RULE 1
(Signed) ANDRES OJEDA.
G.R. No. L-2352 July 26, 1910
ELADIO ALONSO, plaintiff-appellee, vs. TOMAS VILLAMOR, ET AL., defendants-appellants.
Ledesma, Sumulong and Quintos, for appellants.
J. C. Knudson, for appellee.
MORELAND, J.:
This is an action brought to recover of the defendants the value of certain articles taken from a Roman
Catholic Church located in the municipality of Placer, and the rental value of the church and its
appurtenances, including the church cemetery, from the 11th day of December, 1901, until the month
of April, 1904. After hearing the evidence, the court below gave judgment in favor of the plaintiff for
the sum of P1,581, with interest at 6 per cent from the date of the judgment. The said sum of P1,581
was made up of two items, one of which, P741, was for the value of the articles taken from the church,
and the other, P840, the rental value of the premises during the occupations by defendants. From
this judgment the defendants appealed to this court.
It appears that the defendants were on the 11th day of December, 1901, members of the municipal
board of the municipality of Placer, and that they on that date addressed to the plaintiff in this case,
who was the priest in charge of the church, its appurtenances and contents, the following letter:
PLACER, 11th December, 1901.
R. P. ELADIO ALONSO, Benedicto, Suriago.
ESTEEMED PADRE: After saluting you, we take the liberty of writing you that in the municipality of
which we have charged we have received an order from the provincial fiscal, dated the 5th instant,
which says: "The cemeteries, convents, and the other buildings erected on land belonging to the town
at the expense of the town and preserved by it belong to the town, and for this reason the municipality
is under the obligation of administering them and of collecting the revenues therefrom, and for this
reason we notify you that from this date all of the revenues and products therefrom must be turned
into the treasury of the municipality in order that the people may properly preserve them.
In the same way we notify you that the image of St. Vicente which is now in the church, as it is an
image donated to the people by its owner, by virtue of said order is also the property of said people,
and therefore the alms which are given it by the devotees thereof must be also turned into the
municipal treasury for the proper preservation of the church and for other necessary purposes. We
hope that you will view in the proper light and that you will deliver to the bearer of this letter the key
of the alms box of the said image in order that we may comply with our obligation in conformity with
the dispositions of said order.
We beg to remain as always by your spiritual sons. Q. B. S. M.
TOMAS VILLAMOR.
ANDRES CALINAUAN.
BERNARDINO TANDOY.
EUSEBIO LIRIO.
ELEUTERIO MONDAYA.
MAXIMO DELOLA.
SEGUNDO BECERRO.
ONOFRE ELIMANCE.
On the 13th of December, 1901, the defendants took possession of the church and its appurtenances,
and also of all of the personal property contained therein. The plaintiff, as priest of the church and
the person in charge thereof, protested against the occupation thereof by the defendants, but his
protests received no consideration, and he was summarily removed from possession of the church,
its appurtenances and contents.
The only defense presented by the defendants, except the one that the plaintiff was not the real party
in interest, was that the church and other buildings had been erected by funds voluntarily contributed
by the people of that municipality, and that the articles within the church had been purchased with
funds raised in like manner, and that, therefore, the municipality was the owner thereof.
The question as to the ownership of the church and its appurtenances, including the convent and
cemetery, was before this court on the 23rd day of September, 1908, in an action entitled "The Roman
Catholic Apostolic Church against the municipality of Placer." 1 Substantially the same facts were
presented on the part of the defendants in that case as are presented by the defendants in this. The
question there litigated was the claim upon the part of the municipality of ownership of said church
and its appurtenances on the ground that according to Spanish law the Roman Catholic Apostolic
Church was not the owner of such property, having only the use thereof for ordinary ecclesiastical
and religious purposes, and that the true owner thereof was the municipality or the State by reason
of the contributions by them, or by the people, of the land and of the funds with which the buildings
were constructed or repaired. The court decided in that case that the claim of the defendants was not
well founded and that the property belonged to the Roman Catholic Church. The same question was
discussed and decided in the case of Barlin vs. Ramirez (7 Phil. Rep., 41), and the case of The
Municipality of Ponce vs. Roman Catholic Apostolic Church in Porto Rico (28 Sup. Ct. Rep., 737, 6
Off. Gaz., 1213).
We have made a careful examination of the record and the evidence in this case and we have no
doubt that the property sued for was, at the time it was taken by the defendants, the property of the
Roman Catholic Church, and that the seizure of the same and occupation of the church and its
appurtenances by the defendants were wrongful and illegal. We are also convinced, from such
examination, that the conclusions of the court below as to the value of the articles taken by the
defendants and of the rent of the church for the time of its illegal occupation by the defendants were
correct and proper. While some objection was made on appeal by counsel for the defendants that
the value of the articles taken and of the rent of the church and its appurtenances had not been
proved by competent evidence, no objection to the introduction of the evidence of value was made
at the trial and we can not consider that question raised for the first time here.
We have carefully examined the assignments of error made by counsel for defendants on this appeal.
We find none of them well founded. The only one which deserves especial attention at our hands is
the one wherein the defendants assert that the court below erred in permitting the action to be brought
and continued in the name of the plaintiff instead of in the name of the bishop of the diocese within
which the church was located, or in the name of the Roman Catholic Apostolic Church, as the real
party in interest.
It is undoubted the bishop of the diocese or the Roman Catholic Apostic Church itself is the real party
in interest. The plaintiff personally has no interest in the cause of action. Section 114 of the Code of
Civil Procedure requires that every action must be prosecuted in the name of the real party in interest.
The plaintiff is not such party.
Section 110 of the Code of Civil Procedure, however, provides:
SEC. 110. Amendments in general. — The court shall, in furtherance of justice, and on such terms,
if any, as may be proper, allow a party to amend any pleading or proceeding and at any stage of the
action, in either the Court of First Instance or the Supreme Court, by adding or striking out the name
of any party, either plaintiff or defendant, or by correcting a mistake in the name of a party, or a
mistaken or inadequate allegation or description in any other respect so that the actual merits of the
controversy may speedily be determined, without regard to technicalities, and in the most
expeditious, and inexpensive manner. The court may also, upon like terms, allow an answer or other
pleading to be made after the time limited by the rules of the court for filing the same. Orders of the
court upon the matters provided in this section shall be made upon motion filed in court, and after
notice to the adverse party, and an opportunity to be heard.
Section 503 of the same code provides:
SEC. 503. Judgment not to be reversed on technical grounds. — No judgment shall be reversed on
formal or technical grounds, or for such error as has not prejudiced the real rights of the excepting
party.
We are confident under these provisions that this court has full power, apart from that power and
authority which is inherent, to amend the process, pleadings, proceedings, and decision in this case
by substituting, as party plaintiff, the real party in interest. Not only are we confident that we may do
so, but we are convinced that we should do so. Such an amendment does not constitute, really a
change in the identity of the parties. The plaintiff asserts in his complaint, and maintains that assertion
all through the record, that he is engaged in the prosecution of this case, not for himself, but for the
bishop of the diocese—not by his own right, but by right of another. He seeks merely to do for the
bishop what the bishop might do for himself. His own personality is not involved. His own rights are
not presented. He claims no interest whatever in the litigation. He seeks only the welfare of the great
church whose servant he is. Gladly permits his identity to be wholly swallowed up in that of his
superior. The substitution, then, of the name of the bishop of the diocese, or the Roman Catholic
Apostolic Church, for that of Padre Alonso, as party plaintiff, is not in reality the substitution of one
identity for another, of one party for another, but is simply to make the form express the substance.
The substance is there. It appears all through the proceedings. No one is deceived for an instant as
to whose interest are at stake. The form of its expression is alone defective. The substitution, then,
is not substantial but formal. Defect in mere form can not possibly so long as the substantial is clearly
evident. Form is a method of speech used to express substance and make it clearly appear. It is the
means by which the substance reveals itself. If the form be faulty and still the substance shows plainly
through no, harm can come by making the form accurately expressive of the substance.
No one has been misled by the error in the name of the party plaintiff. If we should by reason of this
error send this back for amendment and new trial, there would be on the retrial the same complaint,
the same answer, the same defense, the same interests, the same witnesses, and the same
evidence. The name of the plaintiff would constitute the only difference between the old trial and the
new. In our judgment there is not enough in a name to justify such action.
There is nothing sacred about processes or pleadings, their forms or contents. Their sole purpose is
to facilitate the application of justice to the rival claims of contending parties. They were created, not
to hinder and delay, but to facilitate and promote, the administration of justice. They do not constitute
the thing itself, which courts are always striving to secure to litigants. They are designed as the means
best adapted to obtain that thing. In other words, they are a means to an end. When they lose the
character of the one and become the other, the administration of justice is at fault and courts are
correspondingly remiss in the performance of their obvious duty.
The error in this case is purely technical. To take advantage of it for other purposes than to cure it,
does not appeal to a fair sense of justice. Its presentation as fatal to the plaintiff's case smacks of
skill rather than right. A litigation is not a game of technicalities in which one, more deeply schooled
and skilled in the subtle art of movement and position, entraps and destroys the other. It is, rather, a
contest in which each contending party fully and fairly lays before the court the facts in issue and
then, brushing aside as wholly trivial and indecisive all imperfections of form and technicalities of
procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a
rapier's thrust. Technicality, when it desserts its proper office as an aid to justice and becomes its
great hindrance and chief enemy, deserves scant consideration from courts. There should be no
vested rights in technicalities. No litigant should be permitted to challenge a record of a court of these
Islands for defect of form when his substantial rights have not been prejudiced thereby.
In ordering this substitution, we are in accord with the best judicial thought. (McKeighan vs. Hopkins,
19 Neb., 33; Dixon vs. Dixon, 19 Ia., 512; Hodges vs. Kimball, 49 Ia., 577; Sanger vs. Newton, 134
Mass., 308; George vs. Reed, 101 Mass., 378; Bowden vs. Burnham, 59 Fed. Rep., 752; Phipps and
Co. vs. Hurlburt, 70 Fed. Rep., 202; McDonal vs. State, 101 Fed. Rep., 171; Morford vs. Diffenbocker,
20 N. W., 600; Costelo vs. Costelo vs. Crowell, 134 Mass., 280; Whitaker vs. Pope, 2 Woods, 463,
Fed. Cas. no. 17528; Miller vs. Pollock, 99 Pa. St., 202; Wilson vs. Presbyterian Church, 56 Ga., 554;
Wood vs. Circuit Judge, 84 Mich., 521; Insurance Co, vs. Mueller, 77 Ill., 22; Farman vs. Doyle, 128
Mich., 696; Union Bank vs. Mott, 19 How. Pr., 114; R. R. Co. vs. Gibson, 4 Ohio St., 145; Hume vs.
Kelly, 28 Oreg., 398.)
It is therefore, ordered and decreed that the process, pleadings, proceedings and decision in this
action be, and the same are hereby, amended by substituting the Roman Catholic Apostolic Church
in the place and stead of Eladio Alonso as party plaintiff, that the complaint be considered as though
originally filed by the Catholic Church, the answer thereto made, the decision rendered and all
proceedings in this case had, as if the said institution which Father Eladio Alonso undertook to
represent were the party plaintiff, and that said decision of the court below, so amended, is affirmed,
without special finding as to the costs.
Arellano, C. J., Torres, Johnson and Trent, JJ., concur.
RULE 2
G.R. No. L-29155 November 5, 1928
JOSEFINA RUBIO DE LARENA, plaintiff-appellant, vs. HERMENEGILDO VILLANUEVA,
defendant-appellee.
Abad Santos, Camus and Delgado and Jose Montano for appellant.
Del Rosario and Del Rosario for appellee.
OSTRAND, J.:
The case at bar is a sequel to case G. R. No. 21706, Josefina Rubio de Larena vs. Hermenegildo
Villanueva, decided on March 26, 1924. 1 In that case we affirmed a decision of the Court of First
Instance ordering the rescission of a lease of the Tacgajan Sugar Plantation and the payment by the
defendant-lessee of the unpaid balance of the rent for the agricultural year 1920-1922 in the sum of
P5,949.28 with interest from August 26, 1922, an for P8,000 in rent for the agricultural year 1921-
1923. The decision also provided that the possession of the leased land be delivered to the plaintiff.
Shortly after the record was returned to the court below, a writ of execution was issued, but before
levy was made the parties came to an agreement, under which the money judgment was to be
satisfied by the payment of P10,500 in cash and the transfer to the plaintiff of a dwelling house
situated in the municipality of Bais. The agreement was carried out in accordance with its terms, and
on September 30, 1924, the following document was executed by the plaintiff:
Habiendo llegado a un convenio entre la que subscribe, ejecutante, en la causa civil
No. 67 decidida por la Corte Suprema, y el ejecutado, Don Hermenegildo
Villanueva, por la presente declaro haber recibido del Sheriff Provincial de Negros
Oriental, y mi entera satisfaccion la suma de diez mil quinientos pesos (P10,500),
mas una casa residencial con su solar, situada en la plaza del Municipio de Bais,
Provincia de Negros Oriental, cuyas descripciones aparecen an un ocumento
aparte, por el importnte de la ejecusacion expidida por el Jusgado de Negros
Oriental al 14 de mayo de 1924, en vitud de una decision de la Corte Suprema. Con
este queda definitivamente cumplimentada esta ejecucion.
Y para que asi conste, firmo la presente en el Municipio de Bais, Provincia de
Negros Oriental, I. F., ante el Sheriff Provincial de esta Provincia de Negros Oriental
y el Notario Publico Don Francisco Romero, que ratifica este compromiso.
(Fda.) JOSEFINA RUBIO, Vda. DE LARENA
Firmado en presencia de:
(Fdos.) BRAULIO RUBIO
FRANCISCO PINERO
(ACKNOWLEDGMENT)
In the meantime, the defendant had harvested the sugarcane crop produced in the agricultural year
1922-1924, and after having satisfied the aforesaid money judgment, he also continued in possession
of the plantation long enough to appropriate to himself the following ratoon cane crop.
The present action was brought on April 13, 1925, but the last amended complaint, setting forth three
causes of action, was not filed until June 17, 1927. As her first cause of action the plaintiff, after a
preliminary statement of the origin of the controversy, alleges that while case G. R. No. 21706 was
on appeal to the Supreme Court, the defendant knew positively that the aforesaid lease was declared
rescinded by the Court of First Instance on September 8, 1923, and that he, the defendant, also knew
that he thereafter was not entitled to the possession of the aforesaid hacienda; that he, nevertheless,
in bad faith continued in such possession during the agricultural year 1922-1924 and appropriated to
himself the cane harvest for that year, which after deducting the share of the sugar central, produced
1,679.02 piculs for his own benefit, which sugar was sold by him for the sum of P13 a picul; that the
plaintiff has demanded payment to her of the total value of said 1,679.02 piculs, amounting to
P21,827.26, but that the defendant refuses to pay. The plaintiff, therefore, asks judgment for the sum
of P21,827.26 upon the first cause of action.
For the second cause of action the plaintiff alleges that under the contract of lease of the Tacgajan
Hacienda, one of the obligations assumed by the defendant was that he would use the care of a good
father of the family in conserving the tools, agricultural implements, draft animals, and other effects
enumerated in an inventory made at the time the defendant entered in possession under the lease;
that he was further obligated to return said property to the plaintiff, but that he return said property to
the plaintiff, but that he returned only a part that he returned only a part thereof and failed to returned
only a part thereof and failed to return 4 carabaos, 4 vacunos, 1 corn mill, 4 wagons, 106 steel rails,
14 plows, 1 table, 1 scale, an 1 telephone, the total value of the property enumerated being P3,596
for which amount, plus P500 in damages, the plaintiff asks judgment under her second cause of
action.
As a third cause of action the plaintiff alleges that the harvest of sugar cane illegally made by the
defendant in 1924 left ratoon sugar cane in the fields of the hacienda, which sugar can was the
property of the plaintiff, and that during the year 1925, the defendant illegally harvested said ratoon
cane together with some recently planted cane, which harvested after deducting the share of the
sugar central, produced 1,613.25 piculs of sugar, which the defendant sold for his own benefit at the
price of P13 per picul, the total amount received by him being P20,962.25 for which the plaintiff
demands judgment. lawphi1.net
In his answer to the first and third causes of action, the defendants alleges that according to the
pleadings in case G. R. No. 21706, the two causes of action were included in that case and, therefore,
must be considered res adjudicata. In regard to the second cause of action the defendant pleads the
general issue and sets up as a special defense that assuming that the property referred to in said
cause of action was missing, it loss was due to its total extinction by ordinary use, for which the
defendant could not be held responsible. For all three causes of action, the defendant sets up as a
special defense the document executed by the plaintiff on September 30, 1924, acknowledging the
satisfaction of the judgment in case G. R. No. 21706.
Upon trial the Court of First Instance sustained the defendant's special defense and absolved him
from the complaint with the cost against the plaintiff, whereupon the latter appealed to this court.
We do not think that the court below erred in absolving the defendant from liability upon the second
cause of action. It is not without significance that in her original complaint the plaintiff claimed only 5
plows, 6 carts, 3 carabaos an 4 vacunos, the total value of which was alleged to be P1,360; in the
first amended complaint filed over two years later, the same claim was made, but in the last amended
complaint a number of other articles were included, thus increasing the claim to P3,596. The court
below found that the weight of the evidence showed that the missing draft animals died from
rinderpest and that the other personal property was turned over to the provincial sheriff for delivery
to the plaintiff before the writ of execution was returned to the court. If so, the action would lie against
the sheriff rather than against the defendant.
As to the first cause of action the defendant argues that it was included in the prayer of an amended
complaint filed in case G. R. No. 21706 and that, although no express determination thereof was
made in the decision of the case, it must, nevertheless, be regarded as res judicata. That such is not
the case is very clear. The Code of Civil Procedure says:
That only is deemed to have been so adjudged in a former judgment which appears upon its face to
have been so adjudged, or which was actually and necessarily included therein or necessary thereto.
(Sec. 307, Code of Civil Proc.)
But the defendant maintains that the plaintiff having had an opportunity to ventilate the matter in the
former case, she cannot now enforce the same cause of action in the present case. Properly
speaking, this argument does not involve the doctrine of res judicata but rests on the well-known an,
in American law, firmly established principle that a party will not be permitted to split up a single cause
of action an make it the basis for several suits. But that is not this case. The rule is well established
that when a lease provides for the payment of the rent in separate installments, each installment is
an independent cause of action, though it has been held and is good law, that in an action upon such
a lease for the recovery of rent, the installments due at the time the action brought must be included
in the complaint an that failure to o so will constitute a bar to a subsequent action for the payment of
that rent. The aforesaid action, G. R. No. 21706, was brought on August 23, 1922, the plaintiff
demanding payment of then sue rent in addition to the rescission of the lease. On July 27, 1923, the
plaintiff filed a motion for an amendment to paragraph 6 of the complaint adding to that paragraph
the following sentence:
Que tambien ha vencido ya el tercer ano el arrendamiento de la finca en cuestion y que tampoco ha
pagado el demandao el canon correspondiente a icho ano.
The plaintiff also amended the prayer of the complaint by asking judgment for rent for years
subsequent to 1922. The motion was granted, and the case came up for trial on July 30, 1923, and
on September 8, 1923, the trial court rendered its decision giving judgment for rent up to and including
the rent for the agricultural year ending in 1923. The lease did not provide for payment of rent in
advance or at any definite time, an it appears plainly from the record that the rent for an agricultural
year was not considered due until the end of the corresponding year. It follows that the rent for the
agricultural year 1922-1924 ha not become sue time of the trial of the case and that consequently
the trial court could not render judgment therefore. The action referred to is, therefore, no bar to the
first cause of action in the present litigation.
The defendant places much weigh upon the document of September 30, 1924, hereinbefore quoted.
The document speaks for itself, and it will be readily seen that it is merely a receipt for the satisfaction
of the money judgment in the case G. R. No. L-21706 and has nothing to with the present case.
The only question in regard to the first cause of action relates to the amount of the damages. The
plaintiff contends that the defendant was a possessor in bad faith, and therefore, must pay the value
of the fruits of the land in accordance with article 455 of the Civil Code. Under the circumstances of
the case, we cannot so hold. The defendant held possession under the contract of lease until said
contract was rescinded. The contract contained no special provision for the procedure in effecting
the rescission, and it follows that it could only be accompanied by a final judgment of the court. The
judgment in case G. R. No. L-210706 did not become final until March 27, 192, when our decision on
appeal was rendered. As that must have been close to the end of the harvest and milling of the sugar
crop for the period to which the first cause of action refers, we do not think that the defendant should
be required to pay more than the amount of the stipulated rent for the period, i. e., the sum of P8,000
with interest rent for that period, i. e., the sum of P8,000 with interest. (Lerma vs. De la Cruz, 7 Phil.,
581.)
The action for terminating the lease was brought under article 1124 of the Civil Code, an it may,
perhaps, he said that properly speaking, the subject matter of the action was a resolution of the
contract an not a rescission. That may be true, but it is a distinction without a difference; in their case
a judicial declaration would be necessary for the cancellation of the contract in the absence of a
special agreement.
Very little need be said in regard to the third cause of action. It relates to a period subsequent to the
complete termination of the lease by final judicial order. The defendant had then no right whatever to
the possession of the land or to the fruits thereof, and in removing the fruits, he acted in bad faith.
This being the case, he must pay for the fruits received by him, less the necessary expenses of
production. (Arts. 455 and 453 of the Civil Code.) As his bad faith commence long before the fruits in
question were produced, he is not entitled to any part of the net proceeds of the crop. The evidence
shows that the net ratoon crop of the year 1924-1925 was 1,613.25 piculs of sugar, and according to
the defendant's own statement, the market value of the sugar was in the neighborhood of P11 per
picul an the costs of production about P4.50. The net result is that under the third cause of action,
the defendant must pay to the plaintiff the sum of P10,486.13 with interest.
For the reason stated, the judgment of the court below is affirmed in regard to the second cause of
action. It is reversed as to the first and third causes of action, and it is hereby ordered that the plaintiff
have and recover from the defendant the sum of P18,486.13 with interest at the rate of 6 per cent
per annum from April 13, 1925, the date of the filing of the complaint. No costs will be allowed. So
ordered.
Avanceña, C. J., Johnson Street, Malcolm, Villamor, Romualdez, an Villa-Real, JJ., concur.
ORDER AMENDING DECISION
December 10, 1928
OSTRAND, J.:
In the motion filed by the defendant on November 14, 1928 our attention is called to a mathematical
error in that we, in discussing the plaintiff's third cause of action, failed to take into consideration the
fact that one-half of the gross ratoon crop produced on the land in question in the agricultural year
1924-1925 was ceded to the sugar central as compensation for the milling of the cane and that the
defendant paid the expenses of the production of the total or gross crop. Page 8 of the aforesaid
decision is therefore amended so as to read as follows:
Very little need be said in regard to the third cause of action. It relates to a period subsequent to
complete termination of the lease by final judicial order. The defendant had then no right whatever to
the possession of the land or to the fruits thereof, and in removing the fruits, he acted in bad faith.
This being the case, he must pay for the fruits received by him, less the necessary expenses of
production (Arts. 455 and 453 of the Civil Code.) As his bad faith commenced long before the fruits
in question were produced, he is not entitled to any part of the net proceeds of the crop. The evidence
shows that the gross ratoon crop for the year 1924-1925 was 3,226.50 piculs of sugar, and according
to the defendant's own statement, the market value of the sugar was in the neighborhood of P11 per
picul and the cost of production about P4.50. The defendant received only one-half of the gross crop,
the other half going to the sugar central as compensation for the milling of the cane, but the defendant
paid the cost of production both of his share of the sugar and that of the sugar central. The net result
is that under the third cause of action, the defendant must pay to the plaintiff the sum of P3,226.50
with interest.
"For the reasons stated, the judgment of the court below is affirmed in regard to the second cause of
action. It is reversed as to the first an third causes of action, an it is hereby ordered that the plaintiff
have and recover from the defendant the sum of P11,226.50 with interest at the rate of 6 per cent
per annum from April 13, 1925, the date of the filing of the complaint. No costs will be allowed." So
ordered.
G.R. No. L-32958 November 8, 1930
BLOSSOM AND COMPANY, INC., plaintiff-appellant, vs. MANILA GAS CORPORATION,
defendant-appellee.
Harvey and O'Brien for appellant.
Ross, Lawrence and Selph and John B. Miller for appellee.
STATEMENT
In its complaint filed March 3, 1927, the plaintiff alleges that on September 10, 1918, it entered into
a contract with the defendant in which the plaintiff promised and undertook to purchase and receive
from the defendant and the defendant agreed to sell and deliver to the plaintiff, for a period of four
years, three tons of water gas tar per month from September to January 1, 1919 and twenty tons per
month after January 1, 1919, for the remaining period of the contract; one-half ton of coal gas tar a
month from September to January 1, 1919, and six tons per month after January 1, 1919, for the
remainder of the contract, delivery to be made at the plant of the defendant in the City of Manila,
without containers and at the price of P65 per ton for each kind of gas tar, it being agreed that this
price should prevail only so long as the raw materials — coal and crude oil —used by the defendant
in the manufacture of gas should cost the defendant the same price as that prevailing at the time of
the contract, and that in the event of an increase or decrease in the cost of raw material there would
be a corresponding increase or decrease in the price of the tar. That on January 31, 1919, this
contract was amended so that it should continue to remain in force for a period of ten years from
January 1, 1919, and it was agreed that the plaintiff should not be obliged to take the qualities of the
tars required during the year 1919, but that it might purchase tars in such quantities as it could use
to advantage at the stipulated price. That after the year 1919 the plaintiff would take at least the
quantities specified in the contract of September 10, 1918, to be taken from and after January 1,
1919, and that at its option it would have the right to take any quantity of water gas tar in excess of
the minimum quantity specified in that contract and up to the total amount of output of that tar of
defendant's plant and also to take any quantity of coal gas tar in excess of the minimum quantity
specified in that contract and up to 50 per cent of defendant's entire output of coal gas tar, and that
by giving the defendant ninety days' notice, it would have the right at its option to take the entire
output of defendant's coal gas tar, except such as it might need for its own use in and about its plant.
That in consideration of this modification of the contract of September 10, 1918, plaintiff agreed to
purchase from the defendant of certain piece of land lying adjacent to its plant at the price of P5 per
square meter, the proof of which is evidenced by Exhibit C. That pursuant to Exhibit C, defendant
sold and conveyed the land to the plaintiff which in turn executed a mortgage thereon to the defendant
for P17,140.20, to secure the payment of the balance of the purchase price.
It is then alleged:
VIII. That about the last part of July, 1920 the defendant herein, the Manila Gas Corporation willfully,
and deliberately breached its said contract, Exhibit C, with the plaintiff by ceasing to deliver any coal
and water gas tar to it thereunder solely because of the increased price of its tar products and its
desire to secure better prices therefor than plaintiff was obliged to pay to it, notwithstanding the
frequent and urgent demands made by the plaintiff upon it to comply with its aforesaid contract by
continuing to deliver the coal and water gas tar to the plaintiff thereunder, but the said defendant flatly
refused to make any deliveries under said contract, and finally on November 23, 1923, the plaintiff
was forced to commence action against the defendant herein in the Court of First Instance of Manila,
being case No. 25352, of that court entitled 'Blossom & Co., plaintiff, vs. Manila Gas Corporation,
defendant,' to recover the damages which it had up to that time suffered by reason of such flagrant
violation of said contract on the part of the defendant herein, and to obtain the specific performance
of the said contract and after due trial of that action, judgment was entered therein in favor of the
plaintiff herein and against the said defendant, the Manila Gas Corporation, for the sum of
P26,119.08, as the damages suffered by this plaintiff by the defendant's breach of said contract from
July, 1920, up to and including September, 1923, with legal interest thereon from November 23, 1923,
and for the costs but the court refused to order the said defendant to resume the delivery of the coal
and water gas tar to the plaintiff under said contract, but left the plaintiff with its remedy for damages
against said defendant for the subsequent breaches of said contract, which said decision, as shown
by the copy attached hereto as Exhibit G, and made a part hereof, was affirmed by our Supreme
Court on March 3, 1926;
IX. That after the defendant had willfully and deliberately violated its said contract as herein-before
alleged, and the plaintiff suffered great damage by reason thereof, the plaintiff claimed the right to
off- set its damages against the balance due from it to said defendant on account of the purchase of
said land from the defendant, and immediately thereupon and notwithstanding said defendant was
justly indebted to the plaintiff at that time as shown by the judgment of the Court Exhibit G, in more
that four times the amount due to it from the plaintiff, the said defendant caused to be presented
against the plaintiff a foreclosure action, known as the Manila Gas Corporation versus Blossom &
Company, No. 24267, of the Court of First Instance of Manila, and obtained judgment therein ordering
that Blossom & Company pay the last installment and interest due on said land or else the land and
improvements placed thereon by the plaintiff would be sold as provided by law in such cases to satisfy
the same, and the said defendant proceeded with the sale of said property under said judgment and
did everything in its power to sell the same for the sole purpose of crushing and destroying the
plaintiff's business and thus rendering it impossible for the plaintiff herein to continue with its said
contract in the event that said defendant might in the future consider it more profitable to resume
performance of the same, but fortunately the plaintiff was able to redeem its property as well as to
comply with its contract and continued demanding that the defendant performed its said contract and
deliver to it the coal and water gas tar required thereby.
That the defendant made no deliveries under its contract, Exhibit C, from July, 1920 to March 26,
1926, or until after the Supreme Court affirmed the judgment of the lower court for damages in the
sum of P26, 119.08. 1
It is then alleged that:
. . . On March 26, 1926 the said defendant offered to resume delivery to the plaintiff from that date of
the minimum monthly quantities of tars stated in its contract ,and the plaintiff believing that the said
defendant was at least going to try to act in good faith in the further performance of its said contract,
commenced to accept deliveries of said tars from it, and at once ascertained that the said defendant
was deliberately charging it prices much higher than the contract price, and while the plaintiff
accepted deliveries of the minimum quantities of tars stated in said contract up to and including
January, 1927, (although it had demanded deliveries of larger quantities thereunder, as hereinafter
alleged) and paid the increased prices demanded by the defendant, in the belief that it was its duty
to minimize the damages as much as possible which the defendant would be required to pay to it by
reason of its violation of said contract, it has in all cases done so under protest and with the express
reservation of the right to demand from the said defendant an adjustment of the prices charged in
violation of its contract, and the right to the payment of the losses which it had and would suffer by
reason of its refusal to make additional deliveries under said contract, and it also has continuously
demanded that the said defendant furnish to it statements supported by its invoices showing the cost
prices if its raw materials — coal and crude oil — upon which the contract price of the tars in question
is fixed, which is the only way the plaintiff has to calculate the true price of said tars, but said
defendant has and still refuses to furnish such information, and will continue to refuse to do so, unless
ordered to furnish such information to the plaintiff by the court, and the plaintiff believes from the
information which it now has and so alleges that the said defendant has overcharged it on the
deliveries of said tars mentioned in the sum of at least P10,000, all in violation of the rights of the
plaintiff under its said contract with the defendant.
That on January 31, 1926 and pursuant to Exhibit C. plaintiff notified the defendant in writing that
commencing with the month of August, 1926 it desired to take delivery of 50 per cent of defendant's
coal tar production for that month and that on November 1, 1926, it desired to take the entire output
of defendant's coal gas tar, but that the defendant refused and still refuses to make such deliveries
unless plaintiff would take all of its water gas tar production with the desired quantity of coal gas tar
which refusal was a plain violation of the contract. That on January 29, 1927, and in accord with
Exhibit C, plaintiff notified the defendant in writing that within ninety days after the initial delivery to it
of its total coal gas tar production or in February, 1927, it would require 50 per cent of its total water
gas tar production and that in April 1927, it would require the total output of the defendant of both
coal and water gas tars, and that it refused to make either of such deliveries.
It is then alleged:
XIV. That as shown by the foregoing allegations of this complaint, it is apparent that notwithstanding
the plaintiff in this case has at all times faithfully performed all the terms and conditions of said
contract, Exhibit C, on its part of be performed, and has at all times and is now ready, able and willing
to accept and pay for the deliveries of said coal and water gas tars required by said contract and the
notices given pursuant thereto, the said defendant, the Manila Gas Corporation, does not intend to
comply with its said contract, Exhibit C, and deliver to the plaintiff at the times and under the terms
and conditions stated therein the quantities of coal and water gas tars required by said contract, and
the several notices given pursuant thereto, and that it is useless for the plaintiff to insist further upon
its performance of the said contract, and for that reason he only feasible course for the plaintiff to
pursue is to ask the court for the rescission of said contract and for the full damages which the plaintiff
has suffered from September, 1923, and will suffer for the remainder of said contract by reason of
the defendant's failure and refusal to perform the same, and the plaintiff has so notified the said
defendant.
That since September, 1923, by reason of the bad faith of the defendant, the plaintiff has been
damaged in the sum of P300,000, for which it prays a corresponding judgment, and that the contract,
Exhibit C, be rescinded and declared void and without force and effect.
After the filing and overruling of its demurrer, the defendant filed an answer in the nature of a general
and specific denial and on April 10, 1928, and upon stipulation of the parties, the court appointed W.
W. Larkin referee, "to take the evidence and, upon completion of the trial, to report his findings of law
and fact to the court."
July 18, 1928, the defendant filed an amended answer in which it alleged as an affirmative defense,
first, that the complaint does not state facts sufficient to constitute cause of action the reason that a
prior adjudication has been had of all the issues involved in this action, and, second, "that on or about
the 16th day of June, 1925, in an action brought in the Court of First Instance of the City on Manila,
Philippine Islands, before the Honorable Geo. R. Harvey, Judge, by Blossom & Company, plaintiff,
vs. Manila Gas Corporation, defendant, being civil case No. 25353, of said court, for the same cause
of action as that set fourth in the complaint herein, said plaintiff recovered judgment upon the merits
thereof, against said defendant decreeing a breach of the contract sued upon herein, and awarding
damages therefor in the sum of P26,119.08 with legal interest from November 23, 1923, and costs
of suit, which judgment was upon appeal affirmed by the Supreme Court of the Philippine Islands, in
case G. R. No. 24777 of said court, on the 3d day of March, 1926 and reported in volume 48
Philippines Reports at page 848," and it prays that plaintiff's complaint be dismissed with costs.
After the evidence was taken the referee made an exhaustive report of sixty-pages in which he found
that the plaintiff was entitled to P56,901.53 damages, with legal interest from the date of the filing on
the complaint, to which both parties filed numerous exceptions
In its decision the court says:
Incidental references have been made to the referee's report. It was admirably prepared. Leaving
aside the question of damages and the facts upon which the referee assessed them, the facts are
not in dispute — at least not in serious dispute. They appear in the documentary evidence and this
decision is based upon documents introduced into evidence by plaintiff. If I could have agreed with
the referee in respect to the question of law, I should have approved his report in toto. If defendant
is liable for the damages accruing from November 23, 1923, the date the first complaint was filed, to
April 1st, 1926, the date of resumption of relations; and if defendant, after such resumption of
relations, again violated the contract, the damages assessed by the referee, are, to my way of
thinking, as fair as could be estimated. He went to tremendous pains in figuring out the details upon
which he based his decision. Unfortunately, I cannot agree with his legal conclusions and the report
is set aside except wherein specifically approved.
It is unnecessary to resolve specifically the many exceptions made by both partied to the referee's
report. It would take much time to do so. Much time has already been spent in preparing this decision.
Since both parties have informed me that in case of adverse judgment ,and appeal would be taken,
I desire to conclude the case so that delay will be avoided.
Let judgment be entered awarding damages to plaintiff in the sum of P2,219.60, with costs.
From which plaintiff only appealed and assigns twenty-four different errors, of which the following are
material to this opinion:
I. The trial court erred in holding that this suit in so far as the damages from November, 1923, to
March 31, 1926, are concerned , is res adjudicata.
II. The trial court erred in holding that the defendant repudiated the contract in question as a whole,
and that the plaintiff when it brought its first suit to collect damages had already elected and
consented to the dissolution of the contract, and its choice once made, being final, it was estopped
to claim that the contract was alive when that suit was brought.
xxx xxx xxx
VII. The trial court erred in refusing to sustain plaintiff's third exception to the legal interpretation
placed on the contract in this case by the referee with reference to quantity of tars and his conclusion
with respect to the terms thereof that:
"1. Plaintiff must take and defendant must deliver either the minimum or maximum quantity of water
gas tar and not any quantity from the minimum to the maximum and/or
"2. Plaintiff must take either the minimum and any quantity up to fifty per cent of entire output of coal
gas tar.
"3. With ninety days' notice by plaintiff to defendant the former must take and the latter must deliver
total output of both tars, except such as might be needed by defendant for use in and about its plants
and not any quantity from the minimum up to total output of both tars." (See page 47, Referee's
report.)
And in holding that the option contained in said contract, taking into consideration the purposes of
both parties in entering into the contract, was a claimed by defendant: all the water gas tar and 50
per cent of the coal gas tar upon immediate notice and all tars upon ninety day's notice.
VIII. The trial court erred in refusing to sustain plaintiff's fourth exception to the finding and conclusion
of the referee that from the correspondence between the parties it was apparent that plaintiff did not
make a right use of its option, and that the letter of June 25, 1926, and the subsequent demands,
with exception of the letter of July 31, 1926, were not made in pursuance to the terms of the contract,
and that defendant had no liability in refusing to comply therewith, and in allowing plaintiff damages
only for the failure of the defendant to deliver quantities shown in Exhibits Ref. 21 and 22. (See pages
51, 52, Referee's report.)
IX. The trial court erred in finding and holding that the demands of plaintiff for additional tars under
its contract with the defendant were extravagant and not made in good faith, and that when it wrote
to defendant that it desired maximum quantities of coal gas tars and only minimum of water gas tars,
but with the reservation of going back to minimum quantities of both at any time it chose, it announced
its intention f breaching the contract, and defendant was under no obligation to deliver maximum
quantities of either tars, and since this was the efficient cause of the failure of defendant to deliver or
plaintiff to accept tars, the blame is attribute to plaintiff, and it cannot recover for a rescission.
xxx xxx xxx
XXIII. The trial court erred in refusing to sustain plaintiff's seventeenth exception to the finding and
conclusion of the referee that the plaintiff is entitled to recover from the defendant only the following
sums:
Water gas tar (Exhibit Ref. 21) P38,134.60
Coal gas tar (Exhibit Ref. 22) 16,547.33
Overcharges on deliveries (Exhibit Ref. 23) 2,219.60
or a total of
56,901.53
with interest, and in not awarding to the plaintiff as damages in this case the sum of P319,253.40,
with legal interest thereon from the date of filing the complaint in this case, in the manner and form
computed but it, and in awarding damages to the plaintiff for the sum of only P2,219.60. with costs.
xxx xxx xxx
JOHNS, J.:
In this action plaintiff seeks to recover damages from the defendant which it claims to have sustained
after September, 1923, arising from, and growing out of, its original contract of September 10, 1918,
as modified on January 1, 1919, to continue for a period of ten years from that date.
In paragraph VIII of its complaint, plaintiff alleges that about the last part of July, 1920, the defendant
"willfully and deliberately breached its said contract," and that it "flatly refused to make any deliveries
under said contract, and finally on November 23, 1923," it was forced to commence action in the
Court of First Instance against the defendant known as case No. 25352, to recover the damages
which it had then sustained by reason of such flagrant violation of said contract on the part of the
defendant, in which judgment was rendered in favor of the plaintiff and against the defendant for
P26,1119.08, as damages suffered by this plaintiff by the defendant's breach of said contract from
July 1920, up to and including September, 1923, with legal interest thereon from November 23, 1923,
and for the costs," in which the court refused to order the defendant to resume the delivery of the
coal and water gas tar to the plaintiff, in accord with said contract, but left it with its remedy for
damages against the defendant for any subsequent breaches of the contract. A copy of that
judgment, which was later affirmed by this court, is attached to, marked Exhibit G, and made a part
of, the complaint in this action.
In their respective briefs, opposing counsel have much to say about the purpose and intent of the
judgment, and it is vigorously asserted that it was never intended that it should be or become a bar
to another action by the plaintiff to recover any damages it may have sustained after September,
1923, during the remainder of the ten-year period of that contract. Be that as it may, it must be
conceded that the question as to what would be the legal force and effect of that judgment in that
case was never presented to, or decided by, the lower court or this court. In the very nature of things,
neither court in that case would have the power to pass upon or decided the legal force and effect of
its own judgment, for the simple reason that it would be premature and outside of the issues of any
pleading, and could not be raised or presented until after the judgment became final and then only
by an appropriate plea, as in this case.
Plaintiff specifically alleges that the defendant willfully and deliverately breached the contract and
"flatly refused to make any deliveries under said contract," by reason of. which it was forced to and
commenced its former action in which it was awarded P26,119.08 damages against the defendant
by reason of its breach of the contract from July, 1920, to September, 1923.
In the final analysis, plaintiff in this action seeks to recover damages growing out of, and arising from,
other and different breaches of that same contract after November, 1923, for the remainder of the
ten-year period, and the question is thus squarely presented as to whether the rendition of the former
judgment is a bar to the right of the plaintiff to recover damages from and after September, 1923,
arising from, and growing out of, breaches of the original contract of September 10, 1918, as modified
on January 1, 1919. That is to say, whether the plaintiff, in a former action, having recovered judgment
for the damages which it sustained by reason of a breach of its contract by the defendant up to
September, 1923, can now in this action recover damages it may have sustained after September,
1923, arising from, and growing out of, a breach of the same contract, upon and for which it recovered
its judgment in the former action.
In the former action in which the judgment was rendered, it is alleged in the compliant:
"7. That about the last part of July or the first part of August, 1920, the Manila Gas Corporation, the
defendant herein, without any cause ceased delivering coal and water gas tar to the plaintiff herein;
and that from that time up to the present date, the plaintiff corporation, Blossom & Company, has
frequently and urgently demanded of the defendant, the Manila Gas Corporation, that it comply with
its aforesaid contract Exhibit A by continuing to deliver coal and water gas tar to this plaintiff — but
that the said defendant has refused and still refuses, to deliver to the plaintiff any coal and water gas
tar whatsoever under the said contract Exhibit A, since the said month of July 1920.
"9. That owing to the bad faith of the said Manila Gas Corporation, defendant herein, in not living up
to its said contract Exhibit A, made with this plaintiff, and refusing now to carry out the terms of the
same, be delivering to this plaintiff the coal and water gas tar mentioned in the said Exhibit A, has
caused to this plaintiff great and irreparable damages amounting to the sum total of one hundred
twenty- four thousand eight hundred forty eight pesos and seventy centavos (P124,848,70);and that
the said defendant corporation has refused, and still refuses, to pay to this plaintiff the whole or any
part of the aforesaid sum.
"10. That the said contract Exhibit A, was to be in force until January 1, 1929, that is to say ten (10)
years counted from January 1, 1929; and that unless the defendant again commence to furnish and
supply this plaintiff with coal and water gas tar, as provided for in the said contract Exhibit A, the
damages already suffered by this plaintiff will continually increase and become larger and larger in
the course of years preceding the termination of the said contract on January 1, 1929."
In that action plaintiff prays for judgment against the defendant:
"(a) That upon trial of this this cause judgment be rendered in favor of the plaintiff and against the
defendant for the sum of P124,8484.70), with legal interest thereon from November 23, 1923;
"(b) That the court specifically order the defendant to resume the delivery of the coal and water gas
tar to the plaintiff under the terms of the said contract Exhibit A of this complaint."
In the final analysis, plaintiff must stand or fall on its own pleadings, and tested by that rule it must be
admitted that the plaintiff's original cause of action, in which it recovered judgment for damages, was
founded on the ten-year contract, and that the damages which it then recovered were recovered for
a breach of that contract.
Both actions are founded on one and the same contract. By the terms of the original contract of
September 10, 1018, the defendant was to sell and the plaintiff was to purchase three tons of water
gas tar per month form September to January 1, 1919, and twenty tons of water gas tar per month
after January 1, 1919, one-half ton of coal gas tar per month from September to January 1, 1919,
and six tons of coal gas tar per month after January 1, 1919. That from and after January 1, 1919,
plaintiff would take at least the quantities specified in the contract of September 10, 1918, and that
at its option, it would have the right to take the total output of water gas tar of defendant's plant and
50 per cent of the gross output of its coal gas tar, and upon giving ninety days' notice, it would have
the right to the entire output of coal gas tar, except such as the defendant might need for its own use.
That is to say, the contract provided for the delivery to the plaintiff from month to month of the
specified amounts of the different tars as ordered and requested by the plaintiff. In other words, under
plaintiff's own theory, the defendant was to make deliveries from month to month of the tars during
the period of ten years, and it is alleged in both complaints that the defendant broke its contract, and
in bad faith refused to make any more deliveries.
In 34 Corpus Juris, p. 839, it is said:
As a general rule a contract to do several things at several times in its nature, so as to authorize
successive actions; and a judgment recovered for a single breach of a continuing contract or
covenant is no bar to a suit for a subsequent breach thereof. But where the covenant or contract is
entire, and the breach total, there can be only one action, and plaintiff must therein recover all his
damages.
In the case of Rhoelm vs, Horst, 178 U. U., 1; 44 Law. ed., 953, that court said:
An unqualified and positive refusal to perform a contract, though the performance thereof is not yet
due, may, if the renunciation goes to the whole contract, be treated as a complete breach which will
entitle the injured party to bring his action at once.
15 Ruling Case Law, 966, 967, sec. 441 says:
Similarly if there is a breach by the vendor of a contract for the sale of goods to be delivered and paid
for in installments, and the vendee maintains an action therefor and recovers damages, he cannot
maintain a subsequent action to recover for the failure to deliver later installments.
In Pakas vs. Hollingshead, 184 N. Y., 211; 77 N. E., 40; 3 L. R. A. (N. S.), 1024, the syllabus says:
Upon refusal, by the seller, after partial performance, longer to comply with his contract to sell and
deliver a quantity of articles in installments the buyer cannot keep the contract in force and maintain
actions for breaches as they occur but must recover all his damages in one suit.
And on page 1044 of its opinion, the court say:
The learned counsel for the plaintiff contends that the former judgment did not constitute a bar to the
present action but that the plaintiff had the right to elect to waive or disregard the breach, keep the
contract in force, and maintain successive actions for time to time as the installments of goods were
to be delivered, however numerous these actions might be. It is said that this contention is supported
in reason and justice, and has the sanction of authority at least in other jurisdictions. We do not think
that the contention can be maintained. There is not as it seems to us any judicial authority in this
state that gives it any substantial support. On the contrary, we think that the cases, so far as we have
been able to examine them, are all the other way, and are to the effect that, inasmuch as there was
a total breach of the contract by the defendant's refusal to deliver, the plaintiff cannot split up his
demand and maintain successive actions, but must either recover all his damages in the first suit or
wait until the contract matured or the time for the delivery of all the goods had arrived. In other words,
there can be but one action for damages for a total breach of an entire contract to deliver goods, and
the fact that they were to be delivered in installment from time to time does not change the general
rule.
The case of L. Bucki & Son Lumber Co. vs. Atlantic Lumber Co. (109 Federal, 411), of the United
States Circuit Court of Appeals for the Fifth Circuit, is very similar.
The syllabus says:
1. CONTRACTS — CONSTRUCTION —ENTIRE CONTRACT. —A contract was made for the sale
of a large quantity of logs to be delivered in monthly installments during a period of eight years,
payments to be made also in installments at times having relation tot he deliveries. It contained
stipulations as to such payments, and guaranties as to the average size of the logs to be delivered
in each installment. Held, that it was an entire contract, and not a number of separate and
independent agreements for the sale of the quantity to be delivered and paid for each month, although
there might be breaches of the minor stipulations and warranties with reference thereto which would
warrant suits without a termination of the contract.
2. JUDGMENTS — MATTERS CONCLUDED —ACTION FOR BREACH OF INDIVISIBLE
CONTRACT. — The seller declared the contract terminated for alleged breaches by the purchaser,
and brought suit for general and special damages the latter covering payments due for installments
of logs delivered. By way of set-off and recoupment against this demand, the purchaser pleaded
breaches of the warranty as to the size of the logs delivered during the months for which payment
had not been made. Held, that the judgment in such action was conclusive as to all claims or demands
or either party against the other growing out of the entire contract, and was a bar to a subsequent
suit brought by the purchaser to recover for other breaches of the same warranty in relation to
deliveries made in previous months.
On page 415 of the opinion, the court says:
When the contract was ended, the claims of each party for alleged breaches and damages therefor
constituted an indivisible demand; and when the same, or any part of the same, was pleaded,
litigation had, and final judgment rendered, such suit and judgment constitute a bar to subsequent
demands which were or might have been litigated (Baird vs. U. S., 96 U. S., 430; 24 L. ed., 703.)
In Watts vs. Weston (238 Federal, 149), Circuit Court of Appeals, Second Circuit, the syllabus says:
1. JUDGMENTS — 593 — JUDGMENT AS BAR — MATTERS CONCLUDED. — Where a continuing
contract was terminated by the absolute refusal of the party whose action was necessary to further
perform, a claim for damages on account of the breach constituted as indivisible demand, and when
the same or any part of the same was pleaded, litigated, and final judgment rendered, such suit and
judgment constitute a bar to subsequent demands which were or might have been litigated therein.
And on page 150 of the opinion, the court says:
It is enough to show the lack of merit in the present contention to point out as an inexorable rule of
law that, when Kneval's contract was discharged by his total repudiation thereof, Watt's claims for
breaches and damages therefor constituted an indivisible demand, and when the same, or any part
of the same, was pleaded, litigation had and final judgment rendered, such suit and judgment
constitute a bar to subsequent demands which were or might have been litigated." (Bucki, etc., Co.
vs. Atlantic, etc., Co., 109 Fed. at page 415; 48 C. C. A., 459; Cf. Landon vs. Bulkley, 95 Fed., 344;
337 C. C. A., 96.)
The rule is usually applied in cases of alleged or supposed successive breaches, and consequently
severable demands for damages; but if the contract has been discharged by breach, if suit for
damages is all that is left, the rule is applicable, and every demand arising form that contract and
possessed by any given plaintiff must be presented (at least as against any given defendant) in one
action; what the plaintiff does not advance he foregoes by conclusive presumption.
Inn Abbott vs. 76 Land and Water Co. (118 Pac., 425; 161 Cal., 42), at page 428, the court said:
In Fish vs. Folley, 6 Hill (N. Y.), 54, it was held, in accord with the rule we have discussed, that, where
the defendant had covenanted that plaintiff should have a continual supply of water for his mill from
a dam, and subsequently totally failed to perform for nine years, and plaintiff brought an action for
the breach and recovered damages sustained by him to that time, the judgment was a bar to a second
action arising from subsequent failure to perform, on the theory that, although he covenant was a
continuing one in one sense, it was an entire contract, and a total breach put an end to it, and gave
plaintiff the right to sue for an equivalent in damages.
In such a case it is no warrant for a second action that the party may not be able to actually prove in
the first action all the items of the demand, or that all the damage may not then have been actually
suffered. He is bound to prove in the first action not only such damages as has been actually suffered,
but also such prospective damage by reason of the breach as he may be legally entitled to, for the
judgment he recovers in such action will be a conclusive adjudication as to the total damage on
account of the breach.
It will thus be seen that, where there is a complete and total breach of a continuous contract for a
term of years, the recovery of a judgment for damages by reason of the breach is a bar to another
action on the same contract for and on account of the continuous breach.
In the final analysis is, there is no real dispute about any material fact, and the important and decisive
question is the legal construction of the pleadings in the former case and in this case, and of the
contract between the plaintiff and the defendant of January 1, 1920.
The complaint on the former case specifically alleges that the defendant "has refused and still
refuses, to deliver to the plaintiff any coal and water gas tar whatsoever under the said contract
Exhibit A, since the said month of July, 1920." " That owing to the bad faith of the said Manila Gas
Corporation, defendant herein, in not living up to its said contract Exhibit A, made with this plaintiff,
and refusing now to carry out the terms of the same." That is a specific allegation not only a breach
of the contract since the month of July, 1920, but of the faith of the defendant in its continuous refusal
to make deliveries of any coal and water gas tar. That amended complaint was filed on July 11, 1924,
or four years after the alleged bad faith in breaking the contract.
Having recovered damages against it, covering a period of four years, upon the theory that the
defendant broke the contract, and in bad faith refused to make deliveries of either of the tars, how
can the plaintiff now claim and assert that the contract is still in fierce and effect? In the instant case
the plaintiff alleges and relies upon the ten year contract on January 11, 1920, which in bad faith was
broken by the defendant. If the contract was then broken, how can it be enforced in this action?
It is admitted that the defendant never made any deliveries of any tar from July, 1920, to April, 1936.
Also that it made nine deliveries to plaintiff of the minimum quantities of coal and water gas tar from
April 7, 1926, to January 5, 1927.
Plaintiff contends that such deliveries were made under and in continuation of the old contract.
March 26, 1926, after the decision of this court affirming the judgment in the original action, plaintiff
wrote the defendant:
. . . It is our desire to take deliveries of at least the minimum quantities set forth therein and shall
appreciate to have you advise us how soon you will be in a position to make deliveries; . . .
. . . In view of the fact that you have only effected settlement up to November 23, 1923, please inform
us what adjustment you are willing to make for the period of time that has since elapsed without your
complying with the contract.
In response to which on March 31, 1926, the defendant wrote this letter to the plaintiff:
In reply to your letter of March 26th, 1926, in regard to tar, we beg to advise you that we are prepared
to furnish the minimum quantities of coal and water gas tars as per your letter, viz: twenty tons of
water gas tar and six tons of coal gas tar. The price figured on present costs of raw materials is
P39.01 ) Thirty-nine and 01/100 Pesos) per ton of water gas and P33.59 (Thirty-three and 59/100
Pesos) per ton of coal tar.
We shall expect you to take delivery and pay for the above amount of tars at our factory on or before
April 7th prox.
Thereafter we shall be ready to furnish equal amounts on the first of each month. Kindly make your
arrangements accordingly.
On January 29, 1927, the plaintiff wrote the defendant that:
On July 31st last, we made demand upon you, under the terms of our tar contract for 50 per cent of
your total coal tar production for that month and also served notice on you that beginning 90 days
from August 1st we would require you total output of coal tar monthly; this in addition to the 20 tons
of water gas tar provided for in the contract to be taken monthly.
xxx xxx xxx
We are here again on your for your total output of coal tar immediately and the regular minimum
monthly quantity of water gas tar. In this connection we desire to advise you that within 90 days of
your initial delivery to us of your total coal tar output we will require 50 per cent of your total water
gas tar output, and, further, that two months thereafter we will require your total output of both tars.
February 2, 1927, the defendant wrote the plaintiff:
Replying to your letter of Jan. 29, we would sat that we have already returned to you the check
enclosed there with. As we have repeatedly informed you we disagree with you as to the construction
of your contract and insist that you take the whole output of both tars if you wish to secure the whole
of the coal tar.
With regard to your threat of further suits we presume that you will act as advised. If you make it
necessary we shall do the same.lawphil.net
From an analysis of these letters it clearly appears that the plaintiff then sought to reply upon and
enforce the contract of January 1, 1920, and that defendant denied plaintiff's construction of the
contract, and insisted "that you take the whole output of both tars if you wish to secure the whole of
the coal tar."
February 28, 1927, the plaintiff wrote the defendant:
In view of your numerous violations of and repeated refusal and failure to comply with the terms and
provisions of our contract dated January 30-31, 1919, for the delivery to us of water and coal gas
tars, etc., we will commence action," which it did.
The record tends to show that tars which the defendant delivered after April 7, 1926, were not
delivered under the old contract of January 1, 1920, and that at all times since July 1920, the
defendant has consistently refused to make any deliveries of any tars under that contract.
The referee found as a fact that plaintiff was entitled to P2,219.60 for and on account of overcharges
which the defendant made for the deliveries of fifty-four tons of coal gas tar, and one hundred eighty
tons of water gas tar after April, 1926, and upon that point the lower says:
The fourth charge that plaintiff makes is meritorious. The price was to be fixed on the basis of raw
materials. The charge for deliveries during 1926 were too high. In this I agree with entirely with the
referee and adopt his findings of fact and calculations. (See Referee's report, p. 83) The referee
awarded for overcharge during the period aforesaid, the sum of P2,219.60. The defendant was trying
to discharge plaintiff from buying tars and made the price of raw material appear as high as possible.
That finding is sustained upon the theory that the defendant broke its contract which it made with the
plaintiff for the sale and delivery of the tars on and after April, 1926.
After careful study of the many important questions presented on this appeal in the exhaustive brief
of the appellant, we are clearly of the opinion that, as found by the lower court, the plea of res judicata
must be sustained. The judgment of the lower court is affirmed.
It is so ordered, with costs against the appellant.
Johnson, Street, Malcolm, Villamor, Ostrand, Romualdez, and Villa-Real, JJ., concur.
G.R. No. 161135. April 8, 2005
SWAGMAN HOTELS AND TRAVEL, INC., Petitioners, vs. HON. COURT OF APPEALS, and NEAL
B. CHRISTIAN, Respondents.
DECISION
DAVIDE, JR., C.J.:
May a complaint that lacks a cause of action at the time it was filed be cured by the accrual of a
cause of action during the pendency of the case? This is the basic issue raised in this petition for the
Court’s consideration.
Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty. Leonor L.
Infante and Rodney David Hegerty, its president and vice-president, respectively, obtained from
private respondent Neal B. Christian loans evidenced by three promissory notes dated 7 August
1996, 14 March 1997, and 14 July 1997. Each of the promissory notes is in the amount of US$50,000
payable after three years from its date with an interest of 15% per annum payable every three
months.1 In a letter dated 16 December 1998, Christian informed the petitioner corporation that he
was terminating the loans and demanded from the latter payment in the total amount of US$150,000
plus unpaid interests in the total amount of US$13,500.2
On 2 February 1999, private respondent Christian filed with the Regional Trial Court of Baguio City,
Branch 59, a complaint for a sum of money and damages against the petitioner corporation, Hegerty,
and Atty. Infante. The complaint alleged as follows: On 7 August 1996, 14 March 1997, and 14 July
1997, the petitioner, as well as its president and vice-president obtained loans from him in the total
amount of US$150,000 payable after three years, with an interest of 15% per annum payable
quarterly or every three months. For a while, they paid an interest of 15% per annum every three
months in accordance with the three promissory notes. However, starting January 1998 until
December 1998, they paid him only an interest of 6% per annum, instead of 15% per annum, in
violation of the terms of the three promissory notes. Thus, Christian prayed that the trial court order
them to pay him jointly and solidarily the amount of US$150,000 representing the total amount of the
loans; US$13,500 representing unpaid interests from January 1998 until December 1998; ₱100,000
for moral damages; ₱50,000 for attorney’s fees; and the cost of the suit.3
The petitioner corporation, together with its president and vice-president, filed an Answer raising as
defenses lack of cause of action and novation of the principal obligations. According to them,
Christian had no cause of action because the three promissory notes were not yet due and
demandable. In December 1997, since the petitioner corporation was experiencing huge losses due
to the Asian financial crisis, Christian agreed (a) to waive the interest of 15% per annum, and (b)
accept payments of the principal loans in installment basis, the amount and period of which would
depend on the state of business of the petitioner corporation. Thus, the petitioner paid Christian
capital repayment in the amount of US$750 per month from January 1998 until the time the complaint
was filed in February 1999. The petitioner and its co-defendants then prayed that the complaint be
dismissed and that Christian be ordered to pay ₱1 million as moral damages; ₱500,000 as exemplary
damages; and ₱100,000 as attorney’s fees.4
In due course and after hearing, the trial court rendered a decision5 on 5 May 2000 declaring the first
two promissory notes dated 7 August 1996 and 14 March 1997 as already due and demandable and
that the interest on the loans had been reduced by the parties from 15% to 6% per annum. It then
ordered the petitioner corporation to pay Christian the amount of $100,000 representing the principal
obligation covered by the promissory notes dated 7 August 1996 and 14 March 1997, "plus interest
of 6% per month thereon until fully paid, with all interest payments already paid by the defendant to
the plaintiff to be deducted therefrom."
The trial court ratiocinated in this wise:
(1) There was no novation of defendant’s obligation to the plaintiff. Under Article 1292 of the Civil
Code, there is an implied novation only if the old and the new obligation be on every point
incompatible with one another.
The test of incompatibility between the two obligations or contracts, according to an imminent author,
is whether they can stand together, each one having an independent existence. If they cannot, they
are incompatible, and the subsequent obligation novates the first (Tolentino, Civil Code of the
Philippines, Vol. IV, 1991 ed., p. 384). Otherwise, the old obligation will continue to subsist subject to
the modifications agreed upon by the parties. Thus, it has been written that accidental modifications
in an existing obligation do not extinguish it by novation. Mere modifications of the debt agreed upon
between the parties do not constitute novation. When the changes refer to secondary agreement and
not to the object or principal conditions of the contract, there is no novation; such changes will
produce modifications of incidental facts, but will not extinguish the original obligation. Thus, the
acceptance of partial payments or a partial remission does not involve novation (id., p. 387). Neither
does the reduction of the amount of an obligation amount to a novation because it only means a
partial remission or condonation of the same debt.
In the instant case, the Court is of the view that the parties merely intended to change the rate of
interest from 15% per annum to 6% per annum when the defendant started paying $750 per month
which payments were all accepted by the plaintiff from January 1998 onward. The payment of the
principal obligation, however, remains unaffected which means that the defendant should still pay the
plaintiff $50,000 on August 9, 1999, March 14, 2000 and July 14, 2000.
(2) When the instant case was filed on February 2, 1999, none of the promissory notes was due and
demandable. As of this date however, the first and the second promissory notes have already
matured. Hence, payment is already due.
Under Section 5 of Rule 10 of the 1997 Rules of Civil Procedure, a complaint which states no cause
of action may be cured by evidence presented without objection. Thus, even if the plaintiff had no
cause of action at the time he filed the instant complaint, as defendants’ obligation are not yet due
and demandable then, he may nevertheless recover on the first two promissory notes in view of the
introduction of evidence showing that the obligations covered by the two promissory notes are now
due and demandable.
(3) Individual defendants Rodney Hegerty and Atty. Leonor L. Infante can not be held personally
liable for the obligations contracted by the defendant corporation it being clear that they merely acted
in representation of the defendant corporation in their capacity as General Manager and President,
respectively, when they signed the promissory notes as evidenced by Board Resolution No. 1(94)
passed by the Board of Directors of the defendant corporation (Exhibit "4"). 6
In its decision7 of 5 September 2003, the Court of Appeals denied petitioner’s appeal and affirmed in
toto the decision of the trial court, holding as follows:
In the case at bench, there is no incompatibility because the changes referred to by appellant
Swagman consist only in the manner of payment. . . .
Appellant Swagman’s interpretation that the three (3) promissory notes have been novated by reason
of appellee Christian’s acceptance of the monthly payments of US$750.00 as capital repayments
continuously even after the filing of the instant case is a little bit strained considering the stiff
requirements of the law on novation that the intention to novate must appear by express agreement
of the parties, or by their acts that are too clear and unequivocal to be mistaken. Under the
circumstances, the more reasonable interpretation of the act of the appellee Christian in receiving
the monthly payments of US$750.00 is that appellee Christian merely allowed appellant Swagman
to pay whatever amount the latter is capable of. This interpretation is supported by the letter of
demand dated December 16, 1998 wherein appellee Christian demanded from appellant Swagman
to return the principal loan in the amount of US$150,000 plus unpaid interest in the amount of
US$13,500.00
...
Appellant Swagman, likewise, contends that, at the time of the filing of the complaint, appellee
Christian ha[d] no cause of action because none of the promissory notes was due and demandable.
Again, We are not persuaded.
...
In the case at bench, while it is true that appellant Swagman raised in its Answer the issue of
prematurity in the filing of the complaint, appellant Swagman nonetheless failed to object to appellee
Christian’s presentation of evidence to the effect that the promissory notes have become due and
demandable.
The afore-quoted rule allows a complaint which states no cause of action to be cured either by
evidence presented without objection or, in the event of an objection sustained by the court, by an
amendment of the complaint with leave of court (Herrera, Remedial Law, Vol. VII, 1997 ed., p. 108).8
Its motion for reconsideration having been denied by the Court of Appeals in its Resolution of 4
December 2003,9 the petitioner came to this Court raising the following issues:
I. WHERE THE DECISION OF THE TRIAL COURT DROPPING TWO DEFENDANTS HAS
BECOME FINAL AND EXECUTORY, MAY THE RESPONDENT COURT OF APPEALS STILL
STUBBORNLY CONSIDER THEM AS APPELLANTS WHEN THEY DID NOT APPEAL?
ii. Where there is no cause of action, is the decision of the lower court valid?
III. MAY THE RESPONDENT COURT OF APPEALS VALIDLY AFFIRM A DECISION OF THE
LOWER COURT WHICH IS INVALID DUE TO LACK OF CAUSE OF ACTION?
IV. Where there is a valid novation, may the original terms of contract which has been novated still
prevail?10
The petitioner harps on the absence of a cause of action at the time the private respondent’s
complaint was filed with the trial court. In connection with this, the petitioner raises the issue of
novation by arguing that its obligations under the three promissory notes were novated by the
renegotiation that happened in December 1997 wherein the private respondent agreed to waive the
interest in each of the three promissory notes and to accept US$750 per month as installment
payment for the principal loans in the total amount of US$150,000. Lastly, the petitioner questions
the act of the Court of Appeals in considering Hegerty and Infante as appellants when they no longer
appealed because the trial court had already absolved them of the liability of the petitioner
corporation.
On the other hand, the private respondent asserts that this petition is "a mere ploy to continue
delaying the payment of a just obligation." Anent the fact that Hegerty and Atty. Infante were
considered by the Court of Appeals as appellants, the private respondent finds it immaterial because
they are not affected by the assailed decision anyway.
Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of Civil Procedure, is the act or
omission by which a party violates the right of another. Its essential elements are as follows:
1. A right in favor of the plaintiff by whatever means and under whatever law it arises or is created;
2. An obligation on the part of the named defendant to respect or not to violate such right; and
3. Act or omission on the part of such defendant in violation of the right of the plaintiff or constituting
a breach of the obligation of the defendant to the plaintiff for which the latter may maintain an action
for recovery of damages or other appropriate relief.11
It is, thus, only upon the occurrence of the last element that a cause of action arises, giving the plaintiff
the right to maintain an action in court for recovery of damages or other appropriate relief.
It is undisputed that the three promissory notes were for the amount of P50,000 each and uniformly
provided for (1) a term of three years; (2) an interest of 15 % per annum, payable quarterly; and (3)
the repayment of the principal loans after three years from their respective dates. However, both the
Court of Appeals and the trial court found that a renegotiation of the three promissory notes indeed
happened in December 1997 between the private respondent and the petitioner resulting in the
reduction – not waiver – of the interest from 15% to 6% per annum, which from then on was payable
monthly, instead of quarterly. The term of the principal loans remained unchanged in that they were
still due three years from the respective dates of the promissory notes. Thus, at the time the complaint
was filed with the trial court on 2 February 1999, none of the three promissory notes was due yet;
although, two of the promissory notes with the due dates of 7 August 1999 and 14 March 2000
matured during the pendency of the case with the trial court. Both courts also found that the petitioner
had been religiously paying the private respondent US$750 per month from January 1998 and even
during the pendency of the case before the trial court and that the private respondent had accepted
all these monthly payments.
With these findings of facts, it has become glaringly obvious that when the complaint for a sum of
money and damages was filed with the trial court on 2 February 1999, no cause of action has as yet
existed because the petitioner had not committed any act in violation of the terms of the three
promissory notes as modified by the renegotiation in December 1997. Without a cause of action, the
private respondent had no right to maintain an action in court, and the trial court should have therefore
dismissed his complaint.
Despite its finding that the petitioner corporation did not violate the modified terms of the three
promissory notes and that the payment of the principal loans were not yet due when the complaint
was filed, the trial court did not dismiss the complaint, citing Section 5, Rule 10 of the 1997 Rules of
Civil Procedure, which reads:
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.
According to the trial court, and sustained by the Court of Appeals, this Section allows a complaint
that does not state a cause of action to be cured by evidence presented without objection during the
trial. Thus, it ruled that even if the private respondent had no cause of action when he filed the
complaint for a sum of money and damages because none of the three promissory notes was due
yet, he could nevertheless recover on the first two promissory notes dated 7 August 1996 and 14
March 1997, which became due during the pendency of the case in view of the introduction of
evidence of their maturity during the trial.
Such interpretation of Section 5, Rule 10 of the 1997 Rules of Civil Procedure is erroneous.
Amendments of pleadings are allowed under Rule 10 of the 1997 Rules of Civil Procedure in order
that the actual merits of a case may be determined in the most expeditious and inexpensive manner
without regard to technicalities, and that all other matters included in the case may be determined in
a single proceeding, thereby avoiding multiplicity of suits.12 Section 5 thereof applies to situations
wherein evidence not within the issues raised in the pleadings is presented by the parties during the
trial, and to conform to such evidence the pleadings are subsequently amended on motion of a party.
Thus, a complaint which fails to state a cause of action may be cured by evidence presented during
the trial.
However, the curing effect under Section 5 is applicable only if a cause of action in fact exists at the
time the complaint is filed, but the complaint is defective for failure to allege the essential facts. For
example, if a complaint failed to allege the fulfillment of a condition precedent upon which the cause
of action depends, evidence showing that such condition had already been fulfilled when the
complaint was filed may be presented during the trial, and the complaint may accordingly be
amended thereafter.13 Thus, in Roces v. Jalandoni,14 this Court upheld the trial court in taking
cognizance of an otherwise defective complaint which was later cured by the testimony of the plaintiff
during the trial. In that case, there was in fact a cause of action and the only problem was the
insufficiency of the allegations in the complaint. This ruling was reiterated in Pascua v. Court of
Appeals.15
It thus follows that a complaint whose cause of action has not yet accrued cannot be cured or
remedied by an amended or supplemental pleading alleging the existence or accrual of a cause of
action while the case is pending.16 Such an action is prematurely brought and is, therefore, a
groundless suit, which should be dismissed by the court upon proper motion seasonably filed by the
defendant. The underlying reason for this rule is that a person should not be summoned before the
public tribunals to answer for complaints which are immature. As this Court eloquently said in Surigao
Mine Exploration Co., Inc. v. Harris:17
It is a rule of law to which there is, perhaps, no exception, either at law or in equity, that to recover at
all there must be some cause of action at the commencement of the suit. As observed by
counsel for appellees, there are reasons of public policy why there should be no needless haste in
bringing up litigation, and why people who are in no default and against whom there is yet no cause
of action should not be summoned before the public tribunals to answer complaints which are
groundless. We say groundless because if the action is immature, it should not be entertained, and
an action prematurely brought is a groundless suit.
It is true that an amended complaint and the answer thereto take the place of the originals which are
thereby regarded as abandoned (Reynes vs. Compañía General de Tabacos [1912], 21 Phil. 416;
Ruyman and Farris vs. Director of Lands [1916], 34 Phil., 428) and that "the complaint and answer
having been superseded by the amended complaint and answer thereto, and the answer to the
original complaint not having been presented in evidence as an exhibit, the trial court was not
authorized to take it into account." (Bastida vs. Menzi & Co. [1933], 58 Phil., 188.) But in none of
these cases or in any other case have we held that if a right of action did not exist when the original
complaint was filed, one could be created by filing an amended complaint. In some jurisdictions in
the United States what was termed an "imperfect cause of action" could be perfected by suitable
amendment (Brown vs. Galena Mining & Smelting Co., 32 Kan., 528; Hooper vs. City of Atlanta, 26
Ga. App., 221) and this is virtually permitted in Banzon and Rosauro vs. Sellner ([1933], 58 Phil.,
453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil., 683); and recently in Ramos vs. Gibbon
(38 Off. Gaz., 241). That, however, which is no cause of action whatsoever cannot by
amendment or supplemental pleading be converted into a cause of action: Nihil de re accrescit ei
qui nihil in re quando jus accresceret habet.
We are therefore of the opinion, and so hold, that unless the plaintiff has a valid and subsisting
cause of action at the time his action is commenced, the defect cannot be cured or remedied
by the acquisition or accrual of one while the action is pending, and a supplemental complaint
or an amendment setting up such after-accrued cause of action is not permissible. (Emphasis
ours).
Hence, contrary to the holding of the trial court and the Court of Appeals, the defect of lack of cause
of action at the commencement of this suit cannot be cured by the accrual of a cause of action during
the pendency of this case arising from the alleged maturity of two of the promissory notes on 7 August
1999 and 14 March 2000.
Anent the issue of novation, this Court observes that the petitioner corporation argues the existence
of novation based on its own version of what transpired during the renegotiation of the three
promissory notes in December 1997. By using its own version of facts, the petitioner is, in a way,
questioning the findings of facts of the trial court and the Court of Appeals.
As a rule, the findings of fact of the trial court and the Court of Appeals are final and conclusive and
cannot be reviewed on appeal to the Supreme Court18 as long as they are borne out by the record or
are based on substantial evidence.19 The Supreme Court is not a trier of facts, its jurisdiction being
limited to reviewing only errors of law that may have been committed by the lower courts. Among the
exceptions is when the finding of fact of the trial court or the Court of Appeals is not supported by the
evidence on record or is based on a misapprehension of facts. Such exception obtains in the present
case.20
This Court finds to be contrary to the evidence on record the finding of both the trial court and the
Court of Appeals that the renegotiation in December 1997 resulted in the reduction of the interest
from 15% to 6% per annum and that the monthly payments of US$750 made by the petitioner were
for the reduced interests.
It is worthy to note that the cash voucher dated January 1998 21 states that the payment of US$750
represents "INVESTMENT PAYMENT." All the succeeding cash vouchers describe the payments
from February 1998 to September 1999 as "CAPITAL REPAYMENT." 22 All these cash vouchers
served as receipts evidencing private respondent’s acknowledgment of the payments made by the
petitioner: two of which were signed by the private respondent himself and all the others were signed
by his representatives. The private respondent even identified and confirmed the existence of these
receipts during the hearing. 23 Significantly, cognizant of these receipts, the private respondent
applied these payments to the three consolidated principal loans in the summary of payments he
submitted to the court.24
Under Article 1253 of the Civil Code, if the debt produces interest, payment of the principal shall not
be deemed to have been made until the interest has been covered. In this case, the private
respondent would not have signed the receipts describing the payments made by the petitioner as
"capital repayment" if the obligation to pay the interest was still subsisting. The receipts, as well as
private respondent’s summary of payments, lend credence to petitioner’s claim that the payments
were for the principal loans and that the interests on the three consolidated loans were waived by the
private respondent during the undisputed renegotiation of the loans on account of the business
reverses suffered by the petitioner at the time.
There was therefore a novation of the terms of the three promissory notes in that the interest was
waived and the principal was payable in monthly installments of US$750. Alterations of the terms
and conditions of the obligation would generally result only in modificatory novation unless such terms
and conditions are considered to be the essence of the obligation itself. 25 The resulting novation in
this case was, therefore, of the modificatory type, not the extinctive type, since the obligation to pay
a sum of money remains in force.
Thus, since the petitioner did not renege on its obligation to pay the monthly installments conformably
with their new agreement and even continued paying during the pendency of the case, the private
respondent had no cause of action to file the complaint. It is only upon petitioner’s default in the
payment of the monthly amortizations that a cause of action would arise and give the private
respondent a right to maintain an action against the petitioner.
Lastly, the petitioner contends that the Court of Appeals obstinately included its President Infante
and Vice-President Hegerty as appellants even if they did not appeal the trial court’s decision since
they were found to be not personally liable for the obligation of the petitioner. Indeed, the Court of
Appeals erred in referring to them as defendants-appellants; nevertheless, that error is no cause for
alarm because its ruling was clear that the petitioner corporation was the one solely liable for its
obligation. In fact, the Court of Appeals affirmed in toto the decision of the trial court, which means
that it also upheld the latter’s ruling that Hegerty and Infante were not personally liable for the
pecuniary obligations of the petitioner to the private respondent.
In sum, based on our disquisition on the lack of cause of action when the complaint for sum of money
and damages was filed by the private respondent, the petition in the case at bar is impressed with
merit.
WHEREFORE, the petition is hereby GRANTED. The Decision of 5 September 2003 of the Court
of Appeals in CA-G.R. CV No. 68109, which affirmed the Decision of 5 May 2000 of the Regional
Trial Court of Baguio, Branch 59, granting in part private respondent’s complaint for sum of money
and damages, and its Resolution of 4 December 2003, which denied petitioner’s motion for
reconsideration are hereby REVERSED and SET ASIDE. The complaint docketed as Civil Case
No. 4282-R is hereby DISMISSED for lack of cause of action.
No costs.
SO ORDERED.
G.R. No. 182435 August 13, 2012
LILIA B. ADA, LUZ B. ADANZA, FLORA C. BA YLON, REMO BA YLON, JOSE BA YLON, ERIC
BA YLON, FLORENTINO BA YLON, and MA. RUBY BA YLON, Petitioners,
vs.
FLORANTE BA YLON, Respondent.
VILLARAMA, JR.,*
DECISION
REYES, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
annul and set aside the Decision1 dated October 26, 2007 rendered by the Court of Appeals (CA) in
CA-G.R. CV No. 01746. The assailed decision partially reversed and set aside the Decision 2 dated
October 20, 2005 issued ~y the Regional Trial Court (RTC), Tan jay City, Negros Oriental, Branch
43 in Civil Case No. 11657.
The Antecedent Facts
This case involves the estate of spouses Florentino Baylon and Maximina Elnas Baylon (Spouses
Baylon) who died on November 7, 1961 and May 5, 1974, respectively. 3 At the time of their death,
Spouses Baylon were survived by their legitimate children, namely, Rita Baylon (Rita), Victoria Baylon
(Victoria), Dolores Baylon (Dolores), Panfila Gomez (Panfila), Ramon Baylon (Ramon) and herein
petitioner Lilia B. Ada (Lilia).
Dolores died intestate and without issue on August 4, 1976. Victoria died on November 11, 1981 and
was survived by her daughter, herein petitioner Luz B. Adanza. Ramon died intestate on July 8, 1989
and was survived by herein respondent Florante Baylon (Florante), his child from his first marriage,
as well as by petitioner Flora Baylon, his second wife, and their legitimate children, namely, Ramon,
Jr. and herein petitioners Remo, Jose, Eric, Florentino and Ma. Ruby, all surnamed Baylon.
On July 3, 1996, the petitioners filed with the RTC a Complaint4 for partition, accounting and damages
against Florante, Rita and Panfila. They alleged therein that Spouses Baylon, during their lifetime,
owned 43 parcels of land5 all situated in Negros Oriental. After the death of Spouses Baylon, they
claimed that Rita took possession of the said parcels of land and appropriated for herself the income
from the same. Using the income produced by the said parcels of land, Rita allegedly purchased two
parcels of land, Lot No. 47096 and half of Lot No. 4706,7 situated in Canda-uay, Dumaguete City. The
petitioners averred that Rita refused to effect a partition of the said parcels of land.
In their Answer,8 Florante, Rita and Panfila asserted that they and the petitioners co-owned 229 out
of the 43 parcels of land mentioned in the latter’s complaint, whereas Rita actually owned 10 parcels
of land10 out of the 43 parcels which the petitioners sought to partition, while the remaining 11 parcels
of land are separately owned by Petra Cafino Adanza,11 Florante,12 Meliton Adalia,13 Consorcia
Adanza,14 Lilia15 and Santiago Mendez.16 Further, they claimed that Lot No. 4709 and half of Lot No.
4706 were acquired by Rita using her own money. They denied that Rita appropriated solely for
herself the income of the estate of Spouses Baylon, and expressed no objection to the partition of
the estate of Spouses Baylon, but only with respect to the co-owned parcels of land.
During the pendency of the case, Rita, through a Deed of Donation dated July 6, 1997, conveyed Lot
No. 4709 and half of Lot No. 4706 to Florante. On July 16, 2000, Rita died intestate and without any
issue. Thereafter, learning of the said donation inter vivos in favor of Florante, the petitioners filed a
Supplemental Pleading17 dated February 6, 2002, praying that the said donation in favor of the
respondent be rescinded in accordance with Article 1381(4) of the Civil Code. They further alleged
that Rita was already sick and very weak when the said Deed of Donation was supposedly executed
and, thus, could not have validly given her consent thereto.
Florante and Panfila opposed the rescission of the said donation, asserting that Article 1381(4) of the
Civil Code applies only when there is already a prior judicial decree on who between the contending
parties actually owned the properties under litigation.18
The RTC Decision
On October 20, 2005, the RTC rendered a Decision,19 the decretal portion of which reads:
Wherefore judgment is hereby rendered:
(1) declaring the existence of co-ownership over parcels nos. 1, 2, 3, 5, 7, 10, 13,
14, 16, 17, 18, 26, 29, 30, 33, 34, 35, 36, 40 and 41 described in the complaint;
(2) directing that the above mentioned parcels of land be partitioned among the heirs
of Florentino Baylon and Maximina Baylon;
(3) declaring a co-ownership on the properties of Rita Baylon namely parcels no[s].
6, 11, 12, 20, 24, 27, 31, 32, 39 and 42 and directing that it shall be partitioned
among her heirs who are the plaintiffs and defendant in this case;
 (4) declaring the donation inter vivos rescinded without prejudice to the share of
Florante Baylon to the estate of Rita Baylon and directing that parcels nos. 1 and 2
paragraph V of the complaint be included in the division of the property as of Rita
Baylon among her heirs, the parties in this case;
(5) excluding from the co-ownership parcels nos. 20, 21, 22, 9, 43, 4, 8, 19 and 37.
Considering that the parties failed to settle this case amicably and could not agree
on the partition, the parties are directed to nominate a representative to act as
commissioner to make the partition. He shall immediately take [his] oath of office
upon [his] appointment. The commissioner shall make a report of all the
proceedings as to the partition within fifteen (15) days from the completion of this
partition. The parties are given ten (10) days within which to object to the report after
which the Court shall act on the commissioner report.
SO ORDERED.20 (Emphasis ours)
The RTC held that the death of Rita during the pendency of the case, having died intestate and
without any issue, had rendered the issue of ownership insofar as parcels of land which she claims
as her own moot since the parties below are the heirs to her estate. Thus, the RTC regarded Rita as
the owner of the said 10 parcels of land and, accordingly, directed that the same be partitioned among
her heirs. Nevertheless, the RTC rescinded the donation inter vivos of Lot No. 4709 and half of Lot
No. 4706 in favor of Florante. In rescinding the said donation inter vivos, the RTC explained that:
However, with respect to lot nos. 4709 and 4706 which [Rita] had conveyed to
Florante Baylon by way of donation inter vivos, the plaintiffs in their supplemental
pleadings (sic) assailed the same to be rescissible on the ground that it was entered
into by the defendant Rita Baylon without the knowledge and approval of the litigants
[or] of competent judicial authority. The subject parcels of lands are involved in the
case for which plaintiffs have asked the Court to partition the same among the heirs
of Florentino Baylon and Maximina Elnas.
Clearly, the donation inter vivos in favor of Florante Baylon was executed to
prejudice the plaintiffs’ right to succeed to the estate of Rita Baylon in case of death
considering that as testified by Florante Baylon, Rita Baylon was very weak and he
tried to give her vitamins x x x. The donation inter vivos executed by Rita Baylon in
favor of Florante Baylon is rescissible for the reason that it refers to the parcels of
land in litigation x x x without the knowledge and approval of the plaintiffs or of this
Court. However, the rescission shall not affect the share of Florante Baylon to the
estate of Rita Baylon.21
Florante sought reconsideration of the Decision dated October 20, 2005 of the RTC insofar as it
rescinded the donation of Lot No. 4709 and half of Lot No. 4706 in his favor. 22 He asserted that, at
the time of Rita’s death on July 16, 2000, Lot No. 4709 and half of Lot No. 4706 were no longer part
of her estate as the same had already been conveyed to him through a donation inter vivos three
years earlier. Thus, Florante maintained that Lot No. 4709 and half of Lot No. 4706 should not be
included in the properties that should be partitioned among the heirs of Rita.
On July 28, 2006, the RTC issued an Order23 which denied the motion for reconsideration filed by
Florante.
The CA Decision
On appeal, the CA rendered a Decision24 dated October 26, 2007, the dispositive portion of which
reads:
WHEREFORE, the Decision dated October 20, 2005 and Order dated July 28, 2006
are REVERSED and SET ASIDE insofar as they decreed the rescission of the Deed
of Donation dated July 6, 1997 and the inclusion of lot no. 4709 and half of lot no.
4706 in the estate of Rita Baylon. The case is REMANDED to the trial court for the
determination of ownership of lot no. 4709 and half of lot no. 4706.
SO ORDERED.25
The CA held that before the petitioners may file an action for rescission, they must first obtain a
favorable judicial ruling that Lot No. 4709 and half of Lot No. 4706 actually belonged to the estate of
Spouses Baylon and not to Rita. Until then, the CA asserted, an action for rescission is premature.
Further, the CA ruled that the petitioners’ action for rescission cannot be joined with their action for
partition, accounting and damages through a mere supplemental pleading. Thus:
If Lot No. 4709 and half of Lot No. 4706 belonged to the Spouses’ estate, then Rita
Baylon’s donation thereof in favor of Florante Baylon, in excess of her undivided
share therein as co-heir, is void. Surely, she could not have validly disposed of
something she did not own. In such a case, an action for rescission of the donation
may, therefore, prosper.
If the lots, however, are found to have belonged exclusively to Rita Baylon, during
her lifetime, her donation thereof in favor of Florante Baylon is valid. For then, she
merely exercised her ownership right to dispose of what legally belonged to her.
Upon her death, the lots no longer form part of her estate as their ownership now
pertains to Florante Baylon. On this score, an action for rescission against such
donation will not prosper. x x x.
Verily, before plaintiffs-appellees may file an action for rescission, they must first
obtain a favorable judicial ruling that lot no. 4709 and half of lot no. 4706 actually
belonged to the estate of Spouses Florentino and Maximina Baylon, and not to Rita
Baylon during her lifetime. Until then, an action for rescission is premature. For this
matter, the applicability of Article 1381, paragraph 4, of the New Civil Code must
likewise await the trial court’s resolution of the issue of ownership.
 Be that as it may, an action for rescission should be filed by the parties concerned
independent of the proceedings below. The first cannot simply be lumped up with
the second through a mere supplemental pleading.26 (Citation omitted)
The petitioners sought reconsideration27 of the Decision dated October 26, 2007 but it was denied by
the CA in its Resolution28 dated March 6, 2008.
Hence, this petition.
Issue
The lone issue to be resolved by this Court is whether the CA erred in ruling that the donation inter
vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante may only be rescinded if there is
already a judicial determination that the same actually belonged to the estate of Spouses Baylon.
The Court’s Ruling
The petition is partly meritorious.
Procedural Matters
Before resolving the lone substantive issue in the instant case, this Court deems it proper to address
certain procedural matters that need to be threshed out which, by laxity or otherwise, were not raised
by the parties herein.
Misjoinder of Causes of Action
The complaint filed by the petitioners with the RTC involves two separate, distinct and independent
actions – partition and rescission. First, the petitioners raised the refusal of their co-heirs, Florante,
Rita and Panfila, to partition the properties which they inherited from Spouses Baylon. Second, in
their supplemental pleading, the petitioners assailed the donation inter vivos of Lot No. 4709 and half
of Lot No. 4706 made by Rita in favor of Florante pendente lite.
The actions of partition and
rescission cannot be joined in a
single action.
By a joinder of actions, or more properly, a joinder of causes of action is meant the uniting of two or
more demands or rights of action in one action, the statement of more than one cause of action in a
declaration. It is the union of two or more civil causes of action, each of which could be made the
basis of a separate suit, in the same complaint, declaration or petition. A plaintiff may under certain
circumstances join several distinct demands, controversies or rights of action in one declaration,
complaint or petition.29
The objectives of the rule or provision are to avoid a multiplicity of suits where the same parties and
subject matter are to be dealt with by effecting in one action a complete determination of all matters
in controversy and litigation between the parties involving one subject matter, and to expedite the
disposition of litigation at minimum cost. The provision should be construed so as to avoid such
multiplicity, where possible, without prejudice to the rights of the litigants. 30
Nevertheless, while parties to an action may assert in one pleading, in the alternative or otherwise,
as many causes of action as they may have against an opposing party, such joinder of causes of
action is subject to the condition, inter alia, that the joinder shall not include special civil actions
governed by special rules.31
Here, there was a misjoinder of causes of action. The action for partition filed by the petitioners could
not be joined with the action for the rescission of the said donation inter vivos in favor of Florante.
Lest it be overlooked, an action for partition is a special civil action governed by Rule 69 of the Rules
of Court while an action for rescission is an ordinary civil action governed by the ordinary rules of civil
procedure. The variance in the procedure in the special civil action of partition and in the ordinary
civil action of rescission precludes their joinder in one complaint or their being tried in a single
proceeding to avoid confusion in determining what rules shall govern the conduct of the proceedings
as well as in the determination of the presence of requisite elements of each particular cause of
action.32
A misjoined cause of action, if not
severed upon motion of a party or
by the court sua sponte, may be
adjudicated by the court together
with the other causes of action.
Nevertheless, misjoinder of causes of action is not a ground for dismissal. Indeed, the courts have
the power, acting upon the motion of a party to the case or sua sponte, to order the severance of the
misjoined cause of action to be proceeded with separately.33 However, if there is no objection to the
improper joinder or the court did not motu proprio direct a severance, then there exists no bar in the
simultaneous adjudication of all the erroneously joined causes of action. On this score, our
disquisition in Republic of the Philippines v. Herbieto34 is instructive, viz:
This Court, however, disagrees with petitioner Republic in this regard. This
procedural lapse committed by the respondents should not affect the jurisdiction of
the MTC to proceed with and hear their application for registration of the Subject
Lots.
xxxx
 Considering every application for land registration filed in strict accordance with the
Property Registration Decree as a single cause of action, then the defect in the joint
application for registration filed by the respondents with the MTC constitutes a
misjoinder of causes of action and parties. Instead of a single or joint application for
registration, respondents Jeremias and David, more appropriately, should have filed
separate applications for registration of Lots No. 8422 and 8423, respectively.
Misjoinder of causes of action and parties do not involve a question of jurisdiction
of the court to hear and proceed with the case. They are not even accepted grounds
for dismissal thereof. Instead, under the Rules of Court, the misjoinder of causes of
action and parties involve an implied admission of the court’s jurisdiction. It
acknowledges the power of the court, acting upon the motion of a party to the case
or on its own initiative, to order the severance of the misjoined cause of action, to
be proceeded with separately (in case of misjoinder of causes of action); and/or the
dropping of a party and the severance of any claim against said misjoined party,
also to be proceeded with separately (in case of misjoinder of parties). 35 (Citations
omitted)
It should be emphasized that the foregoing rule only applies if the court trying the case has jurisdiction
over all of the causes of action therein notwithstanding the misjoinder of the same. If the court trying
the case has no jurisdiction over a misjoined cause of action, then such misjoined cause of action
has to be severed from the other causes of action, and if not so severed, any adjudication rendered
by the court with respect to the same would be a nullity.
Here, Florante posed no objection, and neither did the RTC direct the severance of the petitioners’
action for rescission from their action for partition. While this may be a patent omission on the part of
the RTC, this does not constitute a ground to assail the validity and correctness of its decision. The
RTC validly adjudicated the issues raised in the actions for partition and rescission filed by the
petitioners.
Asserting a New Cause of Action in a Supplemental Pleading
In its Decision dated October 26, 2007, the CA pointed out that the said action for rescission should
have been filed by the petitioners independently of the proceedings in the action for partition. It opined
that the action for rescission could not be lumped up with the action for partition through a mere
supplemental pleading.
We do not agree.
A supplemental pleading may raise
a new cause of action as long as it
has some relation to the original
cause of action set forth in the
original complaint.
Section 6, Rule 10 of the Rules of Court reads:
Sec. 6. Supplemental Pleadings. – Upon motion of a party the court may, upon
reasonable notice and upon such terms as are just, permit him to serve a
supplemental pleading setting forth transactions, occurrences or events which have
happened since the date of the pleading sought to be supplemented. The adverse
party may plead thereto within ten (10) days from notice of the order admitting the
supplemental pleading.
In Young v. Spouses Sy,36 this Court had the opportunity to elucidate on the purpose of a
supplemental pleading. Thus:
As its very name denotes, a supplemental pleading only serves to bolster or add
something to the primary pleading. A supplement exists side by side with the
original. It does not replace that which it supplements. Moreover, a supplemental
pleading assumes that the original pleading is to stand and that the issues joined
with the original pleading remained an issue to be tried in the action. It is but a
continuation of the complaint. Its usual office is to set up new facts which justify,
enlarge or change the kind of relief with respect to the same subject matter as the
controversy referred to in the original complaint.
The purpose of the supplemental pleading is to bring into the records new facts
which will enlarge or change the kind of relief to which the plaintiff is entitled; hence,
any supplemental facts which further develop the original right of action, or extend
to vary the relief, are available by way of supplemental complaint even though they
themselves constitute a right of action.37 (Citations omitted and emphasis ours)
Thus, a supplemental pleading may properly allege transactions, occurrences or events which had
transpired after the filing of the pleading sought to be supplemented, even if the said supplemental
facts constitute another cause of action.
Admittedly, in Leobrera v. Court of Appeals,38 we held that a supplemental pleading must be based
on matters arising subsequent to the original pleading related to the claim or defense presented
therein, and founded on the same cause of action. We further stressed therein that a supplemental
pleading may not be used to try a new cause of action.
However, in Planters Development Bank v. LZK Holdings and Development Corp.,39 we clarified that,
while a matter stated in a supplemental complaint should have some relation to the cause of action
set forth in the original pleading, the fact that the supplemental pleading technically states a new
cause of action should not be a bar to its allowance but only a matter that may be considered by the
court in the exercise of its discretion. In such cases, we stressed that a broad definition of "cause of
action" should be applied.
Here, the issue as to the validity of the donation inter vivos of Lot No. 4709 and half of Lot No. 4706
made by Rita in favor of Florante is a new cause of action that occurred after the filing of the original
complaint. However, the petitioners’ prayer for the rescission of the said donation inter vivos in their
supplemental pleading is germane to, and is in fact, intertwined with the cause of action in the partition
case. Lot No. 4709 and half of Lot No. 4706 are included among the properties that were sought to
be partitioned.
The petitioners’ supplemental pleading merely amplified the original cause of action, on account of
the gratuitous conveyance of Lot No. 4709 and half of Lot No. 4706 after the filing of the original
complaint and prayed for additional reliefs, i.e., rescission. Indeed, the petitioners claim that the said
lots form part of the estate of Spouses Baylon, but cannot be partitioned unless the gratuitous
conveyance of the same is rescinded. Thus, the principal issue raised by the petitioners in their
original complaint remained the same.
Main Issue: Propriety of Rescission
After having threshed out the procedural matters, we now proceed to adjudicate the substantial issue
presented by the instant petition.
The petitioners assert that the CA erred in remanding the case to the RTC for the determination of
ownership of Lot No. 4709 and half of Lot No. 4706. They maintain that the RTC aptly rescinded the
said donation inter vivos of Lot No. 4709 and half of Lot No. 4706 pursuant to Article 1381(4) of the
Civil Code.
In his Comment,40 Florante asserts that before the petitioners may file an action for rescission, they
must first obtain a favorable judicial ruling that Lot No. 4709 and half of Lot No. 4706 actually belonged
to the estate of Spouses Baylon. Until then, Florante avers that an action for rescission would be
premature.
The petitioners’ contentions are well-taken.
The resolution of the instant dispute is fundamentally contingent upon a determination of whether the
donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante may be rescinded
pursuant to Article 1381(4) of the Civil Code on the ground that the same was made during the
pendency of the action for partition with the RTC.
Rescission is a remedy to address
the damage or injury caused to the
contracting parties or third
persons.
Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure
the reparation of damages caused to them by a contract, even if it should be valid, by means of the
restoration of things to their condition at the moment prior to the celebration of said contract. 41 It is a
remedy to make ineffective a contract, validly entered into and therefore obligatory under normal
conditions, by reason of external causes resulting in a pecuniary prejudice to one of the contracting
parties or their creditors.42
Contracts which are rescissible are valid contracts having all the essential requisites of a contract,
but by reason of injury or damage caused to either of the parties therein or to third persons are
considered defective and, thus, may be rescinded.
The kinds of rescissible contracts, according to the reason for their susceptibility to rescission, are
the following: first, those which are rescissible because of lesion or prejudice; 43 second, those which
are rescissible on account of fraud or bad faith;44 and third, those which, by special provisions of
law,45 are susceptible to rescission.46
Contracts which refer to things
subject of litigation is rescissible
pursuant to Article 1381(4) of the
Civil Code.
Contracts which are rescissible due to fraud or bad faith include those which involve things under
litigation, if they have been entered into by the defendant without the knowledge and approval of the
litigants or of competent judicial authority. Thus, Article 1381(4) of the Civil Code provides:
Art. 1381. The following contracts are rescissible:
xxxx
(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent
judicial authority.
The rescission of a contract under Article 1381(4) of the Civil Code only requires the concurrence of
the following: first, the defendant, during the pendency of the case, enters into a contract which refers
to the thing subject of litigation; and second, the said contract was entered into without the knowledge
and approval of the litigants or of a competent judicial authority. As long as the foregoing requisites
concur, it becomes the duty of the court to order the rescission of the said contract.
The reason for this is simple. Article 1381(4) seeks to remedy the presence of bad faith among the
parties to a case and/or any fraudulent act which they may commit with respect to the thing subject
of litigation.
When a thing is the subject of a judicial controversy, it should ultimately be bound by whatever
disposition the court shall render. The parties to the case are therefore expected, in deference to the
court’s exercise of jurisdiction over the case, to refrain from doing acts which would dissipate or
debase the thing subject of the litigation or otherwise render the impending decision therein
ineffectual.
There is, then, a restriction on the disposition by the parties of the thing that is the subject of the
litigation. Article 1381(4) of the Civil Code requires that any contract entered into by a defendant in a
case which refers to things under litigation should be with the knowledge and approval of the litigants
or of a competent judicial authority.
Further, any disposition of the thing subject of litigation or any act which tends to render inutile the
court’s impending disposition in such case, sans the knowledge and approval of the litigants or of the
court, is unmistakably and irrefutably indicative of bad faith. Such acts undermine the authority of the
court to lay down the respective rights of the parties in a case relative to the thing subject of litigation
and bind them to such determination.
It should be stressed, though, that the defendant in such a case is not absolutely proscribed from
entering into a contract which refer to things under litigation. If, for instance, a defendant enters into
a contract which conveys the thing under litigation during the pendency of the case, the conveyance
would be valid, there being no definite disposition yet coming from the court with respect to the thing
subject of litigation. After all, notwithstanding that the subject thereof is a thing under litigation, such
conveyance is but merely an exercise of ownership.
This is true even if the defendant effected the conveyance without the knowledge and approval of the
litigants or of a competent judicial authority. The absence of such knowledge or approval would not
precipitate the invalidity of an otherwise valid contract. Nevertheless, such contract, though
considered valid, may be rescinded at the instance of the other litigants pursuant to Article 1381(4)
of the Civil Code.
Here, contrary to the CA’s disposition, the RTC aptly ordered the rescission of the donation inter
vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante. The petitioners had sufficiently
established the presence of the requisites for the rescission of a contract pursuant to Article 1381(4)
of the Civil Code. It is undisputed that, at the time they were gratuitously conveyed by Rita, Lot No.
4709 and half of Lot No. 4706 are among the properties that were the subject of the partition case
then pending with the RTC. It is also undisputed that Rita, then one of the defendants in the partition
case with the RTC, did not inform nor sought the approval from the petitioners or of the RTC with
regard to the donation inter vivos of the said parcels of land to Florante.
Although the gratuitous conveyance of the said parcels of land in favor of Florante was valid, the
donation inter vivos of the same being merely an exercise of ownership, Rita’s failure to inform and
seek the approval of the petitioners or the RTC regarding the conveyance gave the petitioners the
right to have the said donation rescinded pursuant to Article 1381(4) of the Civil Code.
Rescission under Article 1381(4) of
the Civil Code is not preconditioned
upon the judicial determination as
to the ownership of the thing
subject of litigation.
In this regard, we also find the assertion that rescission may only be had after the RTC had finally
determined that the parcels of land belonged to the estate of Spouses Baylon intrinsically amiss. The
petitioners’ right to institute the action for rescission pursuant to Article 1381(4) of the Civil Code is
not preconditioned upon the RTC’s determination as to the ownership of the said parcels of land.
It bears stressing that the right to ask for the rescission of a contract under Article 1381(4) of the Civil
Code is not contingent upon the final determination of the ownership of the thing subject of litigation.
The primordial purpose of Article 1381(4) of the Civil Code is to secure the possible effectivity of the
impending judgment by a court with respect to the thing subject of litigation. It seeks to protect the
binding effect of a court’s impending adjudication vis-à-vis the thing subject of litigation regardless of
which among the contending claims therein would subsequently be upheld. Accordingly, a definitive
judicial determination with respect to the thing subject of litigation is not a condition sine qua non
before the rescissory action contemplated under Article 1381(4) of the Civil Code may be instituted.
Moreover, conceding that the right to bring the rescissory action pursuant to Article 1381(4) of the
Civil Code is preconditioned upon a judicial determination with regard to the thing subject litigation,
this would only bring about the very predicament that the said provision of law seeks to obviate.
Assuming arguendo that a rescissory action under Article 1381(4) of the Civil Code could only be
instituted after the dispute with respect to the thing subject of litigation is judicially determined, there
is the possibility that the same may had already been conveyed to third persons acting in good faith,
rendering any judicial determination with regard to the thing subject of litigation illusory. Surely, this
paradoxical eventuality is not what the law had envisioned.
Even if the donation inter vivos is
validly rescinded, a determination
as to the ownership of the subject
parcels of land is still necessary.
Having established that the RTC had aptly ordered the rescission of the said donation inter vivos in
favor of Florante, the issue that has to be resolved by this Court is whether there is still a need to
determine the ownership of Lot No. 4709 and half of Lot No. 4706.
In opting not to make a determination as to the ownership of Lot No. 4709 and half of Lot No. 4706,
the RTC reasoned that the parties in the proceedings before it constitute not only the surviving heirs
of Spouses Baylon but the surviving heirs of Rita as well. As intimated earlier, Rita died intestate
during the pendency of the proceedings with the RTC without any issue, leaving the parties in the
proceedings before the RTC as her surviving heirs. Thus, the RTC insinuated, a definitive
determination as to the ownership of the said parcels of land is unnecessary since, in any case, the
said parcels of land would ultimately be adjudicated to the parties in the proceedings before it.
We do not agree.
Admittedly, whoever may be adjudicated as the owner of Lot No. 4709 and half of Lot No. 4706, be
it Rita or Spouses Baylon, the same would ultimately be transmitted to the parties in the proceedings
before the RTC as they are the only surviving heirs of both Spouses Baylon and Rita. However, the
RTC failed to realize that a definitive adjudication as to the ownership of Lot No. 4709 and half of Lot
No. 4706 is essential in this case as it affects the authority of the RTC to direct the partition of the
said parcels of land. Simply put, the RTC cannot properly direct the partition of Lot No. 4709 and half
of Lot No. 4706 until and unless it determines that the said parcels of land indeed form part of the
estate of Spouses Baylon.
It should be stressed that the partition proceedings before the RTC only covers the properties co-
owned by the parties therein in their respective capacity as the surviving heirs of Spouses Baylon.
Hence, the authority of the RTC to issue an order of partition in the proceedings before it only affects
those properties which actually belonged to the estate of Spouses Baylon.
In this regard, if Lot No. 4709 and half of Lot No. 4706, as unwaveringly claimed by Florante, are
indeed exclusively owned by Rita, then the said parcels of land may not be partitioned simultaneously
with the other properties subject of the partition case before the RTC. In such case, although the
parties in the case before the RTC are still co-owners of the said parcels of land, the RTC would not
have the authority to direct the partition of the said parcels of land as the proceedings before it is only
concerned with the estate of Spouses Baylon.
WHEREFORE, in consideration of the foregoing disquisitions, the petition is PARTIALLY
GRANTED. The Decision dated October 26, 2007 issued by the Court of Appeals in CA-G.R. CV No.
01746 is MODIFIED in that the Decision dated October 20, 2005 issued by the Regional Trial Court,
Tanjay City, Negros Oriental, Branch 43 in Civil Case No. 11657, insofar as it decreed the rescission
of the Deed of Donation dated July 6, 1997 is hereby REINSTATED. The case is REMANDED to the
trial court for the determination of the ownership of Lot No. 4709 and half of Lot No. 4706 in
accordance with this Decision.
SO ORDERED.
RULE 3
G.R. No. 166620 April 20, 2010
ATTY. SYLVIA BANDA, CONSORICIA O. PENSON, RADITO V. PADRIGANO, JEAN R. DE
MESA, LEAH P. DELA CRUZ, ANDY V. MACASAQUIT, SENEN B. CORDOBA, ALBERT
BRILLANTES, GLORIA BISDA, JOVITA V. CONCEPCION, TERESITA G. CARVAJAL,
ROSANNA T. MALIWANAG, RICHARD ODERON, CECILIA ESTERNON, BENEDICTO CABRAL,
MA. VICTORIA E. LAROCO, CESAR ANDRA, FELICISIMO GALACIO, ELSA R. CALMA,
FILOMENA A. GALANG, JEAN PAUL MELEGRITO, CLARO G. SANTIAGO, JR., EDUARDO
FRIAS, REYNALDO O. ANDAL, NEPHTALIE IMPERIO, RUEL BALAGTAS, VICTOR R. ORTIZ,
FRANCISCO P. REYES, JR., ELISEO M. BALAGOT, JR., JOSE C. MONSALVE, JR., ARTURO
ADSUARA, F.C. LADRERO, JR., NELSON PADUA, MARCELA C. SAYAO, ANGELITO
MALAKAS, GLORIA RAMENTO, JULIANA SUPLEO, MANUEL MENDRIQUE, E. TAYLAN,
CARMELA BOBIS, DANILO VARGAS, ROY-LEO C. PABLO, ALLAN VILLANUEVA, VICENTE R.
VELASCO, JR., IMELDA ERENO, FLORIZA M. CATIIS, RANIEL R. BASCO, E. JALIJALI, MARIO
C. CARAAN, DOLORES M. AVIADO, MICHAEL P. LAPLANA, GUILLERMO G. SORIANO, ALICE
E. SOJO, ARTHUR G. NARNE, LETICIA SORIANO, FEDERICO RAMOS, JR., PETERSON
CAAMPUED, RODELIO L. GOMEZ, ANTONIO D. GARCIA, JR., ANTONIO GALO, A. SANCHEZ,
SOL E. TAMAYO, JOSEPHINE A.M. COCJIN, DAMIAN QUINTO, JR., EDLYN MARIANO, M.A.
MALANUM, ALFREDO S. ESTRELLA, and JESUS MEL SAYO, Petitioners,
vs.
EDUARDO R. ERMITA, in his capacity as Executive Secretary, The Director General of the
Philippine Information Agency and The National Treasurer, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
The present controversy arose from a Petition for Certiorari and prohibition challenging the
constitutionality of Executive Order No. 378 dated October 25, 2004, issued by President Gloria
Macapagal Arroyo (President Arroyo). Petitioners characterize their action as a class suit filed on
their own behalf and on behalf of all their co-employees at the National Printing Office (NPO).
The NPO was formed on July 25, 1987, during the term of former President Corazon C. Aquino
(President Aquino), by virtue of Executive Order No. 2851 which provided, among others, the creation
of the NPO from the merger of the Government Printing Office and the relevant printing units of the
Philippine Information Agency (PIA). Section 6 of Executive Order No. 285 reads:
SECTION 6. Creation of the National Printing Office. – There is hereby created a National Printing
Office out of the merger of the Government Printing Office and the relevant printing units of the
Philippine Information Agency. The Office shall have exclusive printing jurisdiction over the following:
a. Printing, binding and distribution of all standard and accountable forms of national, provincial, city
and municipal governments, including government corporations;
b. Printing of officials ballots;
c. Printing of public documents such as the Official Gazette, General Appropriations Act, Philippine
Reports, and development information materials of the Philippine Information Agency.
The Office may also accept other government printing jobs, including government publications, aside
from those enumerated above, but not in an exclusive basis.
The details of the organization, powers, functions, authorities, and related management aspects of
the Office shall be provided in the implementing details which shall be prepared and promulgated in
accordance with Section II of this Executive Order.
The Office shall be attached to the Philippine Information Agency.
On October 25, 2004, President Arroyo issued the herein assailed Executive Order No. 378,
amending Section 6 of Executive Order No. 285 by, inter alia, removing the exclusive jurisdiction of
the NPO over the printing services requirements of government agencies and instrumentalities. The
pertinent portions of Executive Order No. 378, in turn, provide:
SECTION 1. The NPO shall continue to provide printing services to government agencies and
instrumentalities as mandated by law. However, it shall no longer enjoy exclusive jurisdiction over
the printing services requirements of the government over standard and accountable forms. It shall
have to compete with the private sector, except in the printing of election paraphernalia which could
be shared with the Bangko Sentral ng Pilipinas, upon the discretion of the Commission on Elections
consistent with the provisions of the Election Code of 1987.
SECTION 2. Government agencies/instrumentalities may source printing services outside NPO
provided that:
2.1 The printing services to be provided by the private sector is superior in quality and at a lower cost
than what is offered by the NPO; and
2.2 The private printing provider is flexible in terms of meeting the target completion time of the
government agency.
SECTION 3. In the exercise of its functions, the amount to be appropriated for the programs, projects
and activities of the NPO in the General Appropriations Act (GAA) shall be limited to its income
without additional financial support from the government. (Emphases and underscoring supplied.)
Pursuant to Executive Order No. 378, government agencies and instrumentalities are allowed to
source their printing services from the private sector through competitive bidding, subject to the
condition that the services offered by the private supplier be of superior quality and lower in cost
compared to what was offered by the NPO. Executive Order No. 378 also limited NPO’s appropriation
in the General Appropriations Act to its income.
Perceiving Executive Order No. 378 as a threat to their security of tenure as employees of the NPO,
petitioners now challenge its constitutionality, contending that: (1) it is beyond the executive powers
of President Arroyo to amend or repeal Executive Order No. 285 issued by former President Aquino
when the latter still exercised legislative powers; and (2) Executive Order No. 378 violates petitioners’
security of tenure, because it paves the way for the gradual abolition of the NPO.
We dismiss the petition.
Before proceeding to resolve the substantive issues, the Court must first delve into a procedural
matter. Since petitioners instituted this case as a class suit, the Court, thus, must first determine if
the petition indeed qualifies as one. In Board of Optometry v. Colet, 2 we held that "[c]ourts must
exercise utmost caution before allowing a class suit, which is the exception to the requirement of
joinder of all indispensable parties. For while no difficulty may arise if the decision secured is
favorable to the plaintiffs, a quandary would result if the decision were otherwise as those who were
deemed impleaded by their self-appointed representatives would certainly claim denial of due
process."
Section 12, Rule 3 of the Rules of Court defines a class suit, as follows:
Sec. 12. Class suit. – When the subject matter of the controversy is one of common or general interest
to many persons so numerous that it is impracticable to join all as parties, a number of them which
the court finds to be sufficiently numerous and representative as to fully protect the interests of all
concerned may sue or defend for the benefit of all. Any party in interest shall have the right to
intervene to protect his individual interest.
From the foregoing definition, the requisites of a class suit are: 1) the subject matter of controversy
is one of common or general interest to many persons; 2) the parties affected are so numerous that
it is impracticable to bring them all to court; and 3) the parties bringing the class suit are sufficiently
numerous or representative of the class and can fully protect the interests of all concerned.
In Mathay v. The Consolidated Bank and Trust Company,3 the Court held that:
An action does not become a class suit merely because it is designated as such in the pleadings.
Whether the suit is or is not a class suit depends upon the attending facts, and the complaint, or other
pleading initiating the class action should allege the existence of the necessary facts, to wit, the
existence of a subject matter of common interest, and the existence of a class and the number of
persons in the alleged class, in order that the court might be enabled to determine whether the
members of the class are so numerous as to make it impracticable to bring them all before the court,
to contrast the number appearing on the record with the number in the class and to determine whether
claimants on record adequately represent the class and the subject matter of general or common
interest. (Emphases ours.)
Here, the petition failed to state the number of NPO employees who would be affected by the assailed
Executive Order and who were allegedly represented by petitioners. It was the Solicitor General, as
counsel for respondents, who pointed out that there were about 549 employees in the NPO. 4 The 67
petitioners undeniably comprised a small fraction of the NPO employees whom they claimed to
represent. Subsequently, 32 of the original petitioners executed an Affidavit of Desistance, while one
signed a letter denying ever signing the petition,5 ostensibly reducing the number of petitioners to 34.
We note that counsel for the petitioners challenged the validity of the desistance or withdrawal of
some of the petitioners and insinuated that such desistance was due to pressure from people "close
to the seat of power."6 Still, even if we were to disregard the affidavit of desistance filed by some of
the petitioners, it is highly doubtful that a sufficient, representative number of NPO employees have
instituted this purported class suit. A perusal of the petition itself would show that of the 67 petitioners
who signed the Verification/Certification of Non-Forum Shopping, only 20 petitioners were in fact
mentioned in the jurat as having duly subscribed the petition before the notary public. In other words,
only 20 petitioners effectively instituted the present case.
Indeed, in MVRS Publications, Inc. v. Islamic Da’wah Council of the Philippines, Inc., 7 we observed
that an element of a class suit or representative suit is the adequacy of representation. In determining
the question of fair and adequate representation of members of a class, the court must consider (a)
whether the interest of the named party is coextensive with the interest of the other members of the
class; (b) the proportion of those made a party, as it so bears, to the total membership of the class;
and (c) any other factor bearing on the ability of the named party to speak for the rest of the class.
Previously, we held in Ibañes v. Roman Catholic Church8 that where the interests of the plaintiffs and
the other members of the class they seek to represent are diametrically opposed, the class suit will
not prosper.
It is worth mentioning that a Manifestation of Desistance,9 to which the previously mentioned Affidavit
of Desistance10 was attached, was filed by the President of the National Printing Office Workers
Association (NAPOWA). The said manifestation expressed NAPOWA’s opposition to the filing of the
instant petition in any court. Even if we take into account the contention of petitioners’ counsel that
the NAPOWA President had no legal standing to file such manifestation, the said pleading is a clear
indication that there is a divergence of opinions and views among the members of the class sought
to be represented, and not all are in favor of filing the present suit. There is here an apparent conflict
between petitioners’ interests and those of the persons whom they claim to represent. Since it cannot
be said that petitioners sufficiently represent the interests of the entire class, the instant case cannot
be properly treated as a class suit.
As to the merits of the case, the petition raises two main grounds to assail the constitutionality of
Executive Order No. 378:
First, it is contended that President Arroyo cannot amend or repeal Executive Order No. 285 by the
mere issuance of another executive order (Executive Order No. 378). Petitioners maintain that former
President Aquino’s Executive Order No. 285 is a legislative enactment, as the same was issued while
President Aquino still had legislative powers under the Freedom Constitution; 11 thus, only Congress
through legislation can validly amend Executive Order No. 285.
Second, petitioners maintain that the issuance of Executive Order No. 378 would lead to the eventual
abolition of the NPO and would violate the security of tenure of NPO employees.
Anent the first ground raised in the petition, we find the same patently without merit.
It is a well-settled principle in jurisprudence that the President has the power to reorganize the offices
and agencies in the executive department in line with the President’s constitutionally granted power
of control over executive offices and by virtue of previous delegation of the legislative power to
reorganize executive offices under existing statutes.
In Buklod ng Kawaning EIIB v. Zamora,12 the Court pointed out that Executive Order No. 292 or the
Administrative Code of 1987 gives the President continuing authority to reorganize and redefine the
functions of the Office of the President. Section 31, Chapter 10, Title III, Book III of the said Code, is
explicit:
Sec. 31. Continuing Authority of the President to Reorganize his Office. – The President, subject to
the policy in the Executive Office and in order to achieve simplicity, economy and efficiency, shall
have continuing authority to reorganize the administrative structure of the Office of the President. For
this purpose, he may take any of the following actions:
(1) Restructure the internal organization of the Office of the President Proper, including the immediate
Offices, the President Special Assistants/Advisers System and the Common Staff Support System,
by abolishing, consolidating or merging units thereof or transferring functions from one unit to another;
(2) Transfer any function under the Office of the President to any other Department or Agency as well
as transfer functions to the Office of the President from other Departments and Agencies; and
(3) Transfer any agency under the Office of the President to any other department or agency as well
as transfer agencies to the Office of the President from other Departments or agencies. (Emphases
ours.)
Interpreting the foregoing provision, we held in Buklod ng Kawaning EIIB, thus:
But of course, the list of legal basis authorizing the President to reorganize any department or agency
in the executive branch does not have to end here. We must not lose sight of the very source of the
power – that which constitutes an express grant of power. Under Section 31, Book III of Executive
Order No. 292 (otherwise known as the Administrative Code of 1987), "the President, subject to the
policy in the Executive Office and in order to achieve simplicity, economy and efficiency, shall have
the continuing authority to reorganize the administrative structure of the Office of the President." For
this purpose, he may transfer the functions of other Departments or Agencies to the Office of the
President. In Canonizado v. Aguirre [323 SCRA 312 (2000)], we ruled that reorganization "involves
the reduction of personnel, consolidation of offices, or abolition thereof by reason of economy or
redundancy of functions." It takes place when there is an alteration of the existing structure of
government offices or units therein, including the lines of control, authority and responsibility between
them. The EIIB is a bureau attached to the Department of Finance. It falls under the Office of the
President. Hence, it is subject to the President’s continuing authority to reorganize. 13 (Emphasis
ours.)
It is undisputed that the NPO, as an agency that is part of the Office of the Press Secretary (which in
various times has been an agency directly attached to the Office of the Press Secretary or as an
agency under the Philippine Information Agency), is part of the Office of the President. 14
Pertinent to the case at bar, Section 31 of the Administrative Code of 1987 quoted above authorizes
the President (a) to restructure the internal organization of the Office of the President Proper,
including the immediate Offices, the President Special Assistants/Advisers System and the Common
Staff Support System, by abolishing, consolidating or merging units thereof or transferring functions
from one unit to another, and (b) to transfer functions or offices from the Office of the President to
any other Department or Agency in the Executive Branch, and vice versa.
Concomitant to such power to abolish, merge or consolidate offices in the Office of the President
Proper and to transfer functions/offices not only among the offices in the Office of President Proper
but also the rest of the Office of the President and the Executive Branch, the President implicitly has
the power to effect less radical or less substantive changes to the functional and internal structure of
the Office of the President, including the modification of functions of such executive agencies as the
exigencies of the service may require.
In the case at bar, there was neither an abolition of the NPO nor a removal of any of its functions to
be transferred to another agency. Under the assailed Executive Order No. 378, the NPO remains the
main printing arm of the government for all kinds of government forms and publications but in the
interest of greater economy and encouraging efficiency and profitability, it must now compete with
the private sector for certain government printing jobs, with the exception of election paraphernalia
which remains the exclusive responsibility of the NPO, together with the Bangko Sentral ng Pilipinas,
as the Commission on Elections may determine. At most, there was a mere alteration of the main
function of the NPO by limiting the exclusivity of its printing responsibility to election forms. 15
There is a view that the reorganization actions that the President may take with respect to agencies
in the Office of the President are strictly limited to transfer of functions and offices as seemingly
provided in Section 31 of the Administrative Code of 1987.
However, Section 20, Chapter 7, Title I, Book III of the same Code significantly provides:
Sec. 20. Residual Powers. – Unless Congress provides otherwise, the President shall exercise such
other powers and functions vested in the President which are provided for under the laws and which
are not specifically enumerated above, or which are not delegated by the President in accordance
with law. (Emphasis ours.)
Pursuant to Section 20, the power of the President to reorganize the Executive Branch under Section
31 includes such powers and functions that may be provided for under other laws. To be sure, an
inclusive and broad interpretation of the President’s power to reorganize executive offices has been
consistently supported by specific provisions in general appropriations laws.
In the oft-cited Larin v. Executive Secretary,16 the Court likewise adverted to certain provisions of
Republic Act No. 7645, the general appropriations law for 1993, as among the statutory bases for the
President’s power to reorganize executive agencies, to wit:
Section 48 of R.A. 7645 provides that:
"Sec. 48. Scaling Down and Phase Out of Activities of Agencies Within the Executive Branch. — The
heads of departments, bureaus and offices and agencies are hereby directed to identify their
respective activities which are no longer essential in the delivery of public services and which may
be scaled down, phased out or abolished, subject to civil [service] rules and regulations. x x x. Actual
scaling down, phasing out or abolition of the activities shall be effected pursuant to Circulars or Orders
issued for the purpose by the Office of the President."
Said provision clearly mentions the acts of "scaling down, phasing out and abolition" of offices only
and does not cover the creation of offices or transfer of functions. Nevertheless, the act of creating
and decentralizing is included in the subsequent provision of Section 62, which provides that:
"Sec. 62. Unauthorized organizational changes. — Unless otherwise created by law or directed by
the President of the Philippines, no organizational unit or changes in key positions in any department
or agency shall be authorized in their respective organization structures and be funded from
appropriations by this Act."
The foregoing provision evidently shows that the President is authorized to effect organizational
changes including the creation of offices in the department or agency concerned.
The contention of petitioner that the two provisions are riders deserves scant consideration. Well
settled is the rule that every law has in its favor the presumption of constitutionality. Unless and until
a specific provision of the law is declared invalid and unconstitutional, the same is valid and binding
for all intents and purposes.17 (Emphases ours)
Buklod ng Kawaning EIIB v. Zamora,18 where the Court upheld as valid then President Joseph
Estrada’s Executive Order No. 191 "deactivating" the Economic Intelligence and Investigation Bureau
(EIIB) of the Department of Finance, hewed closely to the reasoning in Larin. The Court, among
others, also traced from the General Appropriations Act 19 the President’s authority to effect
organizational changes in the department or agency under the executive structure, thus:
We adhere to the precedent or ruling in Larin that this provision recognizes the authority of the
President to effect organizational changes in the department or agency under the executive structure.
Such a ruling further finds support in Section 78 of Republic Act No. 8760. Under this law, the heads
of departments, bureaus, offices and agencies and other entities in the Executive Branch are directed
(a) to conduct a comprehensive review of their respective mandates, missions, objectives, functions,
programs, projects, activities and systems and procedures; (b) identify activities which are no longer
essential in the delivery of public services and which may be scaled down, phased-out or abolished;
and (c) adopt measures that will result in the streamlined organization and improved overall
performance of their respective agencies. Section 78 ends up with the mandate that the actual
streamlining and productivity improvement in agency organization and operation shall be effected
pursuant to Circulars or Orders issued for the purpose by the Office of the President. x x x. 20
(Emphasis ours)
Notably, in the present case, the 2003 General Appropriations Act, which was reenacted in 2004 (the
year of the issuance of Executive Order No. 378), likewise gave the President the authority to effect
a wide variety of organizational changes in any department or agency in the Executive Branch.
Sections 77 and 78 of said Act provides:
Section 77. Organized Changes. – Unless otherwise provided by law or directed by the President of
the Philippines, no changes in key positions or organizational units in any department or agency shall
be authorized in their respective organizational structures and funded from appropriations provided
by this Act.
Section 78. Institutional Strengthening and Productivity Improvement in Agency Organization and
Operations and Implementation of Organization/Reorganization Mandated by Law. The Government
shall adopt institutional strengthening and productivity improvement measures to improve service
delivery and enhance productivity in the government, as directed by the President of the Philippines.
The heads of departments, bureaus, offices, agencies, and other entities of the Executive Branch
shall accordingly conduct a comprehensive review of their respective mandates, missions, objectives,
functions, programs, projects, activities and systems and procedures; identify areas where
improvements are necessary; and implement corresponding structural, functional and operational
adjustments that will result in streamlined organization and operations and improved performance
and productivity: PROVIDED, That actual streamlining and productivity improvements in agency
organization and operations, as authorized by the President of the Philippines for the purpose,
including the utilization of savings generated from such activities, shall be in accordance with the
rules and regulations to be issued by the DBM, upon consultation with the Presidential Committee
on Effective Governance: PROVIDED, FURTHER, That in the implementation of
organizations/reorganizations, or specific changes in agency structure, functions and operations as
a result of institutional strengthening or as mandated by law, the appropriation, including the
functions, projects, purposes and activities of agencies concerned may be realigned as may be
necessary: PROVIDED, FINALLY, That any unexpended balances or savings in appropriations may
be made available for payment of retirement gratuities and separation benefits to affected personnel,
as authorized under existing laws. (Emphases and underscoring ours.)
Implicitly, the aforequoted provisions in the appropriations law recognize the power of the President
to reorganize even executive offices already funded by the said appropriations act, including the
power to implement structural, functional, and operational adjustments in the executive bureaucracy
and, in so doing, modify or realign appropriations of funds as may be necessary under such
reorganization. Thus, insofar as petitioners protest the limitation of the NPO’s appropriations to its
own income under Executive Order No. 378, the same is statutorily authorized by the above
provisions.
In the 2003 case of Bagaoisan v. National Tobacco Administration,21 we upheld the "streamlining" of
the National Tobacco Administration through a reduction of its personnel and deemed the same as
included in the power of the President to reorganize executive offices granted under the laws,
notwithstanding that such streamlining neither involved an abolition nor a transfer of functions of an
office. To quote the relevant portion of that decision:
In the recent case of Rosa Ligaya C. Domingo, et al. vs. Hon. Ronaldo D. Zamora, in his capacity as
the Executive Secretary, et al., this Court has had occasion to also delve on the President’s power
to reorganize the Office of the President under Section 31(2) and (3) of Executive Order No. 292 and
the power to reorganize the Office of the President Proper. x x x
xxxx
The first sentence of the law is an express grant to the President of a continuing authority to
reorganize the administrative structure of the Office of the President. The succeeding numbered
paragraphs are not in the nature of provisos that unduly limit the aim and scope of the grant to the
President of the power to reorganize but are to be viewed in consonance therewith. Section 31(1) of
Executive Order No. 292 specifically refers to the President’s power to restructure the internal
organization of the Office of the President Proper, by abolishing, consolidating or merging units hereof
or transferring functions from one unit to another, while Section 31(2) and (3) concern executive
offices outside the Office of the President Proper allowing the President to transfer any function under
the Office of the President to any other Department or Agency and vice-versa, and the transfer of
any agency under the Office of the President to any other department or agency and vice-versa.
In the present instance, involving neither an abolition nor transfer of offices, the assailed action is a
mere reorganization under the general provisions of the law consisting mainly of streamlining the
NTA in the interest of simplicity, economy and efficiency. It is an act well within the authority of the
President motivated and carried out, according to the findings of the appellate court, in good faith, a
factual assessment that this Court could only but accept.22 (Emphases and underscoring supplied.)
In the more recent case of Tondo Medical Center Employees Association v. Court of Appeals, 23 which
involved a structural and functional reorganization of the Department of Health under an executive
order, we reiterated the principle that the power of the President to reorganize agencies under the
executive department by executive or administrative order is constitutionally and statutorily
recognized. We held in that case:
This Court has already ruled in a number of cases that the President may, by executive or
administrative order, direct the reorganization of government entities under the Executive
Department. This is also sanctioned under the Constitution, as well as other statutes.
Section 17, Article VII of the 1987 Constitution, clearly states: "[T]he president shall have control of
all executive departments, bureaus and offices." Section 31, Book III, Chapter 10 of Executive Order
No. 292, also known as the Administrative Code of 1987 reads:
SEC. 31. Continuing Authority of the President to Reorganize his Office - The President, subject to
the policy in the Executive Office and in order to achieve simplicity, economy and efficiency, shall
have continuing authority to reorganize the administrative structure of the Office of the President. For
this purpose, he may take any of the following actions:
xxxx
In Domingo v. Zamora [445 Phil. 7 (2003)], this Court explained the rationale behind the President’s
continuing authority under the Administrative Code to reorganize the administrative structure of the
Office of the President. The law grants the President the power to reorganize the Office of the
President in recognition of the recurring need of every President to reorganize his or her office "to
achieve simplicity, economy and efficiency." To remain effective and efficient, it must be capable of
being shaped and reshaped by the President in the manner the Chief Executive deems fit to carry
out presidential directives and policies.
The Administrative Code provides that the Office of the President consists of the Office of the
President Proper and the agencies under it. The agencies under the Office of the President are
identified in Section 23, Chapter 8, Title II of the Administrative Code:
Sec. 23. The Agencies under the Office of the President.—The agencies under the Office of the
President refer to those offices placed under the chairmanship of the President, those under the
supervision and control of the President, those under the administrative supervision of the Office
of the President, those attached to it for policy and program coordination, and those that are not
placed by law or order creating them under any specific department.
xxxx
The power of the President to reorganize the executive department is likewise recognized in general
appropriations laws. x x x.
xxxx
Clearly, Executive Order No. 102 is well within the constitutional power of the President to issue. The
President did not usurp any legislative prerogative in issuing Executive Order No. 102. It is an
exercise of the President’s constitutional power of control over the executive department, supported
by the provisions of the Administrative Code, recognized by other statutes, and consistently affirmed
by this Court.24 (Emphases supplied.)
Subsequently, we ruled in Anak Mindanao Party-List Group v. Executive Secretary25 that:
The Constitution’s express grant of the power of control in the President justifies an executive action
to carry out reorganization measures under a broad authority of law.
In enacting a statute, the legislature is presumed to have deliberated with full knowledge of all existing
laws and jurisprudence on the subject. It is thus reasonable to conclude that in passing a statute
which places an agency under the Office of the President, it was in accordance with existing laws
and jurisprudence on the President’s power to reorganize.
In establishing an executive department, bureau or office, the legislature necessarily ordains an
executive agency’s position in the scheme of administrative structure. Such determination is primary,
but subject to the President’s continuing authority to reorganize the administrative structure. As far
as bureaus, agencies or offices in the executive department are concerned, the power of control may
justify the President to deactivate the functions of a particular office. Or a law may expressly grant
the President the broad authority to carry out reorganization measures. The Administrative Code of
1987 is one such law.26
The issuance of Executive Order No. 378 by President Arroyo is an exercise of a delegated legislative
power granted by the aforementioned Section 31, Chapter 10, Title III, Book III of the Administrative
Code of 1987, which provides for the continuing authority of the President to reorganize the Office of
the President, "in order to achieve simplicity, economy and efficiency." This is a matter already well-
entrenched in jurisprudence. The reorganization of such an office through executive or administrative
order is also recognized in the Administrative Code of 1987. Sections 2 and 3, Chapter 2, Title I,
Book III of the said Code provide:
Sec. 2. Executive Orders. - Acts of the President providing for rules of a general or permanent
character in implementation or execution of constitutional or statutory powers shall be promulgated
in executive orders.
Sec. 3. Administrative Orders. - Acts of the President which relate to particular aspects of
governmental operations in pursuance of his duties as administrative head shall be promulgated in
administrative orders. (Emphases supplied.)
To reiterate, we find nothing objectionable in the provision in Executive Order No. 378 limiting the
appropriation of the NPO to its own income. Beginning with Larin and in subsequent cases, the Court
has noted certain provisions in the general appropriations laws as likewise reflecting the power of
the President to reorganize executive offices or agencies even to the extent of modifying and
realigning appropriations for that purpose.
Petitioners’ contention that the issuance of Executive Order No. 378 is an invalid exercise of
legislative power on the part of the President has no legal leg to stand on.
In all, Executive Order No. 378, which purports to institute necessary reforms in government in order
to improve and upgrade efficiency in the delivery of public services by redefining the functions of the
NPO and limiting its funding to its own income and to transform it into a self-reliant agency able to
compete with the private sector, is well within the prerogative of President Arroyo under her
continuing delegated legislative power to reorganize her own office. As pointed out in the separate
concurring opinion of our learned colleague, Associate Justice Antonio T. Carpio, the objective
behind Executive Order No. 378 is wholly consistent with the state policy contained in Republic Act
No. 9184 or the Government Procurement Reform Act to encourage competitiveness by extending
equal opportunity to private contracting parties who are eligible and qualified. 271avvphi1
To be very clear, this delegated legislative power to reorganize pertains only to the Office of the
President and the departments, offices and agencies of the executive branch and does not include
the Judiciary, the Legislature or the constitutionally-created or mandated bodies. Moreover, it must
be stressed that the exercise by the President of the power to reorganize the executive department
must be in accordance with the Constitution, relevant laws and prevailing jurisprudence.
In this regard, we are mindful of the previous pronouncement of this Court in Dario v. Mison28 that:
Reorganizations in this jurisdiction have been regarded as valid provided they are pursued in good
faith. As a general rule, a reorganization is carried out in "good faith" if it is for the purpose of economy
or to make bureaucracy more efficient. In that event, no dismissal (in case of a dismissal) or
separation actually occurs because the position itself ceases to exist. And in that case, security of
tenure would not be a Chinese wall. Be that as it may, if the "abolition," which is nothing else but a
separation or removal, is done for political reasons or purposely to defeat security of tenure, or
otherwise not in good faith, no valid "abolition" takes place and whatever "abolition" is done, is void
ab initio. There is an invalid "abolition" as where there is merely a change of nomenclature of
positions, or where claims of economy are belied by the existence of ample funds. (Emphasis ours.)
Stated alternatively, the presidential power to reorganize agencies and offices in the executive branch
of government is subject to the condition that such reorganization is carried out in good faith.
If the reorganization is done in good faith, the abolition of positions, which results in loss of security
of tenure of affected government employees, would be valid. In Buklod ng Kawaning EIIB v.
Zamora,29 we even observed that there was no such thing as an absolute right to hold office. Except
those who hold constitutional offices, which provide for special immunity as regards salary and
tenure, no one can be said to have any vested right to an office or salary.30
This brings us to the second ground raised in the petition – that Executive Order No. 378, in allowing
government agencies to secure their printing requirements from the private sector and in limiting the
budget of the NPO to its income, will purportedly lead to the gradual abolition of the NPO and the
loss of security of tenure of its present employees. In other words, petitioners avow that the
reorganization of the NPO under Executive Order No. 378 is tainted with bad faith. The basic
evidentiary rule is that he who asserts a fact or the affirmative of an issue has the burden of proving
it.31
A careful review of the records will show that petitioners utterly failed to substantiate their claim. They
failed to allege, much less prove, sufficient facts to show that the limitation of the NPO’s budget to its
own income would indeed lead to the abolition of the position, or removal from office, of any
employee. Neither did petitioners present any shred of proof of their assertion that the changes in the
functions of the NPO were for political considerations that had nothing to do with improving the
efficiency of, or encouraging operational economy in, the said agency.
In sum, the Court finds that the petition failed to show any constitutional infirmity or grave abuse of
discretion amounting to lack or excess of jurisdiction in President Arroyo’s issuance of Executive
Order No. 378.
WHEREFORE, the petition is hereby DISMISSED and the prayer for a Temporary Restraining Order
and/or a Writ of Preliminary Injunction is hereby DENIED. No costs.
SO ORDERED.
G.R. No. 153788 November 27, 2009
ROGER V. NAVARRO, Petitioner, vs. HON. JOSE L. ESCOBIDO, Presiding Judge, RTC Branch
37, Cagayan de Oro City, and KAREN T. GO, doing business under the name KARGO
ENTERPRISES, Respondents.
DECISION
BRION, J.:
This is a petition for review on certiorari1 that seeks to set aside the Court of Appeals (CA) Decision2
dated October 16, 2001 and Resolution3 dated May 29, 2002 in CA-G.R. SP. No. 64701. These CA
rulings affirmed the July 26, 20004 and March 7, 20015 orders of the Regional Trial Court (RTC),
Misamis Oriental, Cagayan de Oro City, denying petitioner Roger V. Navarro’s (Navarro) motion to
dismiss.
BACKGROUND FACTS
On September 12, 1998, respondent Karen T. Go filed two complaints, docketed as Civil Case Nos.
98-599 (first complaint)6 and 98-598 (second complaint),7 before the RTC for replevin and/or sum of
money with damages against Navarro. In these complaints, Karen Go prayed that the RTC issue
writs of replevin for the seizure of two (2) motor vehicles in Navarro’s possession.
The first complaint stated:
1. That plaintiff KAREN T. GO is a Filipino, of legal age, married to GLENN O. GO, a resident of
Cagayan de Oro City and doing business under the trade name KARGO ENTERPRISES, an entity
duly registered and existing under and by virtue of the laws of the Republic of the Philippines, which
has its business address at Bulua, Cagayan de Oro City; that defendant ROGER NAVARRO is a
Filipino, of legal age, a resident of 62 Dolores Street, Nazareth, Cagayan de Oro City, where he may
be served with summons and other processes of the Honorable Court; that defendant "JOHN DOE"
whose real name and address are at present unknown to plaintiff is hereby joined as party defendant
as he may be the person in whose possession and custody the personal property subject matter of
this suit may be found if the same is not in the possession of defendant ROGER NAVARRO;
2. That KARGO ENTERPRISES is in the business of, among others, buying and selling motor
vehicles, including hauling trucks and other heavy equipment;
3. That for the cause of action against defendant ROGER NAVARRO, it is hereby stated that on
August 8, 1997, the said defendant leased [from] plaintiff a certain motor vehicle which is more
particularly described as follows –
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-51680
Motor No. 6D15-338735
Plate No. GHK-378
as evidenced by a LEASE AGREEMENT WITH OPTION TO PURCHASE entered into by and
between KARGO ENTERPRISES, then represented by its Manager, the aforementioned GLENN O.
GO, and defendant ROGER NAVARRO xxx; that in accordance with the provisions of the above
LEASE AGREEMENT WITH OPTION TO PURCHASE, defendant ROGER NAVARRO delivered
unto plaintiff six (6) post-dated checks each in the amount of SIXTY-SIX THOUSAND THREE
HUNDRED THIRTY-THREE & 33/100 PESOS (₱66,333.33) which were supposedly in payment of
the agreed rentals; that when the fifth and sixth checks, i.e. PHILIPPINE BANK OF
COMMUNICATIONS – CAGAYAN DE ORO BRANCH CHECKS NOS. 017112 and 017113,
respectively dated January 8, 1998 and February 8, 1998, were presented for payment and/or credit,
the same were dishonored and/or returned by the drawee bank for the common reason that the
current deposit account against which the said checks were issued did not have sufficient funds to
cover the amounts thereof; that the total amount of the two (2) checks, i.e. the sum of ONE
HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS (₱132,666.66)
therefore represents the principal liability of defendant ROGER NAVARRO unto plaintiff on the basis
of the provisions of the above LEASE AGREEMENT WITH RIGHT TO PURCHASE; that demands,
written and oral, were made of defendant ROGER NAVARRO to pay the amount of ONE HUNDRED
THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS (₱132,666.66), or to return
the subject motor vehicle as also provided for in the LEASE AGREEMENT WITH RIGHT TO
PURCHASE, but said demands were, and still are, in vain to the great damage and injury of herein
plaintiff; xxx
4. That the aforedescribed motor vehicle has not been the subject of any tax assessment and/or fine
pursuant to law, or seized under an execution or an attachment as against herein plaintiff;
xxx
8. That plaintiff hereby respectfully applies for an order of the Honorable Court for the immediate
delivery of the above-described motor vehicle from defendants unto plaintiff pending the final
determination of this case on the merits and, for that purpose, there is attached hereto an affidavit
duly executed and bond double the value of the personal property subject matter hereof to answer
for damages and costs which defendants may suffer in the event that the order for replevin prayed
for may be found out to having not been properly issued.
The second complaint contained essentially the same allegations as the first complaint, except that
the Lease Agreement with Option to Purchase involved is dated October 1, 1997 and the motor
vehicle leased is described as follows:
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-510528
Motor No. 6D14-423403
The second complaint also alleged that Navarro delivered three post-dated checks, each for the
amount of ₱100,000.00, to Karen Go in payment of the agreed rentals; however, the third check was
dishonored when presented for payment.8
On October 12, 19989 and October 14, 1998,10 the RTC issued writs of replevin for both cases; as a
result, the Sheriff seized the two vehicles and delivered them to the possession of Karen Go.
In his Answers, Navarro alleged as a special affirmative defense that the two complaints stated no
cause of action, since Karen Go was not a party to the Lease Agreements with Option to Purchase
(collectively, the lease agreements) – the actionable documents on which the complaints were based.
On Navarro’s motion, both cases were duly consolidated on December 13, 1999.
In its May 8, 2000 order, the RTC dismissed the case on the ground that the complaints did not state
a cause of action.
In response to the motion for reconsideration Karen Go filed dated May 26, 2000,11 the RTC issued
another order dated July 26, 2000 setting aside the order of dismissal. Acting on the presumption
that Glenn Go’s leasing business is a conjugal property, the RTC held that Karen Go had sufficient
interest in his leasing business to file the action against Navarro. However, the RTC held that Karen
Go should have included her husband, Glenn Go, in the complaint based on Section 4, Rule 3 of the
Rules of Court (Rules).12 Thus, the lower court ordered Karen Go to file a motion for the inclusion of
Glenn Go as co-plaintiff.1avvphi1
When the RTC denied Navarro’s motion for reconsideration on March 7, 2001, Navarro filed a petition
for certiorari with the CA, essentially contending that the RTC committed grave abuse of discretion
when it reconsidered the dismissal of the case and directed Karen Go to amend her complaints by
including her husband Glenn Go as co-plaintiff. According to Navarro, a complaint which failed to
state a cause of action could not be converted into one with a cause of action by mere amendment
or supplemental pleading.
On October 16, 2001, the CA denied Navarro’s petition and affirmed the RTC’s order.13 The CA also
denied Navarro’s motion for reconsideration in its resolution of May 29, 2002,14 leading to the filing
of the present petition.
THE PETITION
Navarro alleges that even if the lease agreements were in the name of Kargo Enterprises, since it
did not have the requisite juridical personality to sue, the actual parties to the agreement are himself
and Glenn Go. Since it was Karen Go who filed the complaints and not Glenn Go, she was not a real
party-in-interest and the complaints failed to state a cause of action.
Navarro posits that the RTC erred when it ordered the amendment of the complaint to include Glenn
Go as a co-plaintiff, instead of dismissing the complaint outright because a complaint which does not
state a cause of action cannot be converted into one with a cause of action by a mere amendment
or a supplemental pleading. In effect, the lower court created a cause of action for Karen Go when
there was none at the time she filed the complaints.
Even worse, according to Navarro, the inclusion of Glenn Go as co-plaintiff drastically changed the
theory of the complaints, to his great prejudice. Navarro claims that the lower court gravely abused
its discretion when it assumed that the leased vehicles are part of the conjugal property of Glenn and
Karen Go. Since Karen Go is the registered owner of Kargo Enterprises, the vehicles subject of the
complaint are her paraphernal properties and the RTC gravely erred when it ordered the inclusion of
Glenn Go as a co-plaintiff.
Navarro likewise faults the lower court for setting the trial of the case in the same order that required
Karen Go to amend her complaints, claiming that by issuing this order, the trial court violated Rule
10 of the Rules.
Even assuming the complaints stated a cause of action against him, Navarro maintains that the
complaints were premature because no prior demand was made on him to comply with the provisions
of the lease agreements before the complaints for replevin were filed.
Lastly, Navarro posits that since the two writs of replevin were issued based on flawed complaints,
the vehicles were illegally seized from his possession and should be returned to him immediately.
Karen Go, on the other hand, claims that it is misleading for Navarro to state that she has no real
interest in the subject of the complaint, even if the lease agreements were signed only by her
husband, Glenn Go; she is the owner of Kargo Enterprises and Glenn Go signed the lease
agreements merely as the manager of Kargo Enterprises. Moreover, Karen Go maintains that
Navarro’s insistence that Kargo Enterprises is Karen Go’s paraphernal property is without basis.
Based on the law and jurisprudence on the matter, all property acquired during the marriage is
presumed to be conjugal property. Finally, Karen Go insists that her complaints sufficiently
established a cause of action against Navarro. Thus, when the RTC ordered her to include her
husband as co-plaintiff, this was merely to comply with the rule that spouses should sue jointly, and
was not meant to cure the complaints’ lack of cause of action.
THE COURT’S RULING
We find the petition devoid of merit.
Karen Go is the real party-in-interest
The 1997 Rules of Civil Procedure requires that every action must be prosecuted or defended in the
name of the real party-in-interest, i.e., the party who stands to be benefited or injured by the judgment
in the suit, or the party entitled to the avails of the suit.15
Interestingly, although Navarro admits that Karen Go is the registered owner of the business name
Kargo Enterprises, he still insists that Karen Go is not a real party-in-interest in the case. According
to Navarro, while the lease contracts were in Kargo Enterprises’ name, this was merely a trade name
without a juridical personality, so the actual parties to the lease agreements were Navarro and Glenn
Go, to the exclusion of Karen Go.
As a corollary, Navarro contends that the RTC acted with grave abuse of discretion when it ordered
the inclusion of Glenn Go as co-plaintiff, since this in effect created a cause of action for the
complaints when in truth, there was none.
We do not find Navarro’s arguments persuasive.
The central factor in appreciating the issues presented in this case is the business name Kargo
Enterprises. The name appears in the title of the Complaint where the plaintiff was identified as
"KAREN T. GO doing business under the name KARGO ENTERPRISES," and this identification was
repeated in the first paragraph of the Complaint. Paragraph 2 defined the business KARGO
ENTERPRISES undertakes. Paragraph 3 continued with the allegation that the defendant "leased
from plaintiff a certain motor vehicle" that was thereafter described. Significantly, the Complaint
specifies and attaches as its integral part the Lease Agreement that underlies the transaction
between the plaintiff and the defendant. Again, the name KARGO ENTERPRISES entered the picture
as this Lease Agreement provides:
This agreement, made and entered into by and between:
GLENN O. GO, of legal age, married, with post office address at xxx, herein referred to as the
LESSOR-SELLER; representing KARGO ENTERPRISES as its Manager,
xxx
thus, expressly pointing to KARGO ENTERPRISES as the principal that Glenn O. Go represented.
In other words, by the express terms of this Lease Agreement, Glenn Go did sign the agreement only
as the manager of Kargo Enterprises and the latter is clearly the real party to the lease agreements.
As Navarro correctly points out, Kargo Enterprises is a sole proprietorship, which is neither a natural
person, nor a juridical person, as defined by Article 44 of the Civil Code:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose, created by law; their
personality begins as soon as they have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or purpose to which the law grants
a juridical personality, separate and distinct from that of each shareholder, partner or member.
Thus, pursuant to Section 1, Rule 3 of the Rules,16 Kargo Enterprises cannot be a party to a civil
action. This legal reality leads to the question: who then is the proper party to file an action based on
a contract in the name of Kargo Enterprises?
We faced a similar question in Juasing Hardware v. Mendoza,17 where we said:
Finally, there is no law authorizing sole proprietorships like petitioner to bring suit in court. The law
merely recognizes the existence of a sole proprietorship as a form of business organization
conducted for profit by a single individual, and requires the proprietor or owner thereof to secure
licenses and permits, register the business name, and pay taxes to the national government. It does
not vest juridical or legal personality upon the sole proprietorship nor empower it to file or defend an
action in court.
Thus, the complaint in the court below should have been filed in the name of the owner of Juasing
Hardware. The allegation in the body of the complaint would show that the suit is brought by such
person as proprietor or owner of the business conducted under the name and style Juasing
Hardware. The descriptive words "doing business as Juasing Hardware" may be added to the title of
the case, as is customarily done.18 [Emphasis supplied.]
This conclusion should be read in relation with Section 2, Rule 3 of the Rules, which states:
SEC. 2. Parties in interest. – A real party in interest is the party who stands to be benefited or injured
by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized
by law or these Rules, every action must be prosecuted or defended in the name of the real party in
interest.
As the registered owner of Kargo Enterprises, Karen Go is the party who will directly benefit from or
be injured by a judgment in this case. Thus, contrary to Navarro’s contention, Karen Go is the real
party-in-interest, and it is legally incorrect to say that her Complaint does not state a cause of action
because her name did not appear in the Lease Agreement that her husband signed in behalf of Kargo
Enterprises. Whether Glenn Go can legally sign the Lease Agreement in his capacity as a manager
of Kargo Enterprises, a sole proprietorship, is a question we do not decide, as this is a matter for the
trial court to consider in a trial on the merits.
Glenn Go’s Role in the Case
We find it significant that the business name Kargo Enterprises is in the name of Karen T. Go,19 who
described herself in the Complaints to be "a Filipino, of legal age, married to GLENN O. GO, a
resident of Cagayan de Oro City, and doing business under the trade name KARGO
ENTERPRISES."20 That Glenn Go and Karen Go are married to each other is a fact never brought
in issue in the case. Thus, the business name KARGO ENTERPRISES is registered in the name of
a married woman, a fact material to the side issue of whether Kargo Enterprises and its properties
are paraphernal or conjugal properties. To restate the parties’ positions, Navarro alleges that Kargo
Enterprises is Karen Go’s paraphernal property, emphasizing the fact that the business is registered
solely in Karen Go’s name. On the other hand, Karen Go contends that while the business is
registered in her name, it is in fact part of their conjugal property.
The registration of the trade name in the name of one person – a woman – does not necessarily lead
to the conclusion that the trade name as a property is hers alone, particularly when the woman is
married. By law, all property acquired during the marriage, whether the acquisition appears to have
been made, contracted or registered in the name of one or both spouses, is presumed to be conjugal
unless the contrary is proved.21 Our examination of the records of the case does not show any proof
that Kargo Enterprises and the properties or contracts in its name are conjugal. If at all, only the bare
allegation of Navarro to this effect exists in the records of the case. As we emphasized in Castro v.
Miat:22
Petitioners also overlook Article 160 of the New Civil Code. It provides that "all property of the
marriage is presumed to be conjugal partnership, unless it be prove[n] that it pertains exclusively to
the husband or to the wife." This article does not require proof that the property was acquired
with funds of the partnership. The presumption applies even when the manner in which the
property was acquired does not appear.23 [Emphasis supplied.]
Thus, for purposes solely of this case and of resolving the issue of whether Kargo Enterprises as a
sole proprietorship is conjugal or paraphernal property, we hold that it is conjugal property.
Article 124 of the Family Code, on the administration of the conjugal property, provides:
Art. 124. The administration and enjoyment of the conjugal partnership property shall belong
to both spouses jointly. In case of disagreement, the husband’s decision shall prevail, subject to
recourse to the court by the wife for proper remedy, which must be availed of within five years from
the date of the contract implementing such decision.
xxx
This provision, by its terms, allows either Karen or Glenn Go to speak and act with authority in
managing their conjugal property, i.e., Kargo Enterprises. No need exists, therefore, for one to obtain
the consent of the other before performing an act of administration or any act that does not dispose
of or encumber their conjugal property.
Under Article 108 of the Family Code, the conjugal partnership is governed by the rules on the
contract of partnership in all that is not in conflict with what is expressly determined in this Chapter or
by the spouses in their marriage settlements. In other words, the property relations of the husband
and wife shall be governed primarily by Chapter 4 on Conjugal Partnership of Gains of the Family
Code and, suppletorily, by the spouses’ marriage settlement and by the rules on partnership under
the Civil Code. In the absence of any evidence of a marriage settlement between the spouses Go,
we look at the Civil Code provision on partnership for guidance.
A rule on partnership applicable to the spouses’ circumstances is Article 1811 of the Civil Code, which
states:
Art. 1811. A partner is a co-owner with the other partners of specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has
an equal right with his partners to possess specific partnership property for partnership
purposes; xxx
Under this provision, Glenn and Karen Go are effectively co-owners of Kargo Enterprises and the
properties registered under this name; hence, both have an equal right to seek possession of these
properties. Applying Article 484 of the Civil Code, which states that "in default of contracts, or special
provisions, co-ownership shall be governed by the provisions of this Title," we find further support in
Article 487 of the Civil Code that allows any of the co-owners to bring an action in ejectment with
respect to the co-owned property.
While ejectment is normally associated with actions involving real property, we find that this rule can
be applied to the circumstances of the present case, following our ruling in Carandang v. Heirs of De
Guzman.24 In this case, one spouse filed an action for the recovery of credit, a personal property
considered conjugal property, without including the other spouse in the action. In resolving the issue
of whether the other spouse was required to be included as a co-plaintiff in the action for the recovery
of the credit, we said:
Milagros de Guzman, being presumed to be a co-owner of the credits allegedly extended to the
spouses Carandang, seems to be either an indispensable or a necessary party. If she is an
indispensable party, dismissal would be proper. If she is merely a necessary party, dismissal is not
warranted, whether or not there was an order for her inclusion in the complaint pursuant to Section
9, Rule 3.
Article 108 of the Family Code provides:
Art. 108. The conjugal partnership shall be governed by the rules on the contract of partnership in all
that is not in conflict with what is expressly determined in this Chapter or by the spouses in their
marriage settlements.
This provision is practically the same as the Civil Code provision it superseded:
Art. 147. The conjugal partnership shall be governed by the rules on the contract of partnership in all
that is not in conflict with what is expressly determined in this Chapter.
In this connection, Article 1811 of the Civil Code provides that "[a] partner is a co-owner with the other
partners of specific partnership property." Taken with the presumption of the conjugal nature of the
funds used to finance the four checks used to pay for petitioners’ stock subscriptions, and with the
presumption that the credits themselves are part of conjugal funds, Article 1811 makes Quirino and
Milagros de Guzman co-owners of the alleged credit.
Being co-owners of the alleged credit, Quirino and Milagros de Guzman may separately bring an
action for the recovery thereof. In the fairly recent cases of Baloloy v. Hular and Adlawan v. Adlawan,
we held that, in a co-ownership, co-owners may bring actions for the recovery of co-owned property
without the necessity of joining all the other co-owners as co-plaintiffs because the suit is presumed
to have been filed for the benefit of his co-owners. In the latter case and in that of De Guia v. Court
of Appeals, we also held that Article 487 of the Civil Code, which provides that any of the co-owners
may bring an action for ejectment, covers all kinds of action for the recovery of possession.
In sum, in suits to recover properties, all co-owners are real parties in interest. However, pursuant to
Article 487 of the Civil Code and relevant jurisprudence, any one of them may bring an action, any
kind of action, for the recovery of co-owned properties. Therefore, only one of the co-owners, namely
the co-owner who filed the suit for the recovery of the co-owned property, is an indispensable party
thereto. The other co-owners are not indispensable parties. They are not even necessary parties, for
a complete relief can be accorded in the suit even without their participation, since the suit is
presumed to have been filed for the benefit of all co-owners.25 [Emphasis supplied.]
Under this ruling, either of the spouses Go may bring an action against Navarro to recover possession
of the Kargo Enterprises-leased vehicles which they co-own. This conclusion is consistent with Article
124 of the Family Code, supporting as it does the position that either spouse may act on behalf of
the conjugal partnership, so long as they do not dispose of or encumber the property in question
without the other spouse’s consent.
On this basis, we hold that since Glenn Go is not strictly an indispensable party in the action to
recover possession of the leased vehicles, he only needs to be impleaded as a pro-forma party to
the suit, based on Section 4, Rule 4 of the Rules, which states:
Section 4. Spouses as parties. – Husband and wife shall sue or be sued jointly, except as provided
by law.
Non-joinder of indispensable parties not ground to dismiss action
Even assuming that Glenn Go is an indispensable party to the action, we have held in a number of
cases26 that the misjoinder or non-joinder of indispensable parties in a complaint is not a ground for
dismissal of action. As we stated in Macababbad v. Masirag: 27
Rule 3, Section 11 of the Rules of Court provides that neither misjoinder nor nonjoinder of parties is
a ground for the dismissal of an action, thus:
Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of parties is ground
for dismissal of an action. Parties may be dropped or added by order of the court on motion of any
party or on its own initiative at any stage of the action and on such terms as are just. Any claim
against a misjoined party may be severed and proceeded with separately.
In Domingo v. Scheer, this Court held that the proper remedy when a party is left out is to implead
the indispensable party at any stage of the action. The court, either motu proprio or upon the motion
of a party, may order the inclusion of the indispensable party or give the plaintiff opportunity to amend
his complaint in order to include indispensable parties. If the plaintiff to whom the order to include the
indispensable party is directed refuses to comply with the order of the court, the complaint may be
dismissed upon motion of the defendant or upon the court's own motion. Only upon unjustified failure
or refusal to obey the order to include or to amend is the action dismissed.
In these lights, the RTC Order of July 26, 2000 requiring plaintiff Karen Go to join her husband as a
party plaintiff is fully in order.
Demand not required prior
to filing of replevin action
In arguing that prior demand is required before an action for a writ of replevin is filed, Navarro
apparently likens a replevin action to an unlawful detainer.
For a writ of replevin to issue, all that the applicant must do is to file an affidavit and bond, pursuant CRISTITA B. BAÑES, petitioners, vs. MAXIMO PADIGOS, FLAVIANO MABUYO, GAUDENCIO
to Section 2, Rule 60 of the Rules, which states: PADIGOS, DOMINGO PADIGOS, VICTORIA P. ABARQUEZ, LILIA P. GABISON, TIMOTEO
PADIGOS, PERFECTO PADIGOS, PRISCA SALARDA, FLORA GUINTO, BENITA TEMPLA,
Sec. 2. Affidavit and bond. SOTERO PADIGOS, ANDRES PADIGOS, EMILIO PADIGOS, DEMETRIO PADIGOS, JR.,
WENCESLAO PADIGOS, NELLY PADIGOS, EXPEDITO PADIGOS, HENRY PADIGOS and
The applicant must show by his own affidavit or that of some other person who personally knows the ENRIQUE P. MALAZARTE, respondents.
facts:
DECISION
(a) That the applicant is the owner of the property claimed, particularly describing it, or is entitled
to the possession thereof; CARPIO MORALES, J.:

(b) That the property is wrongfully detained by the adverse party, alleging the cause of detention The case at bar involves a parcel of land identified as Lot No. 3781 (the lot) located in Inayawan,
thereof according to the best of his knowledge, information, and belief; Cebu, covered by Original Certificate of Title No. RO-2649 (0-9092)1 in the name of the following 13
co-owners, their respective shares of which are indicated opposite their names:
(c) That the property has not been distrained or taken for a tax assessment or a fine pursuant to law,
or seized under a writ of execution or preliminary attachment, or otherwise placed under custodia
legis, or if so seized, that it is exempt from such seizure or custody; and
Fortunata Padigos (Fortunata) 1/8

(d) The actual market value of the property.

The applicant must also give a bond, executed to the adverse party in double the value of the property
Felix Padigos (Felix) 1/8
as stated in the affidavit aforementioned, for the return of the property to the adverse party if such
return be adjudged, and for the payment to the adverse party of such sum as he may recover from
the applicant in the action.
Wenceslao Padigos (Wenceslao) 1/8
We see nothing in these provisions which requires the applicant to make a prior demand on the
possessor of the property before he can file an action for a writ of replevin. Thus, prior demand is not
a condition precedent to an action for a writ of replevin.
Maximiano Padigos (Maximiano) 1/8
More importantly, Navarro is no longer in the position to claim that a prior demand is necessary, as
he has already admitted in his Answers that he had received the letters that Karen Go sent him,
demanding that he either pay his unpaid obligations or return the leased motor vehicles. Navarro’s
position that a demand is necessary and has not been made is therefore totally unmeritorious.
Geronimo Padigos (Geronimo) 1/8

WHEREFORE, premises considered, we DENY the petition for review for lack of merit. Costs against
petitioner Roger V. Navarro.
Macaria Padigos 1/8
SO ORDERED.

Simplicio Padigos (Simplicio) 1/8

G.R. No. 173192 April 14, 2008

ROSENDO BACALSO, RODRIGO BACALSO, MARCILIANA B. DOBLAS, TEROLIO BACALSO,

ALIPIO BACALSO, JR., MARIO BACALSO, WILLIAM BACALSO, ALIPIO BACALSO III and

Ignacio Padigos (Ignacio) 1/48
Matilde Padigos 1/48
Marcelo Padigos 1/48
Rustica Padigos 1/48
Raymunda Padigos 1/48
Antonino Padigos 1/48
Maximo Padigos (Maximo), Flaviano Mabuyo (Flaviano), Gaudencio Padigos (Gaudencio), Domingo
Padigos (Domingo), and Victoria P. Abarquez (Victoria), who are among the herein respondents, filed
on April 17, 1995, before the Regional Trial Court (RTC) of Cebu City, a Complaint, 2 docketed as
Civil Case No. CEB-17326, against Rosendo Bacalso (Rosendo) and Rodrigo Bacalso (Rodrigo) who
are among the herein petitioners, for quieting of title, declaration of nullity of documents, recovery of
possession, and damages.
The therein plaintiffs-herein respondents Maximo and Flaviano claimed that they are children of the
deceased co-owner Simplicio; that respondents Gaudencio and Domingo are children of the
deceased co-owner Ignacio; and that respondent Victoria and respondent Lilia P. Gabison (Lilia) are
grandchildren of the late co-owner Fortunata.3
Respondents also alleged that the therein defendants-petitioners Rosendo and Rodrigo are heirs of
Alipio Bacalso, Sr. (Alipio, Sr.) who, during his lifetime, secured Tax Declaration Nos. L-078-02223
and L-078-02224 covering the lot without any legal basis; that Rosendo and Rodrigo have been
leasing portions of the lot to persons who built houses thereon, and Rosendo has been living in a
house built on a portion of the lot;4 and that demands to vacate and efforts at conciliation proved
futile,5 prompting them to file the complaint at the RTC.
In their Answer6 to the complaint, petitioners Rosendo and Rodrigo claimed that their father Alipio,
Sr. purchased via deeds of sale the shares in the lot of Fortunata, Simplicio, Wenceslao, Geronimo,
and Felix from their respective heirs, and that Alipio, Sr. acquired the shares of the other co-owners
of the lot by extraordinary acquisitive prescription through continuous, open, peaceful, and adverse
possession thereof in the concept of an owner since 1949. 7
By way of Reply and Answer to the Defendants' Counterclaim, 8 herein respondents Gaudencio,
Maximo, Flaviano, Domingo, and Victoria alleged that the deeds of sale on which Rosendo and
Rodrigo base their claim of ownership of portions of the lot are spurious, but assuming that they are
not, laches had set in against Alipio, Sr.; and that the shares of the other co-owners of the lot cannot
be acquired through laches or prescription.
Gaudencio, Maximo, Flaviano, Domingo, and Victoria, with leave of court, 9 filed an Amended
Complaint10 impleading as additional defendants Alipio, Sr.'s other heirs, namely, petitioners
Marceliana11 Doblas, Terolio Bacalso, Alipio Bacalso, Jr., Mario Bacalso, William Bacalso, Alipio
Bacalso III, and Christine B. Bañes.12 Still later, Gaudencio et al. filed a Second Amended Complaint13
with leave of court,14 impleading as additional plaintiffs the other heirs of registered co-owner
Maximiano, namely, herein respondents Timoteo Padigos, Perfecto Padigos, Frisca15 Salarda, Flora
Quinto (sometimes rendered as "Guinto"), Benita Templa, Sotero Padigos, Andres Padigos, and
Emilio Padigos.16
In their Answer to the Second Amended Complaint, 17 petitioners contended that the Second
Amended Complaint should be dismissed in view of the failure to implead other heirs of the other
registered owners of the lot who are indispensable parties. 18
A Third Amended Complaint19 was thereafter filed with leave of court20 impleading as additional
plaintiffs the heirs of Wenceslao, namely, herein respondents Demetrio Padigos, Jr., Wenceslao
Padigos, and Nelly Padigos, and the heirs of Felix, namely, herein respondents Expedito Padigos
(Expedito), Henry Padigos, and Enrique P. Malazarte.21
After trial, Branch 16 of the Cebu City RTC decided22 in favor in the therein plaintiffs-herein
respondents, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
against the defendants.
1. Declaring the plaintiffs to be entitled to the ownership and possession of the lot in litigation;
2. Declaring as null and void the Deeds of Absolute Sale in question;
3. Ordering the defendants to pay plaintiffs the sum of P50,000.00 as actual and compensatory
damages[,] the sum of P20,000.00 as attorney's fees, and P10,000.00 as litigation expenses.
4. Ordering the defendants to pay the costs of suit.
SO ORDERED.23 (Emphasis in the original; underscoring supplied)
The defendants-herein petitioners Bacalsos appealed.24 Meanwhile, the trial court, on respondents'
Motion for Execution Pending Appeal,25 issued a writ of execution which was implemented by, among
other things, demolishing the houses constructed on the lot.26
By Decision27 of September 6, 2005, the Court of Appeals affirmed the trial court's decision. Their
Motion for Reconsideration28 having been denied,29 petitioners filed the present Petition for Review
on Certiorari,30 faulting the Court of Appeals:
. . . when it ruled that the Second Amended Complaint is valid and legal, even if not all indispensable
parties are impleaded or joined . . .
. . . when [it] wittingly overlooked the most potent, unescapable and indubitable fact or circumstance
which proved the continuous possession of Lot No. 3781 by the defendants and their predecessors
in interest, Alipio Bacalso [Sr.] and/or when it sanctioned impliedly the glaring arbitrary RTC order of
the demolition of the over 40 years old houses, situated on Lot No. 3781 Cebu Cad., belonging
to the old lessees, long allowed to lease or stay thereat for many years, by Alipio Bacalso [Sr.],
father and [predecessor] in interest of the defendants, now the herein Petitioners. The said lessees
were not even joined as parties in this case, much less were they given a chance to air their side
before their houses were demolished, in gross violation of the due process clause provided for in
Sec. 1[,] Art. III of the Constitution . . .
. . . in upholding as gospel truth the report and conclusion of Nimrod Vaño, the supposed handwriting
expert[,] that signatures and thumb marks appearing on all documents of sale presented by the
defendants are forgeries, and not mindful that Nimrod Vaño was not cross-examined thoroughly by
the defense counsel as he was prevented from doing so by the trial judge, in violation of the law more
particularly Sec. 6, Rule 132, Rules of Court and/or the accepted and usual course of judicial
proceedings and is therefore not admissible in evidence.
. . . [when it] . . . wittingly or unwittingly, again overlooked the vital facts, the circumstances, the laws
and rulings of the Supreme Court, which are of much weight, substance and influence which, if
considered carefully, undoubtedly uphold that the defendants and their predecessors in interests,
have long been in continuous, open, peaceful and adverse, and notorious possession against the
whole world of Lot No. 3781, Cebu Cad., in concept of absolute owners for 46 years, a period more
than sufficient to sustain or uphold the defense of prescription, provided for in Art. 1137 of the Civil
Code even without good faith.31 (Emphasis and underscoring in the original; italics supplied)
Respondents admit that Teodulfo Padigos (Teodulfo), an heir of Simplicio, was not impleaded. 32 They
contend, however, that the omission did not deprive the trial court of jurisdiction because Article 487
of the Civil Code states that "[a]ny of the co-owners may bring an action in ejectment."33
Respondents' contention does not lie. The action is for quieting of title, declaration of nullity of
documents, recovery of possession and ownership, and damages. Arcelona v. Court of Appeals34
defines indispensable parties under Section 7 of Rule 3, Rules of Court as follows:
[P]arties-in-interest without whom there can be no final determination of an action. As such, they must
be joined either as plaintiffs or as defendants. The general rule with reference to the making of parties
in a civil action requires, of course, the joinder of all necessary parties where possible, and the joinder
of all indispensable parties under any and all conditions, their presence being a sine qua non for the
exercise of judicial power. It is precisely "when an indispensable party is not before the court (that)
the action should be dismissed." The absence of an indispensable party renders all subsequent
actions of the court null and void for want of authority to act, not only as to the absent parties but
even as to those present.
Petitioners are co-owners of a fishpond . . . The fishpond is undivided; it is impossible to pinpoint
which specific portion of the property is owned by Olanday, et. al. and which portion belongs to
petitioners. x x x Indeed, petitioners should have been properly impleaded as indispensable parties.
xxx
x x x x35 (Underscoring supplied)
The absence then of an indispensable party renders all subsequent actions of a court null and void
for want of authority to act, not only as to the absent party but even as to those present. 36
Failure to implead indispensable parties aside, the resolution of the case hinges on a determination
of the authenticity of the documents on which petitioners in part anchor their claim to ownership of
the lot. The questioned documents are:
1. Exhibit "3" – a notarized Deed of Sale executed by Gaudencio, Domingo, a certain Hermenegilda
Padigos, and the heirs of Fortunata, in favor of Alipio, Sr. on June 8, 1959;
2. Exhibit "4" – a notarized Deed of Sale executed on September 9, 1957 by Gavino Padigos
(Gavino), alleged son of Felix, in favor of Alipio Gadiano;
3. Exhibit "5" – a private deed of sale executed in June 1957 by Macaria Bongalan, Marciano Padigos,
and Dominga Padigos, supposed heirs of Wenceslao, in favor of Alipio, Sr.;
4. Exhibit "6" – a notarized deed of sale executed on September 9, 1957 by Gavino and Rodulfo
Padigos, heirs of Geronimo, in favor of Alipio Gadiano;
5. Exhibit "7" – a notarized deed of sale executed on March 19, 1949 by Irenea Mabuyo, Teodulfo
and Maximo, heirs of Simplicio;
6. Exhibit "8" – a private deed of sale executed on May 3, 1950 by Candido Padigos, one of Simplicio's
children, in favor of Alipio, Sr.; and
7. Exhibit "9" – a notarized deed of sale executed on May 17, 1957 by Alipio Gadiano in favor of
Alipio, Sr.
Exhibits "3," "4," "6," "7," and "8," which are notarized documents, have in their favor the presumption
of regularity.37
Forgery, as any other mechanism of fraud, must be proved clearly and convincingly, and the burden
of proof lies on the party alleging forgery.38
The trial court and the Court of Appeals relied on the findings of Nimrod Bernabe Vaño (Vaño), expert
witness for respondents, that Gaudencio's signature on Exhibit "3" (Deed of Absolute Sale covering
Fortunata's share in the lot) and Maximo's thumbprint on Exhibit "7" (Deed of Sale covering
Simplicio's share in the lot) are spurious.39 Vaño's findings were presented by respondents to rebut
those of Wilfredo Espina (Espina), expert witness for petitioners, that Gaudencio's signature and
Maximo's thumbprint are genuine.40
Expert opinions are not ordinarily conclusive. They are generally regarded as purely advisory in
character.41 The courts may place whatever weight they choose upon and may reject them, if they
find them inconsistent with the facts in the case or otherwise unreasonable. 42 When faced with
conflicting expert opinions, courts give more weight and credence to that which is more complete,
thorough, and scientific.43
The Court observes that in examining the questioned signatures of respondent Gaudencio,
petitioners' expert witness Espina used as standards 15 specimen signatures which have been
established to be Gaudencio's,44 and that after identifying similarities between the questioned
signatures and the standard signatures, he concluded that the questioned signatures are genuine.
On the other hand, respondents' expert witness Vaño used, as standards, the questioned signatures
themselves.45 He identified characteristics of the signatures indicating that they may have been
forged. Vaño's statement of the purpose of the examination is revealing:
x x x [t]o x x x discover, classify and determine the authenticity of every document that for any reason
requires examination be [sic] scrutinized in every particular that may possibly throw any light upon
its origin, its age or upon quality element or condition that may have a bearing upons [sic] its
genuineness or spuriousness.46 (Emphasis supplied)
The Court also notes that Vaño also analyzed the signatures of the witnesses to the questioned
documents, the absence of standard specimens with which those signatures could be compared
notwithstanding.47 On the other hand, Espina refrained from making conclusions on signatures which
could not be compared with established genuine specimens.48
Specifically with respect to Vaño's finding that Maximo's thumbprint on Exhibit "7" is spurious, the
Court is not persuaded, no comparison having been made of such thumbprint with a genuine
thumbprint established to be Maximo's.49
Vaño's testimony should be received with caution, the trial court having abruptly cut short his cross-
examination conducted by petitioners' counsel,50 thus:
COURT:
You are just delaying the proceedings in this case if you are going to ask him about the documents
one by one. Just leave it to the Court to determine whether or not he is a qualified expert witness.
The Court will just go over the Report of the witness. You do not have to ask the witness one by one
on the document,51
thereby depriving this Court of the opportunity to determine his credibility. Espina, on the other hand,
withstood thorough cross-examination, re-direct and re-cross examination.52
The value of the opinion of a handwriting expert depends not upon his mere statements of whether
a writing is genuine or false, but upon the assistance he may afford in pointing out distinguishing
marks, characteristics and discrepancies in and between genuine and false specimens of writing
which would ordinarily escape notice or detection from an unpracticed observer. 53 While differences
exist between Gaudencio's signatures appearing on Exhibits "3"-"3-D" and his signatures appearing
on the affidavits accompanying the pleadings in this case,54 the gap of more than 30 years from the
time he affixed his signatures on the questioned document to the time he affixed his signatures on
the pleadings in the case could explain the difference. Thus Espina observed:
xxxx
4. Both questioned and standard signatures exhibited the same style and form of the movement
impulses in its execution;
5. Personal habits of the writer were established in both questioned and standard signatures such as
misalignment of the whole structure of the signature, heavy penpressure [sic] of strokes from initial
to the terminal, formation of the loops and ovals, poor line quality and spacing between letters are all
repeated;
6. Both questioned and standard signatures [show] no radical change in the strokes and letter
formation in spite o[f] their wide difference in dates of execution considering the early writing maturity
of the writer;
7. Variations in both writings questioned and standards were considered and properly evaluated.
xxxx
Fundamental similarities are observed in the following characteristics to wit:
xxxx
SIGNATURES
1. Ovals of "a" either rounded or angular at the base;
2. Ovals of "d" either narrow, rounded, or angular at the base;
3. Loop stems of "d" consistently tall and retraced in both specimens questioned and standards;
4. Base alignment of "e" and "i" are repeated with sameness;
5. Top of "c" either with a retrace, angular formation or an eyelet;
6. Terminal ending of "o" heavy with a short tapering formation;
7. Loop stem of "P" with wide space and angular;
8. Oval of "P" either rounded or multi-angular;
9. Base loop of "g" consistently short either a retrace, a blind loop or narrow space disproportionate
to the top oval;
10. Angular top of "s" are repeated with sameness;
55
11. Terminal ending of "s" short and heavy with blind loop or retrace at the base.
And Espina concluded
xxxx
[t]hat the four (4) questioned signatures over and above the typewritten name and word GAUDENCIO
PADIGOS Vendor on four copies of a DEED OF ABSOLUTE SALE (original and carbon) dated June
8, 1959 were written, signed, and prepared by the hand who wrote the standard specimens Exh. "G"
and other specimen materials collected from the records of this case that were submitted or
comparison; a product of one Mind and Brain hence GENUINE and AUTHENTIC.56 (Emphasis in
the original; underscoring supplied)
Respondents brand Maximo's thumbmark on Exhibit "7" as spurious because, so they claim, Maximo
did not affix his signature thru a thumbmark, he knowing how to write. 57 Such conclusion is a non
sequitur, however, for a person who knows how to write is not precluded from signing by thumbmark.
In affirming the nullification by the trial court of Exhibits "3," "4," "5," "6," "7," and "8," the Court of
Appeals held:
xxxx
First of all, facts about pedigree of the registered owners and their lawful heirs were convincingly
testified to by plaintiff-appellant Gaudencio Padigos and his testimony remained uncontroverted.
xxxx
Giving due weight to his testimony, we find that x x x the vendors in the aforesaid Deeds of Sale x x
x were not the legal heirs of the registered owners of the disputed land. x x x
xxxx
As for Exhibit "4," the vendor Gavino Padigos is not a legal heir of the registered owner Felix Padigos.
The latter's heirs are plaintiff-appellants Expedito Padigos, Henry Padigos and Enrique P. Malazarte.
Accordingly, Exhibit "4" is a patent nullity and did not vest title of Felix Padigos' share of Lot 3781 to
Alipio [Gadiano].
As for Exhibit "6," the vendors Gavino and Rodulfo Padigos are not the legal heirs of the registered
owner Geronimo Padigos. Therefore, these fictitious heirs could not validly convey ownership in favor
of Alipio [Gadiano].
xxxx
As for Exhibit "8," the vendor Candido Padigos is not a legal heir of Simplicio Padigos. Therefore, the
former could not vest title of the land to Alipio Bacalso.
As for Exhibit "3," the vendors Gaudencio Padigos, Hermenegilda Padigos and Domingo Padigos
are not the legal heirs of registered owner Fortunata Padigos. Hermenegilda Padigos is not a known
heir of any of the other registered owners of the property.
On the other hand, plaintiffs-appellants Gaudencio and Domingo Padigos are only some of the
collateral grandchildren of Fortunata Padigos. They could not by themselves dispose of the share of
Fortunata Padigos.
xxxx
As for Exhibit "5," the vendors in Exhibit "5" are not the legal heirs of Wenceslao Padigos. The children
of registered owner Wenceslao Padigos are: Wenceslao Padigos, Demetrio Padigos and Nelly
Padigos. Therefore, Exhibit "5" is null and void and could not convey the shares of the registered
owner Wenceslao Padigos in favor of Alipio Bacalso.
As for Exhibit "9," the Deed of Sale executed by Alipio [Gadiano] in favor of Alipio Bacalso is also
void because the shares of the registered owners Felix and Geronimo Padigos were not validly
conveyed to Alipio [Gadiano] because Exhibit "4" and "6" were void contracts. Thus, Exhibit "9" is
also null and void.58 (Italics in the original; underscoring supplied)
The evidence regarding the "facts of pedigree of the registered owners and their heirs" does not,
however, satisfy this Court. Not only is Gaudencio's self-serving testimony uncorroborated; it
contradicts itself on material points. For instance, on direct examination, he testified that Ignacio is
his father and Fortunata is his grandmother.59 On cross-examination, however, he declared that his
father Ignacio is the brother of Fortunata.60 On direct examination, he testified that his co-plaintiffs
Victoria and Lilia are already dead.61 On cross-examination, however, he denied knowledge whether
the two are already dead.62 Also on direct examination, he identified Expedito, Henry, and Enrique
as the children of Felix.63 Expedito himself testified, however, that he is the son of a certain Mamerto
Padigos, the son of a certain Apolonio Padigos who is in turn the son of Felix.64
At all events, respondents are guilty of laches – the negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it has either abandoned it
or declined to assert it.65 While, by express provision of law, no title to registered land in derogation
of that of the registered owner shall be acquired by prescription or adverse possession, it is an
enshrined rule that even a registered owner may be barred from recovering possession of property
by virtue of laches.66
Respondents insist, however, that they only learned of the deeds of sale in 1994, the year that Alipio,
Sr. allegedly commenced possession of the property. 67 The record shows, however, that although
petitioners started renting out the land in 1994, they have been tilling it since the 1950s, 68 and
Rosendo's house was constructed in about 1985.69 These acts of possession could not have escaped
respondents' notice given the following unassailed considerations, inter alia: Gaudencio testified that
he lived on the lot from childhood until 1985, after which he moved to a place three kilometers away,
and after he moved, a certain Vicente Debelos lived on the lot with his permission.70 Petitioners'
witness Marina Alcoseba, their employee,71 testified that Gaudencio and Domingo used to cut
kumpay planted by petitioners' tenant on the lot.72 The tax declarations in Alipio, Sr.'s name for the
years 1967-1980 covering a portion of the lot indicate Fortunata's share to be the north and east
boundaries of Alipio, Sr.'s;73 hence, respondents could not have been unaware of the acts of
possession that petitioners exercised over the lot.
Upon the other hand, petitioners have been vigilant in protecting their rights over the lot, which their
predecessor-in-interest Alipio, Sr. had declared in his name for tax purposes as early as 1960, and
for which he had been paying taxes until his death in 1994, by continuing to pay the taxes thereon. 74
Respondents having failed to establish their claim by preponderance of evidence, their action for
quieting of title, declaration of nullity of documents, recovery of possession, and damages must fail.
A final word. While petitioners' attribution of error to the appellate court's "implied sanction" of the trial
court's order for the demolition pending appeal of the houses of their lessees is well taken, the Court
may not consider any grant of relief to them, they not being parties to the case.
WHEREFORE, the petition is GRANTED. The September 6, 2005 decision of the Court of Appeals
is REVERSED and SET ASIDE. Civil Case No. CEB-17326 of Branch 16 of the Regional Trial Court
of Cebu City is DISMISSED.
SO ORDERED.
G.R. No. 177429 November 24, 2009
ANICIA VALDEZ-TALLORIN, Petitioner, vs. HEIRS OF JUANITO TARONA, Represented by
CARLOS TARONA, ROGELIO TARONA and LOURDES TARONA, Respondents.
DECISION
ABAD, J.:
This case is about a court’s annulment of a tax declaration in the names of three persons, two of
whom had not been impleaded in the case, for the reason that the document was illegally issued to
them.
The Facts and the Case
On February 9, 1998 respondents Carlos, Rogelio, and Lourdes Tarona (the Taronas) filed an action
before the Regional Trial Court (RTC) of Balanga, Bataan,1 against petitioner Anicia Valdez-Tallorin
(Tallorin) for the cancellation of her and two other women’s tax declaration over a parcel of land.
The Taronas alleged in their complaint that, unknown to them, in 1981, the Assessor’s Office of
Morong in Bataan cancelled Tax Declaration 463 in the name of their father, Juanito Tarona (Juanito),
covering 6,186 square meters of land in Morong, Bataan. The cancellation was said to be based on
an unsigned though notarized affidavit that Juanito allegedly executed in favor of petitioner Tallorin
and two others, namely, Margarita Pastelero Vda. de Valdez and Dolores Valdez, who were not
impleaded in the action. In place of the cancelled one, the Assessor’s Office issued Tax Declaration
6164 in the names of the latter three persons. The old man Tarona’s affidavit had been missing and
no copy could be found among the records of the Assessor’s Office. 2
The Taronas further alleged that, without their father’s affidavit on file, it followed that his tax
declaration had been illegally cancelled and a new one illegally issued in favor of Tallorin and the
others with her. The unexplained disappearance of the affidavit from official files, the Taronas
concluded, covered-up the falsification or forgery that caused the substitution. 3 The Taronas asked
the RTC to annul Tax Declaration 6164, reinstate Tax Declaration 463, and issue a new one in the
name of Juanito’s heirs.
On March 6, 1998 the Taronas filed a motion to declare petitioner Tallorin in default for failing to
answer their complaint within the allowed time.4 But, before the RTC could act on the motion, Tallorin
filed a belated answer, alleging among others that she held a copy of the supposedly missing affidavit
of Juanito who was merely an agricultural tenant of the land covered by Tax Declaration 463. He
surrendered and waived in that affidavit his occupation and tenancy rights to Tallorin and the others
in consideration of ₱29,240.00. Tallorin also put up the affirmative defenses of non-compliance with
the requirement of conciliation proceedings and prescription.
On March 12, 1998 the RTC set Tallorin’s affirmative defenses for hearing5 but the Taronas sought
reconsideration, pointing out that the trial court should have instead declared Tallorin in default based
on their earlier motion.6 On June 2, 1998 the RTC denied the Taronas’ motion for reconsideration 7
for the reasons that it received Tallorin’s answer before it could issue a default order and that the
Taronas failed to show proof that Tallorin was notified of the motion three days before the scheduled
hearing. Although the presiding judge inhibited himself from the case on motion of the Taronas, the
new judge to whom the case was re-raffled stood by his predecessor’s previous orders.
By a special civil action for certiorari before the Court of Appeals (CA), 8 however, the Taronas
succeeded in getting the latter court to annul the RTC’s March 12 and June 2, 1998 orders.9 The CA
ruled that the RTC gravely abused its discretion in admitting Tallorin’s late answer in the absence of
a motion to admit it. Even if petitioner Tallorin had already filed her late answer, said the CA, the RTC
should have heard the Taronas’ motion to declare Tallorin in default.
Upon remand of the case, the RTC heard the Taronas’ motion to declare Tallorin in default,10 granted
the same, and directed the Taronas to present evidence ex parte. 11
On January 30, 2002 the RTC rendered judgment, a) annulling the tax declaration in the names of
Tallorin, Margarita Pastelero Vda. de Valdez, and Dolores Valdez; b) reinstating the tax declaration
in the name of Juanito; and c) ordering the issuance in its place of a new tax declaration in the names
of Juanito’s heirs. The trial court also ruled that Juanito’s affidavit authorizing the transfer of the tax
declaration had no binding force since he did not sign it.1avvphi1
Tallorin appealed the above decision to the CA,12 pointing out 1) that the land covered by the tax
declaration in question was titled in her name and in those of her two co-owners; 2) that Juanito’s
affidavit only dealt with the surrender of his tenancy rights and did not serve as basis for canceling
Tax Declaration 463 in his name; 3) that, although Juanito did not sign the affidavit, he thumbmarked
and acknowledged the same before a notary public; and 4) that the trial court erred in not dismissing
the complaint for failure to implead Margarita Pastelero Vda. de Valdez and Dolores Valdez who were
indispensable parties in the action to annul Juanito’s affidavit and the tax declaration in their favor.13
On May 22, 2006 the CA rendered judgment, affirming the trial court’s decision. 14 The CA rejected
all of Tallorin’s arguments. Since she did not assign as error the order declaring her in default and
since she took no part at the trial, the CA pointed out that her claims were in effect mere conjectures,
not based on evidence of record.15 Notably, the CA did not address the issue Tallorin raised regarding
the Taronas’ failure to implead Margarita Pastelero Vda. de Valdez and Dolores Valdez as
indispensable party-defendants, their interest in the cancelled tax declarations having been affected
by the RTC judgment.
Questions Presented
The petition presents the following questions for resolution by this Court:
1. Whether or not the CA erred in failing to dismiss the Taronas’ complaint for not impleading
Margarita Pastelero Vda. de Valdez and Dolores Valdez in whose names, like their co-owner Tallorin,
the annulled tax declaration had been issued;
2. Whether or not the CA erred in not ruling that the Taronas’ complaint was barred by prescription;
and
3. Whether or not the CA erred in affirming the RTC’s finding that Juanito’s affidavit had no legal
effect because it was unsigned; when at the hearing of the motion to declare Tallorin in default, it was
shown that the affidavit bore Juanito’s thumbmark.
The Court’s Rulings
The first question, whether or not the CA erred in failing to dismiss the Taronas’ complaint for not
impleading Margarita Pastelero Vda. de Valdez and Dolores Valdez in whose names, like their co-
owner Tallorin, the annulled tax declaration had been issued, is a telling question.
The rules mandate the joinder of indispensable parties. Thus:
Sec. 7. Compulsory joinder of indispensable parties. – Parties in interest without whom no final
determination can be had of an action shall be joined either as plaintiffs and defendants. 16
Indispensable parties are those with such an interest in the controversy that a final decree would
necessarily affect their rights, so that the courts cannot proceed without their presence. 17 Joining
indispensable parties into an action is mandatory, being a requirement of due process. Without their
presence, the judgment of the court cannot attain real finality.
Judgments do not bind strangers to the suit. The absence of an indispensable party renders all
subsequent actions of the court null and void. Indeed, it would have no authority to act, not only as
to the absent party, but as to those present as well. And where does the responsibility for impleading
all indispensable parties lie? It lies in the plaintiff.18
Here, the Taronas sought the annulment of the tax declaration in the names of defendant Tallorin
and two others, namely, Margarita Pastelero Vda. de Valdez and Dolores Valdez and, in its place,
the reinstatement of the previous declaration in their father Juanito’s name. Further, the Taronas
sought to strike down as void the affidavit in which Juanito renounced his tenancy right in favor of the
same three persons. It is inevitable that any decision granting what the Taronas wanted would
necessarily affect the rights of such persons to the property covered by the tax declaration.
The Court cannot discount the importance of tax declarations to the persons in whose names they
are issued. Their cancellation adversely affects the rights and interests of such persons over the
properties that the documents cover. The reason is simple: a tax declaration is a primary evidence,
if not the source, of the right to claim title of ownership over real property, a right enforceable against
another person. The Court held in Uriarte v. People19 that, although not conclusive, a tax declaration
is a telling evidence of the declarant’s possession which could ripen into ownership.
In Director of Lands v. Court of Appeals,20 the Court said that no one in his right mind would pay
taxes for a property that he did not have in his possession. This honest sense of obligation proves
that the holder claims title over the property against the State and other persons, putting them on
notice that he would eventually seek the issuance of a certificate of title in his name. Further, the tax
declaration expresses his intent to contribute needed revenues to the Government, a circumstance
that strengthens his bona fide claim to ownership.21
Here, the RTC and the CA annulled Tax Declaration 6164 that belonged not only to defendant Tallorin
but also to Margarita Pastelero Vda. de Valdez and Dolores Valdez, which two persons had no
opportunity to be heard as they were never impleaded. The RTC and the CA had no authority to
annul that tax declaration without seeing to it that all three persons were impleaded in the case.
But the Taronas’ action cannot be dismissed outright. As the Court held in Plasabas v. Court of
Appeals,22 the non-joinder of indispensable parties is not a ground for dismissal. Section 11, Rule 3
of the 1997 Rules of Civil Procedure prohibits the dismissal of a suit on the ground of non-joinder or
misjoinder of parties and allows the amendment of the complaint at any stage of the proceedings,
through motion or on order of the court on its own initiative. Only if plaintiff refuses to implead an
indispensable party, despite the order of the court, may it dismiss the action.
There is a need, therefore, to remand the case to the RTC with an order to implead Margarita
Pastelero Vda. de Valdez and Dolores Valdez as defendants so they may, if they so desire, be heard.
In view of the Court’s resolution of the first question, it would serve no purpose to consider the other
questions that the petition presents. The resolution of those questions seems to depend on the
complete evidence in the case. This will not yet happen until all the indispensable party-defendants
are impleaded and heard on their evidence.
WHEREFORE, the Court GRANTS the petition and SETS ASIDE the decision of the Regional Trial
Court of Balanga, Bataan in Civil Case 6739 dated January 30, 2002 and the decision of the Court
of Appeals in CA-G.R. CV 74762 dated May 22, 2006. The Court REMANDS the case to the Regional
Trial Court of Balanga, Bataan which is DIRECTED to have Margarita Pastelero Vda. de Valdez and
Dolores Valdez impleaded by the plaintiffs as party-defendants and, afterwards, to hear the case in
the manner prescribed by the rules.
SO ORDERED.
RULE 5
G.R. No. 191336 January 25, 2012
CRISANTA ALCARAZ MIGUEL, Petitioner, vs. JERRY D. MONTANEZ, Respondent.
DECISION
REYES, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. Petitioner
Crisanta Alcaraz Miguel (Miguel) seeks the reversal and setting aside of the September 17, 2009
Decision1 and February 11, 2010 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 100544,
entitled "Jerry D. Montanez v. Crisanta Alcaraz Miguel."
Antecedent Facts
On February 1, 2001, respondent Jerry Montanez (Montanez) secured a loan of One Hundred Forty-
Three Thousand Eight Hundred Sixty-Four Pesos (₱143,864.00), payable in one (1) year, or until
February 1, 2002, from the petitioner. The respondent gave as collateral therefor his house and lot
located at Block 39 Lot 39 Phase 3, Palmera Spring, Bagumbong, Caloocan City.
Due to the respondent’s failure to pay the loan, the petitioner filed a complaint against the respondent
before the Lupong Tagapamayapa of Barangay San Jose, Rodriguez, Rizal. The parties entered into
a Kasunduang Pag-aayos wherein the respondent agreed to pay his loan in installments in the
amount of Two Thousand Pesos (₱2,000.00) per month, and in the event the house and lot given as
collateral is sold, the respondent would settle the balance of the loan in full. However, the respondent
still failed to pay, and on December 13, 2004, the Lupong Tagapamayapa issued a certification to file
action in court in favor of the petitioner.
On April 7, 2005, the petitioner filed before the Metropolitan Trial Court (MeTC) of Makati City, Branch
66, a complaint for Collection of Sum of Money. In his Answer with Counterclaim, 3 the respondent
raised the defense of improper venue considering that the petitioner was a resident of Bagumbong,
Caloocan City while he lived in San Mateo, Rizal.
After trial, on August 16, 2006, the MeTC rendered a Decision, 4 which disposes as follows:
WHEREFORE, premises considered[,] judgment is hereby rendered ordering defendant Jerry D.
Montanez to pay plaintiff the following:
1. The amount of [Php147,893.00] representing the obligation with legal rate of interest from February
1, 2002 which was the date of the loan maturity until the account is fully paid;
2. The amount of Php10,000.00 as and by way of attorney’s fees; and the costs.
SO ORDERED. 5
On appeal to the Regional Trial Court (RTC) of Makati City, Branch 146, the respondent raised the
same issues cited in his Answer. In its March 14, 2007 Decision,6 the RTC affirmed the MeTC
Decision, disposing as follows:
WHEREFORE, finding no cogent reason to disturb the findings of the court a quo, the appeal is
hereby DISMISSED, and the DECISION appealed from is hereby AFFIRMED in its entirety for being
in accordance with law and evidence.
SO ORDERED.7
Dissatisfied, the respondent appealed to the CA raising two issues, namely, (1) whether or not venue
was improperly laid, and (2) whether or not the Kasunduang Pag-aayos effectively novated the loan
agreement. On September 17, 2009, the CA rendered the assailed Decision, disposing as follows:
WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed Decision dated
March 14, 2007 of the Regional Trial Court (RTC) of Makati City, Branch 146, is REVERSED and
SET ASIDE. A new judgment is entered dismissing respondent’s complaint for collection of sum of
money, without prejudice to her right to file the necessary action to enforce the Kasunduang Pag-
aayos.
SO ORDERED.8
Anent the issue of whether or not there is novation of the loan contract, the CA ruled in the negative.
It ratiocinated as follows:
Judging from the terms of the Kasunduang Pag-aayos, it is clear that no novation of the old obligation
has taken place.1âwphi1 Contrary to petitioner’s assertion, there was no reduction of the term or
period originally stipulated. The original period in the first agreement is one (1) year to be counted
from February 1, 2001, or until January 31, 2002. When the complaint was filed before the barangay
on February 2003, the period of the original agreement had long expired without compliance on the
part of petitioner. Hence, there was nothing to reduce or extend. There was only a change in the
terms of payment which is not incompatible with the old agreement. In other words, the Kasunduang
Pag-aayos merely supplemented the old agreement.9
The CA went on saying that since the parties entered into a Kasunduang Pag-aayos before the Lupon
ng Barangay, such settlement has the force and effect of a court judgment, which may be enforced
by execution within six (6) months from the date of settlement by the Lupon ng Barangay, or by court
action after the lapse of such time.10 Considering that more than six (6) months had elapsed from the
date of settlement, the CA ruled that the remedy of the petitioner was to file an action for the execution
of the Kasunduang Pag-aayos in court and not for collection of sum of money. 11 Consequently, the
CA deemed it unnecessary to resolve the issue on venue.12
The petitioner now comes to this Court.
Issues
(1) Whether or not a complaint for sum of money is the proper remedy for the petitioner,
notwithstanding the Kasunduang Pag-aayos;13 and
(2) Whether or not the CA should have decided the case on the merits rather than remand the case
for the enforcement of the Kasunduang Pag-aayos.14
Our Ruling
Because the respondent failed to comply with the terms of the Kasunduang Pag-aayos, said
agreement is deemed rescinded pursuant to Article 2041 of the New Civil Code and the petitioner
can insist on his original demand. Perforce, the complaint for collection of sum of money is the proper
remedy.
The petitioner contends that the CA erred in ruling that she should have followed the procedure for
enforcement of the amicable settlement as provided in the Revised Katarungang Pambarangay Law,
instead of filing a collection case. The petitioner points out that the cause of action did not arise from
the Kasunduang Pag-aayos but on the respondent’s breach of the original loan agreement. 15
This Court agrees with the petitioner.
It is true that an amicable settlement reached at the barangay conciliation proceedings, like the
Kasunduang Pag-aayos in this case, is binding between the contracting parties and, upon its
perfection, is immediately executory insofar as it is not contrary to law, good morals, good customs,
public order and public policy.16 This is in accord with the broad precept of Article 2037 of the Civil
Code, viz:
A compromise has upon the parties the effect and authority of res judicata; but there shall be no
execution except in compliance with a judicial compromise.
Being a by-product of mutual concessions and good faith of the parties, an amicable settlement has
the force and effect of res judicata even if not judicially approved. 17 It transcends being a mere
contract binding only upon the parties thereto, and is akin to a judgment that is subject to execution
in accordance with the Rules.18 Thus, under Section 417 of the Local Government Code, 19 such
amicable settlement or arbitration award may be enforced by execution by the Barangay Lupon within
six (6) months from the date of settlement, or by filing an action to enforce such settlement in the
appropriate city or municipal court, if beyond the six-month period.
Under the first remedy, the proceedings are covered by the Local Government Code and the
Katarungang Pambarangay Implementing Rules and Regulations. The Punong Barangay is called
upon during the hearing to determine solely the fact of non-compliance of the terms of the settlement
and to give the defaulting party another chance at voluntarily complying with his obligation under the
settlement. Under the second remedy, the proceedings are governed by the Rules of Court, as
amended. The cause of action is the amicable settlement itself, which, by operation of law, has the
force and effect of a final judgment.20
It must be emphasized, however, that enforcement by execution of the amicable settlement, either
under the first or the second remedy, is only applicable if the contracting parties have not repudiated
such settlement within ten (10) days from the date thereof in accordance with Section 416 of the
Local Government Code. If the amicable settlement is repudiated by one party, either expressly or
impliedly, the other party has two options, namely, to enforce the compromise in accordance with the
Local Government Code or Rules of Court as the case may be, or to consider it rescinded and insist
upon his original demand. This is in accord with Article 2041 of the Civil Code, which qualifies the
broad application of Article 2037, viz:
If one of the parties fails or refuses to abide by the compromise, the other party may either enforce
the compromise or regard it as rescinded and insist upon his original demand.
In the case of Leonor v. Sycip,21 the Supreme Court (SC) had the occasion to explain this provision
of law. It ruled that Article 2041 does not require an action for rescission, and the aggrieved party, by
the breach of compromise agreement, may just consider it already rescinded, to wit:
It is worthy of notice, in this connection, that, unlike Article 2039 of the same Code, which speaks of
"a cause of annulment or rescission of the compromise" and provides that "the compromise may be
annulled or rescinded" for the cause therein specified, thus suggesting an action for annulment or
rescission, said Article 2041 confers upon the party concerned, not a "cause" for rescission, or the
right to "demand" the rescission of a compromise, but the authority, not only to "regard it as
rescinded", but, also, to "insist upon his original demand". The language of this Article 2041,
particularly when contrasted with that of Article 2039, denotes that no action for rescission is required
in said Article 2041, and that the party aggrieved by the breach of a compromise agreement may, if
he chooses, bring the suit contemplated or involved in his original demand, as if there had never
been any compromise agreement, without bringing an action for rescission thereof. He need not seek
a judicial declaration of rescission, for he may "regard" the compromise agreement already
"rescinded".22 (emphasis supplied)
As so well stated in the case of Chavez v. Court of Appeals, 23 a party's non-compliance with the
amicable settlement paved the way for the application of Article 2041 under which the other party
may either enforce the compromise, following the procedure laid out in the Revised Katarungang
Pambarangay Law, or consider it as rescinded and insist upon his original demand. To quote:
In the case at bar, the Revised Katarungang Pambarangay Law provides for a two-tiered mode of
enforcement of an amicable settlement, to wit: (a) by execution by the Punong Barangay which is
quasi-judicial and summary in nature on mere motion of the party entitled thereto; and (b) an action
in regular form, which remedy is judicial. However, the mode of enforcement does not rule out the
right of rescission under Art. 2041 of the Civil Code. The availability of the right of rescission is
apparent from the wording of Sec. 417 itself which provides that the amicable settlement "may" be
enforced by execution by the lupon within six (6) months from its date or by action in the appropriate
city or municipal court, if beyond that period. The use of the word "may" clearly makes the procedure
provided in the Revised Katarungang Pambarangay Law directory or merely optional in nature.
Thus, although the "Kasunduan" executed by petitioner and respondent before the Office of the
Barangay Captain had the force and effect of a final judgment of a court, petitioner's non-compliance
paved the way for the application of Art. 2041 under which respondent may either enforce the
compromise, following the procedure laid out in the Revised Katarungang Pambarangay Law, or
regard it as rescinded and insist upon his original demand. Respondent chose the latter option when
he instituted Civil Case No. 5139-V-97 for recovery of unrealized profits and reimbursement of
advance rentals, moral and exemplary damages, and attorney's fees. Respondent was not limited to
claiming ₱150,000.00 because although he agreed to the amount in the "Kasunduan," it is axiomatic
that a compromise settlement is not an admission of liability but merely a recognition that there is a
dispute and an impending litigation which the parties hope to prevent by making reciprocal
concessions, adjusting their respective positions in the hope of gaining balanced by the danger of
losing. Under the "Kasunduan," respondent was only required to execute a waiver of all possible
claims arising from the lease contract if petitioner fully complies with his obligations thereunder. It is
undisputed that herein petitioner did not.24 (emphasis supplied and citations omitted)
In the instant case, the respondent did not comply with the terms and conditions of the Kasunduang
Pag-aayos. Such non-compliance may be construed as repudiation because it denotes that the
respondent did not intend to be bound by the terms thereof, thereby negating the very purpose for
which it was executed. Perforce, the petitioner has the option either to enforce the Kasunduang Pag-
aayos, or to regard it as rescinded and insist upon his original demand, in accordance with the
provision of Article 2041 of the Civil Code. Having instituted an action for collection of sum of money,
the petitioner obviously chose to rescind the Kasunduang Pag-aayos. As such, it is error on the part
of the CA to rule that enforcement by execution of said agreement is the appropriate remedy under
the circumstances.
Considering that the Kasunduang Pag-aayos is deemed rescinded by the non-compliance of the
respondent of the terms thereof, remanding the case to the trial court for the enforcement of said
agreement is clearly unwarranted.
The petitioner avers that the CA erred in remanding the case to the trial court for the enforcement of
the Kasunduang Pag-aayos as it prolonged the process, "thereby putting off the case in an indefinite
pendency."25 Thus, the petitioner insists that she should be allowed to ventilate her rights before this
Court and not to repeat the same proceedings just to comply with the enforcement of the Kasunduang
Pag-aayos, in order to finally enforce her right to payment.26
The CA took off on the wrong premise that enforcement of the Kasunduang Pag-aayos is the proper
remedy, and therefore erred in its conclusion that the case should be remanded to the trial court. The
fact that the petitioner opted to rescind the Kasunduang Pag-aayos means that she is insisting upon
the undertaking of the respondent under the original loan contract. Thus, the CA should have decided
the case on the merits, as an appeal before it, and not prolong the determination of the issues by
remanding it to the trial court. Pertinently, evidence abounds that the respondent has failed to comply
with his loan obligation. In fact, the Kasunduang Pag-aayos is the well nigh incontrovertible proof of
the respondent’s indebtedness with the petitioner as it was executed precisely to give the respondent
a second chance to make good on his undertaking. And since the respondent still reneged in paying
his indebtedness, justice demands that he must be held answerable therefor.
WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals is SET
ASIDE and the Decision of the Regional Trial Court, Branch 146, Makati City, dated March 14, 2007
is REINSTATED.
SO ORDERED.
RULE 7
G.R. No. 164205 September 3, 2009
OLDARICO S. TRAVEÑO, ROVEL A. GENELSA, RUEL U. VILLARMENTE, ALFREDO A.
PANILAGAO, CARMEN P. DANILA, ELIZABETH B. MACALINO, RAMIL P. ALBITO,
REYNALDO A. LADRILLO, LUCAS G. TAMAYO, DIOSDADO A. AMORIN, RODINO C.
VASQUEZ, GLORIA A. FELICANO, NOLE E. FERMILAN, JOSELITO B. RENDON, CRISTETA
D. CAÑA, EVELYN D. ARCENAL and JEORGE M. NONO, Petitioners, vs. BOBONGON
BANANA GROWERS MULTI-PURPOSE COOPERATIVE, TIMOG AGRICULTURAL
CORPORATION, DIAMOND FARMS, INC., and DOLE ASIA PHILIPPINES, Respondents.
 DECISION
CARPIO MORALES, J.:
By the account of petitioner Oldarico Traveño and his 16 co-petitioners, in 1992, respondent Timog
Agricultural Corporation (TACOR) and respondent Diamond Farms, Inc. (DFI) hired them to work at
a banana plantation at Bobongon, Santo Tomas, Davao Del Norte which covered lands previously
planted with rice and corn but whose owners had agreed to convert into a banana plantation upon
being convinced that TACOR and DFI could provide the needed capital, expertise, and equipment.
Petitioners helped prepare the lands for the planting of banana suckers and eventually carried out
the planting as well.1
Petitioners asseverated that while they worked under the direct control of supervisors assigned by
TACOR and DFI, these companies used different schemes to make it appear that petitioners were
hired through independent contractors, including individuals, unregistered associations, and
cooperatives; that the successive changes in the names of their employers notwithstanding, they
continued to perform the same work under the direct control of TACOR and DFI supervisors; and
that under the last scheme adopted by these companies, the nominal individual contractors were
required to, as they did, join a cooperative and thus became members of respondent Bobongon
Banana Growers Multi-purpose Cooperative (the Cooperative).2
Continued petitioners: Sometime in 2000, above-named respondents began utilizing harassment
tactics to ease them out of their jobs. Without first seeking the approval of the Department of Labor
and Employment (DOLE), they changed their compensation package from being based on a daily
rate to a pakyawan rate that depended on the combined productivity of the "gangs" they had been
grouped into. Soon thereafter, they stopped paying their salaries, prompting them to stop working. 3
One after another, three separate complaints for illegal dismissal were filed by petitioners, individually
and collectively, with the National Labor Relations Commission (NLRC) against said respondents
including respondent Dole Asia Philippines as it then supposedly owned TACOR,4 for unpaid salaries,
overtime pay, 13th month pay, service incentive leave pay, damages, and attorney’s fees. 5
DFI answered for itself and TACOR, which it claimed had been merged with it and ceased to exist as
a corporation. Denying that it had engaged the services of petitioners, 6 DFI alleged that during the
corporate lifetime of TACOR, it had an arrangement with several landowners in Santo Tomas, Davao
Del Norte whereby TACOR was to extend financial and technical assistance to them for the
development of their lands into a banana plantation on the condition that the bananas produced
therein would be sold exclusively to TACOR; that the landowners worked on their own farms and
hired laborers to assist them; that the landowners themselves decided to form a cooperative in order
to better attain their business objectives; and that it was not in a position to state whether petitioners
were working on the banana plantation of the landowners who had contracted with TACOR. 7a1f
The Cooperative failed to file a position paper despite due notice, prompting the Labor Arbiter to
consider it to have waived its right to adduce evidence in its defense.
Nothing was heard from respondent Dole Asia Philippines.
By consolidated Decision dated October 30, 2002,8 the Labor Arbiter, found respondent Cooperative
guilty of illegal dismissal. It dropped the complaints against DFI, TACOR and Dole Asia Philippines.
Thus it disposed:
WHEREFORE, judgment is hereby rendered:
1. Declaring respondent Bobongon Banana Growers Multi-purpose Cooperative guilty of illegal
dismissal;
2. Ordering respondent Bobongon Banana Growers Multi-purpose Cooperative to pay complainants
full backwages from the time of their illegal dismissal up to this promulgation, to be determined during
the execution stage;
3. Ordering respondent Bobongon Banana Growers Multi-purpose Cooperative to reinstate
complainants to their former positions without loss of seniority rights and if not possible, to pay them
separation pay equivalent to 1/2 month pay for every year of service;
4. Ordering respondent Bobongon Banana Grower Cooperative [sic] to pay 10% of the total award
as Attorney’s fees;
5. All other respondents are hereby dropped as party-respondents for lack of merit. (Underscoring
supplied)
In finding for petitioners, the Labor Arbiter relied heavily on the following Orders submitted by DFI
which were issued in an earlier case filed with the DOLE, viz: (1) Order dated July 11, 1995 of the
Director of DOLE Regional Office No. XI declaring the Cooperative as the employer of the 341
workers in the farms of its several members; (2) Order dated December 17, 1997 of the DOLE
Secretary affirming the Order dated July 11, 1995 of the Director of DOLE Regional Office No. XI;
and (3) Order dated June 23, 1998 of the DOLE Secretary denying the Cooperative’s Motion for
Reconsideration.
On partial appeal to the NLRC, petitioners questioned the Labor Arbiter’s denial of their money claims
and the dropping of their complaints against TACOR, DFI, and Dole Asia Philippines.
By Resolution dated July 30, 2003,9 the NLRC sustained the Labor Arbiter’s ruling that the employer
of petitioners is the Cooperative, there being no showing that the earlier mentioned Orders of the
DOLE Secretary had been set aside by a court of competent jurisdiction. It partially granted
petitioners’ appeal, however, by ordering the Cooperative to pay them their unpaid wages, wage
differentials, service incentive leave pay, and 13th month pay. It thus remanded the case to the Labor
Arbiter for computation of those awards.
Their Motion for Reconsideration having been denied by Resolution of September 30, 2003, 10
petitioners appealed to the Court of Appeals via certiorari. 11
By Resolution dated February 20, 2004,12 the appellate court dismissed petitioners’ petition for
certiorari on the ground that the accompanying verification and certification against forum shopping
was defective, it having been signed by only 19 of the 22 therein named petitioners. Their Motion for
Reconsideration having been denied by Resolution of May 13, 2004,13 petitioners lodged the present
Petition for Review on Certiorari.
Petitioners posit that the appellate court erred in dismissing their petition on a mere technicality as it
should have, at most, dismissed the petition only with respect to the non-signing petitioners.
Dwelling on the merits of the case, petitioners posit that the Labor Arbiter and the NLRC disregarded
evidence on record showing that while the Cooperative was their employer on paper, the other
respondents exercised control and supervision over them; that the Cooperative was a labor-only
contractor; and that the Orders of the DOLE Secretary relied upon by the Labor Arbiter and the NLRC
are not applicable to them as the same pertained to a certification election case involving different
parties and issues.14
DFI, commenting for itself and TACOR, maintains that, among other things, it was not the employer
of petitioners; and that it cannot comment on their money claims because no evidence was submitted
in support thereof.15
It appears that respondent Cooperative had been dissolved.16
As respondent Dole Asia Philippines failed to file a comment, the Court, by Resolution of November
29, 2006,17 required it to (1) show cause why it should not be held in contempt for its failure to heed
the Court’s directive, and (2) file the required comment, within 10 days from notice.
Dole Philippines, Inc. (DPI) promptly filed an Urgent Manifestation18 stating that, among other things,
while its division located in Davao City received the Court’s Resolution directing Dole Asia Philippines
to file a comment on the present petition, DPI did not file a comment as the directive was addressed
to "Dole Asia Philippines", an entity which is not registered at the Securities and Exchange
Commission.
Commenting on DPI’s Urgent Manifestation, petitioners contend that DPI cannot be allowed to take
advantage of their lack of knowledge as to its exact corporate name, DPI having raised the matter
for the first time before this Court notwithstanding its receipt of all pleadings and court processes
from the inception of this case.19
Upon review of the records, the Court finds that DPI never ever participated in the proceedings
despite due notice. Its posturing, therefore, that the court processes it received were addressed to
"Dole Asia Philippines," a non-existent entity, does not lie. That DPI is the intended respondent, there
is no doubt.
Respecting the appellate court’s dismissal of petitioners’ appeal due to the failure of some of them to
sign the therein accompanying verification and certification against forum-shopping, the Court’s
guidelines for the bench and bar in Altres v. Empleo,20 which were culled "from jurisprudential
pronouncements," are instructive:
For the guidance of the bench and bar, the Court restates in capsule form the jurisprudential
pronouncements already reflected above respecting non-compliance with the requirements on, or
submission of defective, verification and certification against forum shopping:
1) A distinction must be made between non-compliance with the requirement on or submission of
defective verification, and non-compliance with the requirement on or submission of defective
certification against forum shopping.
2) As to verification, non-compliance therewith or a defect therein does not necessarily render the
pleading fatally defective. The court may order its submission or correction or act on the pleading if
the attending circumstances are such that strict compliance with the Rule may be dispensed with in
order that the ends of justice may be served thereby.
3) Verification is deemed substantially complied with when one who has ample knowledge to swear
to the truth of the allegations in the complaint or petition signs the verification, and when matters
alleged in the petition have been made in good faith or are true and correct.
4) As to certification against forum shopping, non-compliance therewith or a defect therein, unlike in
verification, is generally not curable by its subsequent submission or correction thereof, unless there
is a need to relax the Rule on the ground of "substantial compliance" or presence of "special
circumstances or compelling reasons."
5) The certification against forum shopping must be signed by all the plaintiffs or petitioners in a case;
otherwise, those who did not sign will be dropped as parties to the case. Under reasonable or
justifiable circumstances, however, as when all the plaintiffs or petitioners share a common interest
and invoke a common cause of action or defense, the signature of only one of them in the certification
against forum shopping substantially complies with the Rule.
6) Finally, the certification against forum shopping must be executed by the party-pleader, not by his
counsel. If, however, for reasonable or justifiable reasons, the party-pleader is unable to sign, he
must execute a Special Power of Attorney designating his counsel of record to sign on his behalf.
(Emphasis and underscoring supplied)
The foregoing restated pronouncements were lost in the challenged Resolutions of the appellate
court. Petitioners’ contention that the appellate court should have dismissed the petition only as to
the non-signing petitioners or merely dropped them as parties to the case is thus in order.
Instead of remanding the case to the appellate court, however, the Court deems it more practical to
decide the substantive issue raised in this petition so as not to further delay the disposition of this
case.21 And it thus resolves to deviate as well from the general rule that factual questions are not
entertained in petitions for review on certiorari of the appellate court’s decisions in order to write finis
to this protracted litigation.
The sole issue is whether DFI (with which TACOR had been merged) and DPI should be held
solidarily liable with the Cooperative for petitioners’ illegal dismissal and money claims.
The Labor Code and its Implementing Rules empower the Labor Arbiter to be the trier of facts in labor
cases.22 Much reliance is thus placed on the Arbiter’s findings of fact, having had the opportunity to
discuss with the parties and their witnesses the factual matters of the case during the conciliation
phase.23 Just the same, a review of the records of the present case does not warrant a conclusion
different from the Arbiter’s, as affirmed by the NLRC, that the Cooperative is the employer of
petitioners.
To be sure, the matter of whether the Cooperative is an independent contractor or a labor-only
contractor may not be used to predicate a ruling in this case. Job contracting or subcontracting refers
to an arrangement whereby a principal agrees to farm out with a contractor or subcontractor the
performance of a specific job, work or service within a definite or predetermined period, regardless
of whether such job, work or service is to be performed or completed within or outside the premises
of the principal.24 The present case does not involve such an arrangement.
DFI did not farm out to the Cooperative the performance of a specific job, work, or service. Instead,
it entered into a Banana Production and Purchase Agreement 25 (Contract) with the Cooperative,
under which the Cooperative would handle and fund the production of bananas and operation of the
plantation covering lands owned by its members in consideration of DFI’s commitment to provide
financial and technical assistance as needed, including the supply of information and equipment in
growing, packing, and shipping bananas. The Cooperative would hire its own workers and pay their
wages and benefits, and sell exclusively to DFI all export quality bananas produced that meet the
specifications agreed upon.
To the Court, the Contract between the Cooperative and DFI, far from being a job contracting
arrangement, is in essence a business partnership that partakes of the nature of a joint venture. 26
The rules on job contracting are, therefore, inapposite. The Court may not alter the intention of the
contracting parties as gleaned from their stipulations without violating the autonomy of contracts
principle under Article 1306 of the Civil Code which gives the contracting parties the utmost liberality
and freedom to establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good custom, public order or public policy.
Petitioners’ claim of employment relationship with the Cooperative’s herein co-respondents must be
assessed on the basis of four standards, viz: (a) the manner of their selection and engagement; (b)
the mode of payment of their wages; (c) the presence or absence of the power of dismissal; and (d)
the presence or absence of control over their conduct. Most determinative among these factors is the
so-called "control test."27
There is nothing in the records which indicates the presence of any of the foregoing elements of an
employer-employee relationship.
The absence of the first requisite, which refers to selection and engagement, is shown by DFI’s total
lack of knowledge on who actually were engaged by the Cooperative to work in the banana plantation.
This is borne out by the Contract between the Cooperative and DFI, under which the Cooperative
was to hire its own workers. As TACOR had been merged with DFI, and DPI is merely alleged to
have previously owned TACOR, this applies to them as well. Petitioners failed to prove the contrary.
No employment contract whatsoever was submitted to substantiate how petitioners were hired and
by whom.
On the second requisite, which refers to the payment of wages, it was likewise the Cooperative that
paid the same. As reflected earlier, under the Contract, the Cooperative was to handle and fund the
production of bananas and operation of the plantation.28 The Cooperative was also to be responsible
for the proper conduct, safety, benefits, and general welfare of its members and workers in the
plantation.29
As to the third requisite, which refers to the power of dismissal, and the fourth requisite, which refers
to the power of control, both were retained by the Cooperative. Again, the Contract stipulated that
the Cooperative was to be responsible for the proper conduct and general welfare of its members
and workers in the plantation.
The crucial element of control refers to the authority of the employer to control the employee not only
with regard to the result of the work to be done, but also to the means and methods by which the
work is to be accomplished.30 While it suffices that the power of control exists, albeit not actually
exercised, there must be some evidence of such power. In the present case, petitioners did not
present any.
There being no employer-employee relationship between petitioners and the Cooperative’s co-
respondents, the latter are not solidarily liable with the Cooperative for petitioners’ illegal dismissal
and money claims.
While the Court commiserates with petitioners on their loss of employment, especially now that the
Cooperative is no longer a going concern, it cannot simply, by default, hold the Cooperative’s co-
respondents liable for their claims without any factual and legal justification therefor. The social justice
policy of labor laws and the Constitution is not meant to be oppressive of capital.
En passant, petitioners are not precluded from pursuing any available remedies against the former
members of the defunct Cooperative as their individual circumstances may warrant.
WHEREFORE, the petition is DISMISSED.
SO ORDERED.