ARTICLE 33 and 36

MANOLO P. SAMSON, Petitioners, v. CATERPILLAR, INC., Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the
Amended Decision1 dated 8 August 2005, rendered by the Court of Appeals in CA-G.R. SP
No. 80532, (1) reversing its Decision,2 dated 13 December 2004, in which it set aside the
Order dated 31 January 2003 of Branch 211 of the Mandaluyong Regional Trial Court (RTC),
dismissing Criminal Case No. MC02-5019 filed against petitioner Manolo P. Samson
(Samson) for violation of Republic Act No. 8293, otherwise known as the Intellectual
Property Code of the Philippines, specifically Section 168.3(a) on Unfair Competition,
Section 123.1 (e) and Section 131.3 on registration of trademarks, in relation to Section
170 thereof; and (2) directing the Mandaluyong RTC to conduct an independent assessment
of whether the Motion to Withdraw Information filed by the state prosecutor is warranted.

Samson is the owner of retail outlets within the Philippines, which sell, among other things,
footwear, clothing, bags and other similar items, bearing the mark "Caterpillar" and "Cat."
Samson registered the aforementioned marks for shoes, slippers, sandals and boots with
the Bureau of Patents, Trademarks & Technology Transfer (whose functions are presently
exercised by Intellectual Property Office) in 1997.3

Caterpillar is a foreign corporation, primarily in the business of manufacturing equipment

used in construction, mining, road building and agricultural industries. Since the 1960's,
however, it had expanded its product line to clothing and, since 1988, to footwear.
Caterpillar alleges that it is a widely known brand name and that its products are being
internationally distributed.4

As early as 26 July 2000, Branch 56 of the Makati RTC, issued Search Warrants No. 00-022
to No. 00-032 against establishments owned by Samson. This led to the seizure of various
retail items such as footwear, clothing, accessories, and leatherware for Unfair Competition
under the Intellectual Property Code. Caterpillar filed criminal complaints before the
Department of Justice (DOJ). In addition, Caterpillar filed a civil action on 31 July 2000,
heard before Branch 90 of the Quezon City RTC for Unfair Competition, Damages and
Cancellation of Trademark with an Application for a Temporary Restraining Order and/or
Writ of Preliminary Injunction docketed as Civil Case No. Q-00-41445.5

Since Samson allegedly continued to sell and distribute merchandise which bore the
disputed "Caterpillar" marks, Caterpillar sought the issuance of another set of search
warrants against Samson. On 18 December 2000, Branch 172 of the Valenzuela RTC in
Search Warrants No. 12-V-00 to No. 37-V-00 issued 26 writs of search warrants under
which various clothing items were seized by National Bureau of Investigation (NBI) agents
as evidence of violations of the law on unfair competition.

On 23 January 2001, Caterpillar, through its legal counsel, filed 26 criminal complaints
against Samson before the DOJ, for alleged violations of Section 168.3(a) on Unfair
Competition, Section 123.1(e) and Section 131.3 on registration of trademarks, in relation
to Section 170 of the Intellectual Property Code.6

The complaints were docketed as I.S. Nos. 2001-42 to 2001-67 and assigned to State
Prosecutor Zenaida Lim of the Task Force on Anti-Intellectual Property Piracy. But before
the determination by the DOJ on whether Samson should be criminally charged with Unfair
Competition, the Valenzuela RTC already issued an Order, dated 26 June 2001, quashing
the search warrants issued in Search Warrants No. 12-V-00 to No. 37-V-00.7

The DOJ, through State Prosecutor Lim, subsequently issued a Joint Resolution, dated 28
September 2001, recommending that Samson be criminally charged with unfair competition
under Section 168.3(a), in relation to Section 131.1, 123.1 and 170 of the Intellectual
Property Code. Resulting from the said Resolution, Criminal Case No. MC02-5019 was filed
with the Mandaluyong RTC.8
Samson filed a Petition for Review of the foregoing Joint Resolution, with the Secretary of
Justice. His petition was granted. In a Resolution dated 13 January 2003, the Acting
Secretary of Justice, Merceditas Gutierrez, recommended the withdrawal of the criminal
informations filed against Samson before various courts on the ground that there was lack
of probable cause. Caterpillar filed a Motion for Reconsideration, which was denied by Acting
Secretary of Justice Gutierrez on 25 September 2003. An appeal questioning the DOJ
Resolution dated 13 January 2003 of Acting Secretary of Justice Gutierrez was filed by
Caterpillar before the Court of Appeals docketed as CA-G.R. No. 79937.9

Meanwhile, pursuant to the Resolution dated 13 January 2003 of Acting Secretary of Justice
Gutierrez, State Prosecutor Lim filed an Ex Parte Motion to Withdraw Information in Criminal
Case No. MC02-5019 before the Mandaluyong RTC. On 31 January 2003, the Mandaluyong
RTC issued an Order granting the withdrawal of the Information against Samson.10 The
entire text of the said Decision reads:

This refers to the Ex-Parte Motion to Withdraw Information filed on January 31, 2003 by
State Prosecution Zenaida M. Lim of the Department of Justice in connection with Resolution
No. 011, Series of 2003, dated January 13, 2003 of the Acting Secretary of Justice Ma.
Merceditas N. Gutierrez reversing and setting aside the resolution of said state prosecutor
and directed the Chief State Prosecutor Jovencito R. Zuño to withdraw the informations filed
in this court against Manolo Samson.

WHEREFORE, finding the said motion to be in order and it appearing that accused has not
yet been arraigned and therefore the court has not yet acquired jurisdiction over the subject
accused, the court hereby grants the withdrawal of the information in the above-entitled
case as it is hereby ordered withdrawn form the record files of the court.11

Caterpillar filed a Motion for Reconsideration, which was denied by the Mandaluyong RTC in
an Order dated 27 August 2003:

For resolution is a Motion for Reconsideration of the order of the court dated January 31,
2003 granting the withdrawal of the information from the record files of the court, filed on
February 21, 2003, by the plaintiff in the above-entitled case.

Hearing on the motion together with the opposition thereto was held after which, the same
was submitted for resolution.

After the court examined with great care the bases advanced by both parties in the
aforesaid motion, the court was unable to find any cogent justification to overturn or set
aside its previous order, there being no new issues raised and the same are rehash of its
previous pleadings.

WHEREFORE, premises considered, plaintiff's Motion for Reconsideration is hereby

DENIED.12

Caterpillar filed with the Court of Appeals a Petition for Certiorari under Rule 65 of the Rules
of Court, assailing the Order dated 31 January 2003 of the Mandaluyong RTC, docketed as
CA-G.R. SP No. 80532. The Court of Appeals, in a Decision dated 13 December 2004,
dismissed the Petition on the ground that Caterpillar lacked the legal standing to question
the proceedings involving the criminal aspect of the case, and that its participation is limited
only to the recovery of civil liability. The appellate court also took into account the denial by
the Acting Secretary of Justice Gutierrez of Caterpillar's Motion for Reconsideration of her
order to withdraw the Informations against Samson and, thus, ruled that this rendered the
case moot and academic.13

Caterpillar filed a Motion for Reconsideration of the aforementioned Decision rendered by

the Court of Appeals. In its Amended Decision dated 8 August 2005, the Court of Appeals
reversed its earlier ruling and declared that the Mandaluyong RTC gravely abused its
discretion when it merely relied on the Resolution, dated 13 January 2003 of Acting
Secretary of Justice Gutierrez in ordering the withdrawal of the information filed before it
without making an independent assessment of the case.14 In the dispositive portion of its
Amended Decision, the Court of Appeals ruled that:
WHEREFORE, in view [of] the foregoing rationications, the petitioner's Motion for
Reconsideration is hereby GRANTED. The decision of this Court dated 13 December 2004, as
well as the assailed orders of the respondent court dated 31 January 2003 and 27 August
2003 are hereby REVERSED and SET ASIDE.

The respondent court is hereby ordered to CONDUCT an independent assessment of

whether the motion to withdraw information filed by the state prosecutor is warranted under
the circumstances obtaining in the case.15

Samson filed with the Court of Appeals a Motion for Reconsideration of the Amended
Decision, dated 8 August 2005, which was denied on 27 September 2005. Hence, the
present Petition, where he is raising the following issues:

THE COURT OF APPEALS GROSSLY ERRED IN RULING THAT THE RESPONDENT JUDGE IN
CA-G.R. NO. SP 80532 FAILED IN HER BOUNDEN DUTY TO DETERMINE THE MERITS OF THE
PROSECUTION'S EX-PARTE MOTION TO WITHDRAW; and

II

THE COURT OF APPEALS LIKEWISE ERRED IN IGNORING ITS OWN DECISION FINDING
RESPONDENT CATERPILLAR, INC., AS PRIVATE COMPLAINANT, BEREFT OF AUTHORITY TO
ASSAIL THE STATE PROSECUTOR'S EX-PARTE MOTION TO WITHDRAW THE INFORMATION
BECAUSE THE CRIMINAL ASPECT OF A CRIMINAL CASE IS UNDER THE DIRECTION AND
CONTROL OF THE PROSECUTION AND, CONSEQUENTLY, PRIVATE COMPLAINANT HAS NO
BUSINESS WHATSEOEVER IN THE PROCEEDINGS.16

Before discussing the merits of the Petition at bar, this Court notes that on 15 February
2005, the Court of Appeals rendered a Decision in CA-G.R. SP No. 79937 in favor of
Caterpillar. To recall, this was the petition filed by Caterpillar to assail the Resolution of
Acting Secretary of Justice Gutierrez dated 13 January 2003, directing the Chief State
Prosecutor to cause the withdrawal of Informations against Samson. The appellate court
reversed said Resolution and pronounced that sufficient probable cause existed to justify the
filing of Informations against Samson. Thus, it ordered the re-filing of the Informations
before the proper trial courts.17

In its Decision in CA-G.R. SP No. 79937, the Court of Appeals held that the withdrawal of
the Informations against Samson, predicated on the quashal of the search warrants, was a
manifest error. Consistent with the doctrine laid out in Solid Triangle Sales Corporation v.
The Sheriff of RTC, Quezon City, Branch 93,18 the appellate court ruled that the earlier
finding of probable cause against Samson was not affected by the quashal of the warrants
since independent evidence gathered by the NBI from the 24 test-buy operations it
conducted in 1999 is sufficient to support such finding. It reiterated the findings of State
Prosecutor Lim:

Respondent's use of depictions of heavy machinery and equipment, such as tractors, to

market his products, would verily show that he is passing off his products as those of
Caterpillar's xxx. Meanwhile, the similarity in the appearance of the goods manufactured or
sold by respondent with those of Caterpillar's footwear products would demonstrate that he
is passing off his product as those of genuine Caterpillar footwear products. Accordingly,
"where the similarity in the appearance of the goods as packed and offered for sale is so
striking, this fact shows intent on the part of defendant to deceive the public and defraud
plaintiff out of his trade. The intent to deceive may be inferred from the similarity of the
goods as packed and offered for sale, and an action will lie to restrain such unfair
competition and for damages." x x x19 .

On appeal docketed as G.R. No. 169199, this Court ruled that the Court of Appeals did not
commit any reversible error.

By sustaining the Decision of the Court of Appeals in said case, this Court, in a Resolution
dated 17 October 2005, had already ruled that probable cause exists for the re-filing of a
criminal case against Samson for unfair competition under the Intellectual Property Code.
Samson filed a Motion for Reconsideration of this Court's Resolution, which was denied with
finality on 20 March 2006. Entry of judgment was already made in said case on 18 April
2006; hence, rendering said judgment final and executory. The repeated confirmation of the
finding of probable cause against Samson, which this Court cannot now overturn, effectively
and decisively determines the issues in this petition.

The findings of the Court of Appeals in CA-G.R. SP No. 79937, affirmed by this Court in G.R.
No. 169199, have rendered the present petition moot and academic. It is a rule that is
unanimously observed that courts of justice will take cognizance only of justiciable
controversies wherein actual and not merely hypothetical issues are involved. 20 A case
becomes moot and academic when there is no more actual controversy between the parties
and no useful purpose can be served in passing upon the merits. 21 Since this Court, in
affirming the said Decision of the Court of Appeals, already found it imperative for the Chief
State Prosecutor to re-file the Informations against Samson for unfair competition, Criminal
Case No. MC02-5019 should be re-opened and heard by the Mandaluyong RTC. The
rendering of a decision on the merits of this case would be of no practical value. Hence, this
case is dismissible.22

IN VIEW OF THE FOREGOING, the instant Petition is DENIED and the assailed Amended
Decision of the Court of Appeals in CA-G.R. SP No. 80532, promulgated on 8 August 2005,
is AFFIRMED WITH MODIFICATION. The Order of the Court of Appeals in C.A.-G.R. SP
No. 80532 directing Branch 211 of the Mandaluyong Regional Trial Court to conduct an
independent assessment is REVERSED. This Court ORDERS Branch 211 of the
Mandaluyong Regional Trial Court to re-open and hear Criminal Case No. MC02-5019. Costs
against the petitioner.

SO ORDERED.
ARTICLE 44

MANUELA AZUCENA MAYOR, Petitioner, v. EDWIN TIU AND DAMIANA CHARITO

MARTY, Respondents.

DECISION

MENDOZA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the
October 5, 20111 and September 24, 20122

Resolutions of the Court of Appeals (CA) in CA-G.R. SP No. 06256, which dismissed the
petition filed by Remedios Tiu (Remedios) and Manuela Azucena Mayor (Manuela) for
procedural infirmities. The said CA petition challenged the January 20, 20113 and June 10,
20114 Orders of the Regional Trial Court, Branch 6, Tacloban City (RTC-Br. 6), in Sp. Proc.
No. 2008-05-30, a case for Probate of Last Will and Testament and Issuance of Letters of
Testamentary.

The Antecedents:

On May 25, 2008, Rosario Guy-Juco Villasin Casilan (Rosario), the widow of the late Primo
Villasin (Primo), passed away and left a holographic Last Will and Testament,5wherein she
named her sister, Remedios Tiu (Remedios), and her niece, Manuela Azucena Mayor
(Manuela), as executors. Immediately thereafter, Remedios and Manuela filed a petition for
the probate of Rosario's holographic will6 with prayer for the issuance of letters
testamentary (probate proceedings). The petition was raffled to the Regional Trial Court,
Branch 9, Tacloban City (RTC-Br. 9) and docketed as Sp. Proc. No. 2008-05-30. They
averred that Rosario left properties valued at approximately P2.5 million.

On May 29, 2008, respondent Damiana Charito Marty (Marty) claiming to be the adopted
daughter of Rosario, filed a petition for letters of administration before the RTC, Branch 34,
Tacloban City (RTC-Br. 34), docketed as Sp. Proc. No. 2008-05-32, but it was not given
due course because of the probate proceedings. Per records, this dismissal is subject of a
separate proceeding filed by Marty with the CA Cebu City, docketed as CA� G.R. SP No.
04003.7

On June 12, 2008, in its Order,8 the RTC-Br. 9 found the petition for probate of will filed by
Remedios and Manuela as sufficient in form and substance and set the case for hearing.

Consequently, Marty filed her Verified Urgent Manifestation and Motion,9 dated June 23,
2008, stating that Remedios kept the decedent Rosario a virtual hostage for the past ten
(10) years and her family was financially dependent on her which led to the wastage and
disposal of the properties owned by her and her husband, Primo. Marty averred that until
the alleged will of the decedent could be probated and admitted, Remedios

and her ten (10) children had no standing to either possess or control the properties
comprising the estate of the Villasins. She prayed for the probate court to: 1) order an
immediate inventory of all the properties subject of the proceedings; 2) direct the tenants of
the estate, namely, Mercury Drug and Chowking, located at Primrose Hotel, to deposit their
rentals with the court; 3) direct Metrobank, P. Burgos Branch, to freeze the accounts in the
name of Rosario, Primrose Development Corporation (Primrose) or Remedios; and 4) lock
up the Primrose Hotel in order to preserve the property until final disposition by the court.

On July 8, 2008, Remedios and Manuela filed their Comment/Opposition 10 to the urgent
manifestation averring that Marty was not an adopted child of the Villasins based on a
certification issued by the Office of the Clerk of Court of Tacloban City, attesting that no
record of any adoption proceedings involving Marty existed in their records. They also
argued that the probate court had no jurisdiction over the properties mistakenly claimed by
Marty as part of Rosario's estate because these properties were actually owned by, and
titled in the name of, Primrose. Anent the prayer to direct the tenants to deposit the rentals
to the probate court, Remedios and Manuela countered that the probate court had no
jurisdiction over properties owned by third persons, particularly by Primrose, the latter
having a separate and distinct personality from the decedent's estate.

In her Reply,11 dated July 15, 2008, Marty cited an order of the Court of First Instance of
Leyte (CFI Leyte) in SP No. 1239,12 claiming that as early as March 3, 1981, the veil of
corporate entity of Primrose was pierced on the ground that it was a closed family
corporation controlled by Rosario after Primo's death. Thus, Marty alleged that "piercing"
was proper in the case of Rosario's estate because the incorporation of Primrose was
founded on a fraudulent consideration, having been done in contemplation of Primo's death.

Further, on July 22, 2008, in her Opposition to the Petition for the Approval of the Will of
the Late Rosario Guy-Juco Villasin Casilan,13 Marty impugned the authenticity of her
holographic will.

Meanwhile, Edwin Tiu (Edwin), a son of Remedios, also filed his Opposition,14 dated June 13,
2008.

After a protracted exchange of pleadings, the parties submitted their respective

memoranda.

The January 14, 2009 Order

In its January 14, 2009 Order,15 the RTC-Br. 9 granted the motion of Marty and appointed
the OIC Clerk of Court as special administrator of the Estate. The Probate Court also
ordered Mercury Drug and Chowking to deposit the rental income to the court and
Metrobank to freeze the bank accounts mentioned in the motion of Marty. The doctrine of
piercing the corporate veil was applied in the case considering that Rosario had no other
properties that comprised her estate other than Primrose. According to the probate court,
for the best interest of whoever would be adjudged as the legal heirs of the Estate, it was
best to preserve the properties from dissipation.

On January 22, 2009, Remedios and Manuela filed their Motion for Inhibition16 on the
ground of their loss of trust and confidence in RTC-Br. 9 Presiding Judge Rogelio C. Sescon
(Judge Sescon) to dispense justice. Later, they also filed their Motion for Reconsideration Ad
Cautelam,17 dated February 3, 2009, arguing that Rosario's estate consisted only of shares
of stock in Primrose and not the corporation itself. Thus, the probate court could not order
the lessees of the corporation to remit the rentals to the Estate's administrator. With regard
to the appointment of a special administrator, Remedios and Manuela insisted that it be
recalled. They claimed that if ever there was a need to appoint one, it should be the two of
them because it was the desire of the decedent in the will subject of the probation
proceedings.

In its Order,18 dated March 27, 2009, the RTC-Br. 9 denied the motion for reconsideration
for lack of merit and affirmed its January 14, 2009 Order. The presiding judge, Judge
Sescon, also granted the motion for inhibition and ordered that the records of the case be
referred to the RTC Executive Judge for reraffling. The case was later re-raffled to RTC-Br.6,
Judge Alphinor C. Serrano, presiding judge.

Aggrieved by the denial of their motion for reconsideration, Remedios and Manuela filed a
petition for certiorari with the CA in Cebu City, docketed as CA-G.R. S.P. No. 04254,
assailing the January 14, 2009 and March 27, 2009 Orders of the RTC-Br. 9.19

Ruling of the CA

In its October 16, 2009 Decision,20 the CA reversed the assailed orders of the RTC Br. 9,
except as to the appointment of a special administrator insofar as this relates to properties
specifically belonging to the "Estate." It held that Primrose had a personality separate
and distinct from the estate of the decedent and that the probate court had no
jurisdiction to apply the doctrine of piercing the corporate veil.

According to the CA, nowhere in the assailed orders of the probate court was it stated that
its determination of the title of the questioned properties was only for the purpose of
determining whether such properties ought to be included in the inventory. When the
probate court applied the doctrine of "piercing," in effect, it adjudicated with finality the
ownership of the properties in favor of the Estate. The CA stated that RTC-Br. 9 had no
jurisdiction to adjudicate ownership of a property claimed by another based on adverse title;
and that questions like this must be submitted to a court of general jurisdiction and not to a
probate court.

The CA added that assuming that the probate court's determination on the issue of
ownership was merely intended to be provisional, Marty's contentions still had no merit. The
properties, which she claimed to be part of the estate of Rosario and over which she claimed
co-ownership, comprised of real properties registered under the Torrens system. As such,
Primrose was considered the owner until the titles to those properties were nullified in an
appropriate ordinary action. The CA further stated that the RTC erroneously relied on the
order issued by the CFI Leyte in 1981, in the probate proceedings involving the estate of
Primo. Whatever determination the CFI made at the time regarding the title of the
properties was merely provisional, hence, not conclusive as to the ownership.

By reason of the favorable decision by the CA, Remedios and Manuela filed their Motion to
Partially Revoke the Writ of Execution Enforcing the January 14, 2009 Order of the
Honorable Court and Manifestation in Compliance with the October 21, 2009 Order (Ad
Cautelam),21 dated October 27, 2009.

In its Order,22 dated November 17, 2009, the RTC-Br. 6 partially granted the motion as it
revoked the power of the special administrator to oversee the day-to-day operations of
Primrose. It also revoked the order with respect to Mercury Drug and Chowking, reasoning
out that the said establishments dealt with Primrose, which had a personality distinct and
separate from the estate of the decedent. In the said order, Atty. Blanche A. Sa1ino
nominated by oppositors Marty and Edwin, was appointed special administrator to oversee
the day-to-day operations of the estate. The same order also upheld the January 14, 2009
Order, as to the conduct and inventory of all the properties comprising the estate.

This order was not questioned or appealed by the parties.

Omnibus Motion

On September 24, 2010, or almost ten (10) months after the November 17, 2009 Order of
the probate court was issued, Marty, together with her new counsel, filed her Omnibus
Motion,23 praying for the probate court to: 1) order Remedios and Manuela to render an
accounting of all the properties and assets comprising the estate of the decedent; 2) deposit
or consign all rental payments or other passive income derived from the properties
comprising the estate; and 3) prohibit the disbursement of funds comprising the estate of
the decedent without formal motion and approval by the probate court.

Ruling of the RTC-Br. 6

In its January 20, 2011 Order, the RTC-Br. 6 granted Marty's Omnibus Motion. Although it
agreed with the October 16, 2009 CA Decision reversing the January 14, 2009 Order of the
RTC-Br. 9, nonetheless, it acknowledged the urgency and necessity of appointing a special
administrator. According to the probate court, considering that there was clear evidence of a
significant decrease of Rosario's shares in the outstanding capital stock of
Primrose,24prudence dictated that an inquiry into the validity of the transfers should be
made. A final determination of this matter would be outside the limited jurisdiction of the
probate court, but it was likewise settled that the power to institute an action for the
recovery of a property claimed to be part of the estate was normally lodged with the
executor or administrator. Thus, the probate court disposed:

WHEREFORE, for the reasons aforestated, and so as not to render moot any action that
the special administrator, or the regular administrator upon the latter's qualification and
appointment, may deem appropriate to take on the matter (i.e. Whether or not to institute
in the name of the estate the appropriate action for the recovery of the shares of stock),
this Court hereby GRANTSOppositor Marty's Omnibus Motion, dated September 24, 2010,
and thus hereby:

1. DIRECTS petitioners, either individually or jointly, to: (a) RENDER AN

ACCOUNTING of all the properties and assets comprising the estate of the decedent that
may have come into their possession; and, (b) DEPOSIT OR CONSIGN all the rentals
payments or such other passive incomes from the properties and assets registered in the
name of Primrose Development Corporation, including all income derived from the Primrose
Hotel and the lease contracts with Mercury Drug and Chowking Restaurant, both within
fifteen (15) days from receipt of this Order;

2. DIRECTS the Special Administrator to take possession and charge of the properties

comprising the decedent's estate, specially those pertaining to the sharesholding of the
decedent in Primrose Development Corporation, to determine whether or not action for the
recovery of the shares of stock supposedly transferred from the decedent to petitioners
Remedios Tiu, Manuela Azucena Mayor should be instituted in the name of the estate
against the said transferees and to submit a Report on the foregoing matters to this Court,
within fifteen (15) days from receipt of this Order; and,

3. ORDERS that no funds comprising the estate of the decedent shall be disbursed without
formal Motion therefor, with the conformity of the Special Administrator, duly approved by
this Court.

SO ORDERED. cralawlawlibrary25cralawred [Underscoring supplied]
The partial motion for reconsideration of the above order filed by Remedios and Manuela
was denied in the other assailed order of the RTC�-Br. 6, dated June 10, 2011.26

Dissatisfied, Remedios and Manuela availed of the special civil action of certiorari under Rule
65, and filed a petition before the CA.

Action by the CA

The CA, however, in its October 5, 2011 Resolution,27 dismissed the same based on the
following infirmities: 1) there was no proper proof of service of a copy of the petition on the
respondents which was sent by registered mail; 2) petitioners failed to indicate on the
petition the material date when the motion for reconsideration was filed; 3) the copy of the
assailed order was not certified true and correct by the officer having custody of the original
copy; and 4) the serial number of the commission of the notary public, the province-city
where he was commissioned, the office address of the notary public and the roll of
attorney's number were not properly indicated on the verification and certification of non-
forum shopping.

Remedios and Manuela moved for reconsideration of the assailed CA resolution, but to no
avail, as the appellate court denied the motion in its September 24, 2012 Resolution.

Hence, this petition before the Court, filed only by Manuela as Remedios had also passed
away, and anchored on the following
GROUNDS

I.

THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND REVERSIBLE

ERROR IN THE APPLICATION OF LAW AND THE RULES WARRANTING REVIEW
WHEN IT MISAPPLIED SECTION 13, RULE 13 OF THE RULES OF COURT AND
DECLARED THAT THERE WAS NO PROPER PROOF OF SERVICE BY REGISTERED
MAIL.

II.

THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND REVERSIBLE

ERROR IN THE APPLICATION OF LAW AND THE RULES WARRANTING REVIEW
WHEN IT MISAPPLIED JURISPRUDENCE AND RULE 65 AND IT HELD THAT
PETITIONER MAYOR DID NOT COMPLY WITH THE MATERIAL DATE RULE.

III.

THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND REVERSIBLE

ERROR IN THE APPLICATION OF LAW AND THE RULES WARRANTING REVIEW
WHEN IT DECLARED THAT PETITIONER MAYOR FAILED TO COMPLY WITH THE
REQUIREMENT OF SECTION 1, RULE 65 FOR FAILING TO ATTACH CERTIFIED TRUE
COPY OF THE ORDER OF THE TRIAL COURT.

IV.
THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND REVERSIBLE
ERROR IN THE APPLICATION OF LAW AND THE RULES WARRANTING REVIEW
WHEN IT DECLARED THAT PETITIONER MAYOR DID NOT COMPLY WITH THE
REQUIREMENT OF VERIFICATION AND CERTIFICATION AGAINST FORUM
SHOPPING.

V.

THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND REVERSIBLE

ERROR IN THE APPLICATION OF LAW AND THE RULES WARRANTING REVIEW
WHEN IT ALLOWED TECHNICALITIES TO BE USED TO DEFEAT SUBSTANTIAL RIGHT
OF THE PARTIES.

VI.

PETITIONERS HAVE GOOD CAUSE AND A MERITORIOUS CASE AGAINST HEREIN

RESPONDENTS AS PARAGRAPH 1(B) OF THE DISPOSITIVE PORTION OF THE FIRST
ASSAILED ORDER SHOULD HAVE BEEN REVERSED BECAUSE IT OVERTURNS THE
DECISION OF THE COURT OF APPEALS DATED 16 OCTOBER 2009 WHICH HAS
LONG BECOME FINAL AND EXECUTORY.28
Petitioner Manuela argued that:
1) There was actual compliance with Section 13, Rule 13 of the Rules of Court. The CA
petition was accompanied by a notarized affidavit of service and filing of registered
mail. At the time the petition was filed, this was the best evidence of the service. The
other registry receipts for the other parties were also attached to the petition.
Further, the available registry return card was furnished the CA in the motion for
reconsideration.29
2) The failure of the petition to comply with the rule on a statement of material dates
could be excused because the dates were evident from the records.30
3) The petitioner went to the RTC of Tacloban to secure certified true copies of the
assailed orders. Only the stamped name of the Clerk of Court, however, appeared
thereon, because the particular branch had no stamp pad which had the phrase for
certification. The branch did not even have a typewriter in order to affix the phrase on
the copies. These inadequacies could not be attributed to the petitioners.31
4) The lack of information pertaining to the notary public in the verification and
certification against forum-shopping should not invalidate the same because, again, it
was not attributable to the parties.32
5) Technicalities should never be used to defeat the substantive rights of a party.33
In its January 23, 2013 Resolution34 the Court ordered the respondents to file their
respective comments. Marty, in her Comment, insisted that the petitioner failed to comply
with the procedural requirements as stated by the CA.35

In her Reply to Comment,36 petitioner Manuela clarified that the affidavit of service was
executed on August 31, 2011, which was after the petition was signed by the lawyers and
after it was verified by the petitioner herself. After contesting Marty's arguments on the
alleged procedural infirmities of the petitions with the CA and this Court, Manuela asserted
that the final and executory October 16, 2009 Decision of the CA already held that Primrose
had a personality separate and distinct from the estate of decedent Rosario.

Meanwhile, in his Manifestation,37 dated May 29, 2013, Edwin affirmed that he and Manuela
decided to patch up their differences and agreed to settle amicably. Accordingly, he
manifested that he was withdrawing from the case pursuant to their agreement.

On June 18, 2014, Manuela filed her Motion for Issuance of Temporary Restraining Order
and Writ of Preliminary Injunction38 on the ground that a flurry of orders had been issued by
the RTC-Br. 6 in the implementation of the assailed January 20, 2011 Order, such as the
Order,39 dated May 27, 2013, wherein the probate court vaguely ordered "the inventory of
the exact extent of the 'decedent's estate.'" Then another order was issued appointing an
auditing firm to conduct an inventory/audit of the Estate including the rentals and earnings
derived from the lease of Mercury Drug and Chowking Restaurant, as tenants of
Primrose.40 According to petitioner Manuela, although an inventory of the assets of the
decedent was proper, the probate court ordered an inventory of the assets of Primrose, a
separate and distinct entity. Manuela asserts that it was clearly in error.

In her Supplement to the Motion for Issuance of Temporary Restraining Order and Writ of
Preliminary Injunction,41 dated June 17, 2013, Manuela informed the Court that the
inventory and accounting of Primrose would already commence on June 19, 2013.

Marty filed her Opposition,42 dated July 3, 2013, stating that the petition of Manuela had
been rendered moot and academic as the probate court had declared her as the sole heir of
Rosario and appointed her administrator of the estate. She argued that an injunctive relief
would work injustice to the estate because of the total assimilation by petitioner of the
shareholdings of the decedent in Primrose and her share in the corporation's income
corresponding to her shareholdings.

Finding that the requisites for preliminary injunctive relief were present, 43 the Court issued
the TRO44 in favor of Manuela on October 14, 2013. At the outset, the Court was convinced
that the rights of Primrose sought to be protected by the grant of injunctive relief were
material and substantial and the TRO was issued in order to prevent any irreparable
damage to a corporate entity that could arise from the conduct of an accounting by the
court-appointed inventory.

The Court's Ruling

The Court now resolves the subject case by the issuance of a permanent injunction, as
prayed for by petitioner Manuela. This position is supported by law and jurisprudence, as
follows:

First. Artificial persons include (1) a collection or succession of natural persons forming a

corporation; and (2) a collection of property to which the law attributes the capacity of
having rights and duties. This class of artificial persons is recognized only to a limited extent
in our law. Example is the estate of a bankrupt or deceased person. 45 From this
pronouncement, it can be gleaned that the estate of the deceased person is a juridical
person separate and distinct from the person of the decedent and any other corporation.
This status of an estate comes about by operation of law. This is in consonance with the
basic tenet under corporation law that a corporation has a separate personality distinct from
its stockholders and from other corporations to which it may be connected. 46

Second. The doctrine of piercing the corporate veil has no relevant application in this case.
Under this doctrine, the court looks at the corporation as a mere collection of individuals or
an aggregation of persons undertaking business as a group, disregarding the separate
juridical personality of the corporation unifying the group. Another formulation of this
doctrine is that when two business enterprises are owned, conducted and controlled by the
same parties, both law and equity will, when necessary to protect the rights of third parties,
disregard the legal fiction that two corporations are distinct entities and treat them as
identical or as one and the same.47 The purpose behind piercing a corporation's identity is to
remove the barrier between the corporation and the persons comprising it to thwart the
fraudulent and illegal schemes of those who use the corporate personality as a shield for
undertaking certain proscribed activities.48

Here, instead of holding the decedent's interest in the corporation separately as a

stockholder, the situation was reversed. Instead, the probate court ordered the lessees of
the corporation to remit rentals to the estate's administrator without taking note of the fact
that the decedent was not the absolute owner of Primrose but only an owner of shares
thereof. Mere ownership by a single stockholder or by another corporation of all or nearly all
of the capital stocks of a corporation is not of itself a sufficient reason for disregarding the
fiction of separate corporate personalities.49 Moreover, to disregard the separate juridical
personality of a corporation, the wrongdoing cannot be presumed, but must be clearly and
convincingly established.50

Third. A probate court is not without limits in the determination of the scope of property
covered in probate proceedings. In a litany of cases, the Court had defined the parameters
by which a probate court may extend its probing arms in the determination of the question
of title in probate proceedings. In Pastor, Jr. vs. Court of Appeals,51 the Court explained
that, as a rule, the question of ownership was an extraneous matter which the probate court
could not resolve with finality. Thus, for the purpose of determining whether a certain
property should, or should not, be included in the inventory of estate properties, the
probate court may pass upon the title thereto, but such determination is provisional, not
conclusive, and is subject to the final decision in a separate action to resolve title. It is a
well-settled rule that a probate court or one in charge of proceedings, whether testate or
intestate, cannot adjudicate or determine title to properties claimed to be part of the estate
but which are equally claimed to belong to outside parties. It can only determine whether
they should, or should not, be included in the inventory or list of properties to be overseen
by the administrator. If there is no dispute, well and good; but if there is, then the parties,
the administrator and the opposing parties have to resort to an ordinary action for a final
determination of the conflicting claims of title because the probate court cannot do so. 52

In this case, respondent Marty argues that the subject properties and the parcel of land on
which these were erected should be included in the inventory of Rosario's estate. More so,
the arrears from the rental of these properties were later on ordered to be remitted to the
administrator of the estate grounded on the allegation that Rosario had no other properties
other than her interests in Primrose. To the Court's mind, this holding of the probate court
was in utter disregard of the undisputed fact the subject land is registered under the
Torrens system in the name of Primrose, a third person who may be prejudiced by the
orders of the probate court. In Valera vs. Inserto:53 the Court stated:
x x x, settled is the rule that a Court of First Instance (now Regional Trial Court), acting as a
probate court, exercises but limited jurisdiction, and thus has no power to take cognizance
of and determine the issue of title to property claimed by a third person adversely to the
decedent, unless the claimant and all the other parties having legal interest in the property
consent, expressly or impliedly, to the submission of the question to the probate court for
adjudgment, or the interests of third persons are not thereby prejudiced, the reason for the
exception being that the question of whether or not a particular matter should be resolved
by the Court in the exercise of its general jurisdiction or of its limited jurisdiction as a
special court (e.g. probate, land registration, etc.), is in reality not a jurisdictional but in
essence of procedural one, involving a mode of practice which may be waived.

x x x x

x x x These considerations assume greater cogency where, as here, the Torrens

title to the property is not in the decedent's names but in others, a situation on
which this Court has already had occasion to rule. 54[Emphasis and underscoring
supplied]
Thus, the probate court should have recognized the incontestability accorded to the Torrens
title of Primrose over Marty's arguments of possible dissipation of properties. In fact, in the
given setting, even evidence purporting to support a claim of ownership has to yield to the
incontestability of a Torrens title, until after the same has been set aside in the manner
indicated in the law itself. In other words, the existence of a Torrens title may not be
discounted as a mere incident in special proceedings for the settlement of the estate of
deceased persons. Put clearly, if a property covered by Torrens title is involved, "the
presumptive conclusiveness of such title should be given due weight, and in the absence of
strong compelling evidence to the contrary, the holder thereof should be considered as the
owner of the property in controversy until his title is nullified or modified in an appropriate
ordinary action, particularly, when as in the case at bar, possession of the property itself is
in the persons named in the title." 55

Additionally, Presidential Decree (P.D.) No. 152956 proscribes a collateral attack on a

Torrens title:
Sec. 48. Certificate not subject to collateral attack. - A certificate of title shall not be subject
to collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding
in accordance with law.
In Cuizon vs. Ramolete,57 the property subject of the controversy was duly registered under
the Torrens system. To this, Court categorically stated:
Having been apprised of the fact that the property in question was in the possession of third
parties and more important, covered by a transfer certificate of title issued in the name of
such third parties, the respondent court should have denied the motion of the
respondent administrator and excluded the property in question from the
inventory of the property of the estate. It had no authority to deprive such third
persons of their possession and ownership of the property.58 x x x [Emphasis and
underscoring supplied]
A perusal of the records of this case would show that that no compelling evidence was ever
presented to substantiate the position of Marty that Rosario and Primrose were one and the
same, justifying the inclusion of the latter's properties in the inventory of the decedent's
properties. This has remained a vacant assertion. At most, what Rosario owned were shares
of stock in Primrose. In turn, this boldly underscores the fact that Primrose is a separate
and distinct personality from the estate of the decedent. Inasmuch as the real properties
included in the inventory of the estate of Rosario are in the possession of, and are
registered in the name of, Primrose, Marty's claims are bereft of any logical reason and
conclusion to pierce the veil of corporate fiction.

Fourth. The probate court in this case has not acquired jurisdiction over Primrose and its
properties. Piercing the veil of corporate entity applies to determination of liability not of
jurisdiction; it is basically applied only to determine established liability. It is not available to
confer on the court a jurisdiction it has not acquired, in the first place, over a party not
impleaded in a case.59 This is so because the doctrine of piercing the veil of corporate fiction
comes to play only during the trial of the case after the court has already acquired
jurisdiction over the corporation. Hence, before this doctrine can be even applied, based on
the evidence presented, it is imperative that the court must first have jurisdiction over the
corporation.60

Hence, a corporation not impleaded in a suit cannot be subject to the court's process of
piercing the veil of its corporate fiction. Resultantly, any proceedings taken against the
corporation and its properties would infringe on its right to due process.

In the case at bench, the probate court applied the doctrine of piercing the corporate veil
ratiocinating that Rosario had no other properties that comprise her estate other than her
shares in Primrose. Although the probate court's intention to protect the decedent's shares
of stock in Primrose from dissipation is laudable, it is still.an error to order the corporation's
tenants to remit their rental payments to the estate of Rosario.

Considering the above disquisition, the Court holds that a permanent and final injunction is
in order in accordance with Section 9, Rule 58 of the Rules of Court which provides that "[i]f
after the trial of the action it appears that the applicant is entitled to have the act or acts
complained of permanently enjoined, the court shall grant a final injunction perpetually
restraining the party or person enjoined from the commission or continuance of the act or
acts or confirming the preliminary mandatory injunction." Undoubtedly, Primrose stands to
suffer an irreparable injury from the subject order of the probate court.

WHEREFORE, the petition is GRANTED. The Temporary Restraining Order, dated June 14,
2013, is hereby made PERMANENT, effective immediately. The Regional Trial Court,
Branch 6, Tacloban City, is ENJOINED from enforcing and implementing its January 20,
2011 and June 10, 2011 Orders, insofar as the corporate properties of Primrose
Development Corporation are concerned, to avert irreparable damage to a corporate entity,
separate and distinct from the Estate of Rosario Guy-Juco Villasin Casilan.
ARTICLE 29
Dy vs People

JARDELEZA, J.:

Our law states that every person criminally liable for a felony is also civilly liable. This civil
liability ex delicto may be recovered through a civil action which, under our Rules of Court,
is deemed instituted with the criminal action. While they are actions mandatorily fused,
[1]
they are, in truth, separate actions whose existences are not dependent on each other.
Thus, civil liability ex delicto survives an acquittal in a criminal case for failure to prove guilt
beyond reasonable doubt. However, the Rules of Court limits this mandatory fusion to a civil
action for the recovery of civil liability ex delicto. It, by no means, includes a civil liability
arising from a different source of obligation, as in the case of a contract. Where the civil
liability is ex contractu, the court hearing the criminal case has no authority to award
damages.

The Case

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. Petitioner
Gloria S. Dy (petitioner) seeks the reversal of the decision of the Court of Appeals (CA)
dated February 25, 2009 (Assailed Decision) [2] ordering her to pay Mandy Commodities
Company, Inc. (MCCI) in the amount of P21,706,281.00. [3]

The Facts

Petitioner was the former General Manager of MCCL. In the course of her employment,
petitioner assisted MCCI in its business involving several properties. One such business
pertained to the construction of warehouses over a property (Numancia Property) that MCCI
leased from the Philippine National Bank (PNB). Sometime in May 1996, in pursuit of MCCI's
business, petitioner proposed to William Mandy (Mandy), President of MCCI, the purchase of
a property owned by Pantranco. As the transaction involved a large amount of money,
Mandy agreed to obtain a loan from the International China Bank of Commerce (ICBC).
Petitioner represented that she could facilitate the approval of the loan. True enough, ICBC
granted a loan to MCCI in the amount of P20,000,000.00, evidenced by a promissory note.
As security, MCCI also executed a chattel mortgage over the warehouses in the Numancia
Property. Mandy entrusted petitioner with the obligation to manage the payment of the
loan.[4]

In February 1999, MCCI received a notice of foreclosure over the mortgaged property due
to its default in paying the loan obligation. [5] In order to prevent the foreclosure, Mandy
instructed petitioner to facilitate the payment of the loan. MCCI, through Mandy, issued 13
Allied Bank checks and 12 Asia Trust Bank checks in varying amounts and in different dates
covering the period from May 18, 1999 to April 4, 2000. [6] The total amount of the checks,
which were all payable to cash, was P21,706,281.00. Mandy delivered the checks to
petitioner. Mandy claims that he delivered the checks with the instruction that petitioner use
the checks to pay the loan.[7] Petitioner, on the other hand, testified that she encashed the
checks and returned the money to Mandy.[8] ICBC eventually foreclosed the mortgaged
property as MCCI continued to default in its obligation to pay. Mandy claims that it was only
at this point in time that he discovered that not a check was paid to ICBC. [9]

Thus, on October 7, 2002, MCCI, represented by Mandy, filed a Compiamt-Affidavit

for Estafa[10] before the Office of the City Prosecutor of Manila. On March 3, 2004, an
Information[11] was filed against petitioner before the Regional Trial Court (RTC) Manila.

After a full-blown trial, the RTC Manila rendered a decision [12] dated November 11, 2005
(RTC Decision) acquitting petitioner. The RTC Manila found that while petitioner admitted
that she received the checks, the prosecution failed to establish that she was under any
obligation to deliver them to ICBC in payment of MCCFs loan. The trial court made this
finding on the strength of Mandy's admission that he gave the checks to petitioner with the
agreement that she would encash them. Petitioner would then pay ICBC using her own
checks. The trial court further made a finding that Mandy and petitioner entered into a
contract of loan.[13] Thus, it held that the prosecution failed to establish an important
element of the crime of estafa—misappropriation or conversion. However, while the RTC
Manila acquitted petitioner, it ordered her to pay the amount of the checks. The dispositive
portion of the RTC Decision states —

WHEREFORE, the prosecution having failed to establish the guilt of the accused beyond
reasonable doubt, judgment is hereby rendered ACQUITTING the accused of the offense
charged. With costs de officio.

The accused is however civilly liable to the complainant for the amount of P21,706,281.00.

SO ORDERED.[14]

Petitioner filed an appeal[15] of the civil aspect of the RTC Decision with the CA. In the
Assailed Decision,[16] the CA found the appeal without merit. It held that the acquittal of
petitioner does not necessarily absolve her of civil liability. The CA said that it is settled that
when an accused is acquitted on the basis of reasonable doubt, courts may still find him or
her civilly liable if the evidence so warrant. The CA explained that the evidence on record
adequately prove that petitioner received the checks as a loan from MCCI. Thus, preventing
the latter from recovering the amount of the checks would constitute unjust enrichment.
Hence, the Assailed Decision ruled

WHEREFORE, in view of the foregoing, the appeal is DENIED. The Decision dated November
11, 2005 of the Regional Trial Court, Manila, Branch 33 in Criminal Case No. 04-224294
which found Gloria Dy civilly liable to William Mandy is AFFIRMED.

SO ORDERED.[17]

The CA also denied petitioner's motion for reconsideration in a resolution [18] dated August 3,
2009.

Hence, this Petition for Review on Certiorari (Petition). Petitioner argues that since she was
acquitted for failure of the prosecution to prove all the elements of the crime charged, there
was therefore no crime committed.[19] As there was no crime, any civil liability ex
delicto cannot be awarded.

The Issues

The central issue is the propriety of making a finding of civil liability in a criminal case
for estafa when the accused is acquitted for failure of the prosecution to prove all the
elements of the crime charged.

The Ruling of the Court

We grant the petition.

Civil Liability Arising From Crime

Our laws recognize a bright line distinction between criminal and civil liabilities. A crime is a
liability against the state. It is prosecuted by and for the state. Acts considered criminal are
penalized by law as a means to protect the society from dangerous transgressions. As
criminal liability involves a penalty affecting a person's liberty, acts are only treated criminal
when the law clearly says so. On the other hand, civil liabilities take a less public and more
private nature. Civil liabilities are claimed through civil actions as a means to enforce or
protect a right or prevent or redress a wrong.[20] They do not carry with them the imposition
of imprisonment as a penalty. Instead, civil liabilities are compensated in the form of
damages.

Nevertheless, our jurisdiction recognizes that a crime has a private civil component. Thus,
while an act considered criminal is a breach of law against the State, our legal system
allows for the recovery of civil damages where there is a private person injured by a
criminal act. It is in recognition of this dual nature of a criminal act that our Revised Penal
Code provides that every person criminally liable is also civilly liable. [21] This is the concept
of civil liability ex delicto.
This is echoed by the New Civil Code when it recognizes acts or omissions punished by law
as a separate source of obligation.[22] This is reinforced by Article 30 of the same code which
refers to the filing of a separate civil action to demand civil liability arising from a criminal
offense.[23]

The Revised Penal Code fleshes out this civil liability in Article 104[24] which states that it
includes restitution, reparation of damage caused and indemnification for consequential
damages.

Rules of procedure for criminal and civil actions involving the same act or omission

The law and the rules of procedure provide for a precise mechanism in instituting a civil
action pertaining to an act or omission which is also subject of a criminal case. Our Rules of
Court prescribes a kind of fusion such that, subject to certain defined qualifications, when a
criminal action is instituted, the civil action for the recovery of the civil liability arising from
the offense is deemed instituted as well. [25]

However, there is an important difference between civil and criminal proceedings that
require a fine distinction as to how these twin actions shall proceed. These two proceedings
involve two different standards of proof. A criminal action requires proof of guilt beyond
reasonable doubt while a civil action requires a lesser quantum of proof, that of
preponderance of evidence. This distinction also agrees with the essential principle in our
legal system that while a criminal liability carries with it a corresponding civil liability, they
are nevertheless separate and distinct. In other words, these two liabilities may co-exist but
their existence is not dependent on each other.[26]

The Civil Code states that when an accused in a criminal prosecution is acquitted on the
ground that his guilt has not been proven beyond reasonable doubt, a civil action for
damages for the same act or omission may be filed. In the latter case, only preponderance
of evidence is required.[27] This is supported by the Rules of Court which provides that the
extinction of the criminal action does not result in the extinction of the corresponding civil
action.[28] The latter may only be extinguished when there is a "finding in a final judgment in
the criminal action that the act or omission from which the civil liability may arise did not
exist."[29] Consistent with this, the Rules of Court requires that in judgments of acquittal the
court must state whether "the evidence of the prosecution absolutely failed to prove the
guilt of the accused or merely failed to prove his guilt beyond reasonable doubt. In either
case, the judgment shall determine if the act or omission from which the civil liability might
arise did not exist."[30]

Thus, whether an exoneration from the criminal action should affect the corresponding civil
action depends on the varying kinds of acquittal. In Manantan v. Court of Appeals,[31] we
explained —

Our law recognizes two kinds of acquittal, with different effects on the civil liability of the
accused. First is an acquittal on the ground that the accused is not the author of the act or
omission complained of. This instance closes the door to civil liability, for a person who has
been found to be not the perpetrator of any act or omission cannot and can never be held
liable for such act or omission. There being no delict civil liability ex delicto is out of the
question, and the civil action, if any, which may be instituted must be based on grounds
other than the delict complained of. This is the situation contemplated in Rule 111 of the
Rules of Court. The second instance is an acquittal based on reasonable doubt on the guilt
of the accused. In this case, even if the guilt of the accused has not been satisfactorily
established, he is not exempt from civil liability which may be proved by preponderance of
evidence only. This is the situation contemplated in Article 29 of the Civil Code, where the
civil action for damages is "for the same act or omission." Although the two actions have
different purposes, the matters discussed in the civil case are similar to those discussed in
the criminal case. However, the judgment In the criminal proceeding cannot be read in
evidence In the civil action to establish any fact there determined, even though both actions
involve the same act or omission. The reason for this rule is that the parties are not the
same and secondarily, different rules of evidence are applicable. Hence, notwithstanding
herein petitioner's acquittal, the Court of Appeals in determining whether Article 29 applied,
was not precluded from looking into the question of petitioner's negligence or reckless
imprudence.[32]
In Dayap v. Sendiong,[33] we further said —

The acquittal of the accused does not automatically preclude a judgment against him on the
civil aspect of the case. The extinction of the penal action does not carry with it the
extinction of the civil liability where: (a) the acquittal is based on reasonable doubt as only
preponderance of evidence is required; (b) the court declares that the liability of the
accused is only civil; and (c) the civil liability of the accused does not arise from or is not
based upon the crime of which the accused is acquitted. However, the civil action based on
delict may be deemed extinguished if mere is a finding on the final judgment in the criminal
action that the act or omission from which the civil liability may arise did not exist or where
the accused did not commit the acts or omission imputed to him.[34]

Hence, a civil action filed for the purpose of enforcing civil liability ex delicto, even if
mandatorily instituted with the corresponding criminal action, survives an acquittal when it
is based on the presence of reasonable doubt. In these instances, while the evidence
presented does not establish the fact of the crime with moral certainty, the civil action still
prevails for as long as the greater weight of evidence tilts in favor of a finding of liability.
This means that while the mind of the court cannot rest easy in penalizing the accused for
the commission of a crime, it nevertheless finds that he or she committed or omitted to
perform acts which serve as a separate source of obligation. There is no sufficient proof that
the act or omission is criminal beyond reasonable doubt, but there is a preponderance of
evidence to show that the act or omission caused injury which demands compensation.

Civil Liability Ex Delicto in Estafa Cases

Our laws penalize criminal fraud which causes damage capable of pecuniary estimation
through estafa under Article 315 of the Revised Penal Code. In general, the elements
of estafa are:

That the accused defrauded another (a) by abuse of confidence, or (b) by means of
(1)
deceit; and
That damage or prejudice capable of pecuniary estimation is caused to the offended
(2)
party or third person.
The essence of the crime is the unlawful abuse of confidence or deceit in order to cause
damage. As this Court previously held, "the element of fraud or bad faith is
indispensable."[35] Our law abhors the act of defrauding another person by abusing his trust
or deceiving him, such that, it criminalizes this kind of fraud.

Article 315 of the Revised Penal Code identifies the circumstances which constitute estafa.
Article 315, paragraph 1 (b) states that estafa is committed by abuse of confidence —

Art. 315. Swindling (estafa) - x x x (b) By misappropriating or converting, to the prejudice

of another, money, goods, or any other personal property received by the offender in trust
or on commission, or for administration, or under any other obligation involving the duty to
make delivery of or to return the same, even though such obligation be totally or partially
guaranteed by a bond; or by denying having received such money, goods, or other
property.

In this kind of estafa, the fraud which the law considers as criminal is the act of
misappropriation or conversion. When the element of misappropriation or conversion is
missing, there can be no estafa. In such case, applying the foregoing discussions on civil
liability ex delicto, there can be no civil liability as there is no act or omission from which
any civil liability may be sourced. However, when an accused is acquitted because a
reasonable doubt exists as to the existence of misappropriation or conversion, then civil
liability may still be awarded. This means that, while there is evidence to prove fraud, such
evidence does not suffice to convince the court to the point of moral certainty that the act of
fraud amounts to estafa. As the act was nevertheless proven, albeit without sufficient proof
justifying the imposition of any criminal penalty, civil liability exists.

In this case, the RTC Manila acquitted petitioner because the prosecution failed to establish
by sufficient evidence the element of misappropriation or conversion. There was no
adequate evidence to prove that Mandy gave the checks to petitioner with the instruction
that she will use them to pay the ICBC loan. Citing Mandy's own testimony in open court,
the RTC Manila held that when Mandy delivered the checks to petitioner, their agreement
was that it was a "sort of loan."[36] In the dispositive portion of the RTC Decision, the RTC
Manila ruled that the prosecution "failed to establish the guilt of the accused beyond
reasonable doubt."[37] It then proceeded to order petitioner to pay the amount of the loan.

The ruling of the RTC Manila was affirmed by the CA. It said that "[t]he acquittal of Gloria
Dy is anchored on the ground that her guilt was not proved beyond reasonable doubt - not
because she is not the author of the act or omission complained of. x x x The trial court
found no trickery nor deceit in obtaining money from the private complainant; instead, it
concluded that the money obtained was undoubtedly a loan." [38]

Our jurisprudence on this matter diverges.

Earlier cases ordered the dismissal of the civil action for recovery of civil liability ex
delicto whenever there is a finding that there was no estafa but rather an obligation to pay
under a contract. In People v. Pantig,[39] this Court affirmed the ruling of the lower court
acquitting Pantig, but revoked the portion sentencing him to pay the offended party the
amount of money alleged to have been obtained through false and fraudulent
representations, thus —

The trial court found as a fact that the sum of P1,200, ordered to be paid in the judgment of
acquittal, was received by the defendant-appellant as loan. This finding is inconsistent with
the existence of the criminal act charged in the information. The liability of the
defendant for the return of the amount so received arises from a civil contract, not
from a criminal act, and may not be enforced in the criminal case.

The portion of the judgment appealed from, which orders the defendant-appellant to pay
the sum of Pi ,200 to the offended party, is hereby revoked, without prejudice to the filing
of a civil action for the recovery of the said amount.[40]

This was also the import of the ruling in People v. Singson.[41] In that case, this Court found
that "the evidence [was] not sufficient to establish the existence of fraud or deceit on the
part of the accused. x x x And when there is no proven deceit or fraud, there is no crime
of estafa."[42] While we also said that the established facts may prove Singson's civil liability
(obligation to pay under a contract of sale), we nevertheless made no finding of civil liability
because "our mind cannot rest easy on the certainty of guilt" [43] considering the above
finding. The dispositive portion stated that Singson is acquitted "without prejudice to any
civil liability which may be established in a civil case against her."[44]

However, our jurisprudence on the matter appears to have changed in later years.

In Eusebio-Calderon v. People,[45] this Court affirmed the finding of the CA that Calderon

"did not employ trickery or deceit in obtaining money from the private complainants,
instead, it concluded that the money obtained was undoubtedly loans for which [Calderon]
paid interest."[46] Thus, this Court upheld Calderon's acquittal of estafa, but found her civilly
liable for the principal amount borrowed from the private complainants.[47]

The ruling was similar in People v. Cuyugan.[48] In that case, we acquitted Cuyugan
of estafa for failure of the prosecution to prove fraud. We held that the transaction between
Cuyugan and private complainants was a loan to be used by Cuyugan in her business. Thus,
this Court ruled that Cuyugan has the obligation, which is civil in character, to pay the
amount borrowed.[49]

We hold that the better rule in ascertaining civil liability in estafa cases is that pronounced
in Pantig and Singson. The rulings in these cases are more in accord with the relevant
provisions of the Civil Code, and the Rules of Court. They are also logically consistent with
this Court's pronouncement in Manantan.

Under Pantig and Singson, whenever the elements of estafa are not established, and that

the delivery of any personal property was made pursuant to a contract, any civil liability
arising from the estafa cannot be awarded in the criminal case. This is because the civil
liability arising from the contract is not civil liability ex delicto, which arises from the same
act or omission constituting the crime. Civil liability ex delicto is the liability sought to be
recovered in a civil action deemed instituted with the criminal case.

The situation envisioned in the foregoing cases, as in this case, is civil liability ex
contractu where the civil liability arises from an entirely different source of obligation.
Therefore, it is not the type of civil action deemed instituted in the criminal case, and
consequently must be filed separately. This is necessarily so because whenever the court
makes a finding that the elements of estafa do not exist, it effectively says that there is no
crime. There is no act or omission that constitutes criminal fraud. Civil liability ex
delicto cannot be awarded as it cannot be sourced from something that does not exist.

When the court finds that the source of obligation is in fact, a contract, as in a contract of
loan, it takes a position completely inconsistent with the presence of estafa. In estafa, a
person parts with his money because of abuse of confidence or deceit. In a contract, a
person willingly binds himself or herself to give something or to render some service.
[50]
 In estafa, the accused's failure to account for the property received amounts to criminal
fraud. In a contract, a party's failure to comply with his obligation is only a contractual
breach. Thus, any finding that the source of obligation is a contract negates estafa. The
finding, in turn, means that there is no civil liability ex delicto. Thus, the rulings in the
foregoing cases are consistent with the concept of fused civil and criminal actions, and the
different sources of obligations under our laws.

We apply this doctrine to the facts of this case. Petitioner was acquitted by the RTC Manila
because of the absence of the element of misappropriation or conversion. The RTC Manila,
as affirmed by the CA, found that Mandy delivered the checks to petitioner pursuant to a
loan agreement. Clearly, there is no crime of estafa. There is no proof of the presence of
any act or omission constituting criminal fraud. Thus, civil liability ex delicto cannot be
awarded because there is no act or omission punished by law which can serve as the source
of obligation. Any civil liability arising from the loan takes the nature of a civil liability ex
contractu. It does not pertain to the civil action deemed instituted with the criminal case.

In Manantan, this Court explained the effects of this result on the civil liability deemed
instituted with the criminal case. At the risk of repetition, Manantan held that when there is
no delict, "civil liability ex delicto is out of the question, and the civil action, if any, which
may be instituted must be based on grounds other than the delict complained of."[51] In Dy's
case, the civil liability arises out of contract—a different source of obligation apart from an
act or omission punished by law—and must be claimed in a separate civil action.

Violation of Due Process

We further note that the evidence on record never fully established the terms of this loan
contract. As the trial before the RTC Manila was focused on proving estafa, the loan contract
was, as a consequence, only tangentially considered. This provides another compelling
reason why the civil liability arising from the loan should be instituted in a separate civil
case. A civil action for collection of sum of money filed before the proper court will provide
for a better venue where the terms of the loan and other relevant details may be received.
While this may postpone a warranted recovery of the civil liability, this Court deems it more
important to uphold the principles underlying the inherent differences in the various sources
of obligations under our law, and the rule that fused actions only refer to criminal and civil
actions involving the same act or omission. These legal tenets play a central role in this
legal system. A confusion of these principles will ultimately jeopardize the interests of the
parties involved. Actions focused on proving estafa is not the proper vehicle to thresh out
civil liability arising from a contract.[52] The Due Process Clause of the Constitution dictates
that a civil liability arising from a contract must be litigated in a separate civil action.

Section 1 of the Bill of Rights states that no person shall be deprived of property without
due process of law. This provision protects a person's right to both substantive and
procedural due process. Substantive due process looks into the validity of a law and
protects against arbitrariness.[53] Procedural due process, on the other hand, guarantees
procedural fairness.[54] It requires an ascertainment of "what process is due, when it is due,
and the degree of what is due." [55] This aspect of due process is at the heart of this case.

In general terms, procedural due process means the right to notice and hearing.[56] More
specifically, our Rules of Court provides for a set of procedures through which a person may
be notified of the claims against him or her as well as methods through which he or she
may be given the adequate opportunity to be heard.

The Rules of Court requires that any person invoking the power of the judiciary to protect or
enforce a right or prevent or redress a wrong[57] must file an initiatory pleading which
embodies a cause of action,[58] which is defined as the act or omission by which a party
violates a right of another.[59] The contents of an initiatory pleading alleging a cause of
action will vary depending on the source of the obligation involved. In the case of an
obligation arising from a contract, as in this case, the cause of action in an initiatory
pleading will involve the duties of the parties to the contract, and what particular obligation
was breached. On the other hand, when the obligation arises from an act or omission
constituting a crime, the cause of action must necessarily be different. In such a case, the
initiatory pleading will assert as a cause of action the act or omission of respondent, and the
specific criminal statute he or she violated. Where the initiatory pleading fails to state a
cause of action, the respondent may file a motion to dismiss even before trial. [60] These
rules embody the fundamental right to notice under the Due Process Clause of the
Constitution.

In a situation where a court (in a fused action for the enforcement of criminal and civil
liability) may validly order an accused-respondent to pay an obligation arising from a
contract, a person's right to be notified of the complaint, and the right to have the
complaint dismissed if there is no cause of action, are completely defeated. In this event,
the accused-respondent is completely unaware of the nature of the liability claimed against
him or her at the onset of the case. The accused-respondent will not have read any
complaint stating the cause of action of an obligation arising from a contract. All throughout
the trial, the accused-respondent is made to believe that should there be any civil liability
awarded against him or her, this liability is rooted from the act or omission constituting the
crime. The accused-respondent is also deprived of the remedy of having the complaint
dismissed through a motion to dismiss before trial. In a fused action, the accused-
respondent could not have availed of this remedy because he or she was not even given an
opportunity to ascertain what cause of action to look for in the initiatory pleading. In such a
case, the accused-respondent is blindsided. He or she could not even have prepared the
appropriate defenses and evidence to protect his or her interest. This is not the concept of
fair play embodied in the Due Process Clause. It is a clear violation of a person's right to
due process.

The Rules of Court also allows a party to a civil action certain remedies that enable him or
her to effectively present his or her case. A party may file a cross-claim, a counterclaim or a
third-party complaint.[61] The Rules of Court prohibits these remedies in a fused civil and
criminal case.[62] The Rules of Court requires that any cross-claim, counterclaim or third-
party complaint must be instituted in a separate civil action. [63] In a legal regime where a
court may order an accused in a fused action to pay civil liability arising from a contract, the
accused-respondent is completely deprived of the remedy to file a cross-claim, a
counterclaim or a third-party complaint. This—coupled with an accused-respondent's
inability to adequately prepare his or her defense because of lack of adequate notice of the
claims against him or her—prevents the accused-respondent from having any right to a
meaningful hearing. The right to be heard under the Due Process Clause requires not just
any kind of an opportunity to be heard. It mandates that a party to a case must have the
chance to be heard in a real and meaningful sense. It does not require a perfunctory
hearing, but a court proceeding where the party may adequately avail of the procedural
remedies granted to him or her. A court decision resulting from this falls short of the
mandate of the Due Process Clause.

Indeed, the language of the Constitution is clear. No person shall be deprived of property
without due process of law. Due Process, in its procedural sense, requires, in essence, the
right to notice and hearing. These rights are further fleshed out in the Rules of Court. The
Rules of Court enforces procedural due process because, to repeat the words of this Court
in Secretary of Justice v. Lantion, it provides for "what process is due, when it is due, and
the degree of what is due."[64] A court ordering an accused in a fused action to pay his or
her contractual liability deprives him or her of his or her property without the right to notice
and hearing as expressed in the procedures and remedies under the Rules of Court. Thus,
any court ruling directing an accused in a fused action to pay civil liability arising from a
contract is one that completely disregards the Due Process Clause. This ruling must be
reversed and the Constitution upheld.

Conclusion

The lower courts erred when they ordered petitioner to pay her civil obligation arising from
a contract of loan in the same criminal case where she was acquitted on the ground that
there was no crime. Any contractual obligation she may have must be litigated in a separate
civil action involving the contract of loan. We clarify that in cases where the accused is
acquitted on the ground that there is no crime, the civil action deemed instituted with the
criminal case cannot prosper precisely because there is no delict from which any civil
obligation may be sourced. The peculiarity of this case is the finding that petitioner, in fact,
has an obligation arising from a contract. This civil action arising from the contract is not
necessarily extinguished. It can be instituted in the proper court through the proper civil
action.

We note that while there is no written contract of loan in this case, there is an oral contract
of loan which must be brought within six years.[65] Under the facts of the case, it appears
that any breach in the obligation to pay the loan may have happened between 1996 and
1999, or more than six years since this case has been instituted. This notwithstanding, we
find that the civil action arising from the contract of loan has not yet prescribed. Article
1150 of the Civil Code states —

Art. 1150. The time for prescription for all kinds of actions, when there is no special
provision which ordains otherwise, shall be counted from the day they may be brought.

We held in numerous cases that it is the legal possibility of bringing the action that
determines the starting point for the computation of the period of prescription. [67] We
highlight the unique circumstances surrounding this case. As discussed in this decision,
there has been diverse jurisprudence as to the propriety of ordering an accused to pay an
obligation arising from a contract in the criminal case where the accused was acquitted on
the ground that there is no crime. Litigants, such as MCCI, cannot be blamed for relying on
prior rulings where the recovery on a contract of loan in a criminal case for estafa was
allowed. We have found the opportunity to clarify this matter through this decision. As it is
only now that we delineate the rules governing the fusion of criminal and civil actions
pertaining to estafa, it is only upon the promulgation of this judgment that litigants have a
clear understanding of the proper recourse in similar cases. We therefore rule that insofar
as MCCI is concerned, the filing of an action, if any (that may be sourced from the contract
of loan), becomes a legal possibility only upon the finality of this decision which definitively
ruled upon the principles on fused actions.

We add, however, that upon finality of this decision, prospective litigants should become
more circumspect in ascertaining their course of action in similar cases. Whenever a litigant
erroneously pursues an estafa case, and the accused is subsequently acquitted because the
obligation arose out of a contract, the prescriptive period will still be counted from the time
the cause of action arose. In this eventuality, it is probable that the action has already
prescribed by the time the criminal case shall have been completed. This possibility
demands that prospective litigants do not haphazardly pursue the filing of an estafa case in
order to force an obligor to pay his or her obligation with the threat of criminal conviction. It
compels litigants to be honest and fair in their judgment as to the proper action to be filed.
This ruling should deter litigants from turning to criminal courts as their collection agents,
and should provide a disincentive to the practice of filing of criminal cases based on
unfounded grounds in order to provide a litigant a bargaining chip in enforcing contracts.

WHEREFORE, in view of the foregoing, the Petition is GRANTED. The Decision of the CA
dated February 25, 2009 is REVERSED. This is however, without prejudice to any civil
action which may be filed to claim civil liability arising from the contract.

SO ORDERED.

Velasco, Jr., (Chairperson), Peralta, Perez, and Reyes, JJ., concur.