Pbcom VS SPS Go

PBCOM VS SPS GO
This is a petition for review on certiorari under Rule 45 filed by petitioner Philippine Bank of
Communications (PBCom) seeking to set aside the July 28, 2006 Decision, 1 and the November 27,
2006 Resolution2 of the Court of Appeals (CA) in CA G.R. CV No. 77714. The CA decision reversed
and set aside the January 25, 2002 Decision of the Regional Trial Court, Branch 42, Manila (RTC),
which granted the motion for summary judgment and rendered judgment on the basis of the
pleadings and attached documents.
THE FACTS
On September 30, 1999, respondent Jose C. Go (Go) obtained two loans from PBCom, evidenced
by two promissory notes, embodying his commitment to pay ₱17,982,222.22 for the first loan, and
₱80 million for the second loan, within a ten-year period from September 30, 1999 to September 30,
2009.3
To secure the two loans, Go executed two (2) pledge agreements, both dated September 29, 1999,
covering shares of stock in Ever Gotesco Resources and Holdings, Inc. The first pledge, valued at
₱27,827,122.22, was to secure payment of the first loan, while the second pledge, valued at
₱70,155,100.00, was to secure the second loan. 4
Two years later, however, the market value of the said shares of stock plunged to less than ₱0.04
per share. Thus, PBCom, as pledgee, notified Go in writing on June 15, 2001, that it was renouncing
the pledge agreements.5
Later, PBCom filed before the RTC a complaint6 for sum of money with prayer for a writ of
preliminary attachment against Go and his wife, Elvy T. Go (Spouses Go), docketed as Civil Case
No. 01-101190. PBCom alleged that Spouses Go defaulted on the two (2) promissory notes, having
paid only three (3) installments on interest payments—covering the months of September,
November and December 1999. Consequently, the entire balance of the obligations of Go became
immediately due and demandable. PBCom made repeated demands upon Spouses Go for the
payment of said obligations, but the couple imposed conditions on the payment, such as the lifting of
garnishment effected by the Bangko Sentral ng Pilipinas (BSP) on Go’s accounts. 7
Spouses Go filed their Answer with Counterclaim 8 denying the material allegations in the complaint
and stating, among other matters, that:
8. The promissory note referred to in the complaint expressly state that the loan obligation is payable
within the period of ten (10) years. Thus, from the execution date of September 30, 1999, its due
date falls on September 30, 2009 (and not 2001 as erroneously stated in the complaint). Thus, prior
to September 30, 2009, the loan obligations cannot be deemed due and demandable.
In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which constitutes the condition.
(Article 1181, New Civil Code)
9. Contrary to the plaintiff’s proferrence, defendant Jose C. Go had made substantial payments in
terms of his monthly payments. There is, therefore, a need to do some accounting works (sic) to
reconcile the records of both parties.
10. While demand is a necessary requirement to consider the defendant to be in delay/default, such
has not been complied with by the plaintiff since the former is not aware of any demand made to him
by the latter for the settlement of the whole obligation.
11. Undeniably, at the time the pledge of the shares of stock were executed, their total value is more
than the amount of the loan or at the very least, equal to it. Thus, plaintiff was fully secured insofar
as its exposure is concerned.
12. And even assuming without conceding, that the present value of said shares x x x went down, it
cannot be considered as something permanent since the prices of stocks in the market either
increases (sic) or decreases (sic) depending on the market forces. Thus, it is highly speculative for
the plaintiff to consider said shares to have suffered tremendous decrease in its value. More so, it is
unfair for the plaintiff to renounce or abandon the pledge agreements.
On September 28, 2001, PBCom filed a verified motion for summary judgment 9 anchored on the
following grounds:
I. MATERIAL AVERMENTS OF THE COMPLAINT ADMITTED BY DEFENDANT-SPOUSES

IN THEIR ANSWER TO OBVIATE THE NECESSITY OF TRIAL
II. NO REAL DEFENSES AND NO GENUINE ISSUES AS TO ANY MATERIAL FACT

WERE TENDERED BY THE DEFENDANT-SPOUSES IN THEIR ANSWER
III. PLANTIFF’S CAUSES OF ACTIONS ARE SUPPORTED BY VOLUNTARY

ADMISSIONS AND AUTHENTIC DOCUMENTS WHICH MAY NOT BE CONTRADICTED.10
PBCom contended that the Answer interposed no specific denials on the material averments in
paragraphs 8 to 11 of the complaint such as the fact of default, the entire amount being already due
and demandable by reason of default, and the fact that the bank had made repeated demands for
the payment of the obligations.11
Spouses Go opposed the motion for summary judgment arguing that they had tendered genuine
factual issues calling for the presentation of evidence. 12
The RTC granted PBCom’s motion in its Judgment13 dated January 25, 2002, the dispositive portion
of which states:
WHEREFORE, in view of all the foregoing, judgment is rendered for the plaintiff and against the
defendants ordering them to pay plaintiff jointly and severally the following:
1. The total amount of ₱117,567,779.75, plus interests and penalties as stipulated in the two
promissory notes;
2. A sum equivalent to 10% of the amount involved in this case, by way of attorney’s fees;
and
3. The costs of suit.
SO ORDERED.14
Spouses Go moved for a reconsideration but the motion was denied in an order 15 dated March 20,
2002.
RULING OF THE COURT OF APPEALS
In its Decision dated July 28, 2006, the CA reversed and set aside the assailed judgment of the
RTC, denied PBCom’s motion for summary judgment, and ordered the remand of the records to the
court of origin for trial on the merits. The dispositive portion of the decision states:
WHEREFORE, premises considered, the assailed judgment of the Regional Trial Court, Branch 42
of Manila in Civil Case No. 01-101190 is hereby REVERSED and SET ASIDE, and a new one
entered denying plaintiff-appellee’s motion for summary judgment. Accordingly, the records of the
case are hereby remanded to the court of origin for trial on the merits.
SO ORDERED.16
The CA could not agree with the conclusion of the RTC that Spouses Go admitted paragraphs 3, 4
and 7 of the complaint. It found the supposed admission to be insufficient to justify a rendition of
summary judgment in the case for sum of money, since there were other allegations and defenses
put up by Spouses Go in their Answer which raised genuine issues on the material facts in the
action.17
The CA agreed with Spouses Go that paragraphs 3 and 4 of the complaint merely dwelt on the fact
that a contract of loan was entered into by the parties, while paragraph 7 simply emphasized the
terms of the promissory notes executed by Go in favor of PBCom. The fact of default, the amount of
the outstanding obligation, and the existence of a prior demand, which were all material to PBCom’s
claim, were "hardly admitted"18 by Spouses Go in their Answer and were, in fact, effectively
questioned in the other allegations in the Answer. 19
PBCom’s motion for reconsideration was denied in a resolution 20 dated November 27, 2006.
Thus, this petition for review.
THE ISSUES
WHETHER THE COURT OF APPEALS ERRED OR ACTED IN GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK, OR EXCESS OF JURISDICTION IN RULING THAT THERE EXISTS A
GENUINE ISSUE AS TO MATERIAL FACTS IN THE ACTION IN SPITE OF THE UNEQUIVOCAL
ADMISSIONS MADE IN THE PLEADINGS BY RESPONDENTS; AND
II
WHETHER THE COURT OF APPEALS ERRED OR ACTED IN GRAVE ABUSE OF

JURISDICTION [DISCRETION] IN HOLDING THAT ISSUES WERE RAISED ABOUT THE FACT
OF DEFAULT, THE AMOUNT OF THE OBLIGATION, AND THE EXISTENCE OF PRIOR
DEMAND, EVEN WHEN THE PLEADING CLEARLY POINTS TO THE CONTRARY.
Petitioner PBCom’s Position: Summary judgment was proper, as there were no genuine
issues raised as to any material fact.
PBCom argues that the material averments in the complaint categorically admitted by Spouses Go
obviated the necessity of trial. In their Answer, Spouses Go admitted the allegations in paragraphs 3
and 4 of the Complaint pertaining to the security for the loans and the due execution of the
promissory notes,21 and those in paragraph 7 which set forth the acceleration clauses in the
promissory note. Their denial of paragraph 5 of the Complaint pertaining to the Schedules of
Payment for the liquidation of the two promissory notes did not constitute a specific denial required
by the Rules.22
Even in the Comment23 of Spouses Go, the clear, categorical and unequivocal admission of
paragraphs 3, 4, and 7 of the Complaint had been conceded. 24
PBCom faults the CA for having formulated non-existent issues pertaining to the fact of default, the
amount of outstanding obligation and the existence of prior demand, none of which is borne by the
pleadings or the records.25
The Spouses Go, PBCom argues, cannot negate or override the legal effect of the acceleration
clauses embodied in each of the two promissory notes executed by Go. Moreover, the non-payment
of arrearages constituting default was admitted by Go in his letters to PBCom dated March 3 and
April 7, 2000, respectively.26 Therefore, by such default, they have lost the benefit of the period in
their favor, pursuant to Article 1198 27 of the Civil Code.
Further, PBCom claims that its causes of action are supported by authentic documents and
voluntary admissions which cannot be contradicted. It cites the March 3 and April 7, 2000 letters of
Go requesting deferment of interest payments on his past due loan obligations to PBCom, as his
assets had been placed under attachment in a case filed by the BSP.28 PBCom emphasizes that the
said letters, in addition to its letters of demand duly acknowledged and received by Go, negated their
claim that they were not aware of any demand having been made. 29
Respondent spouses’ position: Summary judgment was not proper.
The core contention of Spouses Go is that summary judgment was not proper under the attendant
circumstances, as there exist genuine issues with respect to the fact of default, the amount of the
outstanding obligation, and the existence of prior demand, which were duly questioned in the special
and affirmative defenses set forth in the Answer. Spouses Go agree with the CA that the admissions
in the pleadings pertained to the highlight of the terms of the contract. Such admissions merely
recognized the existence of the contract of loan and emphasized its terms and
conditions.30 Moreover, although they admitted paragraphs 3, 4, and 7, the special and affirmative
defenses contained in the Answer tendered genuine issues which could only be resolved in a full-
blown trial.31
On the matter of specific denial, Spouses Go posit that the Court decisions cited by PBCom 32 do not
apply on all fours in this case. Moreover, the substance of the repayment schedule was not set forth
in the complaint. It, therefore, follows that the act of attaching copies to the complaint is insufficient
to secure an implied admission. Assuming arguendo that it was impliedly admitted, the existence of
said schedule and the promissory notes would not immediately make private respondents liable for
the amount claimed by PBCom.33 Before respondents may be held liable, it must be established,
first, that they indeed defaulted; and second, that the obligations has remained outstanding. 34
Spouses Go also state that although they admitted paragraphs 3, 4 and 7 of the Complaint, the fact
of default, the amount of outstanding obligation and the existence of prior demand were fully
questioned in the special and affirmative defenses. 35
RULING OF THE COURT
The Court agrees with the CA that "[t]he supposed admission of defendants-appellants on the x x x
allegations in the complaint is clearly not sufficient to justify the rendition of summary judgment in the
case for sum of money, considering that there are other allegations embodied and defenses raised
by the defendants-appellants in their answer which raise a genuine issue as to the material facts in
the action."36
The CA correctly ruled that there exist genuine issues as to three material facts, which have to be
addressed during trial: first, the fact of default; second, the amount of the outstanding obligation,
and third, the existence of prior demand.
Under the Rules, following the filing of pleadings, if, on motion of a party and after hearing, the
pleadings, supporting affidavits, depositions and admissions on file show that, "except as to the
amount of damages, there is no genuine issue as to any material fact, and that the moving party is
entitled to a judgment as a matter of law,"37 summary judgment may be rendered. This rule was
expounded in Asian Construction and Development Corporation v. Philippine Commercial
International Bank,38 where it was written:
Under Rule 35 of the 1997 Rules of Procedure, as amended, except as to the amount of damages,
when there is no genuine issue as to any material fact and the moving party is entitled to a judgment
as a matter of law, summary judgment may be allowed. 39 Summary or accelerated judgment is a
procedural technique aimed at weeding out sham claims or defenses at an early stage of litigation
thereby avoiding the expense and loss of time involved in a trial. 40
Under the Rules, summary judgment is appropriate when there are no genuine issues of fact which
call for the presentation of evidence in a full-blown trial. Even if on their face the pleadings appear to
raise issues, when the affidavits, depositions and admissions show that such issues are not genuine,
then summary judgment as prescribed by the Rules must ensue as a matter of law. The
determinative factor, therefore, in a motion for summary judgment, is the presence or absence of a
genuine issue as to any material fact.
A "genuine issue" is an issue of fact which requires the presentation of evidence as distinguished
from a sham, fictitious, contrived or false claim. When the facts as pleaded appear uncontested or
undisputed, then there is no real or genuine issue or question as to the facts, and summary
judgment is called for. The party who moves for summary judgment has the burden of demonstrating
clearly the absence of any genuine issue of fact, or that the issue posed in the complaint is patently
unsubstantial so as not to constitute a genuine issue for trial. Trial courts have limited authority to
render summary judgments and may do so only when there is clearly no genuine issue as to any
material fact. When the facts as pleaded by the parties are disputed or contested, proceedings for
summary judgment cannot take the place of trial.41 (Underscoring supplied.)
Juxtaposing the Complaint and the Answer discloses that the material facts here are not undisputed
so as to call for the rendition of a summary judgment. While the denials of Spouses Go could have
been phrased more strongly or more emphatically, and the Answer more coherently and logically
structured in order to overthrow any shadow of doubt that such denials were indeed made, the
pleadings show that they did in fact raise material issues that have to be addressed and threshed
out in a full-blown trial.
PBCom anchors its arguments on the alleged implied admission by Spouses Go resulting from their
failure to specifically deny the material allegations in the Complaint, citing as precedent Philippine
Bank of Communications v. Court of Appeals,42 and Morales v. Court of Appeals. Spouses Go, on
the other hand, argue that although admissions were made in the Answer, the special and
affirmative defenses contained therein tendered genuine issues.
Under the Rules, every pleading must contain, in a methodical and logical form, a plain, concise and
direct statement of the ultimate facts on which the party pleading relies for his claim or defense, as
the case may be, omitting the statement of mere evidentiary facts.43
To specifically deny a material allegation, a defendant must specify each material allegation of fact
the truth of which he does not admit, and whenever practicable, shall set forth the substance of the
matters upon which he relies to support his denial. Where a defendant desires to deny only a part of
an averment, he shall specify so much of it as is true and material and shall deny only the
remainder. Where a defendant is without knowledge or information sufficient to form a belief as to
the truth of a material averment made in the complaint, he shall so state, and this shall have the
effect of a denial.44
Rule 8, Section 10 of the Rules of Civil Procedure contemplates three (3) modes of specific denial,
namely: 1) by specifying each material allegation of the fact in the complaint, the truth of which the
defendant does not admit, and whenever practicable, setting forth the substance of the matters
which he will rely upon to support his denial; (2) by specifying so much of an averment in the
complaint as is true and material and denying only the remainder; (3) by stating that the defendant is
without knowledge or information sufficient to form a belief as to the truth of a material averment in
the complaint, which has the effect of a denial.45
The purpose of requiring the defendant to make a specific denial is to make him disclose the matters
alleged in the complaint which he succinctly intends to disprove at the trial, together with the matter
which he relied upon to support the denial. The parties are compelled to lay their cards on the
table.46
Again, in drafting pleadings, members of the bar are enjoined to be clear and concise in their
language, and to be organized and logical in their composition and structure in order to set forth their
statements of fact and arguments of law in the most readily comprehensible manner possible.
Failing such standard, allegations made in pleadings are not to be taken as stand-alone
catchphrases in the interest of accuracy. They must be contextualized and interpreted in relation to
the rest of the statements in the pleading.
In Spouses Gaza v. Lim, the Court ruled that the CA erred in declaring that the petitioners therein
impliedly admitted respondents' allegation that they had prior and continuous possession of the
property, as petitioners did in fact enumerate their special and affirmative defenses in their Answer.
They also specified therein each allegation in the complaint being denied by them. The Court therein
stated:
The Court of Appeals held that spouses Gaza, petitioners, failed to deny specifically, in their answer,
paragraphs 2, 3 and 5 of the complaint for forcible entry quoted as follows:
x x x x x x x x x
2. That plaintiffs are the actual and joint occupants and in prior continuous physical possession since
1975 up to Nov. 28, 1993 of a certain commercial compound described as follows:
A certain parcel of land situated in Bo. Sta. Maria, Calauag, Quezon. Bounded on the N., & E., by
Julian de Claro; on the W., by Luis Urrutia. Containing an area of 5,270 square meters, more or less.
Declared under Ramon J. Lim's Tax Dec. No. 4576 with an Ass. Value of P26,100.00
3. That plaintiffs have been using the premises mentioned for combined lumber and copra business.
Copies of plaintiffs' Lumber Certificate of Registration No. 2490 and PCA Copra Business
Registration No. 6265/76 are hereto attached as Annexes "A" and "B" respectively; the Mayor's
unnumbered copra dealer's permit dated Dec. 31, 1976 hereto attached as Annex "C";
x x x x x x x x x
5. That defendants' invasion of plaintiffs' premises was accomplished illegally by detaining plaintiffs'
caretaker Emilio Herrera and his daughter inside the compound, then proceeded to saw the chain
that held plaintiffs' padlock on the main gate of the compound and then busted or destroyed the
padlock that closes the backyard gate or exit. Later, they forcibly opened the lock in the upstairs
room of plaintiff Agnes J. Lim's quarters and defendants immediately filled it with other occupants
now. Copy of the caretaker's (Emilio Herrera) statement describing in detail is hereto attached as
Annex "D";
x x x x x x x x x7
The Court of Appeals then concluded that since petitioners did not deny specifically in their answer
the above-quoted allegations in the complaint, they judicially admitted that Ramon and Agnes Lim,
respondents, "were in prior physical possession of the subject property, and the action for forcible
entry which they filed against private respondents (spouses Gaza) must be decided in their favor.
The defense of private respondents that they are the registered owners of the subject property is
unavailing."
We observe that the Court of Appeals failed to consider paragraph 2 of petitioners' answer quoted as
follows:
2. That defendants specifically deny the allegations in paragraph 2 and 3 of the complaint for want of
knowledge or information sufficient to form a belief as to the truth thereof, the truth of the matter
being those alleged in the special and affirmative defenses of the defendants;" 8
Clearly, petitioners specifically denied the allegations contained in paragraphs 2 and 3 of the
complaint that respondents have prior and continuous possession of the disputed property which
they used for their lumber and copra business. Petitioners did not merely allege they have no
knowledge or information sufficient to form a belief as to truth of those allegations in the complaint,
but added the following:
SPECIAL AND AFFIRMATIVE DEFENSES
That defendants hereby reiterate, incorporate and restate the foregoing and further allege:
5. That the complaint states no cause of action;
"From the allegations of plaintiffs, it appears that their possession of the subject property was not
supported by any concrete title or right, nowhere in the complaint that they alleged either as an
owner or lessee, hence, the alleged possession of plaintiffs is questionable from all aspects.
Defendants Sps. Napoleon Gaza and Evelyn Gaza being the registered owner of the subject
property has all the right to enjoy the same, to use it, as an owner and in support thereof, a copy of
the transfer certificate of title No. T-47263 is hereto attached and marked as Annex "A-Gaza" and a
copy of the Declaration of Real Property is likewise attached and marked as Annex "B-Gaza" to form
an integral part hereof;
6. That considering that the above-entitled case is an ejectment case, and considering further that
the complaint did not state or there is no showing that the matter was referred to a Lupon for
conciliation under the provisions of P.D. No. 1508, the Revised Rule on Summary Procedure of
1991, particularly Section 18 thereof provides that such a failure is jurisdictional, hence subject to
dismissal;
7. That the Honorable Court has no jurisdiction over the subject of the action or suit;
The complaint is for forcible entry and the plaintiffs were praying for indemnification in the sum of
₱350,000.00 for those copra, lumber, tools, and machinery listed in par. 4 of the complaint and
₱100,000.00 for unrealized income in the use of the establishment, considering the foregoing
amounts not to be rentals, Section 1 A (1) and (2) of the Revised Rule on Summary Procedure
prohibits recovery of the same, hence, the Honorable Court can not acquire jurisdiction over the
same. Besides, the defendants Napoleon Gaza and Evelyn Gaza being the owners of those
properties cited in par. 4 of the complaint except for those copra and two (2) live carabaos outside of
the subject premises, plaintiffs have no rights whatsoever in claiming damages that it may suffer, as
and by way of proof of ownership of said properties cited in paragraph 4 of the complaint attached
herewith are bunche[s] of documents to form an integral part hereof;
8. That plaintiffs' allegation that Emilio Herrera was illegally detained together with his daughter was
not true and in support thereof, attached herewith is a copy of said Herrera's statement and marked
as Annex "C-Gaza."
x x x x x x x x x9
The above-quoted paragraph 2 and Special and Affirmative Defenses contained in petitioners'
answer glaringly show that petitioners did not admit impliedly that respondents have been in prior
and actual physical possession of the property. Actually, petitioners are repudiating vehemently
respondents' possession, stressing that they (petitioners) are the registered owners and lawful
occupants thereof.
Respondents' reliance on Warner Barnes and Co., Ltd. v. Reyes10 in maintaining that petitioners
made an implied admission in their answer is misplaced. In the cited case, the defendants' answer
merely alleged that they were "without knowledge or information sufficient to form a belief as to the
truth of the material averments of the remainder of the complaint" and "that they hereby reserve the
right to present an amended answer with special defenses and counterclaim." 11 In the instant
case, petitioners enumerated their special and affirmative defenses in their answer. They also
specified therein each allegation in the complaint being denied by them. They particularly alleged
they are the registered owners and lawful possessors of the land and denied having wrested
possession of the premises from the respondents through force, intimidation, threat, strategy and
stealth. They asserted that respondents' purported possession is "questionable from all aspects."
They also averred that they own all the personal properties enumerated in respondents' complaint,
except the two carabaos. Indeed, nowhere in the answer can we discern an implied admission of the
allegations of the complaint, specifically the allegation that petitioners have priority of possession.
Thus, the Court of Appeals erred in declaring that herein petitioners impliedly admitted respondents'
allegation that they have prior and continuous possession of the property.47 (Underscoring supplied.)
In this case, as in Gaza, the admissions made by Spouses Go are to be read and taken together
with the rest of the allegations made in the Answer, including the special and affirmative defenses.
For instance, on the fact of default, PBCom alleges in paragraph 8 of the Complaint that Go
defaulted in the payment for both promissory notes, having paid only three interest installments
covering the months of September, November, and December 1999.
In paragraph 6 of the Answer, Spouses Go denied the said allegation, and further alleged in
paragraphs 8 to 13 that Go made substantial payments on his monthly loan amortizations.
The portions of the pleadings referred to are juxtaposed below:
Complaint Answer
8. The defendant defaulted in the payment of the 6. Defendants deny the allegations in paragraphs
obligations on the two (2) promissory notes 8, 9, 10 and 11 of the Complaint;
(Annexes "A" and "B" hereof) as he has paid only
three (3) installments on interests (sic) payments xxx
covering the months of September, November and
December, 1999, on both promissory notes, 8. The promissory notes referred to in the
respectively. As a consequence of the default, the complaint expressly state that the loan obligation
entire balance due on the obligations of the is payable within the period of ten (10) years.
defendant to plaintiff on both promissory notes Thus, from the execution date of September 30,
immediately became due and demandable 1999, its due date falls on September 3o, 2009
pursuant to the terms and conditions embodied in (and not 2001 as erroneously stated in the
the two (2) promissory notes;48 complaint). Thus, prior to September 30, 2009, the
loan obligations cannot be deemed due and
demandable.
In conditional obligations, the acquisition of rights,

as well as the extinguishment or loss of those
already acquired, shall depend upon the
happening of the event which constitutes the
condition. (Article 1181, New Civil Code)
9. Contrary to the plaintiff’s preference, defendant

Jose C. Go has made substantial payments in
terms of his monthly payments. There is therefore,
a need to do some accounting works (sic) just to
reconcile the records of both parties.
10. While demand is a necessary requirement to

consider the defendant to be in delay/default, such
has not been complied with by the plaintiff since
the former is not aware of any demand made to
him by the latter for the settlement of the whole
obligation.
11. Undeniably, at the time the pledge of the

shares of stocks were executed, their total value is
more than the amount of the loan, or at the very
least, equal to it. Thus, plaintiff was fully secured
insofar as its exposure is concerned. 49
12. And even assuming without conceding, that

the present value of said shares has went (sic)
down, it cannot be considered as something
permanent since, the prices of stocks in the
market either increases (sic) or (sic) decreases
depending on the market forces. Thus, it is highly
speculative for the plaintiff to consider said shares
to have suffered tremendous decrease in its value.
Moreso (sic), it is unfair for the plaintiff to renounce
or abandon the pledge agreements.
13. As aptly stated, it is not aware of any

termination of the pledge agreement initiated by
the plaintiff.
Moreover, in paragraph 10 of the Answer, Spouses Go also denied the existence of prior demand
alleged by PBCom in paragraph 10 of the Complaint. They stated therein that they were not aware
of any demand made by PBCom for the settlement of the whole obligation. Both sections are quoted
below:
Complaint Answer
10. Plaintiff made repeated demands from (sic)
defendant for the payment of the obligations which
the latter acknowledged to have incurred however,
defendant imposed conditions such as [that] his
10. While demand is a necessary requirement to
[effecting] payments shall depend upon the lifting
consider the defendant to be in delay/default, such
of garnishment effected by the Bangko Sentral on
has not been complied with by the plaintiff since
his accounts. Photocopies of defendant’s
the former is not aware of any demand made to
communication dated March 3, 2000 and April 7,
him by the latter for the settlement of the whole
2000, with plaintiff are hereto attached
obligation.
as Annexes "F" and "G" hereof, as well as its
demand to pay dated April 18, 2000. Demand by
plaintiff is hereto attached as Annex
"H" hereof.50 [Emphases supplied]
Finally, as to the amount of the outstanding obligation, PBCom alleged in paragraph 9 of the
Complaint that the outstanding balance on the couples’ obligations as of May 31, 2001 was
₱21,576,668.64 for the first loan and ₱95,991,111.11, for the second loan or a total of
₱117,567,779.75.
In paragraph 9 of the Answer, however, Spouses Go, without stating any specific amount, averred
that substantial monthly payments had been made, and there was a need to reconcile the
accounting records of the parties.
Complaint Answer
9. Defendants’ outstanding obligations under the
9. Contrary to the plaintiff’s preference, defendant
two (2) promissory notes as of May 31, 2001 are:
Jose C. Go has made substantial payments in
P21,576,668.64 (Annex "A") and P95,991,111.11
terms of his monthly payments. There is therefore,
(Annex "B"), or a total of P117,567,779.75. Copy
a need to do some accounting works just to
of the Statement of Account is hereto attached
reconcile the records of both parties.52
as Annex "E" hereof.51
Clearly then, when taken within the context of the entirety of the pleading, it becomes apparent that
there was no implied admission and that there were indeed genuine issues to be addressed.
As to the attached March 3, 2000 letter, the Court is in accord with the CA when it wrote:
The letter dated March 3, 2000 is insufficient to support the material averments in PBCom’s
complaint for being equivocal and capable of different interpretations. The contents of the letter do
not address all the issues material to the bank’s claim and thus do not conclusively establish the
cause of action of PBCom against the spouses Go. As regards the letter dated April 7, 2000, the trial
court itself ruled that such letter addressed to PBCom could not be considered against the
defendants-appellants simply because it was not signed by defendant-appellant Jose Go.
Notably, the trial court even agreed with the defendant-appellants on the following points:
The alleged default and outstanding obligations are based on the Statement of Account. This Court
agrees with the defendants that since the substance of the document was not set forth in the
complaint although a copy thereof was attached thereto, or the said document was not set forth
verbatim in the pleading, the rule on implied admission does not apply. 53
It must also be pointed out that the cases cited by PBCom do not apply to this case. Those two
1avvphi1
cases involve denial of lack of knowledge of facts "so plainly and necessarily within [the knowledge
of the party making such denial] that such averment of ignorance must be palpably untrue." 54 Also, in
both cases, the documents denied were the same documents or deeds sued upon or made the
basis of, and attached to, the complaint.
In Philippine Bank of Communications v. Court of Appeals,55 the Court ruled that the defendant’s
contention that it had no truth or information sufficient to form a belief as to the truth of the deed of
exchange was an invalid or ineffectual denial pursuant to the Rules of Court, 56 as it could have easily
asserted whether or not it had executed the deed of exchange attached to the petition. Citing Capitol
Motors Corporations v. Yabut,57 the Court stated that:
x x x The rule authorizing an answer to the effect that the defendant has no knowledge or
information sufficient to form a belief as to the truth of an averment and giving such answer the effect
of a denial, does not apply where the fact as to which want of knowledge is asserted, is so plainly
and necessarily within the defendant’s knowledge that his averment of ignorance must be palpably
untrue.58
The Warner Barnes case cited above sprung from a suit for foreclosure of mortgage, where the
document that defendant denied was the deed of mortgage sued upon and attached to the
complaint. The Court then ruled that it would have been easy for the defendants to specifically allege
in their answer whether or not they had executed the alleged mortgage.
Similarly, in Capitol Motors, the document denied was the promissory note sued upon and attached
to the complaint. In said case, the Court ruled that although a statement of lack of knowledge or
information sufficient to form a belief as to the truth of a material averment in the complaint was one
of the modes of specific denial contemplated under the Rules, paragraph 2 of the Answer in the said
case was insufficient to constitute a specific denial. 59 Following the ruling in the Warner Barnes case,
the Court held that it would have been easy for defendant to specifically allege in the Answer
whether or not it had executed the promissory note attached to the Complaint. 60
In Morales v. Court of Appeals,61 the matter denied was intervenor’s knowledge of the plaintiff’s
having claimed ownership of the vehicle in contention. The Court therein stated:
Yet, despite the specific allegation as against him, petitioner, in his Answer in Intervention with
Counterclaim and Crossclaim, answered the aforesaid paragraph 11, and other paragraphs, merely
by saying that "he has no knowledge or information sufficient to form a belief as to its truth." While it
may be true that under the Rules one could avail of this statement as a means of a specific denial,
nevertheless, if an allegation directly and specifically charges a party to have done, performed or
committed a particular act, but the latter had not in fact done, performed or committed it, a
categorical and express denial must be made. In such a case, the occurrence or non-occurrence of
the facts alleged may be said to be within the party’s knowledge. In short, the petitioner herein could
have simply expressly and in no uncertain terms denied the allegation if it were untrue. It has been
held that when the matters of which a defendant alleges of having no knowledge or information
sufficient to form a belief, are plainly and necessarily within his knowledge, his alleged ignorance or
lack of information will not be considered as specific denial. His denial lacks the element of sincerity
and good faith, hence, insufficient.62
Borrowing the phraseology of the Court in the Capitol Motors case, clearly, the fact of the parties’
having executed the very documents sued upon, that is, the deed of exchange, deed or mortgage or
promissory note, is so plainly and necessarily within the knowledge of the denying parties that any
averment of ignorance as to such fact must be palpably untrue.
In this case, however, Spouses Go are not disclaiming knowledge of the transaction or the execution
of the promissory notes or the pledge agreements sued upon. The matters in contention are, as the
CA stated, whether or not respondents were in default, whether there was prior demand, and the
amount of the outstanding loan. These are the matters that the parties disagree on and by which
reason they set forth vastly different allegations in their pleadings which each will have to prove by
presenting relevant and admissible evidence during trial.
Furthermore, in stark contrast to the cited cases where one of the parties disclaimed knowledge of
something so patently within his knowledge, in this case, respondents Spouses Go categorically
stated in the Answer that there was no prior demand, that they were not in default, and that the
amount of the outstanding loan would have to be ascertained based on official records.
WHEREFORE, the petition is DENIED.
SO ORDERED.
BPI VS SPS ROYECA
Bank of the Philippine Islands (BPI) seeks a review of the Court of Appeals (CA) Decision 1 dated
July 12, 2006, and Resolution2 dated February 13, 2007, which dismissed its complaint for replevin
and damages and granted the respondents’ counterclaim for damages.
The case stems from the following undisputed facts:

On August 23, 1993, spouses Reynaldo and Victoria Royeca (respondents) executed and delivered
to Toyota Shaw, Inc. a Promissory Note3 for ₱577,008.00 payable in 48 equal monthly installments
of ₱12,021.00, with a maturity date of August 18, 1997. The Promissory Note provides for a penalty
of 3% for every month or fraction of a month that an installment remains unpaid.
To secure the payment of said Promissory Note, respondents executed a Chattel Mortgage 4 in favor
of Toyota over a certain motor vehicle, more particularly described as follows:
<
p>Make and Type 1993 Toyota Corolla 1.3 XL
Motor No. 2E-2649879
Serial No. EE100-9512571
Color D.B. Gray Met.
Toyota, with notice to respondents, executed a Deed of Assignment 5 transferring all its rights, title,
and interest in the Chattel Mortgage to Far East Bank and Trust Company (FEBTC).
Claiming that the respondents failed to pay four (4) monthly amortizations covering the period from
May 18, 1997 to August 18, 1997, FEBTC sent a formal demand to respondents on March 14, 2000
asking for the payment thereof, plus penalty.6 The respondents refused to pay on the ground that
they had already paid their obligation to FEBTC.
On April 19, 2000, FEBTC filed a Complaint for Replevin and Damages against the respondents with
the Metropolitan Trial Court (MeTC) of Manila praying for the delivery of the vehicle, with an
alternative prayer for the payment of ₱48,084.00 plus interest and/or late payment charges at the
rate of 36% per annum from May 18, 1997 until fully paid. The complaint likewise prayed for the
payment of ₱24,462.73 as attorney’s fees, liquidated damages, bonding fees and other expenses
incurred in the seizure of the vehicle. The complaint was later amended to substitute BPI as plaintiff
when it merged with and absorbed FEBTC.7
In their Answer, respondents alleged that on May 20, 1997, they delivered to the Auto Financing
Department of FEBTC eight (8) postdated checks in different amounts totaling ₱97,281.78. The
Acknowledgment Receipt,8 which they attached to the Answer, showed that FEBTC received the
following checks:
DATE BANK CHECK NO. AMOUNT

26 May 97 Landbank #610945 ₱13,824.15
6 June 97 Head Office #610946 12,381.63
#17A00-
30 May 97 FEBTC 12,021.00
11550P
#17A00-
15 June 97 Shaw Blvd. 12,021.00
11549P
#17A00-
30 June 97 " 12,021.00
11551P
18 June 97 Landbank #610947 11,671.00
18 July 97 Head Office #610948 11,671.00
18 August
#610949 11,671.00
97
The respondents further averred that they did not receive any notice from the drawee banks or from
FEBTC that these checks were dishonored. They explained that, considering this and the fact that
the checks were issued three years ago, they believed in good faith that their obligation had already
been fully paid. They alleged that the complaint is frivolous and plainly vexatious. They then prayed
that they be awarded moral and exemplary damages, attorney’s fees and costs of suit. 9
During trial, Mr. Vicente Magpusao testified that he had been connected with FEBTC since 1994 and
had assumed the position of Account Analyst since its merger with BPI. He admitted that they had,
in fact, received the eight checks from the respondents. However, two of these checks (Landbank
Check No. 0610947 and FEBTC Check No. 17A00-11551P) amounting to ₱23,692.00 were
dishonored. He recalled that the remaining two checks were not deposited anymore due to the
previous dishonor of the two checks. He said that after deducting these payments, the total
outstanding balance of the obligation was ₱48,084.00, which represented the last four monthly
installments.
On February 23, 2005, the MeTC dismissed the case and granted the respondents’ counterclaim for
damages, thus:
WHEREFORE, judgment is hereby rendered dismissing the complaint for lack of cause of action,
and on the counterclaim, plaintiff is ordered to indemnify the defendants as follows:
a) The sum of PhP30,000.00 as and by way of moral damages;
b) The sum of PhP30,000.00 as and by way of exemplary damages;
c) The sum of PhP20,000.00 as and by way of attorney’s fees; and
d) To pay the costs of the suit.
SO ORDERED.10
On appeal, the Regional Trial Court (RTC) set aside the MeTC Decision and ordered the
respondents to pay the amount claimed by the petitioner. The dispositive portion of its
Decision11 dated August 11, 2005 reads:
WHEREFORE, premises considered, the Decision of the Metropolitan Trial Court, Branch 9 dated
February 23, 2005 is REVERSED and a new one entered directing the defendants-appellees to pay
the plaintiff-appellant, jointly and severally,
1. The sum of ₱48,084.00 plus interest and/or late payment charges thereon at the rate of
36% per annum from May 18, 1997 until fully paid;
2. The sum of ₱10,000.00 as attorney’s fees; and

3. The costs of suit.
SO ORDERED.12
The RTC denied the respondents’ motion for reconsideration. 13
The respondents elevated the case to the Court of Appeals (CA) through a petition for review. They
succeeded in obtaining a favorable judgment when the CA set aside the RTC’s Decision and
reinstated the MeTC’s Decision on July 12, 2006. 14 On February 13, 2007, the CA denied the
petitioner’s motion for reconsideration. 15
The issues submitted for resolution in this petition for review are as follows:
I. WHETHER OR NOT RESPONDENTS WERE ABLE TO PROVE FULL PAYMENT OF

THEIR OBLIGATION AS ONE OF THEIR AFFIRMATIVE DEFENSES.
II. WHETHER OR NOT TENDER OF CHECKS CONSTITUTES PAYMENT.
III. WHETHER OR NOT RESPONDENTS ARE ENTITLED TO MORAL AND EXEMPLARY

DAMAGES AND ATTORNEY’S FEES.16
The petitioner insists that the respondents did not sufficiently prove the alleged payment. It avers
that, under the law and existing jurisprudence, delivery of checks does not constitute payment. It
points out that this principle stands despite the fact that there was no notice of dishonor of the two
checks and the demand to pay was made three years after default.
On the other hand, the respondents postulate that they have established payment of the amount
being claimed by the petitioner and, unless the petitioner proves that the checks have been
dishonored, they should not be made liable to pay the obligation again. 17
The petition is partly meritorious.
In civil cases, the party having the burden of proof must establish his case by a preponderance of
evidence, or evidence which is more convincing to the court as worthy of belief than that which is
offered in opposition thereto. 18 Thus, the party, whether plaintiff or defendant, who asserts the
affirmative of an issue has the onus to prove his assertion in order to obtain a favorable judgment.
For the plaintiff, the burden to prove its positive assertions never parts. For the defendant, an
affirmative defense is one which is not a denial of an essential ingredient in the plaintiff’s cause of
action, but one which, if established, will be a good defense – i.e. an "avoidance" of the claim. 19
In Jimenez v. NLRC,20 cited by both the RTC and the CA, the Court elucidated on who, between the
plaintiff and defendant, has the burden to prove the affirmative defense of payment:
As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff
must allege non-payment, the general rule is that the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove non-payment. The debtor has the burden of showing
with legal certainty that the obligation has been discharged by payment.
When the existence of a debt is fully established by the evidence contained in the record, the burden
of proving that it has been extinguished by payment devolves upon the debtor who offers such a
defense to the claim of the creditor. Where the debtor introduces some evidence of payment, the
burden of going forward with the evidence - as distinct from the general burden of proof - shifts to the
creditor, who is then under a duty of producing some evidence to show non-payment. 21
In applying these principles, the CA and the RTC, however, arrived at different conclusions. While
both agreed that the respondents had the burden of proof to establish payment, the two courts did
not agree on whether the respondents were able to present sufficient evidence of payment —
enough to shift the burden of evidence to the petitioner. The RTC found that the respondents failed
to discharge this burden because they did not introduce evidence of payment, considering that mere
delivery of checks does not constitute payment. 22 On the other hand, the CA concluded that the
respondents introduced sufficient evidence of payment, as opposed to the petitioner, which failed to
produce evidence that the checks were in fact dishonored. It noted that the petitioner could have
easily presented the dishonored checks or the advice of dishonor and required respondents to
replace the dishonored checks but none was presented. Further, the CA remarked that it is absurd
for a bank, such as petitioner, to demand payment of a failed amortization only after three years from
the due date.
The divergence in this conflict of opinions can be narrowed down to the issue of whether the
Acknowledgment Receipt was sufficient proof of payment. As correctly observed by the RTC, this is
only proof that respondents delivered eight checks in payment of the amount due. Apparently, this
will not suffice to establish actual payment.
Settled is the rule that payment must be made in legal tender. A check is not legal tender and,
therefore, cannot constitute a valid tender of payment. 23 Since a negotiable instrument is only a
substitute for money and not money, the delivery of such an instrument does not, by itself, operate
as payment. Mere delivery of checks does not discharge the obligation under a judgment. The
obligation is not extinguished and remains suspended until the payment by commercial document is
actually realized.24
To establish their defense, the respondents therefore had to present proof, not only that they
delivered the checks to the petitioner, but also that the checks were encashed. The respondents
failed to do so. Had the checks been actually encashed, the respondents could have easily
produced the cancelled checks as evidence to prove the same. Instead, they merely averred that
they believed in good faith that the checks were encashed because they were not notified of the
dishonor of the checks and three years had already lapsed since they issued the checks. 1avvphi1
Because of this failure of the respondents to present sufficient proof of payment, it was no longer
necessary for the petitioner to prove non-payment, particularly proof that the checks were
dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to
adduce preponderant evidence to prove its claim. 25
To stress, the obligation to prove that the checks were not dishonored, but were in fact encashed,
fell upon the respondents who would benefit from such fact. That payment was effected through the
eight checks was the respondents’ affirmative allegation that they had to establish with legal
certainty. If the petitioner were seeking to enforce liability upon the check, the burden to prove that a
notice of dishonor was properly given would have devolved upon it. 26 The fact is that the petitioner’s
cause of action was based on the original obligation as evidenced by the Promissory Note and the
Chattel Mortgage, and not on the checks issued in payment thereof.
Further, it should be noted that the petitioner, as payee, did not have a legal obligation to inform the
respondents of the dishonor of the checks. A notice of dishonor is required only to preserve the right
of the payee to recover on the check. It preserves the liability of the drawer and the indorsers on the
check. Otherwise, if the payee fails to give notice to them, they are discharged from their liability
thereon, and the payee is precluded from enforcing payment on the check. The respondents,
therefore, cannot fault the petitioner for not notifying them of the non-payment of the checks because
whatever rights were transgressed by such omission belonged only to the petitioner.
In all, we find that the evidence at hand preponderates in favor of the petitioner. The petitioner’s
possession of the documents pertaining to the obligation strongly buttresses its claim that the
obligation has not been extinguished. The creditor’s possession of the evidence of debt is proof that
the debt has not been discharged by payment. 27 A promissory note in the hands of the creditor is a
proof of indebtedness rather than proof of payment. 28 In an action for replevin by a mortgagee, it is
prima facie evidence that the promissory note has not been paid. 29 Likewise, an uncanceled
mortgage in the possession of the mortgagee gives rise to the presumption that the mortgage debt is
unpaid.30
Finally, the respondents posit that the petitioner’s claim is barred by laches since it has been three
years since the checks were issued. We do not agree. Laches is a recourse in equity. Equity,
however, is applied only in the absence, never in contravention, of statutory law. Thus, laches
cannot, as a rule, abate a collection suit filed within the prescriptive period mandated by the New
Civil Code.31 The petitioner’s action was filed within the ten-year prescriptive period provided under
Article 1144 of the New Civil Code. Hence, there is no room for the application of laches.
Nonetheless, the Court cannot ignore what the respondents have consistently raised — that they
were not notified of the non-payment of the checks. Reasonable banking practice and prudence
dictates that, when a check given to a creditor bank in payment of an obligation is dishonored, the
bank should immediately return it to the debtor and demand its replacement or payment lest it
causes any prejudice to the drawer. In light of this and the fact that the obligation has been partially
paid, we deem it just and equitable to reduce the 3% per month penalty charge as stipulated in the
Promissory Note to 12% per annum.32 Although a court is not at liberty to ignore the freedom of the
parties to agree on such terms and conditions as they see fit, as long as they contravene no law,
morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be
equitably reduced by the courts if it is iniquitous or unconscionable, or if the principal obligation has
been partly or irregularly complied with.33
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals
Decision dated July 12, 2006, and Resolution dated February 13, 2007, are REVERSED and SET
ASIDE. The Decision of the Regional Trial Court, dated August 11, 2005, is REINSTATED with the
MODIFICATION that respondents are ordered to deliver the possession of the subject vehicle, or in
the alternative, pay the petitioner ₱48,084.00 plus late penalty charges/interest thereon at the rate of
12% per annum from May 18, 1997 until fully paid.
SO ORDERED.
LAFARGE CEMENT VS CONTINENTAL
May defendants in civil cases implead in their counterclaims persons who were not parties to the
original complaints? This is the main question to be answered in this controversy.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to nullify the May 22,
1
2002 and the September 3, 2002 Orders of the Regional Trial Court (RTC) of Quezon City (Branch
2 3
80) in Civil Case No. Q-00-41103. The decretal portion of the first assailed Order reads:
"WHEREFORE, in the light of the foregoing as earlier stated, the plaintiff's motion to dismiss
claims is granted. Accordingly, the defendants' claims against Mr. Lim and Mr. Mariano
captioned as their counterclaims are dismissed." 4
The second challenged Order denied petitioners' Motion for Reconsideration.
The Facts
Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI) executed by
both parties on August 11, 1998, whereby Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on
behalf of its affiliates and other qualified entities, including Petitioner Luzon Continental Land
Corporation (LCLC) -- agreed to purchase the cement business of Respondent Continental Cement
Corporation (CCC). On October 21, 1998, both parties entered into a Sale and Purchase Agreement
(SPA). At the time of the foregoing transactions, petitioners were well aware that CCC had a case
pending with the Supreme Court. The case was docketed as GR No. 119712, entitled Asset
Privatization Trust (APT) v. Court of Appeals and Continental Cement Corporation.
In anticipation of the liability that the High Tribunal might adjudge against CCC, the parties, under
Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase price a portion of the contract
price in the amount of P117,020,846.84 -- the equivalent of US$2,799,140. This amount was to be
deposited in an interest-bearing account in the First National City Bank of New York (Citibank) for
payment to APT, the petitioner in GR No. 119712.
However, petitioners allegedly refused to apply the sum to the payment to APT, despite the
subsequent finality of the Decision in GR No. 119712 in favor of the latter and the repeated
instructions of Respondent CCC. Fearful that nonpayment to APT would result in the foreclosure, not
just of its properties covered by the SPA with Lafarge but of several other properties as well, CCC
filed before the Regional Trial Court of Quezon City on June 20, 2000, a "Complaint with Application
for Preliminary Attachment" against petitioners. Docketed as Civil Case No. Q-00-41103, the
Complaint prayed, among others, that petitioners be directed to pay the "APT Retained Amount"
referred to in Clause 2 (c) of the SPA.
Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on forum-
shopping. Respondent CCC had allegedly made the same claim it was raising in Civil Case No. Q-
00-41103 in another action, which involved the same parties and which was filed earlier before the
International Chamber of Commerce. After the trial court denied the Motion to Dismiss in its
November 14, 2000 Order, petitioners elevated the matter before the Court of Appeals in CA-GR SP
No. 68688.
In the meantime, to avoid being in default and without prejudice to the outcome of their appeal,
petitioners filed their Answer and Compulsory Counterclaims ad Cautelam before the trial court in
Civil Case No. Q-00-41103. In their Answer, they denied the allegations in the Complaint. They
prayed -- by way of compulsory counterclaims against Respondent CCC, its majority stockholder
and president Gregory T. Lim, and its corporate secretary Anthony A. Mariano -- for the sums of (a)
P2,700,000 each as actual damages, (b) P100,000,000 each as exemplary damages, (c)
P100,000,000 each as moral damages, and (d) P5,000,000 each as attorney's fees plus costs of
suit.
Petitioners alleged that CCC, through Lim and Mariano, had filed the "baseless" Complaint in Civil
Case No. Q-00-41103 and procured the Writ of Attachment in bad faith. Relying on this Court's
pronouncement in Sapugay v. CA, petitioners prayed that both Lim and Mariano be held "jointly and
5
solidarily" liable with Respondent CCC.

On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved to dismiss
petitioners' compulsory counterclaims on grounds that essentially constituted the very issues for
resolution in the instant Petition.
Ruling of the Trial Court
On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80) dismissed petitioners'
counterclaims for several reasons, among which were the following: a) the counterclaims against
Respondents Lim and Mariano were not compulsory; b) the ruling in Sapugay was not applicable;
and c) petitioners' Answer with Counterclaims violated procedural rules on the proper joinder of
causes of action. 6
Acting on the Motion for Reconsideration filed by petitioners, the trial court -- in an Amended Order
dated September 3, 2002 -- admitted some errors in its May 22, 2002 Order, particularly in its
7
pronouncement that their counterclaim had been pleaded against Lim and Mariano only. However,
the RTC clarified that it was dismissing the counterclaim insofar as it impleaded Respondents Lim
and Mariano, even if it included CCC.
Hence this Petition. 8
Issues
In their Memorandum, petitioners raise the following issues for our consideration:
"[a] Whether or not the RTC gravely erred in refusing to rule that Respondent CCC has no
personality to move to dismiss petitioners' compulsory counterclaims on Respondents Lim
and Mariano's behalf.
"[b] Whether or not the RTC gravely erred in ruling that (i) petitioners' counterclaims against
Respondents Lim and Mariano are not compulsory; (ii) Sapugay v. Court of Appeals is
inapplicable here; and (iii) petitioners violated the rule on joinder of causes of action."
9
For clarity and coherence, the Court will resolve the foregoing in reverse order.
The Court's Ruling
The Petition is meritorious.
First Issue:
Counterclaims and Joinder of Causes of Action.
Petitioners' Counterclaims Compulsory
Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as "any claim which
a defending party may have against an opposing party." They are generally allowed in order to avoid
a multiplicity of suits and to facilitate the disposition of the whole controversy in a single action, such
that the defendant's demand may be adjudged by a counterclaim rather than by an independent suit.
The only limitations to this principle are (1) that the court should have jurisdiction over the subject
matter of the counterclaim, and (2) that it could acquire jurisdiction over third parties whose presence
is essential for its adjudication.
10
A counterclaim may either be permissive or compulsory. It is permissive "if it does not arise out of or
is not necessarily connected with the subject matter of the opposing party's claim." A permissive
11
counterclaim is essentially an independent claim that may be filed separately in another case.
A counterclaim is compulsory when its object "arises out of or is necessarily connected with the
transaction or occurrence constituting the subject matter of the opposing party's claim and does not
require for its adjudication the presence of third parties of whom the court cannot acquire
jurisdiction."
12
Unlike permissive counterclaims, compulsory counterclaims should be set up in the same action;
otherwise, they would be barred forever. NAMARCO v. Federation of United Namarco
Distributors laid down the following criteria to determine whether a counterclaim is compulsory or
13
permissive: 1) Are issues of fact and law raised by the claim and by the counterclaim largely the
same? 2) Would res judicata bar a subsequent suit on defendant's claim, absent the compulsory
counterclaim rule? 3) Will substantially the same evidence support or refute plaintiff's claim as well
as defendant's counterclaim? 4) Is there any logical relation between the claim and the
counterclaim? A positive answer to all four questions would indicate that the counterclaim is
compulsory.
Adopted in Quintanilla v. CA and reiterated in Alday v. FGU Insurance Corporation, the "compelling
14 15
test of compulsoriness" characterizes a counterclaim as compulsory if there should exist a "logical

relationship" between the main claim and the counterclaim. There exists such a relationship when
conducting separate trials of the respective claims of the parties would entail substantial duplication
of time and effort by the parties and the court; when the multiple claims involve the same factual and
legal issues; or when the claims are offshoots of the same basic controversy between the parties.
We shall now examine the nature of petitioners' counterclaims against respondents with the use of
the foregoing parameters.
Petitioners base their counterclaim on the following allegations:
"Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the bad
faith decisions for, and causing plaintiff to file this baseless suit and to procure an
unwarranted writ of attachment, notwithstanding their knowledge that plaintiff has no right to
bring it or to secure the writ. In taking such bad faith actions, Gregory T. Lim was motivated
by his personal interests as one of the owners of plaintiff while Anthony A. Mariano was
motivated by his sense of personal loyalty to Gregory T. Lim, for which reason he
disregarded the fact that plaintiff is without any valid cause.
"Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiff's co-joint
tortfeasors in the commission of the acts complained of in this answer and in the compulsory
counterclaims pleaded below. As such they should be held jointly and solidarily liable as
plaintiff's co-defendants to those compulsory counterclaims pursuant to the Supreme Court's
decision in Sapugay v. Mobil.
xxx xxx xxx
"The plaintiff's, Gregory T. Lim and Anthony A. Mariano's bad faith filing of this baseless
case has compelled the defendants to engage the services of counsel for a fee and to incur
costs of litigation, in amounts to be proved at trial, but in no case less than P5 million for
each of them and for which plaintiff Gregory T. Lim and Anthony A. Mariano should be held
jointly and solidarily liable.
"The plaintiff's, Gregory T. Lim's and Anthony A. Mariano's actions have damaged the
reputations of the defendants and they should be held jointly and solidarily liable to them for
moral damages of P100 million each.
"In order to serve as an example for the public good and to deter similar baseless, bad faith
litigation, the plaintiff, Gregory T. Lim and Anthony A. Mariano should be held jointly and
solidarily liable to the defendants for exemplary damages of P100 million each." 16
The above allegations show that petitioners' counterclaims for damages were the result of
respondents' (Lim and Mariano) act of filing the Complaint and securing the Writ of Attachment in
bad faith. Tiu Po v. Bautista involved the issue of whether the counterclaim that sought moral, actual
17
and exemplary damages and attorney's fees against respondents on account of their "malicious and
unfounded" complaint was compulsory. In that case, we held as follows:
"Petitioners' counterclaim for damages fulfills the necessary requisites of a compulsory

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

consequence of the debtor's action, are also compulsory counterclaim barred by the
dismissal of the debtor's action. They cannot be claimed in a subsequent action by the
creditor against the debtor."
"Aside from the fact that petitioners' counterclaim for damages cannot be the subject of an
independent action, it is the same evidence that sustains petitioners' counterclaim that will
refute private respondent's own claim for damages. This is an additional factor that
characterizes petitioners' counterclaim as compulsory." 18
Moreover, using the "compelling test of compulsoriness," we find that, clearly, the recovery of
petitioners' counterclaims is contingent upon the case filed by respondents; thus, conducting
separate trials thereon will result in a substantial duplication of the time and effort of the court and
the parties.
Since the counterclaim for damages is compulsory, it must be set up in the same action; otherwise, it
would be barred forever. If it is filed concurrently with the main action but in a different proceeding, it
would be abated on the ground of litis pendentia; if filed subsequently, it would meet the same fate
on the ground of res judicata. 19
Sapugay v. Court of Appeals Applicable to the Case at Bar
Sapugay v. Court of Appeals finds application in the present case. In Sapugay, Respondent Mobil
Philippines filed before the trial court of Pasig an action for replevin against Spouses Marino and
Lina Joel Sapugay. The Complaint arose from the supposed failure of the couple to keep their end of
their Dealership Agreement. In their Answer with Counterclaim, petitioners alleged that after
incurring expenses in anticipation of the Dealership Agreement, they requested the plaintiff to allow
them to get gas, but that it had refused. It claimed that they still had to post a surety bond which,
initially fixed at P200,000, was later raised to P700,000.
The spouses exerted all efforts to secure a bond, but the bonding companies required a copy of the
Dealership Agreement, which respondent continued to withhold from them. Later, petitioners
discovered that respondent and its manager, Ricardo P. Cardenas, had intended all along to award
the dealership to Island Air Product Corporation.
In their Answer, petitioners impleaded in the counterclaim Mobil Philippines and its manager --
Ricardo P. Cardenas -- as defendants. They prayed that judgment be rendered, holding both jointly
and severally liable for pre-operation expenses, rental, storage, guarding fees, and unrealized profit
including damages. After both Mobil and Cardenas failed to respond to their Answer to the
Counterclaim, petitioners filed a "Motion to Declare Plaintiff and its Manager Ricardo P. Cardenas in
Default on Defendant's Counterclaim."
Among the issues raised in Sapugay was whether Cardenas, who was not a party to the original
action, might nevertheless be impleaded in the counterclaim. We disposed of this issue as follows:
"A counterclaim is defined as any claim for money or other relief which a defending party
may have against an opposing party. However, the general rule that a defendant cannot by a
counterclaim bring into the action any claim against persons other than the plaintiff admits of
an exception under Section 14, Rule 6 which provides that 'when the presence of parties
other than those to the original action is required for the granting of complete relief in the
determination of a counterclaim or cross-claim, the court shall order them to be brought in as
defendants, if jurisdiction over them can be obtained.' The inclusion, therefore, of Cardenas
in petitioners' counterclaim is sanctioned by the rules." 20
The prerogative of bringing in new parties to the action at any stage before judgment is intended to
accord complete relief to all of them in a single action and to avert a duplicity and even a multiplicity
of suits thereby.
In insisting on the inapplicability of Sapugay, respondents argue that new parties cannot be included
in a counterclaim, except when no complete relief can be had. They add that "[i]n the present case,
Messrs. Lim and Mariano are not necessary for petitioners to obtain complete relief from
Respondent CCC as plaintiff in the lower court. This is because Respondent CCC as a corporation
with a separate [legal personality] has the juridical capacity to indemnify petitioners even without
Messrs. Lim and Mariano." 21
We disagree. The inclusion of a corporate officer or stockholder -- Cardenas in Sapugay or Lim and
Mariano in the instant case -- is not premised on the assumption that the plaintiff corporation does
not have the financial ability to answer for damages, such that it has to share its liability with
individual defendants. Rather, such inclusion is based on the allegations of fraud and bad faith on
the part of the corporate officer or stockholder. These allegations may warrant the piercing of the veil
of corporate fiction, so that the said individual may not seek refuge therein, but may be held
individually and personally liable for his or her actions.
In Tramat Mercantile v. Court of Appeals, the Court held that generally, it should only be the
22
corporation that could properly be held liable. However, circumstances may warrant the inclusion of
the personal liability of a corporate director, trustee, or officer, if the said individual is found guilty of
bad faith or gross negligence in directing corporate affairs.
Remo Jr. v. IAC has stressed that while a corporation is an entity separate and distinct from its
23
stockholders, the corporate fiction may be disregarded if "used to defeat public convenience, justify a
wrong, protect fraud, or defend crime." In these instances, "the law will regard the corporation as an
association of persons, or in case of two corporations, will merge them into one." Thus, there is no
debate on whether, in alleging bad faith on the part of Lim and Mariano the counterclaims had in
effect made them "indispensable parties" thereto; based on the alleged facts, both are clearly parties
in interest to the counterclaim.24
Respondents further assert that "Messrs. Lim and Mariano cannot be held personally liable [because
their assailed acts] are within the powers granted to them by the proper board resolutions; therefore,
it is not a personal decision but rather that of the corporation as represented by its board of
directors." The foregoing assertion, however, is a matter of defense that should be threshed out
25
during the trial; whether or not "fraud" is extant under the circumstances is an issue that must be
established by convincing evidence. 26
Suability and liability are two distinct matters. While the Court does rule that the counterclaims
against Respondent CCC's president and manager may be properly filed, the determination of
whether both can in fact be held jointly and severally liable with respondent corporation is entirely
another issue that should be ruled upon by the trial court.
However, while a compulsory counterclaim may implead persons not parties to the original
complaint, the general rule -- a defendant in a compulsory counterclaim need not file any responsive
pleading, as it is deemed to have adopted the allegations in the complaint as its answer -- does not
apply. The filing of a responsive pleading is deemed a voluntary submission to the jurisdiction of the
court; a new party impleaded by the plaintiff in a compulsory counterclaim cannot be considered to
have automatically and unknowingly submitted to the jurisdiction of the court. A contrary ruling would
result in mischievous consequences whereby a party may be indiscriminately impleaded as a
defendant in a compulsory counterclaim; and judgment rendered against it without its knowledge,
much less participation in the proceedings, in blatant disregard of rudimentary due process
requirements.
The correct procedure in instances such as this is for the trial court, per Section 12 of Rule 6 of the
Rules of Court, to "order [such impleaded parties] to be brought in as defendants, if jurisdiction over
them can be obtained," by directing that summons be served on them. In this manner, they can be
properly appraised of and answer the charges against them. Only upon service of summons can the
trial court obtain jurisdiction over them.
In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but he did not file any
responsive pleading to the counterclaim leveled against him. Nevertheless, the Court gave due
consideration to certain factual circumstances, particularly the trial court's treatment of the Complaint
as the Answer of Cardenas to the compulsory counterclaim and of his seeming acquiescence
thereto, as evidenced by his failure to make any objection despite his active participation in the
proceedings. It was held thus:
"It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim against him
on the ground of lack of jurisdiction. While it is a settled rule that the issue of jurisdiction may
be raised even for the first time on appeal, this does not obtain in the instant case. Although
it was only Mobil which filed an opposition to the motion to declare in default, the fact that the
trial court denied said motion, both as to Mobil and Cardenas on the ground that Mobil's
complaint should be considered as the answer to petitioners' compulsory counterclaim, leads
us to the inescapable conclusion that the trial court treated the opposition as having been
filed in behalf of both Mobil and Cardenas and that the latter had adopted as his answer the
allegations raised in the complaint of Mobil. Obviously, it was this ratiocination which led the
trial court to deny the motion to declare Mobil and Cardenas in default. Furthermore,
Cardenas was not unaware of said incidents and the proceedings therein as he testified and
was present during trial, not to speak of the fact that as manager of Mobil he would
necessarily be interested in the case and could readily have access to the records and the
pleadings filed therein.
"By adopting as his answer the allegations in the complaint which seeks affirmative relief,
Cardenas is deemed to have recognized the jurisdiction of the trial court over his person and
submitted thereto. He may not now be heard to repudiate or question that jurisdiction." 27
Such factual circumstances are unavailing in the instant case. The records do not show that
Respondents Lim and Mariano are either aware of the counterclaims filed against them, or
that they have actively participated in the proceedings involving them. Further, in dismissing
the counterclaims against the individual respondents, the court a quo -- unlike in Sapugay --
cannot be said to have treated Respondent CCC's Motion to Dismiss as having been filed on
their behalf.
Rules on Permissive Joinder of Causes

of Action or Parties Not Applicable
Respondent CCC contends that petitioners' counterclaims violated the rule on joinder of causes of
action. It argues that while the original Complaint was a suit for specific performance based on a
contract, the counterclaim for damages was based on the tortuous acts of respondents. In its Motion
28
to Dismiss, CCC cites Section 5 of Rule 2 and Section 6 of Rule 3 of the Rules of Civil Procedure,
which we quote:
"Section 5. Joinder of causes of action. – A party may in one pleading assert, in the
alternative or otherwise, as many causes of action as he may have against an opposing
party, subject to the following conditions:
(a) The party joining the causes of action shall comply with the rules on joinder of parties; x x
x"
Section 6. Permissive joinder of parties. – All persons in whom or against whom any right to
relief in respect to or arising out of the same transaction or series of transactions is alleged to
exist whether jointly, severally, or in the alternative, may, except as otherwise provided in
these Rules, join as plaintiffs or be joined as defendants in one complaint, where any
question of law or fact common to all such plaintiffs or to all such defendants may arise in the
action; but the court may make such orders as may be just to prevent any plaintiff or
defendant from being embarrassed or put to expense in connection with any proceedings in
which he may have no interest."
The foregoing procedural rules are founded on practicality and convenience. They are meant to
discourage duplicity and multiplicity of suits. This objective is negated by insisting -- as the court a
quo has done -- that the compulsory counterclaim for damages be dismissed, only to have it possibly
re-filed in a separate proceeding. More important, as we have stated earlier, Respondents Lim and
Mariano are real parties in interest to the compulsory counterclaim; it is imperative that they be
joined therein. Section 7 of Rule 3 provides:
"Compulsory joinder of indispensable parties. – Parties in interest without whom no final

determination can be had of an action shall be joined either as plaintiffs or defendants."
Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners are being
consistent with the solidary nature of the liability alleged therein.
Second Issue:
CCC's Personality to Move to Dismiss the Compulsory Counterclaims
Characterizing their counterclaim for damages against Respondents CCC, Lim and Mariano as "joint
and solidary," petitioners prayed:
"WHEREFORE, it is respectfully prayed that after trial judgment be rendered:
"1. Dismissing the complaint in its entirety;
"2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and solidarily to pay
defendant actual damages in the sum of at least P2,700,000.00;
"3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano jointly and solidarily to pay
the defendants LPI, LCLC, COC and Roseberg:
"a. Exemplary damages of P100 million each;
"b. Moral damages of P100 million each; and
"c. Attorney's fees and costs of suit of at least P5 million each.
Other reliefs just and equitable are likewise prayed for." 29
Obligations may be classified as either joint or solidary. "Joint" or "jointly" or "conjoint" means
mancum or mancomunada or pro rata obligation; on the other hand, "solidary obligations" may be
used interchangeably with "joint and several" or "several." Thus, petitioners' usage of the term "joint
and solidary" is confusing and ambiguous.
The ambiguity in petitioners' counterclaims notwithstanding, respondents' liability, if proven, is

solidary. This characterization finds basis in Article 1207 of the Civil Code, which provides that
obligations are generally considered joint, except when otherwise expressly stated or when the law
or the nature of the obligation requires solidarity. However, obligations arising from tort are, by their
nature, always solidary. We have assiduously maintained this legal principle as early as 1912 in
Worcester v. Ocampo, in which we held:
30
"x x x The difficulty in the contention of the appellants is that they fail to recognize that the
basis of the present action is tort. They fail to recognize the universal doctrine that each joint
tort feasor is not only individually liable for the tort in which he participates, but is also jointly
liable with his tort feasors. x x x
"It may be stated as a general rule that joint tort feasors are all the persons who command,
instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the
commission of a tort, or who approve of it after it is done, if done for their benefit. They are
each liable as principals, to the same extent and in the same manner as if they had
performed the wrongful act themselves. x x x
"Joint tort feasors are jointly and severally liable for the tort which they commit. The persons
injured may sue all of them or any number less than all. Each is liable for the whole damages
caused by all, and all together are jointly liable for the whole damage. It is no defense for one
sued alone, that the others who participated in the wrongful act are not joined with him as
defendants; nor is it any excuse for him that his participation in the tort was insignificant as
compared to that of the others. x x x
"Joint tort feasors are not liable pro rata. The damages can not be apportioned among them,
except among themselves. They cannot insist upon an apportionment, for the purpose of
each paying an aliquot part. They are jointly and severally liable for the whole amount. x x x
"A payment in full for the damage done, by one of the joint tort feasors, of course satisfies
any claim which might exist against the others. There can be but satisfaction. The release of
one of the joint tort feasors by agreement generally operates to discharge all. x x x
"Of course the court during trial may find that some of the alleged tort feasors are liable and
that others are not liable. The courts may release some for lack of evidence while
condemning others of the alleged tort feasors. And this is true even though they are charged
jointly and severally."
In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or
"joint and several" obligation, the relationship between the active and the passive subjects is so
close that each of them must comply with or demand the fulfillment of the whole obligation. The fact
31
that the liability sought against the CCC is for specific performance and tort, while that sought
against the individual respondents is based solely on tort does not negate the solidary nature of their
liability for tortuous acts alleged in the counterclaims. Article 1211 of the Civil Code is explicit on this
point:
"Solidarity may exist although the creditors and the debtors may not be bound in the same
manner and by the same periods and conditions."
The solidary character of respondents' alleged liability is precisely why credence cannot be given to
petitioners' assertion. According to such assertion, Respondent CCC cannot move to dismiss the
counterclaims on grounds that pertain solely to its individual co-debtors. In cases filed by the
32
creditor, a solidary debtor may invoke defenses arising from the nature of the obligation, from
circumstances personal to it, or even from those personal to its co-debtors. Article 1222 of the Civil
Code provides:
"A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are
derived from the nature of the obligation and of those which are personal to him, or pertain to
his own share. With respect to those which personally belong to the others, he may avail
himself thereof only as regards that part of the debt for which the latter are responsible."
(Emphasis supplied).
The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss the counterclaim
on grounds that pertain only to its individual co-debtors -- is therefore allowed.
However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent CCC filed it
on behalf of Co-respondents Lim and Mariano; it did not pray that the counterclaim against it be
dismissed. Be that as it may, Respondent CCC cannot be declared in default. Jurisprudence
teaches that if the issues raised in the compulsory counterclaim are so intertwined with the
allegations in the complaint, such issues are deemed automatically joined. Counterclaims that are
33
only for damages and attorney's fees and that arise from the filing of the complaint shall be
considered as special defenses and need not be answered. 34
CCC's Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano Not Allowed
While Respondent CCC can move to dismiss the counterclaims against it by raising grounds that
pertain to individual defendants Lim and Mariano, it cannot file the same Motion on their behalf for
the simple reason that it lacks the requisite authority to do so. A corporation has a legal personality
entirely separate and distinct from that of its officers and cannot act for and on their behalf, without
being so authorized. Thus, unless expressly adopted by Lim and Mariano, the Motion to Dismiss the
compulsory counterclaim filed by Respondent CCC has no force and effect as to them.
In summary, we make the following pronouncements:
1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A. Mariano
are compulsory.
2. The counterclaims may properly implead Respondents Gregory T. Lim and Anthony A.
Mariano, even if both were not parties in the original Complaint.
3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano) may include,
in a Motion to Dismiss, defenses available to their co-defendants; nevertheless, the same
Motion cannot be deemed to have been filed on behalf of the said co-defendants.
4. Summons must be served on Respondents Lim and Mariano before the trial court can
obtain jurisdiction over them.
WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The court of origin is
hereby ORDERED to take cognizance of the counterclaims pleaded in petitioners' Answer with
Compulsory Counterclaims and to cause the service of summons on Respondents Gregory T. Lim
and Anthony A. Mariano. No costs.
SO ORDERED.
YULIENCO VS CA
In this petition for review on certiorari, petitioner Felipe Yulienco (hereafter YULIENCO) seeks to reverse the decision 1 of 4 December 1997
of the Court of Appeals in CA-G.R. SP No. 42835, which dismissed for lack of merit the petition therein which sought to set aside the orders
of 3 May 1996 2 and 30 August 1996 3 of the Regional Trial Court (RTC) of Quezon City, Branch 93, in Civil Case No. Q-95-23691. In said
orders, the RTC denied petitioner's motion to dismiss the complaint and his motion for , reconsideration, respectively.
The relevant facts are summarized by the Court of Appeals as follows:
Civil Case No. Q-95-23691 was instituted by private respondent Advance Capital Corporation (ACC) against petitioner
Felipe Yulienco to recover the amount of P30,631,162.19 plus interests and penalty, which was apparently extended as
a loan to the petitioner, as evidenced by four promissory notes, namely:
P.N. Date Amount Date Due
P.N.#56 March 12, 1993 P7,447,656.93 June 11, 1993
P.N.#57 March 26, 1993 P8,453,404.63 July 24, 1993
P.N.#59 April 23, 1993 P8,341,662.42 July 23, 1993
P.N.#60 May 7, 1993 P6,408,438.21 Aug. 6, 1993

Each promissory note also provided for an interest rate of 30% per annum.
In its complaint, the ACC alleged that petitioner failed and refused to pay the amounts reflected in the promissory notes
upon their maturity and despite several demands to pay made to the petitioner, the last one being sent on January 9,
1995.
Petitioner filed his answer on July 17, 1995, alleging in sum, that the trial court cannot acquire jurisdiction over ACC's
complaint because there is another case pending between ACC and the petitioner involving the same subject matter,
and that ACC's complaint should have been filed as a necessary and compulsory counterclaim in the said case. Also,
ACC's complaint was allegedly in violation of the proscription against splitting of a cause of action. Alternatively,
petitioner countered that the promissory notes upon which ACC based its claim are fake, and do not express the true
intent of the contracting parties.
On April 19, 1996, petitioner filed a memorandum/motion to dismiss with the trial court, setting up the special and
affirmative defenses in his answer as grounds for the dismissal of ACC's suit.
The trial court struck down the said motion in its Order dated May 3, 1996, stating that:
The records show that the subject matters of the instant case at bar (Annex A PN No. 56 dated
12 March 1993, Annex B PN No. 57 dated March 19, 1983 (sic), Annex C PN No. 59 dated 23
April 1993 and Annex D PN No. 60 dated 7 May 1993) are not among the subject matters of SP
Civil Case No. 93-251, RTC, Makati case. The records further show that defendant did not invoke
in his petition filed in the RTC Makati case any cause of action against plaintiff regarding the
promissory notes which are the subject matters of the instant case.
After a careful and judicious consideration of the grounds being relied upon in support of the
motion under consideration as well as the opposition filed thereto, the Court is inclined to hold
that the promissory notes which comprise the subject matters of the RTC, Makati case, involve
separate and distinct causes of action. Moreover, the Makati case involves real action whereas
the instant case is only for collection of sum of money.
Petitioner's subsequent motion for reconsideration was, likewise, denied in the trial court's August
30, 1996 order, for lack of merit. 4
Thereafter, YULIENCO filed before the Court of Appeals a petition for certiorari, prohibition and/or injunction, docketed as CA-G.R. SP No.
42835, questioning the aforementioned orders of the RTC of Quezon City. YULIENCO challenged the jurisdiction of the RTC over Civil Case
No. Q-95-23691 principally on the ground of litis pendentia, because another case, Special Case No. Q-93-2521, which, he claimed, involved
the same parties (he and Advance Capital Corporation [hereafter ACC]) and subject matter, is pending before the RTC of Makati City.
The Court of Appeals rejected YULIENCO's argument and consequently dismissed the petition in its decision of 4 December 1997. It found
that "bar of litis pendencia [sic] will not operate in the present suit, inasmuch as there appears to be no identity in the subject matter from
which the reliefs prayed for in the actions pending were premised," and in support thereof, made the following observations:
There is no showing that the promissory notes involved in the present action are in any way connected with the
indebtedness of the petitioner, the enforcement of which is sought to be restrained in SP Civil Case No. 93-2521,
pending in the Makati RTC. The promissory notes themselves (PN # 56, 57, 59 and 60) which are the primary
repositories of the true intent of the contracting parties, do not speak of any reasonable relevance of the promissory
notes subject of SP Civil Case No. 93-2521 to the present issue.
It follows, therefore, that ACC's quest for relief is not barred by the other reasons furthered by the petitioner.
The theory that ACC's claim is now barred because it should have been filed as a compulsory counterclaim in the
Makati case is untenable. A compulsory counterclaim is one, which being cognizable by the regular courts of justice,
arises out of or is connected with the transaction or occurrence constituting the subject matter of the opposing party's
claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire
jurisdiction. (Sec. 7, Rule 6,1997 Rules of Civil Procedure). As we have observed, it was not shown that a reasonable
connection was established between ACC's present claim with the petitioner's attempt to restrain the foreclosure of his
properties. Neither can it be said, for the same reason, that ACC is guilty of splitting a cause of action, or of forum-
shopping. 5
The Court of Appeals then ordered the RTC to proceed with the pre-trial.
Unable to accept the decision, YULIENCO filed the instant petition. He insists that the decision of the Court of Appeals is not in accord with
law and jurisprudence, because: (1) Civil Case No. Q-95-23691 violated the fundamental rules on splitting of causes of action and/or
necessary joinder of causes of action in that the cause of action therein (complaint for collection of sums of money covered by Promissory
Notes Nos. 56, 57, 59 and 60) should have been set up as compulsory counterclaim in Special Case No. Q-93-2521; and (2) in filing Civil
Case No. Q-95-23691, ACC was guilty of forum shopping.
On its part, ACC maintains that Civil Case No. Q-95-23691 of the RTC of Quezon City is separate and distinct from Special Civil Case No.
93-2521 of the RTC of Makati City. The first is an ordinary collection suit, while the second is for injunction, and while both cases involve
promissory notes, they are not the same promissory notes. The dissimilarity arises from the disparate obligations and transactions entered
into or incurred by YULIENCO in different years. Hence, there is no violation of the rule concerning splitting causes of action or the
necessary joinder of causes of action.
We agree with ACC.
A counterclaim is defined as any claim for money or other relief which a defending party may have against an opposing party. 6 A
counterclaim is compulsory if (a) it arises out of, or is necessarily connected with, the transaction or occurrence which is the subject matter of
the opposing party's claim; (b) it does not require for its adjudication the presence of third parties of whom the court cannot acquire
jurisdiction; and (c) the court has jurisdiction to entertain the claim. 7 In other words, a compulsory counterclaim cannot be made the subject
of a separate action but should be asserted in the same suit involving the same transaction or occurrence giving rise to it. 8
The criteria or tests by which the compulsory or permissive nature of specific counterclaims can be determined are as follows:
(1) Are the issues of fact and law raised by the claim and counterclaim largely the same?
(2) Would res judicata bar a subsequent suit on defendant's claim absent the compulsory
counterclaim rule?
(3) Will substantially the same evidence support or refute plaintiff's claim as well as defendant's
counterclaim?
(4) Is there any logical relation between the claim and the counterclaim? 9
Stripped of its legalese and trivial details, Special Civil Case No. 93-2521 of the RTC of Makati City is basically an injunction suit, a petition
for prohibition. On the other hand, Civil Case No. Q-95-23691 is an ordinary action for collection of sums of money. In the former, YULIENCO
essentially seeks to prohibit or enjoin the disposition and/or sale of his property, the proceeds of which will answer for his unpaid obligations
to ACC. Specifically, YULIENCO attempts to prevent (1) the foreclosure of the real estate mortgages which he executed to secure his
monetary obligations, (2) the issuance of certificates of sale in cases of mortgages already foreclosed, and (3) the sale of his specific club
membership certificates and shares of stocks in ACC. Promissory notes are also involved in that case but they are specifically identified as
Promissory Notes Nos. 315, 317 and 318, and are intimately related to or secured by the real estate mortgages. In Civil Case No. Q-95-
23691, ACC simply seeks to collect from YULIENCO his unpaid monetary obligations covered by specific but unsecured Promissory Notes
Nos. 56, 57, 59 and 60. Needless to say, they are not the promissory notes subject of the first action. Neither are they substantially,
intimately and reasonably relevant to nor even remotely connected with the promissory notes and the cause of action in the injunction suit.
Simply put, the promissory notes in both cases differ from and are not related to each other.
There is, therefore, a dissimilarity in the subject matter of both cases arising from separate and distinct transactions and necessarily requiring
different evidence to support the divergent claims. More importantly, the "one compelling test of compulsoriness" i.e., the logical relationship
between the claim and counterclaim, does not apply here. To reiterate, there is no logical relationship between YULIENCO's petition for
injunctive relief and ACC's collection suit, hence separate trials of the respective claims of the parties will not entail a substantial duplication
of effort and time as the factual and/or legal issues involved, as already explained, are dissimilar and distinct. 10 A judgment in Special Civil
Action No. 93-2521 will not therefore bar Civil Case No. Q-95-23691; "this, [additionally] on the theory that what is barred by prior judgment
are not only the matters squarely raised and litigated, but all such matters as could have been raised but were not." 11 Obviously, each
averment by ACC for the collection of a sum of money covered by Promissory Notes Nos. 56, 57, 59 and 60 is not a "matter" that could have
been raised as counterclaim in the injunction suit.
In light of the above showing, there was no violation of the rule against splitting causes of action or necessary joinder of causes of action.
As to YULIENCO'S contention that ACC should be found guilty of forum-shopping, suffice it is to say that for forum-shopping to exist, both
actions must involve the same transactions, same essential facts and circumstances and must raise identical causes of actions, subject
matter, and issues. 12 Clearly, it does not exist where two different orders were questioned, two distinct causes of action and issues were
raised, and two objectives were sought, 13 as in the abovementioned cases. In other words, ACC did not engage in forum-shopping.
All told, the Court of Appeals did not therefore commit any reversible error in rendering the assailed 4 December 1997 decision. The factual
determinations of the Court of Appeals therein are binding and conclusive upon this Court as no compelling reasons exist necessitating a re-
examination or reversal of the same.
WHEREFORE, the instant petition is hereby DENIED for lack of merit and the appealed decision in CA-G.R. SP No. 42835 dismissing the
petition therein and ordering the RTC of Quezon City to proceed with the pre-trial of Civil Case No. Q-95-23691 is hereby
AFFIRMED.1âwphi1.nêt
Costs against petitioner.
SO ORDERED.
MERCADO VS CA
Leonides Mercado had been distributing respondent San Miguel Corporation’s (SMC’s) beer
products in Quiapo, Manila since 1967. In 1991, SMC extended to him a ₱7.5 million credit line
allowing him to withdraw goods on credit. To secure his purchases, Mercado assigned three China
Banking Corporation (CBC) certificates of deposit amounting to ₱5 million 1 to SMC and executed a
continuing hold-out agreement stating:
Any demand made by [SMC] on [CBC], claiming default on my/our part shall be conclusive on [CBC]
and shall serve as absolute authority for [CBC] to encash the [CBC certificates of deposit] in
accordance with the third paragraph of this Hold-Out Agreement, whether or not I/we have in fact
defaulted on any of my/our obligations with [SMC], it being understood that the issue of whether or
not there was factual default must be threshed out solely between me/us and [SMC]
He also submitted three surety bonds from Eastern Assurance and Surety Corporation (EASCO)
totaling ₱2.6 million.2
On February 10, 1992, SMC notified CBC that Mercado failed to pay for the items he withdrew on
credit. Consequently, citing the continuing hold-out agreement, it asked CBC to release the
proceeds of the assigned certificates of deposit. CBC approved SMB’s request and informed
Mercado.
On March 2, 1992, Mercado filed an action to annul the continuing hold-out agreement and deed of
assignment in the Regional Trial Court (RTC) of Manila, Branch 55. 3 He claimed that the continuing
hold-out agreement allowed forfeiture without the benefit of foreclosure. It was therefore void
pursuant to Article 2088 of the Civil Code.4 Moreover, Mercado argued that he had already settled
his recent purchases on credit but SMC erroneously applied the said payments to his old accounts
not covered by the continuing hold-out agreement (i.e., purchases made prior to the extension of the
credit line).
On March 18, 1992, SMC filed its answer with counterclaim against Mercado. It contended that
Mercado delivered only two CBC certificates of deposit amounting to ₱4.5 million 5 and asserted that
the execution of the continuing hold-out agreement and deed of assignment was a recognized
business practice. Furthermore, because Mercado admitted his outstanding liabilities, SMC sought
payment of the lees products he withdrew (or purchased on credit) worth ₱7,468,153.75. 6
On April 23, 1992, SMC filed a third-party complaint against EASCO.7 It sought to collect the
proceeds of the surety bonds submitted by Mercado.
On September 14, 1994, Mercado filed an urgent manifestation and motion seeking the dismissal of
the complaint. He claimed that he was no longer interested in annulling the continuing hold-out
agreement and deed of assignment. The RTC, however, denied the motion. 8 Instead, it set the case
for pre-trial. Thereafter, trial ensued.
During trial, Mercado acknowledged the accuracy of SMC’s computation of his outstanding liability
as of August 15, 1991. Thus, the RTC dismissed the complaint and ordered Mercado and EASCO
(to the extent of ₱2.6 million or the value of its bonds) to jointly and severally pay SMC the amount of
₱7,468,153.75.9
Aggrieved, Mercado and EASCO appealed to the Court of Appeals (CA) 10 insisting that Mercado did
not default in the payment of his obligations to SMC.
On December 14, 2004, the CA affirmed the RTC decision in toto.11 Mercado and EASCO both
moved for reconsideration but their respective motions were denied. 12
On October 28, 2005, EASCO filed a petition for review on certiorari in this Court 13 but eventually
agreed to settle its liability with SMC.14 The petition was terminated on September 19, 2007. 15
Meanwhile, Mercado passed away and was substituted by his heirs, petitioners Racquel D.
Mercado, Jimmy D. Mercado, Henry D. Mercado, Louricar D. Mercado and Virgilio D. Mercado.
Petitioners subsequently filed this petition asserting that the CA erred in affirming the RTC
decision in toto. The said decision (insofar as it ordered Mercado to pay SMC ₱7,468,153.75) was
void. SMC’s counterclaim was permissive in nature. Inasmuch as SMC did not pay docket fees, the
RTC never acquired jurisdiction over the counterclaim.
We deny the petition.
A counterclaim (or a claim which a defending party may have against any party) 16 may be
compulsory17 or permissive. A counterclaim that (1) arises out of (or is necessarily connected with)
the transaction or occurrence that is the subject matter of the opposing party’s claim; (2) falls within
the jurisdiction of the court and (3) does not require for its adjudication the presence of third parties
over whom the court cannot acquire jurisdiction, is compulsory. 18 Otherwise, a counterclaim is merely
permissive.
When Mercado sought to annul the continuing hold-out agreement and deed of assignment (which
he executed as security for his credit purchases), he in effect sought to be freed from them. While he
admitted having outstanding obligations, he nevertheless asserted that those were not covered by
the assailed accessory contracts. For its part, aside from invoking the validity of the said
agreements, SMC therefore sought to collect the payment for the value of goods Mercado
purchased on credit. Thus, Mercado’s complaint and SMC’s counterclaim both touched the issues of
whether the continuing hold-out agreement and deed of assignment were valid and whether
Mercado had outstanding liabilities to SMC. The same evidence would essentially support or refute
Mercado’s claim and SMC’s counterclaim.
Based on the foregoing, had these issues been tried separately, the efforts of the RTC and the
parties would have had to be duplicated. Clearly, SMC’s counterclaim, being logically related to
Mercado’s claim, was compulsory in nature.19 Consequently, the payment of docket fees was not
necessary for the RTC to acquire jurisdiction over the subject matter.
WHEREFORE, the petition is hereby DENIED.
Costs against petitioners.
SO ORDERED.
CALIBRE TRADERS VS BAYER
This petition for review on certiorari 1 assails the July 31, 2002 Decision2 and the December 19, 2003
Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 45546, that denied petitioners’ action for
damages against respondent Bayer Philippines Inc. (Bayerphil) and instead granted the latter’s
counterclaim for ₱1,272,103.07, representing unpaid purchases of Bayerphil’s products.
Factual Antecedents
Calibre Traders, Inc. (Calibre) was one of Bayerphil’s distributors/dealers of its agricultural chemicals
within the provinces of Pangasinan and Tarlac.4 Their last distributorship agreement was effective
from June 1989 to June 1991. 5 However, Bayerphil stopped delivering stocks to Calibre on July 31,
1989 after the latter failed to settle its unpaid accounts in the total amount of ₱1,751,064.56. 6
As Bayerphil’s authorized dealer, Calibre then enjoyed discounts and rebates. Subsequently,
however, the parties had a disagreement as to the entitlement and computations of these discounts.
Calibre, although aware of the deadline to pay its debts with Bayerphil, nevertheless withheld
payment to compel Bayerphil to reconcile its accounts. 7
In a letter dated August 16, 1989, Calibre requested Bayerphil for a reconciliation of accounts. It
enumerated the following claims that amounted to ₱968,265.82:
1. Interest charged to our 1984-1985 Volume Rebate. These were charged to us without our
acknowledgment and was under protest since your people were not serving our account
during that period. This amounts to ₱60,000.00 more or less.
2. Request for retroactive application of your special rebate as per our letter dated August
29, 1988 and your reply dated September 3, 1988. The reply is not acceptable to us. This
amounts to ₱33,127.26.
3. Special rebates of Machete EC and EN for CY 1988 which [were] not granted to us, [but
were] given to the other distributors after we have withdrawn a sizeable quantity. This
amounts to ₱68,244.30.
4. The difference between our claim dated March 31, 1989 amounting to ₱47,746.30 against
your Credit Memo 11868 dated April 28, 1989 amounting to ₱21,214.85. The amount of
difference is ₱26,531.47.
5. The difference between our claim dated October 31, 1988 amounting to ₱23,342.09
against your Credit Memo 11693 dated January 31, 1989 amounting to ₱21,222.48. The
amount of difference is ₱2,119.61.
6. Sales Returns as per your CRR 2159 dated December 19, 1988 amounting to ₱8,047.71.
7. Special rebates of 8% for Machete 5G as per Invoice No. 834159 dated February 14,
1989. This amounts to [₱1,376.80].
8. Request for Sales returns due to overdelivery as per our letter dated April 3, 1989
amounting to ₱147,108.86.
9. Request for Sales returns due to leakage as per our letter dated April 3, 1989 amounting
to ₱8,681.24.
10. 1988-1989 Volume Rebate amounting to ₱520,548.41.

11. 5% Prompt Payment on ₱1,839,603.15 amounting to ₱92,480.16 since your Sales
Representative was not servicing our account due to his [forth]coming resignation. 8
Calibre sent follow-up letters dated September 17, October 13, and November 16, 1989. 9
On September 29, 1989, Bayerphil’s credit and collection officer, Leon Abesamis, conferred with
Calibre’s General Manager Mario Sebastian (Sebastian). The attempt to settle failed. Again, on
October 27, 1989, Bayerphils’ Sales Manager of the Agro Division, Vidal Lingan, met with Sebastian.
The results of their discussion were put in writing in Bayerphil’s letter dated November 10, 1989, to
wit:
xxxx
Gentlemen:
Following our October 27, 1989 discussions with yourself for the final resolution of your overdue
accounts with our company in the amount of exactly ₱1,718,822.57, we have arrived at a final
arrangement which will no doubt be more than fair specially for your firm.
We will now go by your claims per your letter of August 16, 1989[. We] now confirm the following:
1. The alleged interest charges of ₱60,000.00 x x x for unpaid invoices against your volume
rebate for the year 1984-1985 was not charged at all. Our records show that we granted your
year-end rebate per our
Credit Note #9089 of July 1985 - ₱ 973,511.56
and
Credit Note #9149 of September 1985 - 181,441.15
Total rebate from retention scheme
1984-1985 ₱1,154,952.71
These credit notes do not bear any interest charges as you claimed during that discussion. It
means you were not charged any penalty on delayed payments of subject invoices.
2. Retroactive application against inventory of special deal rebates have never been paid to
any of our distributors nationwide since we began business operations in this country. As a
matter of policy, we regret that we cannot grant this request.
3. Special rebates on Machete EN and Machete EC on the basis of 30-day COD

arrangement were granted during the last quarter of 1988. This agreement did not apply to
your purchases on the same products from January 1, 1988 to September 30, 1988. We
found your claim difficult to accept.
4. Your claim for ₱26,531.47 from our 30-day COD terms with 5% rebate on selected
products only, i.e., Gusathion, Folidol, Machete EC & EN. You have, in your claim included
other products than those listed. Inasmuch as our former Sales Representative agreed to the
inclusion of the other [products], we will grant that claim for ₱26,531.47 net of our earlier
issued CM #11868, as an honorable business organization is expected to act.
5. Your claim on the difference of ₱2,119.61 [as stated in] your letter of October 31, 1988 in
the amount of ₱23,342.09 and our Credit Note #11693 dated January 31, 1989, is granted.
Our computations are absolutely correct but we shall not argue over a trivial figure.
6. Your claims on returned stocks on December 19, 1988 per CRR No. 2159 for ₱8,047.71.
We issued the corresponding credit note dated July 25, 1989 in the amount of ₱7,242.26,
which is based on the prices of the returned goods at the time you acquired them, not at the
time when you returned them when there was a corresponding increase in prices. The
difference is ₱805.45. Any business house will reluctantly consider this claim but we thought
we should gallantly grant you that oversight. We are sure you did not intend to do that.
7. Special 8% rebates on Machete 5G in the amount of ₱1,376.80. We have given you a

Credit Note #12160 to offset that claim.
8. Your volume rebate claim for the year 1988-1989 is in the sum of ₱520,548.41, however,
our computation stands at ₱479,326.49. Enclosed herewith please find our CM#12250 in the
amount of ₱320,849.42 representing your volume rebate for 1988-1989 on the paid portion
of your volume rebate year purchases. As soon as payment is received on your balance of
₱1,042,248.16 (net of additional volume rebate of ₱158,477.07 on the unpaid portion and
prompt payment rebate of ₱63,196.06), we shall issue you the aforementioned additional
volume rebate and prompt payment rebate CMs.
9. Your claim of 5% prompt payment rebate per your note dated June 30, 1989 has been
computed to amount to ₱63,196.06 in view of the returns and application of your volume
rebate against the total outstanding unpaid balances.
10. Your intention to return stocks per your letter of April 3, 1989. We have withdrawn the
following products on October 28, 1989, as follows:
Basagran 250 ml. - 230 bottles
500 ml. - 102 bottles
Baycarb 1000 ml. - 64 ‫״‬
Baythroid 100 ml. - 373 ‫״‬
250 ml. - 336 ‫״‬
Gusacarb 500 ml. - 20 ‫״‬
Roundup 250 ml. - 30 ‫״‬
Machete EC 500 ml. - 12 ‫״‬

1000 ml. - 12 ‫״‬
The net value of the above materials has been computed at ₱124,493.28, [for which]a credit note
will be issued shortly.
We believe that we have been more than fair in meeting your claims. We granted your requests as a
gesture of benevolence in assisting your firm in softening the burdens as inevitable consequences of
business difficulties.
And as the time tested physical law rightly states – for every action, there must be an equal positive
reaction. We feel that you now react favorably in the final and complete resolution of your main
problem.
Yours faithfully,
BAYER PHILIPPINES, INC.10
Bayerphil’s Assistant Sales Manager Rene Garcia (Garcia) gave this letter to Sebastian 11 on
November 17, and offered to grant Calibre’s claims just so that it may finally settle all its unpaid
accounts with Bayerphil. Sebastian wrote Bayerphil to confirm Garcia’s offer. 12 In reply, Bayerphil
specified in its November 24, 1989 letter the additional claims it granted and clarified the other
claims:
xxxx
[Gentlemen]:
We have your letter of November 22, 1989 with your request that we confirm or deny the verbal offer
of our Mr. Renato G. Garcia granting all your claims with us per your letter of August 16, 1989.
Please be informed that we confirm that offer subject to the conditions hereunder made explicit, to
wit:
1. We will grant you a credit note for ₱33,127.26 referring to your Item #2 in your letter dated
August 16, 1989.
2. We will also grant you a credit note for ₱68,244.30 referring to your Item #3 in your above-
named letter.
3. We will likewise grant the amount of ₱6,572.29 by CM to cover your Item #4 in your
above-named letter. We have excluded the free goods portion in your claim.
4. We will further grant the sum of ₱2,119.61 by CM as claimed in Item #5 of your above-
named letter.
5. We will also grant ₱805.45 through a CM to complete our CM #4975 as per your Item #6
in your said letter.
6. Items 7, 8 & 9 in your letter has [sic] been earlier granted by our CM Nos. 12160 and
5263.
7. We will also grant your additional volume rebate amounting to ₱147,590.03 (see also
CM#12250 – ₱320,849.42 VR earlier granted upon full payment of the hereunder mentioned
net payable to us).
8. Lastly, we will grant you under Item #11 of your August 16 letter, the sum of ₱79,557.21
(credited free goods and volume rebate which shall be applied against outstanding account
are excluded).
All the foregoing are premised on our receipt of your full payment of the sum of ₱934,086.92, in full
and total settlement of your outstanding account after the crediting of the eight (8) above-named
concessions totaling to ₱338,016.15.
We strongly urge you to accept and adhere to the foregoing offer by remitting to us the said sum of
₱934,086.92 through a bank demand draft on or before close of business hours of December 8,
1989. Your failure to remit the said demand draft within the allotted time shall effectively cancel our
herein offer, and much to our regret we shall be left with no other recourse but to protect our
interests by and through an appropriately more drastic legal action.
Yours faithfully,
BAYER PHILIPPINES, INC.13
In his December 8, 1989 letter, Sebastian expressed discontent in Bayerphil’s refusal to credit his
claims in full and underscored the alleged inaction of Bayerphil in reconciling Calibre’s accounts. 14
This was followed by a demand letter requiring Bayerphil to pay the sum of ₱10,000,000.00 for the
damages it had allegedly caused to Calibre. 15 Bayerphil replied, reminding that Calibre owed it
₱1,272,103.07 as of December 31, 1989.16
Accusing Bayerphil of maliciously breaching the distributorship agreement by manipulating Calibre’s

accounts, withholding discounts and rebates due it, charging unwarranted penalties, refusing to
supply goods, and favoring the new distributors/dealers to drive it out of business, Calibre, on March
14, 1990, filed a suit for damages, docketed as Civil Case No. 59258, before the Regional Trial
Court (RTC) of Pasig.17 Calibre prayed for ₱8,000,000.00 actual damages, representing alleged
actual losses and profits;18 ₱2,000,000.00 award as alleged damage to its goodwill and business
reputation; ₱3,500,000.00 as exemplary damages; and, attorney’s fees of ₱1,500,000.00.
In its Answer with Counterclaim,19 Bayerphil denied its alleged wanton appointment of other
distributors, reasoning that it could not be faulted for a difference in treatment between a paying
dealer and a non-paying one. It maintained that Calibre filed the damage suit to avoid paying its
overdue accounts. Considering that those purchased on credit remained unpaid, Bayerphil had to
refuse to further supply Calibre with its products.
Bayerphil also averred that the dealership agreement provides that rebates and discounts would
only be granted if the previous purchases had been first fully paid. It denied that it failed to reconcile
Calibre’s accounts since it conferred with Calibre, and even acceded to a number of deductions
demanded by Calibre subject to the latter’s settlement of accounts. Bayerphil thus prayed for the
collection of ₱1,272,103.07, with interest of 14% per annum accruing daily and compounded
monthly from the date of default (as provided in the dealership agreement); ₱1,000,000.00
exemplary damages; and, ₱200,000.00 attorney’s fees and costs of suit.
Bayerphil also moved that Mario Sebastian and his wife Minda (Sebastians) be impleaded as co-
defendants, considering that the Sebastians bound themselves as solidary debtors under the
distributorship/dealership agreement.20
Calibre opposed Bayerphil’s motion to implead the Sebastians and moved to strike out the
counterclaim, reasoning that the spouses are not parties in its suit against Bayerphil and thus are not
the proper parties to the counterclaim. It stressed that the issues between the damages suit it filed
and Bayerphil’s counterclaim for collection of money are totally unrelated. 21
On the other hand, Bayerphil contended that both causes of action arose from the same contract of
distributorship, and that the Sebastians’ inclusion is necessary for a full adjudication of Bayerphil’s
counterclaim to avoid duplication of suits.22
In its October 24, 1990 Resolution,23 the trial court rejected Calibre’s arguments and granted the
motion to implead the Sebastians as co-defendants in the counterclaim. The spouses then filed their
answer to Bayerphil’s counterclaim,24 adopting all the allegations and defenses of Calibre. They
raised the issue that the counterclaim against them is permissive, and since Bayerphil failed to pay
the required docket fees, the trial court has no jurisdiction over the counterclaim.
Ruling of the Regional Trial Court
On December 6, 1993, the trial court rendered judgment 25 favoring Calibre. It held that Calibre was
justified in withholding payment because there was deliberate inaction/employment of dilatory tactics
on the part of Bayerphil to reconcile accounts making it liable for damages for ‘abuse of rights’ and
‘unfair competition’ under Articles 19, 20, and 28 of the Civil Code. 26 It opined that Bayerphil unfairly
favored other dealers and deliberately refused to supply the plaintiff with its products to drive it out of
business. As for Bayerphil’s counterclaim, the court a quo adjudged that aside from being
unmeritorious for lack of valid demand, the counterclaim was permissive in character. Therefore, it
must be dismissed for Bayerphil’s failure to pay the required docket fees. The dispositive portion of
the Decision states:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant Bayer
Philippines, Inc., ordering said defendant to pay to plaintiff the amounts of ₱8,000,000.00 as actual
damages, plus ₱80,000.00 as attorney’s fees, plus costs.
The "Counter-Complaint" of defendant against the spouses Mario and Minda Sebastian is
DISMISSED, for defendant’s failure to pay the required docket and filing fees, considering that the
counterclaim is permissive in character, and not compulsory. Defendant’s counterclaim is likewise
DISMISSED for lack of merit.
SO ORDERED.27
Ruling of the Court of Appeals
The CA reversed the trial court’s factual findings. In its July 31, 2002 Decision, the CA found no
reason to award Calibre anything as it has no cause of action against Bayerphil. The CA said:
We agree with the appellant that nothing in the evidence suggests that it deliberately and maliciously
withheld approval of Calibre’s claims. Indeed, the correspondences between the parties show that
either there was an honest difference in the computation of the amount, and/or a variance in opinion
as to the validity of the claims. There is abundant evidence that Bayer actually examined its records
so much so that through a letter dated November 10, 1989, it gave its explanation why it was
denying certain claims. Bayer sent its representatives to discuss the matter with Calibre’s General
Manager Mario Sebastian. Bayer exerted efforts to arrive at a compromise with Calibre, and
expressed its willingness to grant several concessions to plaintiff-appellee (Exhibit "N", Record, pp.
256-257)
Parenthetically, Bayer’s offer of compromise cannot be taken as an admission of liability on its part
for the entire claim of appellee Calibre. In civil cases, an offer of compromise is not an admission of
any liability. The compromise settlement of a claim or cause of action is not an admission that the
claim is valid, but merely admits that there is a dispute, and that the amount is being paid just to buy
peace. (Servicewide Specialists, Inc. vs. Court of Appeals, G.R. No. 117728, June 26, 1996, 257
SCRA 643) After all, it is the policy of the law to encourage compromises.
xxxx
It must also be noted that plaintiff-appellee was not entitled to be the sole distributor within its area of
coverage for Bayer. Under number 3, Part III of the latest Distributorship/Dealership Agreement (p.
231, Record) between the parties, it was stipulated that unless otherwise agreed upon, formally and
in writing, plaintiff-appellee’s appointment as distributor/dealer was to be on a non-exclusive basis.
The agreement expressly reserved Bayer’s right to appoint other distributors and/or dealers, in any
number desired and anywhere in the appointed area. There is no evidence of a formal and written
agreement appointing plaintiff-appellee as sole distributor in Pangasinan and Tarlac. Hence, it
cannot validly claim that Bayer caused its business injury by appointing other dealers and
distributors within its area.
Significantly, the Distributorship/Dealership Agreement also reserved to both parties the right to
cancel the agreement at any time. Under the circumstances obtaining, Bayer was justified, in the
exercise of sound business decision, to stop supplying goods to plaintiff-appellee until the latter’s
outstanding account had been finally settled.28
Furthermore, the CA favored Bayerphil’s counterclaim. It ruled that Bayerphil’s counterclaim was
compulsory hence it need not pay the docket and filing fees. It noted that it arose out of the same
dealership agreement from which the claims of Calibre in its complaint were likewise based. Finding
that Calibre never denied that it owes Bayerphil, and that the evidence of Bayerphil regarding the
amount owed by Calibre was unrebutted, the CA deemed justified the award of actual damages.
Hence:
WHEREFORE, premises considered, the Decision of the lower court is hereby REVERSED and
SET ASIDE and a new one is entered ordering plaintiff-appellee Calibre Traders and/or Mario Sison
Sebastian and Minda Blanco Sebastian to pay defendant-appellant the amount of One Million Two
Hundred Seventy-Two Thousand One Hundred Three Pesos and Seven Centavos (₱1,272,103.07)
with interest thereon at the rate of 14% per annum compounded from December 31, 1989 until fully
paid.
Without pronouncement as to costs.
SO ORDERED.29
In its December 19, 2003 Resolution,30 the CA denied the motion for reconsideration.
Issues
Based on the parties’ contentions, the Court should now resolve the following issues: a) Calibre’s
entitlement to an award of damages; and, b) the propriety of granting relief to Bayerphil’s
counterclaim.
Our Ruling
No form of damages can be awarded to Calibre for it miserably failed to prove its right to the reliefs it
sought.
While only questions of law are reviewed in petitions for review on certiorari, the Court shall delve
into the factual milieu of this case in view of the conflicting findings of facts by the trial court and the
CA.31 The question arises whether Calibre has a cause of action against Bayerphil. The records
before us though, highlight the lack of it.
The lower court’s ruling against the latter is premised on a finding of malice or bad faith, i.e., a
finding of an abuse of right on Bayerphil’s part in exercising inimical acts that prejudiced Calibre’s
business. However, we agree with the CA’s conclusion that there is no adequate proof that Bayerphil
was guilty of abusing its rights. "[G]ood faith is presumed and that the burden of proving bad faith
rests upon a party alleging the same." 32 "In civil cases, the law requires that the party who alleges a
fact and substantially asserts the affirmative of the issue has the burden of proving it." 33 This is where
Calibre failed.1avvphi1
As regards the allegations of inaction/refusal to reconcile accounts, accounts manipulation by

withholding discounts/rebates, imposition of penalties, and refusal to supply goods, the records
reveal that Bayerphil never ignored the request for accounts reconciliation. Bayerphil acted on
Calibre’s letter and sent its representatives to meet with Sebastian. It wrote a letter answering point-
by-point why some demands for discounts and rebates had to be refused. Bayerphil’s second letter,
wherein some claims were additionally granted, was on Bayerphil’s part an act of concession in its
desire to be paid since Calibre remained adamant in not paying its accounts. If ever Calibre found
the second letter to be apparently inconsistent with the first letter, bad faith cannot be immediately
imputed to Bayerphil since the latter is not precluded from making prompt corrections in its
computations.
We cannot subscribe to the accusation of accounts manipulation. As the CA had found, this matter
involves an "honest difference in the computation of the amount, and/or a variance in opinion as to
the validity of the claims." Moreover, Bayerphil could not be blamed for disallowing some of the
claimed discounts and rebates. Under the latest dealership agreement and the volume rebate
agreement executed, payment is a precondition for the discounts and rebates. 34 Bayerphil, to
minimize further losses, was justified in stopping the supply of its products when its dealer still had
outstanding accounts. Lastly, Calibre did not specify during the trial the unwarranted penalties
Bayerphil had allegedly imposed.
Neither do we find any abuse in Bayerphil’s exercise of appointing other distributors within Calibre’s
area. The fact that the distributors appointed were Calibre’s former customers or salesmen or their
relatives does not prove any ill intention to drive Calibre out of business. Notably, the
distributorship/dealership agreement was on a non-exclusive basis. Bayerphil merely accorded the
same business opportunities to others to better themselves. Naturally, an increase in the number of
distributors in an area will entail corresponding decline in volume sales of the individual distributors.
Even then Bayerphil’s assistant sales manager for internal administration Ofelia Castillo, who named
during the trial the other distributors Bayerphil appointed in Pangasinan, not only acknowledged that
Bayerphil’s former salesmen had resigned to be dealers, but also admitted that competition is part of
business risk:
Q You said in Manaoag, this Rosalyn Agricultural Supply was there as early as 1980 is that
correct?
A At about.
Q But somehow, it was a distributor for only 2 or 3 years?
A Yes, shortly, unlike those dealers who have several years.
Q This Samson in Urdaneta was also short lived?
A It began in the area and operating until now.
Q Would you know when Samson began as a distributor?
A Between the period ’82 and ’85.
Q This San Carlos Agricultural Center owned by William.
A It is owned by Ricardo Rule. There are two operating in San Carlos.
Q There are two dealers operating in San Carlos?
A Yes, Sir.
Q How many in Urdaneta?
A Calibre and Samson. Only those two.
Q You would admit Mrs. Castillo that the Bayer Phils. Salesmen of agro chemicals are
experienced in the products of Bayer Philippines?
A Having worked and dealt with Bayer chemicals, with the training they got, I suppose they
get that experience.
Q And this experience would be invaluable in their distributorship?
A Valuable.
Q Very valuable?
A Very valuable.
Q And in fact, you know of many salesmen of Bayer Phils who resigned?
A Yes, sir.
Q Because the chances of getting more is there if you are an independent distributor?
A Yes, sir.
Q In fact, this is true not only in Pangasinan but all over the country, Mrs. Castillo?
A Yes, because we have mentioned one in Cotabato, in San Jose, Nueva Ecija, in
Tuguegarao.
Q And from the records that you mentioned earlier on, it would seem some of them
succeeded beautifully and some closed shop afterwards?
A Yes, sir.
Q It is just a matter of luck and yes, business luck?
A Yes, sir.35
Incidentally, under actual or compensatory damages, indemnification comprises not only the value of
the loss suffered, but likewise the profits the obligee failed to obtain. 36 In its attempt to support this
claim for compensatory damages, Calibre, based its computation of more or less a loss of ₱8 million
on a 10-year sales projection.37 But as could be gleaned from Sebastian’s testimony, there is no solid
evidence upon which this sales projection was based:
Q You prepared a projection of your total sales for another ten (10) years from 1989.
A Yes, sir.
Q In the preparation of your projection, I assume that you based it on the records of your
sales of previous years?
A No.
Q You did not in preparing your projection of sales to determine your alleged lost profits refer
at all to your previous records?
A No.
Q What then was the basis of your projection?
A The basis of my projection is, as one of the valued clients of Bayer Philippines which is a
member of the World Club, we are in the bracket of 10 million per year sales.
Q So you only had capability to sell?
A Yes.
Q Have you ever sold before in the 10 million per year sales?
A Yes.
Q That is why I am asking you, you did not at all base your assumption on your prior sales
record of Bayer Philippines products?
A I cannot possibly base it on the past sales. Cost of money is going up so I based it on a
bracket that Bayer Philippines put us which is in the 10 million per year sales that is
projected for another 10 years because we are the valued clients of Bayer.
Q You also projected your profits for the next 10 years?
A Yes, sir.
Q And you did not consider the profits from the Bayer business of the prior years in making
your projection?
A Yes, sir.
Q I assume then that in determining your profits for the previous years you used the figures
of the summary Exhibit O as to your sales from 1977 to 1989?
A No, sir.
Q You did not refer at all to your profits for the previous years?
A No, sir.
Q Why did you not refer to your previous profits to determine your projection of probable
profits?
A We projected our projection based on our being a valued client of Bayer Philippines, and
based on the contract of the minimum 5% profit.38
To justify a grant of actual or compensatory damages, the amount of loss must be proved with a
reasonable degree of certainty, based upon competent proof and the best evidence obtainable by
the injured party.39 The projected sum of ₱10 million sales cannot thus be the proper base in
computing actual damages. Calibre computed its lost income based only on its capability to sell
around ₱10 Million, not on the actual income earned in the past years to properly compute the
average income/profit.
At any rate, since Calibre had no cause of action at all against Bayerphil, there can be no basis to
award it with damages.
Bayerphil’s counterclaim is permissive, but the trial court should have given it the opportunity to pay
the docket fees since it did not avoid paying said fees.
"A compulsory counterclaim is any claim for money or other relief, which a defending party may have
against an opposing party, which at the time of suit arises out of, or is necessarily connected with,
the same transaction or occurrence that is the subject matter of plaintiff’s complaint. It is compulsory
in the sense that it is within the jurisdiction of the court, does not require for its adjudication the
presence of third parties over whom the court cannot acquire jurisdiction, and will be barred x x x if
not set up in the answer to the complaint in the same case. Any other claim is permissive." 40 "[The]
Court has already laid down the following tests to determine whether a counterclaim is compulsory
or not, to wit: (1) Are the issues of fact or law raised by the claim and the counterclaim largely the
same? (2) Would res judicata bar a subsequent suit on defendant's claims, absent the compulsory
counterclaim rule? (3) Will substantially the same evidence support or refute plaintiff's claim as well
as the defendant's counterclaim? and (4) Is there any logical relation between the claim and the
counterclaim, such that the conduct of separate trials of the respective claims of the parties would
entail a substantial duplication of effort and time by the parties and the court?" 41 The fourth test is the
‘compelling test of compulsoriness’.42
Bayerphil’s suit may independently proceed in a separate action. Although the rights and obligations
of the parties are anchored on the same contract, the causes of action they filed against each other
are distinct and do not involve the same factual issues. We find no logical relationship between the
two actions in a way that the recovery or dismissal of plaintiff’s suit will establish a foundation for the
other’s claim. The counterclaim for collection of money is not intertwined with or contingent on
Calibre’s own claim for damages, which was based on the principle of abuse of rights. Both actions
involve the presentation of different pieces of evidence. Calibre’s suit had to present evidence of
malicious intent, while Bayerphil’s objective was to prove nonpayment of purchases. The allegations
highlighting bad faith are different from the transactions constituting the subject matter of the
collection suit. Respondent’s counterclaim was only permissive. Hence, the CA erred in ruling that
Bayerphil’s claim against the petitioners partakes of a compulsory counterclaim.
Be that as it may, the trial court was incorrect in dismissing Bayerphil’s counterclaim for non-
payment of docket fees.
All along, Bayerphil has never evaded payment of the docket fees on the honest belief that its
counterclaim was compulsory. It has always argued against Calibre’s contention that its
counterclaim was permissive ever since the latter opposed Bayerphil’s motion before the RTC to
implead the Sebastian spouses. Lastly, Bayerphil’s belief was reinforced by Judge Claravall’s
October 24, 1990 Resolution when she denied Calibre’s motion to strike out Bayerphil’s
counterclaim. Thus:
With respect to the motion to strike out the counterclaim, the Rejoinder and Reply of CALIBRE
mentioned two reasons to support it. These are: 1) that the counterclaim is not against the opposing
party only, and 2) that the plaintiff’s claim against the defendant is totally unrelated to the latter’s
claim against the Sebastian spouses because they are "not the same."
To resolve the issues abovementioned, the elements of a compulsory counterclaim are thus given:
A counterclaim is compulsory and is considered barred if not set up where the following
circumstances are present: 1) that it arises out of the, or is necessarily connected with the
transaction or occurrence that is the subject matter of the opposing party’s claim, 2) that it does not
require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction,
and 3) that the court has jurisdiction to entertain the claim. (Javier vs. IAC, 171 SCRA 605)
The provisions of Section 8, Rule 6 must necessarily be mentioned also. To wit:
Sec. 8, Rule 6. Counterclaim or cross-claim in the answer. – The answer may contain any
counterclaim or crossclaim which a party may have at the time against the opposing party or a co-
defendant provided, that the court has jurisdiction to entertain the claim and can, if the presence of
third parties is essential for its adjudication, acquire jurisdiction of such parties.
The rules and jurisprudence do not require that the parties to the counterclaim be the original parties
only. In fact, the presence of third parties is allowed, the only provision being their capacity to be
subjected under the court’s jurisdiction. As regards the nature of the claims of the parties, neither is it
required that they be of the same nature, only that they arise from the same transaction or
occurrence.43
It cannot be gainsaid that the emerging trend in the rulings of this Court is to afford every party
litigant the amplest opportunity for the proper and just determination of his cause, free from the
constraints of technicalities.44 Rules on the payment of filing fees have already been relaxed:
1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment
of the prescribed docket fee, that vests a trial court with jurisdiction over the subject-matter or
nature of the action. Where the filing of the initiatory pleading is not accompanied by
payment of the docket fee, the court may allow payment of the fee within a reasonable time
but in no case beyond the applicable prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims and similar
pleadings, which shall not be considered filed until and unless the filing fee prescribed
therefor is paid. The court may also allow payment of said fee within a reasonable time but
also in no case beyond its applicable prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate
pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a
claim not specified in the pleading, or if specified the same has been left for determination by
the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall be
the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and
assess and collect the additional fee.45
It is a settled doctrine that "although the payment of the prescribed docket fees is a jurisdictional
requirement, its non-payment x x x should not result in the automatic dismissal of the case provided
the docket fees are paid within the applicable prescriptive period." 46 "The prescriptive period therein
mentioned refers to the period within which a specific action must be filed. It means that in every
case, the docket fee must be paid before the lapse of the prescriptive period. Chapter 3, Title V,
Book III of the Civil Code is the principal law governing prescription of actions." 47
In accordance with the aforementioned rules on payment of docket fees, the trial court upon a
determination that Bayerphil’s counterclaim was permissive, should have instead ordered Bayerphil
to pay the required docket fees for the permissive counterclaim, giving it reasonable time but in no
case beyond the reglementary period. 48 At the time Bayerphil filed its counter-claim against Calibre
and the spouses Sebastian without having paid the docket fees up to the time the trial court
rendered its Decision on December 6, 1993, Bayerphil could still be ordered to pay the docket fees
since no prescription has yet set in.49 Besides, Bayerphil should not suffer from the dismissal of its
case due to the mistake of the trial court.
Considering the foregoing discussion, we find no need to remand the case to the trial court for the
resolution of Bayerphil’s counterclaim. In Metromedia Times Corporation v. Pastorin, 50 we discussed
the rule as to when jurisdiction by estoppel applies and when it does not, thus:
Lack of jurisdiction over the subject matter of the suit is yet another matter. Whenever it appears that
the court has no jurisdiction over the subject matter, the action shall be dismissed (Section 2, Rule 9,
Rules of Court). This defense may be interposed at any time, during appeal (Roxas vs. Rafferty, 37
Phil. 957) or even after final judgment (Cruzcosa vs. Judge Concepcion, et al., 101 Phil. 146). Such
is understandable, as this kind of jurisdiction is conferred by law and not within the courts, let alone
the parties, to themselves determine or conveniently set aside. In People vs. Casiano (111 Phil. 73,
93-94), this Court, on the issue of estoppel, held:
"The operation of the principle of estoppel on the question of jurisdiction seemingly depends upon
whether the lower court actually had jurisdiction or not. If it had no jurisdiction, but the case was tried
and decided upon the theory that it had jurisdiction, the parties are not barred, on appeal, from
assailing such jurisdiction, for the same ‘must exist as a matter of law, and may not be conferred by
consent of the parties or by estoppel’ (5 C.J.S., 861-863). However, if the lower court had
jurisdiction, and the case was heard and decided upon a given theory, such, for instance, as that the
court had no jurisdiction, the party who induced it to adopt such theory will not be permitted, on
appeal, to assume an inconsistent position – that the lower court had jurisdiction. Here, the principle
of estoppel applies. The rule that jurisdiction is conferred by law, and does not depend upon the will
of the parties, has no bearing thereon."
In this case, the trial court had jurisdiction over the counterclaim although it erroneously ordered its
automatic dismissal. As already discussed, the trial court should have instead directed Bayerphil to
pay the required docket fees within a reasonable time. Even then, records show that the trial court
heard the counterclaim although it again erroneously found the same to be unmeritorious. Besides, it
must also be mentioned that Bayerphil was lulled into believing that its counterclaim was indeed
compulsory and thus there was no need to pay docket fees by virtue of Judge Claravall’s October
24, 1990 Resolution. Petitioners also actively participated in the adjudication of the counterclaim
which the trial court adjudge to be unmeritorious.
However, we are more inclined to affirm the CA’s ruling anent Bayerphil’s counterclaim. It held thus:
What remains to be determined now is whether or not defendant-appellant is entitled to its

counterclaim. On this score, We note that plaintiff-appellee never denied that it still owes defendant-
appellant for purchases it had made. Bayer had already recognized that Calibre was entitled to a
volume rebate for the years 1988-1989 in the amount of ₱320,849.42 on paid purchases, and a 5%
prompt payment rebate of ₱63,196.06 in view of the application of the volume rebate to Calibre’s
outstanding balance, or a total of P384,045.48, as stated in Bayer’s letter dated November 10, 1989
(Exhibit "10", Record, pp. 373-375) earlier quoted.
Since no evidence was presented by plaintiff-appellee to rebut the correctness of Bayer’s

computation. We therefore assume it to be correct. Moreover, We note that the stocks Bayer had
withdrawn per plaintiff-appellee’s request under Claims 10 and 11 amounting to ₱124,493.28 had
been credited to plaintiff-appellee as shown by the Statement of Account (Exhibit "4", Record, pp.
366-367) which shows that Calibre’s outstanding indebtedness as of December 31, 1989 was One
million Two Hundred Seventy-Two Thousand, One Hundred Three Pesos and Seventeen Centavos
(₱1,272,103.17) (Exhibit "4-E", p. 367). We also note that the Distributorship/Dealership Agreement
entered into by the parties provides that default in payment on any account by the
DISTRIBUTOR/DEALER when and as they fall due shall entitle BAYERPHIL to interests thereon at
the then maximum lawful interest rates which in no case shall be lower than twelve per cent (12%)
per annum for accounts fully secured by a mortgage on realty or fourteen per cent (14%) per annum
when otherwise unsecured. (Exhibit "1-F", Record, p. 328). 51
WHEREFORE, the July 31, 2002 Decision of the Court of Appeals in CA-G.R. CV No. 45546 is
AFFIRMED. Considering that the counterclaim is permissive, respondent Bayer Philippines, Inc. is
ORDERED to pay the prescribed docket fees with the Regional Trial Court of Pasig City within
fifteen (15) days from receipt of this Decision.
SO ORDERED.
DIO VS SUBIC BAY
This is a Petition for Review on Certiorari pursuant to Rule 45 of the Revised Rules of Court,
1
assailing the 3 April 2009 Order of the Regional Trial Court (RTC) of Balanga City, Bataan, on pure
2
question of law. In its assailed Order, the RTC denied the motion filed by petitioners to set their
counterclaims for hearing on the ground that the main case was already dismissed with finality by
the Court of Appeals in CA-G.R. CV No. 87117.
In an Order dated 26 August 2009, the RTC refused to reconsider its earlier disposition.
3
The Facts
Petitioner H.S. Equities, Ltd., (HSE) is a foreign corporation duly organized and existing under the
laws of the British Virgin Islands, with registered address at Akara Building, 24 De Castro Street,
Wickhams Cay I, Road Town, Tortola, British Virgin Islands. It entered into an isolated transaction
subject of the instant case. It is represented in this action by petitioner Virginia S. Dio (Dio).
Respondent Subic Bay Marine Exploratorium, Inc. (SBME) is a domestic corporation, duly organized
and existing under the Philippine laws and is represented in this action by its Chief Executive Officer,
respondent Timothy Desmond (Desmond).
In 2002, SBME decided to expand its business by operating a beach resort inside the property
administered by the Subic Bay Metropolitan Authority (SBMA). For the business venture to take off,
SBME needed to solicit investors who are willing to infuse funds for the construction and operation of
the beach resort project. HSE (formerly known as Westdale Assets Limited) thru its authorized
director, Dio, agreed to invest the amount of US$2,500,000.00 with SBME by purchasing 750,000
common shares with a par value of ₱100 per share from the increase in its authorized capital stock.
The agreement was reduced into writing wherein HSE, in order to protect its interest in the company,
was afforded minority protection rights such as the right to appoint a member of the board of
directors and the right to veto certain board resolutions. After HSE initially paid US$200,000.00 for
its subscription, it refused to further lay out money for the expansion project of the SBME due to the
alleged mismanagement in the handling of corporate funds.
Consequently, SBME initiated an intra-corporate dispute before the RTC of Balanga City, Bataan
against petitioners HSE and Dio. Before petitioners could file their answer to the complaint,
4
respondents impleaded its Corporate Secretary, Atty. Winston Ginez, as additional defendant. In
their Amended Complaint docketed as Civil Case No. 7572, SBME essentially alleged that HSE
5
unjustly refused to pay the balance of its unpaid subscription effectively jeopardizing the company’s
expansion project. Apart from their refusal to honor their obligation under the subscription contract, it
was further alleged by SBME that Dio tried to dissuade local investors and financial institutions from
putting in capital to SBME by imputing defamatory acts against Desmond. To protect the interest of
the corporation and its stockholders, SBME sought that petitioners be enjoined from committing acts
inimical to the interest of the company.
To refute the claims of respondents, petitioners maintained in their Answer with Compulsory
Counterclaim that it would be highly preposterous for them to dissuade investors and banks from
6
putting in money to SBME considering that HSE and Dio are stakeholders of the company with
substantial investments therein. In turn, petitioners countered that their reputation and good name in
the business community were tarnished as a result of the filing of the instant complaint, and thus
prayed that they be indemnified in the amount of US$2,000,000.00 as moral damages. Constrained
to litigate to protect their rights, petitioners asked that they be indemnified in the amount
of₱1,000,000.00 in litigation expenses. Petitioners likewise sought to recover their investment of
US$1,500,000.00 since they were purportedly inveigled by Desmond into putting in money to SBME
under the pretext that they will be accorded with minority protection rights. It was alleged that after
the filing of the instant complaint, Desmond, in collusion with other Board of Directors of SBME,
managed to unjustly deny HSE and Dio their rights under the Subscription Agreement. To curb
similar socially abhorrent actions, petitioners prayed that SBME and its Board of Directors, namely,
Desmond, John Corcoran, Gaile Laule and Gregorio Magdaraog, be jointly and severally held liable
to pay exemplary damages in the amount of US$2,000,000.00.
After petitioners filed their Answer with Compulsory Counterclaim, the RTC, instead of setting the
case for pre-trial, issued an Order dated 15 August 2005 motu proprio dismissing Civil Case No.
7
7572. The dismissal was grounded on the defective certificate of non-forum shopping which was
signed by Desmond without specific authority from the Board of Directors of SBME.
Armed with a board resolution specifically authorizing Desmond to sign the certificate of non-forum
shopping on behalf of SBME, respondents moved that Civil Case No. 7572 be reinstated and further
proceedings thereon be conducted. A copy of such authority was attached by respondents to their
Motion for Reconsideration.
For lack of merit, RTC denied respondents’ motion and affirmed the dismissal in an Order dated 22
8
September 2005. In refusing to reinstate respondents’ complaint, the court a quo ruled that the
belated submission of a board resolution evidencing Desmond’s authority to bind the corporation did
not cure the initial defect in the complaint and declared that strict compliance with procedural rules is
enjoined for the orderly administration of justice.
Aggrieved by the lower court’s refusal to reinstate their complaint, respondents elevated the matter
before the Court of Appeals assailing the propriety of the 15 August 2005 and 22 September 2005
RTC Orders via Petition for Review which was docketed as CA-G.R. CV No. 87117.
For failure of the respondents to file their appellants’ brief, the appellate court proceeded to dismiss
CA-G.R.CV No. 87117 and considered the case closed and terminated in its Resolution dated 29
January 2007.
After respondents failed to seasonably move for the reconsideration of the aforementioned
Resolution, the dismissal of CA-G.R. CV No. 87117 became final and executory, as shown in the
Entry of Judgment dated 3 May 2007.
10
The procedural incidents before the appellate court having been resolved with finality, petitioners
went back to the RTC to file a motion to set their counterclaims for hearing which was opposed by
11
the respondents on the ground that the filing of the compulsory counterclaims was not accompanied
by payment of the required docket fees precluding the court from acquiring jurisdiction over the
case.12
Acting on the motions filed by the opposing parties, the RTC, in an Order dated 3 April 2009
13
granted the motion of the respondents, thereby directing the dismissal of petitioners’ counterclaims
but not on the ground of non-payment of docket fees. In disallowing petitioners’ counterclaims to
proceed independently of respondents’ complaint, the lower court pointed out that in view of the
dismissal of the main case, which has already been affirmed with finality by the appellate court, it
has already lost its jurisdiction to act on petitioners’ counterclaim, the compulsory counterclaim being
merely ancillary to the principal controversy.
In an Order dated 26 August 2009, the RTC refused to reconsider its earlier disposition. Petitioners
14
filed this instant Petition for Review on Certiorari on pure question of law seeking the reversal of the
15
3 April 2009 and 26 August 2009 RTC Orders on the ground that:
THE TRIAL COURT COMMITTED AN ERROR OF LAW WHEN IT REFUSED TO SET

[PETITIONERS’] COUNTERCLAIMS FOR HEARING ON THE GROUND THATTHE CASE WAS
DEEMED "CLOSED AND TERMINATED" BYTHE COURT OF APPEALS AFTER THE LATTER
DISMISSED RESPONDENTS’ APPEAL BECAUSE OF THEIR FAILURE TOFILE THEIR
APPELLANTS’ BRIEF. 16
The Court’s Ruling
Petitioners argue that despite the dismissal of the main case, the counterclaim may still remain for
independent adjudication under Section 6, Rule 16 of the Revised Rules of Court. Petitioners
17
pointed out that while the dismissal of respondents’ complaint is a confirmation of Desmonds’ lack of
legal personality to file the case, this does not, however, mean that they also do not have the
qualification to pursue their counterclaim. To fault petitioners for the fatal infirmity in the respondents’
complaint would not only work injustice to the former but would result to an absurd situation where
the fate of their counterclaims is placed entirely in the hands of the respondents.
For their part, respondents posit that, in directly assailing the adverse RTC Orders before the Court,
petitioners erroneously availed themselves of an erroneous remedy arguing that this petition should
have been initially filed with the appellate court. By seeking relief directly from the Court, petitioners
ignored the judicial hierarchy warranting the peremptory dismissal of their petition. Unless special
and important reasons were clearly and specifically set out in the petition, and in this case it was not,
a direct invocation of this Court’s original jurisdiction may not be allowed.
The established policy of strict observance of the judicial hierarchy of courts, as a rule, requires that
recourse must first be made to the lower ranked court exercising concurrent jurisdiction with a higher
court. A regard for judicial hierarchy clearly indicates that petitions for the issuance of extraordinary
writs against first level courts should be filed in the RTC and those against the latter should be filed
in the Court of Appeals. The rule is not iron-clad, however, as it admits of certain exceptions. 18
Thus, a strict application of the rule is unnecessary when cases brought before the appellate courts
do not involve factual but purely legal questions. In fact, Rule 41, Section 2(c) of the Revised Rules
19 20
of Court provides that a decision or order of the RTC may as it was done in the instant case, be
appealed to the Supreme Court by petition for review on certiorari under Rule 45, provided that such
petition raises only questions of law.
A question of law exists when the doubt or controversy concerns the correct application of law or
jurisprudence to a certain set of facts; or when the issue does not call for the examination of the
probative value of the evidence presented, the truth or falsehood of facts being admitted. A question
of fact exists when the doubt or difference arises as to the truth or falsehood of facts or when the
query invites calibration of the whole evidence considering mainly the credibility of the witnesses, the
existence and relevancy of specific surrounding circumstances, as well as their relation to each other
and to the whole, and the probability of the whole situation. Thus, the test of whether a question is
21
one of law or of fact is not the appellation given to such question by the party raising the same;
rather, it is whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact. 22
Petitioners here raise the solitary issue of the propriety of the dismissal of their counterclaim on the
basis of the reasoning of the lower court that the counterclaim derives its jurisdictional support from
the complaint which has already been dismissed. Petitioners maintain that the court a quo erred in
arriving at the legal conclusion that the counterclaim can no longer stand for independent
adjudication after the main case was already dismissed with finality. In order to resolve this issue,
the Court need only to look into the pleadings, depositions, admissions, and affidavits submitted by
the respective parties without going into the truth or falsity of such documents. Consequently, the
petitioners’ remedy for assailing the correctness of the dismissal of their counterclaims, involving as
it does a pure question of law, indeed lies with this Court. Now to the issue of the propriety of the
dismissal of the counterclaim.
The dismissal of the complaint resulted from respondents’ failure to append to the complaint a copy
of the board resolution authorizing Desmond to sign the certificate of non-forum shopping on behalf
of SBME. The subsequent dismissal of the counterclaim, in turn, erroneously proceeded from the
ratio that since the main action has already been dismissed with finality by the appellate court, the
lower court has lost its jurisdiction to grant any relief under the counterclaim.
In the significant case of Pinga v. Heirs of German Santiago, this Court speaking through Justice
23
Dante Tinga, resolved the nagging question as to whether or not the dismissal of the complaint
carries with it the dismissal of the counterclaim. Putting to rest the remaining confusion occasioned
by Metals Engineering Resources Corp. v. Court of Appeals and BA Finance Corporation v.
24
Co, the Court articulated that, in light of the effectivity of the 1997 Rules of Civil Procedure, the
25
correct and prevailing doctrine is as follows:
To be certain, when the Court promulgated the 1997 Rules of Civil Procedure, including the
amended Rule17, those previous jural doctrines that were inconsistent with the new rules
incorporated in the 1997 Rules of Civil Procedure were implicitly abandoned insofar as incidents
arising after the effectivity of the new procedural rules on 1 July 1997. BA Finance, or even the
doctrine that a counterclaim may be necessarily dismissed along with the complaint, clearly conflicts
with the 1997 Rules of Civil Procedure. The abandonment of BA Finance as doctrine extends as far
back as 1997, when the Court adopted the new Rules of Civil Procedure. If, since then, such
abandonment has not been affirmed in jurisprudence, it is only because no proper case has arisen
that would warrant express confirmation of the new rule. That opportunity is here and now, and we
thus rule that the dismissal of a complaint due to fault of the plaintiff is without prejudice to the right
of the defendant to prosecute any pending counterclaims of whatever nature in the same or separate
action. We confirm that BA Finance and all previous rulings of the Court that are inconsistent with
this present holding are now abandoned.
xxxx
Thus, the present rule embodied in Sections 2 and 3 of Rule 17 ordains a more equitable disposition
of the counterclaims by ensuring that any judgment thereon is based on the merit of the
counterclaim itself and not on the survival of the main complaint. Certainly, if the counterclaim is
palpably without merit or suffers jurisdictional flaws which stand independent of the complaint, the
trial court is not precluded from dismissing it under the amended rules, provided that the judgment or
order dismissing the counterclaim is premised on those defects. At the same time, if the
counterclaim is justified, the amended rules now unequivocally protect such counterclaim from
peremptory dismissal by reason of the dismissal of the complaint. Reviewing the vacated position,
26
in Metals Engineering Resources Corp., severance of causes of action was not be permitted in order
to prevent circuity of suits and to avert the possibility of inconsistent rulings based on the same set of
facts, viz:
For all intents and purposes, such proposition runs counter to the nature of a compulsory
counterclaim in that it cannot remain pending for independent adjudication by the court. This is
because a compulsory counterclaim is auxiliary to the proceeding in the original suit and derives its
jurisdictional support therefrom, inasmuch as it arises out of or is necessarily connected with the
transaction or occurrence that is the subject matter of the complaint. It follows that if the court does
not have jurisdiction to entertain the main action of the case and dismisses the same, then the
compulsory counterclaim, being ancillary to the principal controversy, must likewise be dismissed
since no jurisdiction remained for any grant of relief under the counterclaim.
The aforementioned doctrine is in consonance with the primary objective of a counterclaim which is
to avoid and prevent circuity of action by allowing the entire controversy between the parties to be
litigated and finally determined in one action, wherever this can be done with entire justice to all
parties before the court. The philosophy of the rule is to discourage multiplicity of suits. It will be
1âwphi1
observed that the order of the trial court allowing herein private respondent to proceed with the
presentation of his evidence in support of the latter's counterclaim is repugnant to the very purpose
and intent of the rule on counterclaims. 27
In BA Finance Corporation, we likewise refused to entertain the compulsory counterclaim after the
trial court lost its jurisdiction in the main case, thus:
The rule is that a compulsory counterclaim cannot "remain pending for independent adjudication by
the court." This is because a compulsory counterclaim is auxiliary to the proceeding in the original
suit and merely derives its jurisdictional support therefrom.
Thus, it necessarily follows that if the trial court no longer possesses jurisdiction to entertain the main
action of the case, as when it dismisses the same, then the compulsory counterclaim being ancillary
to the principal controversy, must likewise be similarly dismissed since no jurisdiction remains for the
grant of any relief under the counterclaim. 28
As the rule now stands, the nature of the counterclaim notwithstanding, the dismissal of the
complaint does not ipso jure result in the dismissal of the counterclaim, and the latter may remain for
independent adjudication of the court, provided that such counterclaim, states a sufficient cause of
action and does not labor under any infirmity that may warrant its outright dismissal. Stated
differently, the jurisdiction of the court over the counterclaim that appears to be valid on its face,
including the grant of any relief thereunder, is not abated by the dismissal of the main action. The
court’s authority to proceed with the disposition of the counterclaim independent of the main action is
premised on the fact that the counterclaim, on its own, raises a novel question which may be aptly
adjudicated by the court based on its own merits and evidentiary support.
In Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporartion, a case on all fours with the
29
present one, we expounded our ruling in Pinga and pointed out that the dismissal of the
counterclaim due to the fault of the plaintiff is without prejudice to the right of the defendant to
prosecute any pending counterclaims of whatever nature in the same or separate action, thus:
Based on the aforequoted ruling of the Court, if the dismissal of the complaint somehow eliminates
the cause of the counterclaim, then the counterclaim cannot survive. Conversely, if the counterclaim
itself states sufficient cause of action then it should stand independently of and survive the dismissal
of the complaint. Now, having been directly confronted with the problem of whether the compulsory
counterclaim by reason of the unfounded suit may prosper even if the main complaint had been
dismissed, we rule in the affirmative.
It bears to emphasize that petitioner's counterclaim against respondent is for damages and
attorney's fees arising from the unfounded suit. While respondent's Complaint against petitioner is
already dismissed, petitioner may have very well already incurred damages and litigation expenses
such as attorney's fees since it was forced to engage legal representation in the Philippines to
protect its rights and to assert lack of jurisdiction of the courts over its person by virtue of the
improper service of summons upon it. Hence, the cause of action of petitioner's counterclaim is not
eliminated by the mere dismissal of respondent's complaint. (Emphasis theirs).
30
Once more, we allow the counterclaim of the petitioners to proceed independently of the complaint
of the respondents.
WHEREFORE, premises considered, the petition is GRANTED. The assailed R TC Orders dated 3
April 2009 and 26 August 2009 are hereby REVERSED and SET ASIDE. The case is REMANDED
to the Regional Trial Court of Balanga City, Bataan for further proceedings, on the matter of
petitioners Virginia S. Dio and H.S. Equities, Ltd. 's counterclaims. No pronouncement as to costs.
SO ORDERED.
CABAERO VS HON CANTOS
May the accused-petitioners who were charged with estafa, file an answer with counterclaim for
moral and exemplary damages plus attorney's fees and litigation expenses against the private
complainant in the same criminal action?
This is the main issue raised in this petition filed under Rule 65 of the Rules of Court assailing the
1
Orders dated July 1, 1991, and August 21, 1991, of respondent Judge "for being contrary to law
2 3
and (for) having been issued by the respondent judge in excess of his jurisdiction and with grave
abuse of discretion tantamount to lack of jurisdiction."4
The Order of July 1, 1991, reads:
THE Answer with Counterclaim filed by the accused through counsel, dated February
12, 1991, as well as the Opposition thereto; the Memorandum filed by the Private
Prosecutor, in Support of Motion to Expunge from the Records And/Or to Dismiss
Answer with Counterclaim; the Supplement; and Comment on Supplement, are all
ordered expunged from the Records, considering that this is a criminal case wherein
the civil liability of the accused (sic) is impliedly instituted therein.
Petitioners pleaded for reconsideration of said Order but respondent judge, in the Order of August
5
21, 1991, denied their motion, thus:
ACTING on the Motion for Reconsideration dated July 17, 1991, of the accused
through counsel, this Court finds no merit therein, such that said motion is hereby
denied.
The Facts
This petition emanated from Crim. Case No. 90-18826 of the Regional Trial Court ("RTC") of Manila.
Said case commenced on October 18, 1990, with the filing of an Information against petitioners
6
charging them with estafa for allegedly defrauding private respondent Epifanio Ceralde of the sum of
P1,550,000.00. The accusatory portion of the Information reads as follows:
That in or about and during the period comprised between September, 1987 and
October 30, 1987, both dates inclusive, in the City of Manila, Philippines, the said
accused, conspiring and confederating together and mutually helping each other, did
then and there wilfully, unlawfully and feloniously defraud one EPIFANIO CERALDE
in the following manner, to wit: the said accused induced and succeeded in inducing
the said EPIFANIO CERALDE to advance the total amount of P1,550,000.00 to be
paid to M.C. Castro Construction, Co. representing the purchase price of six (6)
parcels of land located in Pangasinan which the Aqualand Ventures & Management
Corporation, a joint business venture organized by accused AMADO F. CABAERO
and the said EPIFANIO CERALDE, purchased from the said company, with the
understanding that the said amount would be returned to the said EPIFANIO
CERALDE as soon as the loan for P1,500,000.00 applied for by the said Aqualand
Ventures & Management Corporation with Solid Bank, of which said accused
AMADO F. CABAERO is the Senior Vice-President, is released, but both accused,
once the said loan has (sic) been approved by the bank, in furtherance of their
conspiracy and falsely pretending that accused CARMEN C. PEREZ had been
authorized by the said Aqualand Ventures & Management Corporation to receive the
check for P1,500,000.00 for and in its own behalf, succeeded in inducing the cashier
of said Solid Bank to release the same to accused CARMEN C. PEREZ, thereby
enabling her to encash the aforesaid check, and instead of turning over the said
amount to the said EPIFANIO CERALDE, accused failed and refused, and still fail
and refuse, to do so despite repeated demands made to that effect, and with intent to
defraud, misappropriated, misapplied and converted the said amount to their own
personal use and benefit, to the damage and prejudice of the said EPIFANIO
CERALDE in the aforesaid amount of P1,550,000.00, Philippine currency.
Contrary to law.
Arraigned on January 7, 1991, petitioners entered a plea of not guilty. On February 5, 1991, Atty.
Ambrosio Blanco entered his appearance as private prosecutor. 7
The Presiding Judge of the RTC of Manila, Branch IV, Hon. Elisa R. Israel, in an Order dated
8
February 11, 1991, inhibited herself "out of delicadeza" from further hearing the case pursuant to
Section 1 of Rule 137 of the Rules of Court after "considering that the complainant is a relative by
affinity of a nephew of her husband." Thereafter, the case was reraffled to Branch VII presided over
by respondent Judge Alfredo Cantos.
On April 2, 1991, petitioners filed an Answer with Counterclaims alleging that the money loaned
9
from Solidbank mentioned in the Information was duly applied to the purchase of the six (6) parcels
of land in Pangasinan, and that the filing of said Information was unjustified and malicious.
Petitioners included the following prayer:
10
WHEREFORE, it is respectfully prayed that after trial judgment be rendered:
1. Dismissing, or quashing the information, and the civil action impliedly instituted in
the criminal action;
2. Ordering the complaining witness Ceralde to pay to the accused the following
amounts:
(a) P1,500,000.00 as moral damages;
(b) P500,000.00 as exemplary damages;

(c) P100,000.00 as attorney's fees; and
(d) P20,000.00, as litigation expenses.
Accused pray for such other reliefs, legal and equitable in the premises.
During the initial hearing on April 15, 1991, the prosecution verbally moved that the answer with
counterclaim be expunged from the records and/or be dismissed. The respondent judge, after the
exchange of arguments between the prosecution and the defense, gave the contending parties time
to submit a Memorandum and Comment or Opposition, respectively.
The Memorandum of the private prosecutor justified his Motion to Expunge the answer with
counterclaim for two reasons: (1) the trial court had no jurisdiction over the answer with counterclaim
for non-payment of the prescribed docket fees and (2) the "compulsory counterclaim against
complainant is barred for failure to file it before arraignment."
11
In their Opposition, petitioners argued that this Court in Javier vs. Intermediate Appellate Court laid
12
down, for "procedural soundness," the rule that a counterclaim should be permitted in a criminal
action where the civil aspect is not reserved. Further, inasmuch as petitioners' counterclaim was
compulsory in nature, they were not required to pay docket fees therefor. Additionally, the Rules do
not specifically provide for the period for filing of counterclaims in criminal cases, whereas Section 3
of Rule 9 and Section 9 of Rule 6 allow the filing, with leave of court, of a counterclaim at any time
before judgment. Thus, petitioners contended that their filing was within the proper period. 13
As previously indicated, respondent Judge Cantos granted the prosecution's motion to expunge in
an Order dated July 1, 1991, and denied the petitioners' motion for reconsideration in an Order dated
August 21, 1991.
On the theory that there is no plain, speedy and adequate remedy in the ordinary course of law, the
petitioners, through counsel, filed this instant petition.
The Issue
The sole issue raised by petitioners is: 14
Whether or not the respondent judge committed grave abuse of discretion,

amounting to lack or excess of jurisdiction in ordering that the answer with
counterclaim of the petitioners in Criminal Case No. 90-88126, together with all
pleadings filed in relation thereto, be expunged from the records.
Petitioners invoke Section 1, Rule 111 of the Rules on Criminal Procedure, which provides that
unless the offended party waived, reserved or instituted the civil action prior to the criminal action,
the civil action for recovery of civil liability is impliedly instituted with the criminal action. They
contend that it is not only a right but an "outright duty" of the accused to file an answer with
counterclaim since failure to do so shall result in the counterclaim being forever barred.
Petitioners argue that under Rule 136 of the Rules of Court, particularly Section 8 thereof, clerks of
court are instructed to "keep a general docket, each page of which shall be numbered and prepared
for receiving all the entries in a single case, and shall enter therein all cases . . ." Thus, respondent
Judge Cantos allegedly erred in expunging all records with respect to the Answer with Counterclaim
for, on appeal, "if the records elevated . . . are incomplete and inaccurate, there arises a grave
danger that the ends of justice and due process shall not be served and instead frustrated." 15
Petitioners further allege that the Order of July 1, 1991, failed to resolve the legal issues raised by
the parties as it neglected to state the legal basis therefor, as required by Section 14, Article VIII of
the Constitution, "thereby leaving the petitioners to speculate on why they were being deprived of
their right to plead and prove their defenses and counter-claim as far as the civil aspect of the case
was concerned." 16
This Court, realizing the significance of the present case, required on August 3, 1992, the
appearance of the Solicitor General as counsel for respondent court. The Republic's counsel, in his
Manifestation dated December 22, 1992, cited Javier and sided with petitioners in maintaining that
the instant "petition is meritorous."
Preliminary Matters
Litis Pendentia as a Defense
In his Memorandum dated September 30, 1992, private respondent belatedly interposes litis
pendentia to defeat the petition. He alleges that the present petition is barred by the cross-claim of
the petitioners against Aqualand Ventures and Management Corporation, of which petitioners are
stockholders and officers, in Civil Case No. 90-53035 (filed against both petitioners and the private
respondent by Solidbank on May 14, 1990). Considerations of due process prevent us from taking
up the merits of this argument in favor of private respondent. This cross-claim was never raised in
17
the trial court — certainly not in the Memorandum dated April 19, 1991, submitted to the court
a quo in support of respondent Ceralde's motion to expunge the answer with counterclaim. The
Rules require that "(a) motion attacking a pleading or a proceeding shall include all objections then
18
available, and all objections not so included shall be deemed waived." Consequently and ineluctably,
the ground of litis pendentia which was not argued in the court a quo is deemed waived. 19
The Payment of Filing Fees
Anent filing fees, we agree with petitioners that inasmuch as the counterclaim is compulsory, there is
no necessity to pay such fees, as the Rules do not require them. This Court already clarified in Sun
Insurance Office, Ltd. (SIOL), vs. Asuncion the instances when docket fees are required to be paid
20
to enable the court to acquire jurisdiction:
1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the
payment of the prescribed docket fee, that vests a trial court with jurisdiction over the
subject-matter or nature of the action. Where the filing of the initiatory pleading is not
accompanied by payment of the docket fee, the court may allow payment of the fee
within a reasonable time but in no case beyond the applicable prescriptive or
reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims and similar

pleadings, which shall not be considered filed until and unless the filing fee
prescribed therefor is paid. The court may also allow payment of said fee within a
reasonable time but also in no case beyond its applicable prescriptive or
reglementary period. (Emphasis supplied)
Obviously, no docket fees are required to be paid in connection with the filing of a compulsory
counterclaim.
The Main Issue: Propriety of

Answer with Counterclaim
In Javier upon which petitioners anchor their thesis, the Court held that a counterclaim for malicious
prosecution is compulsory in nature; thus, it should be filed in the criminal case upon the implied
institution of the civil action.
The facts in Javier may be summarized as follows:
Leon S. Gutierrez, Jr., private respondent therein, was charged with violation of BP Blg. 22 before
the Regional Trial Court of Makati. The civil case had not been expressly reserved, hence it was
impliedly instituted with the criminal action.
Later, Accused Gutierrez filed a complaint for damages against Private Complainants (Petitioners)
Javiers before the Regional Trial Court of Catarman, Northern Samar, wherein he alleged that he
had been merely inveigled by the Javiers into signing the very check that was the subject of the
criminal case.
In resolving the question of whether he can raise that claim in a separate civil action for damages
filed by him against petitioners therein, this Court, speaking through Mr. Justice Isagani A. Cruz
(Ret.), ruled:
21
It was before the Makati court that the private respondent, as defendant in the
criminal charge of violation of B.P. Blg. 22, could explain why he had issued the
bouncing check. As the civil action based on the same act was also deemed filed
there, it was also before that same court that he could offer evidence to refute the
claim for damages made by the petitioners. This he should have done in the form of
a counterclaim for damages for his alleged deception by the petitioners. In fact, the
counterclaim was compulsory and should have been filed by the private respondent
upon the implied institution of the civil action for damages in the criminal action.
A counterclaim is compulsory and is considered barred if not set up where the

following circumstances are present: (1) that it arises out of, or is necessarily
connected with the transaction or occurrence that is the subject matter of the
opposing party's claim; (2) that it does not require for its adjudication the presence of
third parties of whom the court cannot acquire jurisdiction, and (3) that the court has
jurisdiction to entertain the claim.
All these circumstances are present in the case before the Regional Trial Court of
Makati.
This being so, it was improper for the private respondent to file his civil complaint in
the Regional Trial Court of Northern Samar alleging the very defense he should be
making in the Regional Trial Court of Makati. It is, of course, not possible for him now
to invoke a different defense there because he would be contradicting his own
verified complaint in the Regional Trial Court in Northern Samar. In effect, therefore,
he is arguing that both courts have jurisdiction to consider the same claim of
deception he is making in connection with the same transaction and involving the
same parties. (Emphasis supplied)
In Javier, the accused maintained in his separate action for damages that he had been inveigled by
the private complainants into signing what was alleged to be a bouncing check. In the present case,
petitioners claim in their answer with counterclaim that they never personally benefited from the
allegedly defrauded amount nor did they spend the same for a purpose other than that agreed upon
with Private Respondent Ceralde. Thus, in both cases, the accused seek recovery of damages for
what they perceive to be malicious prosecution against them.
As categorically recognized in the case of Javier, a claim for malicious prosecution or "grossly
unfounded suit" as a compulsory counter-claim has no appropriate venue other than the same
criminal case which is alleged to be a malicious suit. The counterclaim stands on the same footing
and is to be tested by the same rules as if it were an independent action. A counterclaim is defined
22
as any claim for money or other relief which a defending party may have against an opposing
party. Compulsory counterclaim is one which at the time of suit arises out of, or is necessarily
23
connected with, the same transaction or occurrence that is the subject matter of plaintiff's
complaint. It is compulsory in the sense that if it is within the jurisdiction of the court, and does not
24
require for its adjudication the presence of third parties over whom the court cannot acquire
jurisdiction, it must be set up therein, and will be barred in the future if not set
up. 25
In justifying his Order, Judge Cantos ruled that "this is a criminal case wherein the civil liability of the
accused (sic) is impliedly instituted therein." This justification begs the question. Basically, that is the
reason why petitioners herein filed their answer with counterclaim for, apparently, in hiring a private
prosecutor, Private Respondent Ceralde intended to prosecute his civil claim together with the
criminal action. Hence, as a protective measure, petitioners filed their counterclaim in the same
case. Since under Section 1, Rule 111 of the Revised Rules of Court, the civil action which is
26
deemed impliedly instituted with the criminal action, if not waived or reserved, includes recovery of
indemnity under the Revised Penal Code, and damages under Article 32, 33, 34 and 2176 of the
Civil Code arising from the same act or omission of the accused, should not the accused have the
right to file a counterclaim in the criminal case? Obviously, the answer is in the affirmative, as was
held in Javier.
In ruling that an action for damages for malicious prosecution should have been filed as a
compulsory counterclaim in the criminal action, the Court in Javier sought to avoid multiplicity of
suits. The Court there emphasized that the civil action for malicious prosecution should have been
filed as a compulsory counterclaim in the criminal action. The filing of a separate civil action for
malicious prosecution would have resulted in the presentation of the same evidence involving similar
issues in two proceedings: the civil action impliedly instituted with the criminal action, and the
separate civil action for damages for malicious prosecution.
Some Reservations in
the Application of Javier
The logic and cogency of Javier notwithstanding, some reservations and concerns were voiced out
by members of the Court during the deliberations on the present case. These were engendered by
the obvious lacuna in the Rules of Court, which contains no express provision for the adjudication of
a counterclaim in a civil action impliedly instituted in a criminal case. The following problems were
noted:
1) While the rules on civil procedure expressly recognize a defendant's entitlement to plead his
27
counterclaim and offer evidence in support thereof, the rules on criminal procedure which
28 29
authorize the implied institution of a civil action in a criminal case are, in contrast, silent on this
point and do not provide specific guidelines on how such counterclaim shall be pursued.
30
2) A judgment in a criminal action is not required to provide for the award of a counterclaim. Thus,
Section 2, Rule 120 of the Rules of Court, states:
Sec. 2. Form and contents of judgment. —
xxx xxx xxx
If it is for conviction, the judgment shall state (a) the legal qualifications of the offense
constituted by the acts committed by the accused, and the aggravating or mitigating
circumstances attending the commission thereof, if there are any; (b) the
participation of the accused in the commission of the offense whether as principal,
accomplice, or accessory after the fact; (c) the penalty imposed upon the accused;
and (d) the civil liability or damages caused by the wrongful act to be recovered from
the accused by the offended party, if there is any, unless the enforcement of the civil
liability by a separate action has been reserved or waived. (Emphasis supplied)
3) Allowing and hearing counterclaims (and possibly cross-claims and third-party complaints) in a
criminal action will surely delay the said action. The primary issue in a criminal prosecution that is
under the control of state prosecutors is the guilt of the accused and his civil liability arising from the
same act or omission. Extending the civil action arising from the same act or omission to
31
counterclaims, cross-claims and third-party complaints, and allowing the accused and other parties
to submit evidence of their respective claims will complicate the disposition of the criminal case.
4) Adjudication of compulsory counterclaims and/or related claims or pleadings logically includes the
application of other rules which, by their very nature, apply only to civil actions. The following matters
may be invoked in connection with the filing of an answer with a counterclaim: the genuineness and
due execution of an actionable document which are deemed admitted unless specifically denied
under oath; affirmative defenses like res judicata, prescription and statute of frauds which are
32
deemed waived by failure to interpose them as affirmative defenses in an answer; and the failure of
a defendant to file an answer seasonably may result in his default in the civil aspect but not in the
criminal. As a consequence of these matters, the entry of plea during arraignment will no longer
signal joinder of issues in a criminal action.
5) In an impliedly instituted civil action, an accused is not sufficiently apprised of the specific basis of
the claims against him. An accused learns of the implied institution of a civil action from the contents
of an information. An information, however, is filed in behalf of the People of the Philippines. Hence,
it does not contain the ultimate facts relating to the civil liability of the accused. Section 6, Rule 110
of the Rules of Court, provides:
Sec. 6. Sufficiency of complaint or information. — A complaint or information is

sufficient if it states the name of the accused; the designation of the offense by the
statute; the acts or omissions complained of as constituting the offense; the name of
the offended party; the approximate time of the commission of the offense; and the
place wherein the offense was committed.
The foregoing section does not mandate the inclusion of the ultimate facts which can be specifically
admitted or denied in an answer.
6) Because an accused is not sufficiently apprised of the specific basis of the civil action against him,
he may file a motion for bill of particulars or take advantage of discovery procedures. The end result,
in any case, will be delay and complication in the criminal action and even confusion among the
parties.
7) The Rules of Court does not specify the reckoning date for the filing of an answer in an impliedly
instituted civil action. In an ordinary civil action, an answer should be filed within fifteen (15) days
from service of summons. The concept of summons, however, is alien to a criminal action. So, when
does the 15-day period begin?
8) Moreover, an accused can file his answer with counterclaim only after the initial hearing, because
the private complainant may still reserve
his civil action at any time before the prosecution commences to present evidence. On the other
33
hand, an answer in an ordinary civil action should be filed before the start of hearing, because
hearing commences only after the issues have been joined, i.e., after the responsive pleadings have
been filed.
9) Confusion in the application of the rules on civil procedure will certainly encourage litigants to
challenge before appellate courts interlocutory incidents of the impliedly instituted civil action. While
these challenges are pending, the criminal actions that demand speedy resolution, particularly where
the accused is denied bail in capital offenses, will stagnate. Witnesses may disappear or lose
recollection of their intended testimony, and the prosecutors may lose momentum and interest in the
case. And the accused is effectively deprived of his right to speedy trial.
10) On top of the above procedural difficulties, some members of the Court believe that a cause of
action for malicious prosecution may be premature because there is as yet no finding of such
wrongful prosecution. This fact is precisely what the trial court still has to determine.
By the foregoing discussion, we do not imply any fault in Javier. The real problem lies in the absence
of clear-cut rules governing the prosecution of impliedly instituted civil actions and the necessary
consequences and implications thereof. For this reason, the counter-claim of the accused cannot be
tried together with the criminal case because, as already discussed, it will unnecessarily complicate
and confuse the criminal proceedings. Thus, the trial court should confine itself to the criminal aspect
and the possible civil liability of the accused arising out of the crime. The counter-claim (and cross-
claim or third party complaint, if any) should be set aside or refused cognizance without prejudice to
their filing in separate proceedings at the proper time. 34
At balance, until there are definitive rules of procedure to govern the institution, prosecution and
35
resolution of the civil aspect (and the consequences and implications thereof) impliedly instituted in a
criminal case, trial courts should limit their jurisdiction to the civil liability of the accused arising from
the criminal case.
On the other hand, this Court is only too well aware that the antecedent case was filed in the
Respondent Court on October 18, 1990. Although it has dragged on for more than six (6) years now,
trial has yet to start because of the herein procedural question raised on certiorari. In view of this, it
is to the best interest of the parties that the trial of the criminal action should now proceed. The trial
has waited too long; it is time to continue and finish it with all reasonable dispatch. In fairness to the
accused, he may file separate proceedings to litigate his counterclaim after the criminal case is
terminated and/or in accordance with the new Rules which may be promulgated as and when they
become effective.
WHEREFORE, premises considered, the questioned Orders dated July 1, 1991 and August 21,
1991 are hereby MODIFIED. The counter-claim of the accused is hereby set aside without prejudice.
The Respondent Regional Trial Court of Manila is DIRECTED to proceed with the trial of the criminal
action and the civil action arising from the criminal offense that is impliedly instituted therein, with all
judicious dispatch. No. costs.
SO ORDERED.
HON RUIZ VS CA
The private respondents, spouses Olegario Orbeta and Susana Rosario S. Orbeta, have filed a
motion for reconsideration of the decision dated August 17, 1992 of this Court which reversed the
decision of the Court of Appeals granting the petition for certiorari in CA-G.R. SP No. 17013,
1
"Spouses Olegario Orbeta and Susana Rosario S. Orbeta, petitioners vs. Hon. Florencio A. Ruiz, Jr.,
et al." and upholding on procedural grounds, the orders of the Regional Trial Court of Ilocos Sur,
dismissing the Crisologos' complaint and the Orbetas' answer with cross claim, in Civil Case No.
313-KC, entitled "Carmeling P. Crisologo, et al., vs. Sent of God Foundation Inc., et al."
This is a splinter case arising from the complaint filed on July 29, 1988 by Carmeling P. Crisologo
and her children for revocation of two (2) deeds of donation: (a) the first was a donation made on
September 17, 1976, of a
100-hectare island in Cabugao, Ilocos Sur; and (b) the second was a donation of two (2) lots in
Guimod, San Juan, Ilocos Sur, to the Sent of God Foundation, Inc., which was represented in both
transactions by Carmeling's niece, Susana Rosario Orbeta, and her husband, Olegario Orbeta, who
were members of the Sent of God Foundation, Inc., otherwise known as the Caryana Movement, a
religious cult headed by a Benedictine monk, Father Odon de Castro, as the group's spiritual
director. The donations were subject to three (3) conditions imposed by the donors, to wit:
(1) that the donated land shall be used exclusively to provide a monastic life and
experience according to the rules of St. Benedict, and for such other religious and
charitable purposes as may be determined by the donee;
(2) that the donee shall not sell, lease or allow the use of the parcels of land donated
or any part thereof for any other purposes; and
(3) that in the remote event that the donee no longer needs the property for its
religious and charitable purposes, the same shall revert to the donors or their heirs.
Ten years later, on November 7, 1986, the Sent of God Foundation, Inc., represented by its
chairman of the board of trustees, Dr. Raul Fores, with the consent of the donors, transferred the
Puro-Salomague Island (renamed St. Benedict Island by Fr. Odon de Castro) to the S of G
Foundation, Inc., represented by Senen P. Valero, subject to the same conditions as the original
donation.
Unfortunately, the Caryana Movement was denied canonical recognition and its spiritual director was
himself expelled from the Benedictine order and stripped of his priestly functions by the Archbishop
of Manila, Jaime Cardinal Sin.
Disturbed by these developments, for one of the conditions of her donation to the Movement was
that the Island would be used "to provide a monastic life and experience according to the rules of St.
Benedict," Mrs. Crisologo wrote a letter on February 8, 1988 to Dr. Fores, asking for the return of her
island. Dr. Fores assured her that the papers would be prepared for that purpose. On February 23,
1988, she wrote another letter to Dr. Fores reminding him of his promise to return the Island and
offering to reimburse the Foundation for its improvements on the island. Dr. Fores asked for a
conference with Mrs. Crisologo to hasten the return of the island to her. But shortly thereafter, in the
same month of February, 1988 and continuing up to March, the Sent of God Foundation, Inc. and S
of G Foundation, Inc., abandoned Puro-Salomague Island. Their agents destroyed and demolished
almost all the improvements thereon.
A third letter dated March 9, 1988 was written by Mrs. Crisologo, addressed to Mrs. Concepcion
(Chit) Feria, a member of the Sent of God Foundation, Inc., reiterating her request for the return of
the island, but nothing happened.
On July 29, 1988, Mrs. Crisologo and her children filed a complaint (Civil Case No. 313-KC,
Regional Trial Court, Branch 24, of Cabugao, Ilocos Sur) against the Sent of God Foundation, Inc.,
the S of G Foundation, Inc., Raul G. Fores, Senen P. Valero, Fr. Odon de Castro and Spouses
Olegario and Susana Rosario S. Orbeta for the revocation of the donation and the return of the
island to the donors.
In their answer dated August 30, 1988, the defendants (except the Orbetas) admitted the donations
but denied that they had violated the conditions thereof. They further alleged that the Crisologos had
no basis for revoking the donations because canonical recognition is not required for a lay
community to live a Christian life in accordance with the rules of St. Benedict; that the expulsion of
Fr. Odon de Castro from his Order is pending review by the authorities in Rome; and that the circular
of the Archdiocese of Manila disallowing him to perform priestly functions was already known to the
Crisologos when they gave their consent to the donation of the island to the S of G Foundation, Inc.,
to which the island was transferred because the S of G Foundation is a qualified tax-exempt donee.
They alleged that they did not destroy, but only "dismantled," their improvements on the island
preparatory to the transfer of the group to Sabang in order to avoid harassment by Susana Orbeta
who had been expelled by the Sent of God Foundation, Inc., allegedly for violating the rule of poverty
of St. Benedict. They admitted Dr. Fores' promise to return the island to the Crisologos but gave
reasons for the delay in effecting the reconveyance, among which was the legal problem allegedly
raised by dispossessed farmers. They denied that they abandoned the island for they merely
transferred from the upper portion thereof to the lower portion where the rule of poverty may be more
properly observed. Their answer contained a counterclaim for attorney's fees and expenses of
litigation. They prayed that the complaint be dismissed, or, in the alternative, that the Crisologos and
the Department of Agrarian Reform be compelled to interplead their claims to the island.
Plaintiffs filed an answer to the counterclaim on September 22, 1988.
The Orbetas filed a separate Answer with Cross-claim on September 30, 1988, making common
cause with the plaintiffs. They alleged that in January 1976, Fr. Odon de Castro instructed Mrs.
Orbeta to look for an ideal place in Ilocos Sur to house the monastery of the Caryana Movement, so
she thought of approaching her aunt, Mrs. Crisologo, who is a devout Catholic and devotee of St.
Benedict, and who is considered one of the biggest landowners in Ilocos Sur. Even if she had not
met Fr. Odon, Dr. Fores, and Senen Valero, pillars of the Sent of God Foundation, Inc., Mrs.
Crisologo was persuaded by Mrs. Orbeta to give her Puro-Salomague Island for the use of the
Caryana Movement. Upon inspection by Fr. Odon, the island was found suitable for the purposes of
the movement, but since the Sent of God Foundation, Inc., did not have money to buy it, Mrs. Orbeta
persuaded her aunt to donate it to the Foundation subject to certain conditions already mentioned in
the complaint. The Orbetas confirmed that the Foundation violated the conditions of the donation
when it was denied canonical permission to teach the monastic life according to the rules of St.
Benedict. The Orbetas joined the plaintiffs' demand for the reversion of the island to the donors. The
Orbetas further alleged that because of the "misrepresentation, deceptions, questionable practices
and heretical teachings of defendant Fr. Odon de Castro, they (Orbetas) disassociated themselves
from the Caryana Movement; that as the denial of church recognition for the Caryana Movement and
the dismissal of Fr. Odon de Castro, as a Catholic monk of the Benedictine Order, violated the
conditions of the donations, the Orbetas alleged that they have a legal obligation to return the island
to the plaintiffs; and that the alleged protest of the farmers is a concoction of the Foundations to
delay the return of the island to the Crisologos for the tenancy case between some farmers and Mrs.
Crisologo had been settled in 1980 yet, by an Order dated May 28, 1980 of the Minister of Agrarian
Reform.
The Orbetas asserted a cross claim against their co-defendants for moral and exemplary damages
and expenses of litigation because the refusal of the Foundations to reconvey the island to the
Crisologos caused the Orbetas to be dragged into this case, and has put them (Orbetas) "in a bad
perspective"
(p. 148, Rollo). They prayed that judgment be rendered for the plaintiffs and that the Foundations
and their co-defendants be ordered to pay damages.
On November 24, 1988, the Foundations, etc. filed a "Motion to Dismiss Crossclaim (of the Orbetas)
and to Strike Out."
On December 5, 1988, the Foundations, etc. (except the Orbetas) filed a "Motion to Dismiss and to
Drop Defendants," alleging that: (1) the complaint states no cause of action against the Foundations
because they did not violate the conditions of the donation; and (2) the individual defendants (Fores,
Valero and Fr. De Castro) are not real parties in interest for they merely acted for the Foundations
which have legal personalities separate from their officers. Furthermore, the original deeds of
donation in favor of the Sent of God Foundation, Inc. have already been cancelled by the execution
of a third deed of donation by the Sent of God Foundation, Inc. in favor of the S of G Foundation,
Inc., with the consent of the plaintiffs. The motion was set for hearing on December 16, 1988 at 2:00
p.m.
A copy of the motion to dismiss was received by the Secretary of plaintiffs' counsel, Attorney
Eduardo Alcantara, on December 14, 1988, or one day short of the reglementary 3-day notice. On
January 2, 1989, Attorney Alcantara, who was in Manila when the motion was received in his office
in Vigan, filed an "Explanation and Vigorous Opposition to the Motion to Dismiss and Drop
Defendants." However, on the same date, Judge Florencio A. Ruiz, Jr. issued an Order overruling
the Opposition for "having been filed out of time" and dismissing the complaint because "the grounds
alleged in support thereof (are) meritorious, even as no timely opposition to defendants' motion to
dismiss had been filed by any of the adverse parties on or before the scheduled date and time of
hearing thereon . . ." The Orbetas' cross claim was also dismissed because it had "no more leg to
stand on." (p. 160, Rollo.)
On January 12, 1989, the plaintiffs filed a motion for reconsideration, which was adopted by the
Orbetas in an urgent ex parte manifestation dated February 7, 1989. This motion was denied on
February 8, 1989. The Crisologos then sought a review of the order of dismissal by the Court of
Appeals through a petition for certiorari under Rule 65 of the Rules of Court, alleging grave abuse of
discretion on the part of the trial court. Docketed as CA-G.R. No. SP-16837, it was dismissed on
May 2, 1989, on the ground that the proper remedy was an ordinary appeal. The appellate court
2
ruled that "since the petitioner did not appeal the questioned order of January 2, 1989, of respondent
court dismissing the complaint, said order had become final and executory." (p. 42, Rollo.)
The Orbetas who had not joined the Crisologos in CA-G.R. No.
SP-16837, filed their own petition for certiorari in the Court of Appeals where it was docketed as CA-
G.R. SP No. 17013. Their petition prospered. On September 28, 1990, the Court of
Appeals annulled Judge Ruiz's order of dismissal and reinstated the complaint. Reconsideration of
3
this decision was denied on August 27, 1991. The Foundations, etc. appealed to this Court which, as
previously stated, reversed the Court of Appeals.
The Orbetas filed a motion for reconsideration of our decision. The Court denied it by resolution
dated October 21, 1992. However, the Orbetas filed a timely Motion to Recall that resolution. They
invited the court's attention to the fact that the resolution denying their motion for reconsideration did
not carry the necessary votes of three (3) justices for only Justices Cruz and Aquino voted on it as
Justice Bellosillo took no part and Justice Medialdea was on sick leave of absence, when the motion
for reconsideration was deliberated upon. Consequently, the Division decided to refer the case to
4
the Court En Banc which recalled the resolution for lack of the necessary votes and constituted a
Special First Division to deliberate on the Orbetas' motion for reconsideration.
5
After a careful review and study of the records, the Court finds merit in the motion for
reconsideration. The Court of Appeals did not commit a reversible error in setting aside the orders of
Judge Florencio A. Ruiz, Jr. granting the motion to dismiss the complaint in Civil Case No. 313-KC
because:
(1) Judge Ruiz gravely abused his discretion in proceeding to hear and grant the motion to dismiss
of the defendants (except the Orbetas) without the requisite 3-day notice to the plaintiffs; and
(2) The Orbetas are proper parties-in-interest to seek a review on certiorari of the trial court's order
dismissing the complaint in Civil Case No. 313-KC.
The trial court gravely abused its discretion in issuing the order of dismissal because the plaintiffs
were given only two (2) days' notice (the Orbetas none at all) of the hearing of the motion to dismiss.
The notice was received in the office of the plaintiffs' counsel (not by counsel himself) on December
14, 1988. The motion was heard on December 16, 1988.
The motion to dismiss was filed after the defendants had already answered the complaint. Having
already filed their answer, the Foundations were estopped from filing a motion to dismiss the
complaint, for a motion to dismiss should be filed "within the time for pleading," i.e., within the time to
answer (Sec. 1, Rule 16, Rules of Court).
The allegation of the defendants (except the Orbetas) that the complaint did not state a cause of
action was not a proper ground to dismiss it for said defendants could not have joined issue upon
the material allegations of the complaint if the same did not state a sufficient cause of action against
them. A careful perusal of the complaint of the Crisologos, and the Orbetas' "answer," shows that the
elements of a cause of action are pleaded therein.
While the Orbetas were impleaded as defendants in the action, together with the Foundations, Fr.
Odon de Castro, Dr. Raul G. Fores, and Senen Valero, they filed a separate answer making
common cause with the plaintiffs. Their answer included a cross claim for damages against their co-
defendants. Their answer with cross-claim was, in effect, a complaint against the Sent of God
Foundation, Inc. and the other defendants. This peculiarity of their pleading could not have been
missed by the trial court, for the other defendants in fact accused them of collusion with the plaintiffs.
In view of that circumstance, the trial court should have looked beyond the form, to the substance, of
their pleading. In the interest of justice and orderly procedure, the trial court should have treated their
answer as a complaint and should have ordered them to disassociate themselves from the other
defendants and be joined as additional plaintiffs in the case, for that is the side with which they have
aligned themselves.
The Orbetas had an interest in the subject matter of the Crisologos' suit for they were the
conduit, through whom the Crisologos effected the donation of their island to the Sent of God
Foundation, Inc. They were signatories of the deed of donation of Puro-Salomague Island. Being
instrumental in obtaining the donations from the Crisologos, they are de facto plaintiffs with an actual
interest in the enforcement of the conditions of the donation and in the recovery of the donated
property on account of the donee's violations of the conditions of the donation.
Being de facto plaintiffs, the Orbetas could file in the Court of Appeals a separate petition for review
on certiorari of the trial court's order dismissing their demand for the reversion of the island to the
donors.
The finality of the trial court's order dismissing the Crisologos' complaint was not an obstacle to the
plaintiffs' and the Orbetas' recourse to the Court of Appeals by a petition for certiorari under Rule 65
of the Rules of Court for such a petition may be filed "within a reasonable time," not within the time to
appeal (Great Pacific Life Assurance Corporation vs. NLRC, 188 SCRA 139; Andaya vs. NLRC, 188
SCRA 253).
Even if appeal should have been the proper remedy against an oppressive and arbitrary order or
decision of a lower court, the aggrieved party may avail of the special civil action of certiorari when
appeal would not be a speedy and adequate remedy. In this case, appeal would have been neither
speedy nor adequate for the plaintiffs and the Orbetas had not been given a chance to prove their
causes of action, hence, there was no evidence in the records upon which to anchor a judgment by
the Appellate Court in their favor.
. . . the Appellate Court can legally entertain the special civil action of certiorari in CA-
G.R. No. 14821-SP considering the broader and primordial interests of justice which
compel an occasional departure from the general rule that the extraordinary writ
of certiorari cannot substitute for a lost appeal, the order of March 15, 1979 having
become final upon the lapse of the reglementary period of appeal. (Pachoco vs.
Tumangday and Fernando, etc., 108 Phil. 239; Co Chuan Seng vs. CA, 128 SCRA
308; Destileria Limtuaco & Co. vs. IAC, 157 SCRA 706; Del Pozo, et al. vs. Judge
Penaco, 167 SCRA 577; Fernando Pelagio, et al. vs. The Hon. Court of Appeals, et
al., G.R. No. 63188, June 13, 1990; Emphasis supplied.)
Certiorari is one such remedy. Considered extraordinary, it is made available only

when there is no appeal, nor any plain, speedy or adequate remedy in the ordinary
course of the law (Rule 65, Rules of Court, Section 1). The long line of decisions
denying the petition for certiorari, either before appeal was availed of or specially in
instances where the appeal period has lapsed, far outnumbers the instances
when certiorari was given due course. The few significant exceptions were: when
public welfare and the advancement of public policy dictate: or when the broader
interests of justice so require, or when the writs issued are null (Yu Tirona vs.
Nanawa, No. L-22107, September 30, 1967, 21 SCRA 395, 400; Director of Lands
vs. Santamaria, 44 Phil. 594, 596, cited in 3 Moran, Comments on the Rules of
Court, 170-172 (1980), or when the questioned order amounts to an oppressive
exercise of judicial authority. (Acain vs. IAC, 155 SCRA 100; Sunbeam Convenience
Foods Inc., et al. vs. Hon. Court of Appeals, et al., 181 SCRA 443; Emphasis
supplied.)
IN VIEW OF ALL THE FOREGOING, we GRANT the motion for reconsideration and AFFIRM the
decision dated September 28, 1990 of the Court of Appeals in CA-G.R. SP No. 17013. The orders
dated January 2, 1989 and February 8, 1989 of herein petitioner, Judge Florencio A. Ruiz, Jr., in
Civil Case No. 313-KC are hereby ANNULLED AND SET ASIDE. Said civil case should proceed to
trial on the merits with all reasonable dispatch. Costs against the petitioners.
SO ORDERED.
CASENT TEALTY VS PHILBANK
On appeal to this Court through Rule 45 of the Rules of Court is the March 29, 2001 Decision 1 and
November 7, 2001 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 63979
entitled Philbanking Corporation v. Casent Realty Development Corporation. The CA reversed the
May 12, 1999 Order3 of the Makati City Regional Trial Court (RTC), Branch 145 in Civil Case No. 93-
2612, which granted petitioner’s demurrer to evidence and dismissed the complaint filed by
respondent.
The Facts
The facts according to the appellate court are as follows:
In 1984, petitioner Casent Realty Development Corporation executed two promissory notes in favor
of Rare Realty Corporation (Rare Realty) involving the amounts of PhP 300,000 (PN No. 84-04) and
PhP 681,500 (PN No. 84-05). It was agreed in PN No. 84-04 that the loan it covered would earn an
interest of 36% per annum and a penalty of 12% in case of non-payment by June 27, 1985, while the
loan covered by PN No. 84-05 would earn an interest of 18% per annum and 12% penalty if not paid
by June 25, 1985.4 On August 8, 1986, these promissory notes were assigned to respondent
Philbanking Corporation through a Deed of Assignment. 5
Respondent alleged that despite demands, petitioner failed to pay the promissory notes upon
maturity such that its obligation already amounted to PhP 5,673,303.90 as of July 15, 1993.
Respondent filed on July 20, 1993 a complaint before the Makati City RTC for the collection of said
amount. In its Answer,6 petitioner raised the following as special/affirmative defenses:
1. The complaint stated no cause of action or if there was any, the same was barred by
estoppel, statute of frauds, statute of limitations, laches, prescription, payment, and/or
release;
2. On August 27, 1986, the parties executed a Dacion en Pago7 (Dacion) which ceded and
conveyed petitioner’s property in Iloilo City to respondent, with the intention of totally
extinguishing petitioner’s outstanding accounts with respondent. Petitioner presented a
Confirmation Statement8 dated April 3, 1989 issued by respondent stating that petitioner had
no loans with the bank as of December 31, 1988.
3. Petitioner complied with the condition in the Dacion regarding the repurchase of the

property since the obligation was fully paid. Respondent sent confirmation statements in the
latter months of 1989, which showed that petitioner had no more outstanding loan; and
4. Assuming that petitioner still owed respondent, the latter was already estopped since in
October 1988, it reduced its authorized capital stock by 50% to wipe out a deficit of PhP
41,265,325.12.9
Thus, petitioner, by way of compulsory counterclaim, alleged that it made an overpayment of

approximately PhP 4 million inclusive of interest based on Central Bank Reference Lending Rates
on dates of overpayment. Petitioner further claimed moral and exemplary damages and attorney’s
fee, amounting to PhP 4.5 million plus the costs of suit as a consequence of respondent’s insistence
on collecting.10
The parties failed to reach an amicable settlement during the pre-trial conference. Thereafter,
respondent presented its evidence and formally offered its exhibits. Petitioner then filed a Motion for
Judgment on Demurrer to the Evidence, 11 pointing out that the plaintiff’s failure to file a Reply to the
Answer which raised the Dacion and Confirmation Statement constituted an admission of the
genuineness and execution of said documents; and that since the Dacion obliterated petitioner’s
obligation covered by the promissory notes, the bank had no right to collect anymore.
Respondent subsequently filed an Opposition 12 which alleged that: (1) the grounds relied upon by
petitioner in its demurrer involved its defense and not insufficiency of evidence; (2) the Dacion and
Confirmation Statement had yet to be offered in evidence and evaluated; and (3) since respondent
failed to file a Reply, then all the new matters alleged in the Answer were deemed controverted. 13
The trial court ruled in favor of petitioner and dismissed the complaint through the May 12, 1999
Order, the dispositive portion of which reads:
WHEREFORE, premises considered[,] finding defendant’s Motion For Judgment On

Demurrer To The Evidence to be meritorious[,] the same is hereby GRANTED.
Consequently, considering that the obligation of the defendant to the plaintiff having been
extinguish[ed] by a Dacion en Pago duly executed by said parties, the instant complaint is
hereby DISMISSED, with prejudice. Without Cost.14
The Ruling of the Court of Appeals
On appeal, respondent alleged that the trial court gravely erred because the promissory notes were
not covered by the Dacion, and that respondent was able to prove its causes of action and right to
relief by overwhelming preponderance of evidence. It explained that at the time of execution of
the Dacion, the subject of the promissory notes was the indebtedness of petitioner to Rare Realty
and not to the "Bank"––the party to the Dacion. It was only in 1989 after Rare Realty defaulted in its
obligation to respondent when the latter enforced the security provided under the Deed of
Assignment by trying to collect from petitioner, because it was only then that petitioner became
directly liable to respondent. It was also for this reason that the April 3, 1989 Confirmation Statement
stated that petitioner had no obligations to repondent as of December 31, 1988. On the other hand,
petitioner claimed that the Deed of Assignment provided that Rare Realty lost its rights, title, and
interest to directly proceed against petitioner on the promissory notes since these were transferred
to respondent. Petitioner reiterated that the Dacion covered all conceivable amounts including the
promissory notes.15
The appellate court ruled that under the Rules of Civil Procedure, the only issue to be resolved in a
demurrer is whether the plaintiff has shown any right to relief under the facts presented and the law.
Thus, it held that the trial court erred when it considered the Answer which alleged the Dacion, and
that its genuineness and due execution were not at issue. It added that the court a quo should have
resolved whether the two promissory notes were covered by the Dacion, and that since petitioner’s
demurrer was granted, it had already lost its right to present its evidence. 16
The CA found that under the Deed of Assignment, respondent clearly had the right to proceed
against the promissory notes assigned by Rare Realty. Thus, the CA ruled, as follows:
WHEREFORE, premises considered, the Order dated May 12, 1999 of the Regional Trial
Court, National Capital Judicial Region, Branch 145, Makati City is
hereby REVERSED and SET ASIDE.
Judgment is hereby entered ORDERING [petitioner] Casent Realty [Development]

Corporation to:
1. pay [respondent] Philbanking Corporation the amount of P300,000.00 with an

interest of 36% per annum and a penalty of 12% for failure to pay the same on its
maturity date, June 27, 1985 as stipulated in Promissory Note No. 84-04;
2. pay [respondent] Philbanking Corporation the amount of P681,500.00 with an

interest of 18% per annum and a penalty of 12% for failure to pay the same on its
maturity date, June 25, 1985 as stipulated in Promissory Note No. 84-05; and
3. pay [respondent] Philbanking Corporation, the amount representing 25% of total

amount due as attorney’s fee as stipulated in the promissory notes.
SO ORDERED.17
Petitioner filed a Motion for Reconsideration 18 which was denied by the CA in its November 7, 2001
Resolution.19
The Issues
WHETHER OR NOT THE COURT OF APPEALS ERRED IN EXCLUDING THE

PETITIONER’S AFFIRMATIVE DEFENSES IN ITS ANSWER IN RESOLVING A
DEMURRER TO EVIDENCE; AND
WHETHER OR NOT PETITIONER IS LIABLE TO PAY THE RESPONDENT
In other words, the questions posed by this case are:
1. Does respondent’s failure to file a Reply and deny the Dacion and Confirmation Statement
under oath constitute a judicial admission of the genuineness and due execution of these
documents?
2. Should judicial admissions be considered in resolving a demurrer to evidence? If yes, are

the judicial admissions in this case sufficient to warrant the dismissal of the complaint?
Petitioner asserts that its obligation to pay under the promissory notes was already extinguished as
evidenced by the Dacion and Confirmation Statement. Petitioner submits that when it presented
these documents in its Answer, respondent should have denied the same under oath. Since
respondent failed to file a Reply, the genuineness and due execution of said documents were
deemed admitted, thus also admitting that the loan was already paid. On the other hand, respondent
states that while it failed to file a Reply, all the new matters were deemed controverted pursuant to
Section 10, Rule 6 of the Rules of Court. Also, the loan which was covered by the Dacion refers to
another loan of petitioner amounting to PhP 3,921,750 which was obtained directly from the
respondent as of August 1986. 20 Furthermore, petitioner argued that assuming respondent admitted
the genuineness and due execution of the Dacion and Confirmation Statement, said admission was
not all-encompassing as to include the allegations and defenses pleaded in petitioner’s Answer.
The Court’s Ruling
The petition is partly meritorious.
Rule 33, Section 1 of the 1997 Rules of Civil Procedure provides:
Section 1. Demurrer to evidence.––After the plaintiff has completed the presentation of his
evidence, the defendant may move for dismissal on the ground that upon the facts and the
law the plaintiff has shown no right to relief. If his motion is denied, he shall have the right to
present evidence. If the motion is granted but on appeal the order of dismissal is reversed he
shall be deemed to have waived the right to present evidence.
In Gutib v. Court of Appeals, we defined a demurrer to evidence as "an objection by one of the
parties in an action, to the effect that the evidence which his adversary produced is insufficient in
point of law, whether true or not, to make out a case or sustain the issue." 21
What should be resolved in a motion to dismiss based on a demurrer to evidence is whether the
plaintiff is entitled to the relief based on the facts and the law. The evidence contemplated by the
rule on demurrer is that which pertains to the merits of the case, excluding technical aspects such as
capacity to sue.22 However, the plaintiff’s evidence should not be the only basis in resolving a
demurrer to evidence. The "facts" referred to in Section 8 should include all the means sanctioned
by the Rules of Court in ascertaining matters in judicial proceedings. These include judicial
admissions, matters of judicial notice, stipulations made during the pre-trial and trial, admissions,
and presumptions, the only exclusion being the defendant’s evidence.
Petitioner points out that the defense of Dacion and Confirmation Statement, which were submitted
in the Answer, should have been specifically denied under oath by respondent in accordance with
Rule 8, Section 8 of the Rules of Court:
Section 8. How to contest such documents.––When an action or defense is founded upon a

written instrument, copied in or attached to the corresponding pleading as provided in the
preceding section, the genuineness and due execution of the instrument shall be deemed
admitted unless the adverse party, under oath, specifically denies them, and sets forth, what
he claims to be the facts; but the requirement of an oath does not apply when the adverse
party does not appear to be a party to the instrument or when compliance with an order for
an inspection of the original instrument is refused.
Since respondent failed to file a Reply, in effect, respondent admitted the genuineness and due
execution of said documents. This judicial admission should have been considered by the appellate
court in resolving the demurrer to evidence. Rule 129, Section 4 of the Rules of Court provides:
Section 4. Judicial admissions.––An admission, verbal or written, made by a party in the

course of the proceeding in the same case, does not require proof. The admission may be
contradicted only by showing that it was made through palpable mistake or that no such
admission was made.
On appeal to the CA, respondent claimed that even though it failed to file a Reply, all the new
matters alleged in the Answer are deemed controverted anyway, pursuant to Rule 6, Section 10:
Section 10. Reply.––A reply is a pleading, the office or function of which is to deny, or allege
facts in denial or avoidance of new matters alleged by way of defense in the answer and
thereby join or make issue as to such new matters. If a party does not file such reply, all the
new matters alleged in the answer are deemed controverted.
We agree with petitioner. Rule 8, Section 8 specifically applies to actions or defenses founded upon
a written instrument and provides the manner of denying it. It is more controlling than Rule 6, Section
10 which merely provides the effect of failure to file a Reply. Thus, where the defense in the Answer
is based on an actionable document, a Reply specifically denying it under oath must be made;
otherwise, the genuineness and due execution of the document will be deemed admitted. 23 Since
respondent failed to deny the genuineness and due execution of the Dacion and Confirmation
Statement under oath, then these are deemed admitted and must be considered by the court in
resolving the demurrer to evidence. We held in Philippine American General Insurance Co., Inc. v.
Sweet Lines, Inc. that "[w]hen the due execution and genuineness of an instrument are deemed
admitted because of the adverse party’s failure to make a specific verified denial thereof, the
instrument need not be presented formally in evidence for it may be considered an admitted fact." 24
In any case, the CA found that:
From the facts of the case, the genuineness and due execution of the Dacion en Pago were
never put to issue. Genuineness merely refers to the fact that the signatures were not
falsified and/or whether there was no substantial alteration to the document. While due
execution refers to whether the document was signed by one with authority. 25
The more important issue now is whether the Dacion and Confirmation Statement sufficiently prove
that petitioner’s liability was extinguished. Respondent asserts that the admission of the
genuineness and due execution of the documents in question is not all encompassing as to include
admission of the allegations and defenses pleaded in petitioner’s Answer. In executing
the Dacion, the intention of the parties was to settle only the loans of petitioner with respondent, not
the obligation of petitioner arising from the promissory notes that were assigned by Rare Realty to
respondent.
We AGREE.
Admission of the genuineness and due execution of the Dacion and Confirmation Statement does
not prevent the introduction of evidence showing that the Dacion excludes the promissory notes.
Petitioner, by way of defense, should have presented evidence to show that the Dacion includes the
promissory notes.
The promissory notes matured in June 1985, and Rare Realty assigned these promissory notes to
respondent through a Deed of Assignment dated August 8, 1986. The Deed of Assignment provides,
thus:
Rare Realty Corporation, a corporation duly organized and existing in accordance with law,
with office at 8th Floor Philbanking Building, Ayala Ave., Makati, Metro Manila (herein called
Assignor) in consideration of the sum of THREE MILLION SEVEN HUNDRED NINETY
THOUSAND & 00/100 pesos [PhP 3,790,000.00] and as security fee or in the payment of the
sum, obtained or to be obtained as loan or credit accommodation of whatever form or nature
from the [PHILBANKING] CORPORATION, with office at Ayala Ave., Makati, Metro Manila
(herein called Assignee), including renewals or extensions of such loan or credit
accommodation, now existing or hereinafter incurred, due or to become due, whether
absolute or contingent, direct or indirect, and whether incurred by the Assignor as principal,
guarantor, surety, co-maker, or in any other capacity, including interest, charges, penalties,
fees, liquidated damage, collection expenses and attorney’s fee, the Assignor hereby
assigns, transfers and conveys to Assignee all its rights, title and interest in and to: (a)
contracts under which monies are or will be due to Assignor, (b) moneys due or to be due
thereunder, or (c) letters of credit and/or proceeds or moneys arising from negotiations under
such credits, all which are herein called moneys or receivables assigned or assigned
moneys or receivables, and are attached, or listed and described in the Attached Annex A
(for contracts) or Annex B (for letters of credit). 26
It is clear from the foregoing deed that the promissory notes were given as security for the loan
granted by respondent to Rare Realty. Through the Deed of Assignment, respondent stepped into
the shoes of Rare Realty as petitioner’s creditor.
Respondent alleged that petitioner obtained a separate loan of PhP 3,921,750. Thus, when
petitioner and respondent executed the Dacion on August 27, 1986, what was then covered was
petitioner’s loan from the bank. The Dacion provides, thus:
NOW, THEREFORE, in consideration of the foregoing premises, the DEBTOR hereby

transfers and conveys in favor of the BANK by way of Dacion en Pago, the above-described
property in full satisfaction of its outstanding indebtedness in the amount of P3,921,750.00
to the BANK, subject to x x x terms and conditions. 27 (Emphasis supplied.)
The language of the Dacion is unequivocal––the property serves in full satisfaction of petitioner’s

own indebtedness to respondent, referring to the loan of PhP 3,921,750. For this reason, the bank
issued a Confirmation Statement saying that petitioner has no unpaid obligations with the bank as of
December 31, 1988.
In 1989, however, Rare Realty defaulted in its payment to respondent. Thus, respondent proceeded
against the security assigned to it, that is, the promissory notes issued by the petitioner. Under these
promissory notes, petitioner is liable for the amount of PhP 300,000 with an interest of 36% per
annum and a penalty of 12% for failure to pay on the maturity date, June 27, 1985; and for the
amount of PhP 681,500 with an interest of 18% per annum and a penalty of 12% for failure to pay on
the maturity date, June 25, 1985.
WHEREFORE, the March 29, 2001 Decision and November 7, 2001 Resolution of the CA
are AFFIRMED. Costs against petitioner.
SO ORDERED.
CAPAYAS VS CFI
This is a petition for mandamus to compel the respondent Court of First Instance of Albay to admit
the so-called amended third-party complaint filed by petitioner against several persons named
therein, on the ground that the refusal of the respondent court to admit the same constitutes an
unlawful neglect of the performance of a duty specifically enjoined upon it by law, pursuant to Rule
12 of the Rules of Court, sections 1 and 2 of which read as follows:
SECTION 1. Claim against one not a party to an action.—When a defendant claims to be

entitled against a person not a party to the action, hereinafter called the third-party
defendant, to contribution, indemnity, subrogation or any other relief, in respect of the
plaintiff's claim, he may file, with leave of court, against such person a pleading which shall
state the nature of his claim and shall be called the third-party complaint.
SEC. 2. Motion for leave.—Before the service of his answer a defendant may move ex
parte or, after the service of his answer, on notice to the plaintiff, for leave as third-party
plaintiff to file a complaint against a third-party defendant.
Petitioner's contention is untenable.
First. Because from the said provisions it clearly appears that it is not a court's duty especially
enjoined by law to admit a third-party complaint. Were it a ministerial duty, it would not be necessary
for the defendant to obtain leave of court to file such complaint; because if the court has the duty to
admit, the defendant has the correlative right to file, a third-party complaint without necessity of such
leave. Of course, when the law says that a third party complaint may be filed with leave of court, it
refers to a complaint that alleges facts which prima facie show that the defendant is entitled against
the third-party defendant to contribution, etc., etc. Otherwise the court can not legally grant leave to
a defendant to file it, because it would not be a third-party complaint.
In the case of General Taxicab Assn., Inc. vs. O' Shea, U.S. Court of Appeals, Dist. Court of
Columbia, January 15, 1940, the court said: "Against this background of statutes and decisions, the
Supreme Court, in framing Rule 14(a), chose the language "a defendant may move . . . for leave as
a third-party plaintiff to serve a summons and complaint upon a person not a party to the action, . . .'
and the language 'if the motion is granted. . . .' We think there can be no doubt that it was thus
intended to make the impleading of third parties in the Federal practice discretionary with the trial
court. See 1 Moore, op. cit., supra, 741: 'Whether a party to an action shall be allowed to implead an
additional party rests in the discretion of the court. This is in accord with the English, New York and
Wisconsin practices.'" (2 Fed. Rules Service, 14a.15, Case No. 1.)
Secondly. Because the respondent court would have committed an error if it had admitted the so-
called third-party complaint filed by the petitioner against Isidora Lladoc, Fulgencio Lladoc and
Gregorio Navera, since the facts alleged therein do not show that the petitioner is entitled to
indemnify against them "in respect to plaintiff's claim." The test to determine whether the claim is,
whether it arises out of the same transaction on which the plaintiff's claim is based, or the third-
party's claim, although arising out of another or different contract or transaction, is connected with
the plaintiff's claim.
According to the decision in the case of Crim vs. Lumberman's Mutual Casualty Co. (26 Fed. Supp.,
715 [1 Fed. Rules Service, 14a11. Case No. 1]),the test to determine when a third-party defendant
may be impleaded is whether he could have been joined originally as a defendant by the plaintiff.
But this could be applied only if there could be asserted against the defendant as the third-party
defendant, jointly and severally or in the alternatives, any right to relief arising out of the same
transaction. For example in an action against the surety in a bond, the surety may bring in as a third
party defendant, the principle who had agreed to indemnify the surety, because the surety's claim
arises out of the same transaction (United States vs. United States Fidelity and Guaranty Co. vs.
Kolling, U.S. Dist. Ct., D. Minn., February 1, 1940, 2 Fed. Rules Service 14a.222, Case No. 1). The
above test does not cover all cases in which impleading a third-party may be and have been
allowed, which are also covered by the test we have laid down in the previous paragraph. Under
Rule 14 of Federal Rules of Civil Procedure, which corresponds to our Rule 12, the bringing in of a
third-party defendant is proper if he would be liable to the plaintiff or to the defendant for all or part of
the plaintiff's claim against the original defendant, although the third-party defendant's liability arises
out of another transaction. So in the case of Carbola Chemical Co., Inc. vs Trundle Engineering Co.
(U. S. Dist. Ct., S. D. N. Y., December 26, 1942), it was held that in an action for breach of contract
to render engineering services and to survey a plant, the defendant was allowed to bring as a third-
party defendant, the manufacturer which sold defendant's equipment to the plaintiff (7 Fed. Rules
Service, 14a.11, Case No. 1). And in a negligence action by the purchaser of a confection in which it
is alleged that the confection contained a foreign object, the defendant may bring in the person who
supplied him with the constituent containing the foreign object, as a third-party defendant (Saunders
vs. Southern Dairies, Inc., U.S. Dist. Ct., District of Columbia, November 6, 1939 [2 Fed. Rules
Service, 14a.226, Case No. 31]).
Another test, provided for by section 4, Rule 12, of our Rules of Court, is whether the third-party
defendant may assert any defenses which the third-party plaintiff has or may have to the plaintiff's
claim. If he may properly assert such defenses, then he is a proper third-party defendant; otherwise
he is not and the claim against him can not be considered as a third-party complaint.
Petitioner's claim for indemnity against Lladoc and others does neither arise out of the same
transaction or the alleged petitioner's tortuous acts on which plaintiff's action is based, nor is it based
on a different transaction but connected with the plaintiff's claim. Plaintiff's claim against petitioner
and his co-defendants is, according to the allegations in the complaint, (a) to recover from them
damages for the palay which have been illegally harvested from certain lands belonging to the
plaintiff, and (b) to enjoin them from entering said lands and disturbing and molesting the plaintiff's
right of ownership and possession thereof. Whereas the petitioner's claim against Isidora Lladoc and
others is to recover from the latter the value of the three parcels of land and their fruits amounting to
P3,200 plus legal interest, for having said Isidora, as administratrix of the intestate estate of Ceferino
Guanzon, sold said lands in 1927 without authority of the court to Domingo Imperial, from whom said
lands were acquired by the plaintiff. And in the present case, it is clear that if the so-called third-party
complaint be allowed, Isidora Lladoc and others named therein as third-party defendants could not
assert any defense which the petitioner has or may have to the plaintiff's claim.
Lastly. Because the causes of action in this complaint against the petitioner are that "on the month of
April, 1944, the defendants by force, intimidation and threat . . . entered upon the aforesaid lands
(described in the complaint) and harvested and collected . . . 400 cavanes of palay produced
therefrom"; and that "the defendants persist in their threat to enter upon said lands with the purpose
of disturbing and molesting the plaintiff's right of ownership and possession thereof." From these
allegations it appears that the petitioner is being sued in his personal capacity, and not as
administrator of intestate estate of Ceferino Guanzon; because he was appointed as administrator
only on July 1, 1944, according to petitioner's Exhibit A; and it is not within the powers and duties
conferred by law upon an administrator to do the acts complained of. Being sued in his individual
capacity, it is evident that the petitioner can not file, in his capacity as administrator of the intestate
estate of Ceferino Guanzon, a third-party complaint against Isidora Lladoc and others. It requires no
elaborate argument to show that, under the provisions of section 1, Rule 12, a defendant can not file
a third-party complaint in a different capacity in which he is being sued; otherwise his claim against
the third-party defendant would not be in respect to plaintiff's claim. In other words, the would be
third-party defendants can not be made liable to the petitioner for all or part of the plaintiff's claim
against the petitioner.
ALLIED BANK VS CA
As a general rule, a trial court that has established jurisdiction over the main action also acquires
jurisdiction over a third-party complaint, even if it could not have done so had the latter been filed as
an independent action. This rule, however, does not apply to banks that have agreed to submit their
disputes over check clearings to arbitration under the rules of the Philippine Clearing House
Corporation. In that event, primary recourse should be to the PCHC Arbitration Committee, without
prejudice to an appeal to the trial courts. In other words, without first resorting to the PCHC, the
third-party complaint would be premature.
The Case
Before us is a petition for review on certiorari under Rule 45, assailing the Decision dated February
12, 1996 promulgated by the Court of Appeals in CA-GR CV No. 44804; which affirmed the trial
1
court's Order dated September 16, 1991, dismissing petitioner's third-party complaint against private
respondent. 2
Facts of the Case
The facts are undisputed. Reproduced hereunder is Respondent Court's narration:
Hyatt Terraces Baguio issued two crossed checks drawn against Allied Banking
Corp. (hereinafter, ALLIED) in favor of appellee Meszellen Commodities Services,
Inc. (hereinafter, MESZELLEN). Said checks were deposited on August 5, 1980 and
August 18, 1980, respectively, with the now defunct Commercial Bank and Trust
Company (hereinafter, COMTRUST). Upon receipt of the above checks,
COMTRUST stamped at the back thereof the warranty "All prior endorsements
and/or lack of endorsements guaranteed." After the checks were cleared through the
Philippine Clearing House Corporation (hereinafter, PCHC), ALLIED BANK paid the
proceeds of said checks to COMTRUST as the collecting bank.
On March 17, 1981, the payee, MESZELLEN, sued the drawee, ALLIED BANK, for
damages which it allegedly suffered when the value[s] of the checks were paid not to
it but to some other person.
Almost ten years later, or on January 10, 1991, before defendant ALLIED BANK
could finish presenting its evidence, it filed a third party complaint against Bank of the
Philippine Islands (hereinafter, BPI, appellee herein) as successor-in-interest of
COMTRUST, for reimbursement in the event that it would be adjudged liable in the
main case to pay plaintiff, MESZELLEN. The third party complaint was admitted [in]
an Order dated May 16, 1991 issued by the Regional Trial Court of Pasig, Branch
162. On July 16, 1991, BPI filed a motion to dismiss said third party complaint
grounded on the following: 1) that the court ha[d] no jurisdiction over the nature of the
action; and 2) that the cause of action of the third party plaintiff ha[d] already
prescribed.
On September 16, 1991, the trial court issued an order dismissing the third party
complaint. Defendant-third party plaintiff's motion for reconsideration of this order
was subsequently denied. 3
Respondent Court's Ruling
Respondent Court affirmed the trial court thus:
. . . Appellant's submission that the cause of action of the third party plaintiff against
the third party defendant accrued only when the complaint in the original case was
filed on March 17, 1981 is untenable. As earlier discussed, the defendant has a
separate cause of action (in respect of plaintiff's complaint) against a third party in
the original and principal case. Reviewing the third-party complaint below, that cause
of action is the supposed erroneous endorsement made by COMTRUST for which
ALLIED BANK is being held liable for damages by the payee-appellee. Without
COMTRUST's warranties as a general endorser, ALLIED BANK allegedly would not
have paid on the checks. Should such warranties prove to be false and inaccurate,
COMTRUST may be held liable for any damage arising out of the falsity of its
representation.
Based on the records the subject endorsement of COMTRUST was made in August
1980[;] and in the same period, ALLIED BANK paid on the subject checks. From that
moment, ALLIED BANK could have instituted an action against COMTRUST. It is the
legal possibility of bringing the action which determines the starting point for the
computation of the period (Tolentino, Civil Code of the Philippines, Vol. IV, p. 41,
citing Manresa). This is the moment when a cause of action may be deemed to
accrue. Thus, considering that the third party complaint was filed more than ten years
from August 1980, specifically on January 10, 1991, the same can no longer be
entertained.
Even granting arguendo that the lower court had jurisdiction over the third party
complaint and the cause of action thereof had not yet prescribed, the filing of the
third party complaint should nevertheless be disallowed considering that defendant
has already presented several witnesses and is about ready to rest its case because,
then, the allowance of the third party complaint would only delay the resolution of the
original case. (Firestone Tire and Rubber Co. of the Phil. vs. Tempengko, supra, p.
423).
A final word. We have noted the curious situation here where, instead of the payee
suing its bank, i.e., the collecting bank (which is COMTRUST), it opted to sue the
drawee bank (ALLIED BANK). It is, however, up to the trial court to rule on the
propriety of the latter
complaint. 4
Not satisfied with the above ruling, petitioner filed the present petition before this Court. 5
The Issues
Petitioner raises the following issues: 6
I. The Respondent Honorable Court of Appeals erred in holding that the cause of
action of the third-party complaint ha[d] already prescribed.
II. The Respondent Honorable Court of Appeals erred in holding that the filing of the
third party complaint should be disallowed as it would only delay the resolution of the
case.
On the other hand, private respondent argues that the trial court had no authority to admit a third-
party claim that was filed by one bank against another and involved a check cleared through the
Philippine Clearing House Corporation (PCHC). To the mind of the Court, this is the critical issue.
The Court's Ruling
The petition is bereft of merit.
Critical Issue: Mandatory Recourse to PCHC

To buttress its claim, private respondent contends that petitioner's remedy rests with the PCHC, of
which both Allied and BPI are members, in consonance with the Clearing House Rules and
Regulations which, in part, states:
Sec. 38 — Arbitration
Any dispute or controversy between two or more clearing participants involving any
check/item cleared thru PCHC shall be submitted to the Arbitration Committee, upon
written complaint of any involved participant by filing the same with the PCHC
serving the same upon the other party or parties, who shall within fifteen (15) days
after receipt thereof file with the Arbitration Committee its written answer to such
written complaint and also within the same period serve the same upon the
complaining participant, . . . .
Private respondent cites Banco de Oro Sayings and Mortgage Bank v. Equitable Banking
Corporation and Associated Bank v. Court of Appeals, which upheld the right of the PCHC to settle
7 8
and adjudicate disputes between member banks. In Banco de Oro, the Court ruled:
The participation of the two banks, petitioner and private respondent, in the clearing
operations of PCHC is a manifestation of their submission to its jurisdiction. Secs. 3
and 36.6 of the PCHC-CHRR clearing rules and regulations provide:
Sec. 3. AGREEMENT TO THESE RULES. — It is the general

agreement and understanding that any participant in the Philippine
Clearing House Corporation, MICR clearing operations[,] by the mere
fact of their participation, thereby manifests its agreement to these
Rules and Regulations and its subsequent amendments.
Sec. 36.6. (ARBITRATION) — The fact that a bank participates in the

clearing operations of the PCHC shall be deemed its written and
subscribed consent to the binding effect of this arbitration agreement
as if it had done so in accordance with section 4 of (the) Republic Act.
No. 876, otherwise known as the Arbitration Law.
Further[,] Section 2 of the Arbitration Law mandates:
Two or more persons or parties may submit to the arbitration of one

or more arbitrators any controversy existing between them at the time
of the submission and which may be the subject of any action, or the
parties of any contract may in such contract agree to settle by
arbitration a controversy thereafter arising between them. Such
submission or contract shall be valid and irrevocable, save upon
grounds as exist at law for the revocation of any contract.
Such submission or contract may include question arising out of

valuations, appraisals or other controversies which may be collateral,
incidental, precedent or subsequent to any issue between the parties.
(Emphasis supplied.)
Associated Bank also disallowed a similar third-party complaint, ruling thus:

Under the rules and regulations of the Philippine Clearing House Corporation
(PCHC), the mere act of participation of the parties concerned in its operations in
effect amounts to a manifestation of agreement by the parties to abide by its rules
and regulations. As a consequence of such participation, a party cannot invoke the
jurisdiction of the courts over disputes and controversies which fall under the PCHC
Rules and Regulations without first going through the arbitration processes laid out
by the body. Since claims relating to the regularity of checks cleared by banking
institutions are among those claims which should first be submitted for resolution by
the PCHC's Arbitration Committee, petitioner Associated Bank, having voluntarily
bound itself to abide by such rules and regulations, is estopped from seeking relief
from the Regional Trial Court on the coattails of a private claim and in the guise of a
third party complaint without first having obtained a decision adverse to its claim from
the said body. It cannot bypass the arbitration process on the basis of its averment
that its third party complaint is inextricably linked to the original complaint in the
Regional Trial Court.
x x x x x x x x x
Clearly therefore, petitioner Associated Bank, by its voluntary participation and its
consent to the arbitration rules cannot go directly to the Regional Trial Court when it
finds it convenient to do so. The jurisdiction of the PCHC under the rules and
regulations is clear, undeniable and is particularly applicable to all the parties in the
third party complaint under their obligation to first seek redress of their disputes and
grievances [from] the PCHC before going to the trial court.
Finally, the contention that the third party complaint should not have been dismissed
for being a necessary and inseparable offshoot of the main case over which the
court a quo had already exercised jurisdiction misses the fundamental point about
such pleading. A third party complaint is a mere procedural device which under the
Rules of Court is allowed only with the court's permission. It is an action "actually
independent of, separate and distinct from the plaintiffs' complaint" (s)uch that, were
it not for the Rules of Court, it would be necessary to file the action separately from
the original complaint by the defendant against the third party. (Emphasis supplied.)
Banco de Oro and Associated Bank are clear and unequivocal: a third-party complaint of one bank
against another involving a check cleared through the PCHC is unavailing, unless the third-party
claimant has first exhausted the arbitral authority of the PCHC Arbitration Committee and obtained a
decision from said body adverse to its claim.
Recognizing the role of the PCHC in the arbitration of disputes between participating banks, the
Court in Associated Bank further held: "Pursuant to its function involving the clearing of checks and
other clearing items, the PCHC has adopted rules and regulations designed to provide member
banks with a procedure whereby disputes involving the clearance of checks and other negotiable
instruments undergo a process of arbitration prior to submission to the courts below. This procedure
not only ensures a uniformity of rulings relating to factual disputes involving checks and other
negotiable instruments but also provides a mechanism for settling minor disputes among
participating and member banks which would otherwise go directly to the trial courts."
We defer to the primary authority of PCHC over the present dispute, because its technical expertise
in this field enables it to better resolve questions of this nature. This is not prejudicial to the interest
of any party, since primary recourse to the PCHC does not preclude an appeal to the regional trial
courts on questions of law. Section 13 of the PCHC Rules reads:
Sec. 13. The findings of facts of the decision or award rendered by the Arbitration
Committee or by the sole Arbitrator as the case may be shall be final and conclusive
upon all the parties in said arbitration dispute. The decision or award of the
Arbitration Committee or of the Sole Arbitrator shall be appealable only on questions
of law to any of the Regional Trial Courts in the National Capital Judicial Region
where the Head Office of any of the parties is located. The appellant shall perfect his
appeal by filing a notice of appeal to the Arbitration Secretariat and filing a Petition
with the Regional Trial Court of the National Capital Region . . . .
Furthermore, when the error is so patent, gross and prejudicial as to constitute grave abuse of
discretion, courts may address questions of fact already decided by the arbitrator. 9
We are not unaware of the rule that a trial court, which has jurisdiction over the main action, also has
jurisdiction over the third-party complaint, even if the said court would have had no jurisdiction over it
had it been filed as an independent action. However, this doctrine does not apply in the case of
10
banks, which have given written and subscribed consent to arbitration under the auspices of the
PCHC.
By participating in the clearing operations of the PCHC, petitioner agreed to submit disputes of this
nature to arbitration. Accordingly, it cannot invoke the jurisdiction of the trial courts without a prior
recourse to the PCHC Arbitration Committee. Having given its free and voluntary consent to the
arbitration clause, petitioner cannot unilaterally take it back according to its whim. In the world of
commerce, especially in the field of banking, the promised word is crucial. Once given, it may no
longer be broken.
Upon the other hand, arbitration as an alternative method of dispute resolution is encouraged by this
Court. Aside from unclogging judicial dockets, it also hastens solutions especially of commercial
disputes.
In view of the foregoing, a discussion of the issues raised by the petitioners is unnecessary.
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.
PHILTRANCO VS CA
In an action for breach of contract of carriage commenced by a passenger against his common
carrier, the plaintiff can recover damages from a third-party defendant brought into the suit by the
common carrier upon a claim based on tort or quasi-delict. The liability of the third-party defendant is
independent from the liability of the common carrier to the passenger.
Philtranco Service Enterprises, Inc. (Philtranco) appeals the affirmance with modifications by the
Court of Appeals (CA) of the decision of the Regional Trial Court (RTC) awarding moral, actual and
temperate damages, as well as attorney’s fees and costs of suit, to respondent Felix Paras (Paras),
and temperate damages to respondent Inland Trailways, Inc. (Inland), respectively the plaintiff and
the defendant/third-party plaintiff in this action for breach of contract of carriage, upon a finding that
the negligence of the petitioner and its driver had caused the serious physical injuries Paras
sustained and the material damage Inland’s bus suffered in a vehicular accident.
Antecedents
The antecedent facts, as summarized by the CA, are as follows:
Plaintiff-appellant [respondent] Felix Paras (Paras for brevity), who hails from Cainta, Rizal is
engaged in the buy and sell of fish products. Sometime on 08 February 1987, on his way home to
Manila from Bicol Region, he boarded a bus with Body No. 101 and Plate No. EVE 508, owned and
operated by Inland Trailways, Inc. (Inland for brevity) and driven by its driver Calvin Coner (Coner for
brevity).
At approximately 3:50 o’clock in the morning of 09 February 1987, while the said bus was travelling
along Maharlika Highway, Tiaong, Quezon, it was bumped at the rear by another bus with Plate No.
EVB 259, owned and operated by Philtranco Service Enterprises, Inc. (Philtranco for brevity). As a
result of the strong and violent impact, the Inland bus was pushed forward and smashed into a cargo
truck parked along the outer right portion of the highway and the shoulder thereof. Consequently, the
said accident bought considerable damage to the vehicles involved and caused physical injuries to
the passengers and crew of the two buses, including the death of Coner who was the driver of the
Inland Bus at the time of the incident.
Paras was not spared from the pernicious effects of the accident. After an emergency treatment at
the San Pablo Medical Center, San Pablo City, Laguna, Paras was taken to the National Orthopedic
Hospital. At the latter hospital, he was found and diagnosed by Dr. Antonio Tanchuling, Jr. to be
affected with the following injuries: a) contusion/hematoma; b) dislocation of hip upon fracture of the
fibula on the right leg; c) fractured small bone on the right leg; and d) close fracture on the tibial
plateau of the left leg. (Exh. "A", p. 157, record)
On 04 March 1987 and 15 April 1987, Paras underwent two (2) operations affecting the fractured
portions of his body. (Exhs. "A-2" and "A-3", pp. 159 and 160 respectively, record)
Unable to obtain sufficient financial assistance from Inland for the costs of his operations,
hospitalization, doctors’ fees and other miscellaneous expenses, on 31 July 1989, Paras filed a
complaint for damages based on breach of contract of carriage against Inland.
In its answer, defendant Inland denied responsibility, by alleging, among others, that its driver Coner
had observed an utmost and extraordinary care and diligence to ensure the safety of its passengers.
In support of its disclaimer of responsibility, Inland invoked the Police Investigation Report which
established the fact that the Philtranco bus driver of [sic] Apolinar Miralles was the one which
violently bumped the rear portion of the Inland bus, and therefore, the direct and proximate cause of
Paras’ injuries.
On 02 March 1990, upon leave of court, Inland filed a third-party complaint against Philtranco and
Apolinar Miralles (Third Party defendants). In this third-party complaint, Inland, sought for
exoneration of its liabilities to Paras, asserting that the latter’s cause of action should be directed
against Philtranco considering that the accident was caused by Miralles’ lack of care, negligence and
reckless imprudence. (pp. 50 to 56, records).
After trial, the RTC (Branch 71) in Antipolo, Rizal rendered its judgment on July 18, 1997, viz:
1
WHEREFORE, third-party defendant Philtranco and Apolinar Miralles are hereby ordered to pay
plaintiff jointly and severally, the following amounts:
1.₱54,000.00 as actual damages;

2.₱50,000.00 as moral damages;
3.₱20,000.00 as attorney’s fees and costs.
SO ORDERED.
All the parties appealed to the CA on different grounds.
On his part, Paras ascribed the following errors to the RTC, to wit:
I. THE TRIAL COURT ERRED IN HOLDING THAT ONLY THIRD-PARTY DEFENDANT-

APPELLANT PHILTRANCO IS LIABLE FOR THE DAMAGES SUFFERED BY APPELLANT
PARAS.
II. THE TRIAL COURT ERRED IN NOT HOLDING APPELLANT INLAND TRAILWAYS INC.
TO BE JOINTLY AND SEVERALLY LIABLE FOR THE DAMAGES SUFFERED BY PARAS.
III. THE TRIAL COURT ERRED IN NOT AWARDING UNEARNED INCOME AS

ADDITIONAL ACTUAL DAMAGES SUFFERED BY APPELLANT PARAS AS HIS
PHYSICAL DISABILITY IS PERMANENT IN NATURE.
IV. THE TRIAL COURT ERRED IN NOT AWARDING EXEMPLARY DAMAGES IN FAVOR
OF APPELLANT PARAS.
On the other hand, Inland assigned the following errors to the RTC, namely:
THE TRIAL COURT ERRED WHEN IT FAILED TO AWARD DAMAGES UNTO THE THIRD PARTY
PLAINTIFF NOTWITHSTANDING CLEAR FINDING THAT:
‘It is clear from the evidence that the plaintiff sustained injuries because of the reckless, negligence,
and lack of precaution of third party defendant Apolinar Miralles, an employee of Philtranco.’
AND, COMPLETELY DISREGARDED THE UNCONTROVERTED ORAL AND DOCUMENTARY

EVIDENCES ESTABLISHING THE EXTENT AND DEGREE OF DAMAGES SUSTAINED BY THE
THIRD PARTY PLAINTIFF.
Lastly, Philtranco stated that the RTC erred thuswise:
THE COURT A QUO MISERABLY ERRED IN AWARDING ACTUAL DAMAGES GREATER

THAN WHAT WAS ALLEGED IN THE COMPLAINT ITSELF, AND EVEN MUCH MORE
GREATER THAN WHAT WERE PROVED DURING THE TRIAL, HENCE, PERPETUATING
UNJUST ENRICHMENT.
II
THE COURT A QUO SERIOUSLY ERRED IN AWARDING MORAL DAMAGES TO A

CAUSE OF ACTION OF CULPA-CONTRACTUAL EVEN WITHOUT ANY EVIDENCE OF
GROSS BAD FAITH; HENCE, CONTRARY TO THE ESTABLISHED DOCTRINE IN THE
CASES OF PHIL. RABBIT BUS LINES VS. ESGUERRA; SOBERANO VS. BENGUET
AUTO LINE AND FLORES VS. MIRANDA.
III
THE COURT A QUO MISERABLY ERRED IN HOLDING THAT MIRALLES WAS THE ONE
AT FAULT MERELY ON THE STRENGHT OF THE TESTIMONY OF THE POLICE
INVESTIGATOR WHICH IS IN TURN BASED ON THE STATEMENTS OF ALLEGED
WITNESSES WHO WERE NEVER PRESENTED ON THE WITNESS STAND.
IV
THE COURT A QUO COMMITTED A GRIEVOUS ERROR IN DISREGARDING THE

TESTIMONY OF APPELLANTS’ WITNESSES WHO TESTIFIED AS TO THE DEFENSE OF
EXERCISE OF DUE DILIGENCE IN THE SELECTION AND SUPERVISION OF
EMPLOYEES PURSUANT TO ART. 2180, LAST PARAGRAPH, NEW CIVIL CODE.
On September 25, 2002, the CA promulgated its decision, disposing:

2
WHEREFORE, in consideration of the foregoing premises, the assailed decision dated 18 July
19(9)7 is perforce affirmed with the following modifications:
1. Third party defendants-appellants Philtranco and Apolinar Miralles are ordered to pay
plaintiff-appellant Felix Paras jointly and severally the following amounts:
a) ₱1,397.95 as actual damages;
b) ₱50,000.00 as temperate damages;
c) ₱50,000.00 as moral damages; and
d) ₱20,000.00 as attorney’s fees and costs of suit.
2. On the third party plaintiff-appellant Inland’s claims, the third party defendant-appellants
Philtranco and Apolinar Miralles are hereby ordered to pay the former (Inland) jointly and
severally the amount of ₱250,000.00 as and by way of temperate damages.
SO ORDERED.
The CA agreed with the RTC’s finding that no trace of negligence at the time of the accident was
attributable to Inland’s driver, rendering Inland not guilty of breach of contract of carriage; that faulty
brakes had caused Philtranco’s bus to forcefully bump Inland’s bus from behind, making it hit the
rear portion of a parked cargo truck; that the impact had resulted in considerable material damage to
the three vehicles; and that Paras and others had sustained various physical injuries.
Accordingly, the CA:– (a) sustained the award of moral damages of ₱50,000.00 in favor of Paras
pursuant to Article 2219 of the Civil Code based on quasi-delict committed by Philtranco and its
driver; (b) reduced the actual damages to be paid by Philtranco to Paras from ₱54,000.00 to
₱1,397.95 because only the latter amount had been duly supported by receipts; (c) granted
temperate damages of ₱50,000.00 (in lieu of actual damages in view of the absence of competent
proof of actual damages for his hospitalization and therapy) to be paid by Philtranco to Paras; and
(d) awarded temperate damages of ₱250,000.00 under the same premise to be paid by Philtranco to
Inland for the material damage caused to Inland’s bus.
Philtranco moved for reconsideration, but the CA denied its motion for reconsideration on January
3
21, 2004. 4
Issues
Hence, this appeal, in which the petitioner submits that the CA committed grave abuse of discretion
amounting to lack of jurisdiction in awarding moral damages to Paras despite the fact that the
complaint had been anchored on breach of contract of carriage; and that the CA committed a
reversible error in substituting its own judgment by motu proprio awarding temperate damages of
₱250,000.00 to Inland and ₱50,000.00 to Paras despite the clear fact that temperate damages were
not raised on appeal by Paras and Inland.
Ruling
The appeal lacks merit.
The Court does not disturb the unanimous findings by the CA and the RTC on the negligence of
Philtranco and its driver being the direct cause of the physical injuries of Paras and the material
damage of Inland.
Nonetheless, we feel bound to pass upon the disparate results the CA and the RTC reached on the
liabilities of Philtranco and its driver.
1.
Paras can recover moral damages

in this suit based on quasi-delict
Philtranco contends that Paras could not recover moral damages because his suit was based on
breach of contract of carriage, pursuant to which moral damages could be recovered only if he had
died, or if the common carrier had been guilty of fraud or bad faith. It argues that Paras had suffered
only physical injuries; that he had not adduced evidence of fraud or bad faith on the part of the
common carrier; and that, consequently, Paras could not recover moral damages directly from it
(Philtranco), considering that it was only being subrogated for Inland.
The Court cannot uphold the petitioner’s contention.
As a general rule, indeed, moral damages are not recoverable in an action predicated on a breach of
contract. This is because such action is not included in Article 2219 of the Civil Code as one of the
5
actions in which moral damages may be recovered. By way of exception, moral damages are
recoverable in an action predicated on a breach of contract: (a) where the mishap results in the
death of a passenger, as provided in Article 1764, in relation to Article 2206, (3), of the Civil Code;
6 7
and (b) where the common carrier has been guilty of fraud or bad faith, as provided in Article
8
2220 of the Civil Code.

9
Although this action does not fall under either of the exceptions, the award of moral damages to
Paras was nonetheless proper and valid. There is no question that Inland filed its third-party
complaint against Philtranco and its driver in order to establish in this action that they, instead of
Inland, should be directly liable to Paras for the physical injuries he had sustained because of their
negligence. To be precise, Philtranco and its driver were brought into the action on the theory of
liability that the proximate cause of the collision between Inland’s bus and Philtranco’s bus had been
"the negligent, reckless and imprudent manner defendant Apolinar Miralles drove and operated his
driven unit, the Philtranco Bus with Plate No. 259, owned and operated by third-party defendant
Philtranco Service Enterprises, Inc." The apparent objective of Inland was not to merely subrogate
10
the third-party defendants for itself, as Philtranco appears to suggest, but, rather, to obtain a
11
different relief whereby the third-party defendants would be held directly, fully and solely liable to
Paras and Inland for whatever damages each had suffered from the negligence committed by
Philtranco and its driver. In other words, Philtranco and its driver were charged here as joint
tortfeasors who would be jointly and severally be liable to Paras and Inland.
Impleading Philtranco and its driver through the third-party complaint filed on March 2, 1990 was
correct. The device of the third-party action, also known as impleader, was in accord with Section
12, Rule 6 of the Revised Rules of Court, the rule then applicable, viz:
Section 12. Third-party complaint. – A third-party complaint is a claim that a defending party may,
with leave of court, file against a person not a party to the action, called the third-party defendant, for
contribution, indemnity, subrogation or any other relief, in respect of his opponent’s claim. 12
Explaining the application of Section 12, Rule 6, supra, the Court said in Balbastro v. Court of
Appeals, to wit:
13
Section 12 of Rule 6 of the Revised Rules of Court authorizes a defendant to bring into a lawsuit any
person "not a party to the action . . . for contribution, indemnity, subrogation or any other relief in
respect of his opponent's claim." From its explicit language it does not compel the defendant to bring
the third-parties into the litigation, rather it simply permits the inclusion of anyone who meets the
standard set forth in the rule. The secondary or derivative liability of the third-party is central —
whether the basis is indemnity, subrogation, contribution, express or implied warranty or some other
theory. The impleader of new parties under this rule is proper only when a right to relief exists under
the applicable substantive law. This rule is merely a procedural mechanism, and cannot be utilized
unless there is some substantive basis under applicable law.
Apart from the requirement that the third-party complainant should assert a derivative or secondary
claim for relief from the third-party defendant there are other limitations on said party’s ability to
implead. The rule requires that the third-party defendant is "not a party to the action" for otherwise
the proper procedure for asserting a claim against one who is already a party to the suit is by means
of counterclaim or cross-claim under sections 6 and 7 of Rule 6. In addition to the aforecited
requirement, the claim against the third-party defendant must be based upon plaintiff's claim against
the original defendant (third-party claimant). The crucial characteristic of a claim under section 12 of
Rule 6, is that the original "defendant is attempting to transfer to the third-party defendant the liability
asserted against him by the original plaintiff."
Accordingly, the requisites for a third-party action are, firstly, that the party to be impleaded must not
yet be a party to the action; secondly, that the claim against the third-party defendant must belong to
the original defendant; thirdly, the claim of the original defendant against the third-party defendant
must be based upon the plaintiff’s claim against the original defendant; and, fourthly, the defendant
is attempting to transfer to the third-party defendant the liability asserted against him by the original
plaintiff.
14
As the foregoing indicates, the claim that the third-party complaint asserts against the third-party
defendant must be predicated on substantive law. Here, the substantive law on which the right of
Inland to seek such other relief through its third-party complaint rested were Article 2176 and Article
2180 of the Civil Code, which read:
Article 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this chapter. (1902a)
Article 2180. The obligation imposed by article 2176 is demandable not only for one’s own acts or
omissions, but also for those of persons for whom one is responsible.
xxx
Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or
industry.
xxx
The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage. (1903a)
Paras’ cause of action against Inland (breach of contract of carriage) did not need to be the same as
the cause of action of Inland against Philtranco and its driver (tort or quasi-delict) in the impleader. It
is settled that a defendant in a contract action may join as third-party defendants those who may be
liable to him in tort for the plaintiff’s claim against him, or even directly to the plaintiff. Indeed, Prof.
15
Wright, et al., commenting on the provision of the Federal Rules of Procedure of the United States
from which Section 12, supra, was derived, observed so, to wit: 16
The third-party claim need not be based on the same theory as the main claim. For example, there
are cases in which the third-party claim is based on an express indemnity contract and the original
complaint is framed in terms of negligence. Similarly, there need not be any legal relationship
between the third-party defendant and any of the other parties to the action. Impleader also is proper
even though the third party’s liability is contingent, and technically does not come into existence until
the original defendant’s liability has been established. In addition, the words ‘is or may be liable’ in
Rule 14(a) make it clear that impleader is proper even though the third-party defendant’s liability is
not automatically established once the third-party plaintiff’s liability to the original plaintiff has been
determined.
Nor was it a pre-requisite for attachment of the liability to Philtranco and its driver that Inland be first
declared and found liable to Paras for the breach of its contract of carriage with him. As the Court
17
has cogently discoursed in Samala v. Judge Victor: 18
Appellants argue that since plaintiffs filed a complaint for damages against the defendants on a
breach of contract of carriage, they cannot recover from the third-party defendants on a cause of
action based on quasi-delict. The third party defendants, they allege, are never parties liable with
respect to plaintiff s claim although they are with respect to the defendants for indemnification,
subrogation, contribution or other reliefs. Consequently, they are not directly liable to the plaintiffs.
Their liability commences only when the defendants are adjudged liable and not when they are
absolved from liability as in the case at bar.
Quite apparent from these arguments is the misconception entertained by appellants with respect to
the nature and office of a third party complaint.
Section 16, Rule 6 of the Revised Rules of Court defines a third party complaint as a "claim that a
defending party may, with leave of court, file against a person not a party to the action, called the
third-party defendant, for contribution, indemnification, subrogation, or any other relief, in respect of
his opponent’s claim." In the case of Viluan vs. Court of Appeals, et al., 16 SCRA 742 [1966], this
Court had occasion to elucidate on the subjects covered by this Rule, thus:
... As explained in the Atlantic Coast Line R. Co. vs. U.S. Fidelity & Guaranty Co., 52 F. Supp. 177
(1943:)
‘From the sources of Rule 14 and the decisions herein cited, it is clear that this rule, like the
admiralty rule, ‘covers two distinct subjects, the addition of parties defendant to the main cause of
action, and the bringing in of a third party for a defendant’s remedy over’. xxx
‘If the third party complaint alleges facts showing a third party’s direct liability to plaintiff on the claim
set out in plaintiff’s petition, then third party ‘shall’ make his defenses as provided in Rule 12 and his
counterclaims against plaintiff as provided in Rule 13. In the case of alleged direct liability, no
amendment (to the complaint) is necessary or required. The subject-matter of the claim is contained
in plaintiff's complaint, the ground of third party’s liability on that claim is alleged in third party
complaint, and third party’s defense to set up in his answer to plaintiff's complaint. At that point and
without amendment, the plaintiff and third party are at issue as to their rights respecting the claim.
The provision in the rule that, ‘The third-party defendant may assert any defense which the third-
party plaintiff may assert to the plaintiffs claim,’ applies to the other subject, namely, the alleged
liability of third party defendant. The next sentence in the rule, ‘The third-party defendant is bound by
the adjudication of the third party plaintiffs liability to the plaintiff, as well as of his own to the plaintiff
or to the third-party plaintiff applies to both subjects. If third party is brought in as liable only to
defendant and judgment is rendered adjudicating plaintiff's right to recover against defendant and
defendant’s rights to recover against third party, he is bound by both adjudications.That part of the
sentence refers to the second subject. If third party is brought in as liable to plaintiff, then third party
is bound by the adjudication as between him and plaintiff. That refers to the first subject. If third party
is brought in as liable to plaintiff and also over to defendant, then third party is bound by both
adjudications. xxx
Under this Rule, a person not a party to an action may be impleaded by the defendant either (a) on
an allegation of liability to the latter; (b) on the ground of direct liability to the plaintiff-; or, (c) both (a)
and (b). The situation in (a) is covered by the phrase "for contribution, indemnity or subrogation;"
while (b) and (c) are subsumed under the catch all "or any other relief, in respect of his opponent’s
claim."
The case at bar is one in which the third party defendants are brought into the action as directly
liable to the plaintiffs upon the allegation that "the primary and immediate cause as shown by the
police investigation of said vehicular collision between (sic) the above-mentioned three vehicles was
the recklessness and negligence and lack of imprudence (sic) of the third-party defendant Virgilio
(should be Leonardo) Esguerra y Ledesma then driver of the passenger bus." The effects are that
"plaintiff and third party are at issue as to their rights respecting the claim" and "the third party is
bound by the adjudication as between him and plaintiff." It is not indispensable in the premises that
the defendant be first adjudged liable to plaintiff before the third-party defendant may be held liable
to the plaintiff, as precisely, the theory of defendant is that it is the third party defendant, and not he,
who is directly liable to plaintiff. The situation contemplated by appellants would properly pertain to
situation (a) above wherein the third party defendant is being sued for contribution, indemnity or
subrogation, or simply stated, for a defendant's "remedy over". 19
It is worth adding that allowing the recovery of damages by Paras based on quasi-delict, despite his
complaint being upon contractual breach, served the judicial policy of avoiding multiplicity of suits
and circuity of actions by disposing of the entire subject matter in a single litigation.
20
2.
Award of temperate damages was in order
Philtranco assails the award of temperate damages by the CA considering that, firstly, Paras and
Inland had not raised the matter in the trial court and in their respective appeals; secondly, the CA
could not substitute the temperate damages granted to Paras if Paras could not properly establish
his actual damages despite evidence of his actual expenses being easily available to him; and,
thirdly, the CA gravely abused its discretion in granting motu proprio the temperate damages of
₱250,000.00 to Inland although Inland had not claimed temperate damages in its pleading or during
trial and even on appeal.
The Court cannot side with Philtranco.
Actual damages, to be recoverable, must not only be capable of proof, but must actually be proved
with a reasonable degree of certainty. The reason is that the court "cannot simply rely on
speculation, conjecture or guesswork in determining the fact and amount of damages," but "there
must be competent proof of the actual amount of loss, credence can be given only to claims which
are duly supported by receipts."21
The receipts formally submitted and offered by Paras were limited to the costs of medicines
purchased on various times in the period from February 1987 to July 1989 (Exhibits E to E-35,
inclusive) totaling only ₱1,397.95. The receipts by no means included hospital and medical
22
expenses, or the costs of at least two surgeries as well as rehabilitative therapy. Consequently, the
CA fixed actual damages only at that small sum of ₱1,397.95. On its part, Inland offered no definite
proof on the repairs done on its vehicle, or the extent of the material damage except the testimony of
its witness, Emerlinda Maravilla, to the effect that the bus had been damaged beyond economic
repair. The CA rejected Inland’s showing of unrealized income worth ₱3,945,858.50 for 30 months
23
(based on alleged average weekly income of ₱239,143.02 multiplied by its guaranteed revenue
amounting to 55% thereof, then spread over a period of 30 months, the equivalent to the remaining
40% of the vehicle’s un-depreciated or net book value), finding such showing arbitrary, uncertain and
speculative. As a result, the CA allowed no compensation to Inland for unrealized income.
24
Nonetheless, the CA was convinced that Paras should not suffer from the lack of definite proof of his
actual expenses for the surgeries and rehabilitative therapy; and that Inland should not be deprived
of recourse to recover its loss of the economic value of its damaged vehicle. As the records
indicated, Paras was first rushed for emergency treatment to the San Pablo Medical Center in San
Pablo City, Laguna, and was later brought to the National Orthopedic Hospital in Quezon City where
he was diagnosed to have suffered a dislocated hip, fracture of the fibula on the right leg, fracture of
the small bone of the right leg, and closed fracture on the tibial plateau of the left leg. He underwent
surgeries on March 4, 1987 and April 15, 1987 to repair the fractures. Thus, the CA awarded to him
25
temperate damages of ₱50,000.00 in the absence of definite proof of his actual expenses towards
that end. As to Inland, Maravilla’s testimony of the bus having been damaged beyond economic
repair showed a definitely substantial pecuniary loss, for which the CA fixed temperate damages of
₱250,000.00. We cannot disturb the CA’s determination, for we are in no position today to judge its
reasonableness on account of the lapse of a long time from when the accident occurred. 26
In awarding temperate damages in lieu of actual damages, the CA did not err, because Paras and
Inland were definitely shown to have sustained substantial pecuniary losses. It would really be a
travesty of justice were the CA now to be held bereft of the discretion to calculate moderate or
temperate damages, and thereby leave Paras and Inland without redress from the wrongful act of
Philtranco and its driver. We are satisfied that the CA exerted effort and practiced great care to
27
ensure that the causal link between the physical injuries of Paras and the material loss of Inland, on
the one hand, and the negligence of Philtranco and its driver, on the other hand, existed in fact. It
also rejected arbitrary or speculative proof of loss. Clearly, the costs of Paras’ surgeries and
consequential rehabilitation, as well as the fact that repairing Inland’s vehicle would no longer be
economical justly warranted the CA to calculate temperate damages of ₱50,000.00 and
₱250,000.00 respectively for Paras and Inland.
There is no question that Article 2224 of the Civil Code expressly authorizes the courts to award
temperate damages despite the lack of certain proof of actual damages, to wit:
Article 2224. Temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary loss has been
suffered but its amount cannot, from the nature of the case, be proved with certainty.
The rationale for Article 2224 has been stated in Premiere Development Bank v. Court of Appeals in 28
the following manner:
Even if not recoverable as compensatory damages, Panacor may still be awarded damages in the
concept of temperate or moderate damages. When the court finds that some pecuniary loss has
been suffered but the amount cannot, from the nature of the case, be proved with certainty,
temperate damages may be recovered. Temperate damages may be allowed in cases where from
the nature of the case, definite proof of pecuniary loss cannot be adduced, although the court is
convinced that the aggrieved party suffered some pecuniary loss.
The Code Commission, in explaining the concept of temperate damages under Article 2224, makes
the following comment:
In some States of the American Union, temperate damages are allowed. There are cases where
from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is
convinced that there has been such loss. For instance, injury to one’s commercial credit or to the
goodwill of a business firm is often hard to show with certainty in terms of money. Should damages
be denied for that reason? The judge should be empowered to calculate moderate damages in such
cases, rather than that the plaintiff should suffer, without redress from the defendant’s wrongful act.
3.
Paras’ loss of earning capacity

must be compensated
In the body of its decision, the CA concluded that considering that Paras had a minimum monthly
income of ₱8,000.00 as a trader he was entitled to recover compensation for unearned income
during the 3-month period of his hospital confinement and the 6-month period of his recovery and
rehabilitation; and aggregated his unearned income for those periods to ₱72,000.00. Yet, the CA
29
omitted the unearned income from the dispositive portion.
The omission should be rectified, for there was credible proof of Paras’ loss of income during his
disability. According to Article 2205, (1), of the Civil Code, damages may be recovered for loss or
impairment of earning capacity in cases of temporary or permanent personal injury. Indeed,
indemnification for damages comprehends not only the loss suffered (actual damages or damnum
emergens) but also the claimant’s lost profits (compensatory damages or lucrum cessans). Even so,30
the formula that has gained acceptance over time has limited recovery to net earning capacity;
hence, the entire amount of ₱72,000.00 is not allowable. The premise is obviously that net earning
capacity is the person’s capacity to acquire money, less the necessary expense for his own
living. To simplify the determination, therefore, the net earning capacity of Paras during the 9-month
31
period of his confinement, surgeries and consequential therapy is pegged at only half of his
unearned monthly gross income of ₱8,000.00 as a trader, or a total of ₱36,000.00 for the 9-month
period, the other half being treated as the necessary expense for his own living in that period.
It is relevant to clarify that awarding the temperate damages (for the substantial pecuniary losses
corresponding to Paras’s surgeries and rehabilitation and for the irreparability of Inland’s damaged
bus) and the actual damages to compensate lost earnings and costs of medicines give rise to no
incompatibility. These damages cover distinct pecuniary losses suffered by Paras and Inland, and 32
do not infringe the statutory prohibition against recovering damages twice for the same act or
omission. 33
4.
Increase in award of attorney’s fees
Although it is a sound policy not to set a premium on the right to litigate, we consider the grant to
34
Paras and Inland of reasonable attorney’s fees warranted. Their entitlement to attorney’s fees was
by virtue of their having been compelled to litigate or to incur expenses to protect their interests, as 35
well as by virtue of the Court now further deeming attorney’s fees to be just and equitable. 36
In view of the lapse of a long time in the prosecution of the claim, the Court considers it reasonable
37
and proper to grant attorney’s fees to each of Paras and Inland equivalent to 10% of the total
amounts hereby awarded to them, in lieu of only ₱20,000.00 for that purpose granted to Paras.
5.
Legal interest on the amounts awarded
Pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals, legal interest at the rate of 6% per
38
annum accrues on the amounts adjudged reckoned from July 18, 1997, the date when the RTC
rendered its judgment; and legal interest at the rate of 12% per annum shall be imposed from the
finality of the judgment until its full satisfaction, the interim period being regarded as the equivalent of
a forbearance of credit.
WHEREFORE, the Court AFFIRMS WITH MODIFICATION the decision of the Court of Appeals
promulgated on September 25, 2002, by ordering PHILTRANCO SERVICE ENTERPRISES, INC.
and APOLINAR MIRALLES to pay, jointly and severally, as follows:
1. To Felix Paras:
(a) ₱1,397.95, as reimbursement for the costs of medicines purchased between
February 1987 and July 1989;
(b) ₱50,000.00 as temperate damages;
(c) ₱50,000.00 as moral damages;
(d) ₱36,000.00 for lost earnings;
(e) 10% of the total of items (a) to (d) hereof as attorney’s fees; and
(f) Interest of 6% per annum from July 18, 1997 on the total of items (a) to (d) hereof
until finality of this decision, and 12% per annum thereafter until full payment.
2. To Inland Trailways, Inc.:
(a) ₱250,000.00 as temperate damages;
(b) 10% of item (a) hereof; and
(c) Interest of 6% per annum on item (a) hereof from July 18, 1997 until finality of this
decision, and 12% per annum thereafter until full payment.
3. The petitioner shall pay the costs of suit.
SO ORDERED.
RULE 7
LORBES VS CA
This petition for review on certiorari arose from an action for reformation of instrument and damages
originally filed with the Regional Trial Court of Antipolo, Rizal, Branch 74, the decision on which was
reviewed and reversed by the Third Division of the Court of Appeals.
Petitioners were the registered owners of a 225-square meter parcel of land located in Antipolo,
Rizal covered by Transfer Certificate of Title No. 165009. Sometime in August 1991, petitioners
mortgaged this property to Florencio and Nestor Carlos in the amount of P150,000.00.
About a year later, the mortgage obligation had increased to P500,000.00 and fearing foreclosure of
the property, petitioners asked their son-in-law, herein private respondent Ricardo delos Reyes, for
help in redeeming their property. Private respondent delos Reyes agreed to redeem the property but
because he allegedly had no money then for the purpose he solicited the assistance of private
respondent Josefina Cruz, a family friend of the delos Reyeses and an employee of the Land Bank
of the Philippines.1âwphi1.nêt
It was agreed that petitioners will sign a deed of sale conveying the mortgaged property in favor of
private respondent Cruz and thereafter, Cruz will apply for a housing loan with Land Bank, using the
subject property as collateral. It was further agreed that out of the proceeds of the loan, P500,000.00
will be paid to the Carloses as mortgagees, and an such balance will be applied by petitioners for
capital gains tax, expenses for the cancellation of the mortgage to the Carloses, transfer of title to
Josefina Cruz, and registration of a mortgage in favor of Land Bank. 1 Moreover, the monthly
amortization on the housing loan which was supposed to be deducted from the salary of private
respondent Cruz will be reimbursed by private respondent delos Reyes.
On September 29, 1992, the Land Bank issued a letter of guarantee in favor of the Carloses,
informing them that Cruz’s loan had been approved. On October 22, 1992, Transfer Certificate of
Title No. 165009 was cancelled and Transfer Certificate of Title No. 229891 in the name of Josefina
Cruz was issued in lieu thereof. 2 On November 25, 1992, the mortgage was discharged.
Sometime in 1993, petitioners notified private respondent delos Reyes that they were ready to
redeem the property but the offer was refused. Aggrieved, petitioners filed on July 22, 1994 a
complaint for reformation of instrument and damages with the RTC of Antipolo, Rizal, docketed as
Civil Case No. 94-3296.
In the complaint, petitioners claimed that the deed was merely a formality to meet the requirements
of the bank for the housing loan, and that the real intention of the parties in securing the loan was to
apply the proceeds thereof for the payment of the mortgage obligation. 3 They alleged that the deed
of sale did not reflect the true intention of the parties, and that the transaction was not an absolute
sale but an equitable mortgage, considering that the price of the sale was inadequate considering
the market value of the subject property and because they continued paying the real estate taxes
thereto even after the execution of the said deed of sale. Petitioners averred that they did not see
any reason why private respondents would retract from their original agreement other than that they
(petitioners) and the members of their family resigned en masse from the Mahal Namin
Organization, of which private respondent delos Reyes was the president and chairman of the board
of directors, and private respondent Cruz was the treasurer. In the same complaint, they demanded
moral damages, exemplary damages, and attorney’s fees.
On July 29, 1996, the trial court issued a temporary restraining order enjoining private respondents
from ejecting petitioners from the premises of the disputed property; this was soon replaced by a writ
of preliminary injunction.
Summons and a copy of the complaint were served upon private respondents on August 1, 1994.
Private respondents filed their answer beyond the reglamentary period, or only on September 1,
1994. Thus, on September 5, 1994, petitioners filed a motion to declare private respondents in
default, which the trial court granted in an order dated September 16, 1994. On September 30 of the
same year, petitioners presented their evidence ex parte before the trial court. The principal witness
presented was petitioner Octavio Lorbes, whose testimony was corroborated by his son, Atty.
Salvador Lorbes.
On October 12, 1994, private respondents filed a motion to lift order of default and to strike out
evidence presented ex parte, which the court denied in an order dated October 26, 1994.
On June 20, 1995, the trial court rendered judgment in favor of petitioners, upon finding that: (1) the
Deed of Absolute Sale dated October 21, 1992 did not reflect the true intention of the parties, and (2)
the transaction entered into between petitioners and Cruz was not an absolute sale but an equitable
mortgage, considering that the price stated in the Deed of Absolute Sale was insufficient compared
to the value of the property, petitioners are still in possession of the property, and petitioners had
continued to pay the real estate taxes thereon after the execution of the said deed of sale. As
explained by the trial court in its decision:
The foregoing uncontroverted facts clearly show that the transaction entered into between
the plaintiffs and the defendants is not an absolute sale but merely an equitable mortgage as
the sale was executed in order to secure a loan from a certain bank to save the property
from the danger of foreclosure and to use it as collateral thereof for bank loan purposes and
that the same does not reflect the real intention of the parties in executing the said Deed of
Sale. The court notes that at the time the transaction and the Deed of Absolute Sale was
executed by the plaintiffs sometime in 1992, the prevailing market value of the lot alone was
P400,000.00 per square meter such that the lot alone consisting of 255 square meters,
excluding the house and improvements thereon would already cost more than a million
pesos already hence, the consideration of P600,000.00 in the said Deed of Sale is
considerably insufficient compared to the value of the property. Further, the plaintiffs are still
in possession of the subject property and had been paying the realty taxes thereon even
after the execution of the sale and the transfer of the title from the plaintiffs to defendant
Josephine Cruz which clearly evinces the true badge of the transaction which occurred
between the plaintiffs and defendants as that of an equitable mortgage and not an absolute
sale and that the plaintiffs were only compelled to enter into the said transaction of sale with
the defendants as the former were in extreme need of money in order to redeem their only
conjugal property and to save it from being foreclosed for non-payment of the mortgage
obligation and that it was never the intention of the plaintiffs to sell the property to the
defendants, as it was their agreement that plaintiffs can redeem the property or any member
of the family thereof, when they become financially stable. 4
The dispositive portion of the trial court’s decision thus provides:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiffs
and against the defendants, ordering the latter jointly and severally, as follows:
1. To reconvey the subject property to the plaintiffs upon payment of the price
stipulated in the contract of sale;
2. To pay plaintiffs the sum of P50,000.00 as moral damages;
3. To pay plaintiffs the sum of P50,000.00 as and by way of attorney’s fees plus
P1,000.00 per court appearance;
4. To pay the costs of suit.
SO ORDERED.5
The Court of Appeals reversed the above decision, finding that private respondents were denied due
process by the refusal of the trial court to lift the order of default against them, and that the
transaction between petitioners and Cruz was one of absolute sale, not of equitable mortgage. It
also held the RTC decision to be constitutionally infirm for its failure to clearly and distinctly state the
facts and the law on which it is based.
The Court of Appeals held that the reformation of the Deeds of Absolute Sale in the instant case is
improper because there is no showing that such instrument failed to express the true intention of the
parties by reason of mistake, fraud, inequitable conduct, or accident in the execution thereof. 6 To the
Court of Appeals, the transaction was unmistakably a contract of sale, as evidenced by the
numerous supporting documents thereto, such as the Contract to Sell dated June 1992, Affidavit of
Waiver/Assignment dated August 14, 1992, Receipt of Partial Advance Payment dated September
9, 1992, and Transfer Certificate of Title No. 229891 issued in the name of private respondent Cruz.
Going over the indicators giving rise to a presumption of equitable mortgage cited in the decision of
the RTC, the Court of Appeals held: (1) inadequacy of price is material only in a sale with right to
repurchase, which is not the case with herein petitioners and Cruz; moreover, the estimate of the
market value of the property came only from the bare testimony of petitioner Octavio Lorbes, (2)
petitioners’ remaining in possession of the property resulted only from their refusal to vacate the
same despite the lawful demands of private respondent Cruz, and (3) there was no documentary
evidence that petitioners continued paying the taxes on the disputed property after the execution of
the Deed of Absolute Sale.
In its decision, the Court of Appeals also pointed out that under the usual arrangement of pacto de
retro the vendor of the property is a debtor of the vendee, and the property is used as security for his
obligation. In the instant case, the mortgage creditors (the Carloses) are third persons to the Deed of
Absolute Sale.
This petition raises three issues before the Court: (1) whether respondent court erred in ruling that
the Deed of Absolute Sale dated October 21, 1992 was an equitable mortgage, (2) whether
respondent court erred in ruling that by declaring private respondents in default they were denied
due process of law, and (3) whether respondent court erred in ruling that the trial court’s decision
violates the constitutional requirement that it should clearly and distinctly state the facts and the law
on which it is based.7
We shall first deal with the second and third issues, these being preliminary matters.
Well-settled is the rule that courts should be liberal in setting aside orders of default for judgments of
default are frowned upon, unless in cases where it clearly appears that the reopening of the case is
intended for delay.8 The issuance of orders of default should be the exception rather than the rule, to
be allowed only in clear cases of obstinate refusal by the defendant to comply with the orders of the
trial court.9
Under the factual milieu of this case, the RTC was indeed remiss in denying private respondents’
motion to lift the order of default and to strike out the evidence presented by petitioners ex parte,
especially considering that an answer was filed, though out of time. We thus sustain the holding of
the Court of Appeals that the default order of the RTC was immoderate and in violation of private
respondents’ due process rights. However, we do not think that the violation was of a degree as to
justify a remand of the proceedings to the trial court, first, because such relief was not prayed for by
private respondents, and second, because the affirmative defenses and evidence that private
respondents would have presented before the RTC were capably ventilated before respondent
court, and were taken into account by the latter in reviewing the correctness of the evaluation of
petitioners’ evidence by the RTC and ultimately, in reversing the decision of the RTC. This is evident
from the discussions in the decision of the Court of Appeals, which cited with approval a number of
private respondents’ arguments and evidence, including the documents annexed to their opposition
to the issuance of a writ of preliminary injunction filed with the RTC.10 To emphasize, the reversal of
respondent court was not simply on due process grounds but on the merits, going into the issue of
whether the transaction was one of equitable mortgage or of sale, and so we find that we can
properly take cognizance of the substantive issue in this case, while of course bearing in mind the
inordinate manner by which the RTC issued its default order.
As regards the third issue, we reverse for being unfounded the holding of the Court of Appeals since
the RTC decision, some parts of which we even reproduced in our earlier discussions, clearly
complied with the constitutional requirement to state clearly and distinctly the facts and the law on
which it was based.
Thus, the one issue essential to the resolution of this case is the nature of the transaction between
petitioners and private respondent Cruz concerning the subject parcel of land. Did the parties intend
for the contested Deed of Absolute Sale to be a bona fide and absolute conveyance of the property,
or merely an equitable mortgage?
On the outset, it must be emphasized that there is no conclusive test to determine whether a deed
absolute on its face is really a simple loan accommodation secured by a mortgage. 11 "The decisive
factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the
terminology used in the contract but by all the surrounding circumstances, such as the relative
situation of the parties at that time, the attitude, acts, conduct, declarations of the parties, the
negotiations between them leading to the deed, and generally, all pertinent facts having a tendency
to fix and determine the real nature of their design and understanding. As such, documentary and
parol evidence may be submitted and admitted to prove the intention of the parties." 12
The conditions which give way to a presumption of equitable mortgage, as set out in Article 1602 of
the Civil Code, apply with equal force to a contract purporting to be one of absolute sale. 13 Moreover,
the presence of even one of the circumstances laid out in Article 1602, and not a concurrence of the
circumstances therein enumerated, suffices to construe a contract of sale to be one of equitable
mortgage.14 This is simply in consonance with the rule that the law favors the least transmission of
property rights.15
Thus, under Article 1602 of the Civil Code, a contract shall be presumed to be an equitable
mortgage when --- (a) the price of a sale with right to repurchase is unusually inadequate; (b) the
vendor remains in possession as lessee or otherwise; (c) upon or after the expiration of the right of
repurchase another instrument extending the period of redemption or granting a new period is
executed; (d) the purchaser retains for himself a part of the purchase price; (e) the vendor binds
himself to pay the taxes on the thing sold; and, (f) in any other case where it may be fairly inferred
that the real intention of the parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
Applying the foregoing considerations to the instant case, the Court finds that the true intention
between the parties for executing the Deed of Absolute Sale was not to convey ownership of the
property in question but merely to secure the housing loan of Cruz, in which petitioners had a direct
interest since the proceeds thereof were to be immediately applied to their outstanding mortgage
obligation to the Carloses.
It is not disputed that before the execution of the Deed of Absolute Sale petitioners’ mortgage
obligation to the Carloses as nearing maturity and they were in dire need of money to meet the
same. Hence, they asked for the help of their son-in-law delos Reyes who in turn requested Cruz to
take out a housing loan with Land Bank. Since collateral is a standard requirement of banks in giving
out loans, it was made to appear that the subject property was sold to Cruz so she can declare the
same as collateral for the housing loan. This was simply in line with the basic requirement in our
laws that the mortgagor be the absolute owner of the property sought to be mortgaged. 16 Consistent
with their agreement, as soon as the housing loan was approved, the full amount of the proceeds
were immediately turned over to petitioners, who promptly paid P500,000.00 therefrom to the
Carloses in full satisfaction of their mortgage obligation. The balance was spent by petitioners in
transferring title to the property to Cruz and registering the new mortgage with Land Bank.
Understandably, the Deed of Absolute Sale and its supporting documents do not reflect the true
arrangement between the parties as to how the loan proceeds are to be actually applied because it
was not the intention of the parties for these documents to do so. The sole purpose for preparing
these documents was to satisfy Land Bank that the requirement of collateral relative to Cruz’s
application for a housing loan was met.
Were we to accept, as respondent court had, that the loan that Cruz took out with Land Bank was
indeed a housing loan, then it is rather curious that Cruz kept none of the loan proceeds but allowed
for the bulk thereof to be immediately applied to the payment of petitioners outstanding mortgage
obligation. It also strains credulity that petitioners, who were exhausting all means to save their sole
conjugal real property from being foreclosed by the Carloses, would concurrently part with the same
in favor of Cruz.
Such urgent prospect of foreclosure helps to explain why petitioners would subscribe to an
agreement like the Deed of Absolute Sale in the herein case, which on its face represents their
unconditional relinquishment of ownership over their property. Passing upon previous similar
situations the Court has declared that "while it was true that plaintiffs were aware of the contents of
the contracts, the preponderance of the evidence showed however that they signed knowing that
said contracts did not express their real intention, and if they did so notwithstanding this, it was due
to the urgent necessity of obtaining funds. "Necessitous men are not, truly speaking, free men; but
to answer a present emergency, will submit to any terms that the crafty may impose upon them.’" 17
The facts further bear out that petitioners remained in possession of the disputed property after the
execution of the Deed of Absolute Sale and the transfer of registered title to Cruz in October 1992.
Cruz made no demand on petitioners to vacate the subject premises until March 19,
1994;18 interestingly, this was two days after petitioners signified their intention to redeem the
property by paying the full amount of P600,000.00. 19 On this basis, the finding of respondent court
that petitioners remained in possession of the property only because they refused to vacate on
Cruz’s demand is not accurate because the records reflect that no such demand was made until
more than a year since the purported sale of the property.
Copies of realty tax receipts attached to the record also show that petitioners continued paying for
the taxes on the property for the period 1992 to 1994, 20 or after the property was supposed to have
been sold to Cruz.
From the above, the Court is satisfied that enough of the circumstances set out in Article 1602 of the
Civil Code are attendant in the instant case, as to show that the true arrangement between
petitioners and private respondent Cruz was an equitable mortgage.
That a transfer certificate of title was issued in favor of private respondent Cruz also does not import
conclusive evidence of ownership or that the agreement between the parties was one of sale. As
was stated in Oronce vs. Court of Appeals,21 citing Macapinlac vs. Gutierrez Repide22:
xxx it must be borne in mind that the equitable doctrine xxx to the effect that any conveyance
intended as security for a debt will be held in effect to be a mortgage, whether so actually
expressed in the instrument or not, operates regardless of the form of the agreement chosen
by the contracting parties as the repository of their will. Equity looks through the form and
considers the substance; and no kind of engagement can be adopted which will enable the
parties to escape from the equitable doctrine to which reference is made. In other words, a
conveyance of land, accompanied by registration in the name of the transferee and the
issuance of a new certificate, is no more secured from the operation of the equitable doctrine
than the most informal conveyance that could be devised.
Before we fully set aside this issue, it will be recalled that the instant petition originated as a
complaint for reformation filed before the RTC of Antipolo, Rizal. The Court of Appeals found
petitioners’ action for reformation unmeritorious because there was no showing that the failure of the
deed of sale to express the parties’ true intention was because of mistake, fraud, inequitable
conduct, or accident.23 Indeed, under the facts of the present case, reformation may not be proper for
failure to fully meet the requisites in Article 1359 of the Civil Code, and because as the evidence
eventually bore out the contested Deed of Absolute Sale was not intended to reflect the true
agreement between the parties but was merely to comply with the collateral requirements of Land
Bank. However, the fact that the complaint filed by petitioners before the trial court was categorized
to be one for reformation of instrument should not preclude the Court from passing upon the issue of
whether the transaction was in fact an equitable mortgage as the same has been squarely raised in
the complaint and had been the subject of arguments and evidence of the parties. Thus we have
held that it is not the caption of the pleading but the allegations therein that determine the nature of
the action, and the Court shall grant relief warranted by the allegations and the proof even if no such
relief is prayed for.24
Finally, on the award of damages. Considering the due process flaws that attended the default
judgment of the RTC, and applying the rule adopted by this Court that in instances where no actual
damages are adjudicated the awards for moral and exemplary damages may be reduced, 25 we
reduce the award for moral damages in the instant case from P50,000.00 to P30,000.00. At the
same time, we sustain the award of attorney’s fees in the amount of P50,000.00, it being clear that
petitioners were compelled to incur expenses and undergo the rigors of litigation to recover their
property.1âwphi1.nêt
WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of

the Regional Trial Court of Antipolo, Rizal is REINSTATED, with the MODIFICATION that the award
of moral damages is reduced to P30,000.00, and in all other respects AFFIRMED. Costs against
private respondents.
SO ORDERED.
PHIL CHRTER VS PNC
Petitioner Philippine Charter Insurance Corporation (PCIC) submits the present motion for the
reconsideration1 of our Resolution dated December 17, 2008, which denied due course to its petition
for review on certiorari.2 It seeks to reinstate the petition and effect a reversal of the Court of Appeals
(CA) Decision3 and Resolution4 dated January 7, 2008 and October 29, 2008, respectively, in CA-
G.R. CV No. 86948. In its petition, the petitioner imputes reversible error on the appellate court for
ruling that it is liable under PCIC Bond No. 27547 and under PCIC Bond No. 27546, as the latter
bond was not covered by the complaint for collection of sum of money filed by respondent Philippine
National Construction Corporation (PNCC).5
The facts, as drawn from the records, are briefly summarized below.
PNCC is engaged in the construction business and tollway operations. On October 16, 1997, PNCC
conducted a public bidding for the supply of labor, materials, tools, supervision, equipment, and
other incidentals necessary for the fabrication and delivery of 27 tollbooths to be used for the
automation of toll collection along the expressways. Orlando Kalingo (Kalingo) won in the bidding
and was awarded the contract.
On November 13, 1997, PNCC issued – in favor of Kalingo – Purchase Order (P.O.) No. 71024L for
25 units of tollbooths for a total of ₱2,100,000.00, and P.O. No. 71025L for two units of tollbooths
amounting to ₱168,000.00. These issuances were subject to the condition, among others, that each
P.O. shall be covered by a surety bond equivalent to 100% of the total down payment (50% of the
total cost reflected on the P.O.), and that the surety bond shall continue in full force until the supplier
shall have complied with all the undertakings and covenants to the full satisfaction of PNCC.
Kalingo, hence, posted surety bonds – Surety Bond Nos. 27546 and 27547 – issued by the PCIC
and whose terms and conditions read:
Surety Bond No. 27546
To supply labor, materials, tools, supervision equipment, and other incidentals necessary for the
fabrication and delivery of Two (2) Units Toll Booth at San Fernando Interchange SB Entry as per
Purchase Order No. 71025L, copy of which is attached as Annex "A." This bond also guarantees the
repayment of the down payment or whatever balance thereof in the event of failure on the part of the
Principal to finish the project due to his own fault.
It is understood that the liability of the Surety under this bond shall in no case exceed the sum of
P84,000.00, Philippine Currency.6
Surety Bond No. 27547
To supply labor, materials, tools, supervision equipment, and other incidentals necessary for the
fabrication and delivery of Twenty-five (25) Units Toll Booth at designated Toll Plaza as per
Purchase Order No. 71024L, copy of which is attached as Annex "A." This bond also guarantees the
repayment of the down payment or whatever balance thereof in the event of failure on the part of the
Principal to finish the project due to his own fault.
It is understood that the liability of the Surety under this bond shall in no case exceed the sum of
P1,050,000.00, Philippine Currency.7
To illustrate, the PCIC surety bonds are in the amounts corresponding to down payments on each
P.O., as follows:
Surety Bond No. Purchase Order Units Total Cost Surety

Covered Amount (equivalent to
50% down payment)
Bond No. 27547 P.O. No. 71024L 25 P2,100,000 P1,050,000
Bond No. 27546 P.O. No. 71025L 2 P 168,000 P 84,000
Both surety bonds also contain the following conditions: (1) the liability of PCIC under the bonds
expires on March 16, 1998; and (2) a written extrajudicial demand must first be tendered to the
surety, PCIC, within 15 days from the expiration date; otherwise PCIC shall not be liable
thereunder and the obligee waives the right to claim or file any court action to collect on the
bond. The following stipulation appears in the last paragraph of these bonds:
The liability of PHILIPPINE CHARTER INSURANCE CORPORATION under this bond will expire on
March 16, 1998. Furthermore, it is hereby agreed and understood that PHILIPPINE CHARTER
INSURANCE CORPORATION will not be liable for any claim not presented to it in writing
within FIFTEEN (15) DAYS from the expiration of this bond, and that the Obligee hereby
waives its right to claim or file any court action against the Surety after the termination of
FIFTEEN (15) DAYS from the time its cause of action accrues.8 (Emphasis supplied.)
PNCC released two checks to Kalingo representing the down payment of 50% of the total project
cost, which were properly receipted by Kalingo.9 Kalingo in turn submitted the two PCIC surety
bonds securing the down payments, which bonds were accepted by PNCC.
On March 3, 4, and 5, 1998, Kalingo made partial/initial delivery of four units of tollbooths under P.O.
No. 71024L. However, the tollbooths delivered were incomplete or were not fabricated according to
PNCC specifications. Kalingo failed to deliver the other 23 tollbooths up to the time of filing of the
complaint; despite demands, he failed and refused to comply with his obligation under the POs.
On March 9, 1998, six days before the expiration of the surety bonds and after the expiration of the
delivery period provided for under the award, PNCC filed a written extrajudicial claim against PCIC
notifying it of Kalingo’s default and demanding the repayment of the down payment on P.O. No.
71024L as secured by PCIC Bond No. 27547, in the amount of ₱1,050,000.00. The claim went
unheeded despite repeated demands. For this reason, on April 24, 2001, PNCC filed with the
Regional Trial Court (RTC), Mandaluyong City a complaint for collection of a sum of money against
Kalingo and PCIC.10 PNCC's complaint against PCIC called solely on PCIC Bond No. 27547; it did
not raise or plead collection under PCIC Bond No. 27546 which secured the down payment of
₱84,000.00 on P.O. No. 71025L.
PCIC, in its answer, argued that the partial delivery of four out of the 25 units of tollbooth by Kalingo
under P.O. No. 71024L should reduce Kalingo's obligation.
The RTC, by Decision of October 31, 2005, ruled in favor of PNCC and ordered PCIC and Kalingo to
jointly and severally pay the latter ₱1,050,000.00, representing the value of PCIC Bond No. 27547,
plus legal interest from last demand, and ₱50,000.00 as attorney's fees. Reconsideration of the trial
court's decision was denied. The trial court made no ruling on PCIC’s liability under PCIC Bond No.
27546, a claim that was not pleaded in the complaint.
On appeal, the CA, by Decision11 of January 7, 2008, held that the RTC erred in ruling that PCIC's
liability is limited only to the payment of ₱1,050,000.00 under PCIC Bond No. 27547 which secured
the down payment on P.O. No. 71024L. The appellate court held that PCIC, as surety, is liable
jointly and severally with Kalingo for the amount of the two bonds securing the two POs to Kalingo;
thus, the CA also held PCIC liable under PCIC Bond No. 27546 which secured the ₱84,000.00 down
payment on P.O. No. 71025L.
Reconsideration having been denied by the appellate court in its Resolution 12 of October 29, 2008,
the PCIC lodged a petition for review on certiorari13 before this Court.
The Court, by Resolution of December 17, 2008, denied due course to the petition. 14 Hence, the
PCIC filed the present motion for reconsideration submitting the following issues for our resolution:
I. WHETHER THE APPELLATE COURT ERRED IN RULING THAT PCIC SHOULD ALSO
BE HELD LIABLE UNDER BOND NO. 27546, COLLECTION UNDER WHICH WAS NOT
SUBJECT OF RESPONDENT PNCC's COMPLAINT FOR COLLECTION OF SUM OF
MONEY;
II. WHETHER THE CHECKS ISSUED IN "1997" BY RESPONDENT PNCC TO KALINGO

WERE GIVEN 10 MONTHS PRIOR TO THE AWARD OF THE PROJECT AND AMOUNTS
TO CONCEALMENT OF MATERIAL FACT VITIATING THE SURETY BONDS ISSUED BY
THE PETITIONER; and
III. WHETHER THE APPELLATE COURT ERRED IN HOLDING PETITIONER PCIC LIABLE
FOR ATTORNEY'S FEES.
The second issue is a factual matter not proper in proceedings before this Court. The PCIC’s
position that the checks were issued 10 months prior to the award had already been rejected by both
the RTC and the CA; both found that the year "1997" appearing on the checks was a mere
typographical error which should have been written as "1998." 15 Consequently, we shall no longer
discuss the PCIC's allegation of material concealment; the factual findings of the RTC, as affirmed
by the CA, are conclusive on us.
Our consideration shall focus on the remaining two issues.
The PCIC presents, as its first issue, the argument that "[w]hen the Court of Appeals rendered
judgment on Bond No. 27546, which was not subject of respondent's complaint, on the ground that
respondent was incorrect in not filing suit for Bond No. 27546, the Court of Appeals virtually acted as
lawyer for respondent."16
We find the PCIC’s position meritorious.
The issue before us calls for a discussion of a court’s basic appreciation of allegations in a
complaint. The fundamental rule is that reliefs granted a litigant are limited to those specifically
prayed for in the complaint; other reliefs prayed for may be granted only when related to the specific
prayer(s) in the pleadings and supported by the evidence on record. Necessarily, any such relief
may be granted only where a cause of action therefor exists, based on the complaint, the pleadings,
and the evidence on record.
Section 2, Rule 2 of the 1997 Rules of Civil Procedure defines a cause of action as the act or
omission by which a party violates the right of another. It is the delict or the wrongful act or omission
committed by the defendant in violation of the primary right of the plaintiff. 17 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. 18
Only upon the occurrence of the last element does a cause of action arise, giving the plaintiff the
right to maintain an action in court for recovery of damages or other appropriate relief. 19
Each of the surety bonds issued by PCIC created a right in favor of PNCC to collect the repayment
of the bonded down payments made on the two POs if contractor Kalingo defaults on his obligation
under the award to fabricate and deliver to PNCC the tollbooths contracted for. Concomitantly,
PCIC, as surety, had the obligation to comply with its undertaking under the bonds to repay PNCC
the down payments the latter made on the POs if Kalingo defaults.
It must be borne in mind that each of the two bonds is a distinct contract by itself, subject to its own
terms and conditions. They each contain a provision that the surety, PCIC, will not be liable for any
claim not presented to it in writing within 15 days from the expiration of the bond, and that the
obligee (PNCC) thereby waives its right to claim or file any court action against the surety (PCIC)
after the termination of 15 days from the time its cause of action accrues. This written claim
provision creates a condition precedent for the accrual of: (1) PCIC’s obligation to comply
with its promise under the particular bond, and of (2) PNCC's right to collect or sue on these
bonds. PCIC’s liability to repay the bonded down payments arises only upon PNCC's filing of
a written claim – notifying PCIC of principal Kalingo’s default and demanding collection
under the bond – within 15 days from the bond’s expiry date. PNCC’s failure to comply with
the written claim provision has the effect of extinguishing PCIC’s liability and constitutes a
waiver by PNCC of the right to claim or sue under the bond.
Liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly
assumed therein. We have repeatedly held that the extent of a surety's liability is determined only by
the clause of the contract of suretyship and by the conditions stated in the bond. It cannot be
extended by implication beyond the terms of the contract.20 Equally basic is the principle that
obligations arising from contracts have the force of law between the parties and should be complied
with in good faith.21 Nothing can stop the parties from establishing stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.22 Here, nothing in the records shows the invalidity of the
written claim provision; therefore, the parties must strictly and in good faith comply with this
requirement.
The records reveal that PNCC complied with the written claim provision, but only with respect to
PCIC Bond No. 27547. PNCC filed an extrajudicial demand with PCIC informing it of Kalingo’s
default under the award and demanding the repayment of the bonded down payment on P.O. No.
71024L. Conversely, nothing in the records shows that PNCC ever complied with the provision with
respect to PCIC Bond No. 27546. Why PNCC complied with the written claim provision with respect
to PCIC Bond No. 27547, but not with respect to PCIC Bond No. 27546, has not been explained by
PNCC. Under the circumstances, PNCC’s cause of action with respect to PCIC Bond No.
27546 did not and cannot exist, such that no relief for collection thereunder may be validly
awarded.
Hence, the trial court’s decision finding PCIC liable solely under PCIC Bond No. 27547 is
correct – not only because collection under the other bond, PCIC Bond No. 27546, was not
raised or pleaded in the complaint, but for the more important reason that no cause of action
arose in PNCC’s favor with respect to this bond. Consequently, the appellate court was in
error for including liability under PCIC Bond No. 27546.
PNCC insists that conformably with the ruling of the CA, it should be entitled to collection under
PCIC Bond No. 27546, although collection thereunder was not specifically raised or pleaded in its
complaint, because the bond was attached to the complaint and formed part of the records. Also,
considering that PCIC’s liability as surety has been duly proven before the trial and appellate courts,
PNCC posits that it is entitled to repayment under PCIC Bond No. 27546.
PNCC might be alluding to Section 2(c), Rule 7 of the Rules of Court, which provides that a pleading
shall specify the relief sought, but may add a general prayer for such further or other reliefs as may
be deemed just and equitable. Under this rule, a court can grant the relief warranted by the
allegation and the proof even if it is not specifically sought by the injured party; 23 the inclusion of a
general prayer may justify the grant of a remedy different from or together with the specific remedy
sought,24 if the facts alleged in the complaint and the evidence introduced so warrant. 25
We find PNCC’s argument to be misplaced. A general prayer for "other reliefs just and equitable"
appearing on a complaint or pleading normally enables the court to award reliefs supported by the
complaint or other pleadings, by the facts admitted at the trial, and by the evidence adduced by the
parties, even if these reliefs are not specifically prayed for in the complaint. We cannot, however,
grant PNCC the "other relief" of recovering under PCIC Bond No. 27546 because of the respect due
the contractual stipulations of the parties. While it is true that PCIC’s liability under PCIC Bond No.
27546 would have been clear under ordinary circumstances (considering that Kalingo's default under
his contract with PNCC is now beyond dispute), it cannot be denied that the bond contains a written
claim provision, and compliance with it is essential for the accrual of PCIC’s liability and PNCC’s
right to collect under the bond.
As already discussed, this provision is the law between the parties on the matter of liability and
collection under the bond. Knowing fully well that PCIC Bond No. 27546 is a matter of record, duly
proven and susceptible of the court’s scrutiny, the trial and appellate courts must respect the terms
of the bond and cannot just disregard its terms and conditions in the absence of any showing that
they are contrary to law, morals, good customs, public order, or public policy. For its failure to file a
written claim with PCIC within 15 days from the bond’s expiry date, PNCC clearly waived its right to
collect under PCIC Bond No. 27546. That, wittingly or unwittingly, PNCC did not collect under one
bond in favor of calling on the other creates no other conclusion than that the right to collect under
the former had been lost. Consequently, PNCC’s cause of action with respect to PCIC Bond No.
27546 cannot juridically exist and no relief therefore may be validly given. Hence, the CA invalidly
rendered judgment with respect to PCIC Bond No. 27546, and its award based on this bond must be
deleted.
On the third issue, we hold that PCIC should be held liable for the attorney's fees PNCC incurred in
bringing suit. PCIC’s unjust refusal to pay despite PNCC’s written claim compelled the latter to hire
the services of an attorney to collect on PCIC Bond No. 27547.
WHEREFORE, premises considered, we SET ASIDE our Resolution of December 17, 2008

and GRANT the present motion for reconsideration. The petition for review on certiorari is PARTLY
GRANTED. The assailed Court of Appeals Decision of January 7, 2008 and Resolution of October
29, 2008 are hereby AFFIRMED with MODIFICATION, deleting petitioner PCIC's liability under
PCIC Bond No. 27546. All other matters in the assailed Court of Appeals decision and resolution
are AFFIRMED.
SO ORDERED.
DIONA VS BALANGUE
The great of a relief neither sought by the party in whose favor it was given not supported by the
evidence presented violates the opposing party’s right to due process and may be declared void ab
initio in a proper proceeding.
This Petition for Review on Certiorari1 assails the November 24, 2005 Resolution 2 of the Court of
Appeals (CA) issued in G.R. SP No. 85541 which granted the Petition for Annulment of
Judgment3 filed by the respondents seeking to nullify that portion of the October 17, 2000
Decision4 of the Regional Trial Court (RTC), Branch 75, Valenzuela City awarding petitioner 5%
monthly interest rate for the principal amount of the loan respondent obtained from her.
This Petition likewise assails the CA’s June 26, 2006 Resolution 5 denying petitioner’s Motion for
Reconsideration.
Factual Antecedents
The facts of this case are simple and undisputed.

On March 2, 1991, respondents obtained a loan of ₱45,000.00 from petitioner payable in six months
and secured by a Real Estate Mortgage 6 over their 202-square meter property located in Marulas,
Valenzuela and covered by Transfer Certificate of Title (TCT) No. V-12296. 7 When the debt became
due, respondents failed to pay notwithstanding demand. Thus, on September 17, 1999, petitioner
filed with the RTC a Complaint8 praying that respondents be ordered:
(a) To pay petitioner the principal obligation of ₱45,000.00, with interest thereon at the rate
of 12% per annum, from 02 March 1991 until the full obligation is paid.
(b) To pay petitioner actual damages as may be proven during the trial but shall in no case
be less than ₱10,000.00; ₱25,000.00 by way of attorney’s fee, plus ₱2,000.00 per hearing
as appearance fee.
(c) To issue a decree of foreclosure for the sale at public auction of the aforementioned
parcel of land, and for the disposition of the proceeds thereof in accordance with law, upon
failure of the respondents to fully pay petitioner within the period set by law the sums set
forth in this complaint.
(d) Costs of this suit.
Other reliefs and remedies just and equitable under the premises are likewise prayed
for.9 (Emphasis supplied)
Respondents were served with summons thru respondent Sonny A. Balangue (Sonny). On October
15, 1999, with the assistance of Atty. Arthur C. Coroza (Atty. Coroza) of the Public Attorney’s Office,
they filed a Motion to Extend Period to Answer. Despite the requested extension, however,
respondents failed to file any responsive pleadings. Thus, upon motion of the petitioner, the RTC
declared them in default and allowed petitioner to present her evidence ex parte. 10
Ruling of the RTC sought to be annulled.
In a Decision11 dated October 17, 2000, the RTC granted petitioner’s Complaint. The dispositive
portion of said Decision reads:
WHEREFORE, judgment is hereby rendered in favor of the petitioner, ordering the respondents to
pay the petitioner as follows:
a) the sum of FORTY FIVE THOUSAND (₱45,000.00) PESOS, representing the unpaid
principal loan obligation plus interest at 5% per month [sic] reckoned from March 2, 1991,
until the same is fully paid;
b) ₱20,000.00 as attorney’s fees plus cost of suit;
c) in the event the [respondents] fail to satisfy the aforesaid obligation, an order of
foreclosure shall be issued accordingly for the sale at public auction of the subject property
covered by Transfer Certificate of Title No. V-12296 and the improvements thereon for the
satisfaction of the petitioner’s claim.
SO ORDERED.12 (Emphasis supplied)
Subsequently, petitioner filed a Motion for Execution, 13 alleging that respondents did not interpose a
timely appeal despite receipt by their former counsel of the RTC’s Decision on November 13, 2000.
Before it could be resolved, however, respondents filed a Motion to Set Aside Judgment 14 dated
January 26, 2001, claiming that not all of them were duly served with summons. According to the
other respondents, they had no knowledge of the case because their co-respondent Sonny did not
inform them about it. They prayed that the RTC’s October 17, 2000 Decision be set aside and a new
trial be conducted.
But on March 16, 2001, the RTC ordered15 the issuance of a Writ of Execution to implement its
October 17, 2000 Decision. However, since the writ could not be satisfied, petitioner moved for the
public auction of the mortgaged property,16 which the RTC granted.17 In an auction sale conducted on
November 7, 2001, petitioner was the only bidder in the amount of ₱420,000.00. Thus, a Certificate
of Sale18 was issued in her favor and accordingly annotated at the back of TCT No. V-12296.
Respondents then filed a Motion to Correct/Amend Judgment and To Set Aside Execution
Sale19 dated December 17, 2001, claiming that the parties did not agree in writing on any rate of
interest and that petitioner merely sought for a 12% per annum interest in her Complaint.
Surprisingly, the RTC awarded 5% monthly interest (or 60% per annum) from March 2, 1991 until full
payment. Resultantly, their indebtedness inclusive of the exorbitant interest from March 2, 1991 to
May 22, 2001 ballooned from ₱124,400.00 to ₱652,000.00.
In an Order20 dated May 7, 2002, the RTC granted respondents’ motion and accordingly modified the
interest rate awarded from 5% monthly to 12% per annum. Then on August 2, 2002, respondents
filed a Motion for Leave To Deposit/Consign Judgment Obligation 21 in the total amount of
₱126,650.00.22
Displeased with the RTC’s May 7, 2002 Order, petitioner elevated the matter to the CA via a Petition
for Certiorari23 under Rule 65 of the Rules of Court. On August 5, 2003, the CA rendered a
Decision24 declaring that the RTC exceeded its jurisdiction in awarding the 5% monthly interest but at
the same time pronouncing that the RTC gravely abused its discretion in subsequently reducing the
rate of interest to 12% per annum. In so ruling, the CA ratiocinated:
Indeed, We are convinced that the Trial Court exceeded its jurisdiction when it granted 5% monthly
interest instead of the 12% per annum prayed for in the complaint. However, the proper remedy is
not to amend the judgment but to declare that portion as a nullity. Void judgment for want of
jurisdiction is no judgment at all. It cannot be the source of any right nor the creator of any obligation
(Leonor vs. CA, 256 SCRA 69). No legal rights can emanate from a resolution that is null and void
(Fortich vs. Corona, 312 SCRA 751).
From the foregoing, the remedy of the respondents is to have the Court declare the portion of the
judgment providing for a higher interest than that prayed for as null and void for want of or in excess
of jurisdiction. A void judgment never acquire[s] finality and any action to declare its nullity does not
prescribe (Heirs of Mayor Nemencio Galvez vs. CA, 255 SCRA 672).
WHEREFORE, foregoing premises considered, the Petition having merit, is hereby GIVEN DUE
COURSE. Resultantly, the challenged May 7, 2002 and September 5, 2000 orders of Public
Respondent Court are hereby ANNULLED and SET ASIDE for having been issued with grave abuse
of discretion amounting to lack or in excess of jurisdiction. No costs.
SO ORDERED.25 (Emphases in the original; italics supplied.)
Proceedings before the Court of Appeals

Taking their cue from the Decision of the CA in the special civil action for certiorari, respondents filed
with the same court a Petition for Annulment of Judgment and Execution Sale with Damages. 26 They
contended that the portion of the RTC Decision granting petitioner 5% monthly interest rate is in
gross violation of Section 3(d) of Rule 9 of the Rules of Court and of their right to due process.
According to respondents, the loan did not carry any interest as it was the verbal agreement of the
parties that in lieu thereof petitioner’s family can continue occupying respondents’ residential building
located in Marulas, Valenzuela for free until said loan is fully paid.
Ruling of the Court of Appeals
Initially, the CA denied due course to the Petition. 27 Upon respondents’ motion, however, it reinstated
and granted the Petition. In setting aside portions of the RTC’s October 17, 2000 Decision, the CA
ruled that aside from being unconscionably excessive, the monthly interest rate of 5% was not
agreed upon by the parties and that petitioner’s Complaint clearly sought only the legal rate of 12%
per annum. Following the mandate of Section 3(d) of Rule 9 of the Rules of Court, the CA concluded
that the awarded rate of interest is void for being in excess of the relief sought in the Complaint. It
ruled thus:
WHEREFORE, respondents’ motion for reconsideration is GRANTED and our resolution dated
October 13, 2004 is, accordingly, REVERSED and SET ASIDE. In lieu thereof, another is entered
ordering the ANNULMENT OF:
(a) public respondent’s impugned October 17, 2000 judgment, insofar as it awarded 5%
monthly interest in favor of petitioner; and
(b) all proceedings relative to the sale at public auction of the property titled in respondents’
names under Transfer Certificate of Title No. V-12296 of the Valenzuela registry.
The judgment debt adjudicated in public respondent’s impugned October 17, 2000 judgment is,
likewise, ordered RECOMPUTED at the rate of 12% per annum from March 2, 1991. No costs.
SO ORDERED.28 (Emphases in the original.)
Petitioner sought reconsideration, which was denied by the CA in its June 26, 2006 Resolution. 29
Issues
Hence, this Petition anchored on the following grounds:
I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS ERROR

OF LAW WHEN IT GRANTED RESPONDENTS’ PETITION FOR ANNULMENT OF
JUDGMENT AS A SUBSTITUTE OR ALTERNATIVE REMEDY OF A LOST APPEAL.
II. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS

ERROR AND MISAPPREHENSION OF LAW AND THE FACTS WHEN IT GRANTED
RESPONDENTS’ PETITION FOR ANNULMENT OF JUDGMENT OF THE DECISION OF
THE REGIONAL TRIAL COURT OF VALENZUELA, BRANCH 75 DATED OCTOBER 17,
2000 IN CIVIL CASE NO. 241-V-99, DESPITE THE FACT THAT SAID DECISION HAS
BECOME FINAL AND ALREADY EXECUTED CONTRARY TO THE DOCTRINE OF
IMMUTABILITY OF JUDGMENT.30
Petitioner’s Arguments
Petitioner claims that the CA erred in partially annulling the RTC’s October 17, 2000 Decision. She
contends that a Petition for Annulment of Judgment may be availed of only when the ordinary
remedies of new trial, appeal, petition for relief or other appropriate remedies are no longer available
through no fault of the claimant. In the present case, however, respondents had all the opportunity to
question the October 17, 2000 Decision of the RTC, but because of their own inaction or negligence
they failed to avail of the remedies sanctioned by the rules. Instead, they contented themselves with
the filing of a Motion to Set Aside Judgment and then a Motion to Correct/Amend Judgment and to
Set Aside Execution Sale.
Petitioner likewise argues that for a Rule 47 petition to prosper, the same must either be based on
extrinsic fraud or lack of jurisdiction. However, the allegations in respondents’ Rule 47 petition do not
constitute extrinsic fraud because they simply pass the blame to the negligence of their former
counsel. In addition, it is too late for respondents to pass the buck to their erstwhile counsel
considering that when they filed their Motion to Correct/Amend Judgment and To Set Aside
Execution Sale they were already assisted by their new lawyer, Atty. Reynaldo A. Ruiz, who did not
also avail of the remedies of new trial, appeal, etc. As to the ground of lack of jurisdiction, petitioner
posits that there is no reason to doubt that the RTC had jurisdiction over the subject matter of the
case and over the persons of the respondents.
While conceding that the RTC patently made a mistake in awarding 5% monthly interest, petitioner
nonetheless invokes the doctrine of immutability of final judgment and contends that the RTC
Decision can no longer be corrected or modified since it had long become final and executory. She
likewise points out that respondents received a copy of said Decision on November 13, 2000 but did
nothing to correct the same. They did not even question the award of 5% monthly interest when they
filed their Motion to Set Aside Judgment which they anchored on the sole ground of the RTC’s lack
of jurisdiction over the persons of some of the respondents.
Respondents’ Arguments
Respondents do not contest the existence of their obligation and the principal amount thereof. They
only seek quittance from the 5% monthly interest or 60% per annum imposed by the RTC.
Respondents contend that Section (3)d of Rule 9 of the Rules of Court is clear that when the
defendant is declared in default, the court cannot grant a relief more than what is being prayed for in
the Complaint. A judgment which transgresses said rule, according to the respondents, is void for
having been issued without jurisdiction and for being violative of due process of law.
Respondents maintain that it was through no fault of their own, but through the gross negligence of
their former counsel, Atty. Coroza, that the remedies of new trial, appeal or petition for relief from
judgment were lost. They allege that after filing a Motion to Extend Period to Answer, Atty. Coroza
did not file any pleading resulting to their being declared in default. While the said lawyer filed on
their behalf a Motion to Set Aside Judgment dated January 26, 2001, he however took no steps to
appeal from the Decision of the RTC, thereby allowing said judgment to lapse into finality. Citing
Legarda v. Court of Appeals,31 respondents aver that clients are not always bound by the actions of
their counsel, as in the present case where the clients are to lose their property due to the gross
negligence of their counsel.
With regard to petitioner’s invocation of immutability of judgment, respondents argue that said
doctrine applies only to valid and not to void judgments.
Our Ruling
The petition must fail.
We agree with respondents that the award of 5% monthly interest violated their right to due process
and, hence, the same may be set aside in a Petition for Annulment of Judgment filed under Rule 47
of the Rules of Court.
Annulment of judgment under Rule 47; an exception to the final judgment rule; grounds therefor.
A Petition for Annulment of Judgment under Rule 47 of the Rules of Court is a remedy granted only
under exceptional circumstances where a party, without fault on his part, has failed to avail of the
ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies. Said rule
explicitly provides that it is not available as a substitute for a remedy which was lost due to the
party’s own neglect in promptly availing of the same. "The underlying reason is traceable to the
notion that annulling final judgments goes against the grain of finality of judgment. Litigation must
end and terminate sometime and somewhere, and it is essential to an effective administration of
justice that once a judgment has become final, the issue or cause involved therein should be laid to
rest."32
While under Section 2, Rule 4733 of the Rules of Court a Petition for Annulment of Judgment may be
based only on the grounds of extrinsic fraud and lack of jurisdiction, jurisprudence recognizes lack of
due process as additional ground to annul a judgment. 34 In Arcelona v. Court of Appeals,35 this Court
declared that a final and executory judgment may still be set aside if, upon mere inspection thereof,
its patent nullity can be shown for having been issued without jurisdiction or for lack of due process
of law.
Grant of 5% monthly interest is way beyond the 12% per annum interest sought in the Complaint
and smacks of violation of due process.
It is settled that courts cannot grant a relief not prayed for in the pleadings or in excess of what is
being sought by the party. They cannot also grant a relief without first ascertaining the evidence
presented in support thereof. Due process considerations require that judgments must conform to
and be supported by the pleadings and evidence presented in court. In Development Bank of the
Philippines v. Teston,36 this Court expounded that:
Due process considerations justify this requirement. It is improper to enter an order which exceeds
the scope of relief sought by the pleadings, absent notice which affords the opposing party an
opportunity to be heard with respect to the proposed relief. The fundamental purpose of the
requirement that allegations of a complaint must provide the measure of recovery is to prevent
surprise to the defendant.
Notably, the Rules is even more strict in safeguarding the right to due process of a defendant who
was declared in default than of a defendant who participated in trial. For instance, amendment to
conform to the evidence presented during trial is allowed the parties under the Rules. 37 But the same
is not feasible when the defendant is declared in default because Section 3(d), Rule 9 of the Rules of
Court comes into play and limits the relief that may be granted by the courts to what has been
prayed for in the Complaint. It provides:
(d) Extent of relief to be awarded. – A judgment rendered against a party in default shall not exceed
the amount or be different in kind from that prayed for nor award unliquidated damages.
The raison d’être in limiting the extent of relief that may be granted is that it cannot be presumed that
the defendant would not file an Answer and allow himself to be declared in default had he known
that the plaintiff will be accorded a relief greater than or different in kind from that sought in the
Complaint.38 No doubt, the reason behind Section 3(d), Rule 9 of the Rules of Court is to safeguard
defendant’s right to due process against unforeseen and arbitrarily issued judgment. This, to the
mind of this Court, is akin to the very essence of due process. It embodies "the sporting idea of fair
play"39 and forbids the grant of relief on matters where the defendant was not given the opportunity to
be heard thereon.
In the case at bench, the award of 5% monthly interest rate is not supported both by the allegations
in the pleadings and the evidence on record. The Real Estate Mortgage 40 executed by the parties
does not include any provision on interest. When petitioner filed her Complaint before the RTC, she
alleged that respondents borrowed from her "the sum of FORTY-FIVE THOUSAND PESOS
(₱45,000.00), with interest thereon at the rate of 12% per annum" 41 and sought payment thereof. She
did not allege or pray for the disputed 5% monthly interest. Neither did she present evidence nor
testified thereon. Clearly, the RTC’s award of 5% monthly interest or 60% per annum lacks basis
and disregards due process. It violated the due process requirement because respondents were not
informed of the possibility that the RTC may award 5% monthly interest. They were deprived of
reasonable opportunity to refute and present controverting evidence as they were made to believe
that the complainant petitioner was seeking for what she merely stated in her Complaint.
Neither can the grant of the 5% monthly interest be considered subsumed by petitioner’s general
prayer for "other reliefs and remedies just and equitable under the premises x x x." 42 To repeat, the
court’s grant of relief is limited only to what has been prayed for in the Complaint or related thereto,
supported by evidence, and covered by the party’s cause of action. 43 Besides, even assuming that
the awarded 5% monthly or 60% per annum interest was properly alleged and proven during trial,
the same remains unconscionably excessive and ought to be equitably reduced in accordance with
applicable jurisprudence. In Bulos, Jr. v. Yasuma,44 this Court held:
In the case of Ruiz v. Court of Appeals, citing the cases of Medel v. Court of Appeals, Garcia v.
Court of Appeals, Spouses Bautista v. Pilar Development Corporation and the recent case of
Spouses Solangon v. Salazar, this Court considered the 3% interest per month or 36% interest per
annum as excessive and unconscionable. Thereby, the Court, in the said case, equitably reduced
the rate of interest to 1% interest per month or 12% interest per annum. (Citations omitted)
It is understandable for the respondents not to contest the default order for, as alleged in their
Comment, "it is not their intention to impugn or run away from their just and valid
obligation."45 Nonetheless, their waiver to present evidence should never be construed as waiver to
contest patently erroneous award which already transgresses their right to due process, as well as
applicable jurisprudence.
Respondents’ former counsel was grossly negligent in handling the case of his clients; respondents
did not lose ordinary remedies of new trial, petition for relief, etc. through their own fault.
Ordinarily, the mistake, negligence or lack of competence of counsel binds the client. This is based
1âwphi1
on the rule that any act performed by a counsel within the scope of his general or implied authority is
regarded as an act of his client. A recognized exception to the rule is when the lawyers were grossly
negligent in their duty to maintain their client’s cause and such amounted to a deprivation of their
client’s property without due process of law.46 In which case, the courts must step in and accord relief
to a client who suffered thereby.47
The manifest indifference of respondents’ former counsel in handling the cause of his client was
already present even from the beginning. It should be recalled that after filing in behalf of his clients
a Motion to Extend Period to Answer, said counsel allowed the requested extension to pass without
filing an Answer, which resulted to respondents being declared in default. His negligence was
aggravated by the fact that he did not question the awarded 5% monthly interest despite receipt of
the RTC Decision on November 13, 2000.48 A simple reading of the dispositive portion of the RTC
Decision readily reveals that it awarded exorbitant and unconscionable rate of interest. Its difference
from what is being prayed for by the petitioner in her Complaint is so blatant and very patent. It also
defies elementary jurisprudence on legal rate of interests. Had the counsel carefully read the
judgment it would have caught his attention and compelled him to take the necessary steps to
protect the interest of his client. But he did not. Instead, he filed in behalf of his clients a Motion to
Set Aside Judgment49 dated January 26, 2001 based on the sole ground of lack of jurisdiction,
oblivious to the fact that the erroneous award of 5% monthly interest would result to his clients’
deprivation of property without due process of law. Worse, he even allowed the RTC Decision to
become final by not perfecting an appeal. Neither did he file a petition for relief therefrom. It was only
a year later that the patently erroneous award of 5% monthly interest was brought to the attention of
the RTC when respondents, thru their new counsel, filed a Motion to Correct/Amend Judgment and
To Set Aside Execution Sale. Even the RTC candidly admitted that it "made a glaring mistake in
directing the defendants to pay interest on the principal loan at 5% per month which is very different
from what was prayed for by the plaintiff." 50
"A lawyer owes entire devotion to the interest of his client, warmth and zeal in the maintenance and
defense of his rights and the exertion of his utmost learning and ability, to the end that nothing can
be taken or withheld from his client except in accordance with the law." 51 Judging from how
respondents’ former counsel handled the cause of his clients, there is no doubt that he was grossly
negligent in protecting their rights, to the extent that they were deprived of their property without due
process of law.
In fine, respondents did not lose the remedies of new trial, appeal, petition for relief and other
remedies through their own fault. It can only be attributed to the gross negligence of their erstwhile
counsel which prevented them from pursuing such remedies. We cannot also blame respondents for
relying too much on their former counsel. Clients have reasonable expectations that their lawyer
would amply protect their interest during the trial of the case.52 Here,
"respondents are plain and ordinary people x x x who are totally ignorant of the intricacies and
technicalities of law and legal procedures. Being so, they completely relied upon and trusted their
former counsel to appropriately act as their interest may lawfully warrant and require." 53
As a final word, it is worth noting that respondents’ principal obligation was only ₱45,000.00. Due to
their former counsel’s gross negligence in handling their cause, coupled with the RTC’s erroneous,
baseless, and illegal award of 5% monthly interest, they now stand to lose their property and still
owe petitioner a large amount of money. As aptly observed by the CA:
x x x If the impugned judgment is not, therefore, rightfully nullified, petitioners will not only end up
losing their property but will additionally owe private respondent the sum of ₱232,000.00 plus the
legal interest said balance had, in the meantime, earned. As a court of justice and equity, we cannot,
in good conscience, allow this unconscionable situation to prevail. 54
Indeed, this Court is appalled by petitioner’s invocation of the doctrine of immutability of judgment.
Petitioner does not contest as she even admits that the RTC made a glaring mistake in awarding 5%
monthly interest.55 Amazingly, she wants to benefit from such erroneous award. This Court cannot
allow this injustice to happen.
WHEREFORE, the instant Petition is hereby DENIED and the assailed November 24, 2005 and
June 26, 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 85541 are AFFIRMED.
SO ORDERED.
NAVARRO VS JARSON
For our resolution are two (2) consolidated Petitions for Review on Certiorari under Rule 45 of the
1997 Rules of Civil Procedure, as amended, seeking to nullify the following: (I) in G.R. No. 142627,
the Resolutions1 dated September 10, 1999 and February 22, 2000 of the Court of Appeals in CA-
G.R. CV No. 60680; and (II) in G.R. No. 172750, the Resolutions 2 dated March 17, 2006 and May 5,
2006 of the Court of Appeals, Cebu City, in CA-G.R. CV No. 60680.
G.R. No. 142627
Spouses Mariano and Estrella Najarro (spouses Najarro), petitioners, are the registered owners of a
residential building constructed on Lot 1394-C of the Banilad Friar Lands located on V. Sotto Street,
Cebu City.
The other petitioners, Ramon, Ma. Dulce, Carmel, and Stella Maris, all surnamed Najarro, are the
legitimate children of spouses Najarro. They are the registered co-owners of Lot 1394-C. Except Ma.
Dulce, all of them together with their respective spouses and children, reside in the residential
building of spouses Najarro.
Respondent Jarson Development Corporation (JDC), on the other hand, is a corporation registered
and existing under Philippine laws. It is engaged in the business, among others, of acquiring and
managing real estate, buildings and other structures.
Among JDC’s various projects is the development of Richmond
Plaza, a 12-story commercial building located at Lot 1394-B, also of the Banilad Friar Lands,
adjacent to Lot 1394-C owned by petitioners.
Jose P. Mabugat and Engineer Eliseo C. Galang, respondents, are the project designer and the
project engineer, respectively, of the Richmond Plaza project.
Sometime in November 1993, respondent JDC started excavation and construction works on the
Richmond Plaza project. However, during the excavation, slippages or cave-ins of soil occurred on
Lot 1394-C causing massive cracks on the wall and floor of petitioners’ residential building. It
became unsafe for human habitation. Hence, petitioners left the same.
Sometime in February, 1994, a conciliation meeting was held between petitioners and respondent
Mabugat. During this meeting, he assured petitioners that JDC will repair their building and restore
the foundation of the soil that caved-in and pay damages in case of any defect in the construction of
their building.
On March 1, 1994, respondent Mabugat wrote petitioners stating that the "wet and loose condition"
of their soil was the cause of the damage to their properties. JDC refused to pay.
Meanwhile, the Office of the Building Official issued a Stop-Work Order to respondents because
their on-going excavation works violated the Building Code and greatly affected the safety of the
adjacent residents, including petitioners.
Respondents, however, continuously refused to comply with the said Order.
On May 26, 1994, petitioners filed with the Regional Trial Court, Branch 58, Cebu City, a petition for
injunction with damages against respondents, docketed as Civil Case No. 60680.
Before the start of the hearing on July 1, 1994, the parties agreed to dispense with the issue of
injunction in view of respondents’ undertaking to reconstruct petitioners’ damaged residential
building and to completely restore the foundation of the soil that caved-in to its original condition.
On July 11, 1994, the trial court issued an Order reflecting the agreement between the parties,
pertinent portions of which read:
xxx
Before the start of the hearing of the urgent motions on July 1, 1994, the Court inquired from
the parties why the Memorandum of Agreement, copy of which was attached to their
motions, was not pushed through or not signed, and it was during the exchange of words
between the parties and counsels that they have finally agreed to dispense with the issue on
the injunction, leaving the issue on damages alone to be litigated between the parties in the
instant action, because they have arrived at certain agreements, thus: the respondents shall
restore the damaged building or residence of the petitioners by preparing the necessary
plans, specifications and bills of materials, and to submit the same to the Office of the
Building Official of Cebu City for the issuance of a permit and to secure the necessary
Certificate of Occupancy, all at the expense of the respondents. A copy of the plans,
specifications and bills of materials shall be furnished the petitioners who may make the
necessary suggestions thereabout to the Office of the Building Official. That the respondents
and/or the contractor of the building hired by the respondents to construct and/or reconstruct
the damaged residential building of the petitioners should restore the foundation or the soil
which caved-in during the start of the construction and/or excavation of the respondents’
building, Richmond Plaza, which is only about six (6) meters from the petitioners’ residence,
and the soil/foundation should be filled up and restored to its original condition and in
accordance with the standard requirements. That respondents bind themselves jointly and
severally to pay the petitioners for any damage in case of any defect in the construction of
petitioners’ residence and or the collapse or any damage thereof as a result and by reason
of the foundation or condition of the soil.
By virtue of the foregoing agreements, the issue on the injunction has been dispensed with,
correspondingly, the temporary restraining order was deemed lifted.
Compliance with the foregoing agreement is hereby enjoined.
On October 19, 1994, after the pre-trial conference, the trial court issued a pre-trial Order stating
that:
During the hearing of the issuance of a writ of preliminary injunction, the parties agreed to
dispense with the issue on injunction, hence, the only issue to be resolved in this case is
whether or not the plaintiffs are entitled to recover damages in accordance with their
complaint and the defendants in accordance with their counterclaim.
On August 28, 1995, petitioners filed a motion for execution of the July 11, 1994 Order. However, it
was denied by the trial court in its Order of November 23, 1995 on the ground that the motion should
be resolved when the case shall be decided.
The court conducted trial to determine only the issue of damages. Thereafter, it rendered its
Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs

and against the defendants by ordering the defendants to pay jointly and severally the
plaintiffs the sum of P500,000.00 as moral damages, the sum of P200,000.00 as exemplary
damages, the sum of P50,000.00 as attorney’s fees, the sum of P5,000.00 as litigation
expenses, and the costs of the suit.
The counterclaim is hereby dismissed.
Further, the defendants are hereby ordered to do and perform all at the expense of
defendants, the following:
i. To complete the restoration of the foundation of the soil which caved-in to its
original condition and in accordance with the standard requirements;
ii. Prepare the plans, specifications and bills of material for the restoration of the
damaged residential building of the plaintiffs;
iii. Submit said plans, specifications and bills of materials to the Office of the Building
Official of Cebu City;
iv. Secure the necessary permit from the Office of the Building Official of Cebu City
as well as the necessary Certificate of Occupancy; and
v. Construct and/or reconstruct the damaged residential building of the plaintiffs in

accordance with the approved plans, specifications and bills of materials.
On appeal by respondents, the Court of Appeals, 3 on February 17, 2005, rendered its Decision
affirming the trial court’s Decision with modification in the sense that the award of moral damages is
reduced to P300,000.00 from P500,000.00.
On April 30, 1999, while the appeal was still pending in the Court of Appeals, petitioners filed a
motion for execution pending appeal.
On September 10, 1999, the appellate court denied petitioners’ motion for execution pending appeal,
ratiocinating as follows:
Appellee’s pray for the issuance of an execution pending appeal on the grounds that
appellants have succeeded in delaying the appeal, that both appellees are of advanced age
and suffering from debilitating diseases, and that the appellants have disposed of some of
their properties, thus, threatening the judgment on appeal to be ineffectual.
As records would show, the herein contested decision, inter-alia, orders the payment of
moral damages together with attorney’s fees wherein execution pending appeal are not
allowed (Engineering Construction Inc. v. NPC, 163 SCRA 9 [1988]; Valencia v. CA, 184
SCRA 561 [1990]; Echauz v. CA, 199 SCRA 381 [1991]; RCPI v. Lantin, [985]). The said
High Court:
xxx The execution of any award for moral and exemplary damages is dependent on
the outcome of the main case. Unlike actual damages for which the petitioners may
clearly be held liable if they breach a specific contract and the amounts of which are
fixed and certain, liabilities with respect to moral and exemplary damages as well as
the exact amounts remain uncertain and indefinite pending resolution by the
Intermediate Appellate Court and eventually the Supreme Court. The existence of
the factual bases of these types of damages and their causal relation to the
petitioners’ act will have to be determined in the light of the assignments of errors on
appeal. It is possible that the petitioners, after all, while liable for actual damages
may not be liable for moral damages and exemplary damages. Or as in some cases
elevated to the Supreme Court, the awards may be reduced.
Accordingly, the Motion for Execution Pending Appeal dated April 28, 1999 is DENIED.
SO ORDERED.
On February 22, 2000, the Court of Appeals denied petitioners’ motion for reconsideration.
Hence, this petition.
We rule that the petition has become moot as shown by the following events:
On December 12, 2005, petitioners filed a Motion for Entry of Finality of Judgment. Respondents
filed their Opposition thereto alleging that they and their counsel did not receive a copy of the
February 17, 2005 Decision of the Court of Appeals.
On March 17, 2006, the appellate court rendered a Resolution granting petitioners’ Motion for Entry
of Finality of Judgment and declaring that its Decision dated February 17, 2005 has become final
and executory and ordering that such judgment be entered in the book of entries of judgments.
G.R. No. 172750
In this case, JDC and Jose P. Mabugat, petitioners, assail the
Resolution of the Court of Appeals dated March 17, 2006 declaring that its Decision dated February
17, 2005 has become final and executory. They contend that they did not receive a copy of the
Decision, hence, it did not attain finality as against them.
However, the Court of Appeals found that copies of the Notice of Judgment and its Decision were
sent through registered mail to petitioners’ counsel at M.B. Mahinay Bldg. (3rd Floor), F. Sotto St.,
Cebu City. Said counsel received the same. The latter admitted that through inadvertence, he did
not file with the Court of Appeals a formal notice of his change of address.
The Court of Appeals, in granting respondents’ Motion for Entry of Finality of Judgment, held:
Section 3, Rule 7 of the Rules of Court pertinently provides:
Sec. 3. Signature and address. – Every pleading must be signed by the party or
counsel representing him, stating in either case his address which should not be a
post office box.
xxx
Counsel who deliberately files an unsigned pleading, or signs a pleading in violation

of this Rule or alleges scandalous or indecent matters therein, or fails to promptly
report to the court a change of his address, shall be subject to appropriate
disciplinary action.
Clearly, it is the duty of the counsel to promptly inform the court of a change of his address.
The contention of defendants-appellants’ counsel that his failure to inform the Court of his
change of address was due to the fault of his legal secretary in not including the instant case
in the inventory of his cases is a lame excuse and deserves no consideration. It has to be
stressed that it devolves upon every counsel to take full responsibility in supervising the work
in his office with respect to all the cases he handles and he should not delegate this
responsibility to his legal secretary.
xxx
Sad to say, the negligence of defendants-appellants’ counsel in failing to inform the Court of
his change of address which resulted to his non-receipt of Our Decision when the same was
served to him in his old address, which is the address of record when the said judgment was
promulgated, binds defendants-appellants.
xxx
The service of our Decision to defendants-appellants’ counsel at his address of record on

March 2, 2005 was valid. It follows that the reglementary period of fifteen days within which
the defendants-appellants may file a motion for reconsideration or a petition for review on
certiorari to the Supreme Court on Our Decision shall be counted from such date or
defendants-appellants had only until March 17, 2005 to file a motion for reconsideration or
petition for review on certiorari to the Supreme Court. Apparently, when plaintiffs-appellees
filed the motion for entry of finality of judgment on December 12, 2005, Our Decision had
already attained finality as no motion for reconsideration or petition for review on certiorari to
the Supreme Court was ever filed by defendants-appellants within the reglementary period,
or on or before March 17, 2005.
xxx
Suffice it to state at this point that the Court of Appeals did not err in granting petitioners’ motion.
They and their counsel are deemed to have received a copy of its Decision. Indeed, the latter’s
failure to file with the Court of Appeals a notice of change of address is fatal to petitioners’ case.
WHEREFORE, in G.R. No. 142627, we DENY the petition filed by Mariano Najarro, et al., the same
being MOOT.
In G.R. No. 172750, we DENY the petition filed by Jarson Development Corporation and Jose
Mabugat and AFFIRM the assailed Resolutions of the Court of Appeals, Cebu City dated March 17,
2006 and May 5, 2006 in CA-G.R. CV No. 60680. Costs against petitioners.
SO ORDERED.
JACINTO VS GUMARO
"When a judgment has been satisfied, it passes beyond review", and "there are no more
1
proceedings to speak of inasmuch as these were terminated by the satisfaction of the judgment." 2
This Petition for Review on Certiorari seeks to set aside the November 5, 2009 Resolution of the
3 4
Court of Appeals (CA) in CA-G.R. SP No. 111098, entitled "Joselito Ma. P. Jacinto (Former
President of F Jacinto Group, Inc.), Petitioner, versus Edgardo Gumaru, Jr. and the National Labor
Relations Commission, Respondents," as well as its March 24, 2010 Resolution denying the
5
petitioner's Motion for Reconsideration.
Factual Antecedents
On December 6, 2004, a Decision was rendered in favor of respondent Eduardo Gumaru, Jr. and
6
against petitioner Joselito Ma. P. Jacinto and F. Jacinto Group, Inc. in NLRC-NCR Case No. 00-06-
07542-03 (the labor case), the dispositive portion of which reads:
7
WHEREFORE, premises considered, respondents are hereby jointly and severally liable to pay
complainant the following:
1. Separation pay based on two months per year of service.
₱50,000.00 x 2 x 10 years = ₱1,000,000.00
2. Other monetary claims.
A. 3 mos. unpaid wages & allowance = ₱133,101.00
B. SL/VL for 2000 = 34,969.00
C. 13th month pay for 2000 = 24,944.00
3. Moral Damages in the sum of ₱100,000.00
4. Exemplary Damages in the sum of ₱500,000.00
5. 10% of all sums accruing shall be adjudged as attorney’s fees.
It is understood that the withholding of the separation benefits plus other monetary claims shall earn
legal interest of 12% per annum from the time [they were] unlawfully withheld on September 01,
2000.
SO ORDERED. 8
Petitioner and F. Jacinto Group, Inc. filed an appeal with the National Labor Relations Commission
(NLRC). However, the appeal was not perfected for failure to post the proper cash or surety bond;
this was the finding of the NLRC in its Resolution dated September 30, 2005. 9
Thus, the December 6, 2004 Decision became final and executory. Entry of judgment was issued by
the NLRC on November 23, 2005. 10
On February 6, 2006, a Writ of Execution was issued in the labor case. A Second Alias Writ of
11
Execution was issued and returned when the first one expired. By virtue of such alias writ, real
property belonging to petitioner – located in Baguio City and covered by Original Certificate of Title
No. P-2010 – was levied upon, and was scheduled to be sold at auction on June 27, 2008 or July 4,
2008.
On June 20, 2008, petitioner filed an Extremely Urgent Motion to Lift and Annul Levy on
Execution praying, among others, that the scheduled June 27, 2008 auction sale be restrained, and
12
that the execution process covered by the Second Alias Writ of Execution be invalidated.
On June 26, 2008, the Labor Arbiter issued an Order denying petitioner’s Extremely Urgent Motion
13
to Lift and Annul Levy on Execution, thus:
On June 20, 2008, respondents filed a Motion to Lift and Annul levy on execution on the ground that
the writ of execution served had already elapsed. Finding that the writ of execution was issued on
September 07, 2007 and pursuant to the Supreme Court’s declaration in the case of Merlinda
Dagooc vs. Roberto Endina, 453 SCRA 423 quoting section 14 of the Revised Rules of Court, that
the writ has a life of five years, the instant Motion is hereby DENIED.
WHEREFORE, premises considered, the NLRC Sheriff is hereby ORDERED to proceed with the
auction sale set on June 27, 2008 at 10:00 AM before the Register of Deeds of Baguio City.
SO ORDERED. 14
The Subject Resolutions of the National Labor Relations Commission
Petitioner appealed the Labor Arbiter’s June 26,2008 Order to the NLRC, which, in a November 28,
2008 Resolution, set aside the same. The decretal portion of the Resolution states:
15
WHEREFORE, premises considered, the Order appealed from is hereby SET ASIDE and
respondents-appellants’ Motion to Lift and Annul Levy is GRANTED. The Labor Arbiter is also
hereby ordered to oversee the proper implementation and execution of the judgment award in this
case.
Let the records be remanded to the Labor Arbiter of origin for further execution proceedings.
SO ORDERED. 16
Petitioner moved for partial reconsideration, but in a July 27, 2009 Resolution, the NLRC stood its
17
ground.
The Assailed Resolutions of the Court of Appeals

Petitioner went up to the CA on certiorari, assailing the November 28, 2008 and July 27, 2009
Resolutions of the NLRC. The Petition in CA-G.R. SP No. 111098 contained a verification and
18
certification of non-forum shopping that was executed and signed not by petitioner, but by his
counsel Atty. Ronald Mark S. Daos.
On November 5, 2009, the CA issued the first assailed Resolution, which held thus:
The Verification and Certification of Non-Forum Shopping, which accompanied the petition at bar,
was executed and signed by petitioner’s counsel Atty. Ronald Mark S. Daos, in violation of Section
5,Rule 7 of the Revised Rules of Court.
Pursuant to Supreme Court Revised Circular No. 28-91, the duty to certify under oath is strictly
addressed to petitioner which in this case is herein petitioner Joselito P. Jacinto and not his counsel
to [sic] Atty. Ronald Mark S. Daos. Thus, to allow the delegation of said duty to anyone would render
Supreme Court Revised Circular No. 28-91 inutile.
Accordingly, the petition is DENIED DUE COURSE and DISMISSED.
SO ORDERED. 19
Petitioner filed his Motion for Reconsideration, arguing that a verification signed by counsel
20
constitutes adequate and substantial compliance under Sections 4 and 5, Rule 7 of the 1997 Rules
of Civil Procedure; verification is merely a formal, and not jurisdictional, requisite such that an
21
improper verification or certification against forum-shopping is not a fatal defect. Petitioner attached
22
a copy of an Affidavit – acknowledged before the Hon. Paul Raymond Cortes, Consul, Philippine
23
Consulate General, Honolulu, Hawaii, U.S.A. – attesting that he caused the preparation of the CA
Petition, and that he read the contents of the CA Petition and affirm that they are true and correct
and undisputed based on his own personal knowledge and on authentic records. In said Affidavit,
petitioner further certified that he has not commenced any other action or proceeding, or filed any
claims involving the same issues in the Supreme Court, Court of Appeals, or any Division thereof, or
in any other court, tribunal or agency; to the best of his knowledge, no such other action, proceeding,
or claim is pending before the Supreme Court, Court of Appeals, or any division thereof, or in any
court, tribunal or agency; if there is any other action or proceeding which is either pending or may
have been terminated, he will state the status thereof; if he should thereafter learn that a similar
action, proceeding or claim has been filed or is pending before the Supreme Court, Court of
Appeals, or any division thereof, or in any court, tribunal or agency, he undertakes to promptly report
the fact within five days from notice thereof. Petitioner explained further that he was out of the
country, and could not return on account of his physical condition, which thus constrained him to
resort to the execution of a sworn statement in lieu of his actual verification and certification as
required under the Rules. Petitioner likewise ratified Atty. Daos’s acts done on his behalf relative to
the labor case and the filing of the CA Petition, and implored the appellate court to reconsider its
November 5, 2009 Resolution and excuse his procedural oversight in respect of the improper
verification and certification in his CA Petition.
On March 24, 2010, the CA issued the second assailed Resolution denying petitioner’s Motion for
Reconsideration, stating that a writ of certiorari is merely a "prerogative writ, never demandable as a
matter of right, never issued except in the exercise of judicial discretion. Hence, he who seeks a writ
of certiorari must apply for it only in the manner and strictly in accordance with the provisions of the
law and the Rules." 24
Thus, the present Petition was instituted.

Issues
Petitioner raises the following issues:
4.1. THE COURT OF APPEALS SHOULD NOT HAVE DISMISSED THE SUBJECT PETITION.
A PARTY UNABLE TO SIGN THE CERTIFICATION AGAINST FORUM SHOPPING CAN

AUTHORIZE HIS COUNSEL TO SIGN THE CERTIFICATION. IN HIS AFFIDAVIT AND SPECIAL
POWER OF ATTORNEY, PETITIONER EFFECTIVELY EMPOWERED HIS COUNSEL TO
EXECUTE THE REQUIRED VERIFICATION AND CERTIFICATION. MOREOVER, PETITIONER,
BEING ABROAD AND PHYSICALLY UNABLE TO TRAVEL TO THE NEAREST CONSULAR
OFFICE, MERITED THE RELAXATION OF THE TECHNICAL RULES ONVERIFICATION AND
CERTIFICATION. IN ANY EVENT, PETITIONER SUBSEQUENTLY SUBMITTED THE
NECESSARY DOCUMENT, IN SUBSTANTIAL COMPLIANCE WITH THE REQUIREMENT OF
VERIFICATION AND CERTIFICATION. VERIFICATION BY COUNSEL IS LIKEWISE ADEQUATE
AND SUBSTANTIALLY COMPLIANT.THE REQUIREMENT OF VERIFICATION IS ALSO DEEMED
SUBSTANTIALLY COMPLIED WITH WHEN THE AFFIANT ACTED IN GOOD FAITH AND X X X
[POSSESSES] X X X SUFFICIENT KNOWLEDGE TO TRUTHFULLY ATTEST THAT THE
ALLEGATIONS ARE TRUE AND CORRECT, AS IN THE CASE AT BAR. IN ANY CASE,
VERIFICATION IS A FORMAL, NOT A JURISDICTIONAL,REQUISITE. IT AFFECTS ONLY THE
FORM OF PLEADINGBUT DOES NOT RENDER THE PLEADING FATALLY DEFECTIVE.
4.2. THE COURT OF APPEALS SHOULD HAVE GIVEN DUE COURSE TO THE SUBJECT
PETITION.
THE MERITS, SPECIAL CIRCUMSTANCES AND COMPELLING REASONS FOR THE

ALLOWANCE OF THE SUBJECT PETITION, SPECIFICALLY, THAT IN THE ABSENCE OF A
PRIOR VALID SERVICE ON PETITIONER OF THE RESOLUTION SUPPOSEDLY DISPOSING OF
HIS APPEAL OF THE DECEMBER 6, 2004 DECISION, THE SAID DECISION CANNOT BE
IMPLEMENTED AND EXECUTED BECAUSE IT HAS NOT ATTAINED FINALITY AND JURIDICAL
EXISTENCE, IS APPARENT. IF NOT CORRECTED, IT WOULD CAUSE GREAT AND
IRREPARABLE DAMAGE AND INJURY, NOT TO MENTION GRAVE INJUSTICE, TO
PETITIONER, WHO WILL BECOMPELLED TOSATISFY A JUDGMENT THAT OBVIOUSLY HAS
NOT ATTAINED FINALITY AND JURIDICAL EXISTENCE. 25
Petitioner’s Arguments
Essentially, petitioner in his Petition and Reply argues that if, for reasonable or justifiable reasons, a
26
party is unable to sign the verification and certification against forum-shopping, he could execute a
special power of attorney authorizing his lawyer to execute the verification and sign the certification
on his behalf. Which is exactly what petitioner did: he executed a special power of attorney in favor
of his counsel, Atty. Daos, authorizing the latter to file the Petition in CA-G.R. SP No. 111098 and
thus sign the verification and certification against forum-shopping contained therein. Petitioner
asserts that, going by the dispositions of the Court in past controversies, the said procedure is
27
allowed.
Petitioner next argues that there are compelling reasons to grant his Petition for Certiorari. He
asserts that the NLRC committed grave abuse of discretion in issuing its assailed November 28,
2008 and July 27, 2009 Resolutions remanding the case to the Labor Arbiter for further proceedings
on execution, claiming that the December 6, 2004 Decision of the Labor Arbiter had not attained
finality since the NLRC failed to furnish him with a copy of its September 30, 2005 Resolution which
dismissed his appeal for failure to post the required bond and thus perfect the appeal. Since the
Labor Arbiter’s Decision has not attained finality, execution proceedings could not commence; the
NLRC may not direct the Labor Arbiter to conduct execution proceedings below.
Petitioner therefore prays that the Court annul and set aside the assailed Resolutions of the CA and
order the reinstatement of his Petition for Certiorari in the appellate court.
Respondent’s Arguments
In his Comment, respondent contends that with the dismissal of petitioner’s certiorari petition by the
28
CA, it is for all intents and purposes deemed to have never been filed, and thus may not be
corrected by resorting to a Petition for Review under Rule 45. Respondent reiterates the view taken
by the CA that certiorari under Rule 65 is a prerogative writ that is not demandable as a matter of
right.
Respondent notes further that the Verification and Certification against forum-shopping
accompanying the instant Petition was not signed by petitioner, but by his counsel, in consistent
violation of the Court’s Circular No. 28-91 and Rule 7 of the 1997 Rules of Civil Procedure. 1âwphi1
Respondent cites that he is already 71 years old, yet petitioner continues to undermine execution of
the judgment rendered in the labor case through the instant Petition, which he prays the Court to
deny.
Our Ruling
The Court finds that the Petition has become moot and academic.
It is true, as petitioner asserts, that if for reasonable or justifiable reasons he is unable to sign the
verification and certification against forum shopping in his CA Petition, he may execute a special
power of attorney designating his counsel of record to sign the Petition on his behalf. In Altres v.
Empleo, this view was taken:
29
For the guidance of the bench and bar, the Court restates in capsule form the jurisprudential
pronouncements already reflected above respecting noncompliance 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. H, 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 supplied)
30
However, while the Court takes the petitioner's side with regard to the procedural issue dealing with
verification and the certification against forum shopping, it nonetheless appears that the Petition has
been overtaken by events. In a May 24, 2011 Manifestation, respondent informed this Court that
31
the judgment award has been satisfied in full. The petitioner does not dispute this claim, in which
case, the labor case is now deemed ended. "It is axiomatic that after a judgment has been fully
satisfied, the case is deemed terminated once and for all." And "when a judgment has been
32
satisfied, it passes beyond review, satisfaction being the last act and the end of the proceedings,
and payment or satisfaction of the obligation thereby established produces permanent and
irrevocable discharge; hence, a judgment debtor who acquiesces to and voluntarily complies with
the judgment is estopped from taking an appeal therefrom." 33
With the above development in the case, the instant Petition is rendered moot and academic. The
satisfaction of the judgment in full has placed the case beyond the Court's review. "Indeed, there are
no more proceedings to speak of inasmuch as these were terminated by the satisfaction of the
judgment." 34
WHEREFORE, the Petition is DENIED for being moot and academic.
SO ORDERED.
MAHINAY VS GAKO
hese consolidated petitions pertain to a legal tug-of-war between persons trying to wrest possession
of a coveted Torrens certificate of title, and its collateral effect to the judge who heard their case.
In G.R. No. 165338, Makilito B. Mahinay (Mahinay), thru a petition for certiorari 1 directly filed with this
Court, seeks to nullify the December 12, 2003 Resolution 2 of the Regional Trial Court (RTC), Branch
5, Cebu City in Civil Case No. CEB-16335. The questioned RTC Resolution denied Mahinay’s
motion to compel Jocelyn B. Sorensen (Sorensen) to produce and turn over to him the owner’s copy
of Transfer Certificate of Title (TCT) No. 117531.3 In the same petition, Mahinay also charges
respondent Judge Ireneo Lee Gako, Jr. (Judge Gako) with gross ignorance of the law, abdication of
judicial duty, and failure to resolve a motion within the period prescribed by law.
Mahinay likewise assails the July 20, 2004 Order 4 of the RTC denying his Motion for
Reconsideration.5
In G.R. No. 179375, Sorensen on the other hand seeks to reverse and set aside the April 24, 2007
Resolution6 of the Court of Appeals (CA) which dismissed her Petition for Certiorari 7 in CA-G.R.
CEB-SP No. 02193. Sorensen filed said certiorari petition after Judge Gako volte faced and issued
an Order8 dated September 1, 2006 ordering her to surrender to Mahinay TCT No. 117531.
Sorensen likewise challenges the August 3, 2007 Resolution 9 of the CA denying her Motion for
Reconsideration.10
Factual Antecedents
Constantina H. Sanchez, Josefina H. Lopez and Susan Honoridez are the registered owners (the
owners) of a 406-square meter parcel of land known as Lot 5 located in Cebu City and covered by
TCT No. 117531. On July 25, 1994, Mahinay filed a complaint 11 for specific performance (docketed
as Civil Case No. CEB-16335) against the owners and one Felimon Suarez (Suarez), to compel
them to convey Lot 5 to him.
In said complaint, Mahinay alleged that in an earlier case12 he filed against the owners, the parties
therein arrived at a Compromise Agreement wherein the owners gave him preferential right to buy a
200-square meter portion of Lot 5 on condition that he will withdraw said case. On February 8, 1993,
the trial court thus issued a Judgment 13 based on said Compromise Agreement.
On November 9, 1993, however, the owners sold the entire Lot 5 to Suarez for ₱300,000.00 without
first offering the same to Mahinay. According to Mahinay, said transaction violated his preferential
right to buy as he was willing and capable of buying the property. To bolster his claim, Mahinay
attached to his second complaint the February 8, 1993 Judgment in the earlier case and a notarized
Deed of Absolute Sale14 dated November 9, 1993 between the owners and Suarez.
During the pendency of Civil Case No. CEB-16335, Mahinay filed an Ex-Parte Manifestation and
Motion15 informing the RTC that he caused the annotation of an adverse claim and then a Notice of
Lis Pendens16 on TCT No. 117531 on August 17, 1994.
In traversing Mahinay’s allegations, the owners asserted that they did not violate Mahinay’s
preferential right to buy as the transaction between them and Suarez was actually an equitable
mortgage, and not a sale. In support of their defense of equitable mortgage, the owners averred that
they remained the occupants and registered owners of Lot 5 and that TCT No. 117531 has always
been in their possession. With regard to the execution of the alleged Deed of Absolute Sale, the
owners explained that Suarez merely imposed the same as one of the conditions before granting the
loan application. To prove their theory of defense, the owners submitted an Acknowledgement
Receipt17 dated September 1, 1994 wherein Suarez declared that no sale between him and the
owners actually pushed thru and a letter 18 dated September 20, 1994 wherein the owners asked the
Bureau of Internal Revenue for the refund of the capital gains and documentary stamp taxes they
earlier paid.
Mahinay riposted, postulating that the Deed of Absolute Sale he attached to his Complaint
sufficiently confutes the owners’ defense of equitable mortgage. Besides, the owners and Suarez
failed to deny under oath the authenticity and due execution of said Deed of Absolute Sale. 19
On June 7, 1996, the RTC rendered a Decision20 debunking the owners’ theory of equitable
mortgage. It held that the notarized documents Mahinay presented, particularly the Deed of Absolute
Sale, outweigh the owners’ evidence consisting of private documents. Its dispositive portion reads:
WHEREFORE, this [C]ourt declares [Mahinay] as being entitled to redeem Lot No. 5 from defendant
Felimon Suarez.
Defendant Felimon Suarez, his heirs, successors and assigns are hereby directed to execute the
Deed of Conveyance, such papers and documents necessary for the transfer of the title of the said
lot to [Mahinay] upon the deposit before this Court of the same consideration as stated in the Deed
of Absolute Sale of the same lot between defendant Suarez and the other defendants.
No pronouncement as to costs.
SO ORDERED.21
The owners and Suarez moved for reconsideration.22 On November 22, 1996, however, the RTC
denied the same.23
Unhappy, they appealed to the CA.24 Finding no reversible error therefrom, the CA affirmed the ruling
of the RTC in a Decision25 dated December 29, 2000, which became final and executory on February
8, 2001.26
About a year later, Mahinay and Suarez filed a Joint Manifestation 27 informing the RTC that in
compliance with its Decision, Suarez executed a Deed of Conveyance 28 in favor of Mahinay, who, in
turn, deposited with the RTC the amount of ₱300,000.00. 29
Thereafter, to pave the way for the complete implementation of the RTC’s final Decision and have
Lot 5 registered in his name, Mahinay filed on February 7, 2002 an Omnibus Motion 30 seeking to
compel the owners to vacate the property and turn over to him the owner’s copy of TCT No. 117531.
On March 12, 2002, the RTC, then already presided by Judge Gako, issued a Resolution 31 granting
Mahinay’s motion. Thus:
WHEREFORE, in view of the foregoing, defendants Susan Honoridez, Constantina Sanchez and
Josefina Lopez are directed to turn over the Owner’s Duplicate Copy of the Certificate of Title of Lot
5 to [Mahinay], and to vacate the premises thereof in favor of the latter within thirty (30) days from
receipt of this resolution.32
Pursuant to said Resolution, the branch sheriff placed Mahinay in actual and physical possession of
the entire Lot 5. However, TCT No. 117531 could not be surrendered to him as the same was
already in possession of Sorensen by virtue of a Real Estate Mortgage executed by the owners
subsequent to the filing of Mahinay’s complaint.33
Whereupon, Mahinay filed a Motion to Issue an Order Directing Sorensen to Turn Over TCT No.
11753134 to him. This drew Sorensen’s Opposition,35 to which Mahinay tendered his Reply.36
On December 12, 2003, Judge Gako issued the assailed Resolution 37 in G.R. No. 165338 denying
Mahinay’s motion, the pertinent portions of which read:
The court indeed believes that a mortgage lien is superior to a Notice of Lis Pendens pursuant to
Article 2126 of the Civil Code, which provides that the mortgage directly and immediately subjects
the property upon which it is imposed to the fulfilment of the obligation for whose security it was
constituted. Article 2129 also provides that the creditor may claim from a third person in possession
of the mortgaged property, the payment of the part of the credit secured by the property which said
person possesses. In short, not even a sale or transfer of the mortgaged property can affect or
release the mortgage because the purchasers are necessarily bound to acknowledge and respect
the encumbrance of a recorded real estate mortgage, whether the sale or transfer to them be with or
without the consent of the mortgagee.
WHEREFORE, in view of the foregoing, [Mahinay’s] Motion to Direct Jocelyn B. Sorensen to turn
over Transfer Certificate of Title No. 117531 to the sheriff is hereby denied.
On January 12, 2004, Mahinay filed a Motion for Reconsideration 38 of the December 12, 2003
Resolution followed by a Supplemental Arguments in Support of the Motion for
Reconsideration.39 Sorensen opposed40 the motion and to which opposition, on January 20, 2004,
Mahinay replied.41
Raring to end his decade long legal battle, Mahinay filed on April 19, 2004 an Ex-parte Motion for
Early Resolution.42 A month later, Mahinay filed a Second Ex-Parte Motion for Early
Resolution,43 furnishing the Court Administrator a copy thereof with express reservation of making
the same as his formal administrative complaint in the future.
On July 20, 2004, what seemed to be an interminable wait for Mahinay finally ended, albeit with
unwanted result on his part – Judge Gako came up with a one-page Order 44 denying his Motion for
Reconsideration.
Aggrieved yet still refusing to concede defeat, Mahinay directly went to this Court on October 8,
2004 by filing a petition for certiorari under Rule 65 of the Rules of Court against Sorensen and
Judge Gako. He raises the following matters for consideration of this Court:
I.
RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION, AMOUNTING TO LACK

OR EXCESS OF JURISDICTION, IN ISSUING THE RESOLUTION AND ORDER DATED
DECEMBER 12, 2003 AND JULY 20, 2004 (ANNEXES A AND B RESPECTIVELY),
WHEREBY, ASIDE FROM REFUSING TO PERFORM A MINISTERIAL DUTY TO
IMPLEMENT THE FINAL AND EXECUTORY DECISION IN CEB-16335, HE AMENDED
THE SAME AND MADE ERRONEOUS CONCLUSIONS OF LAW, INDICATIVE OF GROSS
IGNORANCE OF THE LAW CHARACTERIZED WITH DISHONESTY, FRAUD AND BAD
FAITH.
II.
RESPONDENT JUDGE IS GUILTY OF VIOLATING THE CONSTITUTIONAL PROVISION

REQUIRING JUDGES TO DECIDE PENDING INCIDENTS WITHIN NINETY (90) DAYS
FROM DATE OF SUBMISSION.
III.
THAT PETITIONER HAS NO APPEAL [OR] OTHER PLAIN, SPEEDY AND ADEQUATE
REMEDY AGAINST THE QUESTIONED RESOLUTION AND ORDER OF RESPONDENT
COURT SOUGHT TO BE NULLIFIED IN THIS PETITION.45
During the pendency of G.R. No. 165338, or on August 29, 2006, Mahinay filed with the RTC a
Reiteratory Motion to Compel Jocelyn "Joy" B. Sorensen to Surrender Owner’s Duplicate Copy of
TCT No. 117531.46 In persuading Judge Gako to reconsider his earlier position, Mahinay alleged that
in a related case47 filed by the owners which eventually reached the Supreme Court and docketed as
G.R. No. 153762,48 this Court held that the Decision in Civil Case No. CEB-16335 had long become
final and executory, thereby erasing any doubt that the transaction between the owners and Suarez
was indeed a contract of sale. For Mahinay, this Court’s ruling in G.R. No. 153762 is a supervening
event which would justify Judge Gako to reconsider his earlier position on the matter of directing
Sorensen to hand over to him the owner’s copy of TCT No. 117531. He also suggested that if Judge
Gako would grant his motion, the administrative charge of gross ignorance of the law against the
good judge would become moot.
Apparently persuaded by Mahinay’s formulations, Judge Gako granted his Reiteratory Motion on
September 1, 2006.49
It thus became Sorensen’s turn to file a Motion for Reconsideration. 50 She contended that Mahinay
violated the rule against forum shopping as the relief sought in aforesaid Reiteratory Motion is the
same relief prayed for in G. R. No. 165338. She also pointed out that Judge Gako gravely abused
his discretion in granting said motion for he effectively pre-empted the action of the Supreme Court
in G.R. No. 165338. With regard to the Decision of this Court in G.R. No. 153762, Sorensen argued
that the same is not conclusive as to whether she cannot remain in possession of the disputed TCT.
After Mahinay filed his Opposition, 51 Judge Gako issued an Order52 dated September 18, 2006
denying Sorensen’s Motion for Reconsideration.
Sorensen thus filed with the CA a petition for certiorari 53 assailing Judge Gako’s September 1, 2006
Order granting Mahinay’s Reiteratory Motion. In said petition, she gave her version of the story as
follows –
In October 1994, [the owners] approached [Sorensen] in order to obtain a loan from her. So the
former offered Lot No. 5, Block 68 of the Subdivision Plan, now subject of this case, as a security or
collateral to said loan. In procuring said loan, the said [owners] showed to [Sorensen] a true copy of
their title over said property, T.C.T. No. 11753.
After some negotiation[s], [Sorensen], in utmost good faith, relying on the fact that there [is] no
adverse annotation at the back of said title, agreed to extend to them a loan. As a matter of fact,
[Sorensen] released to said mortgagors a loan of ₱709,827.00. Thereafter, a real estate mortgage
was executed by said mortgagors in favor of [Sorensen] as mortgagee to said loan.
[Sorensen], in good faith, received the owner’s duplicate original copy of said T.C.T. No. 117531
from [the owners] which when presented and shown to [Sorensen], the same did not contain any
adverse claim over the property to be mortgaged to her; and, until now, the said owner’s duplicate
original copy of said title is in actual custody of [Sorensen];
Upon default of [the owners] in the payment of said loan, [Sorensen] instituted an extra-judicial
foreclosure over the said mortgaged property.
During the public auction of said mortgaged property, [Sorensen] became the lone and highest
bidder. Consequently, the Court Sheriff issued the said certificate of sale dated November 12, 2004
in favor of [Sorensen] stating therein that [Sorensen] was the lone and highest bidder over the land
sold in public auction for ₱3,362,633.00.
With the issuance of said certificate of sale, [Sorensen] became entitled to possess the mortgaged
property which she acquired in a public auction;
It is at this juncture, when [Mahinay] asked the Honorable public respondent Judge to compel
[Sorensen] to surrender the said owner’s duplicate original copy of T.C.T. 117531 but the latter in its
order dated July 20, 2004 denied said motion. A motion for reconsideration was filed but the same
was denied.
Subsequently, [Mahinay] filed a petition for certiorari dated September 21, 2004 with the Supreme
Court docketed as G.R. No. 165338 entitled "Makilito B. Mahinay vs. Hon. Ireneo Lee Gako, Jr.,
Presiding Judge of RTC-Branch 5, Cebu City and Jocelyn B. Sorensen" questioning the propriety of
the issuance of said order dated January 6, 2004 which denied the motion to compel petitioner to
surrender T.C.T No. 117531.
Despite the fact that the said petition for certiorari is still pending and not yet resolved by the
Supreme Court until the present, the Honorable public respondent Judge issued the questioned
order dated September 1, 2006 directing herein petitioner to surrender T.C.T. No. 117531 which
virtually sets aside his previous order dated January 6, 2004 which is now the subject of said petition
for certiorari before the Supreme Court. 541âwphi1
In a Resolution55 promulgated on April 24, 2007, however, the CA outrightly dismissed Sorensen’s

petition for her failure to state that the allegations in her petition are true and correct not only based
on her personal knowledge but also based on authentic records.
Sorensen filed a Motion for Reconsideration 56 and to remedy the defect in her petition submitted an
Amended Petition57 with corrected verification. But the CA was not moved by Sorensen’s subsequent
compliance and, consequently, denied her motion in a Resolution 58 dated August 3, 2007. Hence,
the petition for review on certiorari in G.R. No. 179375 where Sorensen advances the following
arguments:
First Reason/Argument
THAT THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF

DISCRETION IN DISMISSING THE PETITION FOR CERTIORARI FOR FAILING TO STATE IN ITS
VERIFICATION PORTION THE PHRASE ‘OR BASED ON AUTHENTIC RECORDS’ AS
REQUIRED IN SECTION 4, RULE 7 OF THE 1997 RULES ON CIVIL PROCEDURE AS AMENDED
BY AM NO. 00-2-10-SC [E]SPECIALLY SO WHEN PETITIONER HAD ALREADY FILED AN
AMENDED PETITION FOR CERTIORARI WITH THE CORRECTED VERIFICATION PORTION
THIS TIME CONTAINING THE PHRASE "BASED ON AUTHENTIC RECORDS";
Second Reason/Argument
THAT THE RESPONDENT COURT OF APPEALS FURTHER COMMITTED A GRAVE ABUSE OF

DISCRETION IN FAILING TO CONSIDER THAT THE RESOLUTION OF THE ISSUES INVOLVED
IN THE DISMISSED PETITION FOR CERTIORARI IS MORE THAN ENOUGH REASON TO
LIBERALIZE THE STRINGENT REQUIREMENT OF VERIFICATION OF A PETITION FOR
CERTIORARI PURSUANT TO SECTION 4, RULE 7 OF THE 1997 RULES ON CIVIL PROCEDURE
AS AMENDED BY AM No. 00-2-10-SC;59
In a Resolution60 dated July 21, 2008, this Court ordered the consolidation of G.R. Nos. 165338 and
179375.
Parties’ Arguments
In G.R. No. 165338, Mahinay argues that the final and executory Decision 61 dated June 7, 1996 in
Civil Case No. CEB-16335 pronounced in no uncertain terms that the November 9, 1993 transaction
between the owners and Suarez was a contract of sale. Hence, said owners could not have validly
mortgaged Lot 5 on November 27, 1994 as they are no longer the owners thereof at that time.
Unfortunately, Judge Gako not only failed to comprehend the implication of such pronouncement by
still recognizing the mortgage, he also effectively modified the final and executory judgment in Civil
Case No. CEB-16335.
Mahinay also contends that Judge Gako committed serious and egregious error in ruling that the
mortgage is superior to the previously annotated adverse claim and Notice of Lis Pendens. He
continues that Judge Gako is guilty of gross ignorance of the law, evident bad faith, fraud, and
dishonesty. Mahinay asserts that it is an elementary rule which ought to be known by lawyers and
judges that a final and executory judgment is unalterable. However, Judge Gako deliberately ignored
such basic rule and even feigned ignorance of the common rules on adverse claim and lis pendens.
Lastly, Mahinay accuses Judge Gako of unjustifiably sitting on his Motion for Reconsideration. He
claims that he filed his Motion for Reconsideration on January 12, 2004 while Sorensen filed her
opposition thereto on January 20, 2004. The issues raised in said motion are not difficult to resolve,
yet Judge Gako issued his single-page Order denying said motion only on July 20, 2004. What is
more, Judge Gako did not report to the Supreme Court that he had a pending motion which
remained unresolved beyond the constitutionally mandated 90-day period for resolving motions.
For her part, Sorensen stands by the RTC and argues that a mortgage lien is superior to a notice of
lis pendens; that she is not bound by the Decision in Civil Case No. CEB-16335 as she is not a party
thereto; and, that she is an innocent mortgagee for value entitled to remain in possession of TCT No.
117531. Sorensen also points out that the delay in the resolution of Mahinay’s motion only shows
that Judge Gako meticulously studied the case.
Sorensen claims that in filing his Reiteratory Motion, Mahinay violated the rule on exhaustion of
administrative remedies. She argues that the proper remedy to obtain unlawfully withheld duplicate
certificate of title is to file a case in accordance with Section 107 62 of Presidential Decree (PD) No.
1529.63
Lastly, Sorensen calls our attention to the Comment/Manifestation 64 Suarez
filed in G.R. No. 153762 wherein he affirmed that the transaction between him and the owners was a
mere mortgage; that he received the amount of ₱419,500.00 from Sorensen as redemption price for
the mortgaged property; and, that he in turn gave to her the owner’s duplicate copy of TCT No.
117531.
Our Ruling
The grant of Mahinay’s Reiteratory Motion rendered G.R. No. 165338 moot.
In G.R. No. 165338, Mahinay essentially seeks to nullify the December 12, 2003 Resolution 65 of
Judge Gako which denied his motion to compel Sorensen to turn over to him TCT No. 117531.
During the pendency of G.R. No. 165338, however, Mahinay filed his Reiteratory Motion with the
same objective – to compel Sorensen to surrender to him the coveted TCT. On September 1, 2006,
Judge Gako issued an Order66 granting Mahinay’s Reiteratory Motion and directing Sorensen to turn
over to him subject TCT. Sorensen moved for a reconsideration which Judge Gako denied until,
eventually, Sorensen came to this Court. Such a change of heart on the part of Judge Gako negated
Mahinay’s contention that the honorable magistrate committed grave abuse of discretion in denying
his motion to compel Sorensen to turn over to him TCT No. 117531. It also effectively mooted his
petition. Thus, we have no other recourse but to dismiss G.R. No. 165338. In Gancho-on v.
Secretary of Labor and Employment,67 this Court pronounced that –
It is a rule of universal application, almost, that courts of justice constituted to pass upon substantial
rights will not consider questions in which no actual interests are involved; they decline jurisdiction of
moot cases. And where the issue has become moot and academic, there is no justiciable
controversy, so that a declaration thereon would be of no practical use or value. There is no actual
substantial relief to which petitioners would be entitled and which would be negated by the dismissal
of the petition.
At this point it may not be amiss to add (though no longer contested in these petitions) that Mahinay
further continued to pursue his quest at the trial court level to have TCT No. 117531 in his
possession. On November 14, 2007, he filed a motion 68 praying for the issuance of a writ of
possession directing the sheriff to take possession of the owner’s copy of TCT No. 117531. This was
granted by the RTC in an Order69 dated March 26, 2008. After serving the writ, the sheriff made a
return70 informing the RTC that Sorensen refused to surrender the certificate of title.
Mahinay then changed tack and filed a motion to declare the title in Sorensen’s possession as null
and void and in lieu thereof to issue a new one under his name. 71 In an Order72 dated September 5,
2008, the RTC granted the motion, the dispositive portion of which reads:
WHEREFORE, the Motion to declare as null and void the owner’s duplicate copy of Transfer
Certificate of Title No. 117531, dated 5 August 2008, filed by plaintiff, is granted.
The title of Lot No. 5, Block 68, is ordered transferred to the name of plaintiff, MAKILITO B.
MAHINAY, pursuant to the Deed of Conveyance, attached as Annex "A" to the Motion, without the
need of surrendering the owner’s duplicate copy of the said title, TCT No. 117531.
The owner’s duplicate copy of TCT No. 117531 is declared null and void, and the Register of Deeds,
Cebu City, is ordered to issue a new owner’s duplicate containing a memorandum to this effect.
Notify all the parties concerned of this order and the Office of the Register of Deeds of Cebu City, for
its compliance.
SO ORDERED.73
This sequence of events which transpired during the pendency of G.R. No. 165338 all the more
rendered it moot.
The administrative charges of gross ignorance of the law and abdication of a judicial duty lack merit;
the administrative charge of failure to resolve a motion within the prescribed period should be
referred to the Office of the Court Administrator for appropriate action.
Mahinay accuses Judge Gako, among others, of gross ignorance of the law and abdication of
judicial duty. From the facts of these cases as set out above, however, it is quite obvious that
Mahinay would not have accused Judge Gako of such charges had the judge ruled in his favor. It
should be recalled that Mahinay first cocked the gun, so to speak, when he filed his Second Ex-
Parte Motion for Early Resolution74 intimating to Judge Gako that he was contemplating on filing an
administrative charge against the magistrate before the Office of the Court Administrator. Then he
filed his Rule 65 petition in G.R. No. 165338 incorporating therein aforesaid administrative charges
against Judge Gako. Yet during the pendency of said petition Mahinay filed with the RTC his
Reiteratory Motion alleging that –
THE GRANT OF THIS REITERATORY MOTION, IT IS BELIEVED, WILL HAVE THE EFFECT OF
RENDERING MOOT AND ACADEMIC THE ADMINISTRATIVE CHARGE AGAINST THE
PRESIDING JUDGE OF THIS HONORABLE COURT IN G.R. No. 153762 [sic]. 75
Indubitably, Mahinay’s allegations of gross ignorance of the law and abdication of judicial duty are
not based on his sincere and strong belief that Judge Gako should be disciplined. They are mere
ploys calculated to induce Judge Gako to grant his motion. We cannot countenance such lamentable
scheme of Mahinay. It is settled that disciplinary proceedings against judges do not complement,
supplement or substitute judicial remedies. Administrative complaints are not intended to coerce
judges to rule in complainant’s favor. Fittingly, we reiterate our pronouncement in Atty. Flores v. Hon.
Abesamis:76
Law and logic decree that "administrative or criminal remedies are neither alternative nor cumulative
to judicial review where such review is available, and must wait on the result thereof." Indeed, since
judges must be free to judge, without pressure or influence from external forces or factors, they
should not be subject to intimidation, the fear of civil, criminal or administrative sanctions for acts
they may do and dispositions they may make in the performance of their duties and functions; and it
is sound rule, which must be recognized independently of statute, that judges are not generally liable
for acts done within the scope of their jurisdiction and in good faith; and that exceptionally,
prosecution of the judge can be had only if "there be a final declaration by a competent court in
some appropriate proceeding of the manifestly unjust character of the challenged judgment or order,
and also evidence of malice or bad faith, ignorance or inexcusable negligence, on the part of the
judge in rendering said judgment or order" x x x.
Indeed, unless it can be shown that their acts are tainted with bad faith, malice or corrupt purpose,
judges cannot be held administratively liable for rendering an erroneous judgment 77 simply because
they are not infallible.78
Instead of threatening Judge Gako with administrative charges, Mahinay could have simply awaited
the resolution of G.R. No. 165338. Unfortunately, as earlier discussed, his own impatience mooted
G.R. No. 165338.
With regard to Judge Gako’s alleged tardiness in resolving the Reiteratory Motion, it cannot escape
our attention, however, that he was never given a chance to comment or answer the complaint
against him. Thus, we cannot resolve the administrative charge of failing to resolve the motion on
time without trifling with his constitutionally enshrined right to due process.
The cardinal precept is that where there is a violation of basic constitutional rights, courts are ousted
from their jurisdiction. The violation of a party's right to due process raises a serious jurisdictional
issue which cannot be glossed over or disregarded at will. Where the denial of the fundamental right
to due process is apparent, a decision rendered in disregard of that right is void for lack of
jurisdiction.79
For the expeditious and orderly conduct of proceedings, therefore, we find it appropriate to refer said
administrative charge to the Office of the Court Administrator for appropriate action.
The Court of Appeals did not err in dismissing Sorensen’s petition for certiorari.
With regard to G.R. No. 179375, Sorensen admits that due to inadvertence she failed to state in the
verification portion of her petition that the allegations therein are true and correct based on authentic
records. Nonetheless, such omission, according to Sorensen, does not justify the outright dismissal
of her petition. She posits that the purpose of verification is simply to secure an assurance that the
allegations in the pleading are true and correct. Thus, "the requirement that a petition for certiorari be
verified is not an absolute necessity where the material facts alleged are a matter of records and all
the questions raised are mainly of law,"80 just like in her CA petition. After all, the absence of
verification is a mere formal, not jurisdictional, defect.
Sorensen misses the point.
The rule requiring certain pleadings to be verified is embodied in Section 4, Rule 7 of the Rules of
Court. It reads:
SEC. 4. Verification. – Except when otherwise specifically required by law or rule, pleadings need
not be under oath, verified or accompanied by affidavit.
A pleading is verified by an affidavit that the affiant has read the pleading and that the allegations
therein are true and correct of his personal knowledge or based on authentic records.
A pleading required to be verified which contains a verification based on "information and belief," or
upon "knowledge, information and belief," or lacks a proper verification, shall be treated as an
unsigned pleading.
Verification of pleading is not an empty ritual bereft of any legal importance. It is intended to secure
an assurance that the allegations contained in the pleading are true and correct; are not speculative
or merely imagined; and have been made in good faith. 81 A pleading may be verified by stating that
the pleaders have read the allegations in their petition and that the same are true and correct based
either on their personal knowledge or authentic records, or based both on their personal
knowledge and authentic records. While the rule gives the pleaders several ways of verifying their
pleading, the use of the phrase personal knowledge or authentic records is not without any legal
signification and the pleaders are not at liberty to choose any of these phrases fancifully. Hun Hyung
Park v. Eung Won Choi82 teaches us when to properly use authentic records in verifying a pleading:
"[A]uthentic" records as a basis for verification bear significance in petitions wherein the greater
portions of the allegations are based on the records of the proceedings in the court of origin and/or
the court a quo, and not solely on the personal knowledge of the petitioner. To illustrate, petitioner
himself could not have affirmed, based on his personal knowledge, the truthfulness of the statement
in his petition before the CA that at the pre-trial conference respondent admitted having received the
letter of demand, because he (petitioner) was not present during the conference. Hence, petitioner
needed to rely on the records to confirm its veracity.
In her CA petition, Sorensen questioned the September 1, 2006 and September 18, 2006 Orders of
Judge Gako which respectively granted Mahinay’s Reiteratory Motion and denied her Motion for
Reconsideration. In addition to said Orders and Motions, and to support the allegations in her
petition, Sorensen also attached copies of the August 12, 2005 Decision of this Court in G.R. No.
153762 and other material portions of the records of Civil Case No. CEB-16335. Quite obviously,
Sorensen had no participation in the preparation and execution of these documents although they
constitute the main bulk of her evidence. Hence, it was necessary for Sorensen to state in the
verification that the allegations in her petition are true and correct not only based on her personal
knowledge but also based on the information she gathered from authentic records. 83 The CA is,
therefore, correct in its observation that Sorensen’s verification is insufficient.
Nonetheless, the Rules84 and jurisprudence on the matter have it that the court may allow such
deficiency to be remedied. In Altres v. Empleo,85 this Court pronounced for the guidance of the bench
and the bar that "non-compliance x x x or a defect [in the verification] 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 needs of justice may be served thereby."
Pitted against this test, we sustain the CA for not taking a liberal stance in resolving Sorensen’s
petition for certiorari as the dismissal thereof did not impair or affect her substantive rights.
No circumstances were present in Sorensen’s petition which would warrant the liberal application of
the rules to serve the needs of justice.
In claiming that the CA erred in dismissing her petition, Sorensen alleges that the appellate court
glossed over the merits of her certiorari petition. She maintains that as an innocent mortgagee for
value, she has the superior right to remain in custody of the owner’s copy of TCT No. 117531. She
insists that she merely relied on the four corners of said TCT which at the time of the transaction did
not contain any annotation of lis pendens.
We are not impressed. True, when a mortgagee relies upon what appears on the face of a Torrens
title and lends money in all good faith on the basis of the title in the name of the mortgagor, only
thereafter to learn that the latter’s title was defective, being thus an innocent mortgagee for value, his
or her right or lien upon the land mortgaged must be respected and protected. 86 The rationale for this
ruling is, if the rule were otherwise public confidence in the certificate of title would be impaired as
everyone dealing with property registered under the Torrens system would have to inquire on the
regularity of its issuance.
Such is not the case in the present controversy however. As borne out by the records, Mahinay’s
Notice of Lis Pendens was duly annotated on the original copy of TCT No. 117531 as early as
August 17, 1994. On the other hand, the Real Estate Mortgage upon which Sorensen based her
alleged superior right was executed only on October 27, 1994 and inscribed at the back of said title
only on the following day, October 28, 1994. The prior registration of Mahinay’s Notice of Lis
Pendens bound the whole world,87 including Sorensen. It charged her with notice that the land being
offered to her as security for the loan is under litigation and that whatever rights she may acquire by
virtue of the Real Estate Mortgage are subject to the outcome of the case. 88 More importantly, it also
gave Mahinay a preferential right over subsequent liens and encumbrances annotated on the
title.89 "It is settled that in this jurisdiction the maxim prior est in tempore, potior est in jure (he who is
first in time is preferred in right) is followed in land registration. 90 Having registered his instrument
ahead of Sorensen’s Real Estate Mortgage, Mahinay’s Notice of Lis Pendens takes precedence
over the said Real Estate Mortgage.
The claim of Sorensen that the owner’s copy of TCT No. 117531 does not contain any adverse
annotation at the time the owners transacted with her is of no moment. Being in the nature of
involuntary registration, the annotation of the Notice of Lis Pendens on the original copy of TCT No.
117531 on file with the Registry of Deeds is sufficient to bind third parties. It affects the whole world
even if the owner’s copy does not contain the same annotation. The reason for this ruling was
explained in Yu v. Court of Appeals:91
The annotation of a notice of lis pendens at the back of the original copy of the certificate of title on
file with the Register of Deeds is sufficient to constitute constructive notice to purchasers or other
persons subsequently dealing with the same property. It is not required that said annotation be also
inscribed upon the owner's copy because such copy is usually unavailable to the registrant; it is
normally in the hands of the adverse party, or as in this case, in the hands of a stranger to the suit.
xxxx
Third persons like the respondent-spouses should not be satisfied with merely examining the
owner's copy of the certificate of title. They should examine the original on file with the Register of
Deeds for they are all constructively notified of pending litigations involving real property through
notices of lis pendens annotated therein.
WHEREFORE, the petition in G.R. No. 165338 is hereby DISMISSED for being moot. Let the
administrative charge of failure to resolve motion within the prescribed period against Judge Ireneo
Lee Gako, Jr. be referred to the Office of the Court Administrator for appropriate action.
The petition in G.R. No. 179375 is likewise DENIED and the Resolutions of the Court of Appeals
dated April 24, 2007 and August 3, 2007 in CA-G.R. CEB-SP No. 02193 are AFFIRMED.
SO ORDERED.
VALLACAR VS CATUBIG
For review under Rule 45 of the Rules of Court is the Decision 1 dated November 17, 2005 and the
Resolution2 dated November 16, 2006 of the Court Appeals in CA-G.R. CV No. 66815, which
modified the Decision3 dated January 26, 2000 of the Regional Trial Court (RTC), Branch 30 of
Dumaguete City, in Civil Case No. 11360, an action for recovery of damages based on Article 2180,
in relation to Article 2176, of the Civil Code, filed by respondent Jocelyn Catubig against petitioner
Vallacar Transit, Inc. While the RTC dismissed respondent’s claim for damages, the Court of
Appeals granted the same.
The undisputed facts are as follows:
Petitioner is engaged in the business of transportation and the franchise owner of a Ceres Bulilit bus
with Plate No. T-0604-1348. Quirino C. Cabanilla (Cabanilla) is employed as a regular bus driver of
petitioner.
On January 27, 1994, respondent’s husband, Quintin Catubig, Jr. (Catubig), was on his way home
from Dumaguete City riding in tandem on a motorcycle with his employee, Teddy Emperado
(Emperado). Catubig was the one driving the motorcycle. While approaching a curve at kilometers
59 and 60, Catubig tried to overtake a slow moving ten-wheeler cargo truck by crossing-over to the
opposite lane, which was then being traversed by the Ceres Bulilit bus driven by Cabanilla, headed
for the opposite direction. When the two vehicles collided, Catubig and Emperado were thrown from
the motorcycle. Catubig died on the spot where he was thrown, while Emperado died while being
rushed to the hospital.
On February 1, 1994, Cabanilla was charged with reckless imprudence resulting in double homicide
in Criminal Case No. M-15-94 before the Municipal Circuit Trial Court (MCTC) of Manjuyod-Bindoy-
Ayungon of the Province of Negros Oriental. After preliminary investigation, the MCTC issued a
Resolution on December 22, 1994, dismissing the criminal charge against Cabanilla. It found that
Cabanilla was not criminally liable for the deaths of Catubig and Emperado, because there was no
negligence, not even contributory, on Cabanilla’s part.
Thereafter, respondent filed before the RTC on July 19, 1995 a Complaint for Damages against
petitioner, seeking actual, moral, and exemplary damages, in the total amount of ₱484,000.00, for
the death of her husband, Catubig, based on Article 2180, in relation to Article 2176, of the Civil
Code. Respondent alleged that petitioner is civilly liable because the latter’s employee driver,
Cabanilla, was reckless and negligent in driving the bus which collided with Catubig’s motorcycle.
Petitioner, in its Answer with Counterclaim, contended that the proximate cause of the vehicular
collision, which resulted in the deaths of Catubig and Emperado, was the sole negligence of Catubig
when he imprudently overtook another vehicle at a curve and traversed the opposite lane of the
road. As a special and affirmative defense, petitioner asked for the dismissal of respondent’s
complaint for not being verified and/or for failure to state a cause of action, as there was no
allegation that petitioner was negligent in the selection or supervision of its employee driver.
In the Pre-Trial Order4 dated June 10, 1997, the parties stipulated that the primary issue for trial was
whether or not petitioner should be held liable for Catubig’s death. Trial then ensued.
Police Officer (PO) 2 Robert B. Elnas (Elnas),5 Emilio Espiritu (Espiritu),6 Dr. Norberto Baldado, Jr.
(Dr. Baldado),7 Peter Cadimas (Cadimas),8 and respondent9 herself testified in support of
respondent’s complaint.
PO2 Elnas conducted an investigation of the collision incident. According to PO2 Elnas, the bus was
running fast, at a speed of 100 kilometers per hour, when it collided with the motorcycle which was
trying to overtake a truck. The collision occurred on the lane of the bus. Catubig was flung 21 meters
away, and Emperado, 11 meters away, from the point of impact. The motorcycle was totaled; the
chassis broke into three parts, and the front wheel and the steering wheel with the shock absorbers
were found 26 meters and 38 meters, respectively, from the collision point. In contrast, only the front
bumper of the bus suffered damage.
Cadimas personally witnessed the collision of the bus and the motorcycle. He recalled that he was
then waiting for a ride to Dumaguete City and saw the Ceres Bulilit bus making a turn at a curve.
Cadimas signaled the said bus to halt but it was running fast. Cadimas also recollected that there
was a cargo truck running slow in the opposite direction of the bus. Cadimas next heard a thud and
saw that the bus already collided with a motorcycle.
Espiritu was the photographer who took photographs of the scene of the accident. He identified the
five photographs which he had taken of Catubig lying on the ground, bloodied; broken parts of the
motorcycle; and the truck which Catubig tried to overtake.
Dr. Baldado was the medico-legal doctor who conducted the post-mortem examination of Catubig’s
body. He reported that Catubig suffered from the following injuries: laceration and fracture of the
right leg; laceration and fracture of the left elbow; multiple abrasions in the abdominal area, left
anterior chest wall, posterior right arm, and at the back of the left scapular area; and contusion-
hematoma just above the neck. Dr. Baldado confirmed that Catubig was already dead when the
latter was brought to the hospital, and that the vehicular accident could have caused Catubig’s
instantaneous death.
Respondent herself testified to substantiate the amount of damages she was trying to recover from
petitioner for Catubig’s death, such as Catubig’s earning capacity; expenses incurred for the wake
and burial of Catubig, as well as of Emperado; the cost of the motorcycle; and the costs of the legal
services and fees respondent had incurred.
Respondent’s documentary exhibits consisted of her and Catubig’s Marriage Contract dated August
21, 1982, their two children’s Certificate of Live Births, Catubig’s College Diploma dated March 24,
1983, the list and receipts of the expenses for Catubig’s burial, the sketch of the collision site
prepared by PO2 Elnas, the excerpts from the police blotter, the photographs of the collision, 10 and
the Post Mortem Report11 on Catubig’s cadaver prepared by Dr. Baldado.
In an Order12 dated October 6, 1998, the RTC admitted all of respondent’s aforementioned evidence.
On the other hand, Rosie C. Amahit (Amahit) 13 and Nunally Maypa (Maypa)14 took the witness stand
for petitioner.
Amahit was a Court Stenographer at the MCTC who took the transcript of stenographic notes (TSN)
in Criminal Case No. M-15-94 against Cabanilla. Amahit verified that the document being presented
by the defense in the present case was a true and correct copy of the TSN of the preliminary
investigation held in Criminal Case No. M-15-94 on May 25, 1994, and another document was a
duplicate original of the MCTC Resolution dated December 22, 1994 dismissing Criminal Case No.
M-15-94.
Maypa is the Administrative and Personnel Manager at the Dumaguete branch of petitioner. He
started working for petitioner on September 22, 1990 as a clerk at the Human Resources
Development Department at the Central Office of petitioner in Bacolod City. Sometime in November
1993, he became an Administrative Assistant at the Dumaguete branch of petitioner; and in August
1995, he was promoted to his current position at the same branch.
While he was still an Administrative Assistant, Maypa was responsible for the hiring of personnel
including drivers and conductors. Maypa explained that to be hired as a driver, an applicant should
be 35 to 45 years old, have at least five years experience in driving big trucks, submit police, court,
and medical clearances, and possess all the necessary requirements for driving a motor vehicle of
more than 4,500 kilograms in gross weight such as a professional driver’s license with a restriction
code of 3. The applicant should also pass the initial interview, the actual driving and maintenance
skills tests, and a written psychological examination involving defensive driving techniques. Upon
passing these examinations, the applicant still had to go through a 15-day familiarization of the bus
and road conditions before being deployed for work. Maypa, however, admitted that at the time of
his appointment as Administrative Assistant at the Dumaguete branch, Cabanilla was already an
employee driver of petitioner.
Maypa further explained the investigation and grievance procedure followed by petitioner in cases of
vehicular accidents involving the latter’s employee drivers. Maypa related that Cabanilla had been
put on preventive suspension following the vehicular accident on January 27, 1994 involving the bus
Cabanilla was driving and the motorcycle carrying Catubig and Emperado. Following an internal
investigation of said accident conducted by petitioner, Cabanilla was declared not guilty of causing
the same, for he had not been negligent.
Lastly, Maypa recounted the expenses petitioner incurred as a result of the present litigation.
The documentary exhibits of petitioner consisted of the TSN of the preliminary investigation in
Criminal Case No. M-15-94 held on May 25, 1994 before the MCTC of Manjuyod-Bindoy-Ayungon of
the Province of Negros Oriental; Resolution dated December 22, 1994 of the MCTC in the same
case; and the Minutes dated February 17, 1994 of the Grievance Proceeding conducted by
petitioner involving Cabanilla.15
The RTC, in its Order16 dated November 12, 1999, admitted all the evidence presented by petitioner.
On January 26, 2000, the RTC promulgated its Decision favoring petitioner. Based on the sketch
prepared by PO2 Elnas, which showed that "the point of impact x x x occurred beyond the center
lane near a curve within the lane of the Ceres bus[;]" 17 plus, the testimonies of PO2 Elnas and
Cadimas that the motorcycle recklessly tried to overtake a truck near a curve and encroached the
opposite lane of the road, the RTC ruled that the proximate cause of the collision of the bus and
motorcycle was the negligence of the driver of the motorcycle, Catubig. The RTC, moreover, was
convinced through the testimony of Maypa, the Administrative and Personnel Manager of the
Dumaguete branch of petitioner, that petitioner had exercised due diligence in the selection and
supervision of its employee drivers, including Cabanilla.
After trial, the RTC concluded:
WHEREFORE, finding preponderance of evidence in favor of the [herein petitioner] that the [herein
respondent’s] husband is the reckless and negligent driver and not the driver of the [petitioner], the
above-entitled case is hereby ordered dismissed.
[Petitioner’s] counterclaim is also dismissed for lack of merit. 18
Respondent appealed to the Court of Appeals. In its Decision dated November 17, 2005, the
appellate court held that both Catubig and Cabanilla were negligent in driving their respective
vehicles. Catubig, on one hand, failed to use reasonable care for his own safety and ignored the
hazard when he tried to overtake a truck at a curve. Cabanilla, on the other hand, was running his
vehicle at a high speed of 100 kilometers per hour. The Court of Appeals also brushed aside the
defense of petitioner that it exercised the degree of diligence exacted by law in the conduct of its
business. Maypa was not in a position to testify on the procedures followed by petitioner in hiring
Cabanilla as an employee driver considering that Cabanilla was hired a year before Maypa assumed
his post at the Dumaguete branch of petitioner.
Thus, the Court of Appeals decreed:
WHEREFORE, based on the foregoing, the assailed decision of the trial court is modified. We rule
that [herein petitioner] is equally liable for the accident in question which led to the deaths of Quintin
Catubig, Jr. and Teddy Emperado and hereby award to the heirs of Quintin Catubig, Jr. the amount
[of] ₱250,000.00 as full compensation for the death of the latter. 19
The Court of Appeals denied the motion for reconsideration of petitioner in a Resolution dated
November 16, 2006.
Hence, the instant Petition for Review.
Petitioner asserts that respondent’s complaint for damages should be dismissed for the latter’s
failure to verify the same. The certification against forum shopping attached to the complaint, signed
by respondent, is not a valid substitute for respondent’s verification that she "has read the pleading
and that the allegations therein are true and correct of her personal knowledge or based on
authentic records."20 Petitioner cited jurisprudence in which the Court ruled that a pleading lacking
proper verification is treated as an unsigned pleading, which produces no legal effect under Section
3, Rule 7 of the Rules of Court.
Petitioner also denies any vicarious or imputed liability under Article 2180, in relation to Article 2176,
of the Civil Code. According to petitioner, respondent failed to prove the culpability of Cabanilla, the
employee driver of petitioner. There are already two trial court decisions (i.e., the Resolution dated
December 22, 1994 of the MCTC of Manjuyod-Bindoy-Ayungon of the Province of Negros Oriental in
Criminal Case No. M-15-94 and the Decision dated January 26, 2000 of the RTC in the instant civil
suit) explicitly ruling that the proximate cause of the collision was Catubig’s reckless and negligent
act. Thus, without the fault or negligence of its employee driver, no liability at all could be imputed
upon petitioner.
Petitioner additionally argues, without conceding any fault or liability, that the award by the Court of
Appeals in respondent’s favor of the lump sum amount of ₱250,000.00 as total death indemnity
lacks factual and legal basis. Respondent’s evidence to prove actual or compensatory damages are
all self-serving, which are either inadmissible in evidence or devoid of probative value. The award of
moral and exemplary damages is likewise contrary to the ruling of the appellate court that Catubig
should be equally held liable for his own death.
Respondent maintains that the Court of Appeals correctly adjudged petitioner to be liable for
Catubig’s death and that the appellate court had already duly passed upon all the issues raised in
the petition at bar.
The petition is meritorious.
At the outset, we find no procedural defect that would have warranted the outright dismissal of
respondent’s complaint.
Respondent filed her complaint for damages against petitioner on July 19, 1995, when the 1964
Rules of Court was still in effect. Rule 7, Section 6 of the 1964 Rules of Court provided:
Sec. 6. Verification.—A pleading is verified only by an affidavit stating that the person verifying has
read the pleading and that the allegations thereof are true of his own knowledge.
Verifications based on "information and belief," or upon "knowledge, information and belief," shall be
deemed insufficient.
On July 1, 1997, the new rules on civil procedure took effect. The foregoing provision was carried
on, with a few amendments, as Rule 7, Section 4 of the 1997 Rules of Court, viz:
SEC. 4. Verification. – Except when otherwise specifically required by law or rule, pleadings need
not be under oath, verified or accompanied by affidavit.
therein are true and correct of his knowledge and belief.
A pleading required to be verified which contains a verification based on "information and belief," or
unsigned pleading."
The same provision was again amended by A.M. No. 00-2-10, which became effective on May 1,
2000. It now reads:
SEC. 4. Verification. - Except when otherwise specifically required by law or rule, pleadings need not
be under oath, verified or accompanied by affidavit.
A pleading required to be verified which contains a verification based on "information and belief" or
unsigned pleading.
The 1997 Rules of Court, even prior to its amendment by A.M. No. 00-2-10, clearly provides that a
pleading lacking proper verification is to be treated as an unsigned pleading which produces no legal
effect. However, it also just as clearly states that "[e]xcept when otherwise specifically required by
law or rule, pleadings need not be under oath, verified or accompanied by affidavit." No such law or
rule specifically requires that respondent’s complaint for damages should have been verified.
Although parties would often submit a joint verification and certificate against forum shopping, the
two are different.
In Pajuyo v. Court of Appeals, 21 we already pointed out that:
A party’s failure to sign the certification against forum shopping is different from the party’s failure to
sign personally the verification. The certificate of non-forum shopping must be signed by the party,
and not by counsel. The certification of counsel renders the petition defective.
On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional
requisite. It is intended simply to secure an assurance that what are alleged in the pleading are true
and correct and not the product of the imagination or a matter of speculation, and that the pleading is
filed in good faith. The party need not sign the verification. A party’s representative, lawyer or any
person who personally knows the truth of the facts alleged in the pleading may sign the verification. 22
In the case before us, we stress that as a general rule, a pleading need not be verified, unless there
is a law or rule specifically requiring the same. Examples of pleadings that require verification are:
(1) all pleadings filed in civil cases under the 1991 Revised Rules on Summary Procedure; (2)
petition for review from the Regional Trial Court to the Supreme Court raising only questions of law
under Rule 41, Section 2; (3) petition for review of the decision of the Regional Trial Court to the
Court of Appeals under Rule 42, Section 1; (4) petition for review from quasi-judicial bodies to the
Court of Appeals under Rule 43, Section 5; (5) petition for review before the Supreme Court under
Rule 45, Section 1; (6) petition for annulment of judgments or final orders and resolutions under Rule
47, Section 4; (7) complaint for injunction under Rule 58, Section 4; (8) application for preliminary
injunction or temporary restraining order under Rule 58, Section 4; (9) application for appointment of
a receiver under Rule 59, Section 1; (10) application for support pendente lite under Rule 61,
Section 1; (11) petition for certiorari against the judgments, final orders or resolutions of
constitutional commissions under Rule 64, Section 2; (12) petition for certiorari, prohibition, and
mandamus under Rule 65, Sections 1 to 3; (13) petition for quo warranto under Rule 66, Section 1;
(14) complaint for expropriation under Rule 67, Section 1; (15) petition for indirect contempt under
Rule 71, Section 4, all from the 1997 Rules of Court; (16) all complaints or petitions involving intra-
corporate controversies under the Interim Rules of Procedure on Intra-Corporate Controversies; (17)
complaint or petition for rehabilitation and suspension of payment under the Interim Rules on
Corporate Rehabilitation; and (18) petition for declaration of absolute nullity of void marriages and
annulment of voidable marriages as well as petition for summary proceedings under the Family
Code.
In contrast, all complaints, petitions, applications, and other initiatory pleadings must be
accompanied by a certificate against forum shopping, first prescribed by Administrative Circular No.
04-94, which took effect on April 1, 1994, then later on by Rule 7, Section 5 of the 1997 Rules of
Court. It is not disputed herein that respondent’s complaint for damages was accompanied by such a
certificate.
In addition, verification, like in most cases required by the rules of procedure, is a formal, not
jurisdictional, requirement, and mainly intended to secure an assurance that matters which are
alleged are done in good faith or are true and correct and not of mere speculation. When
circumstances warrant, the court may simply order the correction of unverified pleadings or act on it
and waive strict compliance with the rules in order that the ends of justice may thereby be served. 23
We agree with petitioner, nonetheless, that respondent was unable to prove imputable negligence
on the part of petitioner.
Prefatorily, we restate the time honored principle that in a petition for review under Rule 45, only
questions of law may be raised. It is not our function to analyze or weigh all over again evidence
already considered in the proceedings below, our jurisdiction is limited to reviewing only errors of law
that may have been committed by the lower court. The resolution of factual issues is the function of
lower courts, whose findings on these matters are received with respect. A question of law which we
may pass upon must not involve an examination of the probative value of the evidence presented by
the litigants.24
The above rule, however, admits of certain exceptions. The findings of fact of the Court of Appeals
are generally conclusive but may be reviewed when: (1) the factual findings of the Court of Appeals
and the trial court are contradictory; (2) the findings are grounded entirely on speculation, surmises
or conjectures; (3) the inference made by the Court of Appeals from its findings of fact is manifestly
mistaken, absurd or impossible; (4) there is grave abuse of discretion in the appreciation of facts; (5)
the appellate court, in making its findings, goes beyond the issues of the case and such findings are
contrary to the admissions of both appellant and appellee; (6) the judgment of the Court of Appeals
is premised on a misapprehension of facts; (7) the Court of Appeals fails to notice certain relevant
facts which, if properly considered, will justify a different conclusion; and (8) the findings of fact of the
Court of Appeals are contrary to those of the trial court or are mere conclusions without citation of
specific evidence, or where the facts set forth by the petitioner are not disputed by respondent, or
where the findings of fact of the Court of Appeals are premised on the absence of evidence but are
contradicted by the evidence on record.25
The issue of negligence is basically factual.26 Evidently, in this case, the RTC and the Court of
Appeals have contradictory factual findings: the former found that Catubig alone was negligent, while
the latter adjudged that both Catubig and petitioner were negligent.
Respondent based her claim for damages on Article 2180, in relation to Article 2176, of the Civil
Code, which read:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this
Chapter.
Art. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own acts or
omissions, but also for those persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or
industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage.
There is merit in the argument of the petitioner that Article 2180 of the Civil Code – imputing fault or
negligence on the part of the employer for the fault or negligence of its employee – does not apply to
petitioner since the fault or negligence of its employee driver, Cabanilla, which would have made the
latter liable for quasi-delict under Article 2176 of the Civil Code, has never been established by
respondent. To the contrary, the totality of the evidence presented during trial shows that the
proximate cause of the collision of the bus and motorcycle is attributable solely to the negligence of
the driver of the motorcycle, Catubig.
Proximate cause is defined as that cause, which, in natural and continuous sequence, unbroken by
any efficient intervening cause, produces the injury, and without which the result would not have
occurred. And more comprehensively, the proximate legal cause is that acting first and producing
the injury, either immediately or by setting other events in motion, all constituting a natural and
continuous chain of events, each having a close causal connection with its immediate predecessor,
the final event in the chain immediately effecting the injury as a natural and probable result of the
cause which first acted, under such circumstances that the person responsible for the first event
should, as an ordinary prudent and intelligent person, have reasonable ground to expect at the
moment of his act or default that an injury to some person might probably result therefrom. 27
The RTC concisely articulated and aptly concluded that Catubig’s overtaking of a slow-moving truck
ahead of him, while approaching a curve on the highway, was the immediate and proximate cause of
the collision which led to his own death, to wit:
Based on the evidence on record, it is crystal clear that the immediate and proximate cause of the
collision is the reckless and negligent act of Quintin Catubig, Jr. and not because the Ceres Bus was
running very fast. Even if the Ceres Bus is running very fast on its lane, it could not have caused the
collision if not for the fact that Quintin Catubig, Jr. tried to overtake a cargo truck and encroached on
the lane traversed by the Ceres Bus while approaching a curve. As the driver of the motorcycle,
Quintin Catubig, Jr. has not observed reasonable care and caution in driving his motorcycle which
an ordinary prudent driver would have done under the circumstances. Recklessness on the part of
Quintin Catubig, Jr. is evident when he tried to overtake a cargo truck while approaching a curve in
Barangay Donggo-an, Bolisong, Manjuyod, Negros Oriental. Overtaking is not allowed while
approaching a curve in the highway (Section 41(b), Republic Act [No.] 4136, as amended). Passing
another vehicle proceeding on the same direction should only be resorted to by a driver if the
highway is free from incoming vehicle to permit such overtaking to be made in safety (Section 41(a),
Republic Act [No.] 4136). The collision happened because of the recklessness and carelessness of
[herein respondent’s] husband who was overtaking a cargo truck while approaching a curve.
Overtaking another vehicle while approaching a curve constitute reckless driving penalized not only
under Section 48 of Republic Act [No.] 4136 but also under Article 365 of the Revised Penal Code.
The Court commiserate with the [respondent] for the untimely death of her husband. However, the
1avvphi1
Court as dispenser of justice has to apply the law based on the facts of the case. Not having proved
by preponderance of evidence that the proximate cause of the collision is the negligence of the
driver of the Ceres bus, this Court has no other option but to dismiss this case. 28 (Emphases
supplied.)
The testimonies of prosecution witnesses Cadimas and PO2 Elnas that Cabanilla was driving the
bus at a reckless speed when the collision occurred lack probative value.
We are unable to establish the actual speed of the bus from Cadimas’s testimony for he merely
stated that the bus did not stop when he tried to flag it down because it was "running very fast." 29
PO2 Elnas, on the other hand, made inconsistent statements as to the actual speed of the bus at the
time of the collision. During the preliminary investigation in Criminal Case No. M-15-94 before the
MCTC, PO2 Elnas refused to give testimony as to the speed of either the bus or the motorcycle at
the time of the collision and an opinion as to who was at fault. 30 But during the trial of the present
case before the RTC, PO2 Elnas claimed that he was told by Cabanilla that the latter was driving the
bus at the speed of around 100 kilometers per hour. 31
As the RTC noted, Cadimas and PO2 Elnas both pointed out that the motorcycle encroached the
lane of the bus when it tried to overtake, while nearing a curve, a truck ahead of it, consistent with
the fact that the point of impact actually happened within the lane traversed by the bus. It would be
more reasonable to assume then that it was Catubig who was driving his motorcycle at high speed
because to overtake the truck ahead of him, he necessarily had to drive faster than the truck.
Catubig should have also avoided overtaking the vehicle ahead of him as the curvature on the road
could have obstructed his vision of the oncoming vehicles from the opposite lane.
The evidence shows that the driver of the bus, Cabanilla, was driving his vehicle along the proper
lane, while the driver of the motorcycle, Catubig, had overtaken a vehicle ahead of him as he was
approaching a curvature on the road, in disregard of the provision of the law on reckless driving, at
the risk of his life and that of his employee, Emperado.
The presumption that employers are negligent under Article 2180 of the Civil Code flows from the
negligence of their employees.32 Having adjudged that the immediate and proximate cause of the
collision resulting in Catubig’s death was his own negligence, and there was no fault or negligence
on Cabanilla’s part, then such presumption of fault or negligence on the part of petitioner, as
Cabanilla’s employer, does not even arise. Thus, it is not even necessary to delve into the defense
of petitioner that it exercised due diligence in the selection and supervision of Cabanilla as its
employee driver.
WHEREFORE, premises considered, the petition is GRANTED. The Decision dated November 17,
2005 and Resolution dated November 16, 2006 of the Court Appeals in CA-G.R. CV No. 66815 are
SET ASIDE and the Decision dated January 26, 2000 of the Regional Trial Court, Branch 30 of
Dumaguete City, dismissing Civil Case No. 11360 is REINSTATED.
SO ORDERED.
SALVADOR VS ANGELES
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that
the Decision of the Court of Appeals (CA) promulgated on September 16, 2005 dismissing the
1
petition before it, and its Resolution dated January 13, 2006, denying petitioner's Motion for
2
Reconsideration, be reversed and set aside.
The records reveal the CA's narration of facts to be accurate, to wit:

xxxx
Respondent-appellee ANGELES is one of the registered owners of a parcel of land located at 1287
Castanos Street, Sampaloc, Manila, evidenced by Transfer Certificate of Title No. 150872. The
subject parcel of land was occupied by one Jelly Galiga (GALIGA) from 1979 up to 1993, as a
lessee with a lease contract. Subsequently, Fe Salvador (SALVADOR) alleged that she bought on
September 7, 1993 the subject parcel of land from GALIGA who represented that he was the owner,
being one in possession. Petitioner-appellant SALVADOR remained in possession of said subject
property from November 1993 up to the present.
On November 18, 1993, the registered owner, the respondentappellee ANGELES, sent a letter to
petitioner-appellant SALVADOR demanding that the latter vacate the subject property, which was
not heeded by petitioner-appellant SALVADOR. Respondent-appellee ANGELES, thru one Rosauro
Diaz, Jr. (DIAZ), filed a complaint for ejectment on October 12, 1994 with the Metropolitan Trial
Court [MeTC] of Manila, Branch 16, docketed as Civil Case No. 146190-CV.
The Assailed Decision of the Trial Courts
The [MeTC] rendered its decision on November 29, 1999 in favor of herein respondent-appellee
ANGELES, the dispositive portion of which reads, to wit:
WHEREFORE, judgment is hereby rendered for the plaintiff and against the defendant ordering the
latter and all persons claiming under her to:
1) vacate the parcel of land located at 1287 Castanos Street, Sampaloc, Manila, and
surrender the same to the plaintiff;
2) pay the plaintiff the sum of Php1,000.00 monthly as reasonable compensation for her use
and occupancy of the above parcel of land beginning November 1993 up to the time she has
actually vacated the premises;
3) pay the plaintiff the sum of Php5,000.00 as attorney's fees and the cost of suit.
SO ORDERED.
In the appeal filed by petitioner-appellant SALVADOR, she alleged, among others, that DIAZ, who
filed the complaint for ejectment, had no authority whatsoever from respondent-appellee ANGELES
at the time of filing of the suit. Petitioner-appellant SALVADOR's appeal was denied by the [Regional
Trial Court] RTC in a Decision dated March 12, 2003. The Motion for Reconsideration filed by
SALVADOR was denied in an Order dated March 16, 2004. 3
Petitioner elevated the case to the CA via a petition for review, but in a Decision dated September
16, 2005, said petition was dismissed for lack of merit. The CA affirmed the factual findings of the
lower courts that Galiga, the person who supposedly sold the subject premises to petitioner, was a
mere lessee of respondent, the registered owner of the land in question. Such being the case, the
lower court ruled that Galiga could not have validly transferred ownership of subject property to
herein petitioner. It was ruled by the CA that there were no significant facts or circumstances that the
trial court overlooked or misinterpreted, thus, it found no reason to overturn the factual findings of the
MeTC and the RTC. A motion for reconsideration of said Decision was denied in a Resolution dated
January 13, 2006.
Hence, the present petition, where one of the important issues for resolution is the effect of Rosauro
Diaz's (respondent's representative) failure to present proof of his authority to represent respondent
(plaintiff before the MeTC) in filing the complaint. This basic issue has been ignored by the MeTC
and the RTC, while the CA absolutely failed to address it, despite petitioner's insistence on it from
the very beginning, i.e., in her Answer filed with the MeTC. This is quite unfortunate, because this
threshold issue should have been resolved at the outset as it is determinative of the court's
jurisdiction over the complaint and the plaintiff.
Note that the complaint before the MeTC was filed in the name of respondent, but it was one
Rosauro Diaz who executed the verification and certification dated October 12, 1994, alleging
therein that he was respondent's attorney-in-fact. There was, however, no copy of any document
attached to the complaint to prove Diaz's allegation regarding the authority supposedly granted to
him. This prompted petitioner to raise in her Answer and in her Position Paper, the issue of Diaz's
authority to file the case. On December 11, 1995, more than a year after the complaint was filed,
respondent attached to his Reply and/or Comment to Respondent's (herein petitioner) Position
Paper,4 a document entitled Special Power of Attorney (SPA)5 supposedly executed by respondent
in favor of Rosauro Diaz. However, said SPA was executed only on November 16, 1994, or more
than a month after the complaint was filed, appearing to have been notarized by one Robert F.
McGuire of Santa Clara County. Observe, further, that there was no certification from the Philippine
Consulate General in San Francisco, California, U.S.A, that said person is indeed a notary public in
Santa Clara County, California. Verily, the court cannot give full faith and credit to the official acts of
said Robert McGuire, and hence, no evidentiary weight or value can be attached to the document
designated as an SPA dated November 16, 1994. Thus, there is nothing on record to show that Diaz
had been authorized by respondent to initiate the action against petitioner. 1âwphi1
What then, is the effect of a complaint filed by one who has not proven his authority to represent a
plaintiff in filing an action? In Tamondong v. Court of Appeals, the Court categorically stated that "[i]f
6
a complaint is filed for and in behalf of the plaintiff [by one] who is not authorized to do so, the
complaint is not deemed filed. An unauthorized complaint does not produce any legal effect. Hence,
the court should dismiss the complaint on the ground that it has no jurisdiction over the complaint
and the plaintiff." This ruling was reiterated in Cosco Philippines Shipping, Inc. v. Kemper Insurance
7
Company, where the Court went on to say that "[i]n order for the court to have authority to dispose of
8
the case on the merits, it must acquire jurisdiction over the subject matter and the parties. Courts
acquire jurisdiction over the plaintiffs upon the filing of the complaint, and to be bound by a decision,
a party should first be subjected to the court's jurisdiction. Clearly, since no valid complaint was ever
filed with the [MeTC], the same did not acquire jurisdiction over the person of respondent [plaintiff
before the lower court]."9
Pursuant to the foregoing rulings, therefore, the MeTC never acquired jurisdiction over this case and
all proceedings before it were null and void. The courts could not have delved into the very merits of
the case, because legally, there was no complaint to speak of. The court's jurisdiction cannot be
deemed to have been invoked at all.
IN VIEW OF THE FOREGOING, the Petition is GRANTED. The Decision of the Metropolitan Trial

Court in Civil Case No. 146190, dated November 29, 1999; the Decision of the Regional Trial Court
in Civil Case No. 00-96344, dated March 12, 2003; and the Decision of the Court of Appeals in CA-
G.R. SP No. 83467, are SET ASIDE AND NULLIFIED. The complaint filed by respondent before the
Metropolitan Trial Court is hereby DISMISSED.
SO ORDERED.
ESTEL VS DIEGO
Before the Court is a petition for review on certiorari seeking to annul and set aside the
Decision promulgated on September 30, 2005 and Resolution dated August 10, 2006 by the Court
1 2
of Appeals (CA) in CA-G.R. SP No. 77197. The assailed Decision affirmed the Decision dated
October 7, 2002 of the Regional Trial Court (RTC) of Gingoog City, Branch 27, Misamis Oriental,
while the questioned Resolution denied petitioner's Motion for Reconsideration.
The factual and procedural antecedents of the case are as follows:
The present petition originated from a Complaint for Forcible Entry, Damages and Injunction with
Application for Temporary Restraining Order filed by herein respondents Recaredo P. Diego, Sr.,
and Recaredo R. Diego, Jr. with the Municipal Trial Court in Cities (MTCC) of Gingoog City, Misamis
Oriental. Respondents alleged that on April 16, 1991, they entered into a contract of sale of a 306 –
square-meter parcel of land, denominated as Lot 19, with petitioner; after receiving the amount of
₱17,000.00 as downpayment, petitioner voluntarily delivered the physical and material possession of
the subject property to respondents; respondents had been in actual, adverse and uninterrupted
possession of the subject lot since then and that petitioner never disturbed, molested, annoyed nor
vexed respondents with respect to their possession of the said property; around 8:30 in the morning
of July 20, 1995, petitioner, together with her two grown-up sons and five other persons, uprooted
the fence surrounding the disputed lot, after which they entered its premises and then cut and
destroyed the trees and plants found therein; respondent Recaredo R. Diego, Jr. witnessed the
incident but found himself helpless at that time. Respondents prayed for the restoration of their
possession, for the issuance of a permanent injunction against petitioner as well as payment of
damages, attorney's fees and costs of suit. 3
On July 26, 1995, the MTCC issued a Temporary Restraining Order against petitioner and any
4
person acting in her behalf.
In her Answer with Special/Affirmative Defenses and Counterclaims, petitioner denied the material
allegations in the Complaint contending that respondents were never in physical, actual, public,
adverse and uninterrupted possession of the subject lot; full possession and absolute ownership of
the disputed parcel of land, with all improvements thereon, had always been that of petitioner and
her daughter; the agreement she entered into with the wife of respondent Recaredo P. Diego, Sr. for
the sale of the subject lot had been abrogated; she even offered to return the amount she received
from respondents, but the latter refused to accept the same and instead offered an additional
amount of ₱12,000.00 as part of the purchase price but she also refused to accept their offer; the
subject of the deed of sale between petitioner and respondents and what has been delivered to
respondents was actually Lot 16 which is adjacent to the disputed Lot 19; that they did not destroy
the improvements found on the subject lot and, in fact, any improvements therein were planted by
petitioner's parents.
5
On February 16, 2002, the MTCC rendered a Decision, the dispositive portion of which reads as
follows:
WHEREFORE, viewed in the light of the foregoing, judgment is hereby rendered in favor of the
plaintiffs [herein respondents], dismissing defendant's [herein petitioner's] counterclaim and ordering
the defendant, her agents and representatives:
1. To vacate the premises of the land in question and return the same to the plaintiffs;
2. To pay plaintiffs, the following, to wit:

a) ₱100.00 a month as rentals for the use of the litigated property reckoned from the
filing of the complaint until the defendant vacates the property;
b) ₱5,000.00 representing the value of the fence and plants damaged by the
defendants as actual damages;
c) ₱20,000.00 as and for attorney's fees;
d) ₱2,000.00 for litigation expenses;
3. Ordering the defendant to pay the cost of suit;
Execution shall immediately issue upon motion unless an appeal has been perfected and the
defendant to stay execution files a supersedeas bond which is hereby fixed at ₱10,000.00 approved
by this Court and executed in favor of the plaintiffs, to pay the rents, damages and costs accruing
down to the time of the judgment appealed from and unless, during the pendency of the appeal,
defendant deposits with the appellate court the amount of ₱100.00 as monthly rental due from time
to time on or before the 10th day of each succeeding month or period.
SO ORDERED. 6
Aggrieved, petitioner appealed to the RTC of Gingoog City. 7
On October 7, 2002, the RTC rendered its Decision affirming the assailed Decision of the MTCC.
8
Petitioner then filed a petition for review with the CA.
On September 30, 2005, the CA promulgated its Decision which affirmed the Decision of the RTC.
Petitioner filed a Motion for Reconsideration, but the CA denied it in its Resolution dated August 10,
2006.
Hence, the instant petition based on the following arguments:
[THE] COURT OF APPEALS, 23rd DIVISION, ERRED IN FAILING TO CONSIDER THAT THE RTC
BRANCH 27 OF GINGOOG CITY ERRONEOUSLY CONCLUDED THAT THE MTCC OF
GINGOOG CITY HAS JURISDICTION OVER THE SUBJECT MATTER OF THE ACTION.
[THE] COURT OF APPEALS ERRED IN NOT RECOGNIZING THAT THE RTC BRANCH 27 OF
GINGOOG CITY FAILED TO MAKE A FINDING OF FACT THAT THE COMPLAINT STATES NO
CAUSE OF ACTION.
THE COURT OF APPEALS ERRED LIKEWISE IN AFFIRMING THE DECISION OF THE

REGIONAL TRIAL COURT BRANCH 27 OF GINGOOG CITY OVERLOOKING THE FACT THAT
ITS FINDING OF FACTS AND CONCLUSIONS ARE AGAINST OR NOT SUPPORTED BY
COMPETENT MATERIAL EVIDENCE. 9
Petitioner contends that since respondents failed to allege the location of the disputed parcel of land
in their complaint, the MTCC did not acquire jurisdiction over the subject matter of the said
complaint. Petitioner also avers that the MTCC did not acquire jurisdiction over the case for failure of
respondents to specifically allege facts constitutive of forcible entry. On the bases of these two
grounds, petitioner argues that the MTCC should have dismissed the complaint motu proprio.
Petitioner also avers that the complaint states no cause of action because the verification and
certificate of non-forum shopping accompanying the complaint are defective and, as such, the
complaint should be treated as an unsigned pleading. As to the verification, petitioner contends that
it should be based on respondent's personal knowledge or on authentic record and not simply upon
"knowledge, information and belief." With respect to the certificate of non-forum shopping, petitioner
claims that its defect consists in respondents' failure to make an undertaking therein that if they
should learn that a similar action or proceeding has been filed or is pending before the Supreme
Court, the Court of Appeals or any other tribunal or agency, they shall report that fact within five (5)
days therefrom to the court or agency wherein the original pleading and sworn certification have
been filed.
The Court does not agree.
A review of the records shows that petitioner did not raise the issue of jurisdiction or venue in her
Answer filed with the MTCC. The CA correctly held that even if the geographical location of the
subject property was not alleged in the Complaint, petitioner failed to seasonably object to the same
in her Affirmative Defense, and even actively participated in the proceedings before the MTCC. In
fact, petitioner did not even raise this issue in her appeal filed with the RTC. Thus, she is already
estopped from raising the said issue in the CA or before this Court. Estoppel sets in when a party
participates in all stages of a case before challenging the jurisdiction of the lower court. One cannot
10
belatedly reject or repudiate the lower court's decision after voluntarily submitting to its jurisdiction,
just to secure affirmative relief against one's opponent or after failing to obtain such relief. The Court
11
has, time and again, frowned upon the undesirable practice of a party submitting a case for decision
and then accepting the judgment, only if favorable, and attacking it for lack of jurisdiction when
adverse. 12
In any case, since the Complaint is clearly and admittedly one for forcible entry, the jurisdiction over
the subject matter of the case is, thus, upon the MTCC of Gingoog City. Section 33 of Batas
Pambansa Bilang 129, as amended by Section 3 of Republic Act (R.A.) No. 7691, as well as Section
1, Rule 70 of the Rules of Court, clearly provides that forcible entry and unlawful detainer cases fall
within the exclusive original jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts. Hence, as the MTCC has jurisdiction over the action, the question
whether or not the suit was brought in the place where the land in dispute is located was no more
than a matter of venue and the court, in the exercise of its jurisdiction over the case, could determine
whether venue was properly or improperly laid. There having been no objection on the part of
13
petitioner and it having been shown by evidence presented by both parties that the subject lot was
indeed located in Gingoog City, and that it was only through mere inadvertence or oversight that
such information was omitted in the Complaint, petitioner's objection became a pure technicality.
As to respondents' supposed failure to allege facts constitutive of forcible entry, it is settled that in
actions for forcible entry, two allegations are mandatory for the municipal court to acquire
jurisdiction. First, the plaintiff must allege his prior physical possession of the property. Second, he
14 15
must also allege that he was deprived of his possession by any of the means provided for in Section
1, Rule 70 of the Revised Rules of Court, namely, force, intimidation, threats, strategy, and stealth. 16
In the present case, it is clear that respondents sufficiently alleged in their Complaint the material
facts constituting forcible entry, as they explicitly claimed that they had prior physical possession of
the subject property since its purchase from petitioner, who voluntarily delivered the same to them.
They also particularly described in their complaint how petitioner, together with her two sons and five
other persons, encroached upon the subject property and dispossessed them of the same.
Respondents' complaint contains the allegations that petitioner, abetting and conspiring with other
persons, without respondents' knowledge and consent and through the use of force and intimidation,
entered a portion of their land and, thereafter, uprooted and destroyed the fence surrounding the
subject lot, as well as cut the trees and nipa palms planted thereon. Unlawfully entering the subject
property and excluding therefrom the prior possessor would necessarily imply the use of force and
this is all that is necessary. In order to constitute force, the trespasser does not have to institute a
17
state of war. No other proof is necessary. In the instant case, it is, thus, irrefutable that respondents
18 19
sufficiently alleged that the possession of the subject property was wrested from them through
violence and force.
Anent respondents' alleged defective verification, the Court again notes that this issue was not
raised before the MTCC. Even granting that this matter was properly raised before the court a quo,
the Court finds that there is no procedural defect that would have warranted the outright dismissal of
respondents' complaint as there is compliance with the requirement regarding verification.
Section 4, Rule 7 of the Rules of Court, as amended by A.M. No. 00-2-10-SC provides:
Sec. 4. Verification. – Except when otherwise specifically required by law or rule, pleadings need not
be under oath, verified or accompanied by affidavit.
A pleading required to be verified which contains a verification based on "information and belief" or
upon "knowledge, information and belief" or lacks a proper verification, shall be treated as an
unsigned pleading.
A reading of respondents’ verification reveals that they complied with the abovequoted procedural
rule. Respondents confirmed that they had read the allegations in the Complaint which were true
1awp++i1
and correct based on their personal knowledge. The addition of the words "to the best" before the
1âwphi1
phrase "of our own personal knowledge" did not violate the requirement under Section 4, Rule 7, it
being sufficient that the respondents declared that the allegations in the complaint are true and
correct based on their personal knowledge. 20
Verification is deemed substantially complied with when, as in the instant case, 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. 21
As to respondents' certification on non-forum shopping, a reading of respondents’

Verification/Certification reveals that they, in fact, certified therein that they have not commenced
any similar action before any other court or tribunal and to the best of their knowledge no such other
action is pending therein. The only missing statement is respondents' undertaking that if they should
thereafter learn that the same or similar action has been filed or is pending, they shall report such
fact to the court. This, notwithstanding, the Court finds that there has been substantial compliance
on the part of respondents.
It is settled that with respect to the contents of the certification against forum shopping, the rule of
substantial compliance may be availed of. This is because the requirement of strict compliance with
22
the provisions regarding the certification of non-forum shopping merely underscores its mandatory
nature in that the certification cannot be altogether dispensed with or its requirements completely
disregarded. It does not thereby interdict substantial compliance with its provisions under justifiable
23
circumstances, as the Court finds in the instant case.24
WHEREFORE, the instant petition is DENIED. The assailed Decision and Resolution of the Court of
Appeals are AFFIRMED.
SO ORDERED.
SPS LIM VS CA
Before the Court is the petition for review on certiorari 1 by petitioners Spouses Eugene
L. Lim and Constancia Lim (petitioners), filed under Rule 45 of the Rules of Court, to
assail the February 26, 2010 decision2 and the May 28, 2010 resolution3 of the Court of
Appeals (CA) in CA-G.R. SP No. 03103-MIN.
Facts
On January 26, 1999, respondent Bank of the Philippine Islands (BPI) filed before the
Regional Trial Court (RTC), Branch 20, Cagayan de Oro City, a complaint for collection
of money with prayer for preliminary injunction against the petitioners. The verification
and certification against forum-shopping attached to the complaint were signed by
Francisco R. Ramos (Ramos), then BPI Assistant Vice-President and Mindanao Region
Lending Head.
On April 22, 1999, the petitioners moved to dismiss BPIs complaint on the ground that
there was a pending action for foreclosure proceedings before the RTC of Ozamis City,
filed by BPI against Philcompak, a corporation where the petitioners are the majority
stockholders. The RTC found that the present complaint and the pending action for
foreclosure proceedings involved different causes of action; hence, the RTC denied the
petitioners motion to dismiss4 and the subsequent motion for reconsideration.5 ?r?l1
The petitioners also moved to consolidate the present complaint with the other cases
pending before the RTC of Ozamis City, but the RTC (Cagayan de Oro City) denied their
motion.6 The court likewise denied the petitioners subsequent motion for
reconsideration.7 ?r?l1
On May 26, 2008, the petitioners filed another motion to dismiss, this time, on the
ground that there had been a fatal defect in the verification and certification against
forum shopping attached to BPIs complaint. They argued that the verification and
certification did not state or declare that Ramos was filing the subject complaint in a
representative capacity or as an authorized officer of BPI; nor did it state that Ramos
was authorized by BPIs Board of Directors to file the complaint through a board
resolution made specifically for the purpose. BPI filed a comment 8 on the petitioners
second motion to dismiss.
Together with its comment, BPI submitted a copy of the Special Power of Attorney
(SPA) signed and executed by Rosario Jurado-Benedicto (Benedicto), the Assistant
Vice-President of BPI, granting Ramos the authority to represent the bank and sign the
verification and certification against forum shopping on BPIs behalf. Also, it submitted a
copy of the certified true copy of BPIs Corporate Secretarys Certificate showing that
Benedicto was among those authorized by the banks Executive Committee to grant and
extend a SPA to other bank officers to appear in court in cases where BPI is the
complainant or plaintiff. BPI contended that its submissions already constituted
substantial compliance with the procedural rules and should be applied in this case to
facilitate and effectuate the ends of substantial justice. BPI also contended that the
petitioners, by raising the issue of Ramos authority only in their May 26, 2008 motion
to dismiss and after having already filed several motions in court, are now estopped
from raising and are deemed to have waived this issue by reason of laches.
The RTC denied the petitioners second motion to dismiss 9 and the subsequent motion
for reconsideration.10 The petitioners assailed these orders of denial in the petition for
certiorari11 they filed with the CA.
In a decision dated February 26, 2010,12 the CA dismissed the petitioners certiorari

petition. The CA ruled that the SPA granting Ramos the authority to represent BPI and
to sign the verification and certification against forum shopping and the certified true
copy of BPIs Corporate
Secretarys Certificate, although belatedly submitted, constituted substantial compliance

with the requirements of the Rules of Court. The CA also took notice that in the banking
industry, an Assistant Vice-President of a bank "occupies a sufficiently elevated position
in the organization as to be presumed to know the requirements for validly signing the
verification and certification (against forum shopping)." ???ñr?bl?š ??r†??l l?? l?br?rÿ
The petitioners moved to reconsider the assailed decision but the CA denied their
motion, hence, the filing of the present petition for review on certiorari 13 with this
Court.
Issues
The issues to be resolved in this case are: (a) whether the CA gravely erred when it
affirmed the RTC in not dismissing BPIs complaint against the petitioners due to the
alleged lack of authority of Francisco R. Ramos to file the BPI complaint and sign its
attached verification and certification against forum shopping; and (b) whether the
Special Power of Attorney and Corporate Secretarys Certificate that BPI belatedly
submitted constituted substantial compliance with the requirements under the rules on
verification and certification.
Ruling
We resolve to deny the present petition. The CA did not commit any reversible error in
rendering its assailed decision and resolution.
The denial of a motion to dismiss, as an interlocutory order, cannot be the subject of an

appeal until a final judgment or order is rendered in the main case. 14 An aggrieved
party, however, may assail an interlocutory order through a petition for certiorari but
only when it is shown that the court acted without or in excess of jurisdiction or with
grave abuse of discretion.15 ?r?l1
The petitioners argue that the CA gravely erred in not finding that the RTC had
committed graveabuse of discretion in denying their second motion to dismiss. They
contend that the RTC lacked jurisdiction over BPIs complaint because Francisco R.
Ramos, the bank officer who filed the complaint in BPIs behalf and who signed the
verification and certification against forum shopping, did not have the authority to do so
at the time the complaint was filed; and that, despite Ramos lack of authority, the RTC
still acted on BPIs complaint and erroneously held that Ramos was authorized by the
bank as he "was one of those enumerated in the board resolution authorized to file the
case." The CA affirmed the RTC in its assailed decision and resolution.
A closer look into the SPA and the Corporate Secretarys Certificate submitted by BPI
reveals that, at the time the subject complaint was filed on January 26, 1999, Ramos
did not have the express authority to file and sign the verification and certification
against forum shopping attached to BPIs complaint. The SPA, which appointed Ramos
and/or Atty. Mateo G. Delegencia as BPIs attorneys-in-fact in the case against the
petitioners, was executed only on July 8, 2008. Even the Corporate Secretarys
Certificate that named the officers authorized by the BPIs Executive Committee to grant
and extend a SPA to other officers of the bank was executed only on February 21,
2007. The Executive Committee is part of the banks permanent organization and, in
between meetings of BPIs Board of Directors, possesses and exercises all the powers of
the board in the management and direction of the banks affairs. 16 ?r?l1
BPIs subsequent execution of the SPA, however, constituted a ratification of Ramos

unauthorized representation in the collection case filed against the petitioners. A
corporation can act only through natural persons duly authorized for the purpose or by
a specific act of its board of directors,17 and can also ratify the unauthorized acts of its
corporate officers.18 The act of ratification is confirmation of what its agent or delegate
has done without or with insufficient authority. 19 ?r?l1
In PNCC Skyway Traffic Management and Security Division Workers Organization

(PSTMSDWO) v. PNCC Skyway Corporation,20 we considered the subsequent execution
of a board resolution authorizing the Union President to represent the union in a
petition filed against PNCC Skyway Corporation as an act of ratification by the union
that cured the defect in the petitions verification and certification against forum
shopping. We held that "assuming that Mr. Soriano (PSTMSDWOs President) has no
authority to file the petition on February 27, 2006, the passing on June 30, 2006 of a
Board Resolution authorizing him to represent the union is deemed a ratification of his
prior execution, on February 27, 2006, of the verification and certificate of non-forum
shopping, thus curing any defects thereof." ???ñr?bl?š ??r†??l l?? l?br?rÿ
In Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue, 21 we likewise

recognized that certain officials or employees of a company could sign the verification
and certification without need of a board resolution, such as, but not limited to: the
Chairperson of the Board of Directors, the President of a corporation, the General
Manager or Acting General Manager, Personnel Officer, and an Employment Specialist in
a labor case. For other corporate officials and employees, the determination of the
sufficiency of their authority is done on a case-to-case basis. 22 ?r?l1
We note that, at the time the complaint against the petitioners was filed, Ramos also
held the position of Assistant Vice-President for BPI Northern Mindanao and was then
the highest official representing the bank in the Northern Mindanao area. 23 This position
and his standing in the BPI hierachy, to our mind, place him in a sufficiently high and
authoritative position to verify the truthfulness and correctness of the allegations in the
subject complaint, to justify his authority in filing the complaint and to sign the
verification and certification against forum shopping. Whatever is lacking, from the
strictly corporate point of view, was cured when BPI subsequently (although belatedly)
issued the appropriate SPA.
In any case, it is settled that the requirements of verification and certification against
forum shopping are not jurisdictional.24 Verification is required to secure an assurance
that the allegations in the petition have been made in good faith or are true and
correct, and not merely speculative.25 Non-compliance with the verification requirement
does not necessarily render the pleading fatally defective, 26 and is substantially
complied with when signed by one who has ample knowledge of the truth of the
allegations in the complaint or petition, and when matters alleged in the petition have
been made in good faith or are true and correct. 27 On the other hand, the certification
against forum shopping is required based on the principle that a party-litigant should
not be allowed to purse simultaneous remedies in different for a. 28 While the
certification requirement is obligatory, non-compliance or a defect in the certification
could be cured by its subsequent correction or submission under special circumstances
or compelling reasons, or on the ground of "substantial compliance. 29" ???ñr?bl?š ??r†??l l?? l?br?rÿ
WHEREFORE., premises considered, we hereby DENY the present petition for review on
certiorari. Costs against the petitioners.
SWEDISH MATCH VS TREASURER
This is a Petition for Review on Certiorari1 filed by Swedish Match Philippines, Inc. (petitioner) under
Rule 45 of the 1997 Rules of Civil Procedure assailing the Court of Tax Appeals En Bane (CTA En
Bane) Decision2 dated 1 October 2007 and Resolution3 dated 14 January 2008 in C.T.A. EB No.
241.
THE FACTS
On 20 October 2001, petitioner paid business taxes in the total amount of ₱470,932.21. 4 The
assessed amount was based on Sections 145 and 216 of Ordinance No. 7794, otherwise known as
the Manila Revenue Code, as amended by Ordinance Nos. 7988 and 8011. Out of that amount,
₱164,552.04 corresponded to the payment under Section 21. 7
Assenting that it was not liable to pay taxes under Section 21, petitioner wrote a letter 8 dated 17
September 2003 to herein respondent claiming a refund of business taxes the former had paid
pursuant to the said provision. Petitioner argued that payment under Section 21 constituted double
taxation in view of its payment under Section 14.
On 17 October 2003, for the alleged failure of respondent to act on its claim for a refund, petitioner
filed a Petition for Refund of Taxes9 with the RTC of Manila in accordance with Section 196 of the
Local Government Code of 1991. The Petition was docketed as Civil Case No. 03-108163.
On 14 June 2004, the Regional Trial Court (RTC), Branch 21 of Manila rendered a Decision 10 in Civil
Case No. 03-108163 dismissing the Petition for the failure of petitioner to plead the latter’s capacity
to sue and to state the authority of Tiarra T. Batilaran-Beleno (Ms. Beleno), who had executed the
Verification and Certification of Non-Forum Shopping.
In denying petitioner’s Motion for Reconsideration, the RTC went on to say that Sections 14 and 21
pertained to taxes of a different nature and, thus, the elements of double taxation were wanting in
this case.
On appeal, the CTA Second Division affirmed the RTC’s dismissal of the Petition for Refund of
Taxes on the ground that petitioner had failed to state the authority of Ms. Beleno to institute the suit.
The CTA En Banc likewise denied the Petition for Review, ruling as follows:
In this case, the plaintiff is the Swedish Match Philippines, Inc. However, as found by the RTC as
well as the Court in Division, the signatory of the verification and/or certification of non-forum
shopping is Ms. Beleno, the company’s Finance Manager, and that there was no board resolution or
secretary's certificate showing proof of Ms. Beleno’s authority in acting in behalf of the corporation at
the time the initiatory pleading was filed in the RTC. It is therefore, correct that the case be
dismissed.
WHEREFORE, premises considered, the petition for review is hereby DENIED. Accordingly, the
assailed Decision and the Resolution dated August 8, 2006 and November 27, 2006, respectively,
are hereby AFFIRMED in toto.
SO ORDERED.11
ISSUES
In order to determine the entitlement of petitioner to a refund of taxes, the instant Petition requires
the resolution of two main issues, to wit:
1) Whether Ms. Beleno was authorized to file the Petition for Refund of Taxes with the RTC;
and
2) Whether the imposition of tax under Section 21 of the Manila Revenue Code constitutes
double taxation in view of the tax collected and paid under Section 14 of the same code. 12
THE COURT’S RULING
Authority from the board to sign the

Verification and Certification of
Non-Forum Shopping
Anent the procedural issue, petitioner argues that there can be no dispute that Ms. Beleno was
acting within her authority when she instituted the Petition for Refund before the RTC,
notwithstanding that the Petition was not accompanied by a Secretary’s Certificate. Her authority
was ratified by the Board in its Resolution adopted on 19 May 2004. Thus, even if she was not
authorized to execute the Verification and Certification at the time of the filing of the Petition, the
ratification by the board of directors retroactively applied to the date of her signing.
On the other hand, respondent contends that petitioner failed to establish the authority of Ms. Beleno
to institute the present action on behalf of the corporation. Citing Philippine Airlines v. Flight
Attendants and Stewards Association of the Philippines (PAL v. FASAP), 13 respondent avers that the
required certification of non-forum shopping should have been valid at the time of the filing of the
Petition. The Petition, therefore, was defective due to the flawed Verification and Certification of
Non-Forum Shopping, which were insufficient in form and therefore a clear violation of Section 5,
Rule 7 of the 1997 Rules of Civil Procedure.
We rule for petitioner.
Time and again, this Court has been faced with the issue of the validity of the verification and
certification of non-forum shopping, absent any authority from the board of directors.
The power of a corporation to sue and be sued is lodged in the board of directors, which exercises
its corporate powers.14 It necessarily follows that "an individual corporate officer cannot solely
exercise any corporate power pertaining to the corporation without authority from the board of
directors."15 Thus, physical acts of the corporation, like the signing of documents, can be performed
only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of
the board of directors.16
Consequently, a verification signed without an authority from the board of directors is defective.
However, the requirement of verification is simply a condition affecting the form of the pleading and
non-compliance does not necessarily render the pleading fatally defective. 17 The court may in fact
order the correction of the pleading if verification is lacking or, it may act on the pleading although it
may not have been verified, where it is made evident that strict compliance with the rules may be
dispensed with so that the ends of justice may be served. 18
Respondent cites this Court’s ruling in PAL v. FASAP,19 where we held that only individuals vested
with authority by a valid board resolution may sign a certificate of non-forum shopping on behalf of a
corporation. The petition is subject to dismissal if a certification was submitted unaccompanied by
proof of the signatory’s authority.20 In a number of cases, however, we have recognized exceptions
to this rule. Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue 21 provides:
In a slew of cases, however, we have recognized the authority of some corporate officers to sign the
verification and certification against forum shopping. In Mactan-Cebu International Airport Authority
v. CA, we recognized the authority of a general manager or acting general manager to sign the
verification and certificate against forum shopping; in Pfizer v. Galan, we upheld the validity of a
verification signed by an "employment specialist" who had not even presented any proof of her
authority to represent the company; in Novelty Philippines, Inc., v. CA, we ruled that a personnel
officer who signed the petition but did not attach the authority from the company is authorized to sign
the verification and non-forum shopping certificate; and in Lepanto Consolidated Mining Company v.
WMC Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson of the Board and
President of the Company can sign the verification and certificate against non-forum shopping even
without the submission of the board’s authorization.
In sum, we have held that the following officials or employees of the company can sign the
verification and certification without need of a board resolution: (1) the Chairperson of the Board of
Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager,
(4) Personnel Officer, and (5) an Employment Specialist in a labor case.
While the above cases do not provide a complete listing of authorized signatories to the verification
and certification required by the rules, the determination of the sufficiency of the authority was done
on a case to case basis. The rationale applied in the foregoing cases is to justify the authority of
corporate officers or representatives of the corporation to sign the verification or certificate against
forum shopping, being "in a position to verify the truthfulness and correctness of the allegations in
the petition." (Emphases supplied)
Given the present factual circumstances, we find that the liberal jurisprudential exception may be
applied to this case.
A distinction between noncompliance and substantial compliance with the requirements of a

certificate of non-forum shopping and verification as provided in the Rules of Court must be
made.22 In this case, it is undisputed that the Petition filed with the RTC was accompanied by a
Verification and Certification of Non-Forum Shopping signed by Ms. Beleno, although without proof
of authority from the board. However, this Court finds that the belated submission of the Secretary’s
Certificate constitutes substantial compliance with Sections 4 and 5, Rule 7 of the 1997 Revised
Rules on Civil Procedure.
A perusal of the Secretary’s Certificate signed by petitioner’s Corporate Secretary Rafael Khan and
submitted to the RTC shows that not only did the corporation authorize Ms. Beleno to execute the
required Verifications and/or Certifications of Non-Forum Shopping, but it likewise ratified her act of
filing the Petition with the RTC. The Minutes of the Special Meeting of the Board of Directors of
petitioner-corporation on 19 May 2004 reads:
RESOLVED, that Tiarra T. Batilaran-Beleno, Finance Director of the Corporation, be authorized, as

she is hereby authorized and empowered to represent, act, negotiate, sign, conclude and deliver, for
and in the name of the Corporation, any and all documents for the application, prosecution, defense,
arbitration, conciliation, execution, collection, compromise or settlement of all local tax refund cases
pertaining to payments made to the City of Manila pursuant to Section 21 of the Manila Revenue
Code, as amended;
RESOLVED, FURTHER, that Tiarra T. Batilaran-Beleno be authorized to execute Verifications

and/or Certifications as to Non-Forum Shopping of Complaints/Petitions that may be filed by the
Corporation in the above-mentioned tax-refund cases;
RESOLVED, FURTHER, that the previous institution by Tiarra T. Batilaran-Beleno of tax refund
cases on behalf of the Corporation, specifically Civil Cases Nos. 01-102074, 03-108163, and, 04-
109044, all titled "Swedish Match Philippines, Inc. v. The Treasurer of the City of Manila" and
pending in the Regional Trial Court of Manila, as well as her execution of the Verifications and/or
Certifications as to Non-Forum Shopping in these tax refund cases, are hereby, approved and
ratified in all respects. (Emphasis supplied)
Clearly, this is not an ordinary case of belated submission of proof of authority from the board of
directors. Petitioner-corporation ratified the authority of Ms. Beleno to represent it in the Petition filed
before the RTC, particularly in Civil Case No. 03-108163, and consequently to sign the verification
and certification of non-forum shopping on behalf of the corporation. This fact confirms and affirms
her authority and gives this Court all the more reason to uphold that authority. 23
Additionally, it may be remembered that the Petition filed with the RTC was a claim for a refund of
business taxes. It should be noted that the nature of the position of Ms. Beleno as the corporation’s
finance director/manager is relevant to the determination of her capability and sufficiency to verify
the truthfulness and correctness of the allegations in the Petition. A finance director/manager looks
after the overall management of the financial operations of the organization and is normally in
charge of financial reports, which necessarily include taxes assessed and paid by the corporation.
Thus, for this particular case, Ms. Beleno, as finance director, may be said to have been in a position
to verify the truthfulness and correctness of the allegations in the claim for a refund of the
corporation’s business taxes.
In Mediserv v. Court of Appeals, 24 we said that a liberal construction of the rules may be invoked in
situations in which there may be some excusable formal deficiency or error in a pleading, provided
that the invocation thereof does not subvert the essence of the proceeding, but at least connotes a
reasonable attempt at compliance with the rules. After all, rules of procedure are not to be applied in
a very rigid, technical manner, but are used only to help secure substantial justice. 25
More importantly, taking into consideration the substantial issue of this case, we find a special
circumstance or compelling reason to justify the relaxation of the rule. Therefore, we deem it more in
accord with substantive justice that the case be decided on the merits.
Double taxation
As to the substantive issues, petitioner maintains that the enforcement of Section 21 of the Manila
Revenue Code constitutes double taxation in view of the taxes collected under Section 14 of the
same code. Petitioner points out that Section 21 is not in itself invalid, but the enforcement of this
provision would constitute double taxation if business taxes have already been paid under Section
14 of the same revenue code. Petitioner further argues that since Ordinance Nos. 7988 and 8011
have already been declared null and void in Coca-Cola Bottlers Philippines, Inc. v. City of
Manila,26 all taxes collected and paid on the basis of these ordinances should be refunded.
In turn, respondent argues that Sections 14 and 21 pertain to two different objects of tax; thus, they
are not of the same kind and character so as to constitute double taxation. Section 14 is a tax on
manufacturers, assemblers, and other processors, while Section 21 applies to businesses subject to
excise, value-added, or percentage tax. Respondent posits that under Section 21, petitioner is
merely a withholding tax agent of the City of Manila.
At the outset, it must be pointed out that the issue of double taxation is not novel, as it has already
been settled by this Court in The City of Manila v. Coca-Cola Bottlers Philippines, Inc., 27 in this wise:
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to
their own detriment. Said exempting proviso was precisely included in said section so as to avoid
double taxation.
Double taxation means taxing the same property twice when it should be taxed only once; that is,
"taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious when the
taxpayer is taxed twice, when it should be but once. Otherwise described as "direct duplicate
taxation," the two taxes must be imposed on the same subject matter, for the same purpose, by the
same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes
must be of the same kind or character.
Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is
subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are
being imposed: (1) on the same subject matter – the privilege of doing business in the City of Manila;
(2) for the same purpose – to make persons conducting business within the City of Manila contribute
to city revenues; (3) by the same taxing authority – petitioner City of Manila; (4) within the same
taxing jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for the same taxing
periods – per calendar year; and (6) of the same kind or character – a local business tax imposed on
gross sales or receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax
Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the
power of municipalities and cities to impose a local business tax, and to which any local business tax
imposed by petitioner City of Manila must conform. It is apparent from a perusal thereof that when a
municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled
spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said
municipality or city may no longer subject the same manufacturers, etc. to a business tax under
Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that are
subject to excise tax, VAT, or percentage tax under the NIRC, and that are "not otherwise specified
in preceding paragraphs." In the same way, businesses such as respondent’s, already subject to a
local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of
the LGC], can no longer be made liable for local business tax under Section 21 of the same Tax
Ordinance [which is based on Section 143(h) of the LGC]. 28 (Emphases supplied)
Based on the foregoing reasons, petitioner should not have been subjected to taxes under Section
21 of the Manila Revenue Code for the fourth quarter of 2001, considering that it had already been
paying local business tax under Section 14 of the same ordinance.
Further, we agree with petitioner that Ordinance Nos. 7988 and 8011 cannot be the basis for the
collection of business taxes. In Coca-Cola,29 this Court had the occasion to rule that Ordinance Nos.
7988 and 8011 were null and void for failure to comply with the required publication for three (3)
consecutive days. Pertinent portions of the ruling read:
It is undisputed from the facts of the case that Tax Ordinance No. 7988 has already been declared
by the DOJ Secretary, in its Order, dated 17 August 2000, as null and void and without legal effect
due to respondents’ failure to satisfy the requirement that said ordinance be published for three
consecutive days as required by law. Neither is there quibbling on the fact that the said Order of the
DOJ was never appealed by the City of Manila, thus, it had attained finality after the lapse of the
period to appeal.1âwphi1
Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November 2001, reiterated the
findings of the DOJ Secretary that respondents failed to follow the procedure in the enactment of tax
measures as mandated by Section 188 of the Local Government Code of 1991, in that they failed to
publish Tax Ordinance No. 7988 for three consecutive days in a newspaper of local circulation. From
the foregoing, it is evident that Tax Ordinance No. 7988 is null and void as said ordinance was
published only for one day in the 22 May 2000 issue of the Philippine Post in contravention of the
unmistakable directive of the Local Government Code of 1991.
Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed Order, dated 8 May
2002, went on to dismiss petitioner’s case on the force of the enactment of Tax Ordinance No. 8011,
amending Tax Ordinance No. 7988. Significantly, said amending ordinance was likewise declared
null and void by the DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that "Instead of
amending Ordinance No. 7988, herein respondent should have enacted another tax measure which
strictly complies with the requirements of law, both procedural and substantive. The passage of the
assailed ordinance did not have the effect of curing the defects of Ordinance No. 7988 which, any
way, does not legally exist." Said Resolution of the DOJ Secretary had, as well, attained finality by
virtue of the dismissal with finality by this Court of respondents’ Petition for Review on Certiorari in
G.R. No. 157490 assailing the dismissal by the RTC of Manila, Branch 17, of its appeal due to lack
of jurisdiction in its Order, dated 11 August 2003. 30 (Emphasis in the original)
Accordingly, respondent’s assessment under both Sections 14 and 21 had no basis. Petitioner is
indeed liable to pay business taxes to the City of Manila; nevertheless, considering that the former
has already paid these taxes under Section 14 of the Manila Revenue Code, it is exempt from the
same payments under Section 21 of the same code. Hence, payments made under Section 21 must
be refunded in favor of petitioner.
It is undisputed that petitioner paid business taxes based on Sections 14 and 21 for the fourth
quarter of 2001 in the total amount of ₱470,932.21. 31 Therefore, it is entitled to a refund of
₱164,552.0432 corresponding to the payment under Section 21 of the Manila Revenue Code.
WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, the Court of
Tax Appeals En Banc Decision dated 1 October 2007 and Resolution dated 14 January 2008 are
REVERSED and SET ASIDE.
SO ORDERED.

Pbcom VS SPS Go

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PBCOM VS SPS GO

I. MATERIAL AVERMENTS OF THE COMPLAINT ADMITTED BY DEFENDANT-SPOUSES

II. NO REAL DEFENSES AND NO GENUINE ISSUES AS TO ANY MATERIAL FACT

III. PLANTIFF’S CAUSES OF ACTIONS ARE SUPPORTED BY VOLUNTARY

3. The costs of suit.

RULING OF THE COURT OF APPEALS

Thus, this petition for review.

WHETHER THE COURT OF APPEALS ERRED OR ACTED IN GRAVE ABUSE OF DISCRETION

WHETHER THE COURT OF APPEALS ERRED OR ACTED IN GRAVE ABUSE OF

Respondent spouses’ position: Summary judgment was not proper.

SPECIAL AND AFFIRMATIVE DEFENSES

5. That the complaint states no cause of action;

The portions of the pleadings referred to are juxtaposed below:

In conditional obligations, the acquisition of rights,

9. Contrary to the plaintiff’s preference, defendant

10. While demand is a necessary requirement to

11. Undeniably, at the time the pledge of the

12. And even assuming without conceding, that

13. As aptly stated, it is not aware of any

WHEREFORE, the petition is DENIED.

BPI VS SPS ROYECA

The case stems from the following undisputed facts:

Motor No. 2E-2649879

Serial No. EE100-9512571

Color D.B. Gray Met.

DATE BANK CHECK NO. AMOUNT

a) The sum of PhP30,000.00 as and by way of moral damages;

b) The sum of PhP30,000.00 as and by way of exemplary damages;

c) The sum of PhP20,000.00 as and by way of attorney’s fees; and

d) To pay the costs of the suit.

2. The sum of ₱10,000.00 as attorney’s fees; and

The RTC denied the respondents’ motion for reconsideration. 13

I. WHETHER OR NOT RESPONDENTS WERE ABLE TO PROVE FULL PAYMENT OF

II. WHETHER OR NOT TENDER OF CHECKS CONSTITUTES PAYMENT.

III. WHETHER OR NOT RESPONDENTS ARE ENTITLED TO MORAL AND EXEMPLARY

The petition is partly meritorious.

LAFARGE CEMENT VS CONTINENTAL

The second challenged Order denied petitioners' Motion for Reconsideration.

solidarily" liable with Respondent CCC.

Ruling of the Trial Court

Hence this Petition. 8

The Court's Ruling

The Petition is meritorious.

Counterclaims and Joinder of Causes of Action.

Petitioners' Counterclaims Compulsory

test of compulsoriness" characterizes a counterclaim as compulsory if there should exist a "logical

Petitioners base their counterclaim on the following allegations:

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

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

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

Rules on Permissive Joinder of Causes

"Compulsory joinder of indispensable parties. – Parties in interest without whom no final

CCC's Personality to Move to Dismiss the Compulsory Counterclaims

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

"1. Dismissing the complaint in its entirety;

"a. Exemplary damages of P100 million each;

"b. Moral damages of P100 million each; and

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

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

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

In summary, we make the following pronouncements:

The relevant facts are summarized by the Court of Appeals as follows: