1. RP vs. MERALCO, G.R. No. 201715, Dec.

11, 2013;
2. Aguilar vs. Lightbringers Credit Cooperative, G.R. No. 209605, Jan. 12, 2015;
3. Eastern Shipping Lines, Inc. vs. BPI/MS Insurance Corp. G.R. No. 182864, Jan. 12, 2015;
4. Absolute Mgt. Corp. vs. Metrobank, G.R. No. 190277, July 23, 2014; and
5. Aznar Brothers Realty vs. Sps. Ybañez, G.R. No. 161380, April 21, 2014

FIRST DIVISION
G.R. No. 201715 December 11, 2013
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
MANILA ELECTRIC COMPANY (MERALCO), and NATIONAL POWER CORPORATION (NPC), Respondents.
DECISION
BERSAMIN, J.:
The intervening rendition by the trial court of a decision on the merits of the case renders moot and academic the resolution of
any issue raised on certiorari against interlocutory orders setting the pre-trial and declaring the petitioner to have waived its right
to present its evidence. The resolution of the issue, having been pre-empted by the decision in the main action, ceased to have
any practical value.
The Case
Under appeal via petition for review on certiorari is the decision promulgated on October 14, 2011 in C.A.-G.R. SP No. 116863
entitled Republic of the Philippines, represented by the Office of the Solicitor General v. Hon. Franco T. Falcon, in his capacity as
the Presiding Judge of Branch 71, Regional Trial Court, National Capital Region, Pasig City, Manila Electric Company and
National Power Corporation, whereby the Court of Appeals (CA) dismissed the original and the supplemental petitions for
1

certiorari, prohibition and mandamus of herein petitioner Republic of the Philippines,and in effect upheldthe assailed
interlocutory orders ofNovember 3, 2010 and November 4, 2010, and the pre-trial order of November 24, 2010, all issued by the
2 3 4

Regional Trial Court (RTC), Branch 71, in Pasig Cityin Special Civil Action No. 3392,an action for declaratory relief entitled Manila
Electric Company v. National Power Corporation, et al. The CA further ordered the RTC, Branch 71, in Pasig City
to proceedwith the trial in Special Civil Action No. 3392, and to resolve the case with dispatch.
Additionally, the petitioner prays that respondents Manila Electric Company (MERALCO) and National Power Corporation
(NAPOCOR) be directed to resolve their dispute through arbitrationpursuant to the arbitration clause of their contract for the sale
of electricity (CSE).
5

Antecedents
Thedecision of the CA sums up thefollowing uncontested material antecedents.
MERALCO and NAPOCOR had entered into the CSE on November 21, 1994. The CSE would be effective for 10 years starting from
January 1, 1995. Under the CSE, NAPOCOR was obliged to supply and MERALCO was obliged to purchase a minimum volume of
electric power and energy from 1995 until 2004 at the rates approved by the Energy Regulatory Board (ERB), now the Energy
Regulatory Commission (ERC). A provision of the CSE required MERALCO to pay minimum monthly charges even if the actual
volume of the power and energy drawn from NAPOCOR fell below the stated minimum quantities.
In the years 2002, 2003 and 2004, due to circumstances beyond the reasonable control of the parties, MERALCO drew from
NAPOCOR electric power and energy less than the minimum quantities stipulated in the CSE for those years. MERALCO did not
pay the minimum monthly charges but only the charges for the electric power and energy actually taken. Thus, NAPOCOR
served on MERALCO a claim for the contracted but undrawn electric power and energy starting the billing month of January
2002.
MERALCO objected to the claimof NAPOCOR, and served its notice of termination of the CSE. MERALCO submitted its own claim
to NAPOCOR for, among others: (a) losses suffered due to the delay in the construction of NAPOCOR’s transmission lines, which
prevented it from fully dispatching the electricity contracted with independent power producers (IPPs) at their respective
minimum energy quantities; and (b) unrealized revenues owing to NAPOCOR’s continuing to supply electricity to directly-
connected customers within MERALCO’s franchise area in violation of the MERALCO franchise and the CSE.
Recognizing that any delays in the resolution of their dispute was inimical to public interest, MERALCO and
NAPOCOR agreedto submit their dispute to mediation. They appointed the late Ambassador Sedfrey A.Ordoñezand Antonio V.
6

del Rosario as their mediators, and the mediation required about 20 meetings, during which NAPOCOR and the Government
were represented by high-level officials (includingthen Energy Secretary Vincent S. Perez, Jr. and PSALM President Edgardo M.
del Fonso).The mediation resulted in the execution on July 15, 2003 of a settlement (entitled An Agreement Resolving The Issues In
Mediation Between The National Power Corporation And The Manila Electric Company In Regard To The 1994 Contract For The
Sale Of Electricity), hereafter referred to as Settlement Agreementfor brevity.
7

The Settlement Agreement coveredthe charges being imposed by NAPOCOR and the National Transmission Corporation
(TRANSCO) under Section 2.1 (Contract Demand and Contract Energy of MERALCO) in relation to Section 5.2 (Transmission
Service) and Section 7 (Direct Connection within MERALCO’s franchise area), all of the CSE. MERALCO therein agreed to pay to
NAPOCOR ₱27,515,000,000.00(i.e., the equivalentof 18,222 gigawatthours valued at ₱1.51per kilowatt hour), which amount
represented the value of the difference between the aggregate contracted energy for the years 2002, 2203 and 2004, on the
one hand, and the total amount of energy MERALCO actually purchasedfrom NAPOCOR from January 2002 until April 30, 2003
and the amount of energy MERALCO was scheduled to purchase thereafter and until December 31, 2004, on the other.
NAPOCOR reciprocated by agreeing to give credit to MERALCO for the delayed completion of the transmission facilities as well
as for the energy corresponding to NAPOCOR’s sales to directly-connected customers located within MERALCO’s franchise
area. The credit, valued at ₱7,465,000,000.00, reducedthe net amount payable by MERALCO to NAPOCOR under the Settlement
Agreement to ₱20,050,000,000.00.
Mediators Amb.Ordoñez and del Rosario rendered their jointattestationto the Settlement Agreement, as follows:
We, Ambassador Sedfrey A. Ordoñezand Antonio V. del Rosario, do hereby attest andcertify that we have been duly appointed
by the Parties and acted as Mediators in the foregoing Settlement and that the agreements contained therein are the results of
the painstaking efforts exerted by the Parties to resolve the issues and differences between them through reasonable, fair and
just solution that places above all considerations the highest concern for the welfare of the consumers. x xx 8

It is noted that from the time the Settlement Agreement was executed on June 15,2003 until December 31,2004, MERALCO took
further electricity from NAPOCOR, and made payments toward the total Minimum chargeunderthe CSE that exceeded the
parties’ estimate. As a result, the net amount due to NAPOCORunder the Settlement Agreement was further reduced to
about ₱14,000,000,000.00.
The Settlement Agreement containeda pass-through provision thatallowedMERALCO to pay NAPOCORthe net settlement
amount from collectionsrecovered from MERALCO’s consumersonce the ERC approvedthe pass-through. The net amount due
under the Settlement Agreementwasto be paid by MERALCO to NAPOCOR over a period of five to six years, starting on the first
billing month immediately following the ERC’s approval of the pass-through of that amount to MERALCO’sconsumers, and
ending 60months after the last billing month. Spreading payment to NAPOCORover a moving five-to six-year period was
intended to minimize the impact of the adjustment on the consumers, which was estimated to be about P0.12 per kilowatt hour.
The Settlement Agreement was duly approved by the respective Boards of MERALCO and NAPOCOR.
Considering that the Settlement Agreement stipulated in its Section 3.1 that it would take effect "upon approval by the ERC of
the recovery of the settlement amounts in this Agreement from consumers, for which the parties shall file a joint petition with the
[ERC],"NAPOCOR and MERALCO filed on April 15, 2004their joint application in the ERC, seeking the approval of the pass-
9

through provision ofthe Settlement Agreement, and a provisional authority to implement the pass-through provision subject to a
final decision after hearing on the merits.
The joint application was set for initial hearing, with notice to the Office of the Solicitor General (OSG) with a request for the OSG
to send a representative to participate in the proceedings. Hearings were conducted on the application from July 22, 2004 until
October 7, 2005, at which NAPOCOR was represented by its OSG-designated counsel.
On July 10, 2006, MERALCO submitted its memorandum, and the case was deemed submitted for resolution.
However, on May 13, 2008,or almost two years after the case was submitted for resolution, the OSG, representing herein
petitioner, filed in the ERC a motion for leave to intervene with motion to admit its attached opposition.10Considering the
opposition by the OSG to the validity of the Settlement Agreement, the ERC suspended the proceedings and deferred the
approval of the joint application. This prompted MERALCO to initiate on November 23, 2009 in the RTC in Pasig an action for
declaratory relief (Special Civil Action No. 3392).
11

On August 20, 2010, the petitioner filed its comment on the petitionfor declaratory relief, praying for the stay of the proceedings
12

and forNAPOCOR and MERALCO to be directed to resort to arbitration.

On September 16, 2010, the representative from the OSG appeared in the RTCand moved to suspend the proceedings, but the
RTC denied the motion. Subsequently, on September 30, 2010, the OSG filed a motion to dismiss or to stay the proceedings, and
to refer the parties to arbitration.
On October 28, 2010,the OSG presentedan urgent supplemental motion to cancel the November 4, 2010 hearing. However, on
November 3, 2010, the RTC denied the motion to dismiss or to stay the proceedings and to refer the parties
to arbitrationthrough the first assailed order, stating in its pertinent portions as follows:
13

The motions filed by the OSG raise a common issue: whether or not the parties, MERALCO and NPC, should be referred to
arbitration?
After a judicious evaluation of the arguments by the parties, this Court rules that MERALCO and NPC are not required to undergo
arbitration.
An examination of the Settlement Agreement, which is the subject matter of this petition for declaratory relief shows that it does
not require the parties therein to resolve their dispute arising from said agreement through arbitration.
The arbitration clause referred to by the OSG is found in the Contract for the Sale of Electricity (CSE).1âwphi1 Said contract is not
the one beinglitigatedin thisproceedings. The instant petition for declaratory relief does not concern the CSE. Besides, there is no
unsettled dispute between MERALCO and NPC arising from the CSE that would require resort to arbitration.
Further, the parties to the Settlement Agreement have not requested that any dispute between them should be resolved
through arbitration. The OSG, who is not a party to the Settlement Agreement or to the CSE, has no standing to demand that
MERALCO and NPC should proceed to arbitration consistent with the Supreme Court’s ruling in Ormoc Sugarcane Planter’s
Association vs. Court of Appeals, G.R. No. 156660, August 24, 2009, were (sic) it ruled that-
By their own allegation, petitioners are associations duly existing and organized under Philippine law, i.e. they have juridical
personalities separate and distinct from that of their member Planters. It is likewise undisputed that the eighty (80) milling
contracts that were presented were signed only by the member Planter concerned and one of the Centrals as parties. In other
words, none of the petitioners were parties or signatories to the milling contracts. This circumstance is fatal to petitioners’ cause
since they anchor their right to demand arbitration from the respondent sugar centrals upon the arbitration clause found in the
milling contracts. There is no legal basis for petitioners’ purported right to demand arbitration when they are not parties to the
milling contracts, especially when the language of the arbitration clause expressly grants the right to demand arbitration only to
the parties to the contract.
As for OSG’s contention that the instant petition should be dismissed because it would not terminate the controversy between
the parties due to the existing ERC Proceedings, this Court is mindful of the fact that the ERC itself has ruled in its order of
September 14, 2009 that the issues raised by the OSG in the earlier proceedings before it are outside its jurisdiction. This means
that these issues may be properly resolved by this Court and is in fact duty-bound to consider and rule the issues presented
before it in this case.
This Court therefore holds that there is no impediment for it to continue this proceedings and to determine the validity of the
Settlement Agreement.
WHEREFORE, the office (sic) Office of the Solicitor General’s Motion to Dismiss or Stay the Proceedings and Refer the Parties to
Arbitration and the Motion for Reconsideration (of the Honorable Court’s Order dated September 16, 2010) are DENIED.
SO ORDERED. 14

On November 4, 2010, the pre-trialwas held, butthe Presiding Judge of Branch 71 of the RTC ultimatelyresetitthrough the second
assailed orderdue to the non-appearance of the representative of the OSG, viz: 15

When this case was called, Atty. Jonas Emmanuel S. Santos, for the petitioner, Atty. Julieta S. Baccutan-Estamo, for defendant
PNC, appeared.
Over the vehement objection of Atty. Santos and Atty. Baccutan-Estamo on the Urgent Supplemental Motion to Cancel
November 4, 2010 Hearing filed by the Office of the Solicitor General, considering that they were both ready, the pre-trial
conference set for today is cancelled and reset to November 24, 2010 at 8:30 A.M., which is an intransferrable date. The
manifestation of Atty. Baccutan-Estamo that if in the next hearing the respondent OSG still fails to appear they be declared as
in default, is noted.
SO ORDERED.
Upon learning that the next scheduled hearing would be on November 24, 2010, the OSG filed on November 22, 2010 a motion
to cancel that pre-trial, and a motion for the inhibition of the RTC Judge. It set both motions for hearing on November 24, 2010.
Also on November 22, 2010, the petitioner broughtin the CA a petition for certiorari, prohibition and mandamus (C.A.-G.R. SP No.
116863), with an application for a temporary restraining order (TRO) and writ of preliminary injunction (WPI), alleging that
respondent RTC Judge had committed grave abuse of discretion: (a) in refusing to inhibit himself; (b) in refusing to
order respondentsMERALCO and NAPOCORto resolve their dispute by arbitration; (c) in proceeding with the pre-trialof the case;
and (d) in declaring the petitioner in default and at the same time deeming thepetitionerto have waived itsrightto participate
and present evidence. 16

During the hearing ofNovember 24, 2010, the representativesof the OSG (namely: State Solicitors Catalina A. Catral-
Talatala and Donalita R. Lazo) appearedin the RTCto argue for the cancellation of the pre-trial of that date and to have the
RTC Judgeby reason of his perceived bias in favor of MERALCO. However,the RTCdenied the motion to cancel the pre-
trialand instead declared the petitioner to have waived the right to participate in the pre-trial and to present evidence. 17

The CA granted the TRO on December 1, 2010, and the WPIon February 3, 2011, enjoining the RTC Judge from conducting
18 19

further proceedings in Special Civil Action No. 3392 and from issuing orders and performing other acts that would render the
case moot and academic effective during the pendency of C.A.-G.R. SP No. 116863.
On October 14, 2011, the CA promulgated itsdecision under review, disposing thuswise:
20

IN VIEW OF ALL THE FOREGOING, the instant Petition including its Supplemental Petition are hereby DENIED. The Regional Trial
Court, Branch 71 of Pasig City is hereby ORDEREDto proceed to trial in S.C.A. Case No. 3392, and to immediately resolve the
same with dispatch.
SO ORDERED.
The CA denied the petitioner’s motion for reconsideration through its resolution promulgated on April 25, 2012. 21

Hence, the petitioner has appealed.

Issues
The petitioner states as the ground for the allowance of its petition for review on certiorari that:
THE COURT OF APPEALS COMMITTED AN ERROR IN IGNORING FUNDAMENTAL ISSUES AT THE HEART OF THE CONTROVERSY
BETWEEN PETITIONER AND RESPONDENTS, AND THEREBY IMPROVIDENTLY ALLOWING THE TRIAL COURT TO PROCEED WITH S.C.A.
CASE NO. 3392. 22

The petitioner submitsargumentsin support of the foregoing, to wit:

I
THE DISPUTE BETWEEN MERALCO AND NPC SHOULD BE RESOLVED THROUGH ARBITRATION INSTEAD OFMEDIATION IN
ACCORDANCEWITH THEIR ARBITRATIONAGREEMENT UNDER THE CSE.
II
RESPONDENT JUDGE HAS NOJURISDICTION OVER THESUBJECT MATTER RAISED INS.C. A. CASE NO. 3392.
III
THE COURT OF APPEALS ERREDIN ALLOWING THE TRIAL COURT TO PROCEED WITH THE PRE-TRIAL AND SUBSEQUENT TRIALIN S.C.A.
CASE NO. 3392 INDISREGARD OF PETITIONER’S RIGHTS.IN PARTICULAR, THECOURT OF APPEALS ERRED IN [i] FAILING TO
ACKNOWLEDGE THECIRCUMSTANCES OFPARTIALITY THAT WARRANTEDRESPONDENT JUDGE’SINHIBITION FROM THE CASE; [ii]
APPROVING THE TRIAL COURT’SPRECIPITATE ACTION TOPROCEED WITH THE PRE-TRIALDESPITE INFORMATION THAT A PETITION FOR
CERTIORARI HAD BEEN FILED BY PETITIONER, AND THEREUPON DECLARING THE PETITIONER TO HAVEWAIVED THE RIGHT
TOPARTICIPATE THEREIN AND TOPRESENT EVIDENCE.
IV
THE SETTLEMENT IS GROSSLYDISADVANTAGEOUS ANDPREJUDICIAL TO THE GOVERNMENT.
V.
THE PASS-ON PROVISIONIMPOSED UNDER THESETTLEMENT IS CONTRARY TOL AW, MORALS, PUBLICINTEREST, AND PUBLIC POLICY.
VI
THE SETTLEMENT AGREEMENTWAS ENTERED INTO WITHOUT THE PARTICIPATION AND LEGAL GUIDANCE OF THE OFFICE OFTHE
SOLICITOR GENERAL. 23

Ruling
We deny the petition for review, and affirm the decision of the CA.
I
RTC’s intervening rendition of the decisionon the merits has rendered this appealmoot
In its assaileddecisionof October 14, 2011, the CAdirectedthe RTC to proceed to the trial on the merits in Special Civil Action No.
3392, and to resolve the case with dispatch. It is worth mentioning at this juncture, therefore, that, as the petitioner indicated in its
petition, the RTCcomplied and ultimatelyrendered its decision on the merits in Special Civil Action No. 3392 on May 29, 2012
24

granting MERALCO’s petition for declaratory relief and declaring the Settlement Agreement between NAPOCOR and MERALCO
as valid and binding, save for the pass-through provision that was reserved for the consideration and approval of the ERC. The
petitioner has probably appealed the decision by now, for its petition for review expressly manifested theintention to appeal to
the CA. 25

With the intervening rendition of the decision on the merits, the challenge against the interlocutory orders of the RTC designed to
prevent the RTC from proceeding with the pre-trial and the trial on the merits was rendered mootand academic. In other words,
any determination of the issue on the interlocutory orders was left without any practical value. Acase that is moot and
26

academic because of supervening events ceases to present any justiciable controversy. The courts of law will not determine
moot and academic questions, for they should not engage in academic declarations and determine moot questions. 27

II
CA correctly ruled thatRTC Judge
did not commit graveabuse of discretion
in issuing the assailed orders
Nonetheless, the Court considers it necessary to still deal with the contentions of the petitioner in the interest of upholding the
observations of the CA on the propriety of the interlocutory orders of the RTC.Doing so will be instructive for the Bench and the
practicing Bar who may find themselves in similar situations.
The petitioner assails the order of the RTC dated November 3, 2010 for denying its motion to dismiss or to stay proceedings and to
refer the parties to arbitration, and the pre-trial order dated November 24, 2010 for declaring that the petitioner was being
deemed to have waived the right to participate in the pre-trial and to present evidence in its behalf. Itargues that the CA
thereby erred, firstly, in ruling that the assailed orders of the RTCwere not tainted with grave abuse of discretion, and, secondly, in
ordering the RTC to proceed to the trial of Special Civil Action No. 3392, and to resolve the case with dispatch.
The Court cannot sustain the arguments of the petitioner.
The RTC’s proceedingwith the pre-trial set on November 24, 2010was entirely in accord withthe Rules of Court. While it is true that
the OSG had filed on November 22, 2010 the petition for certiorari, prohibition and mandamus, theCA did not restrain the RTC
from thus proceeding. Absent any TRO or WPI stoppingthe RTC from proceeding, the mere filing or pendency of the special civil
actions for certiorari, mandamusand prohibition did not interrupt the due course of the proceedings inthe main case. This is quite
clear from therevised Section 7, Rule 65 of the Rules of Court, which mandatedthat the petition shall not interrupt the course of
28

the principal case,viz:

Section7. Expediting proceedings; injunctive relief.–The court in which the petition is filed may issue orders expediting the
proceedings, and it may also grant a temporary restraining order or a writ of preliminary injunction for the preservation of the
rights of the parties pending such proceedings. The petition shall not interrupt the course of the principal case, unless a
temporary restraining order or a writ of preliminary injunction has been issued, enjoining the public respondent from further
proceeding with the case.
The public respondent shall proceed with the principal case within ten (10) days from the filing of a petition for certiorariwith a
higher court or tribunal, absent a temporary restraining order or a preliminary injunction, or upon its expiration. Failure of the
public respondent to proceed with the principal case may be a ground for an administrative charge. (Emphasis supplied)
As the foregoing rule also indicates, for the RTC not to proceedwith the pre-trial on its scheduled date of November 24,
2010despite the absence of any TRO or WPI enjoining it from doing so could have subjected its Presiding Judge to an
administrative charge.
We further concur with the holding of theCA that the RTC did not commit any grave abuse of discretion amounting to lack or
excess of jurisdictionin deeming the petitioner’s right to participate in the pre-trial and its right to present evidence as
waived throughthe third assailed pre-trial order dated November 24, 2010. The waiver appears to have been caused by the
deliberate refusal of the petitioner’s counsel to participate in the proceedings.
The pre-trial, initially set on September 16, 2010, wasreset by the RTC on October 7, 2010 upon the motion of the OSG itself
29

notwithstanding that bothMERALCO and NAPOCOR hadalreadysubmitted their pre-trial briefs and had manifested
their readinessto proceedto the pre-trial. Yet, on October 7, 2010, the representative of the OSG again requested
a resettingof the pre-trial. MERALCO expressed its strong oppositionto the request, but the RTC granted the request and moved
the pre-trial to November 4, 2010. 30

Prior to November 4, 2010, the OSGfiled an omnibus motion, again requesting the RTC to cancel the pre-trial. Onthe scheduled
pre-trial of November 4, 2010,the representative of the OSG did not
appear forthe petitioner, subsequentlyadmitting that thenon-appearance had beenintentional. Nonetheless, the RTCreset the
pre-trial on November 24, 2010over the "vehement objection" of MERALCO’s counsel, but the RTC expresslyconditioned the new
date as"intransferable."31

On November 24, 2010,however, the representative of the OSG appeared in court but only to movefor the
cancellation ofthe hearing. The recorded proceedings of that date were recounted in the assailed decision of the CA, which
also rendered its cogent observations on the consequences of the actuations of the representative of the OSG, as follows:
x x x While petitioner was initially present during the scheduled pre-trial conference on 24 November 2011, State
Solicitor Lazo (one of petitioner’s counsels) asked to be excused from participating thereat. Excerpts of the stenographic notes
taken during the hearing a quoon 24 November 2010 reveals:
"xxx
COURT:
Now, on the matter regarding the pre-trial conference which has been set today, the Court believes that in the absence of a
TRO, we will proceed with the pre-trial conference as scheduled.
ATTY. LAZO:
Your Honor, may we ask for a written order resolving our motion to cancel hearing today and our motion for inhibition.
COURT:
The court has already made oral order. In the meantime, you be ready for the conduct of the pre-trial.
ATTY. LAZO:
Your Honor, may we be excused from participating with the pre-trial.
COURT:
It was your first stand during the first day when the pre-trial was set. In fact, one of the lawyers of OSG likewise stated that he will
not participate. In the interest of substantial justice let us be more fair in the conduct of this proceedings, we (sic) all officers of
the court, we are guided by the rules, we have to comply, we will proceed. The order will be made after the hearing, unless that
we will suspend the hearing now then the stenographer will prepare the order so that you’ll have a copy, what do you want, are
we going to suspend the proceedings so that the written order will be given to you. Is that what you want? We will proceed.
This is one request which has never been done by the Court. An oral order of the Court is only released after the hearing,
because it will be prepared by the stenographer. Are you agreeable to that statement of the Court or you want to suspend all
proceedings of today so that you will be given a chance that your request will be granted. Are you not changing your motion?
ATTY. LAZO:
Your Honor, I submit to the discretion of this Court.
COURT:
When you submit then you wait, we will proceed. Second call.
ATTY. LAZO:
Can we have a copy of the same by registered mail because we have some urgent matters to attend to your Honor.
COURT:
Okay.
ATTY. LAZO:
May we be excused, your Honor.
COURT:
Okay.
What are we going to do?
ATTY. SANTOS:
Your Honor, we are ready to proceed with the pre-trial. We have our Pre-Trial Brief filed and so with the NPC, yourHonor.
COURT:
Now, in the conduct of the pre-trial, you have to reiterate what you already mentioned in your Pre-Trial Briefs for purposes of this
Court to come out with the pre-trial order based on the stipulations made by the parties.
xxx" (Emphasis supplied)
The above-quoted TSN belies petitioner’s claim that despite its State Solicitor’s appearance and objection to the holding of the
said hearing of 24 November 2010, public respondent proceeded to declare petitioner in default. A quo, public respondent did
not categorically declare petitioner in default, but instead, decreed petitioner to have waived its right to participate in the pre-
trial and present evidence in its behalf which is in accordance with Section 5, Rule 18 of the Rules of Court for the apparent
reason that State Solicitor Lazo himself asked to be excusedfromparticipating in the pre-trial conference. The case of
Development Bank of the Philippines vs. Court of Appeals, et al. is enlightening on this point where the Supreme Court had the
occasion to state therein that:
"Consistently with the mandatory character of the pre-trial, the Rules oblige not only the lawyers but the parties as well to appear
for this purpose before the Court, and when a party "fails to appear at a pre-trial conference (be) may be non-suited or
considered as in default.The obligationin(sic) appear denotes not simply the personal appearance, or the mere physical
presentation by a party of one’s self, but connotes as importantly, preparedness to go into the different subject assigned by law
to a pre-trial. (Emphasis supplied)
Petitioner’s State Solicitors’ initial attendance during the pre-trial conference could not be equated to the personal appearance
mandated by Section 4, Rule 18 of the Rules of Court. The duty to appear during the pre-trial conference is not by mere initial
attendance, but taking an active role during the said proceedings. Petitioner (as defendant a quo) has no valid reason to
complain for its predicament now as it chose to withhold its participation during the pre-trial conference. 32

From an objective view of the proceedings, the RTC’sdeeming of the petitioner’s right to participate in the pre-trial and its right
to present evidence as waived was reasonable under the circumstances. Thus, it did not act arbitrarily, whimsically, or
capriciously. The dismissal of the petition for certiorari, prohibition and mandamuswas correctandjustified, for grave abuse of
discretion on the part of the RTC was not persuasively demonstratedby the petitioner. Grave abuse of discretionmeans either
that the judicial or quasi-judicial power wasexercised in an arbitrary or despotic manner by reason of passion or personal hostility,
or that the respondent judge, tribunal or board evaded a positive duty, or virtually refused to perform the duty enjoined or to act
in contemplation of law, such as when such judge, tribunal or board exercising judicial or quasi-judicial powers acted in a
capricious or whimsical manner as to be equivalent to lack of jurisdiction. 33

III
Validity of the Settlement Agreement
is not an issue in this appeal
In hereby assailing the decision of the CA to uphold the challenged orders of the RTC, the OSG raises various arguments against
the validity of the Settlement Agreement.
The Court believes and holds that it cannot address such arguments simply because the issue in this appeal concerns only the
upholding by the CA of the propriety of the assailed interlocutory orders of the RTC. The validity of the Settlement Agreement is
not an issue.
Moreover, the validity of the Settlement Agreement is properly within the competence of the RTC, the proper court for that
purpose (except the matter of the pass-through provision, which was within the jurisdiction of the ERC).
IV
Mediation v. Arbitration
The petitioner requests the Court's intervention to direct MERALCO and NAPOCOR to resolve their dispute through arbitration
pursuant to the arbitration clause of the CSE.
The Court declines the request, considering that the primary competence to determine the enforceability of the arbitration
clause of the CSE pertained to the RTC in Special Civil Action No. 3392. Yielding to the request would have the Court usurping the
jurisdiction of the RTC. Moreover, with the RTC having meanwhile rendered its decision declaring the Settlement Agreement
valid, the recourse of the petitioner as to its request is probably an appeal in due course.
WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the decision promulgated by the Court of Appeals on
October 14, 2011 in C.A.-G.R. SP No. 116863.
SO ORDERED.

G.R. No. 209605, January 12, 2015

NEIL B. AGUILAR AND RUBEN CALIMBAS, Petitioners, v. LIGHTBRINGERS CREDIT COOPERATIVE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari filed by petitioners Neil B. Aguilar (Aguilar) and Ruben Calimbas(Calimbas), seeking to
reverse and set aside the April 5, 2013 and October 9, 2013 Resolutions of the Court of Appeals (CA) in CA-G.R. SP No. 128914,
1 2

which denied the petition for review outright, assailing the January 2, 2013 Decision of the Regional Trial Court, Branch
3

5, Dinalupihan, Bataan (RTC) and the May 9, 2012 Decision of the First Municipal Circuit Trial Court, Dinalupihan, Bataan (MCTC).
4

In the lower courts, one of the issues involved was the proper application of the rules when a party does not appear in the
scheduled pre-trial conference despite due notice. In this petition, the dismissal by the CA of the petition filed under Rule 42 for
failure to attach the entire records has also been put to question, aside from the veracity of indebtedness issue.

The Facts

This case stemmed from the three (3) complaints for sum of money separately filed by respondent LightbringersCredit
Cooperative (respondent) on July 14, 2008 against petitioners Aguilar and Calimbas, and
one PerlitaTantiangco (Tantiangco) which were consolidated before the First Municipal Circuit Trial Court, Dinalupihan,
Bataan (MCTC). The complaints alleged that Tantiangco, Aguilar and Calimbas were members of the cooperative who
borrowed the following funds:chanroblesvirtuallawlibrary

1. In Civil Case No. 1428, Tantiangco allegedly borrowed P206,315.71 as evidenced by Cash Disbursement Voucher No.
4010 but the net loan was only P45,862.00 as supported by PNB Check No. 0000005133. chanRoblesvirtualLawlibrary
5

2. In Civil Case No. 1429, petitioner Calimbas allegedly borrowed P202,800.18 as evidenced by Cash Disbursement Voucher
No. 3962 but the net loan was only P60,024.00 as supported by PNB Check No. 0000005088; chanRoblesvirtualLawlibrary
6

3. In Civil Case No. 1430, petitioner Aguilar allegedly borrowed P126,849.00 as evidenced by Cash Disbursement Voucher
No. 3902 but the net loan was only P76,152.00 as supported by PNB Check No. 0000005026; 7

Tantiangco, Aguilar and Calimbas filed their respective answers. They uniformly claimed that the discrepancy between the
principal amount of the loan evidenced by the cash disbursement voucher and the net amount of loan reflected in the PNB
checks showed that they never borrowed the amounts being collected. They also asserted that no interest could be claimed
because there was no written agreement as to its imposition.

On the scheduled pre-trial conference, only respondent and its counsel appeared. The MCTC then issued the Order, dated 8

August 25, 2009, allowing respondent to present evidence ex parte.Respondent later presented Fernando Manalili (Manalili), its
incumbent General Manager, as its sole witness. In his testimony, Manaliliexplained that the discrepancy between the amounts
of the loan reflected in the checks and those in the cash disbursement vouchers were due to the accumulated interests from
previous outstanding obligations, withheld share capital, as well as the service and miscellaneous fees. He stated, however, that
it was their bookkeeper who could best explain the details.

Aguilar and Calimbas insisted that they should have the right to cross-examine the witness of respondent, notwithstanding the
fact that these cases were being heard ex parte. In the interest of justice, the MCTC directed the counsels of the parties to
submit their respective position papers on the issue of whether or not a party who had been declared “as in default” might still
participate in the trial of the case. Only respondent, however, complied with the directive. In its Order, dated April 27, 2011, the
9

MCTC held that since the proceedings were being heard ex parte, the petitioners who had been declared “as in default” had
no right to participate therein and to cross-examine the witnesses. Thereafter, respondent filed its formal offer of
evidence. chanRoblesvirtualLawlibrary
10

MCTC Ruling

On May 9, 2012, the MCTC resolved the consolidated cases in three separate decisions. In Civil Case No. 1428, the MCTC
11

dismissed the complaint against Tantiangco because there was no showing that she received the amount being claimed.
Moreover, the PNB check was made payable to “cash” and was encashed by a certain VioletaAguilar. There was, however, no
evidence that she gave the proceeds to Tantiangco. Further, the dates indicated in the cash disbursement voucher and the
PNB check varied from each other and suggested that the voucher could refer to a different loan.

The decisions in Civil Case No. 1429 and 1430, however, found both Calimbas and Aguilar liable to respondent for their
12 13

respective debts. The PNB checks issued to the petitioners proved the existence of the loan transactions. Their receipts of the
loan were proven by their signatures appearing on the dorsal portions of the checks as well as on the cash disbursement
vouchers. As a matter of practice, banks would allow the encashment of checks only by the named payee and subject to the
presentation of proper identification. Nonetheless, the MCTC ruled that only the amount shown in the PNB check must be
awarded because respondent failed to present its bookkeeper to justify the higher amounts being claimed. The court also
awarded attorney’s fees in favor of respondent. The dispositive portion of the decision in Civil Case No.
1429 reads:chanroblesvirtuallawlibrary

WHEREFORE, premises considered, judgment is hereby rendered in plaintiff’s favor and against the defendant, ordering the latter
to pay plaintiff the amount of P60,024.00 with interest at the rate of 12% per annum from April 4, 2007 until fully paid, plus
P15,000.00 as attorney’s fees.

Costs against the defendant.

SO ORDERED. 14

And in Civil Case No. 1430, the dispositive portion states:chanroblesvirtuallawlibrary

WHEREFORE, premises considered, judgment is hereby rendered in plaintiff’s favor and against the defendant, ordering the latter
to pay the plaintiff the amount of ?76,152.00 with interest at the rate of 12% per annum from February 28, 2007 until fully paid.

Defendant is further directed to pay attorney’s fees equivalent to 25% of the adjudged amount.

Costs against the defendant.

SO ORDERED. 15
On July 12, 2012, a notice of appeal was filed by the petitioners, and on August 15, 2012, they filed their joint memorandum for
16

appeal before the Regional Trial Court, Branch 5, Bataan (RTC). Aguilar and Calimbas argued out that had they been allowed
17

to present evidence, they would have established that the loan documents were bogus. Respondent produced documents to
appear that it had new borrowers but did not lend any amount to them. Attached to the joint memorandum were photocopies
of the dorsal portions of the PNB checks which showed that these checks were to be deposited back to respondent’s bank
account.

RTC Ruling

On January 2, 2013, the RTC rendered separate decisions in Civil Case No. DH-1300-12 and Civil Case No. DH-1299-12 which
18 19

affirmed the MCTC decisions. It held that the PNB checks were concrete evidence of the indebtedness of the petitioners to
respondent. The RTC relied on the findings of the MCTC that the checks bore no endorsement to another person or entity. The
checks were issued in the name of the petitioners and, thus, they had the right to encash the same and appropriate the
proceeds. The decretal portions of the RTC decision in both cases similarly read:chanroblesvirtuallawlibrary

WHEREFORE, premises considered, the appeal is hereby DENIED. The Decision dated May 9, 2012 of the First Municipal Circuit Trial
Court (1 MCTC), Dinalupihan-Hermosa, Bataan is hereby affirmed in toto.
st

SO ORDERED.

On January 18, 2013, the petitioners filed their joint motion for reconsideration/new trial before the RTC. Aguilar
20

and Calimbas reiterated their position that they did not receive the proceeds of the checks. As an alternative prayer, petitioners
moved that the RTC remand the case to the MCTC for a new trial on account of the SinumpaangSalaysay of Arcenit Dela Torre,
the bookkeeper of respondent.

On February 11, 2013, the RTC issued separate orders denying the motion of the petitioners. It explained that all the issues were
21

already passed upon and the supposed newly discovered evidence was already available during appeal, but the petitioners
failed to present the same in time.

CA Ruling

Aggrieved, Aguilar and Calimbas filed a petition for review before the CA on March 11, 2013. It was dismissed, however, in the
22

questioned resolution, dated April 5, 2013, stating that the petition was formally defective because the “verification and
23

disclaimer of forum shopping” and the “affidavit of service” had a defective jurat for failure of the notary public to indicate his
notarial commission number and office address. Moreover, the entire records of the case, inclusive of the oral and
documents evidence, were not attached to the petition in contravention of Section 2, Rule 42 of the Rules of Court.

A motion for reconsideration was filed by the petitioners which sought the leniency of the CA. They attached a corrected
24

verification and disclaimer of forum shopping and affidavit of service. They asked the CA to simply order the RTC to elevate the
records of the case pursuant to Section 7, Rule 42 of the Rules of Court. Moreover, the petitioners could not attach the records of
the case because the flooding caused by “Habagat” in August 2012 soaked the said records in water.

In the other questioned resolution, dated October 9, 2013, the CA denied the motion because the petitioners still failed to attach
the entire records of the case which was a mandatory requirement under Section 2, Rule 42.

Hence, this petition.

SOLE ASSIGNMENT OF ERROR

THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION WHEN IT
DISMISSED THE PETITION FOR REVIEW FILED BEFORE IT BY THE PETITIONERS UNDER RULE 42 OF THE RULES OF COURT CITING THAT THE
SAID PETITION IS FORMALLY DEFECTIVE FOR FAILURE OF THE PETITIONERS TO SUBMIT WITH THE SAID PETITION THE ENTIRE RECORDS OF
THE APPEALED CIVIL CASE NOS. DH-1300-12 AND DH-1299-12. 25

The petitioners argue that contrary to the findings of the CA, they substantially complied with the required form and contents of
a petition for review under Section 2, Rule 42 of the Rules of Court. There is nothing in the provision which requires that the entire
records of the appealed case should be endorsed to the CA. Such requirement would definitely be cumbersome to poor
litigants like them.

They assert that they submitted the following pleadings and material portions of the court records in their petition for review: (1)
certified copies of the decisions, orders or resolutions of the RTC and the MCTC; (2) complaints against the petitioners attached
with documents used by respondent in its formal offer of evidence; (3) answer of the petitioners; (4) order of the MCTC declaring
the petitioners in default; (5) respondent’s formal offer of evidence; (6) notice of appeal; (7) joint memorandum of appeal; and
(8) joint motion for reconsideration/new trial. According to the petitioners, these pleadings and records were sufficient to support
their petition for review.

Assuming that there was a reason to dismiss the petition on account of technicalities, the petitioners argue that the CA should
not have strictly applied the rules of procedure and provided leniency to the petitioners. They also ask the Court to give a
glance on the merits of their case brought before the CA.
On February 7, 2014, respondent filed its comment contending that the petitioners had no excuse in their non-compliance with
26

Section 2, Rule 42. They claim that the court records were not attached because these were soaked in flood water in August
2012, but the RTC rendered its decision in January 2013. The petitioners failed to secure a certification from the RTC that these
records were indeed unavailable.

On May 21, 2014, the petitioners filed their reply before this Court, adding that the elevation of the entire records of the case
27

was not a mandatory requirement, and the CA could exercise its discretion that it furnished with the entire records of the case by
invoking Section 7, Rule 42 of the Rules of Court.cralawred

The Court’s Ruling

First Procedural Issue

On the sole assignment of error, the Court agrees with the petitioners that Section 2, Rule 42 does not require that the entire
records of the case be attached to the petition for review. The provision states:chanroblesvirtuallawlibrary

Sec. 2. Form and contents. - The petition shall be filed in seven (7) legible copies, with the original copy intended for the court
being indicated as such by the petitioner, and shall (a) state the full names of the parties to the case, without impleading the
lower courts or judges thereof either as petitioners or respondents; (b) indicate the specific material dates showing that it was
filed on time; (c) set forth concisely a statement of the matters involved, the issues raised, the specification of errors of fact or
law, or both, allegedly committed by the Regional Trial Court, and the reasons or arguments relied upon for the allowance of the
appeal; (d) be accompanied by clearly legible duplicate originals or true copies of the judgments or final orders of both lower
courts, certified correct by the clerk of court of the Regional Trial Court, the requisite number of plain copies thereof and of the
pleadings and other material portions of the record as would support the allegations of the petition. [Emphasis and underscoring
supplied]

The abovequoted provision enumerates the required documents that must be attached to a petition for review, to wit: (1)
clearly legible duplicate originals or true copies of the judgments or final orders of both lower courts, certified correct by the clerk
of court of the Regional Trial Court; (2) the requisite number of plain copies thereof; and (3) of the pleadings and other material
portions of the record as would support the allegations of the petition. Clearly, the Rules do not require that the entire records of
the case be attached to the petition for review. Only when these specified documents are not attached in the petition will it
suffer infirmities under Section 3, Rule 42, which states:chanroblesvirtuallawlibrary

Sec. 3. Effect of failure to comply with requirements. - The failure of the petitioner to comply with any of the foregoing
requirements regarding the payment of the docket and other lawful fees, the deposit for costs, proof of service of the petition,
and the contents of and the documents which should accompany the petition shall be sufficient ground for the dismissal
thereof.

In Canton v. City of Cebu, the Court discussed the importance of attaching the pleadings or material portions of the records to
28

the petition for review. “[P]etitioner’s discretion in choosing the documents to be attached to the petition is however not
unbridled. The CA has the duty to check the exercise of this discretion, to see to it that the submission of supporting documents is
not merely perfunctory. The practical aspect of this duty is to enable the CA to determine at the earliest possible time the
existence of prima facie merit in the petition.” In that case, the petition was denied because the petitioner failed to attach the
29

complaint, answer and appeal memorandum to support their allegation.

In Cusi-Hernandez v. Diaz, a case where the petitioner did not attach to her petition for review a copy of the contract to sell
30

that was at the center of controversy, the Court nonetheless found that there was a substantial compliance with the rule,
considering that the petitioner had appended to the petition for review a certified copy of the decision of the MTC that
contained a verbatim reproduction of the omitted contract.

Recently, in Galvez, v. CA, it was held that attaching the other records of the MTC and the RTC were not necessary based on
31

the circumstances of the case. The petitioner therein was not assailing the propriety of the findings of fact by the MTC and the
RTC, but only the conclusions reached by the said lower courts after their appreciation of the facts. In dealing with the questions
of law, the CA could simply refer to the attached decisions of the MTC and the RTC.

Thus, the question in the case at bench is whether or not the petitioners attached the sufficient pleadings and material portions
of the records in their petition for review. The Court rules that the petition was in substantial compliance with the requirements.

The assignment of error in the petition for review clearly raises questions of fact as the petitioners assail the appreciation of
32

evidence by the MCTC and the RTC. Thus, aside from the decisions and orders of the MCTC and the RTC, the petitioners should
attach pertinent portions of the records such as the testimony of the sole witness of respondent, the copies of the cash
disbursement vouchers and the PNB checks presented by respondent in the MCTC. In the petition for review, the petitioners
attached respondent’s complaints before the MCTC which contained the photocopies of the cash disbursement vouchers and
PNB checks. These should be considered as ample compliance with Section 2, Rule 42 of the Rules of Court.

Second Procedural Issue

Nevertheless, instead of remanding the case to the CA, this Court deems it fit to rule on the merits of the case to once and for all
settle the dispute of the parties.

The rule is that a court can only consider the evidence presented by respondent in the MCTC because the petitioners failed to
attend the pre-trial conference on August 25, 2009 pursuant to Section 5, Rule 18 of the Rules of Court. The Court, however,
33

clarifies that failure to attend the pre-trial does not result in the “default” of the defendant. Instead, the failure of the defendant
to attend shall be cause to allow the plaintiff to present his evidence ex parte and the court to render judgment on the basis
thereof.

The case of Philippine American Life & General Insurance Company v. Joseph Enario discussed the difference between non-
34

appearance of a defendant in a pre-trial conference and the declaration of a defendant in default in the present Rules of Civil
Procedure. The decision states:chanroblesvirtuallawlibrary

Prior to the 1997 Revised Rules of Civil Procedure, the phrase "as in default" was initially included in Rule 20 of the old rules, and
which read as follows:ChanRoblesVirtualawlibrary
Sec. 2. A party who fails to appear at a pre-trial conference may be non-suited or considered as in default.
It was however amended in the 1997 Revised Rules of Civil Procedure. Justice Regalado, in his book REMEDIAL LAW
COMPENDIUM, explained the rationale for the deletion of the phrase "as in default" in the amended provision,
to wit:ChanRoblesVirtualawlibrary
1. This is a substantial reproduction of Section 2 of the former Rule 20 with the change that, instead of defendant being declared
"as in default" by reason of his non-appearance, this section now spells out that the procedure will be to allow the ex
parte presentation of plaintiff’s evidence and the rendition of judgment on the basis thereof. While actually the procedure
remains the same, the purpose is one of semantical propriety or terminological accuracy as there were criticisms on the use of
the word "default" in the former provision since that term is identified with the failure to file a required answer, not appearance in
court.

If the absent party is the plaintiff, then his case shall be dismissed. If it is the defendant who fails to appear, then the plaintiff is
allowed to present his evidence ex parte and the court shall render judgment on the basis thereof. Thus, the plaintiff is given the
privilege to present his evidence without objection from the defendant, the likelihood being that the court will decide in favor of
the plaintiff, the defendant having forfeited the opportunity to rebut or present his own evidence. chanRoblesvirtualLawlibrary
35

The pre-trial cannot be taken for granted. It is not a mere technicality in court proceedings for it serves a vital objective: the
simplification, abbreviation and expedition of the trial, if not indeed its dispensation. More significantly, the pre-trial has been
36

institutionalized as the answer to the clarion call for the speedy disposition of cases. Hailed as the most important procedural
innovation in Anglo-Saxon justice in the nineteenth century, it paved the way for a less cluttered trial and resolution of the case. It
is, thus, mandatory for the trial court to conduct pre-trial in civil cases in order to realize the paramount objective of simplifying,
abbreviating and expediting trial. chanRoblesvirtualLawlibrary
37

In the case at bench, the petitioners failed to attend the pre-trial conference set on August 25, 2009. They did not even give any
excuse for their non-appearance, manifestly ignoring the importance of the pre-trial stage. Thus, the MCTC properly issued the
August 25, 2009 Order, allowing respondent to present evidence ex parte.
38

The MCTC even showed leniency when it directed the counsels of the parties to submit their respective position papers on
whether or not Aguilar and Calimbas could still participate in the trial of the case despite their absence in the pre-trial
conference. This gave Aguilar and Calimbas a second chance to explain their non-attendance and, yet, only respondent
complied with the directive to file a position paper. The MCTC, in its Order, dated April 27, 2011, properly held that since the
39

proceedings were being heard ex parte, Aguilar and Calimbas had no right to participate therein and to cross-examine the
witness.

Thus, as it stands, the Court can only consider the evidence on record offered by respondent. The petitioners lost their right to
present their evidence during the trial and, a fortiori, on appeal due to their disregard of the mandatory attendance in the pre-
trial conference.

Substantive Issue

And on the merits of the case, the Court holds that there was indeed a contract of loan between the petitioners and
respondent. The Court agrees with the findings of fact of the MCTC and the RTC that a check was a sufficient evidence of a
loan transaction. The findings of fact of the trial court, its calibration of the testimonies of the witnesses and its assessment of the
probative weight thereof, as well as its conclusions anchored on the findings are accorded high respect, if not conclusive
effect. chanRoblesvirtualLawlibrary
40

The case of Pua v. Spouses Lo Bun Tiong discussed the weight of a check as an evidence of a loan:chanroblesvirtuallawlibrary
41

In Pacheco v. Court of Appeals, this Court has expressly recognized that a check constitutes an evidence of indebtedness and is
a veritable proof of an obligation. Hence, it can be used in lieu of and for the same purpose as a promissory note. In fact, in the
seminal case of Lozano v. Martinez, We pointed out that a check functions more than a promissory note since it not only
contains an undertaking to pay an amount of money but is an "order addressed to a bank and partakes of a representation that
the drawer has funds on deposit against which the check is drawn, sufficient to ensure payment upon its presentation to the
bank." This Court reiterated this rule in the relatively recent Lim v. Mindanao Wines and Liquour Galleria stating that a check, the
entries of which are in writing, could prove a loan transaction. 42
There is no dispute that the signatures of the petitioners were present on both the PNB checks and the cash disbursement
vouchers. The checks were also made payable to the order of the petitioners. Hence, respondent can properly demand that
they pay the amounts borrowed. If the petitioners believe that there is some other bogus scheme afoot, then they must institute
a separate action against the responsible personalities. Otherwise, the Court can only rule on the evidence on record in the
case at bench, applying the appropriate laws and jurisprudence.

As to the award of attorney’s fees, the Court is of the view that the same must be removed. Attorney's fees are in the concept of
actual or compensatory damages allowed under the circumstances provided for in Article 2208 of the Civil Code, and absent
any evidence supporting its grant, the same must be deleted for lack of factual basis. In this case, the MCTC merely stated that
43

respondent was constrained to file the present suit on account of the petitioners’ obstinate failure to settle their obligation.
Without any other basis on record to support the award, such cannot be upheld in favor of respondent. The settled rule is that no
premium should be placed on the right to litigate and that not every winning party is entitled to an automatic grant of attorney’s
fees. chanRoblesvirtualLawlibrarychanrobleslaw
44

WHEREFORE, the petition is PARTIALLY GRANTED.

In accord with the discourse on the substantive issue, the January 2, 2013 decision of the Regional Trial Court, Branch
5, Dinalupihan, Bataan, is AFFIRMED. The award of attorney's fees is, however,DELETED.

SO ORDERED.cralawlawlibrary

G.R. No. 182864, January 12, 2015

EASTERN SHIPPING LINES, INC., Petitioner, v. BPI/MS INSURANCE CORP., & MITSUI SUMITOMO INSURANCE CO., LTD., Respondents.
DECISION
PEREZ, J.:
Before this Court is a Petition for Review on Certiorari of the Decision of the Second Division of the Court of Appeals in CA-G.R.
1 2

CV No. 88744 dated 31 January 2008, modifying the Decision of the Regional Trial Court (RTC) by upholding the liability of Eastern
Shipping Lines, Inc. (ESLI) but absolving Asian Terminals, Inc. (ATI) from liability and deleting the award of attorney’s fees.

The facts gathered from the records follow:

On 29 December 2004, BPI/MS Insurance Corporation (BPI/MS) and Mitsui Sumitomo Insurance Company Limited (Mitsui) filed a
Complaint before the RTC of Makati City against ESLI and ATI to recover actual damages amounting to US$17,560.48 with legal
3

interest, attorney’s fees and costs of suit.

In their complaint, BPI/MS and Mitsui alleged that on 2 February 2004 at Yokohama, Japan, Sumitomo Corporation shipped on
board ESLI’s vessel M/V “Eastern Venus 22” 22 coils of various Steel Sheet weighing 159,534 kilograms in good order and condition
for transportation to and delivery at the port of Manila, Philippines in favor of consignee Calamba Steel Center, Inc.
(Calamba Steel) located in Saimsim, Calamba, Laguna as evidenced by a Bill of Lading with Nos. ESLIYMA001. The declared
value of the shipment was US$83,857.59 as shown by an Invoice with Nos. KJGE-03-1228-NT/KE3. The shipment was insured with
the respondents BPI/MS and Mitsui against all risks under Marine Policy No. 103-GG03448834.

On 11 February 2004, the complaint alleged that the shipment arrived at the port of Manila in an unknown condition and was
turned over to ATI for safekeeping. Upon withdrawal of the shipment by the Calamba Steel’s representative, it was found out
that part of the shipment was damaged and was in bad order condition such that there was a Request for Bad Order Survey. It
was found out that the damage amounted to US$4,598.85 prompting Calamba Steel to reject the damaged shipment for being
unfit for the intended purpose.

On 12 May 2004 at Kashima, Japan, Sumitomo Corporation again shipped on board ESLI’s vessel M/V “Eastern Venus 25” 50 coils
in various Steel Sheet weighing 383,532 kilograms in good order and condition for transportation to and delivery at the port of
Manila, Philippines in favor of the same consignee Calamba Steel as evidenced by a Bill of Lading with Nos. ESLIKSMA002. The
declared value of the shipment was US$221,455.58 as evidenced by Invoice Nos. KJGE-04-1327-NT/KE2. The shipment was insured
with the respondents BPI/MS and Mitsui against all risks under Marine Policy No. 104-GG04457785.

On 21 May 2004, ESLI’s vessel with the second shipment arrived at the port of Manila partly damaged and in bad order. The coils
sustained further damage during the discharge from vessel to shore until its turnover to ATI’s custody for safekeeping.

Upon withdrawal from ATI and delivery to Calamba Steel, it was found out that the damage amounted to US$12,961.63. As it did
before, Calamba Steel rejected the damaged shipment for being unfit for the intended purpose.

Calamba Steel attributed the damages on both shipments to ESLI as the carrier and ATI as the arrastreoperator in charge of the
handling and discharge of the coils and filed a claim against them. When ESLI and ATI refused to pay, Calamba Steel filed an
insurance claim for the total amount of the cargo against BPI/MS and Mitsui as cargo insurers. As a result, BPI/MS and Mitsui
became subrogated in place of and with all the rights and defensesaccorded by law in favor of Calamba Steel.
Opposing the complaint, ATI, in its Answer, denied the allegations and insisted that the coils in two shipments were already
damaged upon receipt from ESLI’s vessels. It likewise insisted that it exercised due diligence in the handling of the shipments and
invoked that in case of adverse decision, its liability should not exceed P5,000.00 pursuant to Section 7.01, Article VII of the
4

Contract for Cargo Handling Services between Philippine Ports Authority (PPA) and ATI. A cross-claim was also filed against ESLI.
5

On its part, ESLI denied the allegations of the complainants and averred that the damage to both shipments was incurred while
the same were in the possession and custody of ATI and/or of the consignee or its representatives. It also filed a cross-claim
against ATI for indemnification in case of liability. chanRoblesvirtualLawlibrary
6

To expedite settlement, the case was referred to mediation but it was returned to the trial court for further proceedings due to
the parties’ failure to resolve the legal issues as noted in the Mediator’s Report dated 28 June 2005. chanRoblesvirtualLawlibrary
7

On 10 January 2006, the court issued a Pre-Trial Order wherein the following stipulations were agreed upon by
the parties:chanroblesvirtuallawlibrary

1. Parties admitted the capacity of the parties to sue and be sued;

2. Parties likewise admitted the existence and due execution of the Bill of Lading covering various steel sheets in coil
attached to the Complaint as Annex A;

3. Parties admitted the existence of the Invoice issued by Sumitomo Corporation, a true and faithful copy of which was
attached to the Complaint as Annex B;

4. Parties likewise admitted the existence of the Marine Cargo Policy issued by the Mitsui Sumitomo Insurance Company,
Limited, copy of which was attached to the Complaint as Annex C;

5. [ATI] admitted the existence and due execution of the Request for Bad Order Survey dated February 13, 2004, attached
to the Complaint as Annex D;

6. Insofar as the second cause of action, [ESLI] admitted the existence and due execution of the document [Bill of Lading
Nos. ESLIKSMA002, Invoice with Nos. KJGE-04-1327-NT/KE2 and Marine Cargo Policy against all risks on the second
shipment] attached to the Complaint as Annexes E, F and G;

7. [ATI] admitted the existence of the Bill of Lading together with the Invoices and Marine Cargo Policy. [It] likewise admitted
by [ATI] are the Turn Over Survey of Bad Order Cargoes attached to the Complaint as Annexes H, H-1 and J. 8

The parties agreed that the procedural issue was whether there was a valid subrogation in favor of BPI/MS and Mitsui; and that
the substantive issues were, whether the shipments suffered damages, the cause of damage, and the entity liable for reparation
of the damages caused. chanRoblesvirtualLawlibrary
9

Due to the limited factual matters of the case, the parties were required to present their evidence through affidavits and
documents. Upon submission of these evidence, the case was submitted for resolution. chanRoblesvirtualLawlibrary
10

BPI/MS and Mitsui, to substantiate their claims, submitted the Affidavits of (1) Mario A. Manuel (Manuel), the Cargo Surveyor of
11

Philippine Japan Marine Surveyors and Sworn Measurers Corporation who personally examined and conducted the surveys on
the two shipments; (2) Richatto P. Almeda, the General Manager of Calamba Steel who oversaw and examined the condition,
12

quantity, and quality of the shipped steel coils, and who thereafter filed formal notices and claims against ESLI and ATI; and
(3) Virgilio G. Tiangco, Jr., the Marine Claims Supervisor of BPI/MS who processed the insurance claims of Calamba Steel. Along
13

with the Affidavits were the Bills of Lading covering the two shipments, Invoices, Notices of Loss of Calamba Steel, Subrogation
14 15 16

Form, Insurance Claims, Survey Reports, Turn Over Survey of Bad Order Cargoes and Request for Bad Order
17 18 19 20

Survey. chanRoblesvirtualLawlibrary
21

ESLI, in turn, submitted the Affidavits of Captain Hermelo M. Eduarte, Manager of the Operations Department of ESLI, who
22

monitored in coordination with ATI the discharge of the two shipments, and Rodrigo Victoria (Rodrigo), the Cargo Surveyor of R
23

& R Industrial and Marine Services, Inc., who personally surveyed the subject cargoes on board the vessel as well as the manner
the ATI employees discharged the coils. The documents presented were the Bills of Lading, Secretary’s Certificate of PPA,24

granting ATI the duty and privilege to provide arrastre and stevedoring services at South Harbor, Port of Manila, Contract for
Cargo Handling Services, Damage Report and Turn Over Report made by Rodrigo. ESLI also adopted the Survey Reports
25 26 27

submitted by BPI/MS and Mitsui. chanRoblesvirtualLawlibrary

28

Lastly, ATI submitted the Affidavits of its Bad Order Inspector Ramon Garcia (Garcia) and Claims Officer Ramiro De Vera. The
29 30

documents attached to the submissions were the Turn Over Surveys of Bad Cargo Order, Requests for Bad Order
31

Survey, Cargo Gatepasses issued by ATI, Notices of Loss/Claims of Calamba Steel and Contract for Cargo Handling
32 33 34

Services. chanRoblesvirtualLawlibrary
35
On 17 September 2006, RTC Makati City rendered a decision finding both the ESLI and ATI liable for the damages sustained by
the two shipments. The dispositive portion reads:chanroblesvirtuallawlibrary

WHEREFORE, judgment is hereby rendered in favor of [BPI/MS and Mitsui] and against [ESLI Inc.] and [ATI], jointly and severally
ordering the latter to pay [BPI/MS and Mitsui] the following:

1. Actual damages amounting to US$17,560.48 plus 6% legal interest per annum commencing from the filing of this
complaint, until the same is fully paid;

2. Attorney’s fees in a sum equivalent to 20% of the amount claimed;

3. Costs of suit. 36

Aggrieved, ESLI and ATI filed their respective appeals before the Court of Appeals on both questions of fact and
law. chanRoblesvirtualLawlibrary
37

Before the appellate court, ESLI argued that the trial court erred when it found BPI/MS has the capacity to sue and when it
assumed jurisdiction over the case. It also questioned the ruling on its liability since the Survey Reports indicated that the cause of
loss and damage was due to the “rough handling of ATI’s stevedores during discharge from vessel to shore and during loading
operation onto the trucks.” It invoked the limitation of liability of US$500.00 per package as provided in Commonwealth Act No.
65 or the Carriage of Goods by Sea Act (COGSA). chanRoblesvirtualLawlibrary
38

On the other hand, ATI questioned the capacity to sue of BPI/MS and Mitsui and the award of attorney’s fees despite its lack of
justification in the body of the decision. ATI also imputed error on the part of the trial court when it ruled that ATI’s employees
were negligent in the ruling of the shipments. It also insisted on the applicability of the provision of COGSA on limitation of
liability. chanRoblesvirtualLawlibrary
39

In its Decision, the Court of Appeals absolved ATI from liability thereby modifying the decision of the trial court. The dispositive
40

portions reads:chanroblesvirtuallawlibrary

WHEREFORE, the appeal of ESLI is DENIED, while that of ATI is GRANTED. The assailed Judgment dated September 17, 2006 of
Branch 138, RTC of Makati City in Civil Case No. 05-108 is hereby MODIFIED absolving ATI from liability and deleting the award of
attorney’s fees. The rest of the decision is affirmed. 41

Before this Court, ESLI seeks the reversal of the ruling on its liability.

At the outset, and notably, ESLI included among its arguments the attribution of liability to ATI but it failed to implead the latter as
a party to the present petition. This non-inclusion was raised by BPI/MS and Mitsui as an issue in its Comment/Opposition and
42 43

Memorandum: chanRoblesvirtualLawlibrary
44

For reasons known only to [ESLI], it did not implead ATI as a party respondent in this case when it could have easily done so.
Considering the nature of the arguments raised by petitioner pointing to ATI as solely responsible for the damages sustained by
the subject shipments, it is respectfully submitted that ATI is an indispensable party in this case. Without ATI being impleaded, the
issue of whether ATI is solely responsible for the damages could not be determined with finality by this Honorable Court. ATI
certainly deserves to be heard on the issue but it could not defend itself because it was not impleaded before this Court.
Perhaps, this is the reason why [ESLI] left out ATI in this case so that it could not rebut while petitioner puts it at fault.
45

ESLI in its Reply put the blame for the non-exclusion of ATI to BPI/MS and Mitsui:chanroblesvirtuallawlibrary
46

[BPI/MS and Mitsui] claim that herein [ESLI] did not implead [ATI] as a party respondent in the Petition for Review on Certiorari it
had filed. Herein Petitioner submits that it is not the obligation of [ESLI] to implead ATI as the same is already the look out of
[BPI/MS and Mitsui]. If [BPI/MS and Mitsui] believe that ATI should be made liable, they should have filed a Motion for
Reconsideration with the Honorable Court of Appeals. The fact that [BPI/MS and Mitsui] did not even lift a finger to question the
decision of the Honorable Court of Appeals goes to show that [BPI/MS and Mitsui] are not interested as to whether or not ATI is
indeed liable. 47

It is clear from the exchange that both [ESLI] and [BPI/MS and Mitsui] are aware of the non-inclusion of ATI, the arrastre operator,
as a party to this review of the Decision of the Court of Appeals. By blaming each other for the exclusion of ATI, [ESLI] and [BPI/MS
and Mitsui] impliedly agree that the absolution of ATI from liability is final and beyond review. Clearly, [ESLI] is the consequential
loser. It alone must bear the proven liability for the loss of the shipment. It cannot shift the blame to ATI, thearrastre operator,
which has been cleared by the Court of Appeals. Neither can it argue that the consignee should bear the loss.

Thus confined, we go to the merits of the arguments of ESLI.

First Issue: Liability of ESLI

ESLI bases of its non-liability on the survey reports prepared by BPI/MS and Mitsui’s witness Manuel which found that the cause of
damage was the rough handling on the shipment by the stevedores of ATI during the discharging operations. However, Manuel
48
does not absolve ESLI of liability. The witness in fact includes ESLI in the findings of negligence. Paragraphs 3 and 11 of the
affidavit of witness Manuel attribute fault to both ESLI and ATI.

3. The vessel M.V. “EASTERN VENUS” V 22-S carrying the said shipment of 22 coils of various steel sheets arrived at the port of
Manila and discharged the said shipment on or about 11 February 2004 to the arrastre operator [ATI]. I personally noticed that
the 22 coils were roughly handled during their discharging from the vessel to the pier of [ATI] and even during the loading
operations of these coils from the pier to the trucks that will transport the coils to the consignees’s warehouse. During the
aforesaid operations, the employees and forklift operators of [ESLI] and [ATI] were very negligent in the handling of the subject
cargoes.

xxxx

11. The vessel M.V. “EASTERN VENUS” V 25-S carrying the said shipment of 50 coils of various steel sheets arrived at the port of
Manila and discharged the said shipment on or about 21 May 2004 to the arrastre operator [ATI]. I personally noticed that the 50
coils were roughly handled during their discharging from the vessel to the pier of [ATI] and even during the loading operations of
these coils from the pier to the trucks that will transport the coils to the consignees’s warehouse. During the aforesaid operations,
the employees and forklift operators of [ESLI] and [ATI] were very negligent in the handling of the subject cargoes. (Emphasis
49

supplied).

ESLI cannot rely only on parts it chooses. The entire body of evidence should determine the liability of the parties. From the
statements of Manuel, [ESLI] was negligent, whether solely or together with ATI.

To further press its cause, ESLI cites the affidavit of its witness Rodrigo who stated that the cause of the damage was the rough
mishandling by ATI’s stevedores.

The affidavit of Rodrigo states that his functions as a cargo surveyor are, (1) getting hold of a copy of the bill of lading and cargo
manifest; (2) inspection and monitoring of the cargo on-board, during discharging and after unloading from the vessel; and (3)
making a necessary report of his findings. Thus, upon arrival at the South Harborof Manila of the two vessels of ESLI on 11 February
2004 and on 21 May 2004, Rodrigo immediately boarded the vessels to inspect and monitor the unloading of the cargoes. In
both instances, it was his finding that there was mishandling on the part of ATI’s stevedores which he reported as the cause of
the damage. chanRoblesvirtualLawlibrary
50

Easily seen, however, is the absence of a crucial point in determining liability of either or both ESLI and ATI – lack of determination
whether the cargo was in a good order condition as described in the bills of lading at the time of his boarding. As Rodrigo
admits, it was also his duty to inspect and monitor the cargo on-board upon arrival of the vessel. ESLI cannot invoke its non-
liability solely on the manner the cargo was discharged and unloaded. The actual condition of the cargoes upon arrival prior to
discharge is equally important and cannot be disregarded. Proof is needed that the cargo arrived at the port of Manila in good
order condition and remained as such prior to its handling by ATI.

Common carriers, from the nature of their business and on public policy considerations, are bound to observe extraordinary
diligence in the vigilance over the goods transported by them. Subject to certain exceptions enumerated under Article 1734 of 51

the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary
responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received
by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the
person who has a right to receive them. chanRoblesvirtualLawlibrary
52

In maritime transportation, a bill of lading is issued by a common carrier as a contract, receipt and symbol of the goods covered
by it. If it has no notation of any defect or damage in the goods, it is considered as a “clean bill of lading.” A clean bill of lading
constitutes prima facie evidence of the receipt by the carrier of the goods as therein described. chanRoblesvirtualLawlibrary
53

Based on the bills of lading issued, it is undisputed that ESLI received the two shipments of coils from shipper Sumitomo
Corporation in good condition at the ports of Yokohama and Kashima, Japan. However, upon arrival at the port of Manila, some
coils from the two shipments were partly dented and crumpled as evidenced by the Turn Over Survey of Bad Order Cargoes No.
67982 dated 13 February 2004 and Turn Over Survey of Bad Order Cargoes Nos. 68363 and 68365 both dated 24 May 2004
54 55 56

signed by ESLI’s representatives, a certain Tabanao and Rodrigo together with ATI’s representative Garcia. According to
Turn Over Survey of Bad Order Cargoes No. 67982, four coils and one skid were partly dented and crumpled prior to turnover by
ESLI to ATI’s possession while a total of eleven coils were partly dented and crumpled prior to turnover based on Turn Over Survey
Bad Order Cargoes Nos. 68363 and 68365.

Calamba Steel requested for a re-examination of the damages sustained by the two shipments. Based on the Requests for Bad
Order Survey Nos. 58267 and 58254 covering the first shipment dated 13 and 17 February 2004, four coils were damaged prior
57 58

to turnover. The second Request for Bad Order Survey No. 58658 dated 25 May 2004 also affirmed the earlier findings that
59

eleven coils on the second shipment were damaged prior to turnover.

In Asian Terminals, Inc., v. Philam Insurance Co., Inc., the Court based its ruling on liability on the Bad Order Cargo and Turn Over
60

of Bad Order. The Receipt bore a notation “B.O. not yet t/over to ATI,” while the Survey stated that the said steel case was not
opened at the time of survey and was accepted by the arrastre in good order. Based on these documents, packages in
the Asian Terminals, Inc. case were found damaged while in the custody of the carrier Westwind Shipping Corporation.

Mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination
constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to how the
deterioration, loss, or destruction of the goods happened, the transporter shall be held responsible. From the foregoing, the fault
61

is attributable to ESLI. While no longer an issue, it may be nonetheless state that ATI was correctly absolved of liability for the
damage.

Second Issue: Limitation of Liability

ESLI assigns as error the appellate court’s finding and reasoning that the package limitation under the COGSA is inapplicable
62

even if the bills of lading covering the shipments only made reference to the corresponding invoices. Noticeably, the invoices
specified among others the weight, quantity, description and value of the cargoes, and bore the notation “Freight Prepaid” and
“As Arranged.” ESLI argues that the value of the cargoes was not incorporated in the bills of lading and that there was no
63 64

evidence that the shipper had presented to the carrier in writing prior to the loading of the actual value of the cargo, and, that
there was a no payment of corresponding freight. Finally, despite the fact that ESLI admits the existence of the invoices, it
65

denies any knowledge either of the value declared or of any information contained therein. chanRoblesvirtualLawlibrary
66

According to the New Civil Code, the law of the country to which the goods are to be transported shall govern the liability of the
common carrier for their loss, destruction or deterioration. The Code takes precedence as the primary law over the rights and
67

obligations of common carriers with the Code of Commerce and COGSA applying suppletorily. chanRoblesvirtualLawlibrary
68

The New Civil Code provides that a stipulation limiting a common carrier’s liability to the value of the goods appearing in the bill
of lading is binding, unless the shipper or owner declares a greater value. In addition, a contract fixing the sum that may be
69

recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under
the circumstances, and has been fairly and freely agreed upon. chanRoblesvirtualLawlibrary
70

COGSA, on the other hand, provides under Section 4, Subsection 5 that an amount recoverable in case of loss or damage shall
not exceed US$500.00 per package or per customary freight unless the nature and value of such goods have been declared by
the shipper before shipment and inserted in the bill of lading.

In line with these maritime law provisions, paragraph 13 of bills of lading issued by ESLI to the shipper specifically provides a
similar restriction:chanroblesvirtuallawlibrary

The value of the goods, in calculating and adjusting any claims for which the Carrier may be liable shall, to avoid uncertainties
and difficulties in fixing value, be deemed to the invoice value of the goods plus ocean freight and insurance, if paid,
Irrespective of whether any other value is greater or less, and any partial loss or damage shall be adjusted pro rata on the basis
of such value; provided, however, that neither the Carrier nor the ship shall in any event be or become liable for any loss, non-
delivery or misdelivery of or damage or delay to, or in connection with the custody or transportation of the goods in an amount
exceeding $500.00 per package lawful money of the United States, or in case of goods not shipped in packages, per customary
freight unit, unless the nature of the goods and a valuation higher than $500.00 is declared in writing by the shipper on delivery to
the Carrier and inserted in the bill of lading and extra freight is paid therein as required by applicable tariffs to obtain the benefit
of such higher valuation. In which case even if the actual value of the goods per package or unit exceeds such declared value,
the value shall nevertheless be deemed to be the declared value and any Carrier’s liability shall not exceed such declared
value and any partial loss or damage shall be adjusted pro-rata on the basis thereof. The Carrier shall not be liable for any loss or
profit or any consequential or special damage and shall have the option of replacing any lost goods and replacing o
reconditioning any damage goods. No oral declaration or agreement shall be evidence of a value different from that provided
therein. chanRoblesvirtualLawlibrary
71

xxxx

Accordingly, the issue whether or not ESLI has limited liability as a carrier is determined by either absence or presence of proof
that the nature and value of the goods have been declared by Sumitomo Corporation and inserted in the bills of lading.

ESLI contends that the invoices specifying the weight, quantity, description and value of the cargo in reference to the bills of
lading do not prove the fact that the shipper complied with the requirements mandated by the COGSA. It contends that there
must be an insertion of this declaration in the bill of lading itself to fall outside the statutory limitation of liability.

ESLI asserts that the appellate court erred when it ruled that there was compliance with the declaration requirement even if the
value of the shipment and fact of payment were indicated on the invoice and not on the bill of lading itself.

There is no question about the declaration of the nature, weight and description of the goods on the first bill of lading.

The bills of lading represent the formal expression of the parties’ rights, duties and obligations. It is the best evidence of the
intention of the parties which is to be deciphered from the language used in the contract, not from the unilateral post
facto assertions of one of the parties, or of third parties who are strangers to the contract. Thus, when the terms of an
72

agreement have been reduced to writing, it is deemed to contain all the terms agreed upon and there can be, between the
parties and their successors in interest, no evidence of such terms other than the contents of the written
agreement. chanRoblesvirtualLawlibrary
73

As to the non-declaration of the value of the goods on the second bill of lading, we see no error on the part of the appellate
court when it ruled that there was a compliance of the requirement provided by COGSA. The declaration requirement does not
require that all the details must be written down on the very bill of lading itself. It must be emphasized that all the needed details
are in the invoice, which “contains the itemized list of goods shipped to a buyer, stating quantities, prices, shipping charges,”
and other details which may contain numerous sheets. Compliance can be attained by incorporating the invoice, by way of
74

reference, to the bill of lading provided that the former containing the description of the nature, value and/or payment of freight
charges is as in this case duly admitted as evidence.

In Unsworth Transport International (Phils.), Inc. v. Court of Appeals, the Court held that the insertion of an invoice number does
75

not in itself sufficiently and convincingly show that petitioner had knowledge of the value of the cargo. However, the same
interpretation does not squarely apply if the carrier had been advised of the value of the goods as evidenced by the invoice
and payment of corresponding freight charges. It would be unfair for ESLI to invoke the limitation under COGSA when the
shipper in fact paid the freight charges based on the value of the goods. In Adams Express Company v. Croninger, it was said:
76

“Neither is it conformable to plain principles of justice that a shipper may understate the value of his property for the purpose of
reducing the rate, and then recover a larger value in case of loss. Nor does a limitation based upon an agreed value for the
purpose of adjusting the rate conflict with any sound principle of public policy.” Conversely, but for the same reason, it is unjust
for ESLI to invoke the limitation when it is informed that the shipper paid the freight charges corresponding to the value of the
goods.

Also, ESLI admitted the existence and due execution of the Bills of Lading and the Invoice containing the nature and value of the
goods on the second shipment. As written in the Pre-Trial Order, the parties, including ESLI, admitted the existence and due
77

execution of the two Bills of Lading together with the Invoice on the second shipment with Nos. KJGE-04-1327-NT/KE2 dated 12
78 79

May 2004. On the first shipment, ESLI admitted the existence of the Invoice with Nos. KJGE-031228-NT/KE3 dated 2 February
80

2004.

The effect of admission of the genuineness and due execution of a document means that the party whose signature it bears
admits that he voluntarily signed the document or it was signed by another for him and with his
authority. chanRoblesvirtualLawlibrary
81

A review of the bill of ladings and invoice on the second shipment indicates that the shipper declared the nature and value of
the goods with the corresponding payment of the freight on the bills of lading. Further, under the caption “description of
packages and goods,” it states that the description of the goods to be transported as “various steel sheet in coil” with a gross
weight of 383,532 kilograms (89.510 M3). On the other hand, the amount of the goods is referred in the invoice, the due
execution and genuineness of which has already been admitted by ESLI, is US$186,906.35 as freight on board with payment of
ocean freight of US$32,736.06 and insurance premium of US$1,813.17. From the foregoing, we rule that the non- limitation of
liability applies in the present case.

We likewise accord the same binding effect on the contents of the invoice on the first shipment.

ESLI contends that what was admitted and written on the pre-trial order was only the existence of the first shipment’ invoice but
not its contents and due execution. It invokes admission of existence but renounces any knowledge of the contents written on
it. chanRoblesvirtualLawlibrary
82

Judicial admissions are legally binding on the party making the admissions. Pre-trial admission in civil cases is one of the instances
of judicial admissions explicitly provided for under Section 7, Rule 18 of the Rules of Court, which mandates that the contents of
the pre-trial order shall control the subsequent course of the action, thereby, defining and limiting the issues to be tried.
In Bayas v. Sandiganbayan, this Court emphasized that:chanroblesvirtuallawlibrary
83

Once the stipulations are reduced into writing and signed by the parties and their counsels, they become binding on the parties
who made them. They become judicial admissions of the fact or facts stipulated. Even if placed at a disadvantageous position,
a party may not be allowed to rescind them unilaterally, it must assume the consequences of the disadvantage. 84

Moreover, in Alfelor v. Halasan, this Court declared that:chanroblesvirtuallawlibrary

85

A party who judicially admits a fact cannot later challenge that fact as judicial admissions are a waiver of proof; production of
evidence is dispensed with. A judicial admission also removes an admitted fact from the field of controversy. Consequently, an
admission made in the pleadings cannot be controverted by the party making such admission and are conclusive as to such
party, and all proofs to the contrary or inconsistent therewith should be ignored, whether objection is interposed by the party or
not. The allegations, statements or admissions contained in a pleading are conclusive as against the pleader. A party cannot
subsequently take a position contrary of or inconsistent with what was pleaded. (Citations omitted)
86

The admission having been made in a stipulation of facts at pre-trial by the parties, it must be treated as a judicial admission.
Under Section 4, of Rule 129 of the Rules of Court, a judicial admission requires no proof. chanRoblesvirtualLawlibrary
87

It is inconceivable that a shipping company with maritime experience and resource like the ESLI will admit the existence of a
maritime document like an invoice even if it has no knowledge of its contents or without having any copy thereof.

ESLI also asserts that the notation “Freight Prepaid” and “As Arranged,” does not prove that there was an actual declaration
made in writing of the payment of freight as required by COGSA. ESLI did not as it could not deny payment of freight in the
amount indicated in the documents. Indeed, the earlier discussions on ESLI’s admission of the existence and due execution of
the invoices, cover and disprove the argument regarding actual declaration of payment. The bills of lading bore a notation on
the manner of payment which was “Freight Prepaid” and “As Arranged” while the invoices indicated the amount exactly paid
by the shipper to ESLI.chanrobleslaw
WHEREFORE, we DENY the Petition for Review on Certiorari. The Decision dated 31 January 2008 and Resolution dated 5 May 2008
of the Second Division of the Court of Appeals in CA-G.R. CV. No. 88744 are hereby AFFIRMED.

SO ORDERED.cralawlawlibrary

G.R. No. 190277 July 23, 2014

ABSOLUTE MANAGEMENT CORPORATION, Petitioner,
vs.
METROPOLITAN BANK AND TRUST COMPANY, Respondent.
DECISION
VILLARAMA, JR., J.:
At bar is a Petition for Review on Certiorari with Application for the Issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction, of the Decision and Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 101568 dated August 13,
1 2

2009 and November 13, 2009, respectively, reversing the Orders dated May 2, 2007 and September 3, 2007 of the Regional Trial
3 4

Court (RTC) of Quezon City, Branch 80, and requiring the court a quo to allow respondent to participate in the proceedings of
Civil Case No. Q-00-42105.
The following undisputed facts are stated m the op1mon of the appellate court:
On October 5, 2000, Sherwood Holdings Corporation and Spouses Sandy Ang and Arlene Ang filed a case for sum of money
against private respondent Absolute Management Corporation before the Regional Trial Court of Quezon City, Branch 80 and
docketed as Civil Case No. Q-00-42105. Private respondent filed its answer and incorporated a third-party complaint against
petitioner Metropolitan Bank and Trust Company.
In an Order dated January 30, 2004, the trial court set the case for pre-trial on February 7, 2004, but the same was cancelled on
account of the filing by petitioner ofa motion to admit fourth-party-complaint against the Estate of Jose L. Chua.
On September 5, 2005, the trial court issued an Order directing petitioner to produce and allow private respondent to copy,
microfilm copies of several checks and the bank ledgers of Current Account Nos. 00719-250162-4 and 00700-250691-9. On
November 20, 2006, the trial court set the case for pre-trial. When the counsels of the parties were asked by the trial court to
produce their respective authorizations to appear at the said hearing, [counsel for petitioner] manifested that [her] authority to
appear for petitioner was submitted by them at the first pre-trial hearing way back [in] 2004.
Petitioner’s counsel was given the chance to go over the records to look for [the] Secretary’s Certificate she allegedly submitted
in 2004. Petitioner’s counsel, however, failed to show any written authority. As a result thereof, the trial court, upon motion of the
private respondent, declared petitioner in default. Accordingly, the trial court allowed private respondent to present evidence
ex-parte.
Without waiting for the written order of default, petitioner, on December 5, 2006, filed a Motion to Lift Order of Default seeking
reconsideration of the Order dated November 20, 2006, attaching thereto an Affidavit of Merit together with the required
Secretary’s Certificate dated July 16, 2006 and Special Power of Attorney dated December 5, 2006.
On May 2, 2007, the trial court issued an Order denying petitioner’s motion to lift the order of default, which reads:
xxxx
Petitioner filed a motion for reconsideration of the above-quoted Order but the same was denied by the trial court in its Order
dated September 3, 2007. 5

Respondent filed a petition for certiorariwith the CA alleging that the RTC committed grave abuse of discretion in issuing
the aforestated Orders dated May 2 and September 3, 2007.
In its assailed decision, the CA reversed the trial court’s ruling that respondent’s counsel cannot validly represent respondent due
to "the failure on the part of the representative of[respondent] to present a Secretary’s Certificate and Special Power of Attorney
authorizing her to represent [respondent] during the pre-trial stage." The CA ruled that the RTC’s determination holding that
6

respondent’s counsel cannot validly represent respondent due to lack of authorization lacks merit, viz.:
The presumption in favor of the counsel’s authority to appear in behalf of a client is a strong one. A lawyer is not even required to
present a written authorization from the client. In fact, the absence of a formal notice of entry of appearance will not invalidate
the acts performed by the counsel in his client’s name. However, the court,on its own initiative or on motion of the other party[,]
[may] require a lawyer to adduce authorization from the client.
xxxx
It is evident therefore that the trial court gravely abused its discretion in denying [respondent’s] counsel to represent it. In the
same vein, it is a clear disregard of the oft repeated principle that courts should not resort to a rigid application of the rules
where the end result would frustrate the just, speedy and inexpensive determination of the controversy. 7

Petitioner’s motion for reconsideration was denied in a Resolution dated November 13, 2009. Hence, this petition raising the
following assignment of errors:
I. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT A SPECIAL POWER OF ATTORNEY NEED NOT BE
PRESENTED IN COURT DURING PRE-TRIAL HEARINGS SINCE THE AUTHORITY OF A LAWYER TO APPEAR IN BEHALF OF HIS
CLIENT IS PRESUMED.
A) THE NON-APPEARANCE OF A PARTY IN PRE-TRIAL MAY BE EXCUSED ONLY IF A VALID CAUSE IS SHOWN
THEREFORE OR IF A REPRESENTATIVE SHALL APPEAR IN HIS BEHALF FULLY [AUTHORIZED] IN WRITING.
 B) THE CASES CITED BY THE HONORABLE COURT OF APPEALS, NAMELY: (1) LANDBANK OF THE PHILIPPINES
VS. [PAMINTUAN], CO.AND (2) CEBU STEVEDORING VS. RAMOLETE, TO SUPPORT ITS RULING THAT THE AUTHORITY OF
[A] LAWYER TO APPEAR IN BEHALF OF THE CLIENT IS PRESUMED, ARE INAPPLICABLE TO THE INSTANT CASE.
II. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THERE WAS GRAVE ABUSE OF DISCRETION ON
THE PART OF THE LOWER COURT, WHEN IN FACT THE LOWER COURT ONLY PROPERLY APPLIED THE PROVISIONS OF THE LAW
REQUIRING THE PRESENTATION OF A SPECIAL POWER OF ATTORNEY DURING PRE-TRIAL.
III. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LIBERAL APPLICATION OF THE RULES
SHOULD BE APPLIED IN THE CASE OF RESPONDENT.
IV. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT ORDERED RESPONDENT TO PARTICIPATE IN THE TRIAL OF
THE COLLECTION CASE FILED WITH THE REGIONAL TRIAL COURT.
A) RESPONDENT’S PARTICIPATION IN THE TRIAL WOULD ONLY CAUSE THE DELAY IN THE RESOLUTION OF THE CASE,
CONSIDERING THAT IN ITS ANSWER, THEY FAILED TO PRESENT A VALID DEFENSE. 8

We grant the petition.

A petition for certiorari may be filed if the trial court declared the defendant in default with grave abuse of discretion. However,
9

an act of a court or tribunal can only be consideredto be tainted with grave abuse of discretion when such act is done in a
capricious or whimsical exercise of judgment as is equivalent to lack of jurisdiction.
10

The court a quodid not commit such grave abuse of discretion in the case at bar. The Order given by the RTC in open court
dated November 20, 2006 stated, viz.:
When this case was called for pre-trial conference, co-plaintiff Sandy Ang failed to appear despite notice, thus, this case is
hereby dismissed, insofar as he is concerned. Accordingly, defendant Absolute Management Corp. may now adduce evidence
ex partein support of its counterclaim against co-plaintiff Sandy Ang.
With respect to the third-party complaint of Absolute Management Corp., against third-party defendant Metropolitan Bank and
Trust Company whose counsel failed to present a Secretary’s Certificate and Special Power ofAttorneyauthorizing her to
represent said bank in today’s pre-trial, said third-party plaintiff is hereby allowed to present evidence ex partepursuant to the
provisions of Sec. 5, Rule 18 of the 1997 Rules of Civil Procedure.
Meanwhile, let this case be referred to the Philippine Mediation Center for mediation proceedings on December 6, 2006 at 10:00
in the morning. Let the pre-trial conference between the remaining plaintiffs and defendant Absolute Management Corp. be set
on January 29, 2007 at 1:30 in the afternoon.
SO ORDERED.
Given in Open Court on November 20, 2006 11

When respondent tendered its explanation in a Motion to Lift Order of Default dated December 4, 2006, respondent clarified
that:
2. The failure of the undersigned counsel to present the above-mentioned authorization at the said occasion was due to
their impression that the same was already submitted by them during the initial pre-trial hearing of the case that was held
on February 27, 2004. Because of such impression, undersigned counsel did not bring anymore the required authorization
from [respondent]. Upon inspection of the records of the case after the said pre-trial hearing, undersigned counsel,
however, discovered and realized that no such authorization was submitted by them at the said first pre-trial hearing.
3. The records of the instant case will show that the undersigned counsel has been representing [respondent] in all the
proceedings of the present case from the very start, including the cases before the Court of Appeals (CA G.R. SP No.
86336) and the Supreme Court (SC G.R. SP No. 170498), involving the issue of whether ornot the former has the right to file
a fourth-party complaint against the Estate of Jose Chua.
4. Indubitably, the undersigned counsel’s inability to provide the Honorable Court the proper authority to represent
[respondent] at the pretrial hearing on November 20, 2006 was not willful and deliberate, but simply due to their
excusable negligence. Nevertheless, undersigned counsel[s] are attaching herewith the Secretary’s Certificate and the
Special Power of Attorney, Annexes "A" and "B" hereof respectively, evidencing their authority to represent [respondent]
in the instant case.12

Despite the explanation, the trial court denied the foregoing Motion to Lift Order of Default for lack of merit in its Order dated
May 2, 2007. It likewise found no compelling reason to grant reconsideration as stated in its Order dated September 3, 2007.
13 14

We agree with petitioner that the court a quomerely applied the law in this case when it declared that respondent’s counsel did
not have the authority to act on behalf of respondent as its representativeduring the pretrial on November 20, 2006. The
applicable provision under Rule 18 of the 1997 Rules of Civil Procedure, as amended, states, viz.:
SEC. 4. Appearance of parties. - It shall be the duty of the parties and their counsel to appear at the pre-trial. The non-
appearance of a party may be excused only if a valid cause is shown therefor or if a representative shall appear in his behalf
fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter
into stipulations or admissions of facts and of documents. 15

SEC. 5. Effect of failure to appear. - The failure of the plaintiff to appear when so required pursuant to the next preceding section
shall be cause for dismissal of the action. The dismissal shall be with prejudice, unless otherwise ordered by the court. A similar
failure on the part of the defendant shall be cause to allow the plaintiff to present his evidence ex parteand the court to render
judgment on the basis thereof.
This Court has incisively explained the ratiocination of the foregoing rule on pre-trial in the case of Development Bank of the
Philippines v. Court of Appeals :
16
Everyone knows that a pre-trial incivil actions is mandatory, and has been so since January 1, 1964. Yet tothis day its place in the
scheme of things is not fully appreciated, and it receives but perfunctory treatment in many courts. Some courts considerit a
mere technicality, serving no useful purpose save perhaps, occasionally to furnish ground for nonsuiting the plaintiff, or declaring
a defendant in default, or, wistfully, to bring about a compromise. The pre-trial device is not thus put to full use. Hence it has
failed in the main to accomplish the chief objective for it: the simplification, abbreviation and expedition of the trial, if not indeed
its dispensation. This is a great pity, because the objective is attainable, and with not much difficulty, if the device were more
intelligently and extensively handled.
xxxx
What needs stressing is that the parties as well as the Trial Court must realize that at the pre-trial, the parties are obligednot only
to make formal identification and specification ofthe issues and of their proofs, as above described – indeed, there
is noreason why the Court may not oblige the parties to set these matters down in separate writings and submit them to the
Court prior to the pre-trial, and then to discuss, refine and embody the matters agreed upon in a single document at or shortly
after the pretrial – but also and equally as peremptorily, to directly address and discusswith sincerity and candor and in entire
good faith each of the other subjects enumerated in Section 1, Rule 20, i.e., the "possibility of an amicable settlement or of a
submission to arbitration," the "advisability of a preliminary reference of issues to a commissioner," and "such other matters as may
aid in the prompt disposition of the action," inclusive of a resort to the modes of discovery.
Consistently with the mandatory character of the pre-trial, the Rules oblige not only the lawyers but the parties as well to appear
for this purpose before the Court, and when a party "fails to appear at a pre-trial conference (he) may be non-suited or
considered as indefault." The obligation "to appear" denotes not simply the personal appearance, or the mere physical
presentation by a party of one’s self, but connotes as importantly, preparedness to go into the different subject assigned by law
to a pre-trial. And in those instances where a party may not himself be present at the pre-trial, and another person substitutes for
him, or his lawyer undertakes to appear not only as an attorney but in substitution of the client’s person, it is imperative for that
representative of the lawyer to have "special authority" to make such substantive agreements as only the client otherwise has
capacity to make. That "special authority" shouldordinarily be in writing or at the very least be "duly established by evidence
other than the selfservingassertion of counsel (or the proclaimed representative) himself." Without that special authority, the
lawyer or representative cannot be deemed capacitated to appear in place of the party; hence, it will be considered that the
latter has failed to put in an appearance at all, and he [must] therefore "be non-suited or considered as in default,"
notwithstanding his lawyer’s or delegate’s presence. 17

Petitioner was correct when it pointed out that:

x x x Atty. Raquel Buendia appeared on behalf of Respondent as both its counsel and representative in the pre-trial.
Atty. Buendia’s authority to appear as counsel on behalf of Respondent is not being questioned. In that regard, the Court of
Appeals correctly ruled that the authority of a counsel to appear in behalf of his client is presumed. However, it should be noted
that Atty. Buendia also appeared as a representative of Respondent in the pre-trial hearing. In this regard, Section 4, Rule 18 of
the Rules of Court specifically mandates that such representative must be armed with a written authority from the partylitigant.
Unfortunately, she was not able to present one. 18

It behooves the Court that respondent did not refute the contention of petitioner that the ground for the trial court in declaring
respondent in default was the absence of a Special Power of Attorney (SPA) authorizing its counsel to act on its behalf as
"representative" in the pre-trial conference. All that respondent relentlessly invoked was the liberal application of the rules in
order not to defeat the right of the respondent to be heard and to present evidence in its defense – citing that default orders
are frowned upon and that all parties should be given the opportunity to litigate their claims. Nonetheless, even respondent
itself iswell aware of the weakness of its plea for a liberal application ofthe rules when it stated, viz.:
x x x Citing this Honorable Court’s rulings in the cases of Land Bank of the Philippines vs. Pamintuan Development Co.x x x and
Cebu Stevedoring Co. vs. Ramoletex x x[,] the CA highlighted the established principles that a lawyer is not required to present a
written authorization from a client such that even the absence of a formal notice of entry of appearance will not even invalidate
the acts performed by counsel in the client’s name. Although not in all fours with the circumstances of the present case, the
above cases nonetheless demonstrate the firmly held general principles on client representation which were properly and justly
applied by the CA in the questioned Decision. 19

The facts in the case at bar do not warrant a liberal construction of the rules.1âwphi1 To be sure, the only explanation proffered
by respondent’s counsel for not having the proper authorization to represent respondent at pre-trial was her manifestation in
open court that the written authority was submitted to the court a quoduring the first pre-trial hearing way back in 2004. When
respondent’s counsel was given the chance to go over the records of the court a quoto look for the Secretary’s Certificate and
the SPA that she allegedly submitted in 2004,these documents could not be found from the records of the case. Nonetheless, in
its Motion to Lift Order of Default submitted to the trial court, respondent argued, viz.:
Indubitably, the undersigned counsel’s (sic) inability to provide the Honorable Court the proper authority to represent Third-Party
Defendant at the pre-trial hearing on November 20, 2006 was not willful and deliberate, but simply due to their excusable
negligence. Nevertheless, undersigned counsel[s] are attaching herewith the Secretary’s Certificate and the Special Power of
Attorney, Annexes "A" and "B" hereof respectively, evidencing their authority to represent Third-Party Defendant in the instant
case.20

We disagree with respondent that its omission is excusable. Respondent had failed to substantiate its sole excuse for its
representative’s apparent lack of authority to be its representative, in addition to being its counsel, during the pre-trial
conference. Tobe sure, if indeed there was such an authority previously executed by respondent in favor of its counsel as early
as the pre-trial conferences that respondent alleges tohave taken place on February 27, 2004 and April 16, 2004, this fact would
have been easily proven by respondent. Such document conveying authority – having originated from and issued
by respondentitself – would have been produced with relative facility. Respondent, however, failed to produce this document
before the court a quo, the appellate court and thisCourt. As fairly observed by petitioner, the SPA later submitted by
respondent’s counsel is dated December 5, 2006 or "after" the pre-trial conference on November 20, 2006. Thus, petitioner
asserts:
87. Moreover, a closer perusal of the SPA and the Secretary’s Certificate, which Respondent allegedly thought were submitted
during the 27 February 2004 scheduled pre-trial,would show that the same were dated only on 05 December 2006 and 16 July
2006, respectively.
88. If it was true that Respondent mistakenly thought that the said SPA and Secretary’s Certificate werepresented in 2004, said
documents would have been dated 2004 and not 2006. Moreover, it bears stressing that the SPA was executed after the 20
November 2006 pre-trial hearing. 21

Finally, a cursory reading of the assailed decision of the appellate court shows that when it reversed the decision of the court a
quo, it did so on the ground that respondent’s counsel’s filing of a notice of entry of appearance has given rise to the
presumption that she (respondent’s counsel) had the authority to represent respondent. As stated by the CA:
x x x When her authority was challenged, she manifested that her authority for the [respondent] was submitted and were
attached to the records of the case. The doubt entertained by the trial court is of no consequence in view of [respondent’s]
vigorous assertion that it authorized said lawyer to represent it. Indeed, even an unauthorized appearance of an attorney may
be ratified by the client either expressly. Ratification retroacts to the date of the lawyer’s first appearance and validates the
action taken by him. 22

Indubitably, the appellate court ruled on the capacity of respondent’s counsel to represent it as its lawyer, or as its attorney, in
the court a quo. Perforce, it ruled that the RTC committed grave abuse of discretion when it declared that respondent's counsel
did not have the authority to represent it. We are constrained to disagree with this ruling. The crux of this controversy is whether
respondent's counsel had the authority to represent respondent in her capacity as its representative during the subject pre-trial,
and not in her capacity as its counsel. Prescinding from the foregoing disquisitions, we agree with the court a quo that
respondent's counsel did not have the proper authority.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The Decision and Resolution of the Court of Appeals in CA-G.R. SP
No. 101568 dated August 13, 2009 and November 13, 2009, respectively, are REVERSED. The Orders dated May 2, 2007 and
September 3, 2007 of the Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q-00-42105 are hereby REINSTATED and
UPHELD.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 161380, April 21, 2014

AZNAR BROTHERS REALTY COMPANY, Petitioner, v. SPOUSES JOSE AND MAGDALENA YBAÑEZ,Respondents.
DECISION
BERSAMIN, J.:
The ownership of a sizable parcel of land is the subject of this dispute between the buyer of its recognized owner and the buyer
of the successors-in-interest of the recognized owner. The land has since been registered under the Torrens system in the name of
the latter buyer who had meanwhile obtained a free patent on the premise that the land belonged to the
public domain.chanrobleslaw

The Case

Aznar Brothers Realty Company (Aznar Brothers) is on appeal to review and undo the adverse decision promulgated on October
10, 2002, whereby the Court of Appeals (CA) affirmed the judgment rendered on March 8, 1996 by the Regional Trial Court
1

(RTC), Branch 10, in Cebu City insofar as the RTC: (a) dismissed for lack of merit Aznar Brothers’ complaint for the declaration of
2

the nullity of the extrajudicial declaration of heirs with extrajudicial settlement of estate and deed of absolute sale, and (b)
declared Lot No. 18563 as legally owned by defendants Spouses Jose and Magdalena Ybañez (Spouses Ybañez), but modified
the decision of the RTC by deleting the awards of moral and exemplary damages, attorney’s fees, litigation expenses and costs
of suit.chanrobleslaw

Antecedents

On March 21, 1964, Casimiro Ybañez (Casimiro), with the marital consent of Maria Daclan, executed aDeed of Absolute
Sale in favor of Aznar Brothers conveying for P2,500.00 the 17,575-square-meter unregistered agricultural land planted with 17
coconut trees situated in Banika-Bulacao, Pardo, Cebu City, and covered by Tax Declaration No. IV-00128. The Deed of
3

Absolute Sale described the property as bounded on the North by Aznar Brothers; on the East by Angel Sabellano; on the South
by Bernardo Sabellano; and on the West by Agaton Bacalso. The parties agreed to register the sale under Act No.
3344. chanrobleslaw
4

On February 17, 1967, Saturnino Tanuco sold to Aznar Brothers for P2,528.00 the 15,760-square-meter parcel of corn and cogon
land planted with 17 coconut trees situated in Candawawan, Pardo, Cebu City, bounded on the North by Alfonso Pacaña; on
the East by Tecla Cabales; on the South by Angel Abellana; and on the West by Castor Sabellano. Tax Declaration No. IV-004787
was issued for the property. The parties agreed to register the parcel of land under Act No. 3344. chanrobleslaw
5

In his affidavit of confirmation executed on April 11, 1967, Angel Abellana declared that during the lifetime of his daughter, Rosa,
he had given to her husband, Tanuco, a parcel of land “known as Lot No. 18563” with an area of 15,760 square meters located
in Pardo, Cebu City; that the land was bounded on the North by Alfonso Pacaña; on the East by Tecla Cabales; on the South by
Lot No. 5316 of Angel Abellana; and on the West by Castor Sabellano; that the property assessed at P300.00 was declared under
Tax Declaration No. IV-004787; and that on February 17, 1967 Tanuco had sold the parcel of land to Aznar Brothers for
P4,728.00. chanrobleslaw
6

On July 3, 1968, Casimiro died intestate leaving as heirs his wife Maria, and their children, namely, Fabian and Adriano, both
surnamed Ybañez, and Carmen Ybañez-Tagimacruz, Fe Ybañez-Alison, and Dulcisima Ybañez-Tagimacruz. On August 29, 1977,
the heirs of Casimiro executed a document entitled Extrajudicial Declaration of Heirs with an Extrajudicial Settlement of Estate of
Deceased Person and Deed of Absolute Sale, whereby they divided and adjudicated among themselves Lot No. 18563 with an
area of 16,050 square meters situated in Banika, Bulacao, Pardo Cebu City. By the same document, they sold the entire lot for
P1,000.00 to their co-heir, Adriano D. Ybañez (Adriano). chanrobleslaw
7

On June 21, 1978, Adriano sold Lot No. 18563 to Jose R. Ybañez for P60,000.00. Lot No. 18563 is described in their deed of sale as
containing an area of 16,050 square meters, and was bounded on the North by the lot of EusebiaBacalso; on the East by a lot of
Aznar Brothers; on the South by a lot of Angel Abellana; and on the West by a lot of Teofila C. Leona. chanrobleslaw
8

On January 15, 1979, Jose R. Ybañez filed Free Patent Application No. (VII-I) 18980 in respect of the land he had bought from
Adriano. In due course, on July 20, 1979, Original Certificate of Title (OCT) No. 2150 was issued to Jose R. Ybañez. The 16,050-
9

square-meter land is particularly described in OCT No. 2150 as –

situated in the Barrio of Bulacao-Pardo, City of Cebu x x x. Bounded on the NorthEast, along lines 1-2-3 by Lot No. 1811, on
the SouthEast, along lines 3-4 by Lot No. 5316; on the SouthWest, along lines 4-5-6-7-8-9-10-11 by Lot No. 18565; on the NorthWest,
along line 11-12 by Lot No. 18566; along line 12-1 by Lot No. 18114, all of Cebu City.10

On May 26, 1989, Aznar Brothers filed in the RTC a complaint against Jose R. Ybañez claiming absolute ownership of Lot No.
18563 by virtue of the Deed of Absolute Sale dated March 21, 1964 executed in its favor by Casimiro(Civil Case No. CEB-
7887). Alleging that the free patent issued in favor of Jose R. Ybañez covered the same property “already adjudicated as private
property,” Aznar Brothers sought judgment to compel Jose R. Ybañez to surrender all the documents pertaining to the free
patent for cancellation, and to order him to pay attorney’s fees of P5,000.00 and litigation expenses of P3,000.00. chanrobleslaw
11

Jose R. Ybañez moved to dismiss the complaint of Aznar Brothers on the ground of lack of cause of action, lack of jurisdiction
over the nature of the action, and estoppel by laches. After Aznar Brothers opposed, the RTC denied the motion to
12 13

dismiss. Thereafter, Jose R. Ybañez filed his answer to the complaint.

14

In his answer, Jose R. Ybañez reiterated the grounds of his motion to dismiss (i.e., lack of cause of action, lack of jurisdiction over
the nature of the action, and the bar by estoppel by laches); and prayed that Aznar Brothers be ordered to pay moral damages
of P100,000.00; exemplary damages in an amount to be determined by the court; attorney’s fees of P20,000.00; and litigation
expenses of P5,000.00, plus costs of suit. chanrobleslaw
15

In its reply, Aznar Brothers averred that Jose R. Ybañez did not present “records or certification as to the ownership of the land at
the time of the application for free patent xxx to prove that the land xxx is not a private land.” chanrobleslaw
16

In the course of the case, Aznar Brothers amended its complaint to allege the sale executed on February 17, 1967
by Tanuco and confirmed by Angel Abellana on April 11, 1967. chanrobleslaw
17

In his amended answer, Jose R. Ybañez contended that Aznar Brothers had offered to buy the property from him, requesting him
to update and prepare all the documents relevant to the sale, but Aznar Brothers later opted to claim the property as its own
when the sale could not be finalized. chanrobleslaw
18

Aznar Brothers amended its complaint a second time to implead Jose R. Ybañez’s wife Magdalena Marcos-Ybañezas
defendant, averring that both defendants held “no legal right nor just title to apply for free patent over the lot in question,” for
the land was “no longer a public disposable agricultural land but a private residential land” that it already owned; that the
issuance of OCT No. 2150 was erroneous and without factual and legal bases; that it learned about the registration of the land in
the name of Jose R. Ybañez only when his agent offered to sell the land to it; that it refused the offer because it was already the
owner of the land; and that consequently OCT No. 2150 should be cancelled, and Jose R. Ybañez should be ousted from the
land. chanrobleslaw
19

Aznar Brothers sought a restraining order or a writ of preliminary injunction to prevent the Spouses Ybañez from disposing of the
land. It further sought the declaration as null and void ab initio the Extrajudicial Declaration of Heirs with Extrajudicial Settlement
of Estate of Deceased Person and Deed of Absolute Sale dated August 29, 1977, and of the Deed of Absolute Sale dated June
21, 1978; the cancellation of OCT No. 2150; an order directing the Register of Deeds to issue another title in its name; the ouster of
the Spouses Ybañez from the property; the permanent injunction to prevent Spouses Ybañez from interfering with or disturbing its
possession and ownership of Lot No. 18563; and judgment ordering the Spouses Ybañez to pay moral damages of P50,000.00,
attorney’s fees of P30,000.00, and litigation expenses of P20,000.00.

The Ybañez Spouses opposed the admission of the second amended complaint, claiming that the cause of action would
thereby be changed from accion publiciana to accion reivindicatoria; that while Magdalena Marcos-Ybañezwas thereby being
impleaded, the heirs named in the Extrajudicial Declaration of Heirs with Extrajudicial Settlement of Estate of Deceased Person
and Deed of Absolute Sale, specifically Adriano, were not being impleaded; and that the declaration of nullity of OCT No. 2150
was a prohibited collateral attack on their title to the property. chanrobleslaw
20
The RTC admitted the second amended complaint, emphasizing that the original cause of action ofaccionpubliciana would not
be changed because the second amended complaint would incorporate additional but related causes of action, a change
permitted only during the pre-trial stage. chanrobleslaw
21

The Ybañez Spouses then amended their answer by reiterating the allegations in their previous answers, and, in addition,
pleaded that they had religiously paid the taxes on the land; that the claim of ownership of Aznar Brothers had been based only
on tax declarations; that their application for free patent had been granted more than ten years prior to the filing of the
complaint by Aznar Brothers, who were all too aware of the land registration case; that Aznar Brothers did not question their title
within one year from its issuance; that a decree of registration being binding on the whole world, the filing of the complaint ten
years after the title had been issued left the complaint without any cause of action; that the action for recovery of possession
constituted a collateral attack on their title to the property; and that adverse, notorious and continuous possession of the
property under a claim of ownership was ineffective against a Torrens title. They sought the dismissal of the second amended
complaint for lack of cause of action, lack of jurisdiction, estoppel by laches, and lack of proper parties; and prayed for moral
damages of P100,000.00; exemplary damages in such amount as the court would award in the exercise of discretion; attorney’s
fees of P20,000.00; and litigation expenses of P5,000.00 plus costs of suit. chanrobleslaw
22

Judgment of the RTC

On March 8, 1996, the RTC rendered judgment after trial, declaring that the identity of the land sold to Aznar Brothers
23

by Casimiro and the land sold by the heirs of Casimiro to Jose R. Ybañez was “not an issue anymore” because it was “not raised
as an issue” during the pre-trial conference; that the issue remaining for resolution concerned which of the conflicting claims of
ownership – that of Aznar Brothers based on Tax Declaration No. GR-07-049-00694 or that of the Spouses Ybañez based on OCT
No. 2150 – should prevail; that the Spouses Ybañezwith their OCT No. 2150 should prevail, rendering Aznar Brothers’ complaint
dismissible for lack of merit; that Lot No. 18563 was “legally owned by the defendants;” and Aznar Brothers was liable to pay the
Spouses Ybañez moral damages of P100,000.00, exemplary damages of P50,000.00, attorney’s fees of P20,000.00, and litigation
expenses of P5,000.00, plus costs of suit.chanrobleslaw

Decision of the CA

Aznar Brothers appealed to the CA, assailing the judgment of the RTC for not sustaining the sale by Casimiro in its favor of Lot No.
18563 despite the sale being registered under Act No. 3344, as amended; and for awarding moral damages, exemplary
damages, attorney’s fees and litigation expenses to the Spouses Ybañez.

As earlier mentioned, the CA promulgated its adverse decision on October 10,

2002, decreeing thusly:chanRoblesvirtualLawlibrary
24

WHEREFORE, premises considered, the Court AFFIRMS the appealed judgment butDELETES the award of attorney’s fees, litigation
expenses, costs of the suit, moral and exemplary damages.

SO ORDERED.

The CA denied the motion for reconsideration of Aznar Brothers.

Issues

Only Aznar Brothers has come to the Court for review, raising the following issues for consideration and resolution,
to wit:chanRoblesvirtualLawlibrary

1. THE CONCLUSION OF THE HONORABLE COURT OF APPEALS THAT PETITIONER IS BARRED BY ESTOPPEL BY LACHES, IS NOT IN
ACCORD WITH LAW AND/OR WITH APPLICABLE DECISIONS OF THE SUPREME COURT THEREBY COMMITTING A REVERSIBLE
ERROR OF LAW WHICH IS GRAVELY PREJUDICIAL TO THE RIGHT OF THE PETITIONER OVER THE SUBJECT LOT NO. 18563. SAID
CONCLUSION IS NOT SUPPORTED BY FACTS ON RECORDS (sic).

2. THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT DECLARING SUBJECT
LOT AS LEGALLY OWNED BY THE RESPONDENTS DESPITE OF ITS OWN FINDING THAT: RESPONDENTS WERE BUYERS IN BAD
FAITH AND THAT THEIR SELLERS WERE NOT OWNERS OF THE PROPERTY IN QUESTION AND THEREFORE, THERE WAS NOTHING
THAT THEY COULD HAVE SOLD TO THE RESPONDENTS. 25

Ruling of the Court

The appeal is meritorious.chanrobleslaw

1.
Identity of the lot in litis is no
longer a proper issue herein

The CA and the RTC both held that the identity of the property in litis was no longer an issue to be considered and determined
because the parties did not raise it at the pre-trial. The Spouses Ybañez insist herein, however, that the RTC and the CA should
have made such a finding nonetheless in view of the materiality of whether the land claimed by Aznar Brothers was different
from Lot No. 18563, the land subject of their OCT No. 2150.

We clarify that although the Spouses Ybañez’s non-appeal barred them from assigning errors for purposes of this review, they are
not prevented from now insisting, if only to uphold the judgment of the CA against Aznar Brothers, that the property in litis was
26

not the same as Lot No. 18563, but they would not be accorded any relief upon those reasons, even if the Court should find
27

Aznar Brother’s appeal unmeritorious or utterly frivolous. chanrobleslaw

28

Regardless, the holding by both lower courts was proper and correct. The non-inclusion in the pre-trial order barred the identity
of the property in litis as an issue, for it is basic that any factual issue not included in the pre-trial order will not be heard and
considered at the trial, much less, on appeal. The parties had the obligation to disclose during the pre-trial all the issues they
29

intended to raise during the trial, except those involving privileged or impeaching matters, for the rule is that the definition of
issues during the pre-trial conference will bar the consideration of others, whether during trial or on appeal. The basis of the
exclusion is that the parties are concluded by the delimitation of the issues in the pre-trial order because they themselves agreed
to it. chanrobleslaw
30

The waiver of the identity of the property in litis as an issue did not violate the right of any of the parties herein due to the Rules of
Court having forewarned them in Section 7, Rule 18 of the Rules of Court that should the action proceed to trial, the pre-trial
order would explicitly define and limit the issues to be tried, and its contents would control the subsequent course of the
action, unless modified before trial to prevent manifest injustice.

In reality, the parties could still have reversed the waiver had they so wanted. Towards that end, they had three opportunities
after the issuance of the pre-trial order to submit the identity of the propertyin litis as an issue for trial and decision. The first was for
either of them to seek the modification of the pre-trial order prior to the trial in order to prevent manifest injustice, but neither did
31

so. The second was for either of them to have the trial court consider the identity of the property in litis as an issue proper for the
trial, but such party must give a special reason to justify the trial court in doing so. This would have been authorized under
Section 5, Rule 30 of the Rules of Court. Again, neither of them seized such opportunity. And the third was for the
32

Spouses Ybañez to adduce evidence on Lot No. 18563 being different from the land claimed by Aznar Brothers. Had they done
so, Aznar Brothers could have either allowed such evidence without objection, or objected to such evidence on the ground of
its not being relevant to any issue raised in the pleadings or in the pre-trial order. The RTC could then have proceeded as it
deemed fit, including allowing such evidence. This procedure would have been authorized by Section 5, Rule 10 of the Rules of
Court, viz:chanRoblesvirtualLawlibrary

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 affect 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. (5a)

Moreover, for the Spouses Ybañez to call upon the Court now to analyze or weigh evidence all over again upon such a factual
matter would be impermissible considering that the Court is not a trier of facts. chanrobleslaw
33

There are exceptional instances in which the Court has held itself competent to make its own appreciation of the facts, and not
be concluded by the findings of fact of the trial and appellate courts, namely: (1) when the factual findings of the CA and those
of the trial court were contradictory; (2) when the findings are grounded entirely on speculation, surmises, or conjectures; (3)
when the inference made by the CA from its findings of fact was manifestly mistaken, absurd, or impossible; (4) when there is
grave abuse of discretion in the appreciation of facts; (5) when the CA, in making its findings, went beyond the issues of the
case, and such findings were contrary to the admissions of both appellant and appellee; (6) when the judgment of the CA was
premised on a misapprehension of facts; (7) when the CA failed to notice certain relevant facts that, if properly considered,
would justify a different conclusion; (8) when the findings of facts were themselves conflicting; (9) when the findings of fact were
conclusions without citation of the specific evidence on which they were based; and (10) when the findings of fact of the CA
were premised on the absence of evidence but such findings were contradicted by the evidence on record. None of the 34

aforementioned exceptions obtains in this case.

Accordingly, the Court, just as the lower courts have been bound, shall proceed upon the assumption that the
property in litis and Lot No. 18563 were one and the same realty.

2.
CA correctly concluded that Aznar Brothers
owned Lot No. 18563; and that the Spouses Ybañez
were not buyers in good faith

In its assailed judgment, the CA concluded that the RTC erred in holding in favor of the Spouses Ybañez, observing
as follows:chanRoblesvirtualLawlibrary
The trial court however erred when it held:chanroblesvirtuallawlibrary

Nevertheless, from the totality of the evidence adduced by the parties, there is no preponderant evidence that the defendants
had prior knowledge of the previous sale of subject property to the plaintiff when they bought the same from Adriano
D. Ybañez on June 21, 1978. And there is neither any showing that defendant had prior knowledge of such sale when they
applied for and was issued Original Certificate of Title No. 2150 on August 14, 1979. Thus, defendants can very well be considered
as purchasers to the protection of the provisions of P.D. 1529. While plaintiff has shown to have acquired or was issued tax
declaration No. GR-07-049-00694 and had paid taxes on the property, said tax declaration and realty tax payments are not
conclusive evidence of ownership (Ferrer-Lopez vs. Court of Appeals, 150 SCRA 393). It cannot prevail over Original Certificate of
Title No. 2150 in the name of the defendants, as a torrens title concludes all controversies over ownership of land covered by a
final decree of registration (PNB vs. Court of Appeals, 153 SCRA 435).

The Deed of Absolute Sale (Exhibit F) in favor of plaintiff-appellant Aznar was registered under Act 3344, as amended on March
23, 1964 with the Register of Deeds of Cebu City. The registration of said deed gave constructive notice to the whole world
including defendant-appellees of the existence of said deed of conveyance. (Gerona v. Guzman, 11 SCRA 153) Defendant-
appellees cannot, therefore, claim to be buyers in good faith of the land in question. Resultantly, they merely stepped into the
shoes of their sellersvis a vis said land. Since their sellers were not owners of the property in question, there was nothing that they
could have sold to defendant-appellees. 35

We sustain the CA’s conclusion that the Spouses Ybañez were guilty of bad faith, and that they acquired Lot No. 18563 from
sellers who were not the owners. Accordingly, we resolve the second error raised herein in favor of Aznar Brothers.

The records and evidence fully substantiated the CA’s conclusion. The Spouses Ybañez acquired Lot No. 18563 through the deed
of sale executed on June 21, 1978 by Adriano in favor of Jose R. Ybañez. Together with his siblings Fabian Ybañez,
Carmen Ybañez-Tagimacruz, Fe Ybañez-Alison, and Dulcisima Ybañez-Tagimacruz, Adriano had supposedly inherited Lot No.
18563 from Casimiro, their father, who had died intestate on July 3, 1968. Holding themselves as the heirs and successors-in-
interest of Casimiro, they had then executed on August 29, 1977 the Extrajudicial Declaration of Heirs
with anExtrajudicial Settlement of Estate of Deceased Person and Deed of Absolute Sale, whereby they divided and
adjudicated Lot No. 18563 among themselves, and then sold the entire lot to Adriano.

But, as the CA correctly found, the Spouses Ybañez held no right to Lot No. 18563 because Adriano, their seller, and his siblings
were not the owners of Lot No. 18563. Indeed, Casimiro had absolutely conveyed his interest in Lot No. 18563 to Aznar Brothers
under the Deed of Absolute Sale of March 21, 1964 with the marital consent of Maria Daclan, Casimiro’s surviving spouse and the
mother of Adriano and his siblings. Considering that such conveyance was effective and binding on Adriano and his siblings,
there was no valid transmission of Lot No. 18563 upon Casimiro’s death to any of said heirs, and they could not legally adjudicate
Lot No. 18563 unto themselves, and validly transfer it to Adriano. The conveyance by Adriano to Jose R. Ybañez on June 21, 1978
was absolutely void and ineffectual.

There is also no question that the Spouses Ybañez were aware of the conveyance of Lot No. 18563 by Casimiro to Aznar Brothers
considering that the Deed of Absolute Sale of March 21, 1964 between Casimiro and Aznar Brothers was registered in the book
of registry of unregistered land on the same day pursuant to their agreement. Such registration constituted a constructive notice
of the conveyance on the part of the Spouses Ybañez pursuant to Section 194 of the Revised Administrative Code of 1917, as
amended by Act No. 3344, which provided as follows:chanRoblesvirtualLawlibrary

Section 194. Recording of instruments or deeds relating to real estate not registered under Act Numbered Four hundred and
ninety-six or under the Spanish Mortgage Law. – No instrument or deed establishing, transmitting, acknowledging, modifying or
extinguishing rights with respect to real estate not registered under the provisions of Act Numbered Four hundred and ninety-six,
entitled “The Land Registration Act,” and its amendments, or under the Spanish Mortgage Law,shall be valid, except as between
the parties thereto, until such instrument or deed has been registered, in the manner hereinafter prescribed, in the office of the
register of deeds for the province or city where the real estate lies.

It shall be the duty of the register of deeds for each province or city to keep a day book and a register book of unregistered real
estate, in accordance with a form to be prepared by the Chief of the General Land Registration Office, with the approval of the
Secretary of Justice. The day book shall contain the names of the parties, the nature of the instrument or deed for which
registration is requested, the hour and minute, date and month of the year when the instrument was received. The register book
shall contain, among other particulars, the names, age, civil status, and the residences of the parties interested in the act or
contract registered and in case of marriage, the name of the wife, or husband, as the case may be, the character of the
contract and its conditions, the nature of each piece of land and its improvements only, and not any other kind of real estate or
properties, its situation, boundaries, area in square meters, whether or not the boundaries of the property are visible on the land
by means of monuments or otherwise, and in the affirmative case, in what they consist; the permanent improvements existing on
the property; the page number of the assessment of each property in the year when the entry is made, and the assessed value
of the property for that year; the notary or the officer who acknowledged, issued, or certified the instrument or deed; the name
of the person or persons who, according to the instrument, are in present possession of each property; a note that the land has
not been registered under Act Numbered Four hundred and ninety-six nor under the Spanish Mortgage Law; that the parties
have agreed to register said instrument under the provisions of this Act, and that the original instrument has been filed in the
office of the register of deeds, indicating the file number, and that the duplicate has been delivered to the person concerned;
the exact year, month, day, hour, and minute when the original of the instrument was received for registration, as stated in the
day book. It shall also be the duty of the register of deeds to keep an index-book of persons and an index-book of estates,
respectively, in accordance with a form to be also prepared by the Chief of the General Land Registration Office, with the
approval of the Secretary of Justice.
Upon presentation of any instrument or deed relating to real estate not registered under Act Numbered Four hundred and
ninety-six and its amendments or under the Spanish Mortgage Law, which shall be accompanied by as many duplicates as there
are parties interested, it shall be the duty of the register of deeds to ascertain whether said instrument has all the requirements for
proper registration. If the instrument is sufficient and there is no legitimate objection thereto, or in case of there having been one,
if the same has been dismissed by final judgment of the courts, and if there does not appear in the register any valid previous
entry that may be affected wholly or in part by the registration of the instrument or deed presented, and if the case does not
come under the prohibition of section fourteen hundred and fifty-two of Act Numbered Twenty-seven hundred and eleven, the
register of deeds shall register the instrument in the proper book. In case the instrument or deed presented has defects
preventing its registration, said register of deeds shall refuse to register it until the defects have been removed, stating in writing
his reasons for refusing to record said instrument as requested. Any registration made under this section shall be understood to be
without prejudice to a third-party with a better right.

The register of deeds shall be entitled to collect in advance as fees for the services to be rendered by him in accordance with
this Act, the same fees established for similar services relating to instruments or deeds in connection with real estate in section
one hundred fourteen of Act Numbered Four hundred ninety-six entitled “The Land Registration Act,” as amended by Act
Numbered Two thousand eight hundred and sixty-six. (Emphasis in the original; bold italics supplied.)

Although a deed or instrument affecting unregistered lands would be valid only between the parties thereto, third parties would
also be affected by the registered deed or instrument on the theory of constructive notice once it was further registered in
accordance with Section 194, i.e., the deed or instrument was written or inscribed in the day book and the register book for
unregistered lands in the Office of the Register of Deeds for the province or city where the realty was located. As
ruled inGutierrez v. Mendoza-Plaza: chanrobleslaw
36

The non-registration of the aforesaid deed does not also affect the validity thereof. Registration is not a requirement for validity of
the contract as between the parties, for the effect of registration serves chiefly to bind third persons. The principal purpose of
registration is merely to notify other persons not parties to a contract that a transaction involving the property has been entered
into. The conveyance of unregistered land shall not be valid against any person unless registered, except (1) the grantor, (2) his
heirs and devisees, and (3) third persons having actual notice or knowledge thereof. As held by the Court of Appeals, petitioners
are the heirs of Ignacio, the grantor of the subject property. Thus, they are bound by the provisions of the deed of
donation inter vivos.

The effect on third parties of the constructive notice by virtue of the registration of the deed or instrument was aptly illustrated
in Bautista v. Fule, where the Court pronounced that the subsequent buyer of unregistered land sold at an execution sale,
37

which the purchaser at the public auction registered under Act No. 3344 seven days after that sale, was “deemed to have
constructive notice” of the sale, and, therefore, could not be “entitled to the rights of a purchaser in good faith.” The Court
emphasized that as to lands not registered under either the Spanish Mortgage Law or the Land Registration Act, the registration
under Act No. 3344 should produce its effects against third persons if the law was “to have utility at all.” chanrobleslaw
38

It is worth mentioning that Act No. 3344 (approved on December 8, 1926) was the governing law at the time of the execution of
the deed of absolute sale of March 21, 1964 between Casimiro and Aznar Brothers, and the deed of absolute sale of February
17, 1967 between Tanuco and Aznar Brothers. Both deeds were registered pursuant to Section 194; while, on the other hand, the
sale between Adriano and Jose R. Ybañez on June 21, 1978 was covered by the P.D. No. 1529, also known
as theProperty Registration Decree (whose effectivity was upon its approval on June 11, 1978). chanrobleslaw
39

Section 3 of P.D. No. 1529, albeit expressly discontinuing the system of registration under the Spanish Mortgage Law, has
considered lands recorded under that system as unregistered land that could still be recorded under Section 113 of P.D. No. 1529
“until the land shall have been brought under the operation of the Torrens system;” and has provided that “[t]he books of
registration for unregistered lands provided under Section 194 of the Revised Administrative Code, as amended by Act No. 3344,
shall continue to remain in force; provided, that all instruments dealing with unregistered lands shall henceforth be registered
under Section 113 of this Decree.” It is clear, therefore, that even with the effectivity of P.D. No. 1529, all unregistered lands may
still be registered pursuant to Section 113 of P.D. No. 1529, which essentially replicates Section 194, as amended by Act No. 3344,
to the effect that a deed or instrument conveying real estate not registered under the Torrens system should affect only the
40

parties thereto unless the deed or instrument was registered in accordance with the same section. chanrobleslaw
41

The only exception to the rule on constructive notice by registration of the deed or instrument affecting unregistered realty exists
in favor of “a third party with a better right.” This exception is provided in Section 194, as amended by Act No. 3344, to the effect
that the registration “shall be understood to be without prejudice to a third party with a better right;” and in paragraph (b) of
Section 113 of P.D. No. 1529, to the effect that “any recording made under this section shall be without prejudice to a third party
with a better right.” As to who is “a third party with better right” under these provisions is suitably explained in Hanopol v.
Pilapil, a case where the sale of unregistered land was registered under Act No. 3344 but the land was sold twice,
42

as follows:chanRoblesvirtualLawlibrary

It thus appears that the “better right” referred to in Act No. 3344 is much more than the mere prior deed of sale in favor of the
first vendee. In the Lichauco case just mentioned, it was the prescriptive right that had supervened. Or, as also suggested in that
case, other facts and circumstances exist which, in addition to his deed of sale, the first vendee can be said to have better right
than the second purchaser. (Bold emphasis supplied.)
43

The Court also observes in Sales v. Court of Appeals, a case involving parties to a deed of donation who had agreed to register
44

the instrument under Act No. 3344 but failed to do so, that the “better right” of a third party relates to “other titles which a party
might have acquired independently of the unregistered deed such as title by prescription.” But the exception does not
45

obviously apply to the Spouses Ybañez because they acquired their right from Adriano who did not hold any legal or equitable
interest in Lot No. 18563 that he could validly transfer to the Spouses Ybañez.chanrobleslaw

3.
Estoppel by laches did not bar
Aznar Brothers’ right over Lot No. 18563

Unexpectedly, the CA disregarded its aforecited correct conclusion on Aznar Brothers’ ownership of Lot No. 18563, and instead
ruled that estoppel by laches had already barred Aznar Brothers’ “dominical claim” over Lot No. 18563. It
ratiocinated thusly:chanRoblesvirtualLawlibrary

But then, there were pre-existing and supervening circumstances which effectively quashed the dominical claim of plaintiff-
appellant over the subject land. Plaintiff-appellant was never in possession of the land which it bought. Even after buying the
land from Casimiro Ybañez, plaintiff-appellant did not take possession of it. On the other hand, the heirs of Casimiro Ybañez took
possession of said land upon the latter’s death. Said heirs sold their shares on said land to one of their co-heirs, Adriano Ybañez,
who in turn, sold the whole land to defendant appellees, the spouses Jose and Magdalena Ybañez. The latter continued
possessing said land, tax declared it, paid realty taxes thereon and finally secured a free patent and title over it. Up to the
present, defendant-appellees are in possession of the land as owners thereof.

There is absolutely no doubt that in law, plaintiff-appellant had lost its dominical and possessory claim over the land for its
inaction from 1964 when it bought the land up to 1989 when it filed the Complaint in the trial court – or a long period of 25 years.
This is called estoppel by laches.46

Aznar Brothers now assails this adverse ruling under its first assigned error by pointing out that the CA erred in relying on estoppel
by laches, a rule of equity, to bar its “dominical claim” over Lot No. 18563. It insists that its action to declare the nullity of
the Extrajudicial Declaration of Heirs with Extrajudicial Settlement of Estate of Deceased Person and Deed of Absolute Sale dated
August 29, 1977, and the Deed of Absolute Sale of June 21, 1978 was imprescriptible under Article 1410 of theCivil Code; and
that on the assumption that accion publiciana would prescribe in ten years, its filing of the original complaint on May 26, 1989
was done within the 10-year period counted from August 14, 1979, the date of the issuance of OCT No. 2150 in the name of Jose
R. Ybañez.

The Spouses Ybañez counter that the CA was correct because Aznar Brothers did not assert possession and ownership over the
land for 25 years; that it brought its complaint only in 1989 after they had undergone the proceedings in rem for the issuance of
OCT No. 2150; that it did not challenge their application for the free patent or the proceedings for the issuance of OCT No. 2150;
that it did not also oppose the conduct of the survey of the land relevant to the application for the free patent despite the
notice of the survey given by the surveying engineer to the adjoining lot owners; that during the hearing of the case, Jose
R. Ybañez testified that only three hectares of the land originally owned by Casimiro had been sold to it, the rest having been
retained by Casimiro that became the subject of the extrajudicial settlement by his heirs, who had then sold that retained
portion to Jose R. Ybañez; that the tax declarations presented by it described property distinct from that covered by OCT No.
2150, although it claimed that the same property had been sold to it twice by Casimiro and Tanuco; and that on at least three
occasions, it had attempted to buy the lot from them but the negotiations did not push through.

We hold and declare that the CA’s ruling in favor of the Spouses Ybañez was devoid of legal and factual support, and should be
rightfully reversed.

Laches is the failure or neglect for an unreasonable and unexplained length of time to do that which by exerting due diligence a
party could and should have done earlier. A suit that is barred on the ground of laches is also called a stale demand. Laches is
47

based on grounds of public policy that requires, for the peace of society, the discouragement of stale claims and, unlike the
statute of limitations, is not a mere question of time but is principally a question of the inequity or unfairness of permitting a right or
claim to be enforced or asserted. Tempus enim modus tollendiobligationes et actiones, quia tempus currit contra desides et
48

sui juris contemptores (For time is a means of dissipating obligations and actions, because time runs against the slothful and
careless of their own rights). Truly, the law serves those who are vigilant and diligent, not those who sleep when the law requires
49

them to act. chanrobleslaw

50

For laches to bar a claim, four elements must be shown, namely: (1) conduct on the part of the defendant, or one under whom
he claims, giving rise to a situation of which a complaint is made and for which the complainant seeks a remedy; (2) delay in
asserting the complainant’s right, the complainant having had knowledge or notice of defendant’s conduct and having been
afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event that the relief is
accorded to the complainant, or the suit is not held to be barred. chanrobleslaw
51

The CA incorrectly barred the claim of Aznar Brothers to Lot No. 18563 because of laches. For one, Aznar Brothers immediately
registered the purchase in accordance with Act No. 3344, the law then governing the registration of unregistered land. Its action
in that regard ensured the protection of the law as to its ownership of the land, and evinced that it did not abandon its
ownership. Verily, its maintaining Lot No. 18563 as an unregistered land from then on should not prejudice its rights; otherwise, its
registration pursuant to law would be set at naught. Secondly, the supposed acts of possession of Lot No. 18563 exercised by the
Spouses Ybañez from the time of their purchase from Adriano, including causing it to be surveyed for purposes of the application
for free patent, did not prejudice Aznar Brothers’ interest because the registration under Act No. 3344 had given constructive
notice to the Spouses Ybañez of its prior acquisition of the land. Thereby, the Spouses Ybañez became bound by the sale
from Casimiro to Aznar Brothers, and rendered them incapable of acquiring the land in good faith from Adriano. Consequently,
Jose R. Ybañez’s intervening application for the free patent, the grant of the free patent and the issuance of OCT No. 2150
thereafter did not supplant the superior rights and interest of Aznar Brothers in Lot No. 18563. And, lastly, the
Spouses Ybañez would not suffer any prejudice should Aznar Brothers prevail herein, for Adriano, their predecessor-in-interest, did
not transmit to them any kind or degree of right or interest in Lot No. 18563.

4.
Lot No. 18563, not being land of the
public domain, was not subject to the free patent
issued to the Spouses Ybañez

The Spouses Ybañez’s position rests on their having been issued the free patent and OCT No. 2150.

The records do not support the position of the Spouses Ybañez. Although Jose R. Ybañez declared in paragraph 4 of his
application for the free patent that Lot No. 18563 was public land, and was not then claimed or occupied by any other
person; and further declared under oath in the affidavit submitted to support his application for the free patent that he
52

“recognize(d)” Lot No. 18563 “as public land,” his declarations did not establish that Lot No. 18563 was land of the public
domain. Nor did the Spouses Ybañez show that Jose R. Ybañez had acted in good faith in applying for the free patent pursuant
to Commonwealth Act No. 141 (The Public Land Act), as amended. Instead, they were fully aware of the nature and character
of the land as private. In the Deed of Absolute Sale dated June 21, 1978, Adriano stated that he had been “the absolute owner
in fee simple free from all liens and encumbrances whatsoever” of Lot No. 18563; and that he (Adriano) had held the “perfect
right to convey the same (as) the purchaser of the same as per Extrajudicial Declaration of Heirs with extrajudicial settlement of
estate of deceased person and deed of absolute sale.” In view of the privity between Adriano and the Spouses Ybañez as to
53

the land, the former’s statements concluded the latter. chanrobleslaw

54

In contrast, Aznar Brothers acquired Lot No. 18563 as the private land of Casimiro. In their Deed of Absolute Sale of March 21,
1964, Casimiro expressly warranted that the land was his “own exclusive property.” With the ownership of Aznar Brothers being
55

thus established, the free patent issued to Jose R. Ybañez by the Government was invalid for the reason that the Government
had no authority to dispose of land already in private ownership. The invalidity of the free patent necessarily left OCT No. 2150 a
56

patent nullity. As ruled in Heirs of Simplicio Santiago v. Heirs of Mariano E. Santiago: chanrobleslaw
57

The settled rule is that a free patent issued over a private land is null and void, and produces no legal effects whatsoever. Private
ownership of land – as when there is a prima facie proof of ownership like a duly registered possessory information or a clear
showing of open, continuous, exclusive, and notorious possession, by present or previous occupants – is not affected by the
issuance of a free patent over the same land, because the Public Land Law applies only to lands of the public domain. The
Director of Lands has no authority to grant free patent to lands that have ceased to be public in character and have passed to
private ownership. Consequently, a certificate of title issued pursuant to a homestead patent partakes of the nature of a
certificate issued in a judicial proceeding only if the land covered by it is really a part of the disposable land of the public
domain. (Bold emphasis supplied)

To the same effect was Agne v. Director of Lands, where the Court declared that if land covered by free patent was already
58

the private property of another and, therefore, not part of the disposable land of the public domain, the patentee did not
acquire any right or title to the land.

The principle of indefeasibility of the Torrens title does not protect OCT No. 2150 because the free patent on which the issuance
of the title was based was null and void. A direct attack as well as a collateral attack are proper, for, as the Court declared in De
Guzman v. Agbagala: chanrobleslaw
59

x x x. An action to declare the nullity of a void title does not prescribe and is susceptible to direct, as well as to collateral,
attack. OCT No. P-30187 was registered on the basis of a free patent which the RTC ruled was issued by the Director of Lands
without authority. The petitioners falsely claimed that the land was public land when in fact it was not as it was private land
previously owned by Carmen who inherited it from her parents. x x x.

Nonetheless, it appears that Aznar Brothers actually mounted a direct attack on the title of the Spouses Ybañez. In the original
complaint, Aznar Brothers sought judgment ordering them to “[s]urrender all the documents pertaining to the Free Patent for
cancellation.” Such relief was predicated on the allegation that the land in question “was already adjudicated as private
property of the plaintiff” through the Deed of Absolute Sale of March 21, 1964. Aznar Brothers reiterated the relief in the
amended complaint. In its second amended complaint, it expressly prayed for the “cancellation and annulment” of OCT No.
2150. By such pleadings, it directly attacked OCT No. 2150, because their object was “to nullify the title, and thus challenge the
judgment or proceeding pursuant to which the title was decreed.” chanrobleslaw
60

WHEREFORE, the Court REVERSES and SETS ASIDE the decision promulgated on October 10, 2002 by the Court of Appeals partially
affirming the judgment rendered on March 8, 1996 by the Regional Trial Court, Branch 10, in Cebu
City; DECLARES petitioner AZNAR BROTHERS REALTY COMPANYthe sole and exclusive owner of the unregistered parcel of land
known and described as Lot No. 18563; CANCELS and NULLIFIES Free Patent No. VII-1118514 and Original Certificate of Title No.
2150 of the Registry of Deeds of the Province of Cebu in the name of respondent Jose R. Ybañez, married to Magdalena Marcos;
and ORDERS respondents to pay the costs of suit.

SO ORDERED.