
and the voters, not the courts, can properly discourage or correct such
abuses committed in the name of parliamentary immunity. (Citations
omitted and emphasis ours.)[57]
Clearly, the Court's pronouncement that the legislative body and the voters,
not the courts, would serve as the disciplinary authority to correct abuses
committed in the name of parliamentary immunity, was premised on the
questionable remarks being made in the performance of legislative
functions, on the legislative floor or committee rooms where the privilege
of speech or debate may be invoked. Necessarily, therefore, statements
falling outside the privilege and giving rise to civil injury or criminal
responsibility will not foreclose judicial review.
Furthermore, it is well-settled that jurisdiction over the subject matter of a
case is conferred by law.[58] An action for damages on account of
defamatory statements not constituting protected or privileged "speech or
debate" is a controversy well within the courts' authority to settle. The
Constitution vests upon the courts the power and duty "to settle actual
controversies involving rights which are legally demandable and
enforceable."[59] Batas Pambansa Blg. 129, as amended, conferred
jurisdiction over actions for damages upon either the RTC or the Municipal
Trial Court, depending on the total amount claimed.[60] So also, Article 33
of the Civil Code expressly provides that in cases of defamation, a civil
action for damages, entirely separate and distinct from the criminal action,
may be brought by the injured party, and such civil action shall proceed
independently of the criminal prosecution, and shall require only a
preponderance of evidence.
In fine, petitioner cannot successfully invoke parliamentary non-
accountability to insulate his statements, uttered outside the "sphere of
legislative activity,"[61] from judicial review.
Preliminary hearing was not warranted
Petitioner argues that a preliminary hearing on his special and affirmative
defenses is necessary to allow him to present evidence that will warrant the
immediate dismissal of the Complaint.
The Court is not persuaded.
Under Section 6, Rule 16 of the Rules of Court, a preliminary hearing on the
affirmative defenses may be allowed only when no motion to dismiss has
been filed. Section 6, however, must be construed in the light of Section 3
of the same Rule, which requires courts to resolve a motion to dismiss and
prohibits deferment of such resolution on the ground of indubitability. Thus,
Section 6 disallows a preliminary hearing of affirmative defenses once a
motion to dismiss has been filed because such defenses should have already
been resolved.[62]
In this case, however, petitioner's motion to dismiss had not been resolved
when petitioner moved for a preliminary hearing. As public respondent
stated in the assailed May 19, 2015 Order, the motion did not contain a
notice of hearing and was not actually heard. Even so, a preliminary hearing
is not warranted.
In his Answer with Motion to Dismiss, petitioner averred that private
respondent failed to state and substantiate his cause of action, arguing that
the statement he made before the media, in which he described private
respondent as a "front" or "dummy" of former VP Binay for the so-
called Hacienda Binay, was one of fact.
By raising failure to state a cause of action as his defense, petitioner is
regarded as having hypothetically admitted the allegations in the
Complaint.[63]
The test of the sufficiency of the facts stated in a complaint as constituting
a cause of action is whether or not, admitting the facts so alleged, the court
can render a valid judgment upon the same in accordance with the plaintiff's
prayer.[64] Inquiry is into the sufficiency not the veracity of the facts so
alleged.[65] If the allegations furnish sufficient basis by which the complaint
may be maintained, the same should not be dismissed regardless of the
defenses that may be raised by the defendants.[66]
Accordingly, in determining whether a complaint did or did not state a cause
of action, only the statements in the complaint may properly be
considered.[67] The court cannot take cognizance of external facts or hold
preliminary hearings to determine its existence.[68] For the court to do
otherwise would be a procedural error and a denial of the plaintiff's right to
due process.[69]
As this Court, in Aquino, et al. v. Quiazon, et al.[70] instructs:
The trial court may indeed elect to hold a preliminary hearing on affirmative
defenses as raised in the answer under Section 6 of Rules 16 of the Rules
of Court. It has been held, however, that such a hearing is not necessary
when the affirmative defense is failure to state a cause of action,
and that it is, in fact, error for the court to hold a preliminary
hearing to determine the existence of external facts outside the
complaint. The reception and the consideration of evidence on the ground
that the complaint fails to state a cause of action, has been held to be
improper and impermissible. Thus, in a preliminary hearing on a motion to
dismiss or on the affirmative defenses raised in an answer, the parties are
allowed to present evidence except when the motion is based on the ground
of insufficiency of the statement of the cause of action which must be
determined on the basis only of the facts alleged in the complaint and no
other. Section 6, therefore, does not apply to the ground that the
complaint fails to state a cause of action. The trial court, thus, erred in
receiving and considering evidence in connection with this ground.
(Citations omitted and emphasis ours.)
Complaint sufficiently states a cause of action
Private respondent filed his Complaint for moral and exemplary damages
pursuant to Article 33 of the Civil Code[71] which authorizes an injured party
to file a civil action for damages, separate and distinct from the criminal
action, in cases of defamation, fraud and physical injuries.
As defined in Article 353 of the Revised Penal Code, a libel[72] is a public and
malicious imputation of a crime, or of a vice or defect, real or imaginary, or
any act, omission, condition, status, or circumstance tending to cause the
dishonor, discredit, or contempt of a natural or juridical person, or to
blacken the memory of one who is dead.
For an imputation to be libelous, the following requisites must concur: a) it
must be defamatory; b) it must be malicious; c) it must be given publicity
and d) the victim must be identifiable.[73] Any of the imputations covered
by Article 353 is defamatory,[74] and every defamatory imputation is
presumed malicious.[75]
The Civil Code provides that moral damages include mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury, and may be recovered in cases of libel,
slander or any other form of defamation,[76] while exemplary damages may
be recovered in addition to moral damages, by way of correction or example
for the public good, as determined by the court.[77]
Measured against the foregoing requisites and considerations, including the
scope of parliamentary non-accountability, private respondent's Complaint,
on its face, sufficiently makes out a cause of action for damages.
In his Complaint, private respondent alleged that petitioner gave
statements during interviews by the media, describing him as the "dummy"
of former VP Binay in connection with the so-called Hacienda Binay. Private
respondent averred that such imputation, unprivileged as it was uttered
outside of petitioner's legislative functions, actually discredited him and
tarnished his reputation as a legitimate businessman, and caused him
sleepless nights, wounded feelings, serious anxiety, mental anguish and
social humiliation. The statements, presumed to be malicious and so
described by private respondent, were also alleged to have been made
public through broadcast and print media, and identified private respondent
as their subject. Hypothetically admitting these allegations as true, as is
required in determining whether a complaint fails to state a cause of action,
private respondent may be granted his claim.[78]
The Complaint, therefore, cannot be dismissed on the ground of failure to
state a cause of action. As the RTC held, whether true or false, the
allegations in the Complaint are sufficient to enable the court to render
judgment according to private respondent's prayer.
Defense of lack of cause of action requires a full-blown trial
In moving for the outright dismissal of the Complaint, petitioner averred
that private respondent failed to prove his alleged ownership of the subject
estate. To establish this, petitioner pointed to Mercado's testimony that
former VP Binay is the actual and beneficial owner thereof, the certificates
of title covering the estate purportedly in the names of persons related to
or identified with former VP Binay, and the one-page Agreement between
Sunchamp and Gregorio which, according to petitioner, hardly inspires
belief because it was not notarized and lacked details expected in a
legitimate document, and because the transaction, which required Gregorio
to give up possession, entailed a measly downpayment of P5 Million, out of
the P446 Million total consideration, for an estate with a yearly P30 Million
revenue from its orchard.
For these reasons, petitioner asserted that when he remarked before the
media that private respondent was acting as former VP Binay's "front" or
"dummy," he was simply making a statement of fact which he had based
on documents, reports and information available to him, and which was
never intended to be an insult or a derogatory imputation.
Petitioner also argued that because private respondent had thrust himself
into the public debate on the so-called Hacienda Binay, he should be
deemed a "public figure" and the questioned statements consequently
qualify for the constitutional protection of freedom of expression.
Private respondent, however, has notably denied being a "dummy," and
rebuffed petitioner's claim that he had thrust himself into the public debate,
alleging that it was petitioner who brought up his name, out of nowhere, at
the October 8, 2014 SBRS hearing.
Petitioner's Answer likewise repudiated private respondent's claim that the
questioned statements had brought about a steep drop in the share prices
of two listed companies he was managing, to the detriment of his
substantial shareholdings therein. Petitioner countered that said prices had
been on a downward trend long before he uttered the questioned
statements; that he never mentioned said companies in his interviews; and
that far from substantial, private respondent only had an 8% stake in one
of the companies and none in the other.
A perusal of petitioner's defenses and arguments, as above outlined, at once
reveals that the averments were grounded on lack of cause of action. In
fact, by pleading in his Answer that private respondent failed to
"substantiate" his cause of action, petitioner effectively questioned its
existence, and would have the trial court inquire into the veracity and
probative value of private respondent's submissions.
address or resolve, let alone at the first instance. The proof thereon cannot
be received in certiorari proceedings before the Court, but should be
established in the RTC.[83]
Thus, even granting that the petition for certiorari might be directly filed
with this Court, its dismissal must perforce follow because its consideration
and resolution would inevitably require the consideration and evaluation of
evidentiary matters. The Court is not a trier of facts, and cannot accept the
petition for certiorari for that reason.[84]
All told, for its procedural infirmity and lack of merit, the petition must be
dismissed.
WHEREFORE, the petition is DISMISSED. Public respondent's Orders
dated May 19, 2015 and December 16, 2015 in Civil Case No. RQZN-14-
10666-CV are affirmed insofar as they are consistent with this decision.
SO ORDERED.

Distinguished from failure to state a cause of action, which refers to the

insufficiency of the allegations in the pleading, lack of cause of action refers
to the insufficiency of the factual basis for the action.[79] Petitioner, in his
Answer with Motion to Dismiss, clearly impugned the sufficiency of private
respondent's basis for filing his action for damages.

Section 6, Rule 16 allows the court to hold a preliminary hearing on

affirmative defenses pleaded in the answer based on grounds for dismissal
under the same rule.[80] The ground of "lack of cause of action," however,
is not one of the grounds for a motion to dismiss under Rule 16, hence, not
proper for resolution during a preliminary hearing held pursuant to Section
6 thereof.[81]

Furthermore, Aquino teaches that the existence of a cause of action "goes

into the very crux of the controversy and is a matter of evidence for
resolution after a full-blown hearing." An affirmative defense, raising the
ground that there is no cause of action as against the defendant, poses a
question of fact that should be resolved after the conduct of the trial on the
merits.[82]

Indeed, petitioner, in asking for the outright dismissal of the Complaint, has
raised evidentiary matters and factual issues which this Court cannot
G.R. No. 153788 November 27, 2009
ROGER V. NAVARRO, Petitioner,
vs.
HON. JOSE L. ESCOBIDO, Presiding Judge, RTC Branch 37, Cagayan de Oro
City, and KAREN T. GO, doing business under the name KARGO
ENTERPRISES, Respondents.
DECISION
BRION, J.:
This is a petition for review on certiorari1 that seeks to set aside the Court of Appeals
(CA) Decision2 dated October 16, 2001 and Resolution3 dated May 29, 2002 in CA-
G.R. SP. No. 64701. These CA rulings affirmed the July 26, 20004 and March 7,
20015 orders of the Regional Trial Court (RTC), Misamis Oriental, Cagayan de Oro
City, denying petitioner Roger V. Navarro’s (Navarro) motion to dismiss.
BACKGROUND FACTS
On September 12, 1998, respondent Karen T. Go filed two complaints, docketed as
Civil Case Nos. 98-599 (first complaint)6 and 98-598 (second complaint),7 before the
RTC for replevin and/or sum of money with damages against Navarro. In these
complaints, Karen Go prayed that the RTC issue writs of replevin for the seizure of two
(2) motor vehicles in Navarro’s possession.
The first complaint stated:
1. That plaintiff KAREN T. GO is a Filipino, of legal age, married to GLENN
O. GO, a resident of Cagayan de Oro City and doing business under the trade
name KARGO ENTERPRISES, an entity duly registered and existing under
and by virtue of the laws of the Republic of the Philippines, which has its
business address at Bulua, Cagayan de Oro City; that defendant ROGER
NAVARRO is a Filipino, of legal age, a resident of 62 Dolores Street,
Nazareth, Cagayan de Oro City, where he may be served with summons and
other processes of the Honorable Court; that defendant "JOHN DOE" whose
real name and address are at present unknown to plaintiff is hereby joined as
party defendant as he may be the person in whose possession and custody
the personal property subject matter of this suit may be found if the same is
not in the possession of defendant ROGER NAVARRO;
2. That KARGO ENTERPRISES is in the business of, among others, buying
and selling motor vehicles, including hauling trucks and other heavy
equipment;
3. That for the cause of action against defendant ROGER NAVARRO, it is
hereby stated that on August 8, 1997, the said defendant leased [from]
plaintiff a certain motor vehicle which is more particularly described as follows
–
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-51680
Motor No. 6D15-338735
Plate No. GHK-378
as evidenced by a LEASE AGREEMENT WITH OPTION TO PURCHASE entered into
by and between KARGO ENTERPRISES, then represented by its Manager, the
aforementioned GLENN O. GO, and defendant ROGER NAVARRO xxx; that in
accordance with the provisions of the above LEASE AGREEMENT WITH OPTION TO
PURCHASE, defendant ROGER NAVARRO delivered unto plaintiff six (6) post-dated
checks each in the amount of SIXTY-SIX THOUSAND THREE HUNDRED THIRTY-
THREE & 33/100 PESOS (₱66,333.33) which were supposedly in payment of the
agreed rentals; that when the fifth and sixth checks, i.e. PHILIPPINE BANK OF
COMMUNICATIONS – CAGAYAN DE ORO BRANCH CHECKS NOS. 017112 and
017113, respectively dated January 8, 1998 and February 8, 1998, were presented for
payment and/or credit, the same were dishonored and/or returned by the drawee bank
for the common reason that the current deposit account against which the said checks
were issued did not have sufficient funds to cover the amounts thereof; that the total
amount of the two (2) checks, i.e. the sum of ONE HUNDRED THIRTY-TWO
THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS (₱132,666.66) therefore
represents the principal liability of defendant ROGER NAVARRO unto plaintiff on the
basis of the provisions of the above LEASE AGREEMENT WITH RIGHT TO
PURCHASE; that demands, written and oral, were made of defendant ROGER
NAVARRO to pay the amount of ONE HUNDRED THIRTY-TWO THOUSAND SIX
HUNDRED SIXTY-SIX & 66/100 PESOS (₱132,666.66), or to return the subject motor
vehicle as also provided for in the LEASE AGREEMENT WITH RIGHT TO
PURCHASE, but said demands were, and still are, in vain to the great damage and
injury of herein plaintiff; xxx
4. That the aforedescribed motor vehicle has not been the subject of any tax
assessment and/or fine pursuant to law, or seized under an execution or an attachment
as against herein plaintiff;
xxx
8. That plaintiff hereby respectfully applies for an order of the Honorable Court for the
immediate delivery of the above-described motor vehicle from defendants unto plaintiff
pending the final determination of this case on the merits and, for that purpose, there
is attached hereto an affidavit duly executed and bond double the value of the personal
property subject matter hereof to answer for damages and costs which defendants
may suffer in the event that the order for replevin prayed for may be found out to having
not been properly issued.
The second complaint contained essentially the same allegations as the first complaint,
except that the Lease Agreement with Option to Purchase involved is dated October
1, 1997 and the motor vehicle leased is described as follows:
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-510528
Motor No. 6D14-423403
The second complaint also alleged that Navarro delivered three post-dated checks,
each for the amount of ₱100,000.00, to Karen Go in payment of the agreed rentals;
however, the third check was dishonored when presented for payment.8
On October 12, 19989 and October 14, 1998,10 the RTC issued writs of replevin for both
cases; as a result, the Sheriff seized the two vehicles and delivered them to the
possession of Karen Go.
In his Answers, Navarro alleged as a special affirmative defense that the two
complaints stated no cause of action, since Karen Go was not a party to the Lease
Agreements with Option to Purchase (collectively, the lease agreements) – the
actionable documents on which the complaints were based.
On Navarro’s motion, both cases were duly consolidated on December 13, 1999.
In its May 8, 2000 order, the RTC dismissed the case on the ground that the complaints
did not state a cause of action.
In response to the motion for reconsideration Karen Go filed dated May 26, 2000,11 the
RTC issued another order dated July 26, 2000 setting aside the order of dismissal.
Acting on the presumption that Glenn Go’s leasing business is a conjugal property, the
RTC held that Karen Go had sufficient interest in his leasing business to file the action
against Navarro. However, the RTC held that Karen Go should have included her
husband, Glenn Go, in the complaint based on Section 4, Rule 3 of the Rules of Court
(Rules).12 Thus, the lower court ordered Karen Go to file a motion for the inclusion of
Glenn Go as co-plaintiff.
1avvphi1
When the RTC denied Navarro’s motion for reconsideration on March 7, 2001, Navarro
filed a petition for certiorari with the CA, essentially contending that the RTC committed
grave abuse of discretion when it reconsidered the dismissal of the case and directed
Karen Go to amend her complaints by including her husband Glenn Go as co-plaintiff.
According to Navarro, a complaint which failed to state a cause of action could not be
converted into one with a cause of action by mere amendment or supplemental
pleading.
On October 16, 2001, the CA denied Navarro’s petition and affirmed the RTC’s
order.13 The CA also denied Navarro’s motion for reconsideration in its resolution of
May 29, 2002,14 leading to the filing of the present petition.
THE PETITION
Navarro alleges that even if the lease agreements were in the name of Kargo
Enterprises, since it did not have the requisite juridical personality to sue, the actual
parties to the agreement are himself and Glenn Go. Since it was Karen Go who filed
the complaints and not Glenn Go, she was not a real party-in-interest and the
complaints failed to state a cause of action.
Navarro posits that the RTC erred when it ordered the amendment of the complaint to
include Glenn Go as a co-plaintiff, instead of dismissing the complaint outright because
a complaint which does not state a cause of action cannot be converted into one with
a cause of action by a mere amendment or a supplemental pleading. In effect, the
lower court created a cause of action for Karen Go when there was none at the time
she filed the complaints.
Even worse, according to Navarro, the inclusion of Glenn Go as co-plaintiff drastically
changed the theory of the complaints, to his great prejudice. Navarro claims that the
lower court gravely abused its discretion when it assumed that the leased vehicles are
part of the conjugal property of Glenn and Karen Go. Since Karen Go is the registered
owner of Kargo Enterprises, the vehicles subject of the complaint are her paraphernal
properties and the RTC gravely erred when it ordered the inclusion of Glenn Go as a
co-plaintiff.
Navarro likewise faults the lower court for setting the trial of the case in the same order
that required Karen Go to amend her complaints, claiming that by issuing this order,
the trial court violated Rule 10 of the Rules.
Even assuming the complaints stated a cause of action against him, Navarro maintains
that the complaints were premature because no prior demand was made on him to
comply with the provisions of the lease agreements before the complaints for replevin
were filed.
Lastly, Navarro posits that since the two writs of replevin were issued based on flawed
complaints, the vehicles were illegally seized from his possession and should be
returned to him immediately.
Karen Go, on the other hand, claims that it is misleading for Navarro to state that she
has no real interest in the subject of the complaint, even if the lease agreements were
signed only by her husband, Glenn Go; she is the owner of Kargo Enterprises and
Glenn Go signed the lease agreements merely as the manager of Kargo Enterprises.
Moreover, Karen Go maintains that Navarro’s insistence that Kargo Enterprises is
Karen Go’s paraphernal property is without basis. Based on the law and jurisprudence
on the matter, all property acquired during the marriage is presumed to be conjugal
property. Finally, Karen Go insists that her complaints sufficiently established a cause
of action against Navarro. Thus, when the RTC ordered her to include her husband as
co-plaintiff, this was merely to comply with the rule that spouses should sue jointly, and
was not meant to cure the complaints’ lack of cause of action.
THE COURT’S RULING
We find the petition devoid of merit.
Karen Go is the real party-in-interest
The 1997 Rules of Civil Procedure requires that every action must be prosecuted or
defended in the name of the real party-in-interest, i.e., 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.15
Interestingly, although Navarro admits that Karen Go is the registered owner of the
business name Kargo Enterprises, he still insists that Karen Go is not a real party-in-
interest in the case. According to Navarro, while the lease contracts were in Kargo
Enterprises’ name, this was merely a trade name without a juridical personality, so the
actual parties to the lease agreements were Navarro and Glenn Go, to the exclusion
of Karen Go.
As a corollary, Navarro contends that the RTC acted with grave abuse of discretion
when it ordered the inclusion of Glenn Go as co-plaintiff, since this in effect created a
cause of action for the complaints when in truth, there was none.
We do not find Navarro’s arguments persuasive.
The central factor in appreciating the issues presented in this case is the business
name Kargo Enterprises. The name appears in the title of the Complaint where the
plaintiff was identified as "KAREN T. GO doing business under the name KARGO
ENTERPRISES," and this identification was repeated in the first paragraph of the
Complaint. Paragraph 2 defined the business KARGO ENTERPRISES undertakes.
Paragraph 3 continued with the allegation that the defendant "leased from plaintiff a
certain motor vehicle" that was thereafter described. Significantly, the Complaint
specifies and attaches as its integral part the Lease Agreement that underlies the
transaction between the plaintiff and the defendant. Again, the name KARGO
ENTERPRISES entered the picture as this Lease Agreement provides:
This agreement, made and entered into by and between:
GLENN O. GO, of legal age, married, with post office address at xxx, herein referred
to as the LESSOR-SELLER; representing KARGO ENTERPRISES as its Manager,
xxx
thus, expressly pointing to KARGO ENTERPRISES as the principal that Glenn O. Go
represented. In other words, by the express terms of this Lease Agreement, Glenn Go
did sign the agreement only as the manager of Kargo Enterprises and the latter is
clearly the real party to the lease agreements.
As Navarro correctly points out, Kargo Enterprises is a sole proprietorship, which is
neither a natural person, nor a juridical person, as defined by Article 44 of the Civil
Code:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose,
created by law; their personality begins as soon as they have been constituted
according to law;
(3) Corporations, partnerships and associations for private interest or purpose
to which the law grants a juridical personality, separate and distinct from that
of each shareholder, partner or member.
Thus, pursuant to Section 1, Rule 3 of the Rules,16 Kargo Enterprises cannot be a party
to a civil action. This legal reality leads to the question: who then is the proper party to
file an action based on a contract in the name of Kargo Enterprises?
We faced a similar question in Juasing Hardware v. Mendoza,17 where we said:
Finally, there is no law authorizing sole proprietorships like petitioner to bring suit in
court. The law merely recognizes the existence of a sole proprietorship as a form of
business organization conducted for profit by a single individual, and requires the
proprietor or owner thereof to secure licenses and permits, register the business name,
and pay taxes to the national government. It does not vest juridical or legal personality
upon the sole proprietorship nor empower it to file or defend an action in court.
Thus, the complaint in the court below should have been filed in the name of the owner
of Juasing Hardware. The allegation in the body of the complaint would show that the
suit is brought by such person as proprietor or owner of the business conducted under
the name and style Juasing Hardware. The descriptive words "doing business as
Juasing Hardware" may be added to the title of the case, as is customarily
done.18 [Emphasis supplied.]
This conclusion should be read in relation with Section 2, Rule 3 of the Rules, which
states:
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.
As the registered owner of Kargo Enterprises, Karen Go is the party who will directly
benefit from or be injured by a judgment in this case. Thus, contrary to Navarro’s
contention, Karen Go is the real party-in-interest, and it is legally incorrect to say that
her Complaint does not state a cause of action because her name did not appear in
the Lease Agreement that her husband signed in behalf of Kargo Enterprises. Whether
Glenn Go can legally sign the Lease Agreement in his capacity as a manager of Kargo
Enterprises, a sole proprietorship, is a question we do not decide, as this is a matter
for the trial court to consider in a trial on the merits.
Glenn Go’s Role in the Case
We find it significant that the business name Kargo Enterprises is in the name of Karen
T. Go,19 who described herself in the Complaints to be "a Filipino, of legal age, married
to GLENN O. GO, a resident of Cagayan de Oro City, and doing business under the
trade name KARGO ENTERPRISES."20 That Glenn Go and Karen Go are married to
each other is a fact never brought in issue in the case. Thus, the business name
KARGO ENTERPRISES is registered in the name of a married woman, a fact material
to the side issue of whether Kargo Enterprises and its properties are paraphernal or
conjugal properties. To restate the parties’ positions, Navarro alleges that Kargo
Enterprises is Karen Go’s paraphernal property, emphasizing the fact that the business
is registered solely in Karen Go’s name. On the other hand, Karen Go contends that
while the business is registered in her name, it is in fact part of their conjugal property.
The registration of the trade name in the name of one person – a woman – does not
necessarily lead to the conclusion that the trade name as a property is hers alone,
particularly when the woman is married. By law, 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.21 Our examination of the records of the case does not show any
proof that Kargo Enterprises and the properties or contracts in its name are conjugal.
If at all, only the bare allegation of Navarro to this effect exists in the records of the
case. As we emphasized in Castro v. Miat:22
Petitioners also overlook Article 160 of the New Civil Code. It provides that "all property
of the marriage is presumed to be conjugal partnership, unless it be prove[n] that it
pertains exclusively to the husband or to the wife." This article does not require proof
that the property was acquired with funds of the partnership. The presumption
applies even when the manner in which the property was acquired does not
appear.23 [Emphasis supplied.]
Thus, for purposes solely of this case and of resolving the issue of whether Kargo
Enterprises as a sole proprietorship is conjugal or paraphernal property, we hold that
it is conjugal property.
Article 124 of the Family Code, on the administration of the conjugal property, provides:
Art. 124. The administration and enjoyment of the conjugal partnership property
shall belong to both spouses jointly. In case of disagreement, the husband’s
decision shall prevail, subject to recourse to the court by the wife for proper remedy,
which must be availed of within five years from the date of the contract implementing
such decision.
xxx
This provision, by its terms, allows either Karen or Glenn Go to speak and act with
authority in managing their conjugal property, i.e., Kargo Enterprises. No need exists,
therefore, for one to obtain the consent of the other before performing an act of
administration or any act that does not dispose of or encumber their conjugal property.
Under Article 108 of the Family Code, the conjugal partnership is 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. In other
words, the property relations of the husband and wife shall be governed primarily by
Chapter 4 on Conjugal Partnership of Gains of the Family Code and, suppletorily, by
the spouses’ marriage settlement and by the rules on partnership under the Civil Code.
In the absence of any evidence of a marriage settlement between the spouses Go, we
look at the Civil Code provision on partnership for guidance.
A rule on partnership applicable to the spouses’ circumstances is Article 1811 of the
Civil Code, which states:
Art. 1811. A partner is a co-owner with the other partners of specific partnership
property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement between the
partners, has an equal right with his partners to possess specific partnership
property for partnership purposes; xxx
Under this provision, Glenn and Karen Go are effectively co-owners of Kargo
Enterprises and the properties registered under this name; hence, both have an equal
right to seek possession of these properties. Applying Article 484 of the Civil Code,
which states that "in default of contracts, or special provisions, co-ownership shall be
governed by the provisions of this Title," we find further support in Article 487 of the
Civil Code that allows any of the co-owners to bring an action in ejectment with respect
to the co-owned property.
While ejectment is normally associated with actions involving real property, we find that
this rule can be applied to the circumstances of the present case, following our ruling
in Carandang v. Heirs of De Guzman.24 In this case, one spouse filed an action for the
recovery of credit, a personal property considered conjugal property, without including
the other spouse in the action. In resolving the issue of whether the other spouse was
required to be included as a co-plaintiff in the action for the recovery of the credit, we
said:
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 superseded:
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. Hular and Adlawan v. Adlawan, 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, 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.
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.25 [Emphasis
supplied.]
Under this ruling, either of the spouses Go may bring an action against Navarro to
recover possession of the Kargo Enterprises-leased vehicles which they co-own. This
conclusion is consistent with Article 124 of the Family Code, supporting as it does the
position that either spouse may act on behalf of the conjugal partnership, so long as
they do not dispose of or encumber the property in question without the other spouse’s
consent.
On this basis, we hold that since Glenn Go is not strictly an indispensable party in the
action to recover possession of the leased vehicles, he only needs to be impleaded as
a pro-forma party to the suit, based on Section 4, Rule 4 of the Rules, which states:
Section 4. Spouses as parties. – Husband and wife shall sue or be sued jointly, except
as provided by law.
Non-joinder of indispensable parties not ground to dismiss action
Even assuming that Glenn Go is an indispensable party to the action, we have held in
a number of cases26 that the misjoinder or non-joinder of indispensable parties in a
complaint is not a ground for dismissal of action. As we stated in Macababbad v.
Masirag:27
Rule 3, Section 11 of the Rules of Court provides that neither misjoinder nor nonjoinder
of parties is a ground for the dismissal of an action, thus:
Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of
parties is 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 misjoined party may be severed and
proceeded with separately.
In Domingo v. Scheer, this Court held that the proper remedy when a party is left out
is to implead the indispensable party at any stage of the action. The court, either motu
proprio or upon the motion of a party, may order the inclusion of the indispensable
party or give the plaintiff opportunity to amend his complaint in order to include
indispensable parties. If the plaintiff to whom the order to include the indispensable
party is directed refuses to comply with the order of the court, the complaint may be
dismissed upon motion of the defendant or upon the court's own motion. Only upon
unjustified failure or refusal to obey the order to include or to amend is the action
dismissed.
In these lights, the RTC Order of July 26, 2000 requiring plaintiff Karen Go to join her
husband as a party plaintiff is fully in order.
Demand not required prior
to filing of replevin action
In arguing that prior demand is required before an action for a writ of replevin is filed,
Navarro apparently likens a replevin action to an unlawful detainer.
For a writ of replevin to issue, all that the applicant must do is to file an affidavit and
bond, pursuant to Section 2, Rule 60 of the Rules, which states:
Sec. 2. Affidavit and bond.
The applicant must show by his own affidavit or that of some other person who
personally knows the facts:
(a) That the applicant is the owner of the property claimed, particularly
describing it, or is entitled to the possession thereof;
 (b) That the property is wrongfully detained by the adverse party, alleging
the cause of detention thereof according to the best of his knowledge,
information, and belief;

(c) That the property has not been distrained or taken for a tax assessment
or a fine pursuant to law, or seized under a writ of execution or preliminary
attachment, or otherwise placed under custodia legis, or if so seized, that it is
exempt from such seizure or custody; and

(d) The actual market value of the property.

The applicant must also give a bond, executed to the adverse party in double the value
of the property as stated in the affidavit aforementioned, for the return of the property
to the adverse party if such return be adjudged, and for the payment to the adverse
party of such sum as he may recover from the applicant in the action.

We see nothing in these provisions which requires the applicant to make a prior
demand on the possessor of the property before he can file an action for a writ of
replevin. Thus, prior demand is not a condition precedent to an action for a writ of
replevin.

More importantly, Navarro is no longer in the position to claim that a prior demand is
necessary, as he has already admitted in his Answers that he had received the letters
that Karen Go sent him, demanding that he either pay his unpaid obligations or return
the leased motor vehicles. Navarro’s position that a demand is necessary and has not
been made is therefore totally unmeritorious.

WHEREFORE, premises considered, we DENY the petition for review for lack of merit.
Costs against petitioner Roger V. Navarro.

SO ORDERED.
G.R. No. 201816 April 8, 2013
HEIRS OFF AUSTINO MESINA and GENOVEVA S. MESINA, rep. by NORMAN
MESINA, Petitioners,
vs.
HEIRS OF DOMINGO FIAN, SR., rep. by THERESA FIAN YRAY, ET
AL., Respondents.
DECISION
VELASCO, JR. J.:
The Case
Before Us is a Petition for Review under Rule 45 of the Decision1 dated April 29, 2011
of the Court of Appeals (CA) in CA-G.R. CV No. 01366 and its Resolution dated April
12, 2012 denying reconsideration.
The Facts
The late spouses Faustino and Genoveva Mesina (spouses Mesina), during their
lifetime, bought from the spouses Domingo Fian Sr. and MariaFian (spouses Fian) two
parcels of land on installment. The properties maybe described as follows:
Parcel 1 – A parcel of land, Cadastral Lot No. 6791-Rem. situated in the Brgy. Of
Gungab, Poblacion, Albuera, Leyte. x x x Containing an area of ONE THOUSAND SIX
HUNDRED THIRTY TWO (1,632) SQUARE METERS x x x.
Parcel 2 – A parcel of land, Cadastral Lot No. 6737-Rem, situated in the Brgy. of
Gungab, Poblacion, Albuera, Leyte. x x x Containing an area of THREE THOUSAND
SEVEN HUNDRED THIRTY (3,730) SQUARE METERS x x x.2
Upon the death of the spouses Fian, their heirs––whose names do not appear on the
records, claiming ownership of the parcels of land and taking possession of them––
refused to acknowledge the payments for the lots and denied that their late parents
sold the property to the spouses Mesina. Meanwhile, the spouses Mesina passed
away.
Notwithstanding repeated demands, the Heirs of Fian refused to vacate the lots and to
turn possession over to the heirs of the spouses Mesina, namely: Norman S. Mesina
(Norman), Victor S. Mesina (Victor), Maria Divina S. Mesina (Maria) and Lorna Mesina-
Barte (Lorna). Thus, on August 8, 2005, Norman, as attorney-in-fact of his siblings
Victor, Maria and Lorna, filed an action for quieting of title and damages before the
Regional Trial Court (RTC), Branch 14 in Baybay, Leyte against the Heirs of Fian,
naming only Theresa Fian Yray (Theresa) as the representative of the Heirs of Fian.
The case, entitled Heirs of Sps. Faustino S. Mesina & Genoveva S. Mesina,
represented by Norman Mesina v. Heirs of Domingo Fian, Sr., represented by Theresa
Fian Yray, was docketed as Civil Case No. B-05-08-20. The allegations of the
Complaint on the parties read:
1. Plaintiffs are the HEIRS OF SPS. FAUSTINO S. MESINO and GENOVEVA S.
MESINA, and represented in this instance by NORMAN MESINA as shown by the
Special Power of Attorneys x x x, of legal age, married, Filipino, and a resident of
Poblacion Albuera, Leyte, where he may be served with court orders, notices, and
other processes, while defendants are the HEIRS OF DOMINGO FIAN, SR., likewise
of legal ages, Filipinos, and residents of Poblacion Albuera, Leyte, and respresented
in this instance of THERESA FIAN YRAY, where she may be served with summons,
court orders, notices, and other processes.3
Thereafter, or on September 5, 2005, respondent Theresa filed a Motion to Dismiss
the complaint, arguing that the complaint states no cause of action and that the case
should be dismissed for gross violation of Sections 1 and 2, Rule 3 of the Rules of
Court, which state in part:
Section 1. Who may be parties; plaintiff and defendant. – Only natural or juridical
persons, or entities authorized by law may be parties in a civil action. x x x
Section 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. x x x
She claims that the "Heirs of Mesina" could not be considered as a juridical person or
entity authorized by law to file a civil action. Neither could the "Heirs of Fian" be made
as defendant, not being a juridical person as well. She added that since the names of
all the heirs of the late spouses Mesina and spouses Fian were not individually named,
the complaint is infirmed, warranting its dismissal.
On November 24, 2005, petitioners filed their Opposition to the Motion to Dismiss.
Ruling of the RTC
Finding merit in the motion to dismiss, the RTC, on November 22, 2005, granted the
motion and dismissed the complaint, ruling that the Rules of Court is explicit that only
natural or juridical persons or entities authorized by law may be parties in a civil action.
Also, nowhere in the complaint are the Heirs of Fian individually named. The RTC
Order reads:
Anent the Motion to Dismiss filed by defendant, Theresa Fian Yray through counsel,
finding merit in such motion, the same is granted.
The Rules of Court is explicit that only natural or juridical persons or entities authorized
by law may be parties in a civil action (Section 1, Rule 3, Revised Rules of Court).
Certainly, the Heirs of Faurstino s. Mesina and Genoveva S. Mesina, represented by
Norman Mesina as plaintiffs as well as Heirs of Domingo Fian, Sr. represented by
Theresa Fian Yray as defendants, do not fall within the category as natural or juridical
persons as contemplated by law to institute or defend civil actions. Said heirs not
having been individually named could not be the real parties in interest. Hence, the
complaint states no cause of action.
Accordingly, the case is hereby dismissed.
SO ORDERED.4
On December 27, 2005, petitioners moved for reconsideration of the November 22,
2005 Order of the RTC. The next day, or on December 28, 2005, respondent Theresa
filed her Vehement Opposition to the motion for reconsideration.
On February 29, 2006, the RTC issued its Resolution denying the motion for
reconsideration. The dispositive portion of the Resolution reads:
WHEREFORE, the motion prayed for must necessary fail.
SO ORDERED.5
Aggrieved, petitioners appealed to the CA.
Ruling of the CA
In affirming the RTC, the CA, on April 29, 2011, rendered its Decision, ruling that all
the heirs of the spouses Fian are indispensable parties and should have been
impleaded in the complaint. The appellate court explained that this failure to implead
the other heirs of the late spouses Fian is a legal obstacle to the trial court’s exercise
of judicial power over the case and any order or judgment that would be rendered is a
nullity in view of the absence of indispensable parties. The CA further held that the
RTC correctly dismissed the complaint for being improperly verified. The CA disposed
of the appeal in this wise:
WHEREFORE, in view of all the foregoing, the appeal of petitioners is DENIED for lack
of merit. The assailed November 22, 2005 Order and February 28, 2006 Resolution
both issued by the Regional Trial Court, Branch 14 of Baybay, Leyte are AFFIRMED.
SO ORDERED.6
Petitioners filed their Motion for Reconsideration, which was denied by the CA in its
Resolution dated April 12, 2012.
Hence, this petition.
Assignment of Errors
Petitioner now comes before this Court, presenting the following assigned errors, to
wit:
A. THE CA ERRED IN AFFIRMING THE ORDER AND RESOLUTION X X X OF RTC,
BAYBAY, LEYTE IN DISMISSING THE CASE ON THE GROUND THAT THE
COMPLAINT STATES NO CAUSE OF ACTION;
B. PETITIONERS HAVE SUBSTANTIALLY COMPLIED WITH THE RULE ON
VERIFICATION AND CERTIFICATION AGAINST FORUM SHOPPING; AND
C. CASES SHOULD BE DECIDED ON THE MERITS AND NOT ON MERE
TECHNICALITIES.7
The Court’s Ruling
The petition is meritorious.
As regards the issue on failure to state a cause of action, the CA ruled that the
complaint states no cause of action because all the heirs of the spouses Fian are
indispensable parties; hence, they should have been impleaded in the complaint.
The CA, affirming the RTC, held that the dismissal of the complaint is called for in view
of its failure to state a cause of action. The CA reasoned that:
Without the presence of all the heirs of spouses Fian as defendants, the trial court
could not validly render judgment and grant relief to petitioners. x x x 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.
Hence, the court a quo correctly ordered for the dismissal of the action on the ground
that the complaint failed to name or implead all the heirs of the late spouses Fian.8
Failure to state a cause of action refers to the insufficiency of the pleading. A complaint
states a cause of action if it avers the existence of the three essential elements of a
cause of action, namely:
(a) The legal right of the plaintiff;
(b) The correlative obligation of the defendant; and
(c) The act or omission of the defendant in violation of said right.9
By a simple reading of the elements of a failure to state a cause of action, it can be
readily seen that the inclusion of Theresa’s co-heirs does not fall under any of the
above elements. The infirmity is, in fact, not a failure to state a cause of action but a
non-joinder of an indispensable party.
Non-joinder means the "failure to bring a person who is a necessary party or in this
case an indispensable party into a lawsuit."10 An indispensable party, on the other
hand, is a party-in-interest without whom no final determination can be had of the
action, and who shall be joined either as plaintiff or defendant.11
As such, this is properly a non-joinder of indispensable party, the indispensable parties
who were not included in the complaint being the other heirs of Fian, and not a failure
of the complaint to state a cause of action.
Having settled that, Our pronouncement in Pamplona Plantation Company, Inc. v.
Tinghil is instructive as regards the proper course of action on the part of the courts in
cases of non-joinder of indispensable parties, viz:
The non-joinder of indispensable parties is not a ground for the dismissal of an action.
At any stage of a judicial proceeding and/or at such times as are just, parties may be
added on the motion of a party or on the initiative of the tribunal concerned. If the
plaintiff refuses to implead an indispensable party despite the order of the court, that
court may dismiss the complaint for the plaintiff’s failure to comply with the order. The
remedy is to implead the non-party claimed to be indispensable.12 x x x (Emphasis
Ours.)
Thus, the dismissal of the case for failure to state a cause of action is improper. What
the trial court should have done is to direct petitioner Norman Mesina to implead all the
heirs of Domingo Fian, Sr. as defendants within a reasonable time from notice with a
warning that his failure to do so shall mean dismissal of the complaint.
Anent the issue on defective verification, Section 4, Rule 7 of the Rules of Court
provides as follows:
Sec. 4. Verification. – Except when otherwise specifically required by law or rule,
pleadings need not be under oath, verified or accompanied by affidavit.
A pleading is verified by an affidavit that the affiant has read the pleading and that the
allegations therein are true and correct of his personal knowledge or based on
authentic records. (Emphasis Ours.)
The alleged defective verification states that:
I, NORMAN S. MESINA, legal age, married, Filipino, and a resident of Poblacion,
Albuera, Leyte, after having been duly sworn to in accordance with law, hereby depose
and say that:
xxxx
2. The allegations herein are true and correct to the best of our knowledge;13 x x x
Both the RTC and the CA found said verification defective, since the phrase "or based
on authentic records," as indicated under the second paragraph of Sec. 4, Rule 7 as
afore-quoted, was omitted.
We do not agree.

That the verification of the complaint does not include the phrase "or based on
authentic records" does not make the verification defective. Notably, the provision used
the disjunctive word "or." The word "or" is a disjunctive article indicating an
alternative.14 As such, "personal knowledge" and "authentic records" need not concur
in a verification as they are to be taken separately.

Also, verification, like in most cases required by the rules of procedure, is a formal
requirement, not jurisdictional. It is mainly intended to secure an assurance that
matters which are alleged are done in good faith or are true and correct and not of
mere speculation. Thus, when circumstances so warrant, as in the case at hand, "the
court may simply order the correction of unverified pleadings or act on it and waive
strict compliance with the rules in order that the ends of justice may thereby be
served."15

WHEREFORE, premises considered, the petition is GRANTED. The assailed April 29,
2011 Decision and April 12, 2012 Resolution of the CA in CA-G.R. CV No. 01366, and
the November 22, 2005 Order and February 29,2006 Resolution of the RTC, Branch
14 in Baybay, Leyte, dismissing the complaint in Civil Case No. 8-05-08-20, are hereby
REVERSED and SET ASIDE. Petitioner Norman Mesina is ORDERED to implead all
the Heirs of Domingo Fian, Sr. as defendants in said civil case within thirty (30) days
from notice of finality of this Decision. Failure on the part of petitioner Mesina to comply
with this directive shall result in the dismissal of Civil Case No. B-05-08-20. Upon
compliance by petitioner Mesina with this directive, the RTC, Branch 14 in Baybay,
Leyte is ORDERED to undertake appropriate steps and proceedings to expedite
adjudication of the case.

SO ORDERED.
G.R. No. 168979 December 2, 2013
REBECCA PACAÑA-CONTRERAS and ROSALIE PACAÑA, Petitioners,
vs.
ROVILA WATER SUPPLY, INC., EARL U KOKSENG, LILIA TORRES, DALLA P.
ROMANILLOS and MARISSA GABUYA, Respondents.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari under Rule 4 of the Rules of Court
1
seeking the reversal of the decision dated January 27, 2005 and the resolution dated
2 3
June 6, 2005 of the Courts of Appeals (CA) in CA-G.R. SP No. 71551. The CA set
aside the orders dated February 28, 2002 and April 1, 2002 of the Regional Trial Court
4 5
(RTC), Branch 8, Cebu City, which denied the motion to dismiss for reconsideration
respectively, of respondents Rovila Water Supply, Inc. (Rovilla, Inc.), Earl U. Kokseng,
Lialia Torres, Dalla P. Romanillos and Marissa Gabuya.
THE FACTUAL ANTECEDENTS
Petitioners Rebecca Pacaña-Contreras and Rosalie Pacaña, children of Lourdes
Teves Pacaña and Luciano Pacaña, filed the present case against Rovila Inc., Earl,
Lilia, Dalla and Marisa for accounting and damages. 6 The petitioners’ sister, Lagrimas Pacaña-Gonzales, filed a motion for leave to intervene
The petitioners claimed that their family has long been known in the community to be
engaged in the water supply business; they operated the "Rovila Water Supply" from
their family residence and were engaged in the distribution of water to customers in
Cebu City. The petitioners alleged that Lilia was a former trusted employee in the family
business who hid business records and burned and ransacked the family files. Lilia
also allegedly posted security guards and barred the members of the Pacaña family
from operating their business. She then claimed ownership over the family business
through a corporation named "Rovila Water Supply, Inc." (Rovila Inc.) Upon inquiry
with the Securities and Exchange Commission (SEC), the petitioners claimed that
Rovila Inc. was surreptitiously formed with the respondents as the majority
stockholders. The respondents did so by conspiring with one another and forming the
respondent corporation to takeover and illegally usurp the family business’ registered
name. 7
In forming the respondent corporation, the respondents allegedly used the name of
Lourdes as one of the incorporators and made it appear in the SEC documents that
the family business was operated in a place other than the Pacaña residence.
Thereafter, the respondents used the Pacaña family’s receipts and the deliveries and
sales were made to appear as those of the respondent Rovila Inc. Using this scheme,
the respondents fraudulently appropriated the collections and payments. 8
The petitioners filed the complaint in their own names although Rosalie was authorized
by Lourdes through a sworn declaration and special power of attorney (SPA). The
respondents filed a first motion to dismiss on the ground that the RTC had no
jurisdiction over an intra-corporate controversy.
9
The RTC denied the motion. On September 26, 2000, Lourdes died and the 10
petitioners amended their complaint, with leave of court, on October 2, 2000 to reflect
this development. 11
They still attached to their amended complaint the sworn declaration with SPA, but the
caption of the amended complaint remained the same. 12
On October 10, 2000, Luciano also died. 13
The respondents filed their Answer on November 16, 2000. 14
and her answer-in-intervention was granted by the trial court. At the subsequent pre-
trial, the respondents manifested to the RTC that a substitution of the parties was
necessary in light of the deaths of Lourdes and Luciano. They further stated that they
would seek the dismissal of the complaint because the petitioners are not the real
parties in interest to prosecute the case. The pre-trial pushed through as scheduled
and the RTC directed the respondents to put into writing their earlier manifestation.
The RTC issued a pre-trial order where one of the issues submitted was whether the
complaint should be dismissed for failure to comply with Section 2, Rule 3 of the Rules
of Court which requires that every action must be prosecuted in the name of the real
party in interest.
15
On January 23, 2002, the respondents again filed a motion to dismiss on the grounds,
16
among others, that the petitioners are not the real parties in interest to institute and
prosecute the case and that they have no valid cause of action against the
respondents.
THE RTC RULING
The RTC denied the respondents’ motion to dismiss. It ruled that, save for the grounds
for dismissal which may be raised at any stage of the proceedings, a motion to dismiss
based on the grounds invoked by the respondents may only be filed within the time for,
but before, the filing of their answer to the amended complaint. Thus, even granting
that the defenses invoked by the respondents are meritorious, their motion was filed
out of time as it was filed only after the conclusion of the pre-trial conference.
Furthermore, the rule on substitution of parties only applies when the parties to the
case die, which is not what happened in the present case. 17
The RTC likewise denied the respondents’ motion for reconsideration. 18
The respondents filed a petition for certiorari under Rule 65 of the Rules of Court with
the CA, invoking grave abuse of discretion in the denial of their motion to dismiss. They
argued that the deceased spouses Luciano and Lourdes, not the petitioners, were the
real parties in interest. Thus, the petitioners violated Section 16, Rule 3 of the Rules of
Court on the substitution of parties.19
Furthermore, they seasonably moved for the dismissal of the case and the RTC never
20
acquired jurisdiction over the persons of the petitioners as heirs of Lourdes and
Luciano. 21
THE CA RULING
The CA granted the petition and ruled that the RTC committed grave abuse of
discretion as the petitioners filed the complaint and the amended complaint as
attorneys-in-fact of their parents. As such, they are not the real parties in interest and
cannot bring an action in their own names; thus, the complaint should be
dismissed pursuant to the Court’s ruling in Casimiro v. Roque and Gonzales.
22 23
Neither are the petitioners suing as heirs of their deceased parents. Pursuant to
1awp++i1
jurisprudence, the petitioners should first be declared as heirs before they can be
24
considered as the real parties in interest. This cannot be done in the present ordinary
civil case but in a special proceeding for that purpose. The CA agreed with the
respondents that they alleged the following issues as affirmative defenses in their
answer: 1) the petitioners are not the real parties in interest; and 2) that they had no
legal right to institute the action in behalf of their parents.
25
That the motion to dismiss was filed after the period to file an answer has lapsed is of
no moment. The RTC judge entertained it and passed upon its merit. He was correct
in doing so because in the pre-trial order, one of the submitted issues was whether the
case must be dismissed for failure to comply with the requirements of the Rules of
Court. Furthermore, in Dabuco v. Court of Appeals, the Court held that the ground of
26
lack of cause of action may be raised in a motion to dismiss at anytime. 27
The CA further ruled that, in denying the motion to dismiss, the RTC judge acted
contrary to established rules and jurisprudence which may be questioned via a petition
for certiorari. The phrase "grave abuse of discretion" which was traditionally confined
to "capricious and whimsical exercise of judgment" has been expanded to include any
action done "contrary to the Constitution, the law or jurisprudence[.]"28
THE PARTIES’ ARGUMENTS
The petitioners filed the present petition and argued that, first, in annulling the
interlocutory orders, the CA unjustly allowed the motion to dismiss which did not
conform to the rules.29
Specifically, the motion was not filed within the time for, but before the filing of, the
answer to the amended complaint, nor were the grounds raised in the answer. Citing
Section 1, Rule 9 of the Rules of Court, the respondents are deemed to have waived
these grounds, as correctly held by the RTC. 30
Second, even if there is non-joinder and misjoinder of parties or that the suit is not
brought in the name of the real party in interest, the remedy is not outright dismissal of
the complaint, but its amendment to include the real parties in interest. 31
Third, the petitioners sued in their own right because they have actual and substantial
interest in the subject matter of the action as heirs or co-owners, pursuant to Section
2, Rule 3 of the Rules of Court.32
Their declaration as heirs in a special proceeding is not necessary, pursuant to the
Court’s ruling in Marabilles, et al. v. Quito.
33
Finally, the sworn declaration is evidentiary in nature which remains to be appreciated
after the trial is completed.
34
The respondents reiterated in their comment that the petitioners are not the real parties
in interest.
35
They likewise argued that they moved for the dismissal of the case during the pre-trial
conference due to the petitioners’ procedural lapse in refusing to comply with a
condition precedent, which is, to substitute the heirs as plaintiffs. Besides, an
administrator of the estates of Luciano and Lourdes has already been appointed. 36
The respondents also argued that the grounds invoked in their motion to dismiss were
timely raised, pursuant to Section 2, paragraphs g and i, Rule 18 of the Rules of Court.
Specifically, the nature and purposes of the pre-trial include, among others, the
dismissal of the action, should a valid ground therefor be found to exist; and such other
matters as may aid in the prompt disposition of the action. Finally, the special civil
action of certiorari was the proper remedy in assailing the order of the RTC. 37
THE COURT’S RULING
We find the petition meritorious.
Petition for certiorari under Rule 65 is a proper remedy for a denial of a motion to
dismiss attended by grave abuse of discretion
In Barrazona v. RTC, Branch 61, Baguio City, the Court held that while an order
38
denying a motion to dismiss is interlocutory and non-appealable, certiorari and
prohibition are proper remedies to address an order of denial made without or in excess
of jurisdiction. The writ of certiorari is granted to keep an inferior court within the bounds
of its jurisdiction or to prevent it from committing grave abuse of discretion amounting
to lack or excess of jurisdiction.
The history and development of the ground "fails to state a cause of action" in the 1940,
1964 and the present 1997 Rules of Court Preliminarily, a suit that is not brought in the
name of the real party in interest is dismissible on the ground that the complaint "fails
to state a cause of action." 39
Pursuant to jurisprudence, this is also the ground invoked when the respondents
40
alleged that the petitioners are not the real parties in interest because: 1) the petitioners
should not have filed the case in their own names, being merely attorneys-in-fact of
their mother; and 2) the petitioners should first be declared as heirs. A review of the
1940, 1964 and the present 1997 Rules of Court shows that the fundamentals of the
ground for dismissal based on "failure to state a cause of action" have drastically
changed over time. A historical background of this particular ground is in order to
preclude any confusion or misapplication of jurisprudence decided prior to the
effectivity of the present Rules of Court. The 1940 Rules of Court provides under
Section 10, Rule 9 that:
Section 10. Waiver of defenses- Defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived; except the defense of failure
to state a cause of action, which may be alleged in a later pleading, if one is permitted,
or by motion for judgment on the pleadings, or at the trial on the merits; but in the last
instance, the motion shall be disposed of as provided in section 5 of Rule 17 in the light
of any evidence which may have been received. Whenever it appears that the court
has no jurisdiction over the subject-matter, it shall dismiss the action. [underscoring
supplied]
This provision was essentially reproduced in Section 2, Rule 9 of the 1964 Rules of
Court, and we quote:
Section 2. Defenses and objections not pleaded deemed waived. — Defenses and
objections not pleaded either in a motion to dismiss or in the answer are deemed
waived; except the failure to state a cause of action which may be alleged in a later
pleading, if one is permitted, or by motion for judgment on the pleadings, or at the trial
on the merits; but in the last instance, the motion shall be disposed of as provided in
section 5 of Rule 10 in the light of any evidence which may have been received.
Whenever it appears that the court has no jurisdiction over the subject-matter, it shall
dismiss the action. [underscoring supplied]
Under the present Rules of Court, this provision was reflected in Section 1, Rule 9, and
we quote:
Section 1. Defenses and objections not pleaded. — Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived. However,
when it appears from the pleadings or the evidence on record that the court has no
jurisdiction over the subject matter, that there is another action pending between the
same parties for the same cause, or that the action is barred by a prior judgment or by
statute of limitations, the court shall dismiss the claim. [underscoring supplied]
Notably, in the present rules, there was a deletion of the ground of "failure to state a
cause of action" from the list of those which may be waived if not invoked either in a
motion to dismiss or in the answer. Another novelty introduced by the present Rules,
which was totally absent in its two precedents, is the addition of the period of time
within which a motion to dismiss should be filed as provided under Section 1, Rule 16
and we quote:
Section 1. Grounds. — Within the time for but before filing the answer to the complaint
or pleading asserting a claim, a motion to dismiss may be made on any of the following
grounds: xxx [underscoring supplied]
All these considerations point to the legal reality that the new Rules effectively
restricted the dismissal of complaints in general, especially when what is being invoked
is the ground of "failure to state a cause of action." Thus, jurisprudence governed by
the 1940 and 1964 Rules of Court to the effect that the ground for dismissal based on
failure to state a cause of action may be raised anytime during the proceedings, is
already inapplicable to cases already governed by the present Rules of Court which
took effect on July 1, 1997. As the rule now stands, the failure to invoke this ground in
a motion to dismiss or in the answer would result in its waiver. According to Oscar M.
Herrera, the reason for the deletion is that failure to state a cause of action may be
41
cured under Section 5, Rule 10 and we quote:
Section 5. Amendment to conform to or authorize presentation of evidence. — When
issues not raised by the pleadings are tried with the express or implied consent of the
parties they shall be treated in all respects as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary to cause them to conform to
the evidence and to raise these issues may be made upon motion of any party at any
time, even after judgment; but failure to amend does not effect the result of the trial of
these issues. If evidence is objected to at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the pleadings to be amended and
shall do so with liberality if the presentation of the merits of the action and the ends of
substantial justice will be subserved thereby. The court may grant a continuance to
enable the amendment to be made.
With this clarification, we now proceed to the substantial issues of the petition. 1âwphi1
The motion to dismiss in the present case based on failure to state a cause of action
was not timely filed and was thus waived
Applying Rule 16 of the Rules of Court which provides for the grounds for the dismissal
of a civil case, the respondents’ grounds for dismissal fall under Section 1(g) and (j),
Rule 16 of the Rules of Court, particularly, failure to state a cause of action and failure
to comply with a condition precedent (substitution of parties), respectively. The first
paragraph of Section 1, 42
Rule 16 of the Rules of Court provides for the period within which to file a motion to
dismiss under the grounds enumerated. Specifically, the motion should be filed within
the time for, but before the filing of, the answer to the complaint or pleading asserting
a claim. Equally important to this provision is Section 1, 43
Rule 9 of the Rules of Court which states that defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived, except for the
following grounds: 1) the court has no jurisdiction over the subject matter; 2) litis
pendencia; 3) res judicata; and 4) prescription. Therefore, the grounds not falling under
these four exceptions may be considered as waived in the event that they are not timely
invoked. As the respondents’ motion to dismiss was based on the grounds which
should be timely invoked, material to the resolution of this case is the period within
which they were raised. Both the RTC and the CA found that the motion to dismiss
was only filed after the filing of the answer and after the pre-trial had been concluded.
Because there was no motion to dismiss before the filing of the answer, the
respondents should then have at least raised these grounds as affirmative defenses in
their answer. The RTC’s assailed orders did not touch on this particular issue but the
CA ruled that the respondents did, while the petitioners insist that the respondents did
not. In the present petition, the petitioners reiterate that there was a blatant non-
observance of the rules when the respondents did not amend their answer to invoke
the grounds for dismissal which were raised only during the pre-trial and, subsequently,
in the subject motion to dismiss.44
The divergent findings of the CA and the petitioners’ arguments are essentially factual
issues. Time and again, we have held that the jurisdiction of the Court in a petition for
review on certiorari under Rule 45, such as the present case, is limited only to
questions of law, save for certain exceptions. One of these is attendant herein, which
is, when the findings are conclusions without citation of specific evidence on which
they are based. 45
In the petition filed with the CA, the respondents made a passing allegation that, as
affirmative defenses in their answer, they raised the issue that the petitioners are not
the real parties in interest.
46
On the other hand, the petitioners consistently argued otherwise in their opposition to
47
the motion to dismiss, and in their comment and in their memorandum on the
48 49
respondents’ petition before the CA. Our examination of the records shows that the CA
had no basis in its finding that the respondents alleged the grounds as affirmative
defenses in their answer. The respondents merely stated in their petition for certiorari
that they alleged the subject grounds in their answer. However, nowhere in the petition
did they support this allegation; they did not even attach a copy of their answer to the
petition. It is basic that the respondents had the duty to prove by substantial evidence
their positive assertions. Considering that the petition for certiorari is an original and
not an appellate action, the CA had no records of the RTC’s proceedings upon which
the CA could refer to in order to validate the respondents’ claim. Clearly, other than the
respondents’ bare allegations, the CA had no basis to rule, without proof, that the
respondents alleged the grounds for dismissal as affirmative defenses in the answer.
The respondents, as the parties with the burden of proving that they timely raised their
grounds for dismissal, could have at least attached a copy of their answer to the
petition. This simple task they failed to do. That the respondents did not allege in their
answer the subject grounds is made more apparent through their argument, both in
their motion to dismiss and in their comment, that it was only during the pre-trial
50 51
stage that they verbally manifested and invited the attention of the lower court on their
grounds for dismissal. In order to justify such late invocation, they heavily relied on
Section 2(g) and (i), Rule 18 of the Rules of Court that the nature and purpose of the
52
pre-trial include, among others, the propriety of dismissing the action should there be
a valid ground therefor and matters which may aid in the prompt disposition of the
action. The respondents are not correct. The rules are clear and require no
interpretation. Pursuant to Section 1, Rule 9 of the Rules of Court, a motion to dismiss
based on the grounds invoked by the respondents may be waived if not raised in a
motion to dismiss or alleged in their answer. On the other hand, "the pre-trial is primarily
intended to make certain that all issues necessary to the disposition of a case are
properly raised. The purpose is to obviate the element of surprise, hence, the parties
are expected to disclose at the pre-trial conference all issues of law and fact which
they intend to raise at the trial, except such as may involve privileged or impeaching
matter."53
The issues submitted during the pre-trial are thus the issues that would govern the trial
proper. The dismissal of the case based on the grounds invoked by the respondents
are specifically covered by Rule 16 and Rule 9 of the Rules of Court which set a period
when they should be raised; otherwise, they are deemed waived.
The Dabuco ruling is inapplicable in the present case; the ground for dismissal "failure
to state a cause of action" distinguished from "lack of cause of action"
To justify the belated filing of the motion to dismiss, the CA reasoned out that the
ground for dismissal of "lack of cause of action" may be raised at any time during the
proceedings, pursuant to Dabuco v. Court of Appeals. 54
This is an erroneous interpretation and application of Dabuco as will be explained
below.
First, in Dabuco, the grounds for dismissal were raised as affirmative defenses in the
answer which is in stark contrast to the present case.
Second, in Dabuco, the Court distinguished between the dismissal of the complaint for
"failure to state a cause of action" and "lack of cause of action." The Court emphasized
that in a dismissal of action for lack of cause of action, "questions of fact are involved,
[therefore,] courts hesitate to declare a plaintiff as lacking in cause of action. Such
declaration is postponed until the insufficiency of cause is apparent from a
preponderance of evidence.
Usually, this is done only after the parties have been given the opportunity to present
all relevant evidence on such questions of fact." 55
In fact, in Dabuco, the Court held that even the preliminary hearing on the propriety of
lifting the restraining order was declared insufficient for purposes of dismissing the
complaint for lack of cause of action. This is so because the issues of fact had not yet
been adequately ventilated at that preliminary stage. For these reasons, the Court
declared in Dabuco that the dismissal by the trial court of the complaint was premature.
In the case of Macaslang v. Zamora, the Court noted that the incorrect appreciation
56
by both the RTC and the CA of the distinction between the dismissal of an action,
based on "failure to state a cause of action" and "lack of cause of action," prevented it
from properly deciding the case, and we quote:
Failure to state a cause of action and lack of cause of action are really different from
each other. On the one hand, failure to state a cause of action refers to the insufficiency
of the pleading, and is a ground for dismissal under Rule 16 of the Rules of Court. On
the other hand, lack of cause [of] action refers to a situation where the evidence does
not prove the cause of action alleged in the pleading. Justice Regalado, a recognized
commentator on remedial law, has explained the distinction: xxx What is contemplated,
therefore, is a failure to state a cause of action which is provided in Sec. 1(g) of Rule
16. This is a matter of insufficiency of the pleading. Sec. 5 of Rule 10, which was also
included as the last mode for raising the issue to the court, refers to the situation where
the evidence does not prove a cause of action. This is, therefore, a matter of
insufficiency of evidence. Failure to state a cause of action is different from failure to
prove a cause of action. The remedy in the first is to move for dismissal of the pleading,
while the remedy in the second is to demur to the evidence, hence reference to Sec. 5
of Rule 10 has been eliminated in this section. The procedure would consequently be
to require the pleading to state a cause of action, by timely objection to its deficiency;
or, at the trial, to file a demurrer to evidence, if such motion is warranted. [italics
supplied]
Based on this discussion, the Court cannot uphold the dismissal of the present case
based on the grounds invoked by the respondents which they have waived for failure
to invoke them within the period prescribed by the Rules. The Court cannot also
dismiss the case based on "lack of cause of action" as this would require at least a
preponderance of evidence which is yet to be appreciated by the trial court. Therefore,
the RTC did not commit grave abuse of discretion in issuing the assailed orders
denying the respondents’ motion to dismiss and motion for reconsideration. The Court
shall not resolve the merits of the respondents’ grounds for dismissal which are
considered as waived.
Other heirs of the spouses Pacaña to be impleaded in the case.
It should be emphasized that insofar as the petitioners are concerned, the respondents
have waived the dismissal of the complaint based on the ground of failure to state a
cause of action because the petitioners are not the real parties in interest. At this
juncture, a distinction between a real party in interest and an indispensable party is in
order. In Carandang v. Heirs of de Guzman, et al., the Court clarified these two
57
concepts and held that "[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. On
the other hand, an indispensable party is a party in interest without whom no final
determination can be had of an action, 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. xxx If 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. However, the dismissal on this ground entails 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."
At the inception of the present case, both the spouses Pacaña were not impleaded as
parties-plaintiffs. The Court notes, however, that they are indispensable parties to the
case as the alleged owners of Rovila Water Supply. Without their inclusion as parties,
there can be no final determination of the present case. They possess such an interest
in the controversy that a final decree would necessarily affect their rights, so that the
courts cannot proceed without their presence. Their interest in the subject matter of
the suit and in the relief sought is inextricably intertwined with that of the other parties.
58
Jurisprudence on the procedural consequence of the inclusion or non-inclusion of an
indispensable party is divided in our jurisdiction. Due to the non-inclusion of
indispensable parties, the Court dismissed the case in Lucman v. Malawi, et al. and 59
Go v. Distinction Properties Development Construction, Inc., while in Casals, et al. v.
60
Tayud Golf and Country Club et al., the Court annulled the judgment which was
61
rendered without the inclusion of the indispensable parties. In Arcelona et al. v. Court
of Appeals and Bulawan v. Aquende, and Metropolitan Bank & Trust Company v.
62 63
Alejo et al. the Court ruled that the burden to implead or order the impleading of an
64
indispensable party rests on the plaintiff and on the trial court, respectively. Thus, the
non-inclusion of the indispensable parties, despite notice of this infirmity, resulted in
the annulment of these cases. In Plasabas, et al. v. Court of Appeals, et al., the Court
65
held that the trial court and the CA committed reversible error when they summarily
dismissed the case, after both parties had rested their cases following a protracted
trial, on the sole ground of failure to implead indispensable parties. Non-joinder of
indispensable parties is not a ground for the dismissal of an action. The remedy is to
implead the non-party claimed to be indispensable. However, in the cases of Quilatan,
et al. v. Heirs of Quilatan, et al. and Lagunilla, et al. v. Monis, et al., the Court
66 67
remanded the case to the RTC for the impleading of indispensable parties. On the
other hand, in Lotte Phil. Co., Inc. v. Dela Cruz, PepsiCo, Inc. v. Emerald Pizza, and
68 69
Valdez Tallorin, v. Heirs of Tarona, et al., the Court directly ordered that the
70
indispensable parties be impleaded. Mindful of the differing views of the Court as
regards the legal effects of the non-inclusion of indispensable parties, the Court
clarified in Republic of the Philippines v. Sandiganbayan, et al., that the failure to
71
implead indispensable parties is a curable error and the foreign origin of our present
rules on indispensable parties permitted this corrective measure. This cited case held:
Even in those cases where it might reasonably be argued that the failure of the
Government to implead the sequestered corporations as defendants is indeed a
procedural aberration xxx, slight reflection would nevertheless lead to the conclusion
that the defect is not fatal, but one correctible under applicable adjective rules – e.g.,
Section 10, Rule 5 of the Rules of Court [specifying the remedy of amendment during
trial to authorize or to conform to the evidence]; Section 1, Rule 20 [governing
amendments before trial], in relation to the rule respecting omission of so-called
necessary or indispensable parties, set out in Section 11, Rule 3 of the Rules of Court.
It is relevant in this context to advert to the old familiar doctrines that the omission to
implead such parties "is a mere technical defect which can be cured at any stage of
the proceedings even after judgment"; and that, particularly in the case of
indispensable parties, since their presence and participation is essential to the very life
of the action, for without them no judgment may be rendered, amendments of the
complaint in order to implead them should be freely allowed, even on appeal, in fact
even after rendition of judgment by this Court, where it appears that the complaint
otherwise indicates their identity and character as such indispensable parties."
Although there are decided cases wherein the non-joinder of indispensable parties in
fact led to the dismissal of the suit or the annulment of judgment, such cases do not
jibe with the matter at hand. The better view is that non-joinder is not a ground to
dismiss the suit or annul the judgment. The rule on joinder of indispensable parties is
founded on equity. And the spirit of the law is reflected in Section 11, Rule 3 of the
1997 Rules of Civil Procedure. It prohibits the dismissal of a suit on the ground of non-
joinder or misjoinder of parties and allows the amendment of the complaint at any stage
of the proceedings, through motion or on order of the court on its own initiative.
Likewise, jurisprudence on the Federal Rules of Procedure, from which our Section 7,
Rule 3 on indispensable parties was copied, allows the joinder of indispensable parties WHEREFORE, the petition is GRANTED. The decision dated January 27, 2005 and
even after judgment has been entered if such is needed to afford the moving party full the resolution date June 6, 2005 of the Court of Appeals in CA-G.R. SP No. 71551 are
relief. Mere delay in filing the joinder motion does not necessarily result in the waiver REVERSED and SET ASIDE. The heirs of the spouses Luciano and Lourdes Pacaña,
of the right as long as the delay is excusable. except herein petitioner and Lagrimas Pacaña-Gonzalez, are ORDERED IMPLEADED
as parties plaintiffs and the RTC is directed tp proceed with the trial of the case with
In Galicia, et al. v. Vda. De Mindo, et al., the Court ruled that in line with its policy of
72
DISPATCH.
promoting a just and inexpensive disposition of a case, it allowed the intervention of
the indispensable parties instead of dismissing the complaint. Furthermore, in SO ORDERED.
Commissioner Domingo v. Scheer, the Court cited Salvador, et al. v. Court of
73

Appeals, et al. and held that the Court has full powers, apart from that power and
74

authority which are inherent, to amend the processes, pleadings, proceedings and
decisions by substituting as party-plaintiff the real party in interest. The Court has the
power to avoid delay in the disposition of this case, and to order its amendment in order
to implead an indispensable party. With these discussions as premises, the Court is of
the view that the proper remedy in the present case is to implead the indispensable
parties especially when their non-inclusion is merely a technical defect. To do so would
serve proper administration of justice and prevent further delay and multiplicity of suits.
Pursuant to Section 9, Rule 3 of the Rules of Court, parties may be added by order of
the court on motion of the party or on its own initiative at any stage of the action. If the
plaintiff refuses to implead an indispensable party despite the order of the court, then
the court may dismiss the complaint for the plaintiff’s failure to comply with a lawful
court order.75

The operative act that would lead to the dismissal of the case would be the refusal to
comply with the directive of the court for the joinder of an indispensable party to the
case.76

Obviously, in the present case, the deceased Pacañas can no longer be included in
the complaint as indispensable parties because of their death during the pendency of
the case. Upon their death, however, their ownership and rights over their properties
were transmitted to their heirs, including herein petitioners, pursuant to Article 774 in
77

relation with Article 777 of the Civil Code.

78

In Orbeta, et al. v. Sendiong, the Court acknowledged that the heirs, whose hereditary
79

rights are to be affected by the case, are deemed indispensable parties who should
have been impleaded by the trial court. Therefore, to obviate further delay in the
proceedings of the present case and given the Court’s authority to order the inclusion
of an indispensable party at any stage of the proceedings, the heirs of the spouses
Pacaña, except the petirioners who are already parties to the case are Lagrimas
Pacaña-Gonzalez who intervened in the case, are hereby ordered impleaded as
parties-plaintiffs.
G.R. No. 166620 April 20, 2010
ATTY. SYLVIA BANDA, CONSORICIA O. PENSON, RADITO V. PADRIGANO,
JEAN R. DE MESA, LEAH P. DELA CRUZ, ANDY V. MACASAQUIT, SENEN B.
CORDOBA, ALBERT BRILLANTES, GLORIA BISDA, JOVITA V. CONCEPCION,
TERESITA G. CARVAJAL, ROSANNA T. MALIWANAG, RICHARD ODERON,
CECILIA ESTERNON, BENEDICTO CABRAL, MA. VICTORIA E. LAROCO, CESAR
ANDRA, FELICISIMO GALACIO, ELSA R. CALMA, FILOMENA A. GALANG, JEAN
PAUL MELEGRITO, CLARO G. SANTIAGO, JR., EDUARDO FRIAS, REYNALDO
O. ANDAL, NEPHTALIE IMPERIO, RUEL BALAGTAS, VICTOR R. ORTIZ,
FRANCISCO P. REYES, JR., ELISEO M. BALAGOT, JR., JOSE C. MONSALVE,
JR., ARTURO ADSUARA, F.C. LADRERO, JR., NELSON PADUA, MARCELA C.
SAYAO, ANGELITO MALAKAS, GLORIA RAMENTO, JULIANA SUPLEO,
MANUEL MENDRIQUE, E. TAYLAN, CARMELA BOBIS, DANILO VARGAS, ROY-
LEO C. PABLO, ALLAN VILLANUEVA, VICENTE R. VELASCO, JR., IMELDA
ERENO, FLORIZA M. CATIIS, RANIEL R. BASCO, E. JALIJALI, MARIO C.
CARAAN, DOLORES M. AVIADO, MICHAEL P. LAPLANA, GUILLERMO G.
SORIANO, ALICE E. SOJO, ARTHUR G. NARNE, LETICIA SORIANO, FEDERICO
RAMOS, JR., PETERSON CAAMPUED, RODELIO L. GOMEZ, ANTONIO D.
GARCIA, JR., ANTONIO GALO, A. SANCHEZ, SOL E. TAMAYO, JOSEPHINE A.M.
COCJIN, DAMIAN QUINTO, JR., EDLYN MARIANO, M.A. MALANUM, ALFREDO
S. ESTRELLA, and JESUS MEL SAYO, Petitioners,
vs.
EDUARDO R. ERMITA, in his capacity as Executive Secretary, The Director
General of the Philippine Information Agency and The National
Treasurer, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
The present controversy arose from a Petition for Certiorari and prohibition challenging
the constitutionality of Executive Order No. 378 dated October 25, 2004, issued by
President Gloria Macapagal Arroyo (President Arroyo). Petitioners characterize their
action as a class suit filed on their own behalf and on behalf of all their co-employees
at the National Printing Office (NPO).
The NPO was formed on July 25, 1987, during the term of former President Corazon
C. Aquino (President Aquino), by virtue of Executive Order No. 2851 which provided,
among others, the creation of the NPO from the merger of the Government Printing
Office and the relevant printing units of the Philippine Information Agency (PIA).
Section 6 of Executive Order No. 285 reads:
SECTION 6. Creation of the National Printing Office. – There is hereby created a
National Printing Office out of the merger of the Government Printing Office and the
relevant printing units of the Philippine Information Agency. The Office shall have
exclusive printing jurisdiction over the following:
a. Printing, binding and distribution of all standard and accountable forms of
national, provincial, city and municipal governments, including government
corporations;
b. Printing of officials ballots;
c. Printing of public documents such as the Official Gazette, General
Appropriations Act, Philippine Reports, and development information
materials of the Philippine Information Agency.
The Office may also accept other government printing jobs, including government
publications, aside from those enumerated above, but not in an exclusive basis.
The details of the organization, powers, functions, authorities, and related
management aspects of the Office shall be provided in the implementing details which
shall be prepared and promulgated in accordance with Section II of this Executive
Order.
The Office shall be attached to the Philippine Information Agency.
On October 25, 2004, President Arroyo issued the herein assailed Executive Order
No. 378, amending Section 6 of Executive Order No. 285 by, inter alia, removing the
exclusive jurisdiction of the NPO over the printing services requirements of government
agencies and instrumentalities. The pertinent portions of Executive Order No. 378, in
turn, provide:
SECTION 1. The NPO shall continue to provide printing services to government
agencies and instrumentalities as mandated by law. However, it shall no longer enjoy
exclusive jurisdiction over the printing services requirements of the government over
standard and accountable forms. It shall have to compete with the private sector,
except in the printing of election paraphernalia which could be shared with the Bangko
Sentral ng Pilipinas, upon the discretion of the Commission on Elections consistent
with the provisions of the Election Code of 1987.
SECTION 2. Government agencies/instrumentalities may source printing services
outside NPO provided that:
2.1 The printing services to be provided by the private sector is superior in
quality and at a lower cost than what is offered by the NPO; and
2.2 The private printing provider is flexible in terms of meeting the target
completion time of the government agency.
SECTION 3. In the exercise of its functions, the amount to be appropriated for the
programs, projects and activities of the NPO in the General Appropriations Act (GAA)
shall be limited to its income without additional financial support from the government.
(Emphases and underscoring supplied.)
Pursuant to Executive Order No. 378, government agencies and instrumentalities are
allowed to source their printing services from the private sector through competitive
bidding, subject to the condition that the services offered by the private supplier be of
superior quality and lower in cost compared to what was offered by the NPO. Executive
Order No. 378 also limited NPO’s appropriation in the General Appropriations Act to
its income.
Perceiving Executive Order No. 378 as a threat to their security of tenure as employees
of the NPO, petitioners now challenge its constitutionality, contending that: (1) it is
beyond the executive powers of President Arroyo to amend or repeal Executive Order
No. 285 issued by former President Aquino when the latter still exercised legislative
powers; and (2) Executive Order No. 378 violates petitioners’ security of tenure,
because it paves the way for the gradual abolition of the NPO.
We dismiss the petition.
Before proceeding to resolve the substantive issues, the Court must first delve into a
procedural matter. Since petitioners instituted this case as a class suit, the Court, thus,
must first determine if the petition indeed qualifies as one. In Board of Optometry v.
Colet,2 we held that "[c]ourts must exercise utmost caution before allowing a class suit,
which is the exception to the requirement of joinder of all indispensable parties. For
while no difficulty may arise if the decision secured is favorable to the plaintiffs, a
quandary would result if the decision were otherwise as those who were deemed
impleaded by their self-appointed representatives would certainly claim denial of due
process."
Section 12, Rule 3 of the Rules of Court defines a class suit, as follows:
Sec. 12. Class suit. – When the subject matter of the controversy is one of common or
general interest to many persons so numerous that it is impracticable to join all as
parties, a number of them which the court finds to be sufficiently numerous and
representative as to fully protect the interests of all concerned may sue or defend for
the benefit of all. Any party in interest shall have the right to intervene to protect his
individual interest.
From the foregoing definition, the requisites of a class suit are: 1) the subject matter of
controversy is one of common or general interest to many persons; 2) the parties
affected are so numerous that it is impracticable to bring them all to court; and 3) the
parties bringing the class suit are sufficiently numerous or representative of the class
and can fully protect the interests of all concerned.
In Mathay v. The Consolidated Bank and Trust Company,3 the Court held that:
An action does not become a class suit merely because it is designated as such in the
pleadings. Whether the suit is or is not a class suit depends upon the attending facts,
and the complaint, or other pleading initiating the class action should allege the
existence of the necessary facts, to wit, the existence of a subject matter of common
interest, and the existence of a class and the number of persons in the alleged class, in
order that the court might be enabled to determine whether the members of the class
are so numerous as to make it impracticable to bring them all before the court, to
contrast the number appearing on the record with the number in the class and to
determine whether claimants on record adequately represent the class and the subject
matter of general or common interest. (Emphases ours.)
Here, the petition failed to state the number of NPO employees who would be affected
by the assailed Executive Order and who were allegedly represented by petitioners. It
was the Solicitor General, as counsel for respondents, who pointed out that there were
about 549 employees in the NPO.4 The 67 petitioners undeniably comprised a small
fraction of the NPO employees whom they claimed to represent. Subsequently, 32 of
the original petitioners executed an Affidavit of Desistance, while one signed a letter
denying ever signing the petition,5 ostensibly reducing the number of petitioners to 34.
We note that counsel for the petitioners challenged the validity of the desistance or
withdrawal of some of the petitioners and insinuated that such desistance was due to
pressure from people "close to the seat of power."6 Still, even if we were to disregard
the affidavit of desistance filed by some of the petitioners, it is highly doubtful that a
sufficient, representative number of NPO employees have instituted this purported
class suit. A perusal of the petition itself would show that of the 67 petitioners who
signed the Verification/Certification of Non-Forum Shopping, only 20 petitioners were
in fact mentioned in the jurat as having duly subscribed the petition before the notary
public. In other words, only 20 petitioners effectively instituted the present case.
Indeed, in MVRS Publications, Inc. v. Islamic Da’wah Council of the Philippines,
Inc.,7 we observed that an element of a class suit or representative suit is the adequacy
of representation. In determining the question of fair and adequate representation of
members of a class, the court must consider (a) whether the interest of the named
party is coextensive with the interest of the other members of the class; (b) the
proportion of those made a party, as it so bears, to the total membership of the class;
and (c) any other factor bearing on the ability of the named party to speak for the rest
of the class.
Previously, we held in Ibañes v. Roman Catholic Church8 that where the interests of
the plaintiffs and the other members of the class they seek to represent are
diametrically opposed, the class suit will not prosper.
It is worth mentioning that a Manifestation of Desistance,9 to which the previously
mentioned Affidavit of Desistance10 was attached, was filed by the President of the
National Printing Office Workers Association (NAPOWA). The said manifestation
expressed NAPOWA’s opposition to the filing of the instant petition in any court. Even
if we take into account the contention of petitioners’ counsel that the NAPOWA
President had no legal standing to file such manifestation, the said pleading is a clear
indication that there is a divergence of opinions and views among the members of the
class sought to be represented, and not all are in favor of filing the present suit. There
is here an apparent conflict between petitioners’ interests and those of the persons
whom they claim to represent. Since it cannot be said that petitioners sufficiently
represent the interests of the entire class, the instant case cannot be properly treated
as a class suit.
As to the merits of the case, the petition raises two main grounds to assail the
constitutionality of Executive Order No. 378:
First, it is contended that President Arroyo cannot amend or repeal Executive Order
No. 285 by the mere issuance of another executive order (Executive Order No. 378).
Petitioners maintain that former President Aquino’s Executive Order No. 285 is a
legislative enactment, as the same was issued while President Aquino still had
legislative powers under the Freedom Constitution;11 thus, only Congress through
legislation can validly amend Executive Order No. 285.
Second, petitioners maintain that the issuance of Executive Order No. 378 would lead
to the eventual abolition of the NPO and would violate the security of tenure of NPO
employees.
Anent the first ground raised in the petition, we find the same patently without merit.
It is a well-settled principle in jurisprudence that the President has the power to
reorganize the offices and agencies in the executive department in line with the
President’s constitutionally granted power of control over executive offices and by
virtue of previous delegation of the legislative power to reorganize executive offices
under existing statutes.
In Buklod ng Kawaning EIIB v. Zamora,12 the Court pointed out that Executive Order
No. 292 or the Administrative Code of 1987 gives the President continuing authority to
reorganize and redefine the functions of the Office of the President. Section 31,
Chapter 10, Title III, Book III of the said Code, is explicit:
Sec. 31. Continuing Authority of the President to Reorganize his Office. – The
President, subject to the policy in the Executive Office and in order to achieve
simplicity, economy and efficiency, shall have continuing authority to reorganize the
administrative structure of the Office of the President. For this purpose, he may take
any of the following actions:
(1) Restructure the internal organization of the Office of the President Proper,
including the immediate Offices, the President Special Assistants/Advisers
System and the Common Staff Support System, by abolishing, consolidating
or merging units thereof or transferring functions from one unit to another;
(2) Transfer any function under the Office of the President to any other
Department or Agency as well as transfer functions to the Office of the
President from other Departments and Agencies; and
(3) Transfer any agency under the Office of the President to any other
department or agency as well as transfer agencies to the Office of the
President from other Departments or agencies. (Emphases ours.)
Interpreting the foregoing provision, we held in Buklod ng Kawaning EIIB, thus:
But of course, the list of legal basis authorizing the President to reorganize any
department or agency in the executive branch does not have to end here. We must not
lose sight of the very source of the power – that which constitutes an express grant of
power. Under Section 31, Book III of Executive Order No. 292 (otherwise known as the
Administrative Code of 1987), "the President, subject to the policy in the Executive
Office and in order to achieve simplicity, economy and efficiency, shall have the
continuing authority to reorganize the administrative structure of the Office of the
President." For this purpose, he may transfer the functions of other Departments or
Agencies to the Office of the President. In Canonizado v. Aguirre [323 SCRA 312
(2000)], we ruled that reorganization "involves the reduction of personnel,
consolidation of offices, or abolition thereof by reason of economy or redundancy of
functions." It takes place when there is an alteration of the existing structure of
government offices or units therein, including the lines of control, authority and
responsibility between them. The EIIB is a bureau attached to the Department of
Finance. It falls under the Office of the President. Hence, it is subject to the President’s
continuing authority to reorganize.13 (Emphasis ours.)
It is undisputed that the NPO, as an agency that is part of the Office of the Press
Secretary (which in various times has been an agency directly attached to the Office
of the Press Secretary or as an agency under the Philippine Information Agency), is
part of the Office of the President.14
Pertinent to the case at bar, Section 31 of the Administrative Code of 1987 quoted
above authorizes the President (a) to restructure the internal organization of the Office
of the President Proper, including the immediate Offices, the President Special
Assistants/Advisers System and the Common Staff Support System, by abolishing,
consolidating or merging units thereof or transferring functions from one unit to another,
and (b) to transfer functions or offices from the Office of the President to any other
Department or Agency in the Executive Branch, and vice versa.
Concomitant to such power to abolish, merge or consolidate offices in the Office of the
President Proper and to transfer functions/offices not only among the offices in the
Office of President Proper but also the rest of the Office of the President and the
Executive Branch, the President implicitly has the power to effect less radical or less
substantive changes to the functional and internal structure of the Office of the
President, including the modification of functions of such executive agencies as the
exigencies of the service may require.
In the case at bar, there was neither an abolition of the NPO nor a removal of any of
its functions to be transferred to another agency. Under the assailed Executive Order
No. 378, the NPO remains the main printing arm of the government for all kinds of
government forms and publications but in the interest of greater economy and
encouraging efficiency and profitability, it must now compete with the private sector for
certain government printing jobs, with the exception of election paraphernalia which
remains the exclusive responsibility of the NPO, together with the Bangko Sentral ng
Pilipinas, as the Commission on Elections may determine. At most, there was a mere
alteration of the main function of the NPO by limiting the exclusivity of its printing
responsibility to election forms.15
There is a view that the reorganization actions that the President may take with respect
to agencies in the Office of the President are strictly limited to transfer of functions and
offices as seemingly provided in Section 31 of the Administrative Code of 1987.
However, Section 20, Chapter 7, Title I, Book III of the same Code significantly
provides:
Sec. 20. Residual Powers. – Unless Congress provides otherwise, the President shall
exercise such other powers and functions vested in the President which are provided
for under the laws and which are not specifically enumerated above, or which are not
delegated by the President in accordance with law. (Emphasis ours.)
Pursuant to Section 20, the power of the President to reorganize the Executive Branch
under Section 31 includes such powers and functions that may be provided for under
other laws. To be sure, an inclusive and broad interpretation of the President’s power
to reorganize executive offices has been consistently supported by specific provisions
in general appropriations laws.
In the oft-cited Larin v. Executive Secretary,16 the Court likewise adverted to certain
provisions of Republic Act No. 7645, the general appropriations law for 1993, as among
the statutory bases for the President’s power to reorganize executive agencies, to wit:
Section 48 of R.A. 7645 provides that:
"Sec. 48. Scaling Down and Phase Out of Activities of Agencies Within the Executive
Branch. — The heads of departments, bureaus and offices and agencies are hereby
directed to identify their respective activities which are no longer essential in the
delivery of public services and which may be scaled down, phased out or abolished,
subject to civil [service] rules and regulations. x x x. Actual scaling down, phasing out
or abolition of the activities shall be effected pursuant to Circulars or Orders issued for
the purpose by the Office of the President."
Said provision clearly mentions the acts of "scaling down, phasing out and abolition"
of offices only and does not cover the creation of offices or transfer of functions.
Nevertheless, the act of creating and decentralizing is included in the subsequent
provision of Section 62, which provides that:
"Sec. 62. Unauthorized organizational changes. — Unless otherwise created by law or
directed by the President of the Philippines, no organizational unit or changes in key
positions in any department or agency shall be authorized in their respective
organization structures and be funded from appropriations by this Act."
The foregoing provision evidently shows that the President is authorized to effect
organizational changes including the creation of offices in the department or agency
concerned.
The contention of petitioner that the two provisions are riders deserves scant
consideration. Well settled is the rule that every law has in its favor the presumption of
constitutionality. Unless and until a specific provision of the law is declared invalid and
unconstitutional, the same is valid and binding for all intents and
purposes.17 (Emphases ours)
Buklod ng Kawaning EIIB v. Zamora,18 where the Court upheld as valid then President
Joseph Estrada’s Executive Order No. 191 "deactivating" the Economic Intelligence
and Investigation Bureau (EIIB) of the Department of Finance, hewed closely to the
reasoning in Larin. The Court, among others, also traced from the General
Appropriations Act19 the President’s authority to effect organizational changes in the
department or agency under the executive structure, thus:
We adhere to the precedent or ruling in Larin that this provision recognizes the
authority of the President to effect organizational changes in the department or agency
under the executive structure. Such a ruling further finds support in Section 78 of
Republic Act No. 8760. Under this law, the heads of departments, bureaus, offices and
agencies and other entities in the Executive Branch are directed (a) to conduct a
comprehensive review of their respective mandates, missions, objectives, functions,
programs, projects, activities and systems and procedures; (b) identify activities which
are no longer essential in the delivery of public services and which may be scaled
down, phased-out or abolished; and (c) adopt measures that will result in the
streamlined organization and improved overall performance of their respective
agencies. Section 78 ends up with the mandate that the actual streamlining and
productivity improvement in agency organization and operation shall be effected
pursuant to Circulars or Orders issued for the purpose by the Office of the President.
x x x.20 (Emphasis ours)
Notably, in the present case, the 2003 General Appropriations Act, which was
reenacted in 2004 (the year of the issuance of Executive Order No. 378), likewise gave
the President the authority to effect a wide variety of organizational changes in any
department or agency in the Executive Branch. Sections 77 and 78 of said Act
provides:
Section 77. Organized Changes. – Unless otherwise provided by law or directed by
the President of the Philippines, no changes in key positions or organizational units in
any department or agency shall be authorized in their respective organizational
structures and funded from appropriations provided by this Act.
Section 78. Institutional Strengthening and Productivity Improvement in Agency
Organization and Operations and Implementation of Organization/Reorganization
Mandated by Law. The Government shall adopt institutional strengthening and
productivity improvement measures to improve service delivery and enhance
productivity in the government, as directed by the President of the Philippines. The
heads of departments, bureaus, offices, agencies, and other entities of the Executive
Branch shall accordingly conduct a comprehensive review of their respective
mandates, missions, objectives, functions, programs, projects, activities and systems
and procedures; identify areas where improvements are necessary; and implement
corresponding structural, functional and operational adjustments that will result in
streamlined organization and operations and improved performance and productivity:
PROVIDED, That actual streamlining and productivity improvements in agency
organization and operations, as authorized by the President of the Philippines for the
purpose, including the utilization of savings generated from such activities, shall be in
accordance with the rules and regulations to be issued by the DBM, upon consultation
with the Presidential Committee on Effective Governance: PROVIDED, FURTHER,
That in the implementation of organizations/reorganizations, or specific changes in
agency structure, functions and operations as a result of institutional strengthening or
as mandated by law, the appropriation, including the functions, projects, purposes and
activities of agencies concerned may be realigned as may be necessary: PROVIDED,
FINALLY, That any unexpended balances or savings in appropriations may be made
available for payment of retirement gratuities and separation benefits to affected
personnel, as authorized under existing laws. (Emphases and underscoring ours.)
Implicitly, the aforequoted provisions in the appropriations law recognize the power of
the President to reorganize even executive offices already funded by the said
appropriations act, including the power to implement structural, functional, and
operational adjustments in the executive bureaucracy and, in so doing, modify or
realign appropriations of funds as may be necessary under such reorganization. Thus,
insofar as petitioners protest the limitation of the NPO’s appropriations to its own
income under Executive Order No. 378, the same is statutorily authorized by the above
provisions.
In the 2003 case of Bagaoisan v. National Tobacco Administration,21 we upheld the
"streamlining" of the National Tobacco Administration through a reduction of its
personnel and deemed the same as included in the power of the President to
reorganize executive offices granted under the laws, notwithstanding that such
streamlining neither involved an abolition nor a transfer of functions of an office. To
quote the relevant portion of that decision:
In the recent case of Rosa Ligaya C. Domingo, et al. vs. Hon. Ronaldo D. Zamora, in
his capacity as the Executive Secretary, et al., this Court has had occasion to also
delve on the President’s power to reorganize the Office of the President under Section
31(2) and (3) of Executive Order No. 292 and the power to reorganize the Office of the
President Proper. x x x
xxxx
The first sentence of the law is an express grant to the President of a continuing
authority to reorganize the administrative structure of the Office of the President. The
succeeding numbered paragraphs are not in the nature of provisos that unduly limit
the aim and scope of the grant to the President of the power to reorganize but are to
be viewed in consonance therewith. Section 31(1) of Executive Order No. 292
specifically refers to the President’s power to restructure the internal organization of
the Office of the President Proper, by abolishing, consolidating or merging units hereof
or transferring functions from one unit to another, while Section 31(2) and (3) concern
executive offices outside the Office of the President Proper allowing the President to
transfer any function under the Office of the President to any other Department or
Agency and vice-versa, and the transfer of any agency under the Office of the
President to any other department or agency and vice-versa.
In the present instance, involving neither an abolition nor transfer of offices, the
assailed action is a mere reorganization under the general provisions of the law
consisting mainly of streamlining the NTA in the interest of simplicity, economy and
efficiency. It is an act well within the authority of the President motivated and carried
out, according to the findings of the appellate court, in good faith, a factual assessment
that this Court could only but accept.22 (Emphases and underscoring supplied.)
In the more recent case of Tondo Medical Center Employees Association v. Court of
Appeals,23 which involved a structural and functional reorganization of the Department
of Health under an executive order, we reiterated the principle that the power of the
President to reorganize agencies under the executive department by executive or
administrative order is constitutionally and statutorily recognized. We held in that case:
This Court has already ruled in a number of cases that the President may, by executive
or administrative order, direct the reorganization of government entities under the
Executive Department. This is also sanctioned under the Constitution, as well as other
statutes.
Section 17, Article VII of the 1987 Constitution, clearly states: "[T]he president shall
have control of all executive departments, bureaus and offices." Section 31, Book III,
Chapter 10 of Executive Order No. 292, also known as the Administrative Code of
1987 reads:
SEC. 31. Continuing Authority of the President to Reorganize his Office - The
President, subject to the policy in the Executive Office and in order to achieve
simplicity, economy and efficiency, shall have continuing authority to reorganize the
administrative structure of the Office of the President. For this purpose, he may take
any of the following actions:
xxxx
In Domingo v. Zamora [445 Phil. 7 (2003)], this Court explained the rationale behind
the President’s continuing authority under the Administrative Code to reorganize the
administrative structure of the Office of the President. The law grants the President the
power to reorganize the Office of the President in recognition of the recurring need of
every President to reorganize his or her office "to achieve simplicity, economy and
efficiency." To remain effective and efficient, it must be capable of being shaped and
reshaped by the President in the manner the Chief Executive deems fit to carry out
presidential directives and policies.
The Administrative Code provides that the Office of the President consists of the Office
of the President Proper and the agencies under it. The agencies under the Office of
the President are identified in Section 23, Chapter 8, Title II of the Administrative Code:
Sec. 23. The Agencies under the Office of the President.—The agencies under the
Office of the President refer to those offices placed under the chairmanship of the
President, those under the supervision and control of the President, those under
the administrative supervision of the Office of the President, those attached to it for
policy and program coordination, and those that are not placed by law or order creating
them under any specific department.
xxxx
The power of the President to reorganize the executive department is likewise
recognized in general appropriations laws. x x x.
xxxx
Clearly, Executive Order No. 102 is well within the constitutional power of the President
to issue. The President did not usurp any legislative prerogative in issuing Executive
Order No. 102. It is an exercise of the President’s constitutional power of control over
the executive department, supported by the provisions of the Administrative Code,
recognized by other statutes, and consistently affirmed by this Court.24 (Emphases
supplied.)
Subsequently, we ruled in Anak Mindanao Party-List Group v. Executive
Secretary25 that:
The Constitution’s express grant of the power of control in the President justifies an
executive action to carry out reorganization measures under a broad authority of law.
In enacting a statute, the legislature is presumed to have deliberated with full
knowledge of all existing laws and jurisprudence on the subject. It is thus reasonable
to conclude that in passing a statute which places an agency under the Office of the
President, it was in accordance with existing laws and jurisprudence on the President’s
power to reorganize.
In establishing an executive department, bureau or office, the legislature necessarily
ordains an executive agency’s position in the scheme of administrative structure. Such
determination is primary, but subject to the President’s continuing authority to
reorganize the administrative structure. As far as bureaus, agencies or offices in the
executive department are concerned, the power of control may justify the President to
deactivate the functions of a particular office. Or a law may expressly grant the
President the broad authority to carry out reorganization measures. The Administrative
Code of 1987 is one such law.26
The issuance of Executive Order No. 378 by President Arroyo is an exercise of a
delegated legislative power granted by the aforementioned Section 31, Chapter 10,
Title III, Book III of the Administrative Code of 1987, which provides for the continuing
authority of the President to reorganize the Office of the President, "in order to achieve
simplicity, economy and efficiency." This is a matter already well-entrenched in
jurisprudence. The reorganization of such an office through executive or administrative
order is also recognized in the Administrative Code of 1987. Sections 2 and 3, Chapter
2, Title I, Book III of the said Code provide:
Sec. 2. Executive Orders. - Acts of the President providing for rules of a general or
permanent character in implementation or execution of constitutional or statutory
powers shall be promulgated in executive orders.
Sec. 3. Administrative Orders. - Acts of the President which relate to particular aspects
of governmental operations in pursuance of his duties as administrative head shall be
promulgated in administrative orders. (Emphases supplied.)
To reiterate, we find nothing objectionable in the provision in Executive Order No. 378
limiting the appropriation of the NPO to its own income. Beginning with Larin and in
subsequent cases, the Court has noted certain provisions in the general
appropriations laws as likewise reflecting the power of the President to reorganize
executive offices or agencies even to the extent of modifying and realigning
appropriations for that purpose.
Petitioners’ contention that the issuance of Executive Order No. 378 is an invalid
exercise of legislative power on the part of the President has no legal leg to stand on.
In all, Executive Order No. 378, which purports to institute necessary reforms in
government in order to improve and upgrade efficiency in the delivery of public services
by redefining the functions of the NPO and limiting its funding to its own income and to
transform it into a self-reliant agency able to compete with the private sector, is well
within the prerogative of President Arroyo under her continuing delegated legislative
power to reorganize her own office. As pointed out in the separate concurring opinion
of our learned colleague, Associate Justice Antonio T. Carpio, the objective behind
Executive Order No. 378 is wholly consistent with the state policy contained in Republic
Act No. 9184 or the Government Procurement Reform Act to encourage
competitiveness by extending equal opportunity to private contracting parties who are
eligible and qualified.27
1avvphi1
To be very clear, this delegated legislative power to reorganize pertains only to the
Office of the President and the departments, offices and agencies of the executive
branch and does not include the Judiciary, the Legislature or the constitutionally-
created or mandated bodies. Moreover, it must be stressed that the exercise by the
President of the power to reorganize the executive department must be in accordance
with the Constitution, relevant laws and prevailing jurisprudence.
In this regard, we are mindful of the previous pronouncement of this Court in Dario v. In sum, the Court finds that the petition failed to show any constitutional infirmity or
Mison28 that: grave abuse of discretion amounting to lack or excess of jurisdiction in President
Arroyo’s issuance of Executive Order No. 378.
Reorganizations in this jurisdiction have been regarded as valid provided they are
pursued in good faith. As a general rule, a reorganization is carried out in "good faith" WHEREFORE, the petition is hereby DISMISSED and the prayer for a Temporary
if it is for the purpose of economy or to make bureaucracy more efficient. In that event, Restraining Order and/or a Writ of Preliminary Injunction is hereby DENIED. No costs.
no dismissal (in case of a dismissal) or separation actually occurs because the position
itself ceases to exist. And in that case, security of tenure would not be a Chinese wall. SO ORDERED.
Be that as it may, if the "abolition," which is nothing else but a separation or removal,
is done for political reasons or purposely to defeat security of tenure, or otherwise not
in good faith, no valid "abolition" takes place and whatever "abolition" is done, is
void ab initio. There is an invalid "abolition" as where there is merely a change of
nomenclature of positions, or where claims of economy are belied by the existence of
ample funds. (Emphasis ours.)

Stated alternatively, the presidential power to reorganize agencies and offices in the
executive branch of government is subject to the condition that such reorganization is
carried out in good faith.

If the reorganization is done in good faith, the abolition of positions, which results in
loss of security of tenure of affected government employees, would be valid. In Buklod
ng Kawaning EIIB v. Zamora,29 we even observed that there was no such thing as an
absolute right to hold office. Except those who hold constitutional offices, which provide
for special immunity as regards salary and tenure, no one can be said to have any
vested right to an office or salary.30

This brings us to the second ground raised in the petition – that Executive Order No.
378, in allowing government agencies to secure their printing requirements from the
private sector and in limiting the budget of the NPO to its income, will purportedly lead
to the gradual abolition of the NPO and the loss of security of tenure of its present
employees. In other words, petitioners avow that the reorganization of the NPO under
Executive Order No. 378 is tainted with bad faith. The basic evidentiary rule is that he
who asserts a fact or the affirmative of an issue has the burden of proving it.31

A careful review of the records will show that petitioners utterly failed to substantiate
their claim. They failed to allege, much less prove, sufficient facts to show that the
limitation of the NPO’s budget to its own income would indeed lead to the abolition of
the position, or removal from office, of any employee. Neither did petitioners present
any shred of proof of their assertion that the changes in the functions of the NPO were
for political considerations that had nothing to do with improving the efficiency of, or
encouraging operational economy in, the said agency.