G.R. No.

89114 December 2, 1991

FRANCISCO S. TANTUICO, JR., petitioner,

vs.
REPUBLIC OF THE PHILIPPINES, PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,
MATEO A. T. CAPARAS, AND THE SANDIGANBAYAN, respondents.

Kenny H. Tantuico for petitioner.

PADILLA, J.:

In this petition for certiorari, mandamus and prohibition with a prayer for the issuance of a writ of
preliminary injunction and/or restraining order, the petitioner seeks to annul and set aside the
resolution of the Sandiganbayan, dated 21 April 1989, denying his motion for a bill of particulars as
well as its resolution, dated 29 May 1989, which denied his motion for reconsideration; to compel the
respondent PCGG to prepare and file a bill of particulars, or that said respondent be ordered to
exclude petitioner as defendant in Civil Case No. 0035 should they fail to submit the said bill of
particulars; and to enjoin the respondent Sandiganbayan from further proceeding against petitioner
until the bill of particulars is submitted, claiming that the respondent Sandiganbayan acted with grave
abuse of discretion amounting to lack of jurisdiction in promulgating the aforesaid resolutions and
that there is no appeal, nor any plain, speedy and adequate remedy for him in the ordinary course of
law other than the present petition.

As prayed for, this Court issued on 1 August 1989 a temporary restraining order "effective
immediately and continuing until further orders from this Court, ordering the respondent
Sandiganbayan to CEASE and DESIST from further proceeding in Civil Case No. 0035 (PCGG 35),
entitled "Republic of the Philippines vs. Benjamin (Kokoy) Romualdez, et al." pending before it.  1

The antecedents are as follows:

On 31 July 1987, the Republic of the Philippines, represented by the PCGG, and assisted by the Office of the Solicitor General, filed with the Sandiganbayan Civil Case No. 0035, entitled "Republic of the Philippines vs. Benjamin (Kokoy) Romualdez, et al." for
reconveyance, reversion, accounting, restitution and damages. 2

The principal defendants in the said Civil Case No. 0035 are Benjamin (Kokoy) Romualdez, Ferdinand E. Marcos and Imelda R. Marcos.

Petitioner Francisco S. Tantuico, Jr. was included as defendant in Civil Case No. 0035 on the theory that: (1) he acted in unlawful concert with the principal defendants in the misappropriation and theft of public funds, plunder of the nation's wealth, extortion,

 (2) he acted as dummy, nominee or agent, by allowing

blackmail, bribery, embezzlement and other acts of corruption, betrayal of public trust and brazen abuse of power; 3

himself to be incorporator, director, board member and/or stockholder of corporations beneficially

held and/or controlled by the principal defendants;   (3) he acted singly or collectively, and/or in 4
unlawful concert with one another, in flagrant breach of public trust and of their fiduciary obligations
as public officers, with gross and scandalous abuse of right and power and in brazen violation of the
Constitution and laws of the Philippines, embarked upon a systematic plan to accumulate ill-gotten
wealth ;   (4) he (petitioner) taking undue advantage of his position as Chairman of the Commission
5

on Audit and with grave failure to perform his constitutional duties as such Chairman, acting in
concert with defendants Ferdinand E. Marcos and Imelda R. Marcos, facilitated and made possible
the withdrawals, disbursements and questionable use of government funds;   and (5) he acted as 6

dummy, nominee and/or agent by allowing himself to be used as instrument in accumulating ill-
gotten wealth through government concessions, orders and/or policies prejudicial to plaintiff, or to be
incorporator, director, or member of corporations beneficially held and/or controlled by defendants
Ferdinand E. Marcos, Imelda R. Marcos, Benjamin (Kokoy) Romualdez and Juliette Gomez
Romualdez in order to conceal and prevent recovery of assets illegally obtained.  7

 was denied by respondent court in its resolution   dated 9 March

On 11 April 1988, after his motion for production and inspection of documents 8 9

1988, petitioner filed a Motion for a Bill of Particulars,   alleging inter alia that he is sued for acts
10

allegedly committed by him as (a) a public officer-Chairman of the Commission on Audit, (b) as a
private individual, and (c) in both capacities, in a complaint couched in too general terms and shorn
of particulars that would inform him of the factual and legal basis thereof, and that to enable him to
understand and know with certainty the particular acts allegedly committed by him and which he is
now charged with culpability, it is necessary that plaintiff furnish him the particulars sought therein
relative to the averments in paragraphs 2, 9(a), 15, 7 and 17 of the Second Amended Complaint so
that he can intelligently prepare his responsive pleading and prepare for trial. The particulars sought
for in the said motion are as follows:

a. Relative to the averments in paragraphs 2, 9(a) and l5 of the Second Amended Complaint:

i) What are the dates of the resolutions (if on appeal) or the acts (if otherwise) issued
or performed by herein defendant which allowed the facilitation of, and made
possible the, withdrawals, disbursements and questionable use of government funds;

ii) What ministries or Departments, offices or agencies of the government were

involved in these questionable use of government funds;

iii) What are the names of the auditors who had the original audit jurisdiction over the
said withdrawals, disbursements and questionable use of government funds;

iv) How much government funds were involved in these questionable-disbursements,

individually and in totally?

v) Were the disbursements brought to herein defendant for action on pre-audit, post-
audit or otherwise or where they initiated and/or allowed release by herein defendant
alone, without them undergoing usual governmental audit procedures, or in violation
thereof.?

vi) What were herein defendant's other acts or omission or participation in the matter
of allowing such disbursements and questionable use of government funds, if any?

b. Relative to paragraphs 7 and 17 of the Second Amended Complaint:

i) In what particular contract, dealing, transaction and/or relationship of any nature of

Ferdinand E. Marcos, Imelda R. Marcos, Juliette Gomez Romualdez or Benjamin T.
 Romualdez did herein defendant act as dummy, nominee or agent? Please specify
the dealings, the dates, the corporations or entities involved, the government offices
involved and the private and public documents, if any, showing herein defendant's
complicity, since he is not aware of any such instance. More basically, please specify
whether the defendant is a dummy or nominee or agent and of which corporation or
transaction?

ii) What particular government concession, order and/or policy obtained by Ferdinand
E. Marcos, or Imelda R. Marcos, or Juliette Gomez Romualdez and/or Benjamin T.
Romualdez allowed them either singly or jointly to accumulate ill-gotten wealth by
using herein defendant as instrument for their accomplishment. Likewise please
identify the nature of the transactions, the dates and the document showing
complicity on the part of herein defendant; he is not aware of any such instance.

iii) Please specify the name or denominate the particular government concession,
order and/or policy prejudicial to the interest of the government which was obtained
by either of the above-named four defendants through the participation of herein
defendant as a dummy, nominee or agent of herein defendant. Please likewise
identify the government office involved, the dates and other particulars, likewise
defendant is not aware of any such instance.

iv) Please name and specify the corporation whether stock or non-stock, whether
government or private, beneficially held and/or controlled by either of the four above
defendants, where herein defendant is an incorporator, director or member and
where his inclusion as such incorporator, director or member of the corporation was
made in order to conceal and prevent recovery of assets illegally obtained by the
aforementioned four defendants, how many shares are involved and what are their
values, how and when have they been acquired.

The Solicitor General, for and in behalf of respondents (except the respondent
Sandiganbayan), opposed the motion.   After the petitioner had filed his reply   thereto, the
11 12

respondent Sandiganbayan promulgated on 21 April 1990 a resolution   denying the 13

petitioner's motion for a bill of particulars on the ground that the particulars sought by
petitioner are evidentiary in nature, the pertinent part of which resolution reads, as follows:

We are of the considered opinion that the allegations in the Expanded Complaint are
quite clear and sufficient enough for defendant-movant to know the nature and scope
of the causes of action upon which plaintiff seeks relief. They provide the factual
scenario which, coupled with other allegations set forth in the "Common Averments"
and further specified in the "Specific Averments" of herein defendant-movant and his
co-defendants' illegal acts which are within defendant-movant's peculiar and intimate
knowledge as a government official and corporate executive, will enable him to make
the proper admission, denials or qualifications, set out affirmative and/or special
defenses and thereafter prepare for trial. Evidentiary facts or matters are not
essential in the pleading of the cause of action, nor to details or probative value or
particulars of evidence by which these material evidence are to be established
(Remitere vs. Yulu, 6 SCRA 251). The matters which he seeks are evidentiary in
nature and, being within his intimate or personal knowledge, may be denied or
admitted by him or if deemed necessary, be the subject of other forms of discovery.  14

 but this was denied by respondent Sandiganbayan in its resolution   dated

Petitioner moved for reconsideration 15 16

29 May 1990.
Hence, petitioner filed the present petition.

The principal issue to be resolved in the case at bar is whether or not the respondent
Sandiganbayan acted with grave abuse of discretion in issuing the disputed resolutions.

Petitioner argues that the allegations of the Second Amended Complaint in Civil Case No.
0035 (PCGG 35) pertaining to him state only conclusions of fact and law, inferences of facts
from facts not pleaded and mere presumptions, not ultimate facts as required by the Rules of
Court.

On the other hand, the respondent Sandiganbayan, by and through the Solicitor General,
contends that the essential elements of an action for recovery of ill-gotten wealth are: (1) an
accumulation of assets, properties and other possessions; (2) of former President Ferdinand
E. Marcos, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents, or nominees; and (3) whose value is out of proportion to their
known lawful income, and that the ultimate facts establishing these three (3) essential
elements of an action for recovery of ill-gotten wealth are sufficiently alleged in the complaint.
Hence, petitioner is not entitled to a bill of particulars.

A complaint is defined as a concise statement of the ultimate facts constituting the plaintiff's
cause or causes of action.   Like all other pleadings allowed by the Rules of Court,   the
17 18

complaint shall contain in a methodical and logical form a plain, concise and direct statement
of the ultimate facts on which the plaintiff relies for his claim, omitting the statement of mere
evidentiary
facts.   Its office, purpose or function is to inform the defendant clearly and definitely of the
19

claims made against him so that he may be prepared to meet the issues at the trial. The
complaint should inform the defendant of all the material facts on which the plaintiff relies to
support his demand; it should state the theory of a cause of action which forms the bases of
the plaintiff's claim of liability.  20

The rules on pleading speak of two (2) kinds of facts: the first, the "ultimate facts", and the
second, the "evidentiary facts." In Remitere vs. Vda. de Yulo,   the term "ultimate facts" was
21

defined and explained as follows:

The term "ultimate facts" as used in Sec. 3, Rule 3 of the Rules of Court, means the
essential facts constituting the plaintiffs cause of action. A fact is essential if it cannot
be stricken out without leaving the statement of the cause of action insufficient. . . .
(Moran, Rules of Court, Vol. 1, 1963 ed., p. 213).

Ultimate facts are important and substantial facts which either directly form the basis
of the primary right and duty, or which directly make up the wrongful acts or
omissions of the defendant. The term does not refer to the details of probative matter
or particulars of evidence by which these material elements are to be established. It
refers to principal, determinate, constitutive facts, upon the existence of which, the
entire cause of action rests.

while the term "evidentiary fact" has been defined in the following tenor:

Those facts which are necessary for determination of the ultimate facts; they are the
premises upon which conclusions of ultimate facts are based. Womack v.
Industrial Comm., 168 Colo. 364,451 P. 2d 761, 764. Facts which furnish evidence of
existence of some other fact.  22
Where the complaint states ultimate facts that constitute the three (3) essential elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant

 However, where the

in violation of said legal right, the complaint states a cause of action, otherwise, the complaint must succumb to a motion to dismiss on that ground of failure to state a cause of action. 23

allegations of the complaint are vague, indefinite, or in the form of conclusions, the proper
recourse would be, not a motion to dismiss, but a motion for a bill of particulars.   Thus, 24

Section 1, Rule 12 of the Rules of Court provides:

Before responding to a pleading or, if no responsive pleading is permitted by these

rules, within ten (10) days after service of the pleading upon him, a party may move
for a more definite statement or for a bill of particulars of any matter which is not
averred with sufficient definiteness or particularity to enable him properly to prepare
his responsive pleading or to prepare for trial. Such motion shall point out the defects
complained of and the details desired.

In this connection, the following allegations have been held as mere conclusions of law,
inferences from facts not alleged or opinion of the pleader: (a) the allegations that
defendants appellees were "actuated by ulterior motives, contrary to law and morals, with
abuse of their advantageous position as employers, in gross and evident bad faith and
without giving plaintiff . . . his due, wilfully, maliciously, unlawfully, and in summary and
arbitrary manner", are conclusions of law, inferences from facts not alleged and expressions
of opinion unsupported by factual premises;   (b) an allegation of duty in terms 25

unaccompanied by a statement of facts showing the existence of the duty, is a mere

conclusion of law, unless there is a relation set forth from which the law raises the duty;   (c) 26

an averment . . . that an act was "unlawful" or "wrongful" is a mere legal conclusion or

opinion of the pleader;   (d) the allegation that there was a violation of trust was plainly a
27

conclusion of law, for "a mere allegation that it was the duty of a party to do this or that, or
that he was guilty of a breach of duty, is a statement of a conclusion, not of a fact;"   (e) an 28

allegation that a contract is valid or void, is a mere conclusion of law;   (f) the averment in the 29

complaint that "defendant usurped the office of Senator of the Philippines" is a conclusion of
law — not a statement of fact — inasmuch as the particular facts on which the alleged
usurpation is predicated are not set forth therein;   and (g) the averment that "with intent of 30

circumventing the constitutional prohibition that 'no officer or employee in the civil service
shall be removed or suspended except for cause as provided by law', respondents
maliciously and illegally for the purpose of political persecution and political vengeance,
reverted the fund of the salary item . . . and furthermore eliminated or abolished the said
position effective 1 July 1960" is a mere conclusion of law unsupported by factual
premises.  31

Bearing in mind the foregoing rules on pleading and case law, let us now examine the allegations of the Second Amended Complaint against the petitioner to
determine whether or no they were averred with sufficient definiteness or particularity to enable him properly to prepare his responsive pleading or to prepare for
trial. If the allegations of the said complaint are vague, indefinite or in the form of conclusions, then petitioner is entitled to a bill of particulars.

The allegations in the complaint pertaining to the alleged culpable and unlawful acts of herein petitioner are quoted hereunder as follows:

GENERAL AVERMENTS

OF

DEFENDANTS' ILLEGAL ACTS

9. (a) From the early years of his presidency, Defendant Ferdinand E. Marcos took undue advantage of his powers as President. All throughout the
period from September 21, 1972 to February 25, 1986, he gravely abused his powers under martial law and ruled as Dictator under the 1973
Marcos-promulgated Constitution. Defendant Ferdinand E. Marcos, together with other Defendants, acting singly or collectively, and/or in unlawful
concert with one another, in flagrant breach of public trust and of their fiduciary obligations as public officers, with gross and scandalous abuse of
right and power and in brazen violation of the Constitution and laws of the Philippines, embarked upon a systematic plan to accumulate ill-gotten
wealth;

(b) Upon his unfettered discretion, and sole authority, for the purpose of implementing the plan referred to above, Defendant Ferdinand E. Marcos
ordered and caused, among others:

(b-i) the massive and unlawful withdrawal of funds, securities, reserves and other assets and property from the National Treasury, the
Central Bank, the other financial institutions and depositories of Plaintiff;

(b-ii) the transfer of such funds, securities, reserves and other assets and property to payees or transferees of his choice and whether
and in what manner such transactions should be recorded in the books and records of these institutions and other depositories of
Plaintiff;

10. Among others, in furtherance of the plan and acting in the manner referred to above, in unlawful concerted with one another and with gross
abuse of power and authority, Defendants Ferdinand E. Marcos and Imelda R. Marcos;

x x x           x x x          x x x

b. Converted government-owned and controlled corporations into private enterprises and appropriated them and/or their assets for
their own benefit and enrichment;

c. Awarded contracts with the Government to their relatives, business associates, dummies, nominees, agents or persons who were
beholden to said Defendants, under terms and conditions grossly and manifestly disadvantageous to the Government;

d. Misappropriated, embezzled and/or converted to their own use funds of Government financial institutions, particularly those
allocated to the Office of the President and other ministries and agencies of the Government including, those conveniently
denominated as intelligence or counter-insurgency funds, as well as funds provided to Plaintiff by foreign countries, multinationals,
public and private financial institutions;

e. Raided Government financial and banking institutions of billions of pesos in loans, guarantees and other types of financial
accommodations to finance dubious and/or overpriced projects of favored corporations or individuals and misused and/or converted to
their own use and benefit deposits found therein to the financial ruin of Plaintiff and the Filipino people;

x x x           x x x          x x x

h. Sold, conveyed and/or transferred Government property, real and/or personal, to corporations beneficially held and/ or controlled by
them or through third persons, under such terms and conditions grossly and manifestly disadvantageous to the Government;

i. Engaged in other illegal and improper acts and practices designed to defraud Plaintiff and the Filipino people, or otherwise
misappropriated and converted to their own use, benefit and enrichment the lawful patrimony and revenues of Plaintiff and the Filipino
people.

11. Among the assets acquired by Defendants in the manner above-described and discovered by the Commission in the exercise of its official
responsibilities are funds and other property listed in Annex "A" hereof and made an integral part of this Complaint.

12. Defendants, acting singly or collectively, and/or in unlawful concert with one another, for the purpose of preventing disclosure and avoiding
discovery of their unmitigated plunder of the National Treasury and of their other illegal acts, and employing the services of prominent lawyers,
accountants, financial experts, businessmen and other persons, deposited, kept and invested funds, securities and other assets estimated at
billions of US dollars in various banks, financial institutions, trust or investment companies and with persons here and abroad.

SPECIFIC AVERMENTS

OF

DEFENDANTS' ILLEGAL ACTS

x x x           x x x          x x x

14. Defendants Benjamin (Kokoy) Romualdez and Juliette Gomez Romualdez, acting by themselves and/or in unlawful concert with Defendants
Ferdinand E. Marcos and Imelda R. Marcos, and taking undue advantage of their relationship, influence and connection with the latter Defendant
spouses, engaged in devices, schemes and strategems to unjustly enrich themselves at the expense of Plaintiff and the Filipino people, among
others:

(a) obtained, with the active collaboration of Defendants Senen J. Gabaldon, Mario D. Camacho, Mamerto Nepomuceno, Carlos J. Valdes, Delia
Tantuico, Jovencio F. Cinco, Cesar C. Zalamea and Francisco Tantuico, control of some of the biggest business enterprises in the Philippines, such
as, the Manila Electric Company (MERALCO), Benguet Consolidated Mining Corporation (BENGUET) and the Pilipinas Shell Corporation, by
employing devious financial schemes and techniques calculated to require the massive infusion and hemmorrhage of government funds with
minimum or negligible "cashout" from Defendant Benjamin Romualdez. The following are the general features of a classic take-over bid by
Defendant Benjamin Romualdez:

x x x           x x x          x x x

(ii) The shares were held in the name of corporations which were organized soldely (sic) for the purpose of holding title to them. These
corporations did not have any operating history nor any financial track record. Projected cash flow consisted almost solely of future
and contingent dividends on the shares held. In spite of these limitations, these companies enjoyed excellent credit lines from banks
and other financial institutions, as evidenced by the millions of pesos in loan and guarantees outstanding in their books;

(iii) The "seed money" used to wrest control came from government and taxpayers' money in the form of millions of pesos in loans,
guarantees and standby L/C's from government financial institutions, notably the DBP and PNB, which were in turn rediscounted with
the Central Bank;

(iv) Additional funding was provided from the related interests; and

(v) This intricate (sic) skein of inter-corporate dealings was controlled and administered by an exclusive and closely knit group of
interlocking directorate and officership

x x x           x x x          x x x

(g) Secured, in a veiled attempt to justify MERALCO's anomalous acquisition of the electric cooperatives, with the active collaborations of
Defendants Cesar E. A. Virata, Juanita R. Remulla, Isidro Rodriguez, Jose C. Hernandez, Pedro Dumol, Ricardo C. Galing, Francisco C.
Gatmaitan, Mario D. Camacho and the rest of the Defendants, the approval by Defendant Ferdinand E. Marcos and his cabinet of the so-called
"Three-Year Program for the Extension of MERALCO's Services to Areas Within The 60-kilometer Radius of Manila", which required government
capital investment amounting to millions of pesos;

x x x           x x x          x x x

(1) Caused the National Investment and Development Corporation (NIDC) to dispose of its interest in the oil plants located in Tanauan, Leyte, which
 were owned and operated by its subsidiary, the NIDC Oil Mills, Inc., in favor of the SOLO II, Inc., a corporation beneficially held and controlled by
Defendant Benjamin Romualdez, with the active collaboration of Defendants Jose Sandejas, Francisco Tantuico and Dominador G. Ingco, under
terms and conditions grossly disadvantageous to NIDC, to the grave and irreparable damage of Plaintiff and the Filipino people.

(2) Defendant Francisco Tantuico, taking undue advantage of his position as Chairman of the Commission on Audit and with grave failure to
perform his constitutional duties as such Chairman, acting in concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, facilitated and
made possible the withdrawals, disbursements and questionable use of government funds as stated in the foregoing paragraphs to the grave and
irreparable damage and injury of Plaintiff and the entire Filipino people.

x x x           x x x          x x x

17. The following Defendants acted as dummies, nominees and/ or agents by allowing themselves (i) to be used as instruments in accumulating ill-
gotten wealth through government concessions, orders and/or policies prejudicial to Plaintiff, or (ii) to be incorporators, directors, or members of
corporations held and/or controlled by Defendants Ferdinand E. Marcos, Imelda R. Marcos, Benjamin (Kokoy) Romualdez, and Juliette Gomez
Romualdez in order conceal (sic) and prevent recovery of assets illegally obtained: Francisco Tantuico . . .

17.a. THE NAMES OF SOME OF THE CORPORATIONS BENEFICALLY HELD AND/OR CONTROLLED BY THE DEFENDANTS BENJAMIN
(KOKOY) ROMUALDEZ, FERDINAND E. MARCOS AND IMELDA R. MARCOS WHERE THE POSITIONS/PARTICIPATIONS AND/OR
INVOLVEMENTS OF SOME OF THE DEFENDANTS AS DUMMIES, NOMINEES AND/OR AGENTS ARE INDICATED ARE LISTED IN ANNEX
"B" HEREOF AND MADE AN INTEGRAL PART OF THIS COMPLAINT.

x x x           x x x          x x x

18. The acts of Defendants, singly or collectively, and/or in unlawful concert with one another, constitute gross abuse of official position and
authority, flagrant breach of public trust and fiduciary obligations, acquisition of unexplained wealth, brazen abuse of official position and authority,
flagrant breach of public trust and fiduciary obligations, acquisition of unexplained wealth, brazen abuse of right and power, unjust enrichment,
violation of the Constitution and laws of the Republic of the Philippines, to the grave and irreparable damage of Plaintiff and the Filipino people.
(Emphasis supplied)

Let us now analyze and discuss the allegations of the complaint in relation to which the petitioner pleads for a bill of particulars.

As quoted above, paragraph 9(a) of the complaint alleges that "Defendant Ferdinand E. Marcos, together with other Defendants, acting singly or collectively,
and/or in unlawful concert with one another, in flagrant breach of public trust and of their fiduciary obligations as public officers, with gross and scandalous abuse
of right and power and in brazen violation of the Constitution and laws of the Philippines, embarked upon a systematic plan to accumulate ill-gotten wealth." In
the light of the rules on pleading and case law cited above, the allegations that defendant Ferdinand E. Marcos, together with the other defendants "embarked
upon a systematic plan to accumulate ill-gotten wealth" and that said defendants acted "in flagrant breach of public trust and of their fiduciary obligations as
public officers, with gross and scandalous abuse of right and in brazen violation of the Constitution and laws of the Philippines",  are conclusions of law
unsupported by factual premises.

Nothing is said in the complaint about the petitioner's acts in execution of the alleged "systematic plan to accumulate ill-gotten wealth", or which are supposed to
constitute "flagrant breach of public trust", "gross and scandalous abuse of right and power", and "violations of the Constitution and laws of the Philippines". The
complaint does not even allege what duties the petitioner failed to perform, or the particular rights he abused.

Likewise, paragraph 15 avers that "defendant Francisco Tantuico, taking undue advantage of his position as Chairman of the Commission on Audit and with
grave failure to perform his constitutional duties as such Chairman, acting in concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos facilitated and
made possible the withdrawals, disbursements and questionable use of government funds as stated in the foregoing paragraphs to the grave and irreparable
damage and injury of Plaintiff and the entire Filipino people." In like manner, the allegation that petitioner "took undue advantage of his position as Chairman of
the Commission on Audit," that he "failed to perform his constitutional duties as such Chairman," and acting in concert with Ferdinand E. Marcos and Imelda R.
Marcos, "facilitated and made possible the withdrawals, disbursements, and questionable use of government funds as stated in the foregoing paragraphs, to the
grave and irreparable damage and injury of plaintiff and the entire Filipino people", are mere conclusions of law. Nowhere in the complaint is there any allegation
as to how such duty came about, or what petitioner's duties were, with respect to the alleged withdrawals and disbursements or how petitioner facilitated the
alleged withdrawals, disbursements, or conversion of public funds and properties, nor an allegation from where the withdrawals and disbursements came from,
except for a general allegation that they came from the national treasury. On top of that, the complaint does not even contain any factual allegation which would
show that whatever withdrawals, disbursements, or conversions were made, were indeed subject to audit by the COA.

In this connection, it may well be stated that the Commission on Audit (COA) is an independent, constitutional commission, which has no power or authority to withdraw, disburse, or use funds and property pertaining to other government

 The COA is merely

offices or agencies. This is done by the agency or office itself, the chief or head of which is primarily and directly responsible for the funds and property pertaining to such office or agency. 32

authorized to audit, examine and settle accounts of the various government offices or
agencies, and this task is performed not by the Chairman of the COA but by the COA
auditors assigned to the government office or agency subject to COA audit.

Thus, in each agency of the government, there is an auditing unit headed by an auditor,
whose duty is to audit and settle the accounts, funds, financial transactions, and resources of
the agency under his audit jurisdiction.   The decision of the auditor is appealable to the 33

Regional Director,   whose decision, is in turn, appealable to the COA Manager.   Any party
34 35

dissatisfied with the decision of the COA Manager may bring the matter on appeal to the
Commission proper, a collegiate body exercising quasi-judicial functions, composed of three
(3) COA Commissioners, with the COA Chairman as presiding officer.   It is only at this 36

stage that the COA Chairman would come to know of the matter and be called upon to act
on the same, and only if an aggrieved party brings the matter on appeal.

In other words, the Chairman of the COA does not participate or personally audit all
disbursements and withdrawals of government funds, as well as transactions involving
government property. The averments in the particular paragraph of the complaint merely
assume that petitioner participated in or personally audited all disbursements and
withdrawals of government funds, and all transactions involving government property.
Hence, the alleged withdrawals, disbursements and questionable use of government funds
could not have been, as held by respondent Sandiganbayan, "within the peculiar and
intimate knowledge of petitioner as Chairman of the COA."

The complaint further avers in paragraph 17 that "(t)he following Defendants acted as
dummies, nominees and/or agents by allowing themselves (i) to be instruments in
accumulating ill-gotten wealth through government concessions, order and/or policies
prejudicial to Plaintiff, or (ii) to be incorporators, directors, or members of corporations
beneficially held and/or controlled by Defendant Ferdinand E. Marcos, Imelda R. Marcos,
Benjamin (Kokoy) T. Romualdez and Juliette Gomez Romualdez in order to conceal and
prevent recovery of assets illegally obtained: Francisco Tantuico . . ."   Again, the allegation 37

that petitioner acted as dummy, nominee, or agent by allowing himself "to be used as
instrument in accumulating ill-gotten wealth through government concessions, orders and/or
policies prejudicial to Plaintiff" or "to be (an) incorporator, director, or member of corporations
beneficially held and/or controlled" by the Marcoses and Romualdezes, is a conclusion of
law without factual basis.

The complaint does not contain any allegation as to how petitioner became, or why he is
perceived to be, a dummy, nominee or agent. Besides, there is no averment in the complaint
how petitioner allowed himself to be used as instrument in the accumulation of ill-gotten
wealth, what the concessions, orders and/or policies prejudicial to plaintiff are, why they are
prejudicial, and what petitioner had to do with the granting, issuance, and or formulation of
such concessions, orders, and/or policies. Moreover, Annex "A" of the complaint lists down
sixty-one (61) corporations which are supposed to be beneficially owned or controlled by the
Marcoses and Romualdezes. However, the complaint does not state which corporations
petitioner is supposed to be a stockholder, director, member, dummy, nominee and/or agent.
More significantly, the petitioner's name does not even appear in Annex "B" of the complaint,
which is a listing of the alleged "Positions and Participations of Some Defendants".

The allegations in the complaint, above-referred to, pertaining to petitioner are, therefore,
deficient in that they merely articulate conclusions of law and presumptions unsupported by
factual premises. Hence, without the particulars prayed for in petitioner's motion for a bill of
particulars, it can be said the petitioner can not intelligently prepare his responsive pleading
and for trial.

Furthermore, the particulars prayed for, such as, names of persons, names of corporations,
dates, amounts involved, specification of property for identification purposes, the particular
transactions involving withdrawals and disbursements, and a statement of other material
facts as would support the conclusions and inferences in the complaint, are not evidentiary in
nature. On the contrary, those particulars are material facts that should be clearly and
definitely averred in the complaint in order that the defendant may, in fairness, be informed
of the claims made against him to the end that he may be prepared to meet the issues at the
trial.

Thus, it has been held that the purpose or object of a bill of particulars is —

. . . to amplify or limit a pleading, specify more minutely and particularly a claim or

defense set up and pleaded in general terms, give information, not contained in the
pleading, to the opposite party and the court as to the precise nature, character,
scope, and extent of the cause of action or defense relied on by the pleader, and
apprise the opposite party of the case which he has to meet, to the end that the proof
at the trial may be limited to the matters specified, and in order that surprise at, and
needless preparation for, the trial may be avoided, and that the opposite party may
be aided in framing his answering pleading and preparing for trial. It has also been
stated that it is the function or purpose of a bill of particulars to define, clarify,
particularize, and limit or circumscribe the issues in the case, to expedite the trial,
and assist the court. A general function or purpose of a bill of particulars is to prevent
injustice or do justice in the case when that cannot be accomplished without the aid
of such a bill.  38

Anent the contention of the Solicitor General that the petitioner is not entitled to a bill of particulars because the ultimate facts constituting the three (3) essential
elements of a cause of action for recovery of ill-gotten wealth have been sufficiently alleged in the complaint, it would suffice to state that in a motion for a bill of
particulars, the only question to be resolved is whether or not the allegations of the complaint are averred with sufficient definiteness or particularity to enable the
movant properly to prepare his responsive pleading and to prepare for trial. As already discussed, the allegations of the complaint pertaining to the herein
petitioner are deficient because the averments therein are mere conclusions of law or presumptions, unsupported by factual premises.

In the light of the foregoing, the respondent Sandiganbayan acted with grave abuse of discretion amounting to lack or excess of jurisdiction in promulgating the
questioned resolutions.

WHEREFORE, the petition is GRANTED and the resolutions dated 21 April 1989 and 29 May 1989 are hereby ANNULLED and SET ASIDE. The respondents
are hereby ordered to PREPARE and FILE a Bill of Particulars containing the facts prayed for by petitioner within TWENTY (20) DAYS from notice, and should
they fail to submit the said Bill of Particulars, respondent Sandiganbayan is ordered TO EXCLUDE the herein petitioner as defendant in Civil Case No. 0035.

SO ORDERED.
 [G.R. NO. 163338. September 21, 2005]

LUZON DEVELOPMENT BANK, Petitioners, v. BENEDICTO C. CONQUILLA,

CORNELIA C. CONQUILLA, DOROTEA C. ORCINE and FELICIANO S.
CONQUILLA, Respondent.

DECISION

PANGANIBAN, J.:

n the present case, the Court stresses that the use of facts admitted in the Complaint
will not subject the judgment based thereon to a claim of nullity grounded on lack of
due process. Clearly, the facts alleged in the Complaint bound the plaintiff. Thus, the
trial court correctly used the allegations or admissions therein as basis to grant the
Motion to Dismiss, in the same manner that it could have done so on a motion to
render judgment on the pleadings.

The Case

Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court,

assailing the December 16, 2003 Decision2 of the Court of Appeals (CA) in CA-GR CV
No. 71589 and its April 14, 2004 Resolution3 denying petitioner's Motion for
Reconsideration. The challenged Decision disposed thus:

"IN VIEW OF THE FOREGOING, the order appealed from is SET ASIDE and the case
REMANDED for further proceedings."4

The Facts

According to the CA, the facts are as follows:

"x x x. Feliciano Conquilla was the president of an educational institution located at

Noveleta Cavite and known as Columbia College. He was joined by his children
Benedicto, Cornelio and Dorotea in mortgaging the three properties on which the school
sat and titled in their names as TCT No. T-593582 to 84 to secure a loan from the
Luzon Development Bank. The transaction underwent a series of amendments. Initially,
on March 7, 1996, they borrowed P4,720,000, which was increased to P7,220,000 on
April 2 by way of a Promissory Note and Amendment Of Real Estate Mortgage.
The Promissory Note appears to have been signed by the four in their personal
capacities, but Feliciano's name in the Amendment of Real Estate Mortgage was
preceded by the telling phrase Columbia College By. An amount of P2,500,000 was
specifically earmarked for building construction. On May 2, they acknowledged a loan
of P10,000,000 in a promissory note signed by them again without any qualification,
and raising the amount for building construction to P2,780,000.

"After some months, Feliciano Conquilla applied for a restructuring of the loan. He
wrote the bank that they had sought extra funding to finish the school building, and
with the increased enrollment that would follow on the heels of their expansion
program, assured that their loan obligations would be met. The request granted, they
again issued on December 27, 1996 a Promissory Note for P12,242,000 payable
monthly for the next five years.

"They failed to deliver on their promise, and by March 1998, their unpaid amortizations
rose to more than P4 million. To prevent the impending foreclosure of the mortgaged
properties, Feliciano filed in the name of Columbia College with the RTC of Cavite City
[C]ivil [C]ase N-6659 against Luzon Development Bank and the notary public[,]
Rolando Torres. This suit was filed on February 18, 1998. Less than a month later, on
March 11, 1998, Judge Christopher [Lock] of Branch 88 of the court dismissed the case
on the ground that the plaintiff failed to establish its cause of action. As mentioned in
his order, the case was set for hearing on March 5, and on this date only Feliciano
Conquilla appeared. Nothing more was said about the hearing, but it is difficult to see
what else could happen in the absence of the other parties[,] and all the lawyers. 6
days later, in the order, he declared that there was no reason why the foreclosure of
mortgage should be enjoined, and ruled that in the face of the clear admission of
plaintiff that they were unable to settle their obligations[,] which were secured by the
mortgage, defendants have a clear right to foreclose the mortgage[,] which is the
remedy provided by law.

The next day, March 12, Feliciano Conquilla[,] joined by his wife Salud[,] filed case N-
6669 in his own name[,] which still fell in the sala of Judge [Lock], praying for the same
remedy of injunction against the foreclosure. On a motion to dismiss, he ruled that the
complaint was a rehash of the one made in N-6659 and already dismissed. His order of
March 16 contained this disquisition:

'Except for the allegations that the defendants did not comply with the requirement of
notice and publication, and that the plaintiffs are now suing in their personal capacity,
the averments in the complaint are mere rehash of the allegations in the complaint
docketed as [C]ivil [C]ase No. N-6659[,] filed by the plaintiff Feliciano Conquilla on
behalf of Columbia College Inc.[,] which has been dismissed by this court per its order
dated March 11, 1998.

'It appearing from the opposition filed by the defendants that the latter (have) complied
with the notice and publication requirements under Act 3135, and it appearing further
that the plaintiffs (have) no cause of action to institute the present complaint, the
reasons of which (have) already been discussed in the order of the court dated March
11, 1998, the prayer for the issuance of a temporary restraining order is hereby
denied; and finding merit in the motion to dismiss filed by defendants, the same is
granted. Consequently, let the complaint filed in this case be, as it is hereby dismissed.'

"With the cases out of the way, the properties were auctioned off to Luzon
Development Bank. In June, it advised Columbia College through Feliciano of its right to
buy back the lots within the redemption period. Not amenable to this solution, Feliciano
Conquilla and his children filed the present case in January 1999, their final trump card
against the inevitable outcome of the foreclosure proceeding.

"As the plaintiffs in LP 99-0019, the Conquillas alleged in their complaint that of the
amount of the loan of P7.2 million agreed to on April 2, 1996, the defendant Luzon
Development Bank failed to release to them the amount of P1,940,000, thus causing a
breach of contract and rendering the foreclosure premature. The contract obligation
was, furthermore, increased to over P12 million without further releases. Even as it
bidded for the properties in the amount of over P18 million, it failed to turn over to
them the difference between this price and the amount of the actual releases,
representing a balance of about P13 million."5

The defendant bank moved to dismiss the Complaint on the ground that the case had
already been barred by two prior judgments in Civil Case Nos. N-6659 ("First Case")
and N-6669 ("Second Case").6 On May 4, 2000, the trial court issued an Order
dismissing Civil Case No. LP 99-0019 ("Third Case") on the ground of res judicata.7 In
denying the Motion for Reconsideration, the trial court explained that the causes of
action in the Third Case were so intimately and closely related to those in the First and
the Second Cases that to allow a re-litigation would constitute a circuity of suits.8

Respondents appealed this Order, alleging that the dismissal of the Third Case was a
denial of their right to be heard;9 that the First and the Second Cases did not
constitute res judicata;10 and that the foreclosure was premature, because the entire
loan had yet to be released.11

Respondents argued that the trial court had erred in dismissing Civil Case No. LP 99-
0019 on the ground of res judicata. They added that the Third Case had a different
cause of action and was not barred by the unfavorable judgments in the previous two
cases.12 While the First and the Second Cases were filed in order to prevent the
mortgage foreclosure, the object of the Third Case was the nullification of the
foreclosure proceedings and the collection of the balance of the loan.

Elaborating, respondents explained that of the P7.2 million loan agreed upon,

only P5.28 million had been released at the time of the foreclosure.13 Therefore, they
argued, the foreclosure was premature and should be nullified.14

Further, respondents criticized the dismissal of the case by the Regional Trial Court
(RTC) on the basis of a mere Motion to Dismiss. They argued that the RTC should have
ordered petitioner to file a responsive pleading. Because the trial court had failed to do
so, their Complaint was dismissed without trial on the merits.15

Lastly, respondents pointed out that petitioner bank should have been declared in
default because of its failure to file a responsive pleading in Civil Case No. LP 99-0019.
They theorized that its Motion to Dismiss, grounded on res judicata, was defective,
considering that Rule 16 of the Rules of Court did not include res judicataamong the
grounds for dismissal. They contended that the grounds mentioned in Rule 16 were
"prior judgment or statute of limitations," which were different from res judicata.16

Ruling of the Court of Appeals

The appellate court noted that the lower court had ordered the dismissal of the previous
cases without any pretrial or trial.17 Although the CA recognized that a formal trial was
not necessary for a judgment to be on the merits, it nevertheless held that the parties
should have been given the opportunity to be heard on their claims before judgment
was passed. Thus, it ruled that the orders of dismissal were violative of respondents'
right to due process.18

Additionally, the appellate court observed that the denial of the First Case was
grounded on the failure of the Complaint to state a cause of action. Under Rule 16 of
the Rules of Court, dismissals on this particular ground did not constitute res judicata.19

For these reasons, the CA remanded Civil Case No. LP 99-0019 to the trial court for
further proceedings.

Hence, this Petition.20

Issues

Petitioner raised the following issues in its Memorandum:

"I. Whether or not the Court of Appeals acted without or in excess of jurisdiction or with
grave abuse of discretion when they decided to remand the case back to the lower
[court] despite finality of the order of dismissal[; and]

II. Whether or not the Court of Appeals' decision to remand the case to the lower court
violates jurisprudence on forum shopping and res judicata."21

After going over the arguments of petitioner, the Court believes that the resolution of
this case hinges on the principal issue of whether the dismissal of the First Case on the
ground of failure to establish a cause of action operates as res judicataon the Third
Case.

The Court's Ruling

The Petition is partially meritorious.

Main Issue:

Res Judicata

A case is barred by prior judgment or res judicata when the following requisites concur:
(1) the former judgment is final; (2) it is rendered by a court having jurisdiction over
the subject matter and the parties; (3) it is a judgment or an order on the merits; (4)
there is - - between the first and the second actions - - identity of parties, of subject
matter, and of causes of action.22

The parties do not dispute the fact that Branch 88 of the RTC of Cavite has jurisdiction
over the First Case, and that its Order of dismissal has long become final and
executory23 because of respondents' failure to appeal it. There is no controversy, either,
regarding the identity of the subject matter.

Therefore, the dispute lies only in the presence of the three remaining elements - -
judgment on the merits, identity of parties, and identity of causes of action.
The Ground for Dismissal:

"Failure to Establish Cause of Action,"

Not "Failure to State a Cause of Action"

Preliminarily, we have to determine the actual ground for the dismissal of Civil Case No.
N-6659. According to the CA, the ground for dismissal could not possibly be "failure
to establish [respondents'] cause of action," as stated by the trial court, because there
was no hearing on the case. Rather, the CA ruled that the ground for dismissal could
only be "failure to state a cause of action" in the light of the fact that the trial court had
looked only at the allegations in the Complaint.24

"Cause of action" is the act or omission by which a party violates a right of another.25 It
contains three elements: (1) a right existing in favor of the plaintiff, (2) a duty on the
part of the defendant to respect the right of the plaintiff, and (3) a breach of the
defendant's duty.

Civil Case No. N-6659 stated a cause of action: first,  plaintiff (Respondent Feliciano)
had a right to apply for an injunction to enjoin a premature foreclosure - a foreclosure
before December 27, 2001; second, defendant (petitioner herein) had a duty not to
foreclose the mortgage prematurely; third,  the alleged breach arose when defendant
applied for foreclosure in 1998, three years prior to the stipulated maturity of the loan.

From the foregoing, it is clear that plaintiff had a cause of action to apply for an
injunction on the basis of the alleged breach. In other words, the allegations in the
Complaint are sufficient  to enable
the trial court to grant the relief prayed for. Therefore, we do not agree that there was
a "failure to state a cause of action"; on the contrary, there was no "insufficiency of
allegations" in the pleading.

To repeat, the actual ground for dismissal was the insufficiency of the factual basis for
the action.26 It may be raised at any time after the questions of fact shall have been
resolved on the basis of stipulations, admissions, or evidence presented.27 Usually, the
declaration that a plaintiff failed to establish a cause of action is postponed
until after  the parties are given the opportunity to present all relevant evidence on
questions of fact.28

In the First Case, the trial judge clearly deviated from the usual course when he
dismissed the Complaint on the ground of "failure to establish its cause of action"
without giving the parties an opportunity to present their evidence. Under the special
circumstances of this case, however, we find that the absence of a trial did not
substantively deprive the respondents of their day in court.

Notably, the Complaint (and its Annexes) admitted that respondents' own default
triggered the acceleration clause of the mortgage Contract. An acceleration clause is a
stipulation stating that, on the occasion of the mortgagors' default, the whole sum
remaining unpaid automatically becomes due and payable. The presence and activation
of the acceleration clause, the validity of which was never questioned by respondents,
negates their contention that the foreclosure was premature.

To state it simply, respondents are saying in their own pleading that the breach
committed by petitioner bank is actually justified in the light of their breach of the
agreement on the monthly installments. Hence, on the basis of their admission of their
breach of their own obligations to the bank, the trial court found that petitioner had a
right to foreclose the mortgage.

This is not a flimsy conclusion arrived at by the trial court. It is a fact derived from
respondents' Complaint and its Annexes.29 Being in the nature of a judicial admission
made in the course of the proceedings, it did not  require proof.30 This factual admission
in the pleadings on record dispensed with the need for petitioner to present evidence to
prove the admitted fact.

Moreover, findings of fact are not unbendingly postponed until after trial, but may be
made as soon as there is sufficient evidence available.31 In the present case, the
evidence that the trial court needed in order to make a decision on the matter was the
admission contained in respondents' Complaint and its Annexes.

Although the procedure in the RTC was not conducted in the usual manner, this Court is
not prepared to say that it deprived respondents of their right to due process. The
factual finding that they defaulted on their monthly payments for a period of fifteen
months was their own uncontroverted admission. If the trial court's factual finding was
wrong, respondents should have sought a reconsideration of the matter by showing
that no such admission was made, or that it was made through a palpable mistake.32 A
motion for reconsideration was the remedy provided them by law, but they took no
such action. Thus, they are bound by their admission. On this basis, the trial court
cannot be completely faulted for concluding that they failed to establish their cause of
action.

What transpired in the court below is akin to a judgment on the pleadings. A judgment
on the pleadings may be rendered by the court either on motion33 of the plaintiff
or motu proprio.34 Such judgment is based exclusively upon the pleadings without
introduction of evidence; therefore, it is proper whenever it appears that there is no
controverted factual issue.

There was no controverted factual issue in the First Case because, in filing a Motion to
Dismiss, petitioner was hypothetically admitting all the allegations in the Complaint.
Although no motion for a judgment on the pleadings was filed by respondents, the trial
court - - on the authority akin to that granted by Rule 18 Section 2(g) - - decided motu
proprio  to render a judgment on the pleadings.

The only difference between what transpired in Civil Case No. N-6659 and a Rule 34
judgment on the pleadings is the absence of an answer in the former; instead, what
was filed was a motion to dismiss. This procedural flaw could have injured, not the
plaintiff (Respondent Feliciano), but the defendant (petitioner herein), because a
judgment was rendered without giving it the opportunity to counter plaintiff's factual
allegations. Considering, however, that the defendant did not object to this procedural
lapse, it is clear that it had waived whatever procedural injury was caused by the
court's action.
Dismissal on the Ground of

Failure to Establish Cause of Action,

a Judgment on the Merits

The CA ruled that Civil Case No. N-6659 did not operate as res judicata, because no
trial had ever been conducted in the trial court; hence, no judgment on the merits could
have possibly been issued.35

While it is indisputable that there was no trial on the merits in Civil Case No. N-6659,
the ruling was nonetheless a judgment on the merits. Escarte v. Office of the
President36 held that a ruling based on a motion to dismiss, without any trial on the
merits or formal presentation of evidence, can still be a judgment on the merits.

"Merits" has been defined as a matter of substance in law, as distinguished from a

matter of form; it refers to the real or substantial grounds of action or defense, as
contrasted with some technical or collateral matter raised in the course of the suit.37 A
judgment is "on the merits" when it amounts to a legal declaration of the respective
rights and duties of the parties, based upon the disclosed facts.38

In Allied Banking Corporation v. CA,39 the trial court, after finding that "on the basis of
the allegations of the Complaint, there [was] really no cause of action against
defendant Alano,"40 granted the Motion to Dismiss. Four months later, the plaintiff
(Allied Bank) filed a new Complaint against Alano, which practically restated the causes
of action in the earlier case. Both the trial and the appellate courts found that the filing
of the second case was barred by res judicata.41 The issue presented before the Court
was whether the CA erred in affirming the dismissal of the second case on the ground
of res judicata.42 Petitioner contended that the judgment dismissing the earlier case for
failure to state a cause of action was not a judgment on the merits.

In denying the Petition, this Court held that, although the Complaint had stated a cause
of action, its allegations showed that Alano had not incurred any liability at all.
The dismissal was on the merits,43 because "it unequivocally determined the rights and
obligations of the [bank] and [Alano] with respect to the causes of action and the
subject matter of the case."44

Similarly, the Complaint in the present Civil Case No. N-6659 alleged a cause of action,
but since plaintiff himself showed through his allegations that defendant had not
incurred any liability, the trial court dismissed the Complaint. Through its Order of
Dismissal, the RTC ruled on the issue presented before it - - the propriety of foreclosing
the mortgaged property. Relevant portions of the Order are quoted as follows:

"Paragraph 5 of the complaint clearly show[s] that the [respondent] has not paid the
amortizations due from December 1996 up to March 1998 or a period covering 15
months. Paragraph 4 of the promissory notes executed by the [respondent] also
disclose[s] that the [respondent] agreed that in case of default in the payment of any
of the installments and advance interest, the whole sum remaining unpaid shall
automatically become due and payable. As it appears that there is a clear admission on
the part of [respondent] that [he] failed to settle to the fullest [his] obligation,
foreclosure is valid. Foreclosure is valid where the debtors, as in this case, are in
default in the payment of their obligation.

xxx

"x x x. In the case at bench, we fail to see any reason why the foreclosure of the
mortgages should be enjoined. On the face of the clear admission of [respondent] that
they were unable to settle their obligations which were secured by the mortgages,
[petitioners] have a clear right to foreclose the mortgages[,] which is the remedy
provided for by law."45

Contrary to the findings of the appellate court, the dismissal of Civil Case No. N-6659
was a dismissal on the merits. The Order was based on the finding that the Complaint
contained an admission that respondents had violated the terms of the Mortgage
Contract, a violation that gave petitioner the right to foreclose the mortgaged property.
The judgment was on the merits, because it ruled that petitioner's defense was
substantial enough to overcome the relief sought by respondents. The Order applied
the law to the facts as stated in the Complaint; it was and is thus conclusive on the
propriety of foreclosure and determinative of the legal rights and obligations of the
parties with respect to the mortgage. The Order definitively put an end to the
controversy and barred any subsequent action on the same subject matter.

Even assuming arguendo  that the ground for dismissal in the First Case was the "failure
to state a cause of action," that particular Order of Dismissal was still a judgment on
the merits and operated as res judicata on a subsequent case.

In Manalo v. CA,46 without any trial, the RTC dismissed CEB-11735 on the ground of
failure to state a cause of action. When the same case was again filed, the respondent
moved to dismiss on the ground of res judicata. The Motion was sustained by the trial
court. Upon review before this Court, the petitioners alleged that the Order of dismissal
in CEB-11735 did not constitute res judicata; the Order was not an adjudication on the
merits, since the Complaint was dismissed for failure to state a cause of action.47

This Court found no merit in the Petition. It ruled that res judicatahad barred the
subsequent Complaint despite the absence of a trial or a cause of action properly
alleged. Since the Order of Dismissal actually ruled on the issues raised in the
Complaint, the judgment constituted a bar on this case.48

The same conclusion was arrived at in Mendiola v. CA.49 In that case, Petitioner
Mendiola gave a special power of attorney (SPA) to another person to mortgage the
former's parcels of land in Marikina for the purpose of financing their planned joint
venture. Although they had already abandoned that business plan, the person who had
been given an SPA nevertheless mortgaged Mendiola's properties to the Philippine
National Bank (PNB). When the bank initiated foreclosure proceedings, Mendiola filed a
separate case for injunction against it. The trial court sustained the Motion to Dismiss
on the ground that the Complaint did not state a sufficient cause of action.50 During the
pendency of Mendiola's appeal, the foreclosure pushed through, and the properties
were sold at the auction.
Because of the turn of events, Mendiola filed a case to annul the auction sale. Again,
PNB moved to dismiss on the ground that an appeal was still pending for the same
cause of action. After due hearing, the trial court dismissed the second case on the
ground of litis pendentia.51 The CA subsequently affirmed the dismissal of the first case.

Coming before this Court, petitioner therein maintained that the first case could not bar
the second one, because the former, which was dismissed for failure to state a cause of
action, had not ruled on PNB's right to foreclose the properties.

This Court ruled that the second case was dismissible under the principle of res
judicata. It found that the dismissal of the first case, which was based on a Motion to
Dismiss, was a judgment on the merits. It was rendered only after due consideration of
the facts and evidence presented by both parties. The Order of Dismissal went into the
substance of the relief sought by Mendiola (which was the issuance of a writ of
injunction) and must be regarded as an adjudication on the merits.52

These cases show that even a dismissal on the ground of "failure to state a cause of
action" may operate as res judicata on a subsequent case involving the same parties,
subject matter, and causes of action, provided that the order of dismissal actually ruled
on the issues raised. What appears to be essential to a judgment on the merits is that it
be a reasoned decision, which clearly states the facts and the law on which it is based.

In the present case, the Order of Dismissal in Civil Case No. N-6659 ruled on the right
of petitioner to foreclose the property. It held that foreclosure was valid; and that the
debtor was in default in the payment of his obligation.53 The Order of Dismissal also
explained that the Mortgage Contract and the Promissory Notes had authorized the
mortgagee to foreclose.54 It clearly looked into the facts as presented by respondents'
pleadings and applied the law accordingly. Thus, based on Manalo  and Mendiola, the
Order carried the effect of res judicata, it definitively settled the controversy between
the parties.

Although Mendiola  differs slightly from the instant case in the sense that the plaintiff in
the former was given a hearing to argue the merits of his case, the procedural
difference is not substantial enough to arrive at a different conclusion. Notably, in the
present case, the uncontroverted admission of the Complaint rendered a hearing
unnecessary. To reiterate, an admission in the course of the proceedings, such as that
in the pleadings on record, does not require proof. In other words, the Complaint
contained the facts that the trial court used to render a judgment on the merits.

Substantial Identity of Parties

Respondents argue that there is no identity of parties between the First Case and the
Third Case.55 The party in the First Case was Columbia College, Inc., represented by
Feliciano S. Conquilla;56 while the parties in the Third Case were Feliciano S. Conquilla,
Benedicto C. Conquilla, Cornelio C. Conquilla, and Dorotea C. Orcine.57 The parties in
the latter case were the registered owners of the mortgaged properties.58

It is axiomatic that to invoke res judicata, absolute identity of parties is not required. A

substantial identity of parties is sufficient.59 There is substantial identity of parties when
there is a community of interest between a party in the first case and that in the second
one, even if the latter party was not impleaded in the first case.60

In the instant controversy, the Complaint alleged that Columbia College, Inc., was the
only debtor.61 But the CA found that the Promissory Note given to petitioner contained
the signatures of all the four registered owners, without any qualification.62 A
Promissory Note is defined as "an unconditional promise in writing made by one person
to another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer."63 This
definition shows that the makers or signatories of a promissory note have the duty to
pay the amount stated on it.

Therefore, it is only logical that the present respondents were debtors, together with
Columbia College, Inc. This fact explains why they are also claiming the balance of the
loan, instead of merely asking for the nullification of the foreclosure of their property.
Together with Columbia College, Inc., they are interested in annulling the contracted
loan and in preventing the foreclosure of the properties.

Moreover, we find that Columbia College, Inc. claimed that it had

mortgaged its  properties to petitioner bank and executed the Promissory
Note.64 Reconciling this fact with the finding of the CA that respondents were the
mortgagors,65 we can only come to the conclusion that they and Columbia College were
not only common debtors; all of them were also mortgagors.

Therefore, they were all parties to the same Contract, protecting the same interests,
and seeking the same relief. Clearly, the actions were instituted for the protection of
the common interest of respondents in the loan and the mortgage. They shared an
identity of interest from which flowed an identity of relief sought; that is, to have the
foreclosure nullified. Their identity of interest in the loan
and the mortgaged property is enough to hold them privy-in-law; this fact meets the
substantive requisite of identity of parties.

That the children-respondents were not joined in the First Case is not enough to show
that there is no identity of parties. The joining of new parties does not remove a case
from the operation of res judicata; otherwise, the litigants can easily renew the
litigation by simply joining new parties.66

Identical Causes of Action

The fourth requisite of res judicata is identity of causes of action between the two
cases.

The cause of action in the First Case arose from petitioner's alleged premature
foreclosure of the mortgage. On the other hand, the Third Case involves three
alternative causes of action: (1) nullification of the foreclosure and the auction sale, (2)
release of the balance of the loan, or (3) recovery of the excess proceeds of the sale.

Respondents insist that the two cases involve different causes of action, allegedly
because the First Case seeks to prevent, and the Third Case to nullify, the
foreclosure.67 However, hornbook is the rule that identity of causes of action does not
mean absolute identity. Otherwise, a party could easily escape the operation of res
judicata by changing the form of the action or the relief sought.68

The test to determine whether the causes of action are identical is to ascertain whether
the same evidence will sustain both actions, or whether there is an identity in the facts
essential to the maintenance of the two actions. If the same facts or evidence would
sustain both, the two actions are considered the same, and a judgment in the first case
is a bar to the subsequent action.69

The validity of the foreclosure in Civil Case No. LP 99-0019 is assailed by respondents
on the ground of prematurity.70 Despite the stipulation that the loan would mature only
on December 27, 2001, the foreclosure of their mortgage took place on March 16,
1998.71 Notably, that cause of action was the same as that raised, considered, and
conclusively passed upon in Civil Case No. N-6659. In the latter case, Respondent
Feliciano sought to prevent foreclosure by also contending that it was premature.72

In order to obtain the reliefs sought, respondents in both cases should have presented
proof that the bank had no right to foreclose before December 27, 2001. By applying
the "same evidence" test, it becomes readily apparent that the evidence or facts
needed to sustain the cause of action in Civil Case No. N-6659 is the same as the
evidence or facts needed to allow relief in Civil Case No. LP 99-0019. Tellingly, the first
cause of action in Civil Case No. LP 99-0019 (nullification of foreclosure) is identical
with that in Civil Case No. N-6659 (injunction of foreclosure).

This ruling finds support in Mendiola.73 In that case, we ruled that the actions to enjoin
foreclosure and to annul the auction sale based on the same grounds were identical.

At any rate, the Order of Dismissal in the First Case was already a final
judgment;74 hence, it was appealable. Respondents could have appealed it, but they did
not. Having failed to appeal from that judgment, they may not abuse court processes
by repeatedly re-filing the same case to obviate the conclusive effects of dismissal. It
now operates as res judicata. Hence, respondents can no longer assail the validity of
the foreclosure on the ground of prematurity.

The second cause of action in the Third Case (recovery of the balance of the loan) is
likewise identical with that in the First Case. Respondents allege that petitioner bank
released only P5.2 million of the total P7.42 million agreed upon;75 thus, there was a
breach of the Contract. What respondents are saying is that petitioner has no right to
foreclose, on the ground that it has yet to comply fully with its obligation. In other
words, the foreclosure is allegedly premature and invalid.76 In order to sustain their
claim, respondents should have presented proof that petitioner had no right to foreclose
at the time of their application. It will be recalled that this was the same proof needed
to sustain the claim in the First Case. Since the same evidence sustains both actions,
they are considered to be the same for purposes of res judicata.

Moreover, the alleged failure of petitioner bank to release the balance of the loan was a
fact already in existence at the time that the First Case was filed in court. If petitioner
had really violated the terms of the loan agreement, this fact should have been pleaded
by respondents in the First Case. If true, such fact bolstered the claim of respondents
that petitioner had no right to foreclose. According to the principle of res judicata, a
judgment is conclusive between the parties with respect to matters directly adjudged
and to any other matter that may have been raised  in relation to it.77 By failing to raise
this matter in the first instance, respondents are deemed to have waived it. They can
no longer cite any ground for invalidating the Mortgage Contract, which was already in
existence at the time of the First Case.

In putting an end to litigation between the same parties over a subject that has already
been adjudicated, the principle of res judicata is dictated by public interest. "Relitigation
of issues already settled
merely burdens the courts and the taxpayers, creates uneasiness and confusion, and
wastes valuable time and energy that could be devoted to worthier cases."78 "Even at
the risk of occasional errors, judgments of courts should become final at some definite
time fixed by law and x x x parties should not be permitted to litigate the same issues
over again."79

Remand of the

New Cause of Action

A different fate befalls the third alternative cause of action in Civil Case No. LP 99-0019,
which is for recovery of the excess proceeds of the foreclosure sale. Respondents allege
that the mortgaged property was sold for P18,462,900, which allegedly far exceeded
the amount of loan agreed upon by the parties.80

Under the "same evidence" test, this is a different cause of action from an injunction of
foreclosure. As already discussed, Civil Case No. N-6659 requires proof that the
mortgagee had no right to foreclose; on the other hand, the alternative cause of action
in Civil Case No. LP 99-0019 requires proof that the bid price of the mortgaged property
was in excess of the contracted loan. The two issues require different sets of evidence;
there is no identity of causes of action.

Moreover, the recovery of the excess proceeds of the sale was not and could not be
included in Civil Case No. N-6659, because it was a new cause of action that had arisen
only after  the foreclosure. It was not barred by res judicata, because it could not have
been raised then. This is the only matter that may be remanded to the trial court.

If it is proven that the mortgaged property was foreclosed and sold for an amount
exceeding the loan contracted, respondent must be allowed to recover the excess.81 By
the accessory nature of mortgage, the mortgagee has the right to foreclose the
mortgaged property only to the extent of the loan secured by it. Any decision to the
contrary abets unjust enrichment.

To stress, the recovery of the excess proceeds of the sale is the only cause of action
that should be remanded to the lower court. Preliminarily, the trial court should first
determine the amount of loan actually contracted by the parties, because the true
amount is disputed. According to petitioner82 and the CA,83 the contracted loan was P12
million, but respondents maintain that the amount was only P7.42 million.84 Afterwards,
the court a quo should limit itself to a determination of whether the property was sold
for an amount exceeding the contracted loan, while taking into consideration the
interests and costs of the sale. If the sale price of the mortgaged property is greater
than the amount of indebtedness to the bank, the bank must be ordered to turn over
the excess to respondents.

The lower court should no longer inquire into the validity of the mortgage loan and the
right to foreclose. The resolution of these two matters have reached finality in Civil
Case No. N-6659, which decided that petitioner had the right to foreclose on the
presumption that the mortgage was also valid. If respondents are allowed to question
the validity of the mortgage loan all over again, the consequent foreclosure would
likewise have to be subjected to a review, which is no longer possible by operation
of res judicata. Forever barred now are all questions regarding the validity of the
Mortgage Contract and the subsequent foreclosure, questions that have been directly
adjudged or could have been raised and adjudged in Civil Case No. N-6659.

WHEREFORE, the Petition is PARTLY GRANTED. The assailed Decision and Resolution
are hereby MODIFIED pursuant to the above discussion.  The case is REMANDED to
the Regional Trial Court of Cavite City for further proceedings, only on the matter of
recovery of the alleged excess proceeds of the auction sale. No pronouncement as to
costs.

SO ORDERED.

G.R. No. 174353               September 10, 2014

NESTOR CHING and ANDREW WELLINGTON, Petitioners,

vs.
SUBIC BAY GOLF AND COUNTRY CLUB, INC., HU HO HSIU LIEN alias SUSAN HU, HU
TSUNG CHIEH alias JACK HU, HU TSUNG HUI, HU TSUNG TZU and REYNALD R.
SUAREZ, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the review of
the Decision  dated October 27, 2005 of the Court of Appeals in CA-G.R. CV No. 81441, which
1

affirmed the Order  dated July 8, 2003 of the Regional Trial Court (RTC), Branch 72 of Olongapo
2

City in Civil Case No. 03-001 dismissing the Complaint filed by herein petitioners.

On February 26, 2003, petitioners Nestor Ching and Andrew Wellington filed a Complaint  with the
3

RTC of Olongapo City on behalf of the members of Subic Bay Golf and Country Club, Inc. (SBGCCI)
against the said country club and its Board of Directors and officers under the provisions of
Presidential Decree No. 902-A in relation to Section 5.2 of the Securities Regulation Code. The
Subic Bay Golfers and Shareholders Incorporated (SBGSI), a corporation composed of shareholders
of the defendant corporation, was also named as plaintiff. The officers impleaded as defendants
were the following: (1) itsPresident, Hu Ho Hsiu Lien alias Susan Hu; (2) its treasurer, Hu Tsung
Chieh alias Jack Hu; (3) corporate secretary Reynald Suarez; and (4) directors Hu Tsung Hui and
Hu Tsung Tzu. The case was docketed as Civil Case No. 03-001. The complaint alleged that the
defendant corporation sold shares to plaintiffs at US$22,000.00 per share, presenting to them the
Articles of Incorporation which contained the following provision:

No profit shall inure to the exclusive benefit of any of its shareholders, hence, no dividends shall be
declared in their favor. Shareholders shall be entitled only to a pro-rata share of the assets of the
Club at the time of its dissolution or liquidation.
4

However, on June 27, 1996, an amendment to the Articles of Incorporation was approved by the
Securities and Exchange Commission (SEC), wherein the above provision was changed as follows:

No profit shall inure to the exclusive benefit of any of its shareholders, hence, no dividends shall be
declared in their favor. In accordance with the Lease and Development Agreement by and between
Subic Bay Metropolitan Authority and The Universal International Group of Taiwan, where the golf
courseand clubhouse component thereof was assigned to the Club, the shareholders shall not have
proprietary rights or interests over the properties of the Club.  x x x. (Emphasis supplied.)
5

Petitioners claimed in the Complaint that defendant corporation did not disclose to them the above
amendment which allegedly makes the shares non-proprietary, as it takes away the rightof the
shareholders to participate in the pro-rata distribution of the assets of the corporation after its
dissolution. According to petitioners, this is in fraud of the stockholders who only discovered the
amendment when they filed a case for injunction to restrain the corporation from suspending their
rights to use all the facilities of the club. Furthermore, petitioners alleged that the Board of Directors
and officers of the corporation did not call any stockholders’ meeting from the time of the
incorporation, in violation of Section 50 of the Corporation Code and the By-Laws of the corporation.
Neither did the defendant directors and officers furnish the stockholders with the financial statements
of the corporation nor the financial report of the operation of the corporation in violation of Section 75
of the Corporation Code. Petitioners also claim that on August 15, 1997, SBGCCI presented to the
SEC an amendment to the By-Laws of the corporation suspending the voting rights of the
shareholders except for the five founders’ shares. Said amendment was allegedly passed without
any stockholders’ meeting or notices to the stockholders in violation of Section 48 of the Corporation
Code.

The Complaint furthermore enumerated several instances of fraud in the management of the
corporation allegedly committed by the Board of Directors and officers of the corporation,
particularly:

a. The Board of Directors and the officers of the corporation did not indicate in its financial
report for the year 1999 the amount of ₱235,584,000.00 collected from the subscription of
409 shareholders who paid U.S.$22,000.00 for one (1) share of stock at the then prevailing
rate of ₱26.18 to a dollar. The stockholders were not informed how these funds were spent
or its whereabouts.

b. The Corporation has been collecting green fees from the patrons of the golf course at an
average sum of ₱1,600.00 per eighteen (18) holes but the income is not reported in their
yearly report. The yearly report for the year 1999 contains the report of the Independent
Public Accountant who stated that the company was incorporated on April 1, 1996 but has
not yet started its regular business operation. The golf course has been in operation since
1997 and as such has collected green fees from non-members and foreigners who played
golf in the club. There is no financial report as to the income derived from these sources.

c. There is reliable information that the Defendant Corporation has not paid its rentals to the
Subic Bay Metropolitan Authority which up to the present is estimated to be not less than one
(1) million U.S. Dollars. Furthermore, the electric billings of the corporation [have] not been
paid which amounts also to several millions of pesos.

d. That the Supreme Court sustained the pre-termination of its contract with the SBMA and
 presently the club is operating without any valid contract with SBMA. The defendant was
ordered by the Supreme Court to yield the possession, the operation and the management
of the golf course to SBMA. Up to now the defendants [have] defied this Order.

e. That the value of the shares of stock of the corporation has drastically declined from its
issued value of U.S.$22,000.00 to only Two Hundred Thousand Pesos, (₱200,000.00)
Philippine Currency. The shareholders [have] lost in terms ofinvestment the sum estimated
to be more than two hundred thousand pesos.This loss is due to the fact that the Club is
mismanaged and the golf course is poorly maintained. Other amenities of the Club has (sic)
not yet been constructed and are not existing despite the lapse of morethan five (5) years
from the time the stocks were offered for sale to the public. The cause of the decrease in
value of the sharesof stocks is the fraudulent mismanagement of the club. 6

Alleging that the stockholders suffered damages as a result of the fraudulent mismanagement of the
corporation, petitioners prayed in their Complaint for the following:

WHEREFORE, it is most respectfully prayed that upon the filing of this case a temporary restraining
order be issued enjoining the defendants from acting as Officers and Board of Directors of the
Corporation. After hearing[,] a writ of preliminary injunction be issued enjoining defendants to act as
Board of Directors and Officers of the Corporation. In the meantime a Receiver be appointed by the
Court to act as such until a duly constituted Board of Directors and Officers of the Corporation be
elected and qualified.

That defendants be ordered to pay the stockholders damages in the sum of Two Hundred Thousand
Pesos each representing the decrease in value of their shares of stocks plus the sum of
₱100,000.00 as legal expense and attorney’s fees, as well as appearance fee of ₱4,000.00 per
hearing.7

In their Answer, respondents specifically denied the allegations of the Complaint and essentially
averred that:

(a) The subscriptions of the 409 shareholders were paid to Universal International Group
Development Corporation (UIGDC), the majority shareholder of SBGCCI, from whom
plaintiffs and other shareholders bought their shares;8

(b) Contrary to the allegations in the Complaint, said subscriptions were reflected
inSBGCCI’s balance sheets for the fiscal years 1998 and 1999; 9

(c) Plaintiffs were never presented the original Articles of Incorporation of SBGCCI since
their shares were purchased after the amendment of the Articles of Incorporation and such
amendment was publicly known to all members prior and subsequent to the said
amendment; 10

(d) Shareholders’ meetingshad been held and the corporate acts complained of were
approved at shareholders’ meetings; 11

(e) Financial statements of SBGCCI had always been presented to shareholders justifiably
requesting copies; 12

(f) Green fees collected were reported in SBGCCI’s audited financial statements; 13
 (g) Any unpaid rentals are the obligation of UIGDC with SBMA and SBGCCI continued to
operate under a valid contract with the SBMA;  and
14

(h) SBGCCI’s Board of Directors was not guilty of any mismanagement and in fact the value
of members’ shares have increased. 15

Respondents further claimed by way ofdefense that petitioners failed (a) to show that it was
authorized by SBGSI to file the Complaint on the said corporation’s behalf; (b) to comply with the
requisites for filing a derivative suit and an action for receivership; and (c) to justify their prayer for
injunctive relief since the Complaint may be considered a nuisance or harassment suit under Section
1(b), Rule1 of the Interim Rules of Procedure for Intra-Corporate Controversies.  Thus, they prayed
16

for the dismissal of the Complaint.

On July 8, 2003, the RTC issued an Order dismissing the Complaint. The RTC held that the action is
a derivative suit, explaining thus:

The Court finds that this case is intended not only for the benefit of the two petitioners. This is
apparentfrom the caption of the case which reads Nestor Ching, Andrew Wellington and the Subic
Bay Golfers and Shareholders, Inc., for and in behalf of all its members as petitioners. This is also
shown in the allegations of the petition[.] x x x.

On the bases of these allegations of the petition, the Court finds that the case is a derivative suit.
Being a derivative suit in accordance with Rule 8 of the Interim Rules, the stockholders and
members may bring an action in the name of the corporation or association provided that he (the
minority stockholder) exerted all reasonable efforts and allege[d] the same with particularity in the
complaint to exhaust of (sic) all remedies available under the articles of incorporation, by-laws or
rules governing the corporation or partnership to obtain the reliefs he desires. An examination of the
petition does not show any allegation that the petitioners applied for redress to the Board of
Directors of respondent corporation there being no demand, oralor written on the respondents to
address their complaints. Neither did the petitioners appl[y] for redress to the stockholders of the
respondent corporation and ma[k]e an effort to obtain action by the stockholders as a whole.
Petitioners should have asked the Board of Directors of the respondent corporation and/or its
stockholders to hold a meeting for the taking up of the petitioners’ rights in this petition.
17

The RTC held that petitioners failed to exhaust their remedies within the respondent corporation
itself. The RTC further observed that petitioners Ching and Wellington were not authorized by their
co-petitioner Subic Bay Golfers and Shareholders Inc. to filethe Complaint, and therefore had no
personality to file the same on behalf ofthe said shareholders’ corporation. According to the RTC, the
shareholdings of petitioners comprised of two shares out of the 409 alleged outstanding shares or
0.24% is an indication that the action is a nuisance or harassment suit which may be dismissed
either motu proprio or upon motion in accordance with Section 1(b) of the Interim Rules of Procedure
for Intra-Corporate Controversies. 18

Petitioners Ching and Wellington elevated the case to the Court of Appeals, where it was docketed
as CA-G.R. CV No. 81441. On October 27, 2005, the Court of Appeals rendered the assailed
Decision affirming that of the RTC.

Hence, petitioners resort to the present Petition for Review, wherein they argue that the Complaint
they filed with the RTC was not a derivative suit. They claim that they filed the suit in their own right
as stockholders against the officers and Board of Directors of the corporation under Section 5(a) of
Presidential DecreeNo. 902-A, which provides:
Sec. 5. In addition tothe regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to
hear and decide cases involving:

(a) Devices or schemes employed by or any acts of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the stockholders, partners, members of
associations or organizations registered with the Commission.

According to petitioners, the above provision (which should be read in relation to Section 5.2 of the
Securities Regulation Code which transfers jurisdiction over such cases to the RTC) allows any
stockholder to file a complaint against the Board of Directors for employing devices or schemes
amounting to fraud and misrepresentation which is detrimental to the interest of the public and/or the
stockholders.

In the alternative, petitioners allege that if this Court rules that the Complaint is a derivative suit, it
should nevertheless reverse the RTC’s dismissal thereof on the ground of failure to exhaust
remedies within the corporation. Petitioners cite Republic Bank v. Cuaderno  wherein the Court
19

allowed the derivative suit even without the exhaustion of said remedies as it was futile to do so
since the Board ofDirectors were all members of the same family. Petitioners also point out that in
Cuadernothis Court held that the fact that therein petitioners had only one share of stock does not
justify the denial of the relief prayed for.

To refute the lower courts’ ruling that there had been non-exhaustion of intra-corporate remedies on
petitioners’ part, they claim that they filed in Court a case for Injunction docketed as Civil Case No.
103-0-01, to restrain the corporation from suspending their rights to use all the facilities of the club,
on the ground that the club cannot collect membership fees until they have completed the amenities
as advertised when the shares of stock were sold to them. They allegedly asked the Club to produce
the minutes of the meeting of the Board of Directors allowing the amendments of the Articles of
Incorporation and By-Laws. Petitioners likewise assail the dismissal of the Complaint for being a
harassment ornuisance suit before the presentation of evidence. They claim that the evidence they
were supposed to present will show that the members of the Board of Directors are not qualified
managers of a golf course.

We find the petition unmeritorious.

At the outset, it should be noted thatthe Complaint in question appears to have been filed only by the
two petitioners, namely Nestor Ching and Andrew Wellington, who each own one stock in the
respondent corporation SBGCCI. While the caption of the Complaint also names the "Subic Bay
Golfers and Shareholders Inc. for and in behalf of all its members," petitioners did not attach any
authorization from said alleged corporation or its members to file the Complaint. Thus, the Complaint
is deemed filed only by petitioners and not by SBGSI.

On the issue of whether the Complaint is indeed a derivative suit, we are mindful of the doctrine that
the nature of an action, as well as which court or body has jurisdiction over it, isdetermined based on
the allegations contained in the complaint of the plaintiff, irrespective of whether or not the plaintiff is
entitled to recover upon all or some of the claims asserted therein. 20

We have also held that the body rather than the title of the complaint determines the nature of an
action.21
In Cua, Jr. v. Tan,  the Court previously elaborated on the distinctions among a derivative suit,
22

anindividual suit, and a representative or class suit:

A derivative suit must be differentiated from individual and representative or class suits, thus:

"Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors

or other persons may be classified intoindividual suits, class suits, and derivative suits. Where a
stockholder or member is denied the right of inspection, his suit would be individual because the
wrong is done to him personally and not to the other stockholders or the corporation. Where the
wrong is done to a group of stockholders, as where preferred stockholders’ rights are violated, a
class or representative suitwill be proper for the protection of all stockholders belonging to the same
group. But where the acts complained of constitute a wrong to the corporation itself, the cause of
action belongs to the corporation and not to the individual stockholder or member. Although in most
every case of wrong to the corporation, each stockholder is necessarily affected because the value
of his interest therein would be impaired, this fact of itself is not sufficient to give him an individual
cause of action since the corporation is a person distinct and separate from him, and can and should
itself sue the wrongdoer. Otherwise, not only would the theory of separate entity be violated, but
there would be multiplicity of suits as well as a violation of the priority rights of creditors.
Furthermore,there is the difficulty of determining the amount of damages that should be paid to each
individual stockholder.

However, in cases of mismanagement where the wrongful acts are committed by the directors or
trustees themselves, a stockholder or member may find that he has no redress because the former
are vested by law with the right to decide whether or notthe corporation should sue, and they will
never be willing to sue themselves. The corporation would thus be helpless to seek remedy.
Because of the frequent occurrence of such a situation, the common law gradually recognized the
right of a stockholder to sue on behalf of a corporation in what eventually became known as a
"derivative suit." It has been proven to be an effective remedy of the minority against the abuses of
management. Thus, an individual stockholder is permitted to institute a derivative suit on behalf of
the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever
officials of the corporation refuse to sue orare the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as the nominal party, with the
corporation as the party in interest."

xxxx

Indeed, the Court notes American jurisprudence to the effect that a derivative suit, on one hand, and
individual and class suits, on the other, are mutually exclusive, viz.:

"As the Supreme Court has explained: "A shareholder’s derivative suit seeks to recover for the
benefit of the corporation and its whole body of shareholders when injury is caused to the
corporation that may not otherwise be redressed because of failureof the corporation to act. Thus,
‘the action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the
corporation, or to the whole body of its stock and property without any severance or distribution
among individual holders, or it seeks to recover assets for the corporation or to prevent the
dissipation of its assets.’ x x x. In contrast, "a directaction [is one] filed by the shareholder individually
(or on behalf of a classof shareholders to which he or she belongs) for injury to his or her interestas
a shareholder. x x x. [T]he two actions are mutually exclusive: i.e., the right of action and recovery
belongs to either the shareholders (direct action) *651 or the corporation(derivative action)." x x x.

Thus, in Nelson v. Anderson(1999), x x x, the **289 minority shareholder alleged that the other
shareholder of the corporation negligently managed the business, resulting in its total failure. x x x.
The appellate court concluded that the plaintiff could not maintain the suit as a direct action:
"Because the gravamen of the complaint is injury to the whole body of its stockholders, it was for the
corporation to institute and maintain a remedial action. x x x. A derivative action would have been
appropriate if its responsible officials had refused or failed to act." x x x. The court wenton to note
that the damages shown at trial were the loss of corporate profits. x x x. Since "[s]hareholders own
neither the property nor the earnings of the corporation," any damages that the plaintiff alleged that
resulted from such loss of corporate profits "were incidental to the injury to the corporation."
(Citations omitted.)

The reliefs sought in the Complaint, namely that of enjoining defendants from acting as officers and
Board of Directors of the corporation, the appointment of a receiver, and the prayer for damages in
the amount of the decrease in the value of the sharesof stock, clearly show that the Complaint was
filed to curb the alleged mismanagement of SBGCCI. The causes of action pleaded by petitioners do
not accrue to a single shareholder or a class of shareholders but to the corporation itself.

However, as minority stockholders, petitioners do not have any statutory right to override the
business judgments of SBGCCI’s officers and Board of Directors on the ground of the latter’s alleged
lackof qualification to manage a golf course. Contraryto the arguments of petitioners, Presidential
Decree No. 902-A, which is entitled REORGANIZATION OF THE SECURITIES AND EXCHANGE
COMMISSION WITH ADDITIONAL POWERS AND PLACING THE SAID AGENCY UNDER THE
ADMINISTRATIVE SUPERVISION OF THE OFFICE OF THE PRESIDENT, does not grant minority
stockholders a cause of action against waste and diversion by the Board of Directors, but merely
identifies the jurisdiction of the SEC over actionsalready authorized by law or jurisprudence. It is
settled that a stockholder’s right to institute a derivative suit is not based on any express provisionof
the Corporation Code, or even the Securities Regulation Code, but is impliedly recognized when the
said laws make corporate directors or officers liable for damages suffered by the corporation and its
stockholders for violation of their fiduciary duties.
23

At this point, we should take note that while there were allegations in the Complaint of fraud in their
subscription agreements, such as the misrepresentation of the Articles of Incorporation, petitioners
do not pray for the rescission of their subscription or seekto avail of their appraisal rights. Instead,
they ask that defendants be enjoined from managing the corporation and to pay damages for their
mismanagement. Petitioners’ only possible cause of action as minority stockholders against the
actions of the Board of Directors is the common law right to file a derivative suit. The legal standing
of minority stockholders to bring derivative suits is not a statutory right, there being no provision in
the Corporation Code or related statutes authorizing the same, but is instead a product of
jurisprudence based on equity. However, a derivative suit cannot prosper without first complying with
the legal requisites for its institution.
24

Section 1, Rule 8 of the Interim Rules of Procedure Governing IntraCorporate Controversies

imposes the following requirements for derivative suits:

(1) He was a stockholder or member at the time the acts or transactions subject of the action
occurred and at the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint,
to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit.

The RTC dismissed the Complaint for failure to comply with the second and fourth requisites above.

Upon a careful examination of the Complaint, this Court finds that the same should not have been
dismissed on the ground that it is a nuisance or harassment suit. Although the shareholdings of
petitioners are indeed only two out of the 409 alleged outstanding shares or 0.24%, the Court has
held that it is enough that a member or a minority of stockholders file a derivative suit for and in
behalf of a corporation.25

With regard, however, to the second requisite, we find that petitioners failed to state with particularity
in the Complaint that they had exerted all reasonable efforts to exhaust all remedies available under
the articles of incorporation, by-laws, and laws or rules governing the corporation to obtain the relief
they desire. The Complaint contained no allegation whatsoever of any effort to avail of intra-
corporate remedies. Indeed, even if petitioners thought it was futile to exhaust intra-corporate
remedies, they should have stated the same in the Complaint and specified the reasons for such
opinion. Failure to do so allows the RTC to dismiss the Complaint, even motu proprio, in accordance
with the Interim Rules. The requirement of this allegation in the Complaint is not a useless formality
which may be disregarded at will.  We ruled in Yu v. Yukayguan :
1âwphi1
26

The wordings of Section 1, Rule8 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies are simple and do not leave room for statutory construction. The second paragraph
thereof requires that the stockholder filing a derivative suit should have exerted all reasonable efforts
to exhaust all remedies availableunder the articles of incorporation, by-laws, laws or rules governing
the corporation or partnership to obtain the relief he desires; and to allege such fact with
particularityin the complaint. The obvious intent behind the rule is to make the derivative suit the final
recourse of the stockholder, after all other remedies to obtain the relief sought had failed.

WHEREFORE, the Petition for Review is hereby DENIED. The Decision of the Court of Appeals in
CA-G.R. CV No. 81441 which affirmed the Order of the Regional Trial Court (RTC) of Olongapo City
dismissing the Complaint filed thereon by herein petitioners is AFFIRMED. SO ORDERED.

G.R. No. 175514               February 14, 2011

PHILIPPINE BANK OF COMMUNICATIONS, Petitioner,

vs.
SPOUSES JOSE C. GO and ELVY T. GO, Respondents.

DECISION

MENDOZA, J.:

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 Counterclaim8 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 judgment9 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 order15 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 resolution20 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 119827 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 PBCom32 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
(Annexes "A" and "B" hereof) as he has paid only
three (3) installments on interests (sic) payments
covering the months of September, November and
December, 1999, on both promissory notes,
respectively. As a consequence of the default, the
entire balance due on the obligations of the
defendant to plaintiff on both promissory notes
immediately became due and demandable
pursuant to the terms and conditions embodied in
the two (2) promissory notes;48
8, 9, 10 and 11 of the Complaint;
xxx
8. The promissory notes 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 3o, 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 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 of
a need to do some accounting works just to
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.

G.R. No. L-9531             May 14, 1958

WARNER BARNES and CO., LTD., plaintiff-appellee,

vs.
GUILLERMO C. REYES, ET AL., defendants-appellants.

Ozaeta, Lichauco and Picazo for appellee.

Mariano M. de Joya for appellants.

PARAS, C.J.:

The plaintiff-appellee filed against the defendants-appellants an action for foreclosure of mortgage
on August 20, 1954. The deed of mortgage sued upon was attached to the complaint as Annex "A".
After having been granted an extension, the appellants filed an answer on September 30, 1954,
alleging:

1. That they admit paragraph 1 of the complaint;

2. That the defendants are without knowledge or information sufficient to form a belief as to
the truth of the material averments of the remainder of the complaint; and

3. That they hereby reserve the right to present an amended answer with special defenses
and counterclaim.

As the appellants did not file any amended answer, the appellee moved on November 15, 1954 for
judgment on the pleadings on the ground that the answer failed to tender an issue. The lower court
granted appellee's motion in the order dated December 28, 1954 and thereafter (on December 29,
1954) rendered judgment in favor of the appellee. In granting the motion for judgment on the
pleadings, the lower court held "that the denial by the defendants of the material allegations of the
complaint under the guise of lack of knowledge is a general denial so as to entitle the plaintiff to
judgment on the pleadings."

In the present appeal taken by the defendants, the question raised is whether the allegation of want
of knowledge or information as to the truth of the material averments of the complaint amounts to a
mere general denial warranting judgment on the pleadings or is sufficient to tender a triable issue.

Section 7 of Rule 9 of the Rules of court, in allowing the defendant to controvert material averments
not within his knowledge or information, provides that "where the defendant is without knowledge or
information sufficient to form a belief as to the truth of material averment, he shall so state and this
shall have the effect of a denial. This form of denial was explained in one case as follows:

Just as the explicit denials of an answer should be either general or specific, so all denials of
knowledge or information sufficient to form a belief should refer either generally to all the
averments of the complain" thus intended to be denied, or specifically to such as are to be
denied by that particular form of plea. The would be so definite and certain in its allegation
that the pleaders' adversary should not be left in doubt as to what is admitted, what is
denied, and what is covered by denials of knowledge or information sufficient to form a
belief. Under this form of denial employed by the defendant, it would be difficult, if not
impossible to convict him of perjury if it should transpire that some of his denials of
knowledge, etc., were false, for he could meet the charge by saying that his denials referred
only to matters of which he had in fact no knowledge or information. (Kirachbaum Eschmann,
98 NE 328, 329-330.).

This is a foreclosure suit. It is alleged that the severally indebted in the sum of P9,906.88, secured
by a mortgage. A copy of the mortgaged deed was attached and made a part of the complaint.
There are also allegations of partial payments, defaults in the payment of outstanding balance, and a
covenant to pay interest and attorney's fees. It is hard to believe that the appellants could not have
had knowledge or information as to the truth or falsity of any of said allegations. As a copy of the
deed of mortgage formed part of the complaint, it was easy for and within the power of the
appellants, for instance, to determine and so specifically allege in their answer whether or not they
had executed the alleged mortgage. The appellants could be aided in the matter by an inquiry or
verification as to its registration in the Registry of Deeds. "An unexplained denial of information and
belief of a matter of records, the means of information concerning which are within the control of the
pleader, on are readily accessible to him, is evasive and is insufficient to constitute an effective
denial. (41 Am. Juris., 399, citing Dahlstrom vs. Gemunder, 92, NE 106.)

It is noteworthy that the answer was filed after an extension granted by the lower court, and that
while a reservation was made to file an amended answer, no such pleading was presented. If these
show anything, it is that the appellants obviously did not have any defense or wanted to delay the
proceedings.

The form of denial adopted by the appellants, although allowed by the Rules of Court, must be
availed of with sincerity and in good faith,—certainly neither for the purpose of confusing the adverse
party as to what allegations of the complaint are really put in issue nor for, the purpose of delay.

. . . no court will permit its process to be trifled with and its intelligence affronted by the offer
of pleadings which any reasoning person knows can not possibly be true. . . ."The general
 rule that the Court is not bound to accept statements in pleadings which are, to the common
knowledge of all intelligent persons, untrue, applies just as well to the provisions of Rule 8(b),
28 U.S.C.A. following section 723c, as to pleadings under the, State statute." (Nieman vs.
Long, 51 F. Supp. 30, 31.)

This rule, specifically authorizing an answer that defendant has no knowledge or information
sufficient to form a belief his to the truth of an averment and giving such answer is not the
effect of a denial, does not apply where the fact as to which want of knowledge is asserted is
to the knowledge of the court as plainly and necessarily within the defendants knowledge
that his averment of ignorance must be palpably untrue. (Icle Plant Equipment Co. vs.
Martocello, D.C. Pa. 1941, 43 F. Supp. 281.)

Wherefore, the decision appealed from is hereby affirmed with costs against the appellants. So
ordered.

Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia,
and Felix, JJ., concur.

G.R. No. 87434 August 5, 1992

PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and TAGUM PLASTICS,

INC., petitioners,
vs.
SWEET LINES, INC., DAVAO VETERANS ARRASTRE AND PORT SERVICES, INC. and HON.
COURT OF APPEALS, respondents.

De Lara, De Lunas & Rosales for petitioners.

Carlo L. Aquino for Sweet Lines, Inc.

REGALADO, J.:

A maritime suit   was commenced on May 12, 1978 by herein Petitioner Philippine American General
1

Insurance Co., Inc. (Philamgen) and Tagum Plastics, Inc. (TPI) against private respondents Sweet
Lines, Inc. (SLI) and Davao Veterans Arrastre and Port Services, Inc. (DVAPSI), along with S.C.I.
Line (The Shipping Corporation of India Limited) and F.E. Zuellig, Inc., as co-defendants in the
court a quo, seeking recovery of the cost of lost or damaged shipment plus exemplary damages,
attorney's fees and costs allegedly due to defendants' negligence, with the following factual
backdrop yielded by the findings of the court below and adopted by respondent court:

It would appear that in or about March 1977, the vessel SS "VISHVA YASH"
belonging to or operated by the foreign common carrier, took on board at Baton
Rouge, LA, two (2) consignments of cargoes for shipment to Manila and later for
transhipment to Davao City, consisting of 600 bags Low Density Polyethylene 631
and another 6,400 bags Low Density Polyethylene 647, both consigned to the order
of Far East Bank and Trust Company of Manila, with arrival notice to Tagum Plastics,
Inc., Madaum, Tagum, Davao City. Said cargoes were covered, respectively, by Bills
of Lading Nos. 6 and 7 issued by the foreign common carrier (Exhs. E and F). The
necessary packing or Weight List (Exhs. A and B), as well as the Commercial
Invoices (Exhs. C and D) accompanied the shipment. The cargoes were likewise
insured by the Tagum Plastics Inc. with plaintiff Philippine American General
Insurance Co., Inc., (Exh. G).

In the course of time, the said vessel arrived at Manila and discharged its cargoes in
the Port of Manila for transhipment to Davao City. For this purpose, the foreign
carrier awaited and made use of the services of the vessel called M/V "Sweet Love"
owned and operated by defendant interisland carrier.

Subject cargoes were loaded in Holds Nos. 2 and 3 of the interisland carrier. These
were commingled with similar cargoes belonging to Evergreen Plantation and also
Standfilco.

On May 15, 1977, the shipment(s) were discharged from the interisland carrier into
the custody of the consignee. A later survey conducted on July 8, 1977, upon the
instance of the plaintiff, shows the following:

Of the cargo covered by Bill of Lading No. 25 or (2)6, supposed to contain 6,400
bags of Low Density Polyethylene 647 originally inside 160 pallets, there were
delivered to the consignee 5,413 bags in good order condition. The survey shows
shortages, damages and losses to be as follows:

Undelivered/Damaged bags as tallied during discharge from vessel-

173 bags; undelivered and damaged as noted and observed whilst
stored at the pier-699 bags; and shortlanded-110 bags (Exhs. P and
P-1).

Of the 600 bags of Low Density Polyethylene 631, the survey conducted on the
same day shows an actual delivery to the consignee of only 507 bags in good order
condition. Likewise noted were the following losses, damages and shortages, to wit:

Undelivered/damaged bags and tally sheets during discharge from

vessel-17 bags.

Undelivered and damaged as noted and observed whilst stored at the

pier-66 bags; Shortlanded-10 bags.

Therefore, of said shipment totalling 7,000 bags, originally contained in 175 pallets,
only a total of 5,820 bags were delivered to the consignee in good order condition,
leaving a balance of 1,080 bags. Such loss from this particular shipment is what any
or all defendants may be answerable to (sic).

As already stated, some bags were either shortlanded or were missing, and some of
the 1,080 bags were torn, the contents thereof partly spilled or were fully/partially
emptied, but, worse, the contents thereof contaminated with foreign matters and
therefore could no longer serve their intended purpose. The position taken by the
consignee was that even those bags which still had some contents were considered
as total losses as the remaining contents were contaminated with foreign matters
and therefore did not (sic) longer serve the intended purpose of the material. Each
bag was valued, taking into account the customs duties and other taxes paid as well
as charges and the conversion value then of a dollar to the peso, at P110.28 per bag
 (see Exhs. L and L-1 M and O).  2

Before trial, a compromise agreement was entered into between petitioners, as plaintiffs, and
defendants S.C.I. Line and F.E. Zuellig, upon the latter's payment of P532.65 in settlement of the
claim against them. Whereupon, the trial court in its order of August 12, 1981   granted plaintiffs' 3

motion to dismiss grounded on said amicable settlement and the case as to S.C.I. Line and F.E.
Zuellig was consequently "dismissed with prejudice and without pronouncement as to costs."

The trial court thereafter rendered judgment in favor of herein petitioners on this dispositive portion:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Philippine

General American Insurance Company Inc. and against the remaining defendants,
Sweet Lines Inc. and Davao Veterans Arrastre Inc. as follows:

Defendant Sweet Lines, Inc. is ordered to pay said plaintiff the sum of P34,902.00,
with legal interest thereon from date of extrajudicial demand on April 28, 1978 (Exh.
M) until fully paid;

Defendant Sweet Lines Inc. and Davao Veterans Arrastre and (Port) Services Inc.
are directed to pay jointly and severally, the plaintiff the sum of P49,747.55, with
legal interest thereon from April 28, 1978 until fully paid;

Each of said defendants are ordered to pay the plaintiffs the additional sum of
P5,000 is reimbursable attorney's fees and other litigation expenses;

Each of said defendants shall pay one-fourth (1/4) costs.  4

Due to the reversal on appeal by respondent court of the trial court's decision on the ground of
prescription,   in effect dismissing the complaint of herein petitioners, and the denial of their motion
5

for reconsideration,   petitioners filed the instant petition for review on certiorari, faulting respondent
6

appellate court with the following errors: (1) in upholding, without proof, the existence of the so-
called prescriptive period; (2) granting arguendo that the said prescriptive period does exist, in not
finding the same to be null and void; and (3) assuming arguendo that the said prescriptive period is
valid and legal, in failing to conclude that petitioners substantially complied therewith.  7

Parenthetically, we observe that herein petitioners are jointly pursuing this case, considering their
common interest in the shipment subject of the present controversy, to obviate any question as to
who the real party in interest is and to protect their respective rights as insurer and insured. In any
case, there is no impediment to the legal standing of Petitioner Philamgen, even if it alone were to
sue herein private respondents in its own capacity as insurer, it having been subrogated to all rights
of recovery for loss of or damage to the shipment insured under its Marine Risk Note No. 438734
dated March 31, 1977 8 in view of the full settlement of the claim thereunder as evidenced by the subrogation receipt   issued in its
9

favor by Far East Bank and Trust Co., Davao Branch, for the account of petitioner TPI.

Upon payment of the loss covered by the policy, the insurer's entitlement to subrogation pro tanto,
being of the highest equity, equips it with a cause of action against a third party in case of
contractual breach.   Further, the insurer's subrogatory right to sue for recovery under the bill of
10

lading in case of loss of or damage to the cargo is jurisprudentially upheld.   However, if an insurer,
11

in the exercise of its subrogatory right, may proceed against the erring carrier and for all intents and
purposes stands in the place and in substitution of the consignee, a fortiori such insurer is presumed
to know and is just as bound by the contractual terms under the bill of lading as the insured.
On the first issue, petitioners contend that it was error for the Court of Appeals to reverse the
appealed decision on the supposed ground of prescription when SLI failed to adduce any evidence
in support thereof and that the bills of lading said to contain the shortened periods for filing a claim
and for instituting a court action against the carrier were never offered in evidence. Considering that
the existence and tenor of this stipulation on the aforesaid periods have allegedly not been
established, petitioners maintain that it is inconceivable how they can possibly comply therewith.   In 12

refutation, SLI avers that it is standard practice in its operations to issue bills of lading for shipments
entrusted to it for carriage and that it in fact issued bills of lading numbered MD-25 and MD-26
therefor with proof of their existence manifest in the records of the case.   For its part, DVAPSI
13

insists on the propriety of the dismissal of the complaint as to it due to petitioners' failure to prove its
direct responsibility for the loss of and/or damage to the cargo.  14

On this point, in denying petitioner's motion for reconsideration, the Court of Appeals resolved that
although the bills of lading were not offered in evidence, the litigation obviously revolves on such bills
of lading which are practically the documents or contracts sued upon, hence, they are inevitably
involved and their provisions cannot be disregarded in the determination of the relative rights of the
parties thereto. 15

Respondent court correctly passed upon the matter of prescription, since that defense was so
considered and controverted by the parties. This issue may accordingly be taken cognizance of by
the court even if not inceptively raised as a defense so long as its existence is plainly apparent on
the face of relevant pleadings.   In the case at bar, prescription as an affirmative defense was
16

seasonably raised by SLI in its answer,   except that the bills of lading embodying the same were not
17

formally offered in evidence, thus reducing the bone of contention to whether or not prescription can
be maintained as such defense and, as in this case, consequently upheld on the strength of mere
references thereto.

As petitioners are suing upon SLI's contractual obligation under the contract of carriage as contained
in the bills of lading, such bills of lading can be categorized as actionable documents which under
the Rules must be properly pleaded either as causes of action or defenses,   and the genuineness
18

and due execution of which are deemed admitted unless specifically denied under oath by the
adverse party.   The rules on actionable documents cover and apply to both a cause of action or
19

defense based on said documents.  20

In the present case and under the aforestated assumption that the time limit involved is a
prescriptive period, respondent carrier duly raised prescription as an affirmative defense in its
answer setting forth paragraph 5 of the pertinent bills of lading which comprised the stipulation
thereon by parties, to wit:

5. Claims for shortage, damage, must be made at the time of delivery to consignee
or agent, if container shows exterior signs of damage or shortage. Claims for non-
delivery, misdelivery, loss or damage must be filed within 30 days from accrual. Suits
arising from shortage, damage or loss, non-delivery or misdelivery shall be instituted
within 60 days from date of accrual of right of action. Failure to file claims or institute
judicial proceedings as herein provided constitutes waiver of claim or right of action.
In no case shall carrier be liable for any delay, non-delivery, misdelivery, loss of
damage to cargo while cargo is not in actual custody of carrier.  21

In their reply thereto, herein petitioners, by their own assertions that —

2. In connection with Pars. 14 and 15 of defendant Sweet Lines, Inc.'s Answer,

plaintiffs state that such agreements are what the Supreme Court considers as
 contracts of adhesion (see Sweet Lines, Inc. vs. Hon. Bernardo Teves, et al., G.R.
No. L-37750, May 19, 1978) and, consequently, the provisions therein which are
contrary to law and public policy cannot be availed of by answering defendant as
valid defenses.  22

thereby failed to controvert the existence of the bills of lading and the aforequoted provisions therein,
hence they impliedly admitted the same when they merely assailed the validity of subject
stipulations.

Petitioners' failure to specifically deny the existence, much less the genuineness and due execution,
of the instruments in question amounts to an admission. Judicial admissions, verbal or written, made
by the parties in the pleadings or in the course of the trial or other proceedings in the same case are
conclusive, no evidence being required to prove the same, and cannot be contradicted unless shown
to have been made through palpable mistake or that no such admission was made.   Moreover,
23

when 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

Even granting that petitioners' averment in their reply amounts to a denial, it has the procedural
earmarks of what in the law on pleadings is called a negative pregnant, that is, a denial pregnant
with the admission of the substantial facts in the pleading responded to which are not squarely
denied. It is in effect an admission of the averment it is directed to.   Thus, while petitioners objected
25

to the validity of such agreement for being contrary to public policy, the existence of the bills of
lading and said stipulations were nevertheless impliedly admitted by them.

We find merit in respondent court's comments that petitioners failed to touch on the matter of the
non-presentation of the bills of lading in their brief and earlier on in the appellate proceedings in this
case, hence it is too late in the day to now allow the litigation to be overturned on that score, for to
do so would mean an over-indulgence in technicalities. Hence, for the reasons already advanced,
the non-inclusion of the controverted bills of lading in the formal offer of evidence cannot, under the
facts of this particular case, be considered a fatal procedural lapse as would bar respondent carrier
from raising the defense of prescription. Petitioners' feigned ignorance of the provisions of the bills of
lading, particularly on the time limitations for filing a claim and for commencing a suit in court, as
their excuse for non-compliance therewith does not deserve serious attention.

It is to be noted that the carriage of the cargo involved was effected pursuant to an "Application for
Delivery of Cargoes without Original Bill of Lading" issued on May 20, 1977 in Davao City   with the
26

notation therein that said application corresponds to and is subject to the terms of bills of lading MD-
25 and MD-26. It would be a safe assessment to interpret this to mean that, sight unseen, petitioners
acknowledged the existence of said bills of lading. By having the cargo shipped on respondent
carrier's vessel and later making a claim for loss on the basis of the bills of lading, petitioners for all
intents and purposes accepted said bills. Having done so they are bound by all stipulations
contained therein.   Verily, as petitioners are suing for recovery on the contract, and in fact even
27

went as far as assailing its validity by categorizing it as a contract of adhesion, then they necessarily
admit that there is such a contract, their knowledge of the existence of which with its attendant
stipulations they cannot now be allowed to deny.

On the issue of the validity of the controverted paragraph 5 of the bills of lading above quoted which
unequivocally prescribes a time frame of thirty (30) days for filing a claim with the carrier in case of
loss of or damage to the cargo and sixty (60) days from accrual of the right of action for instituting an
action in court, which periods must concur, petitioners posit that the alleged shorter prescriptive
period which is in the nature of a limitation on petitioners' right of recovery is unreasonable and that
SLI has the burden of proving otherwise, citing the earlier case of Southern Lines, Inc. vs. Court of
Appeals, et al.   They postulate this on the theory that the bills of lading containing the same
28

constitute contracts of adhesion and are, therefore, void for being contrary to public policy,
supposedly pursuant to the dictum in Sweet Lines, Inc. vs. Teves, et al.  29

Furthermore, they contend, since the liability of private respondents has been clearly established, to
bar petitioners' right of recovery on a mere technicality will pave the way for unjust
enrichment.   Contrarily, SLI asserts and defends the reasonableness of the time limitation within
30

which claims should be filed with the carrier; the necessity for the same, as this condition for the
carrier's liability is uniformly adopted by nearly all shipping companies if they are to survive the
concomitant rigors and risks of the shipping industry; and the countervailing balance afforded by
such stipulation to the legal presumption of negligence under which the carrier labors in the event of
loss of or damage to the cargo.  31

It has long been held that Article 366 of the Code of Commerce applies not only to overland and
river transportation but also to maritime
transportation.   Moreover, we agree that in this jurisdiction, as viewed from another angle, it is more
32

accurate to state that the filing of a claim with the carrier within the time limitation therefor under
Article 366 actually constitutes a condition precedent to the accrual of a right of action against a
carrier for damages caused to the merchandise. The shipper or the consignee must allege and
prove the fulfillment of the condition and if he omits such allegations and proof, no right of action
against the carrier can accrue in his favor. As the requirements in Article 366, restated with a slight
modification in the assailed paragraph 5 of the bills of lading, are reasonable conditions precedent,
they are not limitations of action.   Being conditions precedent, their performance must precede a
33

suit for enforcement   and the vesting of the right to file spit does not take place until the happening
34

of these conditions.  35

Now, before an action can properly be commenced all the essential elements of the cause of action
must be in existence, that is, the cause of action must be complete. All valid conditions precedent to
the institution of the particular action, whether prescribed by statute, fixed by agreement of the
parties or implied by law must be performed or complied with before commencing the action, unless
the conduct of the adverse party has been such as to prevent or waive performance or excuse non-
performance of the condition.  36

It bears restating that a right of action is the right to presently enforce a cause of action, while a
cause of action consists of the operative facts which give rise to such right of action. The right of
action does not arise until the performance of all conditions precedent to the action and may be
taken away by the running of the statute of limitations, through estoppel, or by other circumstances
which do not affect the cause of action.   Performance or fulfillment of all conditions precedent upon
37

which a right of action depends must be sufficiently alleged,   considering that the burden of proof to
38

show that a party has a right of action is upon the person initiating the suit.  39

More particularly, where the contract of shipment contains a reasonable requirement of giving notice
of loss of or injury to the goods, the giving of such notice is a condition precedent to the action for
loss or injury or the right to enforce the carrier's liability. Such requirement is not an empty formalism.
The fundamental reason or purpose of such a stipulation is not to relieve the carrier from just liability,
but reasonably to inform it that the shipment has been damaged and that it is charged with liability
therefor, and to give it an opportunity to examine the nature and extent of the injury. This protects
the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh
and easily investigated so as to safeguard itself from false and fraudulent claims.  40

Stipulations in bills of lading or other contracts of shipment which require notice of claim for loss of or
damage to goods shipped in order to impose liability on the carrier operate to prevent the
enforcement of the contract when not complied with, that is, notice is a condition precedent and the
carrier is not liable if notice is not given in accordance with the stipulation,   as the failure to comply
41

with such a stipulation in a contract of carriage with respect to notice of loss or claim for damage
bars recovery for the loss or damage suffered.  42

On the other hand, the validity of a contractual limitation of time for filing the suit itself against a
carrier shorter than the statutory period therefor has generally been upheld as such stipulation
merely affects the shipper's remedy and does not affect the liability of the carrier. In the absence of
any statutory limitation and subject only to the requirement on the reasonableness of the stipulated
limitation period, the parties to a contract of carriage may fix by agreement a shorter time for the
bringing of suit on a claim for the loss of or damage to the shipment than that provided by the statute
of limitations. Such limitation is not contrary to public policy for it does not in any way defeat the
complete vestiture of the right to recover, but merely requires the assertion of that right by action at
an earlier period than would be necessary to defeat it through the operation of the ordinary statute of
limitations. 
43

In the case at bar, there is neither any showing of compliance by petitioners with the requirement for
the filing of a notice of claim within the prescribed period nor any allegation to that effect. It may then
be said that while petitioners may possibly have a cause of action, for failure to comply with the
above condition precedent they lost whatever right of action they may have in their favor or, token in
another sense, that remedial right or right to relief had prescribed. 44

The shipment in question was discharged into the custody of the consignee on May 15, 1977, and it
was from this date that petitioners' cause of action accrued, with thirty (30) days therefrom within
which to file a claim with the carrier for any loss or damage which may have been suffered by the
cargo and thereby perfect their right of action. The findings of respondent court as supported by
petitioners' formal offer of evidence in the court below show that the claim was filed with SLI only on
April 28, 1978, way beyond the period provided in the bills of lading   and violative of the contractual
45

provision, the inevitable consequence of which is the loss of petitioners' remedy or right to sue. Even
the filing of the complaint on May 12, 1978 is of no remedial or practical consequence, since the time
limits for the filing thereof, whether viewed as a condition precedent or as a prescriptive period,
would in this case be productive of the same result, that is, that petitioners had no right of action to
begin with or, at any rate, their claim was time-barred.

What the court finds rather odd is the fact that petitioner TPI filed a provisional claim with DVAPSI as
early as June 14, 1977   and, as found by the trial court, a survey fixing the extent of loss of and/or
46

damage to the cargo was conducted on July 8, 1977 at the instance of petitioners.   If petitioners
47

had the opportunity and awareness to file such provisional claim and to cause a survey to be
conducted soon after the discharge of the cargo, then they could very easily have filed the
necessary formal, or even a provisional, claim with SLI itself   within the stipulated period therefor,
48

instead of doing so only on April 28, 1978 despite the vessel's arrival at the port of destination on
May 15, 1977. Their failure to timely act brings us to no inference other than the fact that petitioners
slept on their rights and they must now face the consequences of such inaction.

The ratiocination of the Court of Appeals on this aspect is worth reproducing:

xxx xxx xxx

It must be noted, at this juncture, that the aforestated time limitation in the
presentation of claim for loss or damage, is but a restatement of the rule prescribed
under Art. 366 of the Code of Commerce which reads as follows:
 Art. 366. Within the twenty-four hours following the receipt of the
merchandise, the claim against the carrier for damage or average
which may be found therein upon opening the packages, may be
made, provided that the indications of the damage or average which
gives rise to the claim cannot be ascertained from the outside part of
the packages, in which case the claims shall be admitted only at the
time of the receipt.

After the periods mentioned have elapsed, or the transportation

charges have been paid, no claim shall be admitted against the
carrier with regard to the condition in which the goods transported
were delivered.

Gleanable therefrom is the fact that subject stipulation even lengthened the period for
presentation of claims thereunder. Such modification has been sanctioned by the
Supreme Court. In the case of Ong Yet (M)ua Hardware Co., Inc. vs. Mitsui
Steamship Co., Ltd., et al., 59 O.G. No. 17, p. 2764, it ruled that Art. 366 of the Code
of Commerce can be modified by a bill of lading prescribing the period of 90 days
after arrival of the ship, for filing of written claim with the carrier or agent, instead of
the 24-hour time limit after delivery provided in the aforecited legal provision.

Tested, too, under paragraph 5 of said Bill of Lading, it is crystal clear that the
commencement of the instant suit on May 12, 1978 was indeed fatally late. In view of
the express provision that "suits arising from
. . . damage or loss shall be instituted within 60 days from date of accrual of right of
action," the present action necessarily fails on ground of prescription.

In the absence of constitutional or statutory prohibition, it is usually

held or recognized that it is competent for the parties to a contract of
shipment to agree on a limitation of time shorter than the statutory
period, within which action for breach of the contract shall be brought,
and such limitation will be enforced if reasonable . . . (13 C.J.S. 496-
497)

A perusal of the pertinent provisions of law on the matter would disclose that there is
no constitutional or statutory prohibition infirming paragraph 5 of subject Bill of
Lading. The stipulated period of 60 days is reasonable enough for appellees to
ascertain the facts and thereafter to sue, if need be, and the 60-day period agreed
upon by the parties which shortened the statutory period within which to bring action
for breach of contract is valid and binding. . . . (Emphasis in the original text.) 
49

As explained above, the shortened period for filing suit is not unreasonable and has in fact been
generally recognized to be a valid business practice in the shipping industry. Petitioners' advertence
to the Court's holding in the Southern Lines case, supra, is futile as what was involved was a claim
for refund of excess payment. We ruled therein that non-compliance with the requirement of filing a
notice of claim under Article 366 of the Code of Commerce does not affect the consignee's right of
action against the carrier because said requirement applies only to cases for recovery of damages
on account of loss of or damage to cargo, not to an action for refund of overpayment, and on the
further consideration that neither the Code of Commerce nor the bills of lading therein provided any
time limitation for suing for refund of money paid in excess, except only that it be filed within a
reasonable time.
The ruling in Sweet Lines categorizing the stipulated limitation on venue of action provided in the
subject bill of lading as a contract of adhesion and, under the circumstances therein, void for being
contrary to public policy is evidently likewise unavailing in view of the discrete environmental facts
involved and the fact that the restriction therein was unreasonable. In any case, Ong Yiu vs. Court of
Appeals, et al.,   instructs us that "contracts of adhesion wherein one party imposes a ready-made
50

form of contract on the other . . . are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres he gives his consent." In the present case,
not even an allegation of ignorance of a party excuses non-compliance with the contractual
stipulations since the responsibility for ensuring full comprehension of the provisions of a contract of
carriage devolves not on the carrier but on the owner, shipper, or consignee as the case may be.

While it is true that substantial compliance with provisions on filing of claim for loss of or damage to
cargo may sometimes suffice, the invocation of such an assumption must be viewed vis-a-vis the
object or purpose which such a provision seeks to attain and that is to afford the carrier a reasonable
opportunity to determine the merits and validity of the claim and to protect itself against unfounded
impositions.   Petitioners' would nevertheless adopt an adamant posture hinged on the issuance by
51

SLI of a "Report on Losses and Damages," dated May 15, 1977,   from which petitioners theorize
52

that this charges private respondents with actual knowledge of the loss and damage involved in the
present case as would obviate the need for or render superfluous the filing of a claim within the
stipulated period.

Withal, it has merely to be pointed out that the aforementioned report bears this notation at the lower
part thereof: "Damaged by Mla. labor upon unloading; B/L noted at port of origin," as an explanation
for the cause of loss of and/or damage to the cargo, together with an iterative note stating that "(t)his
Copy should be submitted together with your claim invoice or receipt within 30 days from date of
issue otherwise your claim will not be honored."

Moreover, knowledge on the part of the carrier of the loss of or damage to the goods deducible from
the issuance of said report is not equivalent to nor does it approximate the legal purpose served by
the filing of the requisite claim, that is, to promptly apprise the carrier about a consignee's intention to
file a claim and thus cause the prompt investigation of the veracity and merit thereof for its
protection. It would be an unfair imposition to require the carrier, upon discovery in the process of
preparing the report on losses or damages of any and all such loss or damage, to presume the
existence of a claim against it when at that time the carrier is expectedly concerned merely with
accounting for each and every shipment and assessing its condition. Unless and until a notice of
claim is therewith timely filed, the carrier cannot be expected to presume that for every loss or
damage tallied, a corresponding claim therefor has been filed or is already in existence as would
alert it to the urgency for an immediate investigation of the soundness of the claim. The report on
losses and damages is not the claim referred to and required by the bills of lading for it does not fix
responsibility for the loss or damage, but merely states the condition of the goods shipped. The
claim contemplated herein, in whatever form, must be something more than a notice that the goods
have been lost or damaged; it must contain a claim for compensation or indicate an intent to claim.  53

Thus, to put the legal effect of respondent carrier's report on losses or damages, the preparation of
which is standard procedure upon unloading of cargo at the port of destination, on the same level as
that of a notice of claim by imploring substantial compliance is definitely farfetched. Besides, the
cited notation on the carrier's report itself makes it clear that the filing of a notice of claim in any case
is imperative if carrier is to be held liable at all for the loss of or damage to cargo.

Turning now to respondent DVAPSI and considering that whatever right of action petitioners may
have against respondent carrier was lost due to their failure to seasonably file the requisite claim, it
would be awkward, to say the least, that by some convenient process of elimination DVAPSI should
proverbially be left holding the bag, and it would be pure speculation to assume that DVAPSI is
probably responsible for the loss of or damage to cargo. Unlike a common carrier, an arrastre
operator does not labor under a presumption of negligence in case of loss, destruction or
deterioration of goods discharged into its custody. In other words, to hold an arrastre operator liable
for loss of and/or damage to goods entrusted to it there must be preponderant evidence that it did
not exercise due diligence in the handling and care of the goods.

Petitioners failed to pinpoint liability on any of the original defendants and in this seemingly wild
goose-chase, they cannot quite put their finger down on when, where, how and under whose
responsibility the loss or damage probably occurred, or as stated in paragraph 8 of their basic
complaint filed in the court below, whether "(u)pon discharge of the cargoes from the original
carrying vessel, the SS VISHVA YASH," and/or upon discharge of the cargoes from the interisland
vessel the MV "SWEET LOVE," in Davao City and later while in the custody of defendant arrastre
operator. 54

The testimony of petitioners' own witness, Roberto Cabato, Jr., Marine and Aviation Claims Manager
of petitioner Philamgen, was definitely inconclusive and the responsibility for the loss or damage
could still not be ascertained therefrom:

Q In other words, Mr. Cabato, you only computed the loss on the
basis of the figures submitted to you and based on the documents
like the survey certificate and the certificate of the arrastre?

A Yes, sir.

Q Therefore, Mr. Cabato, you have no idea how or where these

losses were incurred?

A No, sir.

x x x           x x x          x x x

Q Mr. Witness, you said that you processed and investigated the
claim involving the shipment in question. Is it not a fact that in your
processing and investigation you considered how the shipment was
transported? Where the losses could have occurred and what is the
extent of the respective responsibilities of the bailees and/or carriers
involved?

x x x           x x x          x x x

A With respect to the shipment being transported, we have of course

to get into it in order to check whether the shipment coming in to this
port is in accordance with the policy condition, like in this particular
case, the shipment was transported to Manila and transhipped
through an interisland vessel in accordance with the policy. With
respect to the losses, we have a general view where losses could
have occurred. Of course we will have to consider the different
bailees wherein the shipment must have passed through, like the
ocean vessel, the interisland vessel and the arrastre, but definitely at
that point and time we cannot determine the extent of each liability.
 We are only interested at that point and time in the liability as regards
the underwriter in accordance with the policy that we issued.

x x x           x x x          x x x

Q Mr. Witness, from the documents, namely, the survey of Manila

Adjusters and Surveyors Company, the survey of Davao Arrastre
contractor and the bills of lading issued by the defendant Sweet
Lines, will you be able to tell the respective liabilities of the bailees
and/or carriers concerned?

A No, sir. (Emphasis ours.)  55

Neither did nor could the trial court, much less the Court of Appeals, precisely establish the stage in
the course of the shipment when the goods were lost, destroyed or damaged. What can only be
inferred from the factual findings of the trial court is that by the time the cargo was discharged to
DVAPSI, loss or damage had already occurred and that the same could not have possibly occurred
while the same was in the custody of DVAPSI, as demonstrated by the observations of the trial court
quoted at the start of this opinion.

ACCORDINGLY, on the foregoing premises, the instant petition is DENIED and the dismissal of the
complaint in the court a quo as decreed by respondent Court of Appeals in its challenged judgment
is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur

G.R. No. L-26768 October 30, 1970

FAUSTINO GOJO, petitioner-appellant,
vs.
SEGUNDO GOYALA and ANTONINA ALMOGUERA, respondents-appellees.

Fernando P. Gerona, Sr. for petitioner-appellant.

Agustin Frivaldo for respondents-appellees.

BARREDO, J.:.

Appeal from the favorable decision of the Court of First Instance of Sorsogon on the counterclaim of
respondents (herein appellees) in its Civil Case No. 1657-84 — the complaint (petition) of therein
petitioner (herein appellant) having beet previously dismissed, without prejudice, for his failure to
submit an amended complaint as required of him in the court a quo's earlier order.

The record shows that on 26 May 1951, appellee Segundo, Goyala together with his now deceased
wife Antonina Almoguera, who was also named respondent or defendant in the complaint or petition
in the court below, sold to appellant by a "Deed of Pacto de Retro Sale" a certain parcel of
agricultural land having an area of approximately two and one-half hectares for P750.00, the
repurchase to be made, according to the deed, within one year. It also appears from said deed that
on July 4, 1951, the vendee paid another P100.00 as addition to the purchase price. About ten (10)
years after the execution of the said document, or on April 12, 1961, to be precise, the vendee filed
with the Court of First Instance of Sorsogon the present case against the vendors by way of a
petition for consolidation of ownership of the land described and involved in the "Deed of Pacto de
Retro Sale." In his petition, the vendee, herein appellant, alleged, inter alia, that the date for
repurchase, May 26, 1952, having expired and the vendors not having been able to repurchase the
same under the terms and conditions of the agreement, the ownership over the land involved had
become consolidated in him; and that for the purpose of recording in the Registry of Property the
said consolidation of ownership, it was necessary that a judicial order be issued to that effect and
accordingly prayed for such an order.

On May 26, 1961, appellee Segundo Goyala filed an opposition or answer to the petition. He therein
alleged that his wife Antonina Almoguera had died in the year 1959 and denied the allegation in the
petition regarding the pacto de retro sale, "the fact of the matter being," according to him, "that on
May 26, 1951, the respondents obtained a cash load of P750.00 from the petitioner payable in one
year without interest; that only on July 26, 1951, Dolores Goyala, daughter of the respondents,
obtained from the petitioner the sum of P50.00 to be added and credited to the account of the
respondents; and then on August 25, 1951, the said Dolores Goyala received from the petitioner
another amount of P10.00 to be added to and credited to the account of the respondents, (so that)
the total loan of the respondents from the petitioner aggregates P810.00 Philippine Currency" and
that to guarantee the payment of the said loan, the respondents executed a mortgage in favor of the
petitioner on a parcel of coconut land described in Annex A of the petition, hence, altho the deed
was executed or drawn in the form of a pacto de retro sale, the true and real intention of the parties
thereto was that the same was a mere mortgage to secure the payment of the original loan of
P750.00 together with the additional amount received thereafter, making a total loan of P810.00,
payable within, one year without interest. He further alleged that in the evening of May 26, 1952, he
and his wife went to the house of the petitioner and tendered to him the sum of P810.00 to pay the
debt, but said petitioner refused to receive the same and to cancel the document of mortgage,
Annex A. The said appellee also reiterated by way of counterclaim the foregoing allegations of his
answer and prayed thus:.

WHEREFORE, the respondent Segundo Goyala respectfully prays this Honorable

Court to dismiss the petition and render judgment in favor of the respondents as
follows:.

(a) Ordering the petitioner to receive the sum of P810.00 tendered or

deposited by the respondents in full settlement of their debts to him;

(b) Declaring the document marked Annex A of the petition to be

mortgage and not a pacto de retro sale, and ordering the same
cancelled and with no more force and effect;

(c) Ordering the petitioner to pay the respondents the sum of

P1,800.00 per annum beginning May 26, 1951 until the final
termination of this case as the reasonable monetary value of the
products for the said property, and from this amount, there should be
deducted however, the corresponding legal interest annually on said
loans; and

(d) In case, however, of the remote possibility that this Court should
 find the said instrument (Annex A) to be a true pacto de retro sale,
and not a mere mortgage, it is hereby prayed that the petitioner be
ordered to execute a deed of resale or repurchase of said property in
favor of the respondents in accordance with Art. 1606 third paragraph
of the Civil Code."

On December 1, 1962, counsel for respondent Goyala filed a manifestation informing the trial court
that the named defendant (respondent) Antonina Almoguera was already dead, she having died at
Labo, Camarines Norte on March 27, 1959, and that her surviving nearest kin are her children,
namely: Leonor, Pedro, Juliana, Dolores, Valentina, Soledad, Penya, Mamerta, Salvador, Genesa,
Felipe, Elegio — all surnamed Goyala — with residences at Bulan, Sorsogon. Hearing was had on
that manifestation, after which the trial court, under date of December 4, 1962, issued the following
order:.

As prayed for in the manifestation of Atty. Agustin Frivaldo counsel for the defendant,
dated December 1, 1962, on the ground stated therein, the counsel for the plaintiff is
hereby required to submit an amended Complaint substituting therein for one of the
defendants, Antonina Almoguera, now deceased her successors in interest as party
defendants, within the reglementary period.

Subsequently, on January 26, 1963, appellee Goyala filed a motion to dismiss the complaint or
petition on the ground that notwithstanding the lapse of 43 days after appellant's receipt of a copy of
the above-quoted order of the trial court, said appellant had failed and neglected to submit the
amended complaint required of him. The motion was opposed by appellant; and the trial court,
resolving the incident, issued the following order on February 15, 1963:.

The matter under consideration is the motion to dismiss filed by the defendants on
the ground that the plaintiff has failed and neglected to submit the amended
complaint as required in the order of this Court dated December 4, 1962, which the
plaintiff has received on December 18, 1962. From December 13, 1962 when the
motion to dismiss was filed, 43 days have elapsed. On February 6, 1963 when the
plaintiff has again failed to file together with said opposition the required amended
complaint, and although plaintiff has requested for a reasonable extension of time
within which to file the said pleading, it is regretable to state that up to the present
has neglected to do so.

WHEREFORE, the complaint is hereby dismissed without prejudice.

Thereafter, on July 10, 1963, appellee filed a motion to declare appellant in default in respect of said
appellee's counterclaim, contained in his answer (opposition) to the dismissed complaint petition) of
appellant. This motion was granted by the trial court in its order of July 11, 1963, to wit:.

Upon petition of the counsel for the defendant Segundo Goyala to declare the
plaintiff in default on the ground of failure on the part of the plaintiff to answer the
counterclaim filed by said defendant Segundo Goyala within the reglementary period,
despite the fact that the plaintiff's counsel was duly served with a copy thereof, and
the plaintiff's complaint was already dismissed by this Court in its order of February
15, 1963 on the ground of neglect to submit the amended complaint as required in
the Court order of December 4, 1962, the plaintiff is hereby declared in default on the
counterclaim filed by said defendant Segundo Goyala.

Let the defendant Segundo Goyala submit his evidence before the Clerk of Court,
 who is hereby commissioned to receive the same.

As directed in the order above-quoted, the Clerk of Court received the evidence of appellee in
respect of his counterclaim and, thereafter, on November 15, 1963 the trial court rendered favorable
judgment on appellee's counterclaim. The pertinent portions of the decision referred to read thus:.

It appears that on May 26, 1951, respondents obtained a loan of P750.00 from the
petitioner. To secure the loan, respondents executed a document, which was made a
Deed of Pacto de Retro Sale (Exh. "A"), on suggestion of petitioner to exempt
himself from liabilities under the Usury Law. Dolores Goyala, one of the daughters of
respondents, obtained an additional loan of P50.00 on July 26, 1951, (Exh. "A-1")
and another P10.00 on August 19, 1951, (Exh. "A-3") from the petitioner which
amounts were duly authorized and acknowledged by respondent Segundo Goyala. In
the late afternoon of May 26, 1952, the last day to redeem the property, Segundo
Goyala, tendered the amount of P810.00 to herein petitioner in complete payment of
the loan and to release the property securing the said loan, but was refused because
it was already night time, and was advised instead to return the following day. When
Segundo Goyala returned the following day to redeem the property he was told by
petitioner that the period to redeem has already expired. Segundo Goyala testified
further that he tried no less than three times to redeem the property but each time
petitioner refused the redemption money.

It appears further that the petitioner is in possession of the land since May 26, 1951,
after the execution of Exhibit "A" up to the present time and had appropriated to
himself the products during the period. It is shown further that the land is a productive
coconut land and has a fair market value of P5,000.00 with an annual yield of
P1,800.00.

The respondents are not however entitled to be reimbursed of the value of the
products obtained by the petitioner who acted in the belief that the agreement was a
Pacto de Retro Sale which turned out to be otherwise as the Court now so declares.

WHEREFORE, in view of the foregoing the Court hereby declares the Deed of Pacto
de Retro Sale (Exh. "A") an equitable mortgage and respondents Segundo Goyala
and the heirs of Antonina Almoguera are allowed to redeem the property; orders
Faustino Gojo to withdraw the amount of P810.00 deposited with the Clerk of Court
in full settlement of the loan, and hereby cancels and declares without force and
effect the aforementioned Deed of Pacto de Retro Sale executed by the spouses
Segundo Goyala and Antonina Almoguera in favor of Faustino Gojo. Without costs.

The above-quoted decision was subsequently amended in an order of December 19, 1963, as
follows:.

It appearing that in the dispositive part of the decision there was no directive to
restore the possession to the defendants upon execution, the dispositive portion of
the said decision is hereby amended to include therein an additional directive
ordering the plaintiff to deliver and restore the possession of the land in question to
the defendants.

Dissatisfied with the decision referred to, appellant appealed to the Court of Appeals which upon its
finding that the said appeal involves purely questions of law, certified the same to this Court for
resolution.
In his brief, appellant assigns the following errors allegedly committed by the trial court:.

1. THE LOWER COURT ERRED IN DECLARING PLAINTIFF IN DEFAULT WITH

RESPECT TO DEFENDANT'S COUNTERCLAIM;

2. THE LOWER COURT ERRED IN DEPUTIZING OR COMMISSIONING THE

CLERK OF COURT TO RECEIVE THE EVIDENCE OF THE DEFENDANT
SEGUNDO GOYALA;

3. THE LOWER COURT ERRED IN RENDERING JUDGMENT IN FAVOR OF THE

RESPONDENT SEGUNDO GOYALA AND THE HEIRS OF ANTONINA
ALMOGUERA ALLOWING THEM TO REDEEM THE LAND IN QUESTION FROM
THE PETITIONER FAUSTINO GOJO FOR THE SUM OF P810.00.

The thrust of appellant's argument in respect of the first assignment of error is to the effect that there
is no occasion for the trial court to declare him in default in respect of appellee's counterclaim in this
case, for the reasons that: (a) the said counterclaim "falls within the category of compulsory
counterclaim" which does not call for an independent answer as the complaint already denies its
material allegations; and (b) the dismissal of the complaint in this case without prejudice carried with
it the dismissal of the said counterclaim.

The first assignment of error of appellant is well taken. It is now settled that a plaintiff who fails or
chooses not to answer a compulsory counterclaim may not be declared in default, principally
because the issues raised in the counterclaim are deemed automatically joined by the allegations of
the complaint.1 In the instant case, there can be no doubt that appellant's counterclaim was a compulsory
one in as much as it arises out of or is necessarily connected with transaction or occurrence that is the
subject matter of the complaint; the complaint alleged that the right of appellee to repurchase the property
in question had already expired and asked for an order of consolidation; on the other hand, appellant's
counterclaim was for reformation of the deed claiming that it was only a mortgage. Thus the counterclaim
was clearly inconsistent with and directly controverted; the whole theory and basic allegations of the
complaint. In consequence, appellant's complaint stood as the answer to appellee's counterclaim; hence,
the incorrectness of the trial court's order declaring the appellant in default in regard to said counterclaim
is evident.

Regarding the dismissal of petitioner's complaint, We hold also, that the trial court committed
reversible error in ordering the same. It is true that under Section 3 of Rule 17, a complaint may be
dismissed for failure to prosecute if the plaintiff fails to comply with an order of the court, but it is
obvious that the said provision cannot apply when the order supposedly ignored is a void one, as in
this case. Here, the trial court ordered petitioner to amend the complaint only because it was
informed that one of the defendants had died, the court directing that the plaintiff should name the
heirs of the deceased as defendants in lieu of said deceased. Such an order runs counter to the
ruling of this Court in Caseñas vs. Resales, et al. 2 which is squarely applicable to the Situation herein obtaining. In that
case, We held:.

When certain of the parties to Civil Case No. 261 died and due notice thereof was
given to the trial court, it devolved on the said court to order, not the amendment of
the complaint, but the appearance of the legal representatives of the deceased in
accordance with the procedure and manner outlined in Rule 3, Section 17 of the
Rules of Court, which provide:.

"SECTION 17. Death of party. — After a party dies and the claim is

not thereby extinguished, the court shall order, upon proper notice,
 the legal representative of the deceased to appear and to be
substituted for the deceased, within a period of thirty (30) days, or
within such time as may be granted. If the legal representative fails to
appear within said time, the court may order the opposing party to
procure the appointment of a legal representative of the deceased
within a time to be specified by the court, and the representative shall
immediately appear for and on behalf of the interest of the deceased.
The court charges involved in procuring such appointment, if
defrayed by the opposing party, may be recovered as costs. The
heirs of the deceased may be allowed to be substituted for the
deceased, without requiring the appointment of an executor or
administrator and the court may appoint guardian ad litem for the
minor heirs."

In the case of Barrameda vs. Barbara, 90 Phil. 718, this Court held that an order to
amend the complaint, before the proper substitution of parties as directed by the
aforequoted rule has been effected, is void and imposes upon the plaintiff no duty to
comply therewith to the end that an order dismissing the said complaint, for such
non-compliance, would similarly be void. In a subsequent case, Ferriera, et al. vs.
Gonzales, et al., G.R. No. L-11567, July 17, 1958, this Court affirmed a similar
conclusion on the determination that the continuance of a proceedings during the
pendency of which a party thereto dies, without such party having been validly
substituted in accordance with the rules, amounts to a "lack of jurisdiction".

The facts of this case fit four square into the Barrameda case above-cited, save for
the minor variance that in the former two of the litigants died while only one
predeceased the case in Barrameda. Here, as in Barrameda, during the pendency of
(the) civil case, notice was given to the trial court of the deaths of one of the plaintiffs
and one of the defendants in it. Instead of ordering the substitution of the deceased's
legal representatives in accordance with Rule 3, Sec. 17 of the Rules of Court, the
trial court directed the surviving plaintiff to amend the complaint and when the latter
failed to comply therewith, the said court dismissed the complaint for such non-
compliance. We must hold, therefore, as We did in Barrameda that inasmuch as
there was no obligation on the part of the plaintiff-appellant herein to amend his
complaint in Civil Case No. 261, any such imposition being void, his failure to comply
with such an order did not justify the dismissal of his complaint. Grounded as it was
upon a void order, the dismissal was itself void." (To the same effect, see World
Wide Insurance & Surety Co. v. Jose, etc., et al., 96 Phil. 45, 50).

Besides, in line with the principle underlying Sec. 2 of Rule 17, it is not proper to dismiss a complaint
when a compulsory counterclaim has been pleaded by defendant. The reason is obvious. Under the
cited provision, the right of the plaintiff to move for the dismissal of an action after the defendant has
filed his answer is qualified by the clause providing that: "If a counterclaim has been pleaded by a
defendant prior to the service upon him of the plaintiff's motion to dismiss, the action shall not be
dismissed against the defendant's objection unless the counterclaim can remain pending for
independent adjudication by the court." With this limitation, the power of the court to dismiss the
complaint upon motion of plaintiff, which is usually without prejudice, is not purely discretionary.3 The
purpose is to avoid multiplicity of suits over the same matter which would necessarily entail unnecessary
expense and, what is worse, possibility of conflict and inconsistency in the resolution of the same
questions. The same considerations would obtain, if the defendant were the one to ask for dismissal. The
best interests of justice require that conflicting claims regarding the same matter should be decided in one
single proceeding. Dismissing the complaint without prejudice, as the trial court has done in this case,
albeit upon motion of the defendant, will not prevent the undesirable multiplication of suits and
reventilation of the same issues in the subsequent action that may be filed by virtue of the reservation
made in the disputed order of dismissal.

Having arrived at the foregoing conclusions, it becomes unnecessary to discuss the other two
assigned errors.

WHEREFORE, the decision appealed from is set aside and this case is remanded to the court below
for further proceedings in consonance with the above opinion, with costs against appellee.

Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and Makasiar,
JJ., concur.

Villamor, J., took no part.

[G.R. No. 133119. August 17, 2000

FINANCIAL BUILDING CORPORATION,, Petitioner, v. FORBES

PARK ASSOCIATION, INC., Respondent.

DECISION

DE LEON, JR., J.:

Before us is petition for review on certiorari of the Decision1 dated

March 20, 1998 of the Court of Appeals2 in CA-GR CV No. 48194
entitled Forbes Park Association, Inc. vs. Financial Building
Corporation, finding Financial Building Corporation (hereafter,
Financial Building) liable for damages in favor of Forbes Park
Association, Inc. (hereafter, Forbes Park), for violating the latters
deed of restrictions on the construction of buildings within the
Forbes Park Village, Makati.

The pertinent facts are as follows:

The then Union of Soviet Socialist Republic (hereafter, USSR) was

the owner of a 4,223 square meter residential lot located at No. 10,
Narra Place, Forbes Park Village in Makati City. On December 2,
1985, the USSR engaged the services of Financial Building for the
construction of a multi-level office and staff apartment building at
the said lot, which would be used by the Trade Representative of
the USSR.3 Due to the USSRs representation that it would be
building a residence for its Trade Representative, Forbes Park
authorized its construction and work began shortly thereafter.
On June 30, 1986, Forbes Park reminded the USSR of existing
regulations4 authorizing only the construction of a single-family
residential building in each lot within the village. It also elicited a
reassurance from the USSR that such restriction has been complied
with.5 Promptly, the USSR gave its assurance that it has been
complying with all regulations of Forbes Park.6 Despite this,
Financial Building submitted to the Makati City Government a
second building plan for the construction of a multi-level apartment
building, which was different from the first plan for the construction
of a residential building submitted to Forbes Park.

Forbes Park discovered the second plan and subsequent ocular

inspection of the USSRs subject lot confirmed the violation of the
deed of restrictions. Thus, it enjoined further construction work. On
March 27, 1987, Forbes Park suspended all permits of entry for the
personnel and materials of Financial Building in the said
construction site. The parties attempted to meet to settle their
differences but it did not push through.

Instead, on April 9, 1987, Financial Building filed in the Regional

Trial Court of Makati, Metro Manila, a Complaint7 for Injunction and
Damages with a prayer for Preliminary Injunction against Forbes
Park docketed as Civil Case No. 16540. The latter, in turn, filed a
Motion to Dismiss on the ground that Financial Building had no
cause of action because it was not the real party-in-interest.

On April 28, 1987, the trial court issued a writ of preliminary

injunction against Forbes Park but the Court of Appeals nullified it
and dismissed the complaint in Civil Case No. 16540 altogether. We
affirmed the said dismissal in our Resolution,8 promulgated on April
6, 1988, in G.R. No. 79319 entitled Financial Building Corporation,
et al. vs. Forbes Park Association, et al.

After Financial Buildings case, G.R. No. 79319, was terminated with
finality, Forbes Park sought to vindicate its rights by filing on
October 27, 1989 with the Regional Trial Court of Makati a
Complaint9 for Damages, against Financial Building, docketed as
Civil Case No. 89-5522, arising from the violation of its rules and
regulations. The damages claimed are in the following amounts: (a)
P3,000,000.00 as actual damages; (b) P1,000,000.00 as moral
damages; (c) P1,000,000.00 as exemplary damages; and (d)
P1,000,000.00 as attorneys fees.10 On September 26, 1994, the
trial court rendered its Decision11 in Civil Case No. 89-5522 in favor
of Forbes Park and against Financial Building, the dispositive portion
of which reads, to wit:

WHEREFORE, in view of the foregoing, the Court hereby renders

judgment in favor of the plaintiff and against the defendant:

(1) Ordering the defendant to remove/demolish the illegal

structures within three (3) months from the time this judgment
becomes final and executory, and in case of failure of the defendant
to do so, the plaintiff is authorized to demolish/remove the
structures at the expense of the defendant;

(2) Ordering the defendant to pay damages, to wit:

(a) P3,000,000.00 as actual damages by way of

demolition expenses;

(b) P1,000,000.00 as exemplary damages;

(c) P500,000.00 as attorneys fees;

(d) the costs of suit.

SO ORDERED.

Financial Building appealed the said Decision of the trial court in

Civil Case No. 89-5522 by way of a petition for review
on certiorari12 entitled Financial Building Corporation vs. Forbes Park
Association, Inc. to the Court of Appeals and docketed therein as
CA-GR CV No. 48194. However, the Court of Appeals affirmed it in
its Decision13 dated March 20, 1998, the dispositive portion of which
reads:

WHEREFORE, the Decision dated September 26, 1994 of the

Regional Trial Court of Makati is AFFIRMED with the modification
that the award of exemplary damages, as well as attorneys fees, is
reduced to fifty thousand pesos (P50,000.00) each.
Hence, this petition, wherein Financial Building assigns the following
errors:

I. THE COURT OF APPEALS GRAVELY ERRED IN NOT DISMISSING

THE COMPLAINT FILED BY RESPONDENT FPA DESPITE THE FACT
THAT ITS ALLEGED CLAIMS AND CAUSES OF ACTION THEREIN ARE
BARRED BY PRIOR JUDGMENT AND/OR ARE DEEMED WAIVED FOR
ITS FAILURE TO INTERPOSE THE SAME AS COMPULSORY
COUNTERCLAIMS IN CIVIL CASE NO. 16540;

II. THE COURT OF APPEALS GRAVELY ERRED IN NOT DISMISSING

THE COMPLAINT FILED BY RESPONDENT FPA AGAINST PETITIONER
FBC SINCE RESPONDENT FPA HAS NO CAUSE OF ACTION AGAINST
PETITIONER FBC;

III. THE COURT OF APPEALS GRAVELY ERRED IN AWARDING

DAMAGES IN FAVOR OF RESPONDENT FPA DESPITE THE FACT THAT
ON THE BASIS OF THE EVIDENCE ON RECORD, RESPONDENT FPA
IS NOT ENTITLED THERETO AND PETITIONER FBC IS NOT LIABLE
THEREFOR;

IV. THE COURT OF APPEALS ERRED IN ORDERING THE

DEMOLITION OF THE ILLEGAL STRUCTURES LOCATED AT NO. 10
NARRA PLACE, FORBES PARK, MAKATI CITY, CONSIDERING THAT
THE SAME ARE LOCATED ON DIPLOMATIC PREMISES14 cräläwvirtualibräry

We grant the petition.

First. The instant case is barred due to Forbes Parks failure to set it
up as a compulsory counterclaim in Civil Case No. 16540, the prior
injunction suit initiated by Financial Building against Forbes Park.

A compulsory counterclaim is one which arises out of or is

necessarily connected with the transaction or occurrence that is the
subject matter of the opposing partys claim.15 If it is within the
jurisdiction of the court and it does not require for its adjudication
the presence of third parties over whom the court cannot acquire
jurisdiction, such compulsory counterclaim is barred if it is not set
up in the action filed by the opposing party.16cräläwvirtualibräry
Thus, a compulsory counterclaim cannot be the subject of a
separate action but it should instead be asserted in the same suit
involving the same transaction or occurrence, which gave rise to
it.17 To determine whether a counterclaim is compulsory or not, we
have devised the following tests: (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 defendants claim
absent the compulsory counterclaim rule? (3) Will substantially the
same evidence support or refute plaintiffs claim as well as the
defendants counterclaim? and (4) Is there any logielation between
the claim and the counterclaim? Affirmative answers to the above
queries indicate the existence of a compulsory counterclaim.18 cräläwvirtualibräry

Undoubtedly, the prior Civil Case No. 16540 and the instant case
arose from the same occurrence the construction work done by
Financial Building on the USSRs lot in Forbes Park Village. The
issues of fact and law in both cases are identical. The factual issue
is whether the structures erected by Financial Building violate
Forbes Parks rules and regulations, whereas the legal issue is
whether Financial Building, as an independent contractor working
for the USSR, could be enjoined from continuing with the
construction and be held liable for damages if it is found to have
violated Forbes Parks rules.

As a result of the controversy, Financial Building seized the initiative

by filing the prior injunction case, which was anchored on the
contention that Forbes Parks prohibition on the construction work in
the subject premises was improper. The instant case on the other
hand was initiated by Forbes Park to compel Financial Building to
remove the same structures it has erected in the same premises
involved in the prior case and to claim damages for undertaking the
said construction. Thus, the logielation between the two cases is
patent and it is obvious that substantially the same evidence is
involved in the said cases.

Moreover, the two cases involve the same parties. The aggregate
amount of the claims in the instant case is within the jurisdiction of
the regional trial court, had it been set up as a counterclaim in Civil
Case No. 16540. Therefore, Forbes Parks claims in the instant case
should have been filed as a counterclaim in Civil Case No. 16540.

Second. Since Forbes Park filed a motion to dismiss in Civil Case No.
16540, its existing compulsory counterclaim at that time is now
barred.

A compulsory counterclaim is auxiliary to the proceeding in the

original suit and derives its jurisdictional support therefrom.19 A
counterclaim presupposes the existence of a claim against the party
filing the counterclaim. Hence, where there is no claim against the
counterclaimant, the counterclaim is improper and it must
dismissed, more so where the complaint is dismissed at the instance
of the counterclaimant.20 In other words, if the dismissal of the main
action results in the dismissal of the counterclaim already filed, it
stands to reason that the filing of a motion to dismiss the complaint
is an implied waiver of the compulsory counterclaim because the
grant of the motion ultimately results in the dismissal of the
counterclaim.

Thus, the filing of a motion to dismiss and the setting up of a

compulsory counterclaim are incompatible remedies. In the event
that a defending party has a ground for dismissal and a compulsory
counterclaim at the same time, he must choose only one remedy. If
he decides to file a motion to dismiss, he will lose his compulsory
counterclaim. But if he opts to set up his compulsory counterclaim,
he may still plead his ground for dismissal as an affirmative defense
in his answer.21 The latter option is obviously more favorable to the
defendant although such fact was lost on Forbes Park.

The ground for dismissal invoked by Forbes Park in Civil Case No.
16540 was lack of cause of action. There was no need to plead such
ground in a motion to dismiss or in the answer since the same was
not deemed waived if it was not pleaded.22 Nonetheless, Forbes Park
still filed a motion to dismiss and thus exercised bad judgment in its
choice of remedies. Thus, it has no one to blame but itself for the
consequent loss of its counterclaim as a result of such choice.

Inasmuch as the action for damages filed by Forbes Park should be

as it is hereby dismissed for being barred by the prior judgment in
G.R. No. 79319 (supra) and/or deemed waived by Forbes Park to
interpose the same under the rule on compulsory counterclaims,
there is no need to discuss the other issues raised by the herein
petitioner.

WHEREFORE , the instant petition is hereby GRANTED and the

Decision dated March 20, 1998 of the Court of Appeals in CA-G.R.
CV No. 48194 is hereby REVERSED and SET ASIDE.

Costs against respondent Forbes Park Association, Inc. .

SO ORDERED.

G.R. No. L-46000 March 18, 1985

GLICERIO AGUSTIN (Deceased) as Administrator of the

Intestate Estate of Susana Agustin, petitioner-plaintiff-
appellant, vs. LAUREANO BACALAN and the PROVINCIAL
SHERIFF OF CEBU, respondents-defendants-appellees. chanrobles virtual law library

GUTIERREZ, JR., J.:

The precursor of this case was a complaint for ejectment with

damages filed by plaintiff-appellant Agustin, as adininistrator of the
Intestate Estate of Susana Agustin, against defendant-appellee
Bacalan, before the City Court of Cebu. chanroblesvirtualawlibrary chanrobles virtual law library

Bacalan is a lessee of a one-door ground floor space in a building

owned by the late Susana Agustin. Due to nonpayment of rentals
despite repeated demands an action to eject him was filed. chanroblesvirtualawlibrary chanrobles virtual law library

In his complaint, the plaintiff-appellant prayed that the defendant-

appellee be ordered to immediately vacate the place in question, to
pay plaintiff-appellant the sum of P2,300.00 representing
arrearages in rentals plus the corresponding rentals until he actually
vacates the place, attorney's fees, expenses, and costs. chanroblesvirtualawlibrary chanrobles virtual law library

In his answer, the defendant-appellee included a counter-claim

alleging that the present action was "clearly unfounded and devoid
of merits, as it is tainted with malice and bad faith on the part of
the plaintiff for the obvious reason that plaintiff pretty well knows
that defendant does not have any rentals in arrears due to the
estate of Susana Agustin, but notwithstanding this knowledge,
plaintiff filed the present action merely to annoy, vex, embarrass
and inconvenience the defendant." He stated, "That by virtue of the
unwarranted and malicious filing of this action by the plaintiff
against the defendant, the latter suffered, and will continue to
suffer, actual and moral damages in the amount of no less than
P50,000.00; P10,000.00 in concept of exemplary damages. In
addition, defendant has been compelled to retain the services of
undersigned counsel to resist plaintiffs' reckless, malicious and
frivolous claim and to protect and enforce his rights for which he
obligated himself to pay the further sum of P3,500.00 as attorney's
fees."chanrobles virtual law library

The City Court of Cebu subsequently rendered judgment dismissing

the counterclaim and ordering the defendant to vacate the premises
in question and to pay the plaintiff the sum of P3,887.10 as unpaid
back rentals and the sum of P150.00 as attorney's fees' From this
decision, the defendant filed an appeal with Branch Ill of the Court
of First Instance of Cebu. The case was designated as Civil Case No.
R-12430. chanroblesvirtualawlibrary chanrobles virtual law library

Availing of Republic Act 6031 which does away with trials de novo in
appeals before it, the Court of First Instance rendered a decision,
the dispositive portion of which reads:

WHEREFORE, based on all the foregoing considerations, the

appealed judgment is hereby set aside. Judgment is hereby required
in favor of the defendant- chanrobles virtual law library

1. Ordering the plaintiff to pay.

a) P10,000.00 as moral damages; chanrobles virtual law library

b) P5,000.00 as exemplary damages;  chanrobles virtual law library

c) P1,000.00 as attorney's fees; and

2. With costs against plaintiff. chanroblesvirtualawlibrary chanrobles virtual law library

JUDGMENT REVERSED.

No appeal was taken by the plaintiff-appellant. The decision lapsed

into finality and became executory. A writ of execution was issued
by virtue of which a notice to sell at public auction real properties
belonging to the estate of Susana Agustin was issued by the Deputy
Sheriff to satisfy judgment in the case. Plaintiff's counsel filed a
motion for reconsideration, confessing his fault and giving the
reason why he failed to perfect the appeal on time. The motion was
denied.chanroblesvirtualawlibrary chanrobles virtual law library

Thereafter, with the aid of new counsel, the plaintiff-appellant filed

a complaint with Branch V, Court of First Instance of Cebu, against
the defendant and the Deputy Sheriff of Cebu for the declaration of
the nullity of the above-cited decision of Branch III, Court of First
Instance of Cebu in the ejectment case on the ground that the
exercise of its appellate jurisdiction was null and void from the
beginning for the following reasons:

(a) It grants relief in the total sum of P16,000.00 (exclusive of

costs) distributed thus:

P10,000.00 as moral damages  chanrobles virtual law library

P5,000.00 as exemplary damages chanrobles virtual law library

P1,000.00 as attorney's fees

which is clearly beyond the jurisdiction of the City Court of Cebu;

Section 88 of the Judiciary Act of 1948, as amended by Rep. Acts
Nos. 2613 and 3828, limits the jurisdiction of the city courts in civil
cases to P10,000.00 as the maximum amount of the demand
(exclusive of interest and costs); chanrobles virtual law library

(b) Moreover, said Decision (Annex "G") grants moral damages to

the defendant in the sum of P10,000.00 which constitutes a grave
abuse of discretion amounting to lack of jurisdiction, there being no
evidence to support it and the subject matter of the suit in Civil
Case No. R-13504 being purely contractual where moral damages
are not recoverable.
A motion to dismiss was filed by the defendant on the grounds that
the plaintiff has no cause of action and that the court lacks
jurisdiction to declare the nullity of a decision of another branch of
the Court of First Instance of Cebu. chanroblesvirtualawlibrary chanrobles virtual law library

While rejecting the second ground for the motion to dismiss, the
court sustained the defendant and ruled:

Clearly from a reading of the complaint, the plaintiff seeks the

annulment of the decision rendered by the Third Branch of this
Court because the award exceeded the jurisdiction amount
cognizable by the City Court of Cebu and the said Branch III of this
Court has no jurisdiction to award the defendants herein (plaintiff in
Civil Case No. 12430) an amount more than P10,000.00; chanrobles virtual law library

It is the considered opinion of this Court that this allegation of the

herein plaintiff cannot be availed of as a ground for annulment of a
judgment. It may perhaps, or at most, be a ground for a petition for
certiorari. But then, the remedy should be availed of within the
reglementary period to appeal. Nevertheless, even if the plaintiff did
take his cause by certiorari, just the same, it would have been
futile....
chanroblesvirtualawlibrary chanrobles virtual law library

xxx xxx xxx chanrobles virtual law library

In fine, this Court believes that the present complaint fails to allege
a valid cause of action as the same is only a clear attempt at
utilizing the remedy for the annulment of the judgment rendered by
this Court in Civil Case No. 12430 to offset the adverse effects of
failure to appeal.

Plaintiff-appellant's motion for reconsideration was denied,

prompting him to file an appeal before the Court of Appeals, which,
in a resolution, certified the same to us on the ground that it
involves pure questions of law. chanroblesvirtualawlibrary chanrobles virtual law library

We ruled in Macabingkil v. People's Homesite and Housing

Corporation  (72 SCRA 326, citing Reyes v. Barretto-Datu, 94 Phil.
446, 448-449)-
Under our rules of procedure, the validity of a judgment or order of
the court, which has become final and executory, may he attacked
only by a direct action or proceeding to annul the same, or by
motion in another case if, in the latter case, the court had no
jurisdiction to enter the order or pronounce the judgment (section
44, Rule 39 of the Rules of Court). The first proceeding is a direct
attack against the order or judgment, because it is not incidental to,
but is the main object of, the proceeding. The other one is the
collateral attack, in which the purpose of the proceedings is to
obtain some relief, other than the vacation or setting aside of the
judgment, and the attack is only an incident. (I Freeman on
Judgments, sec. 306, pages 607-608.) A third manner is by a
petition for relief from the judgment order as authorized by the
statutes or by the rules, such as those expressly provided in Rule 38
of the Rules of Court, but in this case it is to be noted that the relief
is granted by express statutory authority in the same action or
proceeding in which the judgment or order was entered ...

The question is thus poised, whether or not the present action for
the annulment of the judgment in the ejectment case is the proper
remedy after it has become final and executory. chanroblesvirtualawlibrary chanrobles virtual law library

To this procedural dilemma, the solution lies in the determination of

the validity of the judgment sought to be annulled, for against a
void judgment, plaintiff-appellant's recourse would be proper. chanroblesvirtualawlibrary chanrobles virtual law library

There is no question as to the validity of the court's decision with

respect to the issue of physical possession of property, the
defendant-appellee's right to the same having been upheld.
However, the plaintiff-appellant assails the money judgment handed
down by the court which granted damages to the defendant-
appellee. By reason thereof, he seeks the declaration of the nullity
of the entire judgment. chanroblesvirtualawlibrary chanrobles virtual law library

It is the plaintiff-appellant's contention that moral damages may not

properly be awarded in ejectment cases, the only recoverable
damages therein being the reasonable compensation for use and
occupancy of the premises and the legal measure of damages being
the fair rental value of the property. chanroblesvirtualawlibrary chanrobles virtual law library
Plaintiff-appellant loses sight of the fact that the money judgment
was awarded the defendant-appellee in the concept of a
counterclaim. A defending party may set up a claim for money or
any other relief which he may have against the opposing party in a
counterclaim (Section 6, Rule 6, Revised Rules of Court). And the
court may, if warranted, grant actual, moral, or exemplary damages
as prayed for. The grant of moral damages, in the case at bar, as a
counterclaim, and not as damages for the unlawful detention of
property must be upheld. However, the amount thereof is another
matter.chanroblesvirtualawlibrary chanrobles virtual law library

Plaintiff-appellant raises the issue of whether or not the Court of

First Instance may, in an appeal, award the defendant-appellee's
counterclaim in an amount exceeding or beyond the jurisdiction of
the court of origin. chanroblesvirtualawlibrary chanrobles virtual law library

It is well-settled that a court has no jurisdiction to hear and

determine a set-off or counterclaim in excess of its jurisdiction
(Section 5, Rule 5, Revised Rules of Court; Ago v. Buslon, 10 SCRA
202). A counterclaim beyond the court's jurisdiction may only be
pleaded by way of defense, the purpose of which, however, is only
to defeat or weaken plaintiff's claim, but not to obtain affirmative
relief (Section 5, Rule 5, Revised Rules of Court). Nevertheless, the
defendant-appellee, in the case at bar, set up his claim in excess of
the jurisdiction of the city court as a compulsory counterclaim. What
is the legal effect of such a move? chanrobles virtual law library

Pertinent to our disposition of this question is our pronouncement in

the case of Hyson Tan, et al. v. Filipinas Compania de Seguros, et
al.,  (G.R. No. L-10096, March 23, 1956) later adopted in Pindangan
Agricultural Co., Inc. v. Dans  (6 SCRA 14) and the later case of
One Heart Club, Inc. v. Court of Appeals  (108 SCRA 416) to wit:

xxx xxx xxx chanrobles virtual law library

... An appellant who files his brief and submits his case to the Court
of Appeals for decision, without questioning the latter's jurisdiction
until decision is rendered therein, should be considered as having
voluntarily waives so much of his claim as would exceed the
jurisdiction of said Appellate Court; for the reason that a contrary
rule would encourage the undesirable practice of appellants
submitting their cases for decision to the Court of Appeals in
expectation of favorable judgment, but with intent of attacking its
jurisdiction should the decision be unfavorable. ...

Thus, by presenting his claim voluntarily before the City Court of

Cebu, the defendant-appellee submitted the same to the jurisdiction
of the court. He became bound thereby. The amount of P10,000.00
being the jurisdictional amount assigned the City Court of Cebu,
whose jurisdiction the defendant-appellee has invoked, he is
thereby deemed to have waived the excess of his claim beyond
P10,000.00. It is as though the defendant-appellee had set up a
counterclaim in the amount of P10,000.00 only. May the Court of
First Instance then, on appeal, award defendant-appellee's
counterclaim beyond that amount? chanrobles virtual law library

The rule is that a counterclaim not presented in the inferior court

cannot be entertained in the Court of First Instance on appeal
(Francisco, The Revised Rules of Court in the Philippines, Vol. III, p.
26, citing the cases of Bernardo v. Genato, 11 Phil. 603 and Yu Lay
v. Galmes, 40 Phil. 651). As explained in Yu Lay v. Galmes- "Upon
an appeal to a court of first instance from the judgment of a justice
of the peace, it is not possible, without changing the purpose of the
appeal, to alter the nature of the question raised by the complaint
and the answer in the original action. There can be no doubt,
therefore, of the scope of the doctrine laid down in the several
decisions of the Court. Consequently, We hold that, upon an appeal
to the Court of First Instance, the plaintiff as well as the defendant
cannot file any pleading or allegation which raises a question
essentially distinct from that raised and decided in the justice of the
peace court. "This rule was reiterated in cases from Ng Cho Cio v.
Ng Diong  (1 SCRA 275) to Development Bank of the Philippines v.
Court of Appeals  (116 SCRA 636). chanroblesvirtualawlibrary chanrobles virtual law library

Thus, the defendant-appellee's counterclaim beyond P10,000.00,

the jurisdictional amount of the city Court of Cebu, should be
treated as having been deemed waived. It is as though it has never
been brought before trial court. It may not be entertained on
appeal.chanroblesvirtualawlibrary chanrobles virtual law library
The amount of judgment, therefore, obtained by the defendant-
appellee on appeal, cannot exceed the jurisdiction of the court in
which the action began. Since the trial court did not acquire
jurisdiction over the defendant's counterclaim in excess of the
jurisdictional amount, the appellate court, likewise, acquired no
jurisdiction over the same by its decisions or otherwise. Appellate
jurisdiction being not only a continuation of the exercise of the same
judicial power which has been executed in the court of original
jurisdiction, also presupposes that the original and appellate courts
are capable of participating in the exercise of the same judicial
power (See 2 Am. Jur. 850; Stacey Cheese Company v. R.E. Pipkin,
Appt. 155 NC 394, 71 S.E. 442, 37 LRA 606) It is the essential
criterion of appellate jurisdiction that it revises and corrects the
proceedings in a cause already instituted, and does not create that
cause (See 2 Am. Jur 850 citing Marbury v. Madison, 1 Cranch US,
137, 2 L. ed. 60).chanroblesvirtualawlibrary chanrobles virtual law library

It is, of course, a well-settled rule that when court transcends the

limits prescribed for it by law and assumes to act where it has no
jurisdiction, its adjudications will be utterly void and of no effect
either as an estoppel or otherwise (Planas v. Collector of Internal
Revenue, 3 SCRA 395; Parades v. Moya, 61 SCRA 526). The Court
of First Instance, in the case at bar, having awarded judgment in
favor of the defendant-appellee in excess of its appellate jurisdiction
to the extent of P6,000.00 over the maximum allowable award of
P10,000.00, the excess is null and void and of no effect. Such being
the case, an action to declare the nullity of the award as brought by
the plaintiff-appellant before the Court of First Instance of Cebu,
Branch V is a proper remedy. chanroblesvirtualawlibrary chanrobles virtual law library

The nullity of such portion of the decision in question, however, is

not such as to affect the conclusions reached by the court in the
main case for ejectment. As held in Vda. de Pamintuan v. Tiglao  (53
Phil. 1) where the amount set up by the defendant was not proper
as a defense and it exceeded the inferior court's jurisdiction, it
cannot be entertained therein, but the court's jurisdiction over the
main action will remain unaffected. Consequently, the decision over
the main action, in the case at bar, must stand, best remembering
that a counter-claim, by its very nature, is a cause of action
separate and independent from the plaintiff's claim against the
defendant. chanroblesvirtualawlibrary chanrobles virtual law library

WHEREFORE, the decision of the Court of First Instance of Cebu,

Branch III in Civil Case No. R-12430 for ejectment is hereby
DECLARED NULL AND VOID insofar as it awards damages on the
defendant-appellee's counterclaim in excess of P6,000.00 beyond its
appellate jurisdiction. The decision in all other respects is
AFFIRMED. The order of the Court of First Instance of Cebu, Branch
V dismissing Civil Case No. R-13462 for declaration of nullity of
judgment with preliminary injunction is hereby MODIFIED, Civil
Case No. R-13462 is ordered DISMISSED insofar as the decision
sought to be annulled upholds the defendant's right to possession of
the disputed property. The defendant's counterclaim for damages is
GRANTED to the extent of TEN THOUSAND (P10,000.00) PESOS.
The grant of SIX THOUSAND (P6,000.00) PESOS in excess of such
amount is hereby declared NULL and VOID, for having been
awarded beyond the jurisdiction of the court. chanroblesvirtualawlibrary chanrobles virtual law library

SO ORDERED.
G.R. No. 136427               December 17, 2002

SONIA F. LONDRES, ARMANDO V. FUENTES, CHI-CHITA FUENTES QUINTIA, ROBERTO V.

FUENTES, LEOPOLDO V. FUENTES, OSCAR V. FUENTES and MARILOU FUENTES
ESPLANA Petitioners,
vs.
THE COURT OF APPEALS, THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, THE
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, ELENA ALOVERA SANTOS
and CONSOLACION ALIVIO ALOVERA, Respondents.

DECISION

CARPIO, J.:

Before us is a petition for review on certiorari of the March 17, 1997 Decision and the November 16,
1  2 

1998 Resolution of the Court of Appeals in CA-G.R. CV No. 35540 entitled "Londres vs.
3 

Alovera". The assailed decision affirmed the validity of the Absolute Sale dated April
24, 1959 vesting ownership of two parcels of land, Lots 1320 and 1333, to private respondents. The
same decision also ordered public respondents to pay just compensation to private respondents.
The questioned resolution denied the motion for reconsideration of petitioners.

The Antecedent Facts

The present case stemmed from a battle of ownership over Lots 1320 and 1333 both located in
Barrio Baybay, Roxas City, Capiz. Paulina Arcenas ("Paulina" for brevity) originally owned these two
parcels of land. After Paulina’s death, ownership of the lots passed to her daughter, Filomena VidaI
("Filomena" for brevity). The surviving children of Filomena, namely, Sonia Fuentes Londres ("Sonia"
for brevity), Armando V. Fuentes, Chi-Chita Fuentes Quintia, Roberto V. Fuentes, Leopoldo V.
Fuentes and Marilou Fuentes Esplana ("petitioners" for brevity) now claim ownership over Lots 1320
and 1333.

On the other hand, private respondents Consolacion Alivio Alovera ("Consolacion" for brevity) and
Elena Alovera Santos ("Elena" for brevity) anchor their right of ownership over Lots 1320 and 1333
on the Absolute Sale executed by Filomena on April 24, 1959 ("Absolute Sale" for brevity). Filomena
sold the two lots in favor of Consolacion and her husband, Julian Alovera ("Julian" for brevity). Elena
is the daughter of Consolacion and Julian (deceased).

On March 30, 1989, petitioners filed a complaint for the declaration of nullity of contract, damages
and just compensation. Petitioners sought to nullify the Absolute Sale conveying Lots 1320 and 1333
and to recover just compensation from public respondents Department of Public Works and
Highways ("DPWH" for brevity) and Department of Transportation and Communication ("DOTC" for
brevity). The case was raffled to the Regional Trial Court, Branch 18, Roxas City, Capiz and
docketed as Civil Case No. V-5668.

In their Complaint, petitioners claimed that as the surviving children of Filomena, they are the owners
of Lots 1320 and 1333. Petitioners claimed that these two lots were never sold to Julian. Petitioners
doubt the validity of the Absolute Sale because it was tampered. The cadastral lot number of the
second lot mentioned in the Absolute Sale was altered to read Lot 1333 when it was originally
written as Lot 2034. Petitioners pointed out that Lot 2034, situated in Barrio Culasi, Roxas City,
Capiz, was also owned by their grandmother, Paulina.

Petitioners alleged that it was only recently that they learned of the claim of private respondents
when Consolacion filed a petition for the judicial reconstitution of the original certificates of title of
Lots 1320 and 1333 with the Capiz Cadastre. Upon further inquiry, petitioners discovered that there
4 

exists a notarized Absolute Sale executed on April 24, 1959 registered only on September 22, 1982
in the Office of the Register of Deeds of Roxas City. The private respondents’ copy of the Absolute
Sale was tampered so that the second parcel of lot sold, Lot 2034 would read as Lot 1333. However,
the Records Management and Archives Office kept an unaltered copy of the Absolute Sale. This
other copy shows that the objects of the sale were Lots 1320 and 2034.

In their Answer, private respondents maintained that they are the legal owners of Lots 1333 and
1320. Julian purchased the lots from Filomena in good faith and for a valid consideration. Private
respondents explained that Julian was deaf and dumb and as such, was placed in a
disadvantageous position compared to Filomena. Julian had to rely on the representation of other
persons in his business transactions. After the sale, Julian and Consolacion took possession of the
lots. Up to now, the spouses’ successors-in-interest are in possession of the lots in the concept
owners. Private respondents claimed that the alteration in the Absolute Sale was made by Filomena
to make it conform to the description of the lot in the Absolute Sale. Private respondents filed a
counterclaim with damages.

The cross-claim of petitioners against public respondents was for the recovery of just compensation.
Petitioners claimed that during the lifetime of Paulina, public respondents took a 3,200-square meter
portion of Lot 1320. The land was used as part of the Arnaldo Boulevard in Roxas City without any
payment of just compensation. In 1988, public respondents also appropriated a 1,786-square meter
portion of Lot 1333 as a vehicular parking area for the Roxas City Airport. Sonia, one of the
petitioners, executed a deed of absolute sale in favor of the Republic of the Philippines over this
portion of Lot 1333. According to petitioners, the vendee agreed to pay petitioners P214,320.00.
Despite demands, the vendee failed to pay the stipulated amount.

Public respondents in their Answer raised the following defenses: (1) they have no capacity to sue
and be sued since they have no corporate personality separate and distinct from the Government;
(2) they cannot comply with their undertaking since ownership over the portions of land is disputed
by private respondents and until the issue of ownership is settled, petitioners have no cause of
action against public respondents; and (3) they are not proper parties since they were not parties to
the Absolute Sale sought to be nullified.

On May 28, 1991, the trial court issued its decision upholding the validity of the Absolute Sale. The
dispositive portion of the decision reads:

"IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered:

1. Declaring the Absolute Sale executed by Filomina Vidal in favor of spouses Julian Alovera
and Consolacion Alivio on April 24, 1959 over subject Lots 1320 and 1333 (Exh. 4) valid and
effective;

2. Declaring private defendants Consolacion Alivio Alovera and Elena Alovera Santos legal
owners of subject Lots 1320 and 1333;

3. Ordering public defendants Department of Public Works and Highways and Department of
Transportation and Communications to pay jointly and severally private defendants
Consolacion Alivio Alovera and Elena Alovera Santos just compensation of the 3,200-square
meter portion taken by the government from subject Lot 1320 used as part of the Arnaldo
Boulevard in Roxas City, and the 1,786-square meter portion also taken by the government
from subject Lot 1333 to be used as vehicle parking area of the Roxas City Airport; and

4. Ordering the dismissal of the complaint for lack of merit.

The cross-claim of private defendants against public defendants and private defendants’
counterclaim for damages against the plaintiffs are likewise ordered dismissed. Costs against
plaintiffs.

SO ORDERED." 5

Petitioners and private respondents appealed. On March 17, 1997, the Court of Appeals
promulgated its decision affirming the decision of the trial court, thus:

"PREMISES CONSIDERED, the decision appealed from is hereby AFFIRMED.

SO ORDERED." 6

On November 16, 1998, the Court of Appeals denied the respective motions for reconsideration of
petitioners and private respondents. The dispositive portion of the resolution reads:

"WHEREFORE, for lack of merit, the two motions for reconsideration are hereby DENIED.

SO ORDERED." 7
The Ruling of the Trial Court

The trial court ruled that the Absolute Sale is valid based on the following facts:

"First, the description of subject Lot 1333, as appearing in the Absolute Sale dated April 24, 1959
executed by Filomena Vidal in favor of spouses Julian Alovera and Consolacion Alivio (Exhs. 24 and
24-A), reads:

"2) A parcel of land (Lot No. 1333 of the Cadastral Survey of Capiz), with the improvements thereon,
situated in the Barrio of Baybay, Municipality of Capiz (now Roxas City). Bounded on the N. by the
property of Nemesio Fuentes; on the S. by the property of Rufo Arcenas; on the E. by the property of
Mateo Arcenas; and on the W. by the property of Valeriano Arcenas; containing an area of Eighteen
Thousand Five Hundred Fifty Seven (18,557) square meters, more or less. This parcel of land is all
rice land and the boundaries thereon are visible consisting of stone monuments erected thereon by
the Bureau of Lands. It is declared under Tax Dec. No. 336 in the name of Filomena Vidal and
assessed at P930.00."

In the Absolute Sale executed by the same parties on the same date, the above-quoted description
is the same except the lot number, i.e., instead of the figure "1333" what is written therein is the
figure "1320";

Second, subject Lot 1333 is situated in Barangay Baybay, Roxas City, whereas Lot 2034 which is
the second lot subject of the questioned absolute sale is situated in Barangay Culasi, Roxas City as
evidenced by a certified true/xerox copy of a sketch plan (Exh. 29) thereby indicating that said Lot
2034 in said Barangay Culasi (Exh. 29-A).

Third, Lot 2034 was previously owned by Jose Altavas (Exhs, 38 and 38-A) and later is owned in
common by Libertad Altavas Conlu, et al. (Exhs. 37 and 37-A) and there is no convincing evidence
showing that this lot was ever owned, at one time or another, by Paulina Arcenas or by Filomena
Vidal or by plaintiffs, or their predecessors-in-interest;

Fourth, the two lots have been the subject of the transactions made by their former owner, Filomena
Vidal, with some persons, including spouses Julian Alovera and defendant Consolacion Alivio;

Fifth, the subject two lots have been continuously worked on since the early 1950’s up to the present
by Alejandro Berlandino, and later by his son, Zosimo Berlandino, who were instituted therein as
tenants by Julian Alovera and the private defendants;

Sixth, these two lots have never been in the possession of the plaintiffs." 8

The trial court further noted that while petitioners and private respondents claimed that Lots 1320
and 1333 are titled, both failed to account for the certificates of title. The trial court then concluded
that there is merely a disputable presumption that Lots 1320 and 1333 are titled and covered by
certificates of title. The trial court further declared that ownership over the two lots can still be
acquired by ordinary prescription as in this case.

Private respondents and their predecessors-in-interest have been in continuous possession of Lots
1320 and 1333 for nearly 30 years in good faith and with just title. The tax declarations issued in the
name of Consolacion and the real estate taxes paid by private respondents are strong evidence of
ownership over Lots 1320 and 1333. Petitioners’ late filing of the complaint, 30 years after the
execution of the Absolute Sale or seven years after the registration of the same, was considered by
the trial court as laches.

The trial court gave more credence to the explanation of private respondents as to why the Absolute
Sale was altered. Consolacion noticed that the lot number of the second parcel of and sold to them
by Filomena under the Absolute Sale appeared to be "Lot 2034" and not "Lot 1333". Together with
her husband, Julian, Consolacion went to Filomena. It was Filomena who erased "Lot 2034" in the
deed of sale and changed it to "Lot 1333". However, the copies of the document in the custody of
the Notary Public were not correspondingly corrected. Consequently, the copies kept by the Records
Management and Archives Office still referred to the second parcel of land sold as "Lot 2034".

Based on its factual findings, the trial court held that private respondents are the legal owners of Lots
1320 and 1333. Private respondents are therefore entitled to just compensation for the portions of
land taken by public respondents from the two lots. However, the trial court ruled that private
respondents could not recover attorney’s fees since there was no indication that the complaint was
maliciously filed and intended to prejudice private respondents. The trial court held that petitioners
filed the action in good faith, believing that they were the real owners of the two lots.

The Ruling of the Court of Appeals

The Court of Appeals sustained the factual findings of the trial court, specifically the six points
enumerated by the trial court establishing Lots 1320 and 1333 as the objects of the Absolute Sale.
Applying Article 1370 of the Civil Code, the Court of Appeals agreed with the trial court that there
9 

could be no room for interpretation as to the intention of the parties on the objects of their contract.

The Court of Appeals upheld the ruling of the trial court that private respondents are not entitled to
attorney’s fees and damages. The Court of Appeals opined that while there might have been
incipient greed when the DPWH and DOTC notified petitioners of the just compensation from the
government, there was, however, no evidence that petitioners filed the complaint in bad faith. There
was nothing in the records to indicate that petitioners had actual or constructive knowledge of the
sale of the two lots to Julian. The document on file with the Records Management archives Office
alluded to a parcel of land denominated as Lot 2034 which is different from the property in question,
Lot 1333. It was only during the hearing of the case that it was made clear through the presentation
of evidence that the lot referred to in the Absolute Sale was Lot 1333, not Lot 2034, in addition to Lot
1320.

The Issues

Petitioners thus interposed this appeal, raising the following errors allegedly committed by the Court
of Appeals:

"I.

THE COURT OF APPEALS ACTED WITH PATENT GRAVE ABUSE OF DISCRETION IN NOT
REVERSING THE DECISION OF THE TRIAL COURT, INSOFAR AS IT DECLARED VALID AND
EFFECTIVE AN ABSOLUTE SALE", PURPORTEDLY EXECUTED BY FILOMENA VIDAL,
PREDECESSOR-IN-INTEREST OF PETITIONERS, IN FAVOR OF PRIVATE RESPONDENT
CONSOLACION ALIVIO AND HER SPOUSE, JULIAN ALOVERA, ON 24 APRIL 1959, OVER
SUBJECT LOTS 1320 AND 1333.

II.
THE COURT OF APPEALS ACTED WITH PATENT GRAVE ABUSE OF DISCRETION IN NOT
REVERSING THE DECISION OF THE TRIAL COURT, INSOFAR AS IT DECLARED PRIVATE
RESPONDENTS "LEGAL OWNERS OF SUBJECT LOTS 1320 AND 1333".

III.

THE COURT OF APPEALS ACTED WITH PATENT GRAVE ABUSE OF DISCRETION IN NOT
REVERSING THE DECISION OF THE TRIAL COURT, INSOFAR AS IT RULED THAT THE
COMPENSATION FOR PORTIONS OF THE SUBJECT LOTS TAKEN BY THE PUBLIC
RESPONDENTS BE PAID TO THE PRIVATE RESPONDENTS AND NOT TO THE PETITIONERS.

IV.

THE COURT OF APPEALS ACTED WITH PATENT GRAVE ABUSE OF DISCRETION IN NOT
REVERSING THE DECISION OF THE TRIAL COURT, INSOFAR AS IT DISMISSED THE
COMPLAINT IN CIVIL CASE NO. V-5668, RTC-ROXAS CITY, BRANCH 18." 10

The Court’s Ruling

At the outset, it must be pointed out that this petition was seasonably filed, contrary to private
respondents’ contention that it was filed one day late. Petitioners had until January 17, 1999 to file
this petition, which was a Sunday. Since the last day for filing this petition fell on a Sunday, the time
to file the petition would not have run until the next working day. Petitioners filed the petition the next
11 

working day, January 18, 1999. Plainly then, the petition was filed on time.

The petition, however, must fail on substantive grounds.

Petitioners implore the Court to declare the Absolute Sale void for failing to identify with certainty the
two parcels of land sold by Filomena, their mother, to private respondents. However, there is no
valid ground for annulling the Absolute Sale. The Absolute Sale is clear as to the first parcel of lot
sold, which is Lot 1320. What raises some doubt is the identity of the second parcel of lot sold, Is it
Lot 2034 as indicated in the registered copy of the Absolute Sale? Or is it Lot 1333 as made to
appear in the copy of the Absolute Sale of private respondents?

In civil cases, the party with the burden of proof must establish his case by a preponderance of
evidence. By "preponderance of evidence" is meant that the evidence as a whole adduced by one
12 

side is superior to that of the other. Petitioners have the burden of proving that Lot 2034 was the
13 

real object of the Absolute Sale and the alteration of the same instrument was unauthorized,
warranting the absolute nullification of the sale. The trial court and the Court of Appeals found the
evidence of private respondents far more convincing in explaining the alteration in their copy of the
Absolute Sale. Both courts ruled that the correction was made by the parties to reflect the true object
of the sale, which was Lot 1333, not Lot 2034. In arriving at this conclusion, the two courts
considered contemporaneous and subsequent acts that indicate that what Filomena actually sold to
private respondents were Lots 1320 and 1333. These factual findings are binding upon the Court. 14

As a rule, the appellate jurisdiction of the Court is limited only to question of law. There is a question
15 

of law in a given case when the doubt or difference arises as to what the law is given a certain set of
facts, and there is a question of fact when the doubt arises as to the truth or the falsity of the alleged
facts. No exceptional circumstances are present in this case that would justify a re-evaluation of the
16 

factual findings of the trial court and the Court of Appeals, findings that are duly supported by
evidence of record.
Petitioners insist that there is serious doubt as to the identity of the objects of the Absolute Sale
because the descriptions of Lots 1320 and 1333 in the Absolute Sale do not correspond to the
technical descriptions of the two lots as found by the Bureau of Lands. Petitioners direct the Court’s
attention to these discrepancies:

TECHNICAL DESCRIPTION 17
DESCRIPTION PER ABSOLUTE SALE

Lot 1320, Cad-I 33, 1) A parcel of land (Lot No. 1320 of the
Cadastral Survey of Capiz), with the
C-01 Capiz Cadastre, Ap-06-004023 improvements thereon, situated in the Barrio
of Baybay, Municipality of Capiz(now Roxas
A PARCEL OF LAND (Lot 1320, Cad-133, C- City).
01, Capiz Cadastre, Ap-06-004023, situated
in the barrio of Baybay, municipality of Capiz Bounded on the N. by the property of Matea
(Now Roxas City), province of Capiz, island Arcenas; on the S. by the property of Roque
of Panay. Severino; on the E. by the property of Matea
Arcenas; the W. by the property of Damaso
Bounded on the NE., along line 1-2 by Lot Arches;
1327; along line 2-3 by Lot 1328; along line
3-4 by Lot 1329; on the E., along line 4-5 by |
Lot 1326; on and the S., along line 5-6 by Lot
1325; along lines 6-7-8 by Lot 1321; on the |
W., along line 8-9 by Lot 1295; on the NW.,
along lines 9-10-11 by Lot 1319; along line |
11-12 by Lot 1318; along line 12-13 by Lot
1328; on the NE., along line 13-1 by Lot |
1327, all of Cad-133, Capiz Cadastre.
|
Beginning at point marked "1" on plan being
N. 88-28 W., 651.78 meters from BBM No.
|
12, Cad-133, Capiz Cadastre, thence
|
N. 85-01 E., 23.00 m. to point 2;
|
N. 83-40E., 19.03m. to point 4;
|
S. 84-22W., 61.31 m. to point 6;
|
S. 83-00 W., 145.33 m. to point 8;
|
N. 87-42 E., 26.49 m. to point 10;
|
N. 83-07 E., 31.86 m. to point 12;
|
N. 83-09 E., 76.04 m. to point 13;
containing an area of THIRTY THOUSAND
S. 07-04E., 41. 88 m. to point 1.
NINE HUNDRED FORTY FOUR (30,944)
SQUARE METERS, more or less. This parcel
Point of beginning; of land is all rice land and the boundaries
Containing an area of TWENTY FIVE
THOUSAND SEVEN HUNDRED SEVENTY
FIVE (25,775) SQUARE METERS, more or
less.
TECHNICAL DESCRIPTION 18
Lot 1333, Cad-I 33, C-01
Capiz Cadastre, Ap-06-004022
A PARCEL OF LAND (Lot 1333, Cad-133, C-
01, Capiz Cadastre, Ap-06-004022, situated
in the barrio of Baybay, municipality of Capiz
(now Roxas City), province of Capiz, island of
Panay.
Bounded on the SE., along line 1-2 by Lot
1330; on the W., & NW., along lines2-3-4-5
by Lot 1329; on the NW., along line 5-6 by
Lot 1334; along line 6-7 by Lot 1335; on the
NE., & SE., along lines 7-8-1 by Lot 1332; all
of Cad-133, Capiz Cadastre.
Beginning at a point marked "1" on plan being
N. 78-44., 326.64 meters from BBM No. 12,
Cad-133, Capiz Cadastre, thence
S. 81-42 W., 59.67 meters to point 2;
N. 07-36 W., 46.62 meters to point 3;
N. 82-34 E., 84.29 meters to point 4;
N. 09-13 W., 40-05 meters to point 5;
N. 82-57 E., 59.24 meters to point 6;
N. 81-48 E., 18.71 meters to point 7;
S. 03-30 E., 95.46 meters to point 8;
S. 82-57 W., 94.35 meters to point 1;
Point of beginning.
thereon are visible consisting of stone
monuments erected thereon by the Bureau of
Lands. It is declared under Tax Dec. No.
4338 in the name of Filomena Vidal and
assessed at P1,550.00.
DESCRIPTION PER ABSOLUTE SALE
2) A parcel of land (Lot No. 1333 of the
Cadastral Survey of Capiz), with the
Improvements thereon, situated in the Barrio
of Baybay, Municipality of Capiz (now Roxas
City).
Bounded on the N. by the property of
Nemesio Fuentes; on the S. by the property
of Rufo Arcenas; on the E. by the property of
Matea Arcenas; and on the W. by the
property of Valeriano Arcenas;
|
|
|
|
|
|
|
|
|
|
|
containing an area of EIGHTEEN
THOUSAND FIVE HUNDRED FIFTY
(10,860) SQUARE METERS, more
or SEVEN (18,557) SQUARE METERS,
more or less. This parcel of land is all rice
land and the boundaries thereon are visible
 Containing an area of TEN THOUSAND consisting of stone monuments erected
EIGHT HUNDRED SIXTY less. thereon by the Bureau of Lands. It is declared
under Tax Dec. No. 4336 in the name of
Filomena Vidal and assessed at P930.00.

We are not persuaded. Petitioners rely on the technical descriptions of Lots 1320 and 1333 that
were issued by the Bureau of Lands on November 8, 1988. It must be pointed out that when private
respondents and Filomena executed the sale in 1959, they based the description of the two lots on
the tax declarations of Filomena. Early tax declarations are, more often than not, based on
approximation or estimation rather than on computation. This is understandably so because of the
19 

absence then of technical knowledge in the accurate measurement of lands. What really defines a
20 

piece of land is not the area mentioned in its description, but the boundaries therein laid down, as
enclosing the land and indicating its limits. In this case, the boundaries of the two lots are sufficiently
21 

designated in the Absolute Sale, leaving no room to doubt the identity of the objects of the sale.

Petitioners anchor their right of ownership over Lots 1320 and 1333 as the sole heirs of their mother,
Filomena, who previously owned the lots. However, Filomena had already ceded her right of
ownership over Lots 1320 and 1333 to private respondents when she executed the Absolute Sale. A
sale of real property is a contract transferring dominion and other real rights in the thing sold. Proof
22 

of the conveyance of ownership is the fact that from the time of the sale, or after more than 30 years,
private respondents have been in possession of Lots 1320 and 1333. Petitioners on the other hand
have never been in possession of the two lots.

Filomena died sometime in 1985 and petitioners instituted the complaint four years after Filomena’s
23 

death. It is unthinkable for Filomena to have allowed private respondents to enjoy ownership of Lots
1320 and 1333 if she never really intended to sell the two lots to private respondents or if she had
Lot 2034 in mind when she signed the Absolute Sale. In the first place, Lot 2034 could not have
been contemplated by the parties since this parcel of land was never owned by Filomena, or by her
mother, Paulina. Secondly, Lot 2034 does not fit the description of the second parcel of lot
mentioned in the Absolute Sale. The Absolute Sale describes the second lot as located in Barangay
Baybay, Roxas City. Lot 2034 is situated in Barangay Culasi, Roxas City.

In resolving the similar case of Atilano vs. Atilano, where there was also a mistake in the
24 

designation of the lot number sold, the Court took into account facts and circumstances to uncover
the true intentions of the parties. The Court held that when one sells or buys real property, one sells
or buys the property as he sees it, in its actual setting and by its physical metes and bounds, and not
by the mere lot number assigned to it in the certificate of title. As long as the true intentions of the
parties are evident, the mistake will not vitiate the consent of the parties, or affect the validity and
binding effect of the contract between them. In this case, the evidence shows that the designation of
the second parcel of land sold as Lot 2034 was merely an oversight or a typographical error. The
intention of the parties to the Absolute Sale became unmistakably clear when private respondents,
as vendees, took possession of Lots 1320 and 1333 in the concept of owners without the objection
of Filomena, the vendor.

Petitioners harp on the fact that the notarized and registered copy of the Absolute Sale should have,
been correspondingly corrected. Petitioners believe that the notarized and archived copy should
prevail. We disagree. A contract of sale is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon the price. Being consensual, a contract
25 

of sale has the force of law between the contracting parties and they are expected to abide in good
faith with their respective contractual commitments. Article 1358 of the Civil Code, which requires
26 
certain contracts to be embodied in a public instrument, is only for convenience, and registration of
the instrument is needed only to adversely affect third parties. Formal requirements are, therefore,
27 

for the purpose of binding or informing third parties. Non-compliance with formal requirements does
28 

not adversely affect the validity of the contract or the contractual rights and obligations of the
parties.
29

Petitioners fault the trial court for declaring that Lots 1333 and 1320 can be acquired by prescription
even though these lots are already covered by certificates of title. The real issue in this case is the
true intentions of the parties to the Absolute Sale, not adverse possession. The decisions of the trial
court and the Court of Appeals are clear on this point. In fact, the Court of Appeals no longer dealt
with the issue of acquisitive prescription since it was already convinced that private respondents’
right over Lots 1333 and 1320 emanates from the Absolute Sale.

In a desperate bid to compel the Court to disregard the evidence of private respondents, petitioners
question the admissibility of the testimony of Consolacion on the ground that it violates the Dead
Man’s Statute. Petitioners contend that Consolacion’s testimony as to how the alteration of the
Absolute Sale took place should have been disregarded since at the time that Consolacion testified,
death had already sealed the lips of Filomena, precluding petitioners from refuting Consolacion’s
version.

The contention is without basis. The Dead Man’s Statute then embodied in Section 20 (a) of Rule
130 of the 1988 Rules of Court provides:

"SEC. 20. Disqualification by reason of interest or relationship. - The following persons cannot testify
as to matters in which they are interested, directly or indirectly, as herein enumerated:

(a) Parties or assignors of parties to a case, or persons in whose behalf a case is prosecuted,
against an executor or administrator or other representative of a deceased person, or against a
person of unsound mind, upon a claim or demand against the estate of such deceased person or
against such person of unsound mind, cannot testify as to any matter of fact occurring before the
death of such deceased person or before such person became of unsound mind;

xxx"

The foregoing prohibition applies to a case against the administrator or representative of an estate
upon a claim against the estate of the deceased person. The present case was not filed against the
30 

administrator of the estate, nor was it filed upon claims against the estate since it was the heirs of
Filomena who filed the complaint against private respondents. Even assuming that Consolacion’s
testimony was within the purview of the Dead Man’s Statute, the fact that the counsel of petitioners
failed to timely object to the admissibility of Consolacion’s testimony is a waiver of the
prohibition. The waiver was made more evident when the counsel of petitioners cross-examined
31 

Consolacion. Petitioners cannot now invoke the rule they knowingly waived.
32 

From the time of the execution of the Absolute Sale on April 24, 1959, private respondents became
the owners of Lots 1320 and 1333. The expropriation of any portion of the two lots from the time of
the execution of the Absolute Sale would necessarily entitle private respondents to the payment of
just compensation. We cannot, however, agree with the trial court and the Court of Appeals that
public respondents could be ordered to pay private respondents just compensation in the same suit.
Public respondents were impleaded in this case when petitioners filed a cross-claim against them for
just compensation. The cross-claim should have been dismissed, as it does not comply with Section
7 of Rule 6 of the 1988 Rules of Court.  The rule provides:
1âwphi1
"SEC. 7. Cross-claim. A cross-claim is any claim by one party against a co-party arising out of the
transaction or occurrence that is the subject matter either of the original action or of a counterclaim
therein. Such cross-claim may include a claim that the party against whom it is asserted is or may be
liable to the cross-claimant for all or part of a claim asserted in the action against the cross-
claimant."

Based on the foregoing rule, the cross-claim is proper only when:

"1. It arises out of the subject matter of the complaint. 1âwphi1

2. It is filed against a co-party.

3. The cross-claimant stands to be prejudiced by the filing of the action against him." 33

The three requisites are absent in this case. The cross-claim for just compensation is a new matter
raising a new cause of action that must be litigated in a separate action, not in the same action for
the nullification of contract. The purpose of a cross-claim is to avoid multiplicity of suits. Multiplicity
34 

of suits should be avoided if the filing of a separate and independent action to recover a claim would
entail proving exactly the same claim in an existing action. However, when the causes of action are
35 

distinct and separate from each other, as in this case, the independent interest should be pursued in
another proceeding. Also, petitioners and public respondents are not co-parties as they are not co-
36 

plaintiffs. Lastly, petitioners, as cross-claimants, would not be prejudiced by the filing of the action
since they are the plaintiffs in this case.

At any rate, private respondents are not left without any recourse. They can file their claim for
compensation with the proper government agency. Public respondent DPWH in its Comment points
out that it is now public respondent DOTC that has jurisdiction over the claim for compensation since
the portions of the properties subject of this case were taken to form part of the parking area of the
Roxas Airport. In the same Comment, public respondent DPWH concedes that they have never
37 

denied their obligation from the very beginning of this case. Public respondents were only
38 

constrained to withhold payment of just compensation as the reel owners of the lots In question were
yet to be declared by the Court. Since the issue of ownership has been settled, private respondents
can now rightfully claim just compensation for the portions of Lots 1320 and 1333 taken by the
government after the execution of the Absolute Sale.

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 35540 is hereby AFFIRMED
with the MODIFICATION that the cross-claim against public respondents is DISMISSED. Costs
against petitioners.

SO ORDERED.

[G.R. No. L-16082. February 29, 1964.]

BENIGNO MALINAO, Petitioner, v. LUZON SURETY CO. INC., Respondent.

Atilano R. Cinco and Froilan P. Pobre for Petitioner.

Tolentino & Garcia & D. R. Cruz for Respondent.

 SYLLABUS

1. PLEADING AND PRACTICE; CROSS-CLAIM; NOT PROPER WHEN NOT SHOWN TO

HAVE ARISEN OUT OF THE SAME TRANSACTION AS THAT IN THE COMPLAINT. —
A cross-claim is not proper where it contains no allegation that the subject matter thereof arose
out of the same transaction between the cross-claimant and the plaintiff.chanrobles virtual lawlibrary

2. ID.; ID.; WHEN PROPRIETY OF CROSS-CLAIM MAY BE THE SUBJECT OF

CERTIORARI, NOT APPEAL. — The propriety or impropriety of a cross-claim can be raised
by means of certiorari where appeal was not a speedy and adequate remedy that could bring
about immediate relief from the effects of an order permitting the filing of the cross-claim
inasmuch as the cross-defendant would have had to wait if appeal was to be awarded of, until
judgment was rendered not only in the action brought by the plaintiff but also in the very cross-
claim filed by the cross-claimant.

3. ID.; ID.; ORDER DENYING PERMISSION TO FILE CROSS-CLAIM; WHEN FINAL

AND NOT INTERLOCUTORY. — An order of the trial court denying permission to file a
cross-claim is not merely interlocutory but final, inasmuch as it disposes of the cross-claimant’s
motion and leaves nothing else to be done.

DECISION

REGALA, J.:

On May 11, 1948, Escudero and Co., Inc. sued Benigno Malinao and the Luzon Surety
Co., Inc. in the Court of First Instance of Manila for the recovery of P23,748.28
representing the value of automobile and truck spare parts and other goods which it
had allegedly sold on credit to Malinao. The surety was included as defendant on
account of the bond given by it to guarantee Malinao’s faithful compliance with the
terms of the sale.

On May 28, 1948, both defendants filed their answer and thereafter the court heard the
case.

On May 7, 1958, Malinao asked the court to allow him to file a cross-claim against the
surety. There is considerable dispute as to whether or not the court granted Malinao’s
request. At any rate, Malinao filed a cross-claim against the surety, alleging that, on
June 2, 1948, the surety took possession of his hardware store, the Pioneer Auto
Supply, together with its accounts receivables, all worth P60,576, on the understanding
that the surety would apply the proceeds of the merchandise to the payment of
Malinao’s obligation and that after thus applying the proceeds, "there is an outstanding
balance in the sum of P58,776.00 payable by the Luzon Surety Company, Inc. in favor
of co-defendant Benigno Malinao, which amount has never been turned over to the
defendant Benigno Malinao, despite demands made by the latter." cralaw virtua1aw library

For failure to answer the cross-claim, the surety was declared in default. It filed a
motion to set aside the order of default but the court denied the same. It filed a motion
for reconsideration. This time, the court set aside the default order and ordered the
cross-claim stricken off the record on the ground that the cross-claim was filed without
permission. (Order dated June 20, 1957)

On August 15, 1957, Malinao again asked the court for leave to file a cross-claim
against the surety. The court denied the motion on the ground that it did not state
sufficient reasons to justify the filing of a cross-claim. (Order dated September 12,
1957)

On August 9, 1958, however, Malinao asked for a reconsideration and the court, acting
on this motion, reconsidered its order of September 12, 1957 and allowed the filing of a
cross-claim. (Order dated August 26, 1958) The lower court justified its order of
reconsideration thus —

". . . the Court concludes that the authority (to file a cross-claim) must have been made
verbally in open court and in the presence of the parties in this case, otherwise, the
attorney for the Luzon Surety Company, Inc. would not have filed a motion ex-parte
praying that they be allowed an extension of time to file their responsive pleading to
the cross-claim. The verbal order of this Court must not have been transcribed by the
stenographer so as to make it appear in the records of this case." cralaw virtua1aw library

The Court therefore ordered: jgc:chanrobles.com.ph

"However, to avoid any doubt as to the granting of authority to Benigno Malinao, this
Court hereby grants the said authority on Benigno Malinao to file the said cross-claim
retroactive to the date when said prayer for leave to file cross-claim was filed on May 6,
1953. The Luzon Surety Company, Inc., in view of the authority granted by this Court
on Benigno Malinao to file the cross-claim, is hereby granted ten (10) days within which
to file his responsive pleading to the said cross-claim." chanrobles virtual lawlibrary

The surety moved for a reconsideration of this order, but its motion was denied. And so
the surety brought the matter on certiorari to the Court of Appeals.

The Court of Appeals held the respondent judge guilty of grave abuse of discretion in
allowing the cross-claim. According to the appellate court, the cross-claim was improper
because its subject matter did not arise out of the transaction that is the subject matter
of Escudero and Co.’s complaint. For this reason, it set aside the order of the trial court,
allowing the cross claim.

It is this decision of the Court of Appeals, in setting aside the order of the lower court
allowing Malinao to file his cross-claim, which is the subject of this appeal before Us.

Malinao contends that the issue in the Court of Appeals was not whether under the
Rules of Court his claim was proper for a cross-claim. According to him, the issue rather
was whether the trial court was guilty of grave abuse of discretion in allowing his claim
on the basis of the surety’s allegation that the orders of June 20, 1957 and September
12, 1957, which denied Malinao’s request for leave to file a cross-claim, had long ago
become final. Accordingly, it is contended that, in thus discussing the propriety of the
cross-claim in the determination of whether the trial court acted with grave abuse of
discretion in admitting the cross-claim, the Court of Appeals erred.

In support of this contention, it is asserted that the propriety or impropriety of the

cross-claim was never passed upon by the lower court and therefore the allowance of
the cross-claim could not have been an abuse of discretion on the part of the trial court.

As stated earlier, Malinao’s second motion for leave to file a cross-claim was denied on
the ground that it did not state sufficient reasons to justify the filing of a cross-claim.
(Order dated September 12, 1957). That was as clear a statement as could be made
that the cross-claim was not proper because it did not comply with the requirements of
the Rules of Court. Of course the order granting leave to file a cross-claim was based
on the inference that probably Malinao had been given authority to file a cross-claim by
the Court, which, through inadvertence, the stenographer failed to transcribe. But since
the order which the court reconsidered was premised on the failure of the movant to
justify the filing of a cross-claim, We take it that the trial court also reconsidered its
previous stand on the propriety of the cross-claim.

It is to be noted that Section 2 of Rule 10 defines a cross-claim as "any claim by one

party against a co-party arising out of the transaction or occurrence that is the subject
matter either of the original action or of a counterclaim therein." The cross-claim filed
by Malinao contained no allegation that the subject matter thereof arose out of the
transaction between Malinao and Escudero and Co. All that it stated was that the surety
had taken possession of Malinao’s store and its accounts receivable, the agreement
being that the surety would apply the proceeds thereof to the payment of Malinao’s
obligation but that, in violation of that agreement, the surety refused to return to him
what remained after paying off his obligation. On the other hand, the complaint in the
original action alleges that Escudero and Co. sold goods on credit to Malinao for the
collection of the price of which the action was brought. The mere fact that part of the
goods in Malinao’s store were the same ones which Escudero and Co. had sold to
Malinao does not justify the filing of a cross-claim against the surety. The transaction
between the surety and Malinao must be shown to have arisen out of the transaction
between Escudero and Co. on the one hand and Malinao on the other, in order to justify
the allowance of a cross-claim.

Malinao complains that had the Court of Appeals ordered the records of this case to be
elevated to it, it would have found that his claim arose out of his previous transaction
with Escudero and Co. But even in this Court, Malinao has not shown how the
transaction between him and the surety arose out of his previous transaction with
Escudero and Co. What is more, Section 8 of Rule 67 does not make the elevation of
the records mandatory. chanrobles.com : virtual law library
Neither is there merit in the contention that the propriety or impropriety of the cross-
claim could only be raised on appeal. While appeal was available to the surety, the
same was not a speedy and adequate remedy that could bring about immediate relief
from the effects of the order complained of as surety would have to wait until judgment
was rendered not only in the action brought by Escudero and Co. but also in the very
cross-claim filed by Malinao. Under the circumstances, certiorari was the only adequate
remedy open to the surety. As this Court held in Silvestre v. Torres and Oben, 57 Phil.
885:jgc:chanrobles.com.ph

". . . the availability of the ordinary recourse of appeal does not constitute sufficient
ground to prevent a party from making use of the extraordinary remedy
of certiorari but it is necessary, besides, that the ordinary appeal be an adequate
remedy, that is, ‘a remedy which is equally beneficial, speedy and sufficient, not merely
a remedy which at some time in the future will bring about a revival of the judgment of
the lower court complained of in the certiorari proceeding, but a remedy which will
promptly relieve the petitioner from the injurious effects of that judgment and the acts
of the inferior court or tribunal."
cralaw virtua1aw library

Even if we consider the surety’s reason for alleging grave abuse of discretion on the
part of the trial court, still We think that the Court of Appeals correctly decided this
case. As stated earlier, in an order dated June 20, 1957, the trial court, acting on the
surety’s motion for reconsideration, disallowed Malinao’s cross-claim on the ground that
the same was filed without its permission. Instead of contesting that order, Malinao
allowed it to become final. What he did was to file on August 15, 1957 another motion
for leave to file a cross-claim allegedly "to avoid multiplicity of suits, save the precious
time of the court and afford defendant Benigno Malinao opportunity to have his rights
against co-defendant Luzon Surety Co., Inc. (be) adjudged once and for all." Again, the
trial court, in an order dated September 12, 1957, denied Malinao’s motion on the
ground that there was no sufficient reason to justify the filing of a cross-claim.

It was only on August 9, 1958 that Malinao moved for reconsideration of this order. The
trial court, in disregard of the fact that its orders of June 20, 1957 and September 12,
1957 had become final for failure of Malinao to appeal, completely reversed itself and
granted Malinao’s motion to file a cross-claim. Now, the orders of June 20, 1957 and
September 12, 1957 are not merely interlocutory but final orders, inasmuch as they
dispose of Malinao’s motions and leave nothing else to be done. As such, what Malinao
should have done was either to appeal from the orders or to file a motion to set them
aside in accordance with Rule 38 of Rules of Court. In not doing any of those, Malinao
allowed the orders to become final so that, in disregarding them, the trial court acted
with grave abuse of discretion.

Finally, it is argued that a separate action against the surety, as suggested by the Court
of Appeals, would no longer lie because of prescription. But if prescription has set in,
Malinao has no one to blame but himself.

WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as

to costs.
Bengzon, C.J., Padilla, Labrador, Reyes, J .B .L ., Paredes and Makalintal, JJ., concur.

Bautista, Angelo, J., concurs in the result.

Concepcion, Barrera and Dizon, JJ., took no part.

G.R. No. 101566 March 26, 1993

HON. FLORENCIO A. RUIZ, JR., SENT OF GOD FOUNDATION,

INC., S OF G FOUNDATION, INC., RAUL G. FORES, SENEN P.
VALERO and FATHER ODON DE CASTRO, Petitioners, vs. THE
HON. COURT OF APPEALS, SPS. OLEGARIO ORBETA and
SUSANA ROSARIO S. ORBETA, Respondents.

Antonio Coronel and Norberto L. Villarama for petitioners. chanrobles virtual law library

Eladio B. Samson for private respondents. chanrobles virtual law library

Antonio E. Escober collaborating counsel for private respondents.

-->

RESOLUTION

GRIÑO-AQUINO, J.:

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 1granting the petition
for certiorari  in CA-G.R. SP No. 17013, "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." chanrobles virtual law library

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; chanrobles virtual law library

(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;
andchanrobles virtual law library

(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. chanroblesvirtualawlibrary chanrobles virtual law library

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. chanroblesvirtualawlibrary chanrobles virtual law library

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. chanroblesvirtualawlibrary chanrobles virtual law library

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. chanroblesvirtualawlibrary chanrobles virtual law library

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.chanroblesvirtualawlibrary chanrobles virtual law library

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. chanroblesvirtualawlibrary chanrobles virtual law library

Plaintiffs filed an answer to the counterclaim on September 22,

1988.chanroblesvirtualawlibrary chanrobles virtual law library

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. chanroblesvirtualawlibrary chanrobles virtual law library

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. chanroblesvirtualawlibrary chanrobles virtual law library

On November 24, 1988, the Foundations, etc. filed a "Motion to

Dismiss Crossclaim (of the Orbetas) and to Strike Out." chanrobles virtual law library

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. chanroblesvirtualawlibrary chanrobles virtual law library
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.) chanrobles virtual law library

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, 2 on the
ground that the proper remedy was an ordinary appeal. The
appellate court 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.)
chanrobles virtual law library

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 3annulled Judge Ruiz's order of dismissal and reinstated the
complaint. Reconsideration of this decision was denied on August
27, 1991. The Foundations, etc. appealed to this Court which, as
previously stated, reversed the Court of Appeals. chanroblesvirtualawlibrary chanrobles virtual law library

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. 4Consequently, the Division decided to refer the
case to the Court En Banc which recalled the resolution for lack of
the necessary votes and constituted a Special First Division 5to
deliberate on the Orbetas' motion for reconsideration. chanroblesvirtualawlibrary chanrobles virtual law library

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: chanrobles virtual law library

(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 chanrobles virtual law library

(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. chanroblesvirtualawlibrary chanrobles virtual law library

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. chanroblesvirtualawlibrary chanrobles virtual law library

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).chanroblesvirtualawlibrary chanrobles virtual law library
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. chanroblesvirtualawlibrary chanrobles virtual law library

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. chanroblesvirtualawlibrary chanrobles virtual law library

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. chanroblesvirtualawlibrary chanrobles virtual law library

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.chanroblesvirtualawlibrary chanrobles virtual law library
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). chanroblesvirtualawlibrary chanrobles virtual law library

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. chanroblesvirtualawlibrary chanrobles virtual law library

SO ORDERED.

[G.R. No. L-15241. July 31, 1962.]

SOLEDAD TAN, Plaintiff-Appellee, v. CARLOS DIMAYUGA, ET AL., Defendants.

WALTER MASON, Defendant-Appellant.

A. C . Roldan for plaintiffs-appellee.

McClure, Salas & Gonzales for defendants-appellant.

SYLLABUS

1. PLEADING AND PRACTICE; DEFAULT ORDER; EFFECT OF. — A defendant who has
been declared in default loses his standing in court as party litigant. Before the order of
default is vacated, said defendant has no right to expect that his pleadings would be
acted upon by the court.

2. ID.; ID.; REMEDY OF DEFENDANT IN DEFAULT. — The remedy of the defendant

declared in default is a petition for relief under Rule 38 of the Rules of Court, filed
within sixty days after he learned of the order and not more than six months after such
order was entered.

3. ID.; ID.; DUTY OF PARTY LITIGANT TO INQUIRE ABOUT STATUS OF CASE. —

Defendant was informed by the deputy clerk of court that his motion to dismiss the
third-party complaint filed against him could no longer be acted upon by the court.
Upon such information, he should have made inquiries about what happened with the
third-party complaint to which he had not filed any answer. In that case, he should
have obtained knowledge of the order of default and could have timely asked for its
reopening. Having failed to do this, he is guilty of inaction and he must not be heard to
complain that this rights have been violated.

4. ID; ID.; CROSS-CLAIM FILED AFTER CROSS-CLAIMANT HAD BEEN DECLARED IN

DEFAULT. — To allow a cross-claim filed after the cross-claimant had been declared in
default to remain would be tantamount to setting aside the order of default because
then the cross-claimant would re- obtain a standing in court as party litigant.

5. ID.; MOTIONS; LACK OF PROOF OF SERVICE. — Without proof of service, a motion is

nothing but a scrap of paper which the clerk of court should not receive for filing.

DECISION

REGALA, J.:

On July 24, 1957, the plaintiff-appellee Soledad Tan filed with the Court of First
Instance of Rizal, suit for damages against Carlos Dimayuga, as a result of physical
injuries sustained by her while being a passenger of a Circle taxicab owned by the
latter. Answer to this complaint was filed by Dimayuga on August 7, 1957.  cralawnad

On September 4, 1957, said Dimayuga filed a motion for leave to file a third-party
complaint, bringing in as third-party defendant Walter Mason, whose car driven by him
had a collision with the aforesaid taxicab that caused the injuries sustained by Soledad
Tan. Mason was served summons on the third-party complaint on December 19, 1957.

On January 3, 1958 Mason filed a "Motion to Dismiss the Third-Party Complaint,"

containing a request to "set it for the consideration of the court on January 11, or as
soon as the court be minded to entertain the same." Notice of this motion was received
by Dimayuga on January 7, 1958.

On January 11, 1958, Dimayuga filed a motion to declare third-party defendant Walter
Mason in default, on the alleged ground that the reglementary period of fifteen days
within which he should file his answer to the third-party complaint had already expired
and he had not yet filed his answer thereto. Acting on this motion, and still unaware of
Mason’s motion to dismiss, the court, on January 14, 1958, issued an order declaring
him in default.

On January 27, 1958, the deputy clerk of the court below addressed a letter to Mason
informing him that his motion to dismiss the third-party complaint was received by the
court only on January 21, hence, the same could no longer be acted upon.

On March 14, 1958, Soledad Tan, with leave of court, filed an amended complaint
containing an alternative prayer for judgment in her favor and against either
defendants Dimayuga or Mason. Dimayuga filed a timely answer to this amended
complaint. On the other hand, Mason filed a motion to dismiss it as to him, but this was
denied on October 10, 1958.

Accordingly, on October 28, 1958, Mason filed his answer to the amended complaint,
including therein a counterclaim against Soledad Tan, a cross-claim against Carlos
Dimayuga, and a third-party complaint against Vicente Escalona, the driver of the
taxicab owned by Dimayuga. On the following day, realizing that he had filed a third-
party complaint against Escalona without court permission, Mason filed a motion for
leave to file said pleading. The motion was granted.  chanroblesvirtuallawlibrary

On November 7, 1958, Dimayuga filed two motions: (1) to strike out Mason’s motion
for leave to file third-party complaint; and (2) to dismiss the cross-claim filed against
him.

The above two motions were granted by the court below in an order dated November
15, 1958, the main part of which reads: jgc:chanrobles.com.ph

"The court notes that the facts alleged in the motion to dismiss cross-claim are true and
the ground in support thereof to meritorious.

"To allow the cross-claim to remain would be tantamount to setting aside the order of
this court declaring him in default with respect to the third party complaint filed against
him by defendant Carlos Dimayuga. Needless to state that what cannot be done directly
cannot be permitted to be done indirectly.

"As regards the motion to strike out the so-called ‘motion for leave to file third-party
complaint’ the court finds the said motion to be well taken as there is no proof of
service.

"WHEREFORE, the cross-claim against the defendant Carlos Dimayuga, filed by

defendant Walter Mason is hereby dismissed, and the motion for leave to file third party
complaint is hereby stricken out of the record of the case." cralaw virtua1aw library

Mason moved for reconsideration of this order but was denied. Hence this appeal.

Briefly, the following are the assigned errors of the lower court: (1) in not setting aside
the order of default; (2) in refusing to resolve defendant-appellant’s motion to dismiss
third-party complaint of defendant Carlos Dimayuga; (3) in ordering the dismissal of
defendant-appellant’s cross-claim; and (4) in ordering the striking out from the record
defendant-appellant’s third-party complaint.

The appeal is devoid of merit.

It must be remembered, in the first place, that the order of default was rendered on
January 14, 1958. For its setting aside, Defendant-Appellant’s remedy should have
been a petition for relief under Rule 38 of the Rules of Court, filed within sixty days
after he learned of the order and not more than six months after such order was
entered (section 3). The record, however, discloses that there was no such petition for
relief filed, but that the first time Mason made prayer to set aside the default order was
on December 16, 1958 in his "Petition and Motion for Reconsideration" of the order
quoted above. Even granting for the sake of argument that this petition should be
regarded as one for relief still the order of default could no longer be reopened because
said petition was filed eleven months after the entry of said order, clearly beyond the
reglementary period provided for under section 3 of Rules 38.

Having thus neglected to have the order of default vacated, appellant lost every right to
expect that his motion to dismiss Dimayuga’s third-party complaint would be acted
upon by the lower court. Furthermore, there is showing that Mason was somewhat
heedless about the said motion of January 3, 1958. As already stated, it contained a
request to set it for hearing on January 11, 1958. It appears from the appellee’s brief
that in view of this request for hearing, Dimayuga, with his lawyer, appeared in court
on that date, January 11, but neither Mason nor his attorney appeared. A search in the
record by the clerk of court and Dimayuga’s lawyer revealed no pleading or motion
coming from Mason. From these allegations, it would appear that Mason did not see to
it that his pleading has reached the court. If he were sincere in asking that his motion
to dismiss be considered or heard on January 11, 1958, he or counsel should have
appeared in court on that very date, for the proposed hearing, or at least to find out if
the motion was already with the court.

Mason argues that having sent the motion to dismiss on January 3, 1958 by registered
mail, he expected the lower court to have received it and he should not be made to
suffer the consequences of the delay in the court’s receiving said motion. But this does
not warrant Mason’s abandonment of his chances on the motion. Upon being informed
by letter dated January 27, 1958, by the Deputy Clerk of Court that his motion to
dismiss could no longer be acted upon as it was received by the lower court only on
January 21, 1958, he should have made inquiries about what happened with the third-
party complaint filed against him and to which no answer by him had as yet been filed.
In that case, he should have obtained knowledge of the order of default and could have
timely asked for its reopening. Having failed to do this, Mason in guilty of inaction and
he must not be heard to complain that his rights have been violated.

Consequently, the lower court did not commit a mistake in dismissing Mason’s cross-
claim contained in his answer whereby Dimayuga was cross-defendant. It is worthy to
note that said cross-claim was filed after the appellant was declared in default. As
correctly pointed out by the lower court,, to allow the cross-claim to remain would be
tantamount to setting aside the order of default because then, the cross-claimant, who
had been previously declared in default, would re-obtain a standing in court as party
litigant.

With respect to the striking out from the records of Mason’s motion for leave to file
third party complaint. We have to accept the factual finding of the lower court that
there was no proof of service of notice as required in section 6, Rule 26 of the Rules of
Court. It has been held that without proof of service thereof, a motion is nothing but a
scrap of paper which the clerk of court should not receive for filing (Manahil v. Revilla,
42 Phil., 81; Roman Catholic Bishop of Lipa v. Municipality of Unisa, 44 Phil., 866; and
Director of Lands v. Sanz; 45 Phil., 117). This ruling justifies the action taken by the
lower court. chanroblesvirtual|awlibrary

IN VIEW OF THE FOREGOING, the orders appealed from are hereby affirmed. Let this
case be remanded to the court of origin for further proceedings. Costs against appellant
Mason.

Bengzon, C.J., Labrador, Concepcion, Barrera, Paredes, Dizon and Makalintal, JJ.,

concur.

Padilla, Bautista and Reyes, J.B.L., JJ., took no part.

G.R. No. L-27802            October 26, 1968

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
CENTRAL SURETY & INSURANCE COMPANY, ET AL., defendants-appellants.

CENTRAL SURETY & INSURANCE COMPANY, third-party plaintiff-appellant,

vs.
PO KEE KAM, ET AL., third party defendants-appellees.

Assistant Solicitor General Antonio G. Ibarra and Solicitor Teodulo Diño for plaintiff-appellee.
Manañgan & Mangoba for third-party plaintiff-appellant.
Percival M. Lopez for third-party defendants-appellees.

CASTRO, J.:

On October 23, 1959 the Republic of the Philippines (hereinafter referred to as the Republic) filed
suit against the Central Surety & Insurance Company (hereinafter referred to as the Surety) and the
latter's manager of the bond department, Casimiro Mangoba. The complaint recites (1) that the
Surety executed in favor of the Deportation Board a bond in the amount of P5,000 for the temporary
release of Po Kee Kam, a Chinese citizen and respondent in deportation proceeding No. 730,
subject to certain conditions, principal among which are that the Surety undertakes to have Po Kee
Kam available at all times to the Deportation Board within 24 hours from notice, that Po Kee Kam
shall be personally present before the Deportation Board at all hearings in the case, and that upon
his failure to comply with any of the above conditions, the bond shall be automatically confiscated
and forfeited in favor of the Government; (2) that because Po Kee Kam failed to appear at the
hearing scheduled for December 14, 1962 despite due notice to the Surety, the Deportation Board
on the same date issued an order for his arrest, which same order declared the bond confiscated in
favor of the Government; (3) that by letter of December 27, 1962, the Commissioner of Immigration
informed the Surety of the forfeiture of the bond and demanded the remittance to the Bureau of
Immigration of the amount of P5,000 on or before January 2, 1963; (4) that notwithstanding repeated
demands the Surety has failed to remit the said amount without justifiable cause. Prayer is made
that judgment be rendered sentencing the Surety and Mangoba to pay, jointly and severally, to the
Republic the amount of P5,000, with interest at the legal rate from the filing of the complaint until full
payment, and the sum of P1,000 as attorney's fees and litigation expenses, plus costs.

On July 5, 1963 the Surety filed its answer, interposing inter alia, the defenses (1) that its bond
cannot be made liable beyond the amount of P5,000; (2) that it is not liable for attorney's fees in the
absence of any stipulation to that effect; (3) that the court has no jurisdiction over the case as the
amount involved is only P5,000; and (4) that the Republic has no cause of action.

Mangoba's answer, filed on July 11, 1963, makes substantially the same averments and interposes
the same defenses as those contained in the Surety's answer. In addition, he disclaims personal
liability under the bond.

On July 30, 1963 the Surety filed a third-party complaint, with leave of court, against Po Kee Kam
and Tony Go (hereinafter referred to as the third-party defendants), alleging that the Republic filed a
complaint against it on the basis of a surety bond in the amount of P5,000 issued in behalf of Po Kee
Kam in favor of the Deportation Board; that for and in consideration of the issuance of the said bond,
the third-party defendants, jointly and severally, executed an indemnity agreement in favor of the
Surety to indemnify it for damage, loss, costs, payments, advances and expenses of whatever kind
and nature which it might at any time incur as a consequence of having executed the said bond.
Prayer is made that in the event judgment is rendered against it, the third party defendants be
ordered, jointly and severally, to reimburse it whatever amount it may be adjudged to pay to the
Republic, plus interest at the rate of 12% per annum, compounded quarterly, from the filing of the
complaint until the whole obligation is fully paid, 15% of the total amount due as attorney's fees, and
costs.

On September 7, 1963 the third-party defendants filed their answer, admitting some material
allegations of the third-party complaint, denying others, and interposing the defense that the case is
premature as the main case has not yet been terminated.

On December 2, 1963 upon verbal motion of the third party defendants, the trial court dismissed the
third-party complaint for lack of jurisdiction, in the following words:

It appearing from the records that the third-party complaint was filed after the passage of the new
law conferring original jurisdiction on the Municipal Court in civil cases involving not more than
P10,000.00, and it likewise appearing that the third-party complaint refers to a claim of only
P6,000.00, the oral motion to dismiss filed by the counsel for the third-party defendants is in order.
Therefore, the court hereby order's that the third-party complaint be, as it is hereby, dismissed,
without prejudice to the right of the third-party plaintiff to file a separate case in the municipal court.

On the following day, December 3, 1963, the trial court rendered judgment, ordering the surety to
pay to the Republic the sum of P5,000, with interest thereon at the legal rate from the date of the
filing of the complaint until the whole amount shall have been paid, plus costs, and absolving
Mangoba from the complaint.

The Surety forthwith interposed its appeal to the Court of Appeals from the order of December 2,
1963 dismissing its third-party complaint, and from the decision of December 3, 1963 ordering it to
pay the Republic the amount of P5,000, contending that the trial court erred in (1) holding the Surety
liable on the bond despite the fact that it has not violated any condition thereof, (2) not declaring
itself without jurisdiction over the subject-matter of the action, and (3) dismissing the third-party
complaint. The Court of Appeals certified the case to this Court on May 10, 1967, pursuant to section
2, Article VIII of the Constitution, and section 17(3) of Republic Act 296, on the ground that the
jurisdiction of the trial court is squarely in issue.

By formulation of the Surety, the issues tendered for resolution in this appeal are: (1) Is the Surety
liable on its bond? (2) Did the trial court have jurisdiction over the subject-matter of the main action?
(3) Did the trial court have jurisdiction over the third-party complaint?

1. Upon the first issue, it is argued that the Surety is not liable on its bond because the two
conditions thereof — that there must be notice to it by the Republic to produce the person bonded,
and that the latter fails to appear as required in the notice — did not come to pass. Hence, the
forfeiture of the bond is unwarranted. .
This pretense of the Surety is palpably without merit. Exhibit B1 unequivocally shows that the Surety
received notice to produce the person of Po Kee Kam; in point of fact the Surety even orally moved
"for the postponement of the production of respondent Po Kee Kam," which motion was denied in
the order of December 14, 1962 of the Deportation Board. It would have been pointless to ask for
postponement to produce the person of Po Kee Kam, if the Surety did not receive notice to that
effect. At all events, the trial court found that the Surety and Mangoba "were duly notified to produce
the said Po Kee Kam before the Deportation Board on December 14, 1962, but the said Po Kee
Kam failed to appear." This finding of the trial court is entitled to respect, being fully supported by the
evidence of record.2

The trial court therefore did not err in ordering the Surety to pay to the Republic the sum of P5,000,
with interest thereon at the legal rate from the date of the filing of the complaint until full payment
thereof, plus costs.

2. Upon the second issue, it is insisted that the trial court had no jurisdiction over the subject-matter
of the action because the total amount involved is only P6,000 (P5,000 under the bond and P1,000
as attorney's fees), a court of first instance being vested with jurisdiction only over cases in which the
demand, exclusive of interest, or the value of the property in controversy, exceeds P10,000,
pursuant to section 44 of Republic Act 296, as amended by Republic Act 3828 which took effect on
June 22, 1963. Although the present action was filed on June 20, 1963, two days before the
effectivity of Republic Act 3828 which broadened the jurisdiction of municipal and city courts to
include cases in which the demand, exclusive of interest, or the value of the property in controversy,
does not exceed P10,000,3 it is nonetheless argued that the court's jurisdiction over the case was
lost on June 22, 1963, when Republic Act 3828 took effect, and therefore the case should have been
remanded to the municipal court.4

We disagree. It is not disputed that the trial court acquired jurisdiction over the subject-matter on
June 20, 1963 when the complaint was filed with it. It is of no moment that summons was served
and that the case was heard and decided after the effectivity of Republic Act 3828, because the rule
is firmly entrenched in our law that jurisdiction once acquired continues until the case is finally
terminated.5

3. Upon the third issue, the Surety takes the position that if the trial court acquired jurisdiction over
the main case, "it follows that it could also take cognizance of the third-party complaint which derives
its life from the complaint."

The Surety has a point here. It is true that the third-party complaint was filed after the effectivity date
of Republic Act 3828. It is likewise true that the demand therein made does not exceed P10,000,
and, therefore, is not within the jurisdiction of the Court of First Instance if it were an independent
action. But the third-party complaint is an ancillary suit which depends on the jurisdiction of the court
over the main action. Since the trial court had acquired jurisdiction over the complaint, it necessarily
follows that it likewise had jurisdiction over the third-party complaint which is but an incident thereof.
This must be so because jurisdiction over the main case embraces all incidental matters arising
therefrom and connected therewith.6 A contrary rule would result in "split jurisdiction" which is not
favored,7 and in multiplicity of suits, a situation obnoxious to the orderly administration of
justice.8 The court acquired jurisdiction over the third-party complaint, provided it had jurisdiction
over the main case, for the reason that the third-party complaint is but a continuation thereof, its
purpose being to seek "contribution, indemnity, subrogation or any other relief, in respect to his
opponent's claim."9 Thus, in Talisay-Silay Milling Co., et al. vs. CIR, et al.,10 this Court elaborated with
incisiveness:

The third-party complaint is but a continuation of the main action, its purpose being merely to
 seek "contribution, indemnity, subrogation or any other relief, in respect of his opponent's
claim." (Rule 6, See. 12.) The aim is to avoid the actions which should be tried together to
save the time and cost of a reduplication of evidence, to obtain consistent results from
identical or similar evidence, and to do away with the serious handicap to a defendant of a
time difference between a judgment against him and a judgment in his favor against the third
party defendant.

Thus it has been held that "where a court has jurisdiction of a claim and the parties in the
principal action, it generally has jurisdiction also of a suit or proceeding which is a
continuation of or incidental and ancillary to the principal action, even though it might not
have jurisdiction of the ancillary proceeding if it were an independent and original action or
proceeding. The jurisdiction of the ancillary suit or proceeding is referrable to or dependent
upon the jurisdiction of the court over the principal suit or proceeding."

Petitioners urge that a rule similar to the rule on counterclaim be adopted. But a third-party
complaint cannot be likened to a counterclaim which must be within the jurisdiction of the
court trying the main case, because unlike a third-party complaint, a counterclaim "need not
diminish or defeat the recovery sought by the opposing party, but may claim itself exceeding
in amount or different in kind from that sought in the opposing party's claim" (Rule 6, Sec. 6).
A third-party complaint may likewise be likened to a cross claim under Rule 9, section 5. ...
The principle is at once apparent, namely, that where an action is ancillary to a main action
over which a court has jurisdiction, no independent jurisdiction is needed to enable the court
to take cognizance of the ancillary action.

There can therefore be no doubt that in dismissing that Surety's third-party complaint the trial court
committed a reversible error.

4. The Surety prays for the remand of the third-party complaint to the trial court for further
proceedings. It is our view that under the environmental circumstances, there is no need to do so.
The third-party defendants did not specifically deny the execution of the indemnity agreement. They
merely expressed insufficient knowledge and information to form a belief as to the veracity thereof,
without setting forth "the substance of the matters" upon which they rely to support their denial as
required by the Rules.11 To obviate further litigation between the Surety and the third-party
defendants, this Court now decides the third-party complaint on the merits, and orders the third-party
defendants to reimburse the Surety the amount of the judgment against it. The pleadings on record
fully support this adjudication.12

ACCORDINGLY, the order dated December 2, 1963 dismissing the third-party complaint is set
aside; the decision dated December 3, 1963 is modified in the sense that the third-party defendants
are hereby ordered to pay to the Surety whatever sums the latter will pay to the Republic by virtue of
the judgment appealed from. Costs are assessed against the Surety in favor of the Republic, and
against the third-party defendants in favor of the Surety.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles, Fernando and Capistrano,
JJ.. concur.
Zaldivar, J., is on leave.

G.R. No. L-21036 June 30, 1977

COMMISSIONER OF CUSTOMS and COLLECTOR OF CUSTOMS

FOR MANILA and CONRADO SOLEDAD, EDMUNDO POSTRERO,
 MAXIMINO ABRUGENA, GERONIMO DERILO, SANTOS
GUINTO and EUSTAQUIO MARANAN, as employees and duly
authorized representatives of the House of Representatives,
Congress of the Philippines, Petitioners, vs. HON. JUDGE
GAUDENCIO CLORIBEL, as Presiding Judge of Branch VI,
Court of First Instance of Manila, and JOSE and SUSANA
COCHINGYAN, Respondents.

Solicitor General Arturo A. Alafriz Assistant Solicitor General Pacifico

P. de Castro, Solicitor Alejandro B. Afurong, Special Attorney Jose
T. Viduya and Attorney Ceferino de los Santos for petitioners. chanrobles virtual law library

Lino M. Patajo and Ramon Encarnacion, Jr. for private respondents.

BARREDO, J.: chanrobles virtual law library

Petition for certiorari and prohibition to annul and set aside several
orders of respondent court all of which together in effect: (1)
permitted ex-parte  private respondents Jose and Susana
Conchingyan to file a third-party complaint for mandamus against
petitioners in a special civil. action for declaratory relief in which
said Cochingyans were defendants and which was already tried and
almost ready for decision; on the same day, (2) admitted said third-
party complaint and (8) further issued immediately a writ of
preliminary mandatory injunction likewise ex-parte; and which (4)
were intended to enforce said writ of injunction. chanroblesvirtualawlibrary chanrobles virtual law library

There was pending before respondent court as Civil Case No.

52318, entitled Macario M. Ofilada vs. Reparations
Commission, Jose Cochingyan and Susana Cochingyan, a special
civil action for declaratory relief, wherein Ofilada, as the Second
Receiver of the World War II Veterans Enterprises, Inc. (Warvets) in
Civil Case No. 34998, likewise pending in another Branch of the
Court of First Instance of Manila, sought a judicial declaration as to
whether, under the allocation granted to said Warvets to purchase
reparations goods, the conversion into pesos of the dollar prices of
said goods should be at the rate of two pesos to one dollar or at the
prevailing market rate at the time for payment, which would be
much higher. Civil Case No. 34998 was a minority suit filed by
certain stockholders of Warvets alleging irregularities in the
management and disposition of the goods being purchased by the
corporation by virtue of the aforementioned allocation, hence the
need for receivers, of which there were two, the first being one
Ramon E. Saura and the second, Ofilada. In the same Civil Case No.
34998, an order had been issued on October 9, 1962 ordering
Ofilada to deliver to the Cochingyans the second shipment of goods
under Warvets' allocation. (The Cochingyans had a contract with
Warvets regarding said goods.) It appears, however, that a motion
for the reconsideration of the just mentioned order of October 9,
1962 had been filed and was still unresolved when on February 9,
1963, the Honorable Judge Francisco Arca (now deceased) issued
the following order:

Considering all the foregoing, the Court is of the opinion that the
petition of Atty. Magno to defer action on the motion for contempt
against the intervenors should be granted until after it can be
definitely known whether or not the parties can settle this case
amicably.  Resolutions on all pending incidents, such as the motion
for reconsideration of the order authorizing the release of the
second shipment, and the motions for the release of the third,
fourth and fifth shipments, are also held in abeyance  until such time
that the Court knows the result of the pending settlement being
negotiated among the parties. chanroblesvirtualawlibrary chanrobles virtual law library

In view of all the above, the Court hereby orders that all incidents
pending resolution be held in abeyance until after the parties have
definitely decided whether they are going to settle this case or not.
(Emphasis supplied.)

It was shortly after the issuance of this order which in effect freezed
the order of release of October 9, 1962, that the incidents subject of
the instant petition took place. On February 13, 1963, the
Cochingyans filed in Civil Case No. 52318 then already tried
although not yet decided by Judge Gaudencio Cloribel (now also
deceased) - who on February 9, 1963 had written the Secretary of
Justice asking for permission to go on leave for a week starting
February 12, 1973 but who later changed the starting date to
February 13, 1973- an ex-parte motion asking permission to file a
third party complaint which was forthwith granted. On the same
day, another motion was filed asking for immediate admission of
the third party complaint, which likewise, was forthwith granted.
The third-party complaint included in the prayer, among other
reliefs, the following:

1. Immediately upon the filing of the herein third-party complaint

this Honorable Court issue a writ of preliminary mandatory
injunction ex-parte, without notice to the other parties, ordering the
third-party defendants Commissioner of Customs and Collector of
Customs and Reparations Commission to release immediately to the
third-party plaintiffs the balance of the 202 packages of rayon
clothing forming part of the shipment of consumer goods originally
consigned to the Reparations Commission which arrived in Manila
aboard the SS GUILLERMO on September 10, 1962, and which to
the present are still under the custody and possession of the
Collector of Customs and Commissioner of Customs, upon the filing
of a bond by the third-party plaintiffs in such amount as may be
fixed by this Honorable Court to pay for any damages that the third-
party defendants may suffer should this Honorable Court find that
issuance of the preliminary mandatory injunction is not proper.
(Page 87, Record.)

Without loss of time and without hearing the third-party defendants,

the following order, was issued on the same day, February 12,
1963:

In a verified third-party complaint for mandamus against the

Commissioner of Customs, the Collector of Customs and others,
third party plaintiffs Jose and Susana Cochingyan, doing business
under the name and style "The Catholic Church Mart", alleged that a
shipment of 402 packages of rayon cloth which was procured by the
Reparations Commission to cover an allocation granted by the
Commission to the World War II Veterans Enterprises (WARVETS for
reparation consumer goods from Japan arrived in Manila on
September 10, 1962, consigned to the Reparations Commission;
that this Court in Civil Case No. 34998 entitled "Pilar Normandy et
al., vs. Calixto Duque, et al." authorized in its order of October 9,
1962, the Second Receiver of WARVETS, Mr. Macario M. Ofilada, to
release said goods to Jose and Susana Cochingyan; that pursuant to
said order of October 9, 1962, Mr. Ofilada, in his capacity as second
receiver of WARVETS, signed a contract of absolute sale with the
Reparations Commission covering the described reparation
consumer goods and paid in full the purchase price of said goods;
that after receiving full payment of the purchase price of said goods
the Commission instead of releasing the goods from customs and
delivering them requested the Collector of Customs to verify and
make an appraisal of the value of the goods and complying with
said request, the Collector of Customs opened and inspected each
and all of the bales and packages compromising said shipment; that
after completing said inspection and verification the Collector of
Customs advised the third-party plaintiffs herein that the shipment
cannot be released unless the advance sales' tax due on the goods
be first paid; that said Collector of Customs also advised the
Reparations Commission that the goods, being reparations goods
and as such owned by the Philippine Government, cannot be subject
to seizure or forfeiture proceedings; that of the 402 packages the
Commissioner and Collector of Customs have released to the said
third-party plaintiffs only 200 packages but have retained 202
packages supposedly to secure the payment of advance sales tax
assessed on the shipment as recomputed on the basis of an opinion
of the Collector of Internal Revenue; that notwithstanding the fact
that there are no unpaid liens fines, surcharges taxes (except the
advance sales tax the payment of which was tendered by third-
party plaintiffs and refused and the amount deposited with the Clerk
of this Court) customs duties, and consular fees (of which the goods
are exempt under Section 14 of the Reparations Law) and
notwithstanding the fact that there are no pending proceedings for
the seizure and forfeiture of the goods for the same have been
imported by the Reparations Commission which made the proper
declaration of entry therefor, third-party defendants Commissioner
of Customs and Collector of Customs have refused without any legal
reason or justification whatsoever to release and deliver the balance
of the shipment to the third-party plaintiffs; that the duty of the
Collector of Customs and Commissioner of Customs to deliver or
release said goods to third- party plaintiffs is clear as under the
circumstances above recited said officials have no discretion to
decide whether or not to release said goods.chanroblesvirtualawlibrary chanrobles virtual law library
Third-party plaintiffs further alleged that the delay in the release of
the goods to them has caused and will cause them grave and
irreparable damage and injury; and unless a writ of preliminary
injunction were to be issued ex-parte they will suffer greater and
grave damages. chanroblesvirtualawlibrary chanrobles virtual law library

WHEREFORE, finding the petition for the issuance of a writ of

preliminary injunction to be meritorious, the same is hereby
granted, and upon the filing by the third-party plaintiffs of a bond in
the sum of P5,000.00 to answer for all damages that the third-party
defendants may sustain by reason of this injunction if it be finally
decided that the third-party plaintiffs are not entitled thereto, let a
writ of preliminary mandatory injunction be issued ordering the
third-party defendants Commissioner of Customs, Collector of
Customs, and the Reparations Commission, their representatives,
agents, subordinates and other persons acting in their behalf to
release and deliver immediately the third-party plaintiffs Jose and
Susana Cochingyan, doing business under the name and style 'The
Catholic, Church Mart the 202 packages of rayon cloth presently in
their possession, custody and/or control, which goods are part of
the shipment of reparation consumer goods which arrived in Manila
aboard the SS Guillermo from Japan consigned to the Reparations
Commission. chanroblesvirtualawlibrary chanrobles virtual law library

SO ORDERED.

The writ issued pursuant to this order was served on the Law
Division of the Bureau of Customs at 4:55 o'clock in the afternoon
of the same day, February 12, 1963. But compliance therewith did
not materialize. A motion to lift the writ was filed, and in the
meanwhile, the Chairman of the Committee on Reparations of the
House of Representatives, which was then investigating the
implementation of the Warvets allocation, asserted jurisdiction over
the goods by ordering the Collector of Customs to deliver the same
to the Sergeant-at-Arms of the House. Respondent court denied the
motion to lift and threatened the agents of the Committee on
Reparations, herein co-petitioners, with contempt. Still, there was
no release. The goods were, therefore, still unreleased to the
Cochingyans when the petition now at bar was filed. chanroblesvirtualawlibrary chanrobles virtual law library
We deem it unnecessary to dwell on the many interesting issues
extensively and brilliantly discussed by distinguished counsel of both
petitioners and respondents. In Our view of this case, the only
question We have to resolve in order to dispose of it is whether or
not respondent court gravely abused its discretion in allowing the
filing of and in admitting the third-party complaint of the
Cochingyans. In the affirmative, it should follow that the writ of
preliminary mandatory injunction in question would have no legal
basis, as also all subsequent orders of respondent court tending to
enforce the same. And it is Our considered opinion and so We hold
that it was highly irregular and totally unwarranted for respondent
court to have allowed said third-party complaint. The circumstances
surrounding the allowance and admission thereof indicate that
respondent court's action was hasty, baseless and arbitrary. chanroblesvirtualawlibrary chanrobles virtual law library

As already stated, Civil Case No. 52318 was a special civil action for
declaratory relief under Rule 66 of the Rules of 1940 which were in
force when it was filed. The only purpose thereof was to secure
from the court the proper interpretation or construction of the
reparations contract between the Reparations Commission and
Warvets in regard to the rate of conversion of the dollar to the peso
of the purchase price Warvets had to pay No positive or affirmative,
much less any material relief, was 'using sought therein. Indeed, it
is in the very nature of a 'declaratory relief special civil action that
"the Relief is confined to a case of actual controversy within the
Court's jurisdiction, without the need of injunction, execution or
other relief beyond the adjudication of the legal rights which are the
subject of controversy between the parties." ( 3 Moran, Comments
on the Rules of Court, p. 146, 1970 ed.) In other words, the plaintiff
Ofilada in said case did not, as he could not pray for anything to be
award or granted to him. Now, as regards the nature and purpose
of a third-party complaint, Section 1 of Rule 12 of the Rules of 1940
provided:

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'
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.

It is obvious from this definition that a third-party complaint is

inconceivable when the main case is one for nothing more' than a
declaratory relief. In a third-party complaint, the defendant or third-
party plaintiff is supposed to seek contribution, indemnity,
subrogation or any other relief from the third-party defendant is
respect to the claim of the plaintiff against him. In the case at bar,
what possible relief could the Cochingyans, as defendants in Civil
Case No. 52318, for declaratory relief, have asked for by way of
contribution, indemnity, subrogation or any other relief from those
they have named third-party defendants, the Collector of Customs,
Commissioner of Customs, Reparations Commission, their co-
defendant and Macario Ofilada, the very plaintiff, in respect to the
construction or interpretation that Ofilada was asking the court to
make? At the risk of quoting again part thereof, the complete prayer
in the third-party complaint in question reads thus:

1. Immediately upon the filing of the herein third-party complaint

this Honorable Court issue a writ of preliminary mandatory
injunction ex-parte, without notice to the other parties, ordering the
third-party defendants Commissioner of Customs and Collector of
Customs and Reparations Commission to release immediately the
third-party plaintiffs the balance of the 202 packages of rayon
clothing forming part of the shipment of consumer goods originally
consigned to the Reparations Commission which arrived in Manila
aboard the SS GUILLERMO on September 10, 1962, and which to
the present are still under the custody and possession of the
collector of Customs and Commissioner of Customs upon the filing
of a bond by the third-party plaintiffs in such amount as may be
fixed by this Honorable Court to pay for any damages that the third-
party defendants may suffer should this Honorable Court find that
issuance of the preliminary mandatory injunction is not proper. chanroblesvirtualawlibrary chanrobles virtual law library

2. That after hearing on the merits this Honorable Court confirm and
make final its order of mandatory preliminary injunction. chanroblesvirtualawlibrary chanrobles virtual law library

The third-party plaintiffs further pray for such other relief as may be
just and equitable under the premises. (Pp. 87-88, Record.) chanrobles virtual law library
According to Moran:

Tests of Propriety.-The test to determine whether the claim for

indemnity in a third-party complaint in respect to plaintiff's claim is
proper, are (a) whether it arises out of the same transaction on
which plaintiff's claim is based; or whether the third-party's claim,
although arising out of another or different contract or transaction,
is connected with plaintiff's claim; (U.S. Commercial Co. v. Guevara,
et al., 48 O.G. 612.) (b) whether the third-party defendant would be
liable to the plaintiff or to the defendant for all or part of the
plaintiffs claim against the original defendant, although the third-
party defendant's liability arises out of another transaction; or (e)
whether the third-party defendant may assert any defense which
the third-party plaintiff has, or may have, against plaintiff's claim.
(Capayas v. Court of First Instance, 77 Phil. 181.) Failing these
tests, the complaint is improper. ... (1 Moran, Comments on the
Rules of Court, p. 281, 1970 ed.)

It is thus too evident to call for more elaborate discussion that

respondent court s action in allowing the filing of Cochingyans'
third-party complaint completely disregarded, due presumably to
ignorance thereof, the basic concepts of the remedies of declaratory
relief and third-party complaint.chanroblesvirtualawlibrary chanrobles virtual law library

Moreover, respondent court also paid no heed to the requirement of

Section 2 of Rule 12 of the 1940 Rules to the effect that: "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." In the present case, it is a fact that the motions of the
Cochingyans for leave to file their third-party complaint and for the
admission thereof were granted ex parte notwithstanding that the
trial of the case had already been terminated. chanroblesvirtualawlibrary chanrobles virtual law library

IN CONSEQUENCE OF THE FOREGOING, We have no other

alternative than to declare as We do declare null and void all the
orders herein complained of. 1 They are all hereby set aside and
respondent court is enjoined to desist from carrying any of them
into effect, Costs against respondents Jose and Susana Cochingyan.
Antonio, Muñoz-Palma, Concepcion, Jr., and Martin, JJ., concur. chanroblesvirtualawlibrary chanrobles virtual law library

Fernando and Aquino, JJ., took no part. chanroblesvirtualawlibrary chanrobles virtual law library

Munoz Palma and Martin, JJ., were designated to sit in the Second
Division.

[G.R. No. 119085. September 9, 1999.]

RESTAURANTE LAS CONCHAS and/or DAVID GONZALES, Petitioners, v. LYDIA

LLEGO, SERGIO DANO, EDWARD ARDIANTE, FEDERICO DE LA CRUZ,
SHERILITA ANIEL, LORNA AZUELA, ZENAIDA HERMOCILLA, FELICIDAD
ROLDAN, HELEN MANALAYSAY, LUZ BALDELAMAR, FELICIDAD MENDOZA,
DOLORES BAQUIZO, RODOLFO BAS, CIRIACO BATITES, and THE HONORABLE
NATIONAL LABOR RELATIONS COMMISSION, Respondents.

DECISION

KAPUNAN, J.:

The Petition for Certiorari before us seeks the reversal of the Decision of the National
Labor Relations Commission (NLRC) in favor of private respondents and its resolution
denying petitioners’ motion for reconsideration of said decision. chanroblesvirtual|awlibrary

The facts which gave rise to this petition are as follows: chanrob1es virtual 1aw library

Private respondents were employees of petitioner Restaurante Las Conchas which was
allegedly operated by the Restaurant Services Corporation and by petitioners David
Gonzales and Elizabeth Anne Gonzales who are members of the board of directors and
officers of the corporation.

While private respondents were being employed by petitioners, the Restaurant Services
Corporation got involved in a legal battle with the Ayala Land, Inc. over the land
allegedly being occupied by petitioners for their restaurant.

Ayala Land, Inc. obtained a favorable judgment in the case filed against Restaurant
Services Corporation for unlawful detainer and the latter were ordered to vacate the
premises. The case was appealed to the Court of Appeals and ultimately to this Court
which affirmed the decision of the trial court. 1

Petitioners attempted to look for a suitable place for their restaurant business at the
Ortigas Center but to no avail, thus, on February 28, 1994, they shut down their
business. This resulted in the termination of employment of private respondents.

Private respondents filed a complaint with the Labor Arbiter for payment of separation
pay and 13th month pay. This was, however, dismissed by the Labor Arbiter prompting
the private respondents to appeal the case to the respondent NLRC. On November 29,
1994, the NLRC rendered a Decision favorable to private respondents, the dispositive
portion of which reads: chanrob1es virtual 1aw library

WHEREFORE, the Decision of the Labor Arbiter a quo is hereby Set Aside and that
respondents are ordered to pay the separation benefits of the following complainants,
namely: chanrobles virtual lawlibrary

1. Lydia Llego P 46,426.25

2. Carlos Sangco 29,026.40

3. Sergio Dano 27,545.00

4. Sherlita Aniel 52,000.00

5. Eduardo Ardiente 30,906.85

6. Luz Baldelemar 40,855.10

7. Lorna Azuela 34,468.85

8. Felicidad Roldan 34,468.85

9. Zenaida Hermocilla 34,468.85

10. Felicidad Mendoza 27,212.25

11. Dolores Requizo 40,855.10

12. Rodolfo Bas 51,997.40

13. Ciriaco Batites 22,105.20

—————

Total P472,336.10

—————

SO ORDERED. 2

A motion for reconsideration was filed by petitioners but this was denied by the
respondent NLRC in its Resolution dated January 25, 1995.

Hence, this petition with petitioner raising the following issues, to wit: chanrob1es virtual 1aw library

1. WHETHER OR NOT PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN REVERSING THE
DECISION OF THE LABOR ARBITER A QUO.
2. WHETHER OR NOT PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN NOT GIVING
CONSIDERATION TO THE EVIDENCE PRESENTED BY HEREIN PETITIONERS IN SUPPORT
OF THEIR DEFENSE. 3

The petition is bereft of merit. chanrobles.com : virtual law library

Petitioners claim that the private respondents were not entitled to separation pay
because under the law, the payment of separation benefits is mandated only when the
closure of business or cessation of its operations was not due to serious business losses
or reverses. 4 In this case, they contend that the restaurant was encountering serious
business losses, thus, private respondents were not entitled to the separation benefits
provided for under Art. 283 of the Labor Code.

We are not persuaded.

Art. 283 of the Labor Code provides: chanrob1es virtual 1aw library

ARTICLE 283. Closure of establishment and reduction of personnel. — The employer

may also terminate the employment of any employee due to the installation of labor
saving devices, redundancy, retrenchment to prevent losses or the closing or cessation
of operation of the establishment or undertaking unless the closing is for the purpose of
circumventing the provisions of this Title by serving a written notice on the workers and
the Ministry of Labor and Employment (now Secretary of Labor and Employment) at
least one (1) month before the intended date thereof. In case of termination due to the
installation of labor saving devices or redundancy, the worker affected thereby shall be
entitled to a separation pay equivalent to at least his one (1) month pay or at least one
(1) month pay for every year of service, whichever is higher. In case of retrenchment
to prevent losses and in cases of closure or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, the separation pay
shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every
year of service, whichever is higher, a fraction of at least six (6) months shall be
considered one (1) whole year. (Emphasis supplied).

While it is true that the law does not obligate an employer to pay separation benefits
when the closure is due to losses, 5 petitioners have the burden to prove that such
losses actually exists. 6

In the present case, petitioners mentioned for the first time that they were suffering
serious business losses when they filed their appeal with the NLRC. Such issue was
never raised during the hearing with the Labor Arbiter. This belated act of petitioners
clearly shows that the main reason for closing the restaurant was not due to losses. The
allegation of business losses was a mere afterthought and a last ditch effort to evade
their obligation under the law. chanroblesvirtualawlibrary

Moreover, the evidence presented by petitioners to prove that they are suffering
business losses consists merely of statements of the corporation’s assets and liabilities
which were not even certified by a certified public accountant or an accounting firm.
Neither were the corporation’s Income Tax Return (ITR) which they submitted in
evidence duly certified by the Bureau of Internal Revenue (BIR) as true copies of the
original. They were mere self-serving declarations 7 which under the law are
inadmissible as evidence. 8

While it may true that the rules of evidence prevailing in courts of law or equity are not
controlling in proceedings before the NLRC, still, we cannot admit the self-serving
evidence presented by petitioners since there is no way of ascertaining the truth of
their contents. To admit them would open the floodgates to violations of employers of
the provisions of the Labor Code to the detriment of labor which, under the Constitution
is to be protected.

In Uichico v. National Labor Relations Commission, 9 we ruled that: chanrob1es virtual 1aw library

. . . It is true that administrative and quasi-judicial bodies like the NLRC are not bound
by the technical rules of procedure in the adjudication of cases. However, this
procedural rule should not be construed as a license to disregard certain fundamental
evidentiary rules. While the rules of evidence prevailing in the courts of law or equity
are not controlling in proceedings before the NLRC, the evidence presented before it
must at least have a modicum of admissibility for it to be given some probative value.
The Statement of Profit and Losses submitted by Crispa, Inc. to prove its alleged losses,
without the accompanying signature of a certified public accountant or audited by an
independent auditor, are nothing but self-serving documents which ought to be treated
as a mere scrap of paper devoid of any probative value. . . (Emphasis supplied).

Petitioners also posit that since private respondents failed to refute the aforesaid
financial statements and income tax returns, they are deemed to have waived their
right to object to the admissibility thereof. 10

We disagree. chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

Well-settled is the rule that while lack of objection to a hearsay testimony or evidence
results in the admittance thereof as evidence, said evidence cannot be given any
credence and probative values unless it is shown that it falls within the exceptions to
the hearsay rule. 11 In the present case, petitioners failed miserably to show that the
financial statements and income tax returns are exceptions to the hearsay rule, thus,
their contents have no probative value whatsoever.

Going now to the issue of the personal liability of petitioners David Gonzales and
Elizabeth Ann Gonzales, it is argued that they were mere officers and members of the
board of directors of petitioner corporation which has a separate and distinct personality
from those of its members and officers, hence, the Gonzales couple cannot be held to
answer for the corporation’s liabilities. They insist that personally, they had nothing to
do with the separation of hereon private respondents from petitioner corporation and
therefore, should not be made personally liable for their alleged separation pay. 12

We are not persuaded.

Records reveal that the Restaurant Services Corporation was not a party respondent in
the complaint filed before the Labor Arbiter. The complaint was filed only against the
Restaurante Las Conchas and the spouses David Gonzales and Elizabeth Anne Gonzales
as owner, manager and president. 13 The Restaurant Services Corporation was
mentioned for the first time in the Motion to Dismiss filed by petitioners David Gonzales
and Elizabeth Anne Gonzales 14 who did not even bother to adduce any evidence to
show that the Restaurant Services Corporation was really the owner of the Restaurante
Las Conchas. On the other hand, if indeed, the Restaurant Services Corporation was the
owner of the Restaurante Las Conchas and the employer of private respondents, it
should have filed a motion to intervene 15 in the case. The records, however, show that
no such motion to intervene was ever filed by the said corporation. The only conclusion
that can be derived is that the Restaurant Services Corporation, if it still exists, has no
legal interest in the controversy. Notably, the corporation was only included in the
decision of the Labor Arbiter and the NLRC as respondent because of the mere
allegation of petitioners David Gonzales and Elizabeth Gonzales, albeit without proof,
that it is the owner of the Restaurante Las Conchas. Thus, petitioners David Gonzales
and Elizabeth Anne Gonzales cannot rightfully claim that it is the corporation which
should be made liable for the claims of private respondents. cralawnad

Assuming that indeed, the Restaurant Services Corporation was the owner of the
Restaurante Las Conchas and the employer of private respondents, this will not absolve
petitioners David Gonzales and Elizabeth Anne Gonzales from their liability as corporate
officers. Although as a rule, the officers and members of a corporation are not
personally liable for acts done in the performance of their duties, this rule admits of
exceptions, one of which is when the employer corporation is no longer existing and is
unable to satisfy the judgment in favor of the employee, the officers should be held
liable for acting on behalf of the corporation. Here, the corporation does not appear to
exist anymore.

In A.C. Ransom Labor Union–CCLU v. National Labor Relations Commission, 16 this

Court declared that:chanrob1es virtual 1aw library

. . . Since RANSOM is an artificial person, it must have an officer who can be presumed
to be the employer, being the "person acting in the interest of (the) employer"
RANSOM. The corporation, only in the technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say
even criminally, liable for non-payment of back wages. This is the policy of the law. . .

x          x           x

(c) If the policy of the law were otherwise, the corporation employer can have devious
ways of evading payment of backwages. In the instant case, it would appear that
RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to
the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually
phased out if the 22 strikers win their case. RANSOM actually ceased operations on May
1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was
promulgated against RANSOM. chanrobles virtual lawlibrary

In Gudez v. National Labor Relations Commission, 17 the Court ruled in this wise: chanrob1es virtual 1aw library

There is no dispute herein that respondent Crisologo is in fact the president of

respondent corporation, RAPSA. Neither is there any doubt that respondent RAPSA had
closed its business upon the order of the Philippine Constabulary and that as a
consequence thereof the services of petitioner employees were terminated without
awarding them separation pay as required under the Labor Code. It is significant to
note that the respondent corporation had ceased to exist when the Labor Arbiter
rendered its decision holding respondent Crisologo jointly and severally liable with
respondent corporation for the money claims of its employees. Moreover, records show
that on September 25, 1987, which is the same day when the Labor Arbiter’s decision
was promulgated, RAPSA filed a petition for voluntary insolvency with the Regional Trial
Court of Makati. The foregoing circumstances make it more necessary to hold
respondent Crisologo liable for the claims due to petitioners; otherwise, any decision
that would be rendered in favor of the latter would be useless and ineffective for there
would be no one against whom it can be enforced. Thus, where the employer
corporation is no longer existing and unable to satisfy the judgment in favor of the
employee, the officers should be held liable for acting on behalf of the corporation. (see
Lim v. NLRC, G.R. 79907 and Sweet Lines, inc. v. NLRC, G.R. 79975, March 16, 1989).
(Emphasis supplied.)

Similarly, in Carmelcraft Corporation v. National Labor Relations Commission, 18 we

ruled as follows:
chanrob1es virtual 1aw library

We find also untenable the contention of Carmen Yulo that she is not liable for the acts
of the petitioner company, assuming it had acted illegally, because the Carmelcraft
Corporation is a distinct and separate entity with a legal personality of its own. Yulo
claims she is only an agent of the company carrying out the decisions of its board of
directors. We do not agree. Our finding is that she is in fact and legal effect the
corporation, being not only its president and general manager but also its owner.

In Valderrama v. National Labor Relations Commission, 19 it was held that: chanrob1es virtual 1aw library

A corporation can only act through its officers and agents. That is why the cease and
desist order was directed to the "officers and agents" of A.C. Ransom, which was
actually found guilty of unfair labor practice. But that case clearly also holds that any
decision against the company can be enforced against the officers in their personal
capacities should the corporation fail to satisfy the judgment against it. The quoted
portion of that decision explaining the basis for such ruling makes that clear. Agreeably
with the ruling in A.C . Ransom Labor Union–CCLU it was held in another case that
where the employer corporation is no longer existing and [is] unable to satisfy the
judgment in favor of the employee, the officer should be held liable for acting on behalf
of the corporation." (Emphasis supplied.) chanroblesvirtuallawlibrary

In the present case, the employees can no longer claim their separation benefits and
13th month pay from the corporation because it has already ceased operation. To
require them to do so would render illusory the separation and 13th month pay
awarded to them by the NLRC. Their only recourse is to satisfy their claim from the
officers of the corporation who were, in effect, acting in behalf of the corporation. It
would appear that, originally, Restaurante Las Conchas was a single proprietorship put
up by the parents of Elizabeth Anne Gonzales, who together with her husband,
petitioner David Gonzales, later took over its management. Private respondents claim,
and rightly so, that the former were the real owners of the restaurant. The conclusion is
bolstered by the fact that petitioners never revealed who were the other officers of the
Restaurant Services Corporation, if only to pinpoint responsibility in the closure of the
restaurant that resulted in the dismissal of the private respondents from employment.
Petitioner David Gonzales and Elizabeth Anne Gonzales are, therefore, personally liable
for the payment of the separation and 13th month pay due to their former employees.

WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision
of the respondent National Labor Relations Commission is AFFIRMED in toto.

SO ORDERED.

G.R. No. 191388               March 9, 2011

ASIA UNITED BANK, CHRISTINE T. CHAN, and FLORANTE C. DEL MUNDO, Petitioners,

vs.
GOODLAND COMPANY, INC., Respondent.

DECISION

DEL CASTILLO, J.:

The costly consequence of forum shopping should remind the parties to ever be mindful against
abusing court processes.

Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court assailing the
Decision2 dated June 5, 2009 of the Court of Appeals (CA) in CA-G.R. CV No. 90114, as well as its
Resolution3 dated February 17, 2010, which denied a reconsideration of the assailed Decision. The
dispositive portion of the appellate court’s Decision reads:

WHEREFORE, the appeal is GRANTED and the appealed Order dated March 15, 2007 is
REVERSED and SET ASIDE. In lieu thereof, another is entered ordering the DENIAL of appellee
bank’s motion to dismiss and directing the REINSTATEMENT of appellant’s complaint as well as the
REMAND of the case to the trial court for further proceedings.

SO ORDERED.4

Factual Antecedents

Respondent Goodland Company, Inc. (Goodland) executed a Third Party Real Estate Mortgage
(REM) over two parcels of land located in the Municipality of Sta. Rosa, Laguna and covered by
Transfer Certificates of Title (TCT) Nos. 3216725 and 3216736 in favor of petitioner Asia United Bank
(AUB). The mortgage secured the obligation amounting to ₱250 million of Radiomarine Network, Inc.
(RMNI), doing business as Smartnet Philippines, to AUB. The REM was duly registered on March 8,
2001 in the Registry of Deeds of Calamba, Laguna.7

Goodland then filed a Complaint8 docketed as Civil Case No. B-6242 before Branch 25 of the
Regional Trial Court (RTC) of Biñan, Laguna for the annulment of the REM on the ground that the
same was falsified and done in contravention of the parties’ verbal agreement (Annulment Case).

While the Annulment Case was pending, RMNI defaulted in the payment of its obligation to AUB,
prompting the latter to exercise its right under the REM to extrajudicially foreclose the mortgage. It
filed its Application for Extrajudicial Foreclosure of Real Estate Mortgage under Act No. 3135, as
amended with the Office of the Executive Judge of the RTC of Biñan, Laguna on October 19,
2006.9 The mortgaged properties were sold in public auction to AUB as the highest bidder. It was
issued a Certificate of Sale, which was registered with the Registry of Deeds of Calamba on
November 23, 2006.

Before AUB could consolidate its title, Goodland filed on November 28, 2006 another
Complaint10 docketed as Civil Case No. B-7110 before Branch 25 of the RTC of Biñan, Laguna,
against AUB and its officers, petitioners Christine Chan and Florante del Mundo. This Complaint
sought to annul the foreclosure sale and to enjoin the consolidation of title in favor of AUB (Injunction
Case). Goodland asserted the alleged falsified nature of the REM as basis for its prayer for
injunction.

A few days later, AUB consolidated its ownership over the foreclosed properties and obtained new
titles, TCT Nos. T-65703111 and 657032,12in its name from the Registry of Deeds of Calamba.

Petitioners then filed on December 11, 2006 a Motion to Dismiss with Opposition to a Temporary
Restraining Order in the Injunction Case.13 They brought to the trial court’s attention Goodland’s
forum shopping given the pendency of the Annulment Case. They argued that the two cases both
rely on the alleged falsification of the real estate mortgage as basis for the reliefs sought.

Ruling of the Regional Trial Court (Injunction Case)

On March 15, 2007, the trial court acted favorably on petitioners’ motion and dismissed the
Injunction Case with prejudice on the grounds of forum shopping and litis pendentia.14 The trial court
explained that the Injunction Case and the Annulment Case are both founded on the same
transactions, same essential facts and circumstances, and raise substantially the same issues. The
addition of the application for a writ of preliminary injunction does not vary the similarity between the
two cases. The trial court further noted that Goodland could have prayed for injunctive relief as
ancillary remedy in the Annulment Case. Finally, the trial court stated that any judgment in the
Annulment Case regarding the validity of the REM would constitute res judicata on the Injunction
Case.

Ruling of the Court of Appeals15 (Injunction Case)

Goodland appealed16 the same to the CA.

Meanwhile, AUB filed an Ex-Parte Application for Writ of Possession on December 18, 2006, which
was granted on March 15, 2007. The writ was issued on March 26, 2007 and AUB obtained
possession of the foreclosed properties on April 2, 2007.

On June 5, 2009, the CA promulgated its assailed Decision, which ruled in favor of Goodland and
ordered the reinstatement of the Injunction Case in the trial court.17

The CA rejected petitioners’ contention that Goodland’s appeal raised pure questions of law,18 which
are within the jurisdiction of the Supreme Court under Rule 45.19 Instead, it found Goodland’s Rule
41 appeal to be proper because it involved both questions of fact and of law. The CA held that a
question of fact existed because petitioners themselves questioned in their Brief the veracity of
Goodland’s Certification of Non-Forum Shopping.20
The CA conceded that Goodland’s Brief failed to comply with the formal requirements, which are all
grounds for the dismissal of the appeal,21 e.g., failure of the appellant to serve and file the required
number of copies of its brief on all appellees and absence of page references to the record.
However, it relaxed the rules so as to completely resolve the rights and obligations of the parties.
The CA, however, warned Goodland that its future lapses will be dealt with more severely.22

The CA further ruled against petitioners’ argument that the delivery of the foreclosed properties to
AUB’s possession has rendered Goodland’s appeal moot. It explained that the Injunction Appeal
involving the annulment of extrajudicial foreclosure sale can proceed independently of petitioners’
application for a writ of possession.23

The CA then concluded that Goodland was not guilty of forum shopping when it initiated the
Annulment and Injunction Cases. The CA held that the reliefs sought in the two cases were different.
The Annulment Case sought the nullification of the real estate mortgage, while the Injunction Case
sought the nullification of the foreclosure proceedings as well as to enjoin the consolidation of title in
favor of petitioners.24 The CA further held that aside from the difference in reliefs sought, the two
cases were independent of each other because the facts or evidence that supported their respective
causes of action were different. The acts which gave rise to the Injunction Case (i.e., the extrajudicial
foreclosure proceedings) occurred long after the filing of the Annulment Case.25

The appellate court also held that any decision in either case will not constitute res judicata on the
other. It explained that the validity of the real estate mortgage has no "automatic bearing" on the
validity of the extrajudicial foreclosure proceedings.26

Moreover, according to the CA, the fact that Goodland stated in its Certification of Non-Forum
Shopping in the Injunction Case that the Annulment Case was pending belied the existence of forum
shopping.27

Petitioners filed a Motion for Reconsideration28 on July 2, 2009, which was denied in the assailed
Resolution of February 17, 2010.29

Hence, the instant petition.

Ruling in G.R. No. 190231 (Annulment Case)

Contemporaneously with the proceedings of the Injunction Case, the earlier Annulment Case (Civil
Case No. B-6242) was also dismissed by the trial court on the ground of forum shopping on August
16, 2007.30

Goodland filed an appeal31 of the dismissal to the CA, which appeal was granted. The CA ordered on
August 11, 2009 the reinstatement of the Annulment Case in the trial court.32

AUB then filed with this Court a Petition for Review,33 docketed as G.R. No. 190231 and entitled Asia
United Bank and Abraham Co v. Goodland Company, Inc.

On December 8, 2010, the Court’s First Division reversed the CA ruling and resolved the appeal in
AUB’s favor.34 The sole issue resolved by the Court was whether Goodland committed willful and
deliberate forum shopping by filing Civil Case Nos. B-6242 (Annulment Case) and B-7110 (Injunction
Case).  The Court ruled that Goodland committed forum shopping because both cases asserted
lavvphil

non-consent to the mortgage as the only basis for seeking the nullification of the REM, as well as the
injunction of the foreclosure. When Goodland did not notify the trial court of the subsequent filing of
the injunction complaint, Goodland revealed its "furtive intent to conceal the filing of Civil Case No.
B-7110 for the purpose of securing a favorable judgment." Thus, the Court concluded that the trial
court was correct in dismissing the annulment case with prejudice. The dispositive portion of the said
Resolution reads as follows:

WHEREFORE, the petition is hereby GRANTED. The August 11, 2009 decision and November 10,
2009 resolution of the Court of Appeals in CA-GR CV No. 9126[9] are REVERSED and SET ASIDE.
The August 16, 2007 and December 5, 2007 orders of the Regional Trial Court of Biñan, Laguna,
Branch 25 in Civil Case No. B-6242 are REINSTATED.35

Goodland filed a Motion for Reconsideration36 but the same was denied with finality in the Court’s
Resolution dated January 19, 2011.

Issue37

The parties present several issues for the Court’s resolution. Most of these address the procedural
infirmities that attended Goodland’s appeal to the CA, making such appeal improper and dismissible.
The crux of the case, however, lies in the issue of whether the successive filing of the Annulment
and Injunction Cases constitute forum shopping.

Petitioners’ Arguments

Petitioners maintain that Goodland is guilty of forum shopping because it sought in the Annulment
Case to annul the REM on the ground that it was falsified and unlawfully filled-out; while in the
Injunction Case, Goodland wanted to nullify the foreclosure sale arising from the same REM on the
ground that the REM was falsified and unlawfully filled-out. Clearly, Goodland’s complaints rise and
fall on the issue of whether the REM is valid. This requires the presentation of the same evidence in
the Annulment and Injunction Cases.38

Goodland’s Arguments

Goodland counters that it did not commit forum shopping because the causes of action for the
Injunction and Annulment Cases are different. The Annulment Case is for the annulment of REM;
while the Injunction Case is for the annulment of the extrajudicial foreclosure sale. Goodland argues
that any judgment in the Annulment Case, regardless of which party is successful, would not amount
to res judicata in the Injunction Case.39

Our Ruling

We grant the petition.

There is forum shopping "when a party repetitively avails of several judicial remedies in different
courts, simultaneously or successively, all substantially founded on the same transactions and the
same essential facts and circumstances, and all raising substantially the same issues either pending
in or already resolved adversely by some other court."40 The different ways by which forum shopping
may be committed were explained in Chua v. Metropolitan Bank & Trust Company:41

Forum shopping can be committed in three ways: (1) filing multiple cases based on the same cause
of action and with the same prayer, the previous case not having been resolved yet (where the
ground for dismissal is litis pendentia); (2) filing multiple cases based on the same cause of action
and the same prayer, the previous case having been finally resolved (where the ground for dismissal
is res judicata); and (3) filing multiple cases based on the same cause of action, but with different
prayers (splitting causes of action, where the ground for dismissal is also either litis pendentia or res
judicata).

Common in these types of forum shopping is the identity of the cause of action in the different cases
filed. Cause of action is defined as "the act or omission by which a party violates the right of
another."42

The cause of action in the earlier Annulment Case is the alleged nullity of the REM (due to its
allegedly falsified or spurious nature) which is allegedly violative of Goodland’s right to the
mortgaged property. It serves as the basis for the prayer for the nullification of the REM. The
Injunction Case involves the same cause of action, inasmuch as it also invokes the nullity of the
REM as the basis for the prayer for the nullification of the extrajudicial foreclosure and for injunction
against consolidation of title. While the main relief sought in the Annulment Case (nullification of the
REM) is ostensibly different from the main relief sought in the Injunction Case (nullification of the
extrajudicial foreclosure and injunction against consolidation of title), the cause of action which
serves as the basis for the said reliefs remains the same — the alleged nullity of the REM. Thus,
what is involved here is the third way of committing forum shopping, i.e., filing multiple cases based
on the same cause of action, but with different prayers. As previously held by the Court, there is still
forum shopping even if the reliefs prayed for in the two cases are different, so long as both cases
raise substantially the same issues.43

There can be no determination of the validity of the extrajudicial foreclosure and the propriety of
injunction in the Injunction Case without necessarily ruling on the validity of the REM, which is
already the subject of the Annulment Case. The identity of the causes of action in the two cases
entails that the validity of the mortgage will be ruled upon in both, and creates a possibility that the
two rulings will conflict with each other. This is precisely what is sought to be avoided by the rule
against forum shopping.

The substantial identity of the two cases remains even if the parties should add different grounds or
legal theories for the nullity of the REM or should alter the designation or form of the action. The
well-entrenched rule is that "a party cannot, by varying the form of action, or adopting a different
method of presenting his case, escape the operation of the principle that one and the same cause of
action shall not be twice litigated."44

The CA ruled that the two cases are different because the events that gave rise to them are
different. The CA rationalized that the Annulment Case was brought about by the execution of a
falsified document, while the Injunction Case arose from AUB’s foreclosure based on a falsified
document. The distinction is illusory. The cause of action for both cases is the alleged nullity of the
REM due to its falsified or spurious nature. It is this nullity of the REM which Goodland sought to
establish in the Annulment Case. It is also this nullity of the REM which Goodland asserted in the
Injunction Case as basis for seeking to nullify the foreclosure and enjoin the consolidation of title.
Clearly, the trial court cannot decide the Injunction Case without ruling on the validity of the
mortgage, which issue is already within the jurisdiction of the trial court in the Annulment Case.

The recent development in Asia United Bank v. Goodland Company, Inc.,45 which involved
substantially the same parties and the same issue is another reason for Goodland’s loss in the
instant case. The issue that Goodland committed deliberate forum shopping when it successively
filed the Annulment and Injunction Cases against AUB and its officers was decided with finality
therein. This ruling is conclusive on the petitioners and Goodland considering that they are
substantially the same parties in that earlier case.
Given our ruling above that the Injunction Case ought to be dismissed for forum shopping, there is
no need to rule further on the procedural infirmities raised by petitioners against Goodland’s appeal.

WHEREFORE, premises considered, the Petition is GRANTED. The June 5, 2009 Decision of the
Court of Appeals and its February 17, 2010 Resolution in CA-G.R. CV No. 90114 are hereby
REVERSED and SET ASIDE. The March 15, 2007 Order of Branch 25 of the Regional Trial Court of
Biñan, Laguna DISMISSING Civil Case No. B-7110 is hereby REINSTATED and AFFIRMED.

SO ORDERED.

G.R. No. 153785 August 3, 2006

VERONIQUE T. HUIBONHOA, Petitioner,
vs.
ANGEL D. CONCEPCION, and HON. RAYMUNDO Z. ANNANG, in his capacity as Presiding
Judge of the Regional Trial Court of Cabanatuan City, Branch 86, Respondents.

RESOLUTION

TINGA, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure assailing
the Decision of the Court of Appeals (CA) in CA-G.R. SP No. 65718 promulgated on March 12, 2002
and its Resolution dated May 27, 2002, denying petitioner’s motion for reconsideration of said
Decision. The CA Decision denied the petition for certiorari filed by Veronique T. Huibonhoa, herein
petitioner, which assailed the Orders dated July 13, 2001 and July 17, 2001 issued by Judge
Raymundo Annang in his capacity as Acting Executive Judge of the Regional Trial Court (RTC) of
Cabanatuan City.

The instant petition stemmed from a complaint for accounting and damages filed by respondent
Angel D. Concepcion, Sr. against petitioner Veronique T. Huibonhoa. The complaint was filed with
the RTC of Cabanatuan City on July 13, 2001 and prayed for the issuance of a preliminary injunction
and preliminary mandatory injunction to immediately restrain Huibonhoa from performing her job as
manager of Poulex Supermarket, among others. On the same day the complaint was filed, Judge
Annang issued a temporary restraining order (TRO) effective for seventy-two (72) hours. The
pertinent portion of the July 13, 2001 Order reads:

WHEREFORE, premises considered, temporary restraining order is hereby issued effective for
seventy two hours from this order restraining and prohibiting defendant Veronique T. Huibonhoa
from occupying and performing her position as Manager of the Poulex Supermarket and from
suppressing, concealing and falsifying the records; and, further, said defendant is hereby ordered to
submit formal turn-over of all cash and other cash items and all management and accounting
records accruing for the business operation of the [sic] Poulex Supermarket for the period of, from
November, 2000 up to the present. Further, defendant Sphinx Security Agency is hereby ordered to
allow the plaintiff or his authorized representative/s to enter the [sic] Poulex Supermarket as Director
of the CHAS, Inc., among others, until further order from this Court. Likewise, Sphinx Security
Agency is hereby restrained from interfering and/or preventing the implementation of the orders of
Angel D. Concepcion, Sr. in his capacity as Chairman-President of CHAS, Inc. 1

On July 16, 2001, Huibonhoa, along with fellow stockholders of CHAS, Inc., CHAS Enterprise
Corporation and CHAS Realty and Development Corporation, filed an intra-corporate and derivative
suit and complaint for injunction with a prayer for temporary restraining order and/or writ of
preliminary injunction to prevent respondent Concepcion, Sr. and his agents from interfering with the
management and operations of the Poulex Supermarket. The complaint was docketed as Civil Case
No. 4068-AF.

On July 17, 2001, Huibonhoa filed an Urgent Manifestation and Motion Ex Abundante Ad Cautelam,
seeking the issuance of an order certifying the expiration of the TRO. Thus, Judge Annang issued on
the same day an order declaring the expiration of the temporary restraining order but at the same
time directing the continuous closure of the supermarket. The July 17, 2001 Order reads in part:

For being meritorious, it is hereby declared that the seventy-two (72) hour TRO effective for only
seventy-two hours from its issuance has already expired on July 16, 2001 at 5:00 p.m.

Considering the fact that the [sic] Poulex Supermarket had already been padlocked on July 16, 2001
after 5:00 P.M. according to the said motion and manifestation of defendant Veronique T.
Huibonhoa, the same should remain closed in the interest of justice and in order not to create further
confusion. Anyway, this case will be raffled tomorrow, July 18, 2001 at 10:00 A.M. in accordance
with the Rules. 2

On July 18, 2001, respondent Concepcion’s complaint for accounting and damages, docketed as
Civil Case No. 4065, was raffled to Branch 28 of the RTC-Cabanatuan City, the branch designated
to decide cases formerly cognizable by the Securities and Exchange Commission.

On July 20, 2001, Huibonhoa filed a petition for certiorari with the Court of Appeals, docketed as CA-
G.R. SP No. 65718. The petition sought to annul the July 13 and July 17 Orders of Judge Annang
for having been issued with grave abuse of discretion amounting to lack and/or excess of
jurisdiction. Huibonhoa’s prayer for the issuance of a temporary restraining order was granted in a
Resolution issued on July 23, 2001. The CA Resolution enjoined respondents from implementing
and/or enforcing the assailed orders of Judge Annang, including but not limited to the prevention of
the breaking of the padlock and reopening of Poulex Supermarket, and interference by respondent
Concepcion and his agents with the operations of the supermarket.

On March 12, 2004, the Court of Appeals dismissed Huibonhoa’s petition for certiorari assailing the
twin orders of Judge Annang on the grounds of pre-maturity and forum shopping. Huibonhoa moved
for its reconsideration but in the Resolution issued on May 27, 2002, the Court of Appeals denied her
motion.

Hence, Huibonhoa filed the instant petition for review on certiorari imputing the following errors to the
Court of Appeals:

I.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN DISMISSING THE PETITION

ON THE GROUNDS THAT: (A) PETITIONER FAILED TO MOVE FOR THE DISSOLUTION OF THE
TEMPORARY RESTRAINING ORDER WITH THE TRIAL COURT UNDER SECTION 6, RULE 58
OF THE RULES OF COURT; AND THAT (B) PETITIONER IS GUILTY OF FORUM SHOPPING,
CONSIDERING THAT:

A. SECTION 6, RULE 58 OF THE RULES OF COURT IS NOT APPLICABLE TO THE CASE.

B. THE FILING OF THE COMPLAINT IN CIVIL CASE NO. 4068-AF COULD NOT, AS IT DID NOT,
CONSTITUTE FORUM SHOPPING.

C. THE FILING OF THE PETITION FOR CERTIORARI COULD NOT, AND DID NOT CONSTITUTE
FORUM SHOPPING.

II.

THE HONORABLE COURT OF APPEALS ERRED IN NOT ISSUING THE WRIT OF CERTIORARI
TO ANNUL THE 13 JULY 2001 AND 17 JULY 2001 ORDERS OF THE TRIAL COURT. 3

After respondent Concepcion and petitioner Huibonhoa filed a Comment and a Reply, respectively,
the Court issued a Resolution on September 28, 2005, directing the former to show cause why the
instant petition should not be dismissed for having become moot and academic. The resolution of
the petition is ultimately hinged on the propriety of the issuance of the 72-hour restraining order,
which should have expired ipso jure on the twentieth day, a judicial declaration to that effect not
being necessary. Thus, the filing of the instant petition almost a year after the issuance of the TRO
would be unnecessary.

Huibonhoa submitted a Compliance with Motion to Clarify dated October 25, 2005, conveying the
following: (1) Huibonhoa had proposed a settlement for the parties to dismiss their respective claims
against each other; (2) upon a Joint Motion to Dismiss by both petitioner Huibonhoa and respondent
Concepcion, the trial court issued an order dismissing Civil Case No. 4065, the complaint for
accounting and damages filed by respondent Concepcion; (3) notwithstanding the dismissal of the
pending cases, the parties did not agree to cause the dismissal of the instant petition; (4) petitioner
Huibonhoa is still seeking the reversal of the CA Decision insofar as it ruled that she was guilty of
forum shopping and a clarification on whether her counsel will be exposed to administrative liability
should the instant petition be dismissed. 4

In dismissing the petition for certiorari, the Court of Appeals found petitioner Huibonhoa guilty of
forum shopping when she filed Civil Case No. 4068-AF with the trial court and, thereafter, a petition
for certiorari, docketed as CA-G.R. SP No. 65718, with the Court of Appeals. The appellate court
believed that the two actions had the same object of nullifying the TRO issued by Judge Annang in
Civil Case No. 4065. Petitioner Huibonhoa urges the Court to evaluate the Court of Appeals’ finding
that she engaged in forum shopping, especially that the appellate court characterized said act as
"deliberate." She stresses that said finding and the accompanying characterization have exposed
her and her counsel to sanctions. 5

In her defense, Huibonhoa insists that Civil Case No. 4068-AF was filed not for the purpose of
defeating the TRO issued by Judge Annang on July 13, 2001 but on account of the acts of
disturbance and attempted forcible take-over by respondent Concepcion committed on July 6,7,12
and 13, 2001. She also asserts that Civil Case No. 4068-AF, while filed on July 16, 2001, was
signed and verified on July 13, 2001 or before a copy of the July 13, 2001 TRO was served on her
counsel.

Furthermore, Huibonhoa contends that in contrast, the petition for certiorari was filed with the Court
of Appeals to enjoin or prohibit acts pursuant to the implementation of the July 13 and 17 Orders of
Judge Annang, although the TROs separately prayed for in the complaint for injunction and in the
petition for certiorari effectively sought to address the interference in the operations of the
supermarket by respondent Concepcion.

There is forum shopping when, as a result of an adverse opinion in one forum, a party seeks a
favorable opinion, other than by appeal or certiorari in another. There can also be forum shopping
when a party institutes two or more suits in different courts, either simultaneously or successively, in
order to ask the courts to rule on the same or related causes and/or to grant the same or
substantially the same reliefs on the supposition that one or the other court would make a favorable
disposition or increase a party’s chances of obtaining a favorable decision or action. 6

The rationale against forum shopping is that a party should not be allowed to pursue simultaneous
remedies in two different fora. Filing multiple petitions or complaints constitutes abuse of court
processes, which tends to degrade the administration of justice, wreaks havoc upon orderly judicial
procedure, and adds to the congestion of the heavily burdened dockets of the courts. Thus, the rule
proscribing forum shopping seeks to promote candor and transparency among lawyers and their
clients in the pursuit of their cases before the courts to promote the orderly administration of justice,
prevent undue inconvenience upon the other party, and save the precious time of the courts. It also
aims to prevent the embarrassing situation of two or more courts or agencies rendering conflicting
resolutions or decisions upon the same issue. 7

To determine whether a party violated the rule against forum shopping, the most important question
to ask is whether the elements of litis pendentia are present or whether a final judgment in one case
will result to res judicata in another. Otherwise stated, to determine forum shopping, the test is to
see whether in the two or more cases pending, there is identity of parties, rights or causes of action,
and reliefs sought. 8

A plain reading of the allegations in the complaint in Civil Case No. 4068-AF and those in the petition
for certiorari filed with the Court of Appeals would preclude the Court from affirming the Court

of Appeals’ finding that Huibonhoa had engaged in forum shopping. Not all the elements of litis
pendentia concur. There is no identity of parties, rights or causes of action between Civil Case No.
4068-AF and the petition for certiorari. Civil Case No. 4068-AF is a derivative suit and complaint for
injunction instituted by the stockholders of the aforementioned corporations while the petition for
certiorari was instituted by petitioner in her capacity as manager of Poulex Supermarket. The
complaint in Civil Case No. 4068-AF alleges different causes of action, including those relating to
interference by respondent Concepcion in the operations of the supermarket and causing damages
to the corporations and the stockholders arising from such unlawful interference. The petition for
certiorari aims to nullify the two orders of Judge Annang on the ground that they were issued with
grave abuse of discretion since only the designated special commercial court has jurisdiction to hear
and decide intra-corporate controversies. A resolution on the merits of the petition for certiorari
would necessarily have to discuss the authority of respondent Judge Annang to take cognizance of
the case, which was allegedly an intra-corporate matter, and the issuance of the mandatory
injunction, which was allegedly not sanctioned by any rule. These are the main issues raised in the
petition for certiorari but are not raised as issues in Civil Case No. 4068-F.

The reliefs sought in the two actions are also different. In Civil Case No. 4068-F, aside from the main
action for a permanent injunction, complainants therein also claimed damages. In the petition for
certiorari, Huibonhoa sought the prevention of the implementation of the assailed orders of Judge
Annang. The only common thread

between the two actions is with respect to the TRO sought to prevent respondent Concepcion from
interfering with the operations of the supermarket, but said relief is only incidental and does not
constitute the main cause of action in both cases.

All the foregoing points favorable to petitioner’s cause notwithstanding, the Court cannot take
favorable action on her petition. In the light of the supervening events, particularly the dismissal of
Civil Case No. 4065, the instant petition has clearly become moot and academic and, therefore,
deserves to be dismissed. With the termination of the case wherein the assailed orders were issued,
it is no longer necessary for this Court to resolve whether the Court of Appeals had correctly upheld
said orders. In addition, one of said orders directed the issuance of a TRO, which, by sheer force of
law, should have expired and did expire after 72 hours, without need of a judicial declaration to that
effect.

Likewise, with the settlement reached by the parties which culminated in the dismissal of the cases
filed by them against each other, petitioner and her counsel have been liberated from any risk of
sanction for their supposed forum shopping.

Courts of justice constituted to pass upon substantial rights will not consider questions where no
actual interests are involved. Thus, the well-settled rule that courts will not determine a moot
question.

Where the issues have become moot and academic, there ceases to be any justiciable controversy,
thus rendering the resolution of the same of no practical value. Courts will decline jurisdiction over
moot cases because there is no substantial relief to which petitioner will be entitled and which will
anyway be negated by the dismissal of the petition. This Court will therefore abstain from expressing
its opinion in a case where no legal relief is needed or called for. 9

WHEREFORE, the instant petition for review on certiorari is DENIED for being moot and academic.
No pronouncement as to costs.

SO ORDERED.

SECOND DIVISION

G.R. No. 172590 : January 7, 2013

MARY LOUISE R. ANDERSON, Petitioner, v. ENRIQUE HO, Respondent.

DECISION

DEL CASTILLO, J.:

As her petition for review was dismissed by the Court of Appeals (CA) on a technical
ground, petitioner now invokes the liberal application of the rules of procedure.

Assailed in this Petition for Review on Certiorari1 is the July 14, 2005 Resolution2 of the
CA in CA-G.R. SP No. 89793 which dismissed the petition for review of petitioner Mary
Louise R. Anderson (Anderson) because the certification against forum shopping
attached thereto was signed by counsel on her behalf without the proper authority.
Likewise assailed is the CAs May 4, 2006 Resolution3 denying the motion for
reconsideration thereof.

Factual Antecedents

On June 5, 2003, Anderson filed a Complaint4 for Ejectment against respondent Enrique

Ho (Ho) before the Metropolitan Trial Court (MeTC) of Quezon City.5 She alleged that
through her mere tolerance, Ho is in possession of her parcel of land at Roosevelt
Avenue, Quezon City covered by Transfer Certificate of Title No. N-193368 6 (Roosevelt
property). As she was already in need of the said property, Anderson served upon Ho a
Demand Letter to Vacate but despite receipt thereof, Ho refused. Because of this,
Anderson prayed that the MeTC order Ho to vacate the Roosevelt property and pay her
damages and attorneys fees.

In his Answer with Compulsory Counterclaim,7 Ho denied that his occupation of the
Roosevelt property is through Andersons mere tolerance. He claimed that since
Anderson is an American citizen, he managed her affairs in the Philippines and
administered her properties in Quezon City and Cebu. When Anderson sought his
assistance in ejecting her relatives from the Roosevelt property and in demolishing the
St. Anthony de Padua Church built thereon, Ho (1) secured the services of a lawyer to
file an ejectment case against the occupants of the property; (2) dutifully appeared in
court on Andersons behalf who was then in the United States of America (U.S.A.); and
(3) was able to secure a judgment from the court in favor of Anderson. For all these,
Anderson did not pay Ho a single centavo and instead executed a written document
dated January 14, 19998 which states that as partial payment for Hos services,
Anderson is authorizing him "to make use of the Roosevelt property as his residence
free of charge provided he vacates [it] if there is a buyer for the lot" and "that the
balance of Hos compensation shall consist of 10% of the proceeds of the sale of any or
all of her properties located in Roosevelt Avenue, M.H. del Pilar Street and Ana Maria
Street, all in Quezon City; Cebu City; and Cebu province". In view of this, Ho averred
that he possesses the property not through mere tolerance but as part of his
compensation for services rendered to Anderson. Hence, he is entitled to the continued
possession thereof until such time that the property is sold and he is paid the 10% of
the proceeds of its sale.

Ruling of the Metropolitan Trial Court

On June 25, 2004, the MeTC rendered a Decision 9 dismissing the case for lack of cause
of action. It gave much weight to the written document executed by Anderson wherein
she gave her consent for Ho to occupy the Roosevelt property provided that the latter
shall vacate the same if there is already a buyer for the lot. There being no allegation
that the said property already has a buyer, she could not eject Ho therefrom.

Ruling of the Regional Trial Court

On appeal, the Regional Trial Court (RTC) in its Decision10 of January 21, 2005 ruled as
follows:
cralawlibrary

The evidence of the parties thus stands upon an equipoise. With the equiponderance of
evidence, the Court is inclined to consider the dismissal of the complaint as without
prejudice depending on the outcome of the determination in the proper forum whether
or not the written document dated January 14, 1999 x x x was falsified.

WHEREFORE, the Court modifies the Decision dated June 25, 2004 of the Metropolitan
Trial Court of Quezon City in Civil Case No. 30840 by dismissing the complaint without
prejudice.

SO ORDERED.11 ?r?l1
Anderson moved for reconsideration,12 but the same was denied by the RTC in an
Order13dated April 1, 2005, a copy of which was received by her counsel on May 5,
2005.14?r?l1

Ruling of the Court of Appeals

Intending to file with the CA a Petition for Review under Rule 42 of the Rules of Court,
Andersons counsel, Atty. Rommel V. Oliva (Atty. Oliva), filed a Motion for Extension of
Time of 15 days from May 20, 2005 or until June 4, 2005 within which to file a
petition15allegedly due to the revisions required in the initial draft and on account of
heavy pressure of work. This was granted by the CA in a Minute Resolution 16 dated May
31, 2005. Subsequently, said counsel sought another extension of 15 days or until June
19, 2005,17this time claiming that the petition had already been finalized and sent to
Anderson in Hawaii, U.S.A. for her to read as well as sign the certification and
verification portion thereof. However, as of the last day of the extended period on June
4, 2005, the petition has not yet been sent back, hence, the additional extension being
sought. In the interest of justice, the CA once again granted the said motion for
extension.18 On June 20, 2005,19Atty. Oliva was finally able to file the Petition for
Review20 but the certification against forum shopping attached thereto was signed by
him on Andersons behalf without any accompanying authority to do so. Hence, the CA
issued a Resolution21 on July 14, 2005, viz:cralawlibrary

The Court resolves to DISMISS herein Petition for Review as the certification against
forum shopping was executed not by the petitioner herself but by her counsel without
attaching therewith any special authority to sign on her behalf.

SO ORDERED.22 ?r?l1

Anderson filed a Motion for Reconsideration. 23 During its pendency, she also filed a
Manifestation24 to which was attached an Affidavit25 and a Special Power of Attorney
(SPA)26 authorizing her counsel to cause the preparation and filing of the Petition for
Review and to sign and execute the verification and certification against forum shopping
on her behalf. She explained in the Affidavit that at the time the petition was filed, her
health condition hindered her from going to the proper authority to execute the
necessary SPA so she just verbally instructed her lawyer to draft the petition and cause
the filing of the same. Nevertheless, upon learning of the dismissal of her case, she
returned to the Philippines even against her doctors advice and executed an SPA in
favor of her counsel. She thus prayed that the subsequently submitted documents be
considered in resolving her pending Motion for Reconsideration.

The CA, however, remained unswayed and denied the Motion for Reconsideration in a
Resolution27 dated May 4, 2006.

Hence, this Petition for Review on Certiorari.

The Parties Arguments

Anderson prays for the relaxation of the rules on certification against forum shopping
and cites a number of jurisprudence wherein the Court considered the subsequent
submission or correction of a certificate of non-forum shopping as substantial
compliance. One in particular is Donato v. Court of Appeals28 which she claims to be on
all fours with the present case. Moreover, Anderson stresses that the merits of the case
should at all times prevail over the rigid application of technical rules. She then
proceeds to discuss her arguments relating to the substantial merits of her petition.

On the other hand, Ho points out that despite the extensions granted by the CA within
which to file the Petition for Review, Anderson still failed to sign the certification against
forum shopping. This, he avers, demonstrates Andersons brazen disregard of technical
rules. Anent the argument of substantial compliance, Ho cites Mendigorin v.
Cabantog29where the Court reiterated its earlier pronouncement that substantial
compliance will not suffice in a matter involving strict observance of the rule regarding
a certificate of non-forum shopping.30 At any rate, Ho insists that Anderson has no
sufficient cause of action for ejectment and damages against him.

Our Ruling

The petition has no merit.

No justifiable reason exists in this case

as to relax the rule on certification

against forum shopping.

The need to abide by the Rules of Court and the procedural requirements it imposes
has been constantly underscored by this Court. One of these procedural requirements is
the certificate of non-forum shopping which, time and again, has been declared as
basic, necessary and mandatory for procedural orderliness.31 ?r?l1

In Vda. De Formoso v. Philippine National Bank,32 the Court reiterated the guidelines

respecting non-compliance with or submission of a defective certificate of non-forum
shopping, the relevant portions of which are as follows: cralawlibrary

4) As to certification against forum shopping, non-compliance therewith or a defect

therein, x x x, 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.

xxx

6) Finally, the certification against forum shopping must be executed by the party-
pleader, not by his counsel. If, however, for reasonable or justifiable reasons, the
party-pleader is unable to sign, he must execute a Special Power of Attorney
designating his counsel of record to sign on his behalf.33 (Emphasis supplied)

The requirement that it is the petitioner, not her counsel, who should sign the
certificate of non-forum shopping is due to the fact that a "certification is a peculiar
personal representation on the part of the principal party, an assurance given to the
court or other tribunal that there are no other pending cases involving basically the
same parties, issues and causes of action."34 "Obviously, it is the petitioner, and not
always the counsel whose professional services have been retained for a particular
case, who is in the best position to know whether sheactually filed or caused the filing
of a petition in that case."35 Per the above guidelines, however, if a petitioner is unable
to sign a certification for reasonable or justifiable reasons, she must execute an SPA
designating her counsel of record to sign on her behalf. "A certification which had been
signed by counsel without the proper authorization is defective and constitutes a valid
cause for the dismissal of the petition."36 ?r?l1

In this light, the Court finds that the CA correctly dismissed Andersons Petition for
Review on the ground that the certificate of non-forum shopping attached thereto was
signed by Atty. Oliva on her behalf sans any authority to do so. While the Court notes
that Anderson tried to correct this error by later submitting an SPA and by explaining
her failure to execute one prior to the filing of the petition, this does not automatically
denote substantial compliance. It must be remembered that a defective certification is
generally not curable by its subsequent correction. And while it is true that in some
cases the Court considered such a belated submission as substantial compliance, it "did
so only on sufficient and justifiable grounds that compelled a liberal approach while
avoiding the effective negation of the intent of the rule on non-forum shopping."37 ?r?l1

Unlike in Donato38 and the other cases cited by Anderson, no sufficient and justifiable
grounds exist in this case as to relax the rules on certification against forum shopping.

In Donato, the CA dismissed therein petitioners Petition for Review on the ground,
among others, that the certification against forum shopping was signed by his counsel.
In filing a motion for reconsideration, petitioner submitted a certification duly signed by
himself. However, the CA ruled that his subsequent compliance did not cure the defect
of the instant petition and denied his Motion for Reconsideration. When the case
reached this Court, it was held, viz:
cralawlibrary

The petition for review filed before the CA contains a certification against forum
shopping but said certification was signed by petitioners counsel. In submitting the
certification of non-forum shopping duly signed by himself in his motion for
reconsideration, petitioner has aptly drawn the Courts attention to the physical
impossibility of filing the petition for review within the 15-day reglementary period to
appeal considering that he is a resident of 1125 South Jefferson Street, Roanoke,
Virginia, U.S.A. where he needs to personally accomplish and sign the verification.

We fully agree with petitioner that it was physically impossible for the petition to have
been prepared and sent to the petitioner in the United States, for him to travel from
Virginia, U.S.A. to the nearest Philippine Consulate in Washington, D.C., U.S.A. in order
to sign the certification before the Philippine Consul, and for him to send back the
petition to the Philippines within the 15-day reglementary period. Thus, we find that
petitioner has adequately explained his failure to personally sign the certification which
justifies relaxation of the rule.

We have stressed that the rules on forum shopping, which were precisely designed to
promote and facilitate the orderly administration of justice, should not be interpreted
with such absolute literalness as to subvert its own ultimate and legitimate objective
which is simply to prohibit and penalize the evils of forum-shopping. The subsequent
filing of the certification duly signed by the petitioner himself should thus be deemed
substantial compliance, pro hac vice.39 ?r?l1

While at first blush Donato appears to be similar with the case at bench, a deeper and
meticulous comparison of the two cases reveals essential differences. In Donato, the
Court held that it was impossible for the petition to have been prepared and sent to the
therein petitioner in the USA; for him to travel from Virginia to the nearest Philippine
Consulate in Washington D.C.; and for the petition to be sent back to the Philippines
within the 15-day reglementary period. The same could not, however, be said in this
case. It must be remembered that on top of the 15-day reglementary period to file the
petition, Atty. Oliva sought and was granted a total extension of 30 days to file the
same. Hence, Anderson had a total of 45 days to comply with the requirements of a
Petition for Review as against the 15 days afforded to the petitioner in Donato. To this
Court, the said period is more than enough time for Anderson to execute an SPA before
the nearest Philippine Consulate, which again unlike in Donato, was located in the same
state where Anderson was (Hawaii), and thereafter to send it to the Philippines. Anent
her allegation that her health condition at that time hindered her from going to the
proper authorities to execute an SPA, the same deserves scant consideration as no
medical certificate was submitted to support this. "Indeed, the age-old but familiar rule
is that he who alleges must prove his allegations."40 ?r?l1

Moreover, simultaneous with the filing of a Motion for Reconsideration, the proper
certificate of non-forum shopping was submitted by the petitioner in Donato. Notably in
this case, the SPA was submitted two months after the filing of Andersons Motion for
Reconsideration. It took that long because instead of executing an SPA before the
proper authorities in Hawaii and sending the same to the Philippines, Anderson still
waited until she came back to the country and only then did she execute one. It thus
puzzles the Court why Anderson opted not to immediately submit the SPA despite her
awareness that the same should have been submitted simultaneously with the Petition
for Review. Hence, it cannot help but conclude that the delay in the submission of the
SPA is nothing but a product of Andersons sheer laxity and indifference in complying
with the rules. It is well to stress that "rules are laid down for the benefit of all and
should not be made dependent upon a suitors sweet time and own bidding." 41 They
should be faithfully complied with42 and may not simply be ignored to suit the
convenience of a party.43 Although they are liberally construed in some situations, there
must, however, be a showing of justifiable reasons and at least a reasonable attempt at
compliance therewith,44 which unfortunately are not obtaining in this case.

In view of the foregoing, this Court affirms the CAs dismissal of Andersons Petition for
Review.

As a final note, the Court reiterates that: cralawlibrary

x x x procedural rules are designed to facilitate the adjudication of cases. Courts and
litigants alike are enjoined to abide strictly by the rules. While in certain instances, we
allow a relaxation in the application of the rules, we never intend to forge a weapon for
erring litigants to violate the rules with impunity. The liberal interpretation and
application of rules apply only in proper cases of demonstrable merit and under
justifiable causes and circumstances. While it is true that litigation is not a game of
technicalities, it is equally true that every case must be prosecuted in accordance with
the prescribed procedure to ensure an orderly and speedy administration of justice.
Party litigants and their counsels are well advised to abide by rather than flaunt,
procedural rules for these rules illumine the path of the law and rationalize the pursuit
of justice.45
?r?l1

WHEREFORE, the Petition for Review on Certiorari is DENIED. The assailed Resolution
dated July 14, 2005 and May 4, 2006 of the Court of Appeals in CA-G.R. SP No. 89793
are AFFIRMED.

G.R. No. 179488 : April 23, 2012] 

COSCO PHILIPPINES SHIPPING, INC., PETITIONER, VS. KEMPER INSURANCE

COMPANY, RESPONDENT.

D E C I S I O N 

PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
reverse and set aside the Decision[1] and Resolution[2] of the Court of Appeals (CA), in
CA-G.R. CV No. 75895, entitled Kemper Insurance Company v. Cosco Philippines
Shipping, Inc.  The CA Decision reversed and set aside the Order dated March 22, 2002
of the Regional Trial Court (RTC), Branch 8, Manila, which granted the Motion to
Dismiss filed by petitioner Cosco Philippines Shipping, Inc., and ordered that the case
be remanded to the trial court for further proceedings.   cralaw

The antecedents are as follows:

Respondent Kemper Insurance Company is a foreign insurance company based in

Illinois, United States of America (USA) with no license to engage in business in the
Philippines, as it is not doing business in the Philippines, except in isolated transactions;
while petitioner is a domestic shipping company organized in accordance with Philippine
laws.

In 1998, respondent insured the shipment of imported frozen boneless beef (owned by
Genosi, Inc.), which was loaded at a port in Brisbane, Australia, for shipment to Genosi,
Inc. (the importer-consignee) in the Philippines.  However, upon arrival at the Manila
port, a portion of the shipment was rejected by Genosi, Inc. by reason of spoilage
arising from the alleged temperature fluctuations of petitioner's reefer containers.

Thus, Genosi, Inc. filed a claim against both petitioner shipping company and
respondent Kemper Insurance Company.  The claim was referred to McLarens
Chartered for investigation, evaluation, and adjustment of the claim.  After processing
the claim documents, McLarens Chartered recommended a settlement of the claim in
the amount of $64,492.58, which Genosi, Inc. (the consignee-insured) accepted.

Thereafter, respondent paid the claim of Genosi, Inc. (the insured) in the amount of
$64,492.58. Consequently, Genosi, Inc., through its General Manager, Avelino S.
Mangahas, Jr., executed a Loss and Subrogation Receipt[3] dated September 22, 1999,
stating that Genosi, Inc. received from respondent the amount of $64,492.58 as the full
and final satisfaction compromise, and discharges respondent of all claims for losses
and expenses sustained by the property insured, under various policy numbers, due to
spoilage brought about by machinery breakdown which occurred on October 25,
November 7 and 10, and December 5, 14, and 18, 1998; and, in consideration thereof,
subrogates respondent to the claims of Genosi, Inc. to the extent of the said amount. 
Respondent then made demands upon petitioner, but the latter failed and refused to
pay the said amount.

Hence, on October 28, 1999, respondent filed a Complaint for Insurance Loss and
Damages[4] against petitioner before the trial court, docketed as Civil Case No. 99-
95561, entitled Kemper Insurance Company v. Cosco Philippines Shipping, Inc. 
Respondent alleged that despite repeated demands to pay and settle the total amount
of  US$64,492.58, representing the value of the loss, petitioner failed and refused to
pay the same, thereby causing damage and prejudice to respondent in the amount of
US$64,492.58; that the loss and damage it sustained was due to the fault and
negligence of petitioner, specifically, the fluctuations in the temperature of the reefer
container beyond the required setting which was caused by the breakdown in the
electronics controller assembly; that due to the unjustified failure and refusal to pay its
just and valid claims, petitioner should be held liable to pay interest thereon at the legal
rate from the date of demand; and that due to the unjustified refusal of the petitioner
to pay the said amount, it was compelled to engage the services of a counsel whom it
agreed to pay 25% of the whole amount due as attorney's fees.  Respondent prayed
that after due hearing, judgment be rendered in its favor and that petitioner be ordered
to pay the amount of US$64,492.58, or its equivalent in Philippine currency at the
prevailing foreign exchange rate, or a total of P2,594,513.00, with interest thereon at
the legal rate from date of demand, 25% of the whole amount due as attorney's fees,
and costs.

In its Answer[5] dated November 29, 1999, petitioner insisted, among others, that
respondent had no capacity to sue since it was doing business in the Philippines without
the required license; that the complaint has prescribed and/or is barred by laches; that
no timely claim was filed; that the loss or damage sustained by the shipments, if any,
was due to causes beyond the carrier's control and was due to the inherent nature or
insufficient packing of the shipments and/or fault of the consignee or the hired
stevedores or arrastre operator or the fault of persons whose acts or omissions cannot
be the basis of liability of the carrier; and that the subject shipment was discharged
under required temperature and was complete, sealed, and in good order condition.

During the pre-trial proceedings, respondent's counsel proffered and marked its
exhibits, while petitioner's counsel manifested that he would mark his client's exhibits
on the next scheduled pre-trial. However, on November 8, 2001, petitioner filed a
Motion to Dismiss,[6]contending that the same was filed by one Atty. Rodolfo A. Lat,
who failed to show his authority to sue and sign the corresponding certification against
forum shopping.  It argued that Atty. Lat's act of signing the certification against forum
shopping was a clear violation of Section 5, Rule 7 of the 1997 Rules of Court.

In its Order[7] dated March 22, 2002, the trial court granted petitioner's Motion to
Dismiss and dismissed the case without prejudice, ruling that it is mandatory that the
certification must be executed by the petitioner himself, and not by counsel.  Since
respondent's counsel did not have a Special Power of Attorney (SPA) to act on its
behalf, hence, the certification against forum shopping executed by said counsel was
fatally defective and constituted a valid cause for dismissal of the complaint.

Respondent's Motion for Reconsideration[8] was denied by the trial court in an

Order[9]dated July 9, 2002.

On appeal by respondent, the CA, in its Decision[10] dated March 23, 2007, reversed and
set aside the trial court's order.  The CA ruled that the required certificate of non-forum
shopping is mandatory and that the same must be signed by the plaintiff or principal
party concerned and not by counsel; and in case of corporations, the physical act of
signing may be performed in behalf of the corporate entity by specifically authorized
individuals. However, the CA pointed out that the factual circumstances of the case
warranted the liberal application of the rules and, as such, ordered the remand of the
case to the trial court for further proceedings.

Petitioner's Motion for Reconsideration[11] was later denied by the CA in the

Resolution[12]dated September 3, 2007.

Hence, petitioner elevated the case to this Court via Petition for Review

on Certiorari under Rule 45 of the Rules of Court, with the following issues:

THE COURT OF APPEALS SERIOUSLY ERRED IN RULING THAT ATTY. RODOLFO

LAT WAS PROPERLY AUTHORIZED BY THE RESPONDENT TO SIGN THE
CERTIFICATE AGAINST FORUM SHOPPING DESPITE THE UNDISPUTED FACTS
THAT:

A)  THE PERSON WHO EXECUTED THE SPECIAL POWER OF ATTORNEY (SPA)
APPOINTING ATTY. LAT  AS RESPONDENT'S ATTORNEY-IN-FACT WAS MERELY
AN UNDERWRITER OF THE RESPONDENT WHO HAS NOT SHOWN PROOF THAT HE
WAS AUTHORIZED BY THE BOARD OF DIRECTORS OF RESPONDENT TO DO SO.

B)  THE POWERS GRANTED TO ATTY. LAT REFER TO [THE AUTHORITY TO

REPRESENT DURING THE] PRE-TRIAL [STAGE] AND DO NOT COVER THE
SPECIFIC POWER TO SIGN THE CERTIFICATE.[13]
Petitioner alleged that respondent failed to submit any board resolution or secretary's
certificate authorizing Atty. Lat to institute the complaint and sign the certificate of non-
forum shopping on its behalf. Petitioner submits that since respondent is a juridical
entity, the signatory in the complaint must show proof of his or her authority to sign on
behalf of the corporation.  Further, the SPA[14] dated May 11, 2000, submitted by Atty.
Lat, which was notarized before the Consulate General of Chicago, Illinois, USA,
allegedly authorizing him to represent respondent in the pre-trial and other stages of
the proceedings was signed by one Brent Healy (respondent's underwriter), who lacks
authorization from its board of directors.

In its Comment, respondent admitted that it failed to attach in the complaint a concrete
proof of Atty. Lat's authority to execute the certificate of non-forum shopping on its
behalf. However, there was subsequent compliance as respondent submitted an
authenticated SPA empowering Atty. Lat to represent it in the pre-trial and all stages of
the proceedings. Further, it averred that petitioner is barred by laches from questioning
the purported defect in respondent's certificate of non-forum shopping.

The main issue in this case is whether Atty. Lat was properly authorized by respondent
to sign the certification against forum shopping on its behalf.

The petition is meritorious.

We have consistently held that the certification against forum shopping must be signed
by the principal parties.[15]  If, for any reason, the principal party cannot sign the
petition, the one signing on his behalf must have been duly authorized.[16] With respect
to a corporation, the certification against forum shopping may be signed for and on its
behalf, by a specifically authorized lawyer who has personal knowledge of the facts
required to be disclosed in such document.[17] A corporation has no power, except those
expressly conferred on it by the Corporation Code and those that are implied or
incidental to its existence. In turn, a corporation exercises said powers through its
board of directors and/or its duly authorized officers and agents. Thus, it has been
observed that the power of a corporation to sue and be sued in any court is lodged with
the board of directors that exercises its corporate powers. In turn, 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.[18]

In Philippine Airlines, Inc. v. Flight Attendants and Stewards Association of the

Philippines (FASAP),[19] we ruled that only individuals vested with authority by a valid
board resolution may sign the certificate of non-forum shopping on behalf of a
corporation. We also required proof of such authority to be presented. The petition is
subject to dismissal if a certification was submitted unaccompanied by proof of the
signatory's authority.

In the present case, since respondent is a corporation, the certification must be

executed by an officer or member of the board of directors or by one who is duly
authorized by a resolution of the board of directors; otherwise, the complaint will have
to be dismissed.[20]  The lack of certification against forum shopping is generally not
curable by mere amendment of the complaint, but shall be a cause for the dismissal of
the case without prejudice.[21]  The same rule applies to certifications against forum
shopping signed by a person on behalf of a corporation which are unaccompanied by
proof that said signatory is authorized to file the complaint on behalf of the corporation.
[22]

There is no proof that respondent, a private corporation, authorized Atty. Lat, through a
board resolution, to sign the verification and certification against forum shopping on its
behalf.  Accordingly, the certification against forum shopping appended to the complaint
is fatally defective, and warrants the dismissal of respondent's complaint for Insurance
Loss and Damages (Civil Case No. 99-95561) against petitioner.

In Republic v. Coalbrine International Philippines, Inc.,[23] the Court cited instances

wherein the lack of authority of the person making the certification of non-forum
shopping was remedied through subsequent compliance by the parties therein.  Thus,

[w]hile there were instances where we have allowed the filing of a

certification against non-forum shopping by someone on behalf of a
corporation without the accompanying proof of authority at the
time of its filing, we did so on the basis of a special
circumstance or compelling reason. Moreover, there was a
subsequent compliance by the submission of the proof of authority
attesting to the fact that the person who signed the certification
was duly authorized.

In China Banking Corporation v. Mondragon International

Philippines, Inc., the CA dismissed the petition filed by China
Bank, since the latter failed to show that its bank manager who
signed the certification against non-forum shopping was authorized
to do so. We reversed the CA and said that the case be decided on
the merits despite the failure to attach the required proof of
authority, since the board resolution which was subsequently
attached recognized the pre-existing status of the bank manager as
an authorized signatory.

In Abaya Investments Corporation v. Merit Philippines, where the

complaint before the Metropolitan Trial Court of Manila was
instituted by petitioner's Chairman and President, Ofelia Abaya,
who signed the verification and certification against non-forum
shopping without proof of authority to sign for the corporation,
we also relaxed the rule. We did so taking into consideration the
merits of the case and to avoid a re-litigation of the issues and
further delay the administration of justice, since the case had
 already been decided by the lower courts on the merits. Moreover,
Abaya's authority to sign the certification was ratified by the
Board.[24]

Contrary to the CA's finding, the Court finds that the circumstances of this case do not
necessitate the relaxation of the rules.  There was no proof of authority submitted, even
belatedly, to show subsequent compliance with the requirement of the law.  Neither
was there a copy of the board resolution or secretary's certificate subsequently
submitted to the trial court that would attest to the fact that Atty. Lat was indeed
authorized to file said complaint and sign the verification and certification against forum
shopping, nor did respondent satisfactorily explain why it failed to comply with the
rules.  Thus, there exists no cogent reason for the relaxation of the rule on this matter. 
Obedience to the requirements of procedural rules is needed if we are to expect fair
results therefrom, and utter disregard of the rules cannot justly be rationalized by
harking on the policy of liberal construction.[25]

Moreover, the SPA dated May 11, 2000, submitted by respondent allegedly authorizing
Atty. Lat to appear on behalf of the corporation, in the pre-trial and all stages of the
proceedings, signed by Brent Healy, was fatally defective and had no evidentiary value. 
It failed to establish Healy's authority to act in behalf of respondent, in view of the
absence of a resolution from respondent's board of directors or secretary's certificate
proving the same.  Like any other corporate act, the power of Healy to name,
constitute, and appoint Atty. Lat as respondent's attorney-in-fact, with full powers to
represent respondent in the proceedings, should have been evidenced by a board
resolution or secretary's certificate.

Respondent's allegation that petitioner is estopped by laches from raising the defect in

respondent's certificate of non-forum shopping does not hold water.

In Tamondong v. Court of Appeals,[26] we held that if a complaint is filed for and in

behalf of the plaintiff 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.[27]  Accordingly, since Atty. Lat was not duly authorized by respondent to
file the complaint and sign the verification and certification against forum shopping, the
complaint is considered not filed and ineffectual, and, as a necessary consequence, is
dismissable due to lack of jurisdiction.

Jurisdiction is the power with which courts are invested for administering justice; that
is, for hearing and deciding cases. In order for the court to have authority to dispose of
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.[28] Clearly, since no valid complaint was ever filed with the RTC, Branch 8,
Manila, the same did not acquire jurisdiction over the person of respondent.
Since the court has no jurisdiction over the complaint and respondent, petitioner is not
estopped from challenging the trial court's jurisdiction, even at the pre-trial stage of the
proceedings.  This is so because the issue of jurisdiction may be raised at any stage of
the proceedings, even on appeal, and is not lost by waiver or by estoppel.[29]

In Regalado v. Go,[30] the Court held that laches should be clearly present for the
Sibonghanoy[31] doctrine to apply, thus:

Laches is defined as the "failure or neglect for an unreasonable

and unexplained length of time, to do that which, by exercising
due diligence, could or should have been done earlier,  it is
negligence or omission to assert a right within a reasonable
length of time, warranting a presumption that the party entitled
to assert it either has abandoned it or declined to assert it.”

The ruling in People v. Regalario that was based on the landmark

doctrine enunciated in Tijam v. Sibonghanoy on the matter of
jurisdiction by estoppel is the exception rather than the
rule. Estoppel by laches may be invoked to bar the issue of lack
of jurisdiction only in cases in which the factual milieu is
analogous to that in the cited case. In such controversies, laches
should have been clearly present; that is, lack of jurisdiction
must have been raised so belatedly as to warrant the presumption
that the party entitled to assert it had abandoned or declined to
assert it.

In Sibonghanoy, the defense of lack of jurisdiction was raised

for the first time in a motion to dismiss filed by the Surety
almost 15 years after the questioned ruling had been rendered. At
several stages of the proceedings, in the court a quo as well as
in the Court of Appeals, the Surety invoked the jurisdiction of
the said courts to obtain affirmative relief and submitted its
case for final adjudication on the merits. It was only when the
adverse decision was rendered by the Court of Appeals that it
finally woke up to raise the question of jurisdiction.[32]

The factual setting attendant in Sibonghanoy is not similar to that of the present case
so as to make it fall under the doctrine of estoppel by laches.  Here, the trial court's
jurisdiction was questioned by the petitioner during the pre-trial stage of the
proceedings, and it cannot be said that considerable length of time had elapsed
for laches to attach.  
cralaw

WHEREFORE, the petition is GRANTED. The Decision and the Resolution of the Court
of Appeals, dated March 23, 2007 and September 3, 2007, respectively, in CA-G.R. CV
No. 75895 are REVERSED and SET ASIDE. The Orders of the Regional Trial Court,
dated March 22, 2002 and July 9, 2002, respectively, in Civil Case No. 99-95561,
are REINSTATED.

SO ORDERED.

G.R. No. 189486               September 5, 2012

SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and the HEIRS OF THE LATE GRACE
G. CHEU, Petitioners, 
vs.
GILBERT G. GUY, Respondent.

x-----------------------x

G.R. No. 189699

SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and the HEIRS OF THE LATE GRACE
G. CHEU, Petitioners, 
vs.
THE HON. OFELIA C. CALO, in her capacity as Presiding Judge of the RTC -Mandaluyong
City - Branch 211 and GILBERT G. GUY, Respondents.

DECISION

PEREZ, J.:

THE FACTS

With 519,997 shares of stock as reflected in Stock Certificate Nos. 004-014, herein respondent
Gilbert G. Guy (Gilbert) practically owned almost 80 percent of the 650,000 subscribed capital stock
of GoodGold Realty & Development Corporation (GoodGold), one of the multi-million corporations
1 

which Gilbert claimed to have established in his 30s. GoodGold’s remaining shares were divided
among Francisco Guy (Francisco) with 130,000 shares, Simny Guy (Simny), Benjamin Lim and
Paulino Delfin Pe, with one share each, respectively. Gilbert is the son of spouses Francisco and
Simny. Simny, one of the petitioners, however, alleged that it was she and her husband who
established GoodGold, putting the bulk of its shares under Gilbert’s name. She claimed that with
their eldest son, Gaspar G. Guy (Gaspar), having entered the Focolare Missionary in 1970s,
renouncing worldly possessions, she and Francisco put the future of the Guy group of companies in
2 

Gilbert’s hands. Gilbert was expected to bring to new heights their family multi-million businesses
and they, his parents, had high hopes in him.

Simny further claimed that upon the advice of their lawyers, upon the incorporation of GoodGold,
they issued stock certificates reflecting the shares held by each stockholder duly signed by
Francisco as President and Atty. Emmanuel Paras as Corporate Secretary, with corresponding
blank endorsements at the back of each certificate – including Stock Certificate Nos. 004-014 under
Gilbert’s name. These certificates were all with Gilbert’s irrevocable endorsement and power of
3 

attorney to have these stocks transferred in the books of corporation. All of these certificates were
4 

always in the undisturbed possession of the spouses Francisco and Simny, including Stock
Certificate Nos. 004-014.5 
In 1999, the aging Francisco instructed Benjamin Lim, a nominal shareholder of GoodGold and his
trusted employee, to collaborate with Atty. Emmanuel Paras, to redistribute GoodGold’s
shareholdings evenly among his children, namely, Gilbert, Grace Guy-Cheu (Grace), Geraldine Guy
(Geraldine), and Gladys Guy (Gladys), while maintaining a proportionate share for himself and his
wife, Simny.6 

Accordingly, some of GoodGold’s certificates were cancelled and new ones were issued to
represent the redistribution of GoodGold’s shares of stock. The new certificates of stock were signed
by Francisco and Atty. Emmanuel Paras, as President and Corporate Secretary, respectively.

The shares of stock were distributed among the following stockholders:

NAME NO. OF SHARES

Francisco Guy                      [husband] 195,000

Simny G. Guy                       [wife] 195,000

Gilbert G. Guy                      [son] 65,000

Geraldine G. Guy                  [daughter] 65,000

Grace G.Cheu (or her heirs)  [daughter] 65,000

Gladys G.Yao                       [daughter] 65,000

Total         650,000 7 

In September 2004, or five years after the redistribution of GoodGold’s shares of stock, Gilbert filed
with the Regional Trial Court (RTC) of Manila, a Complaint for the "Declaration of Nullity of Transfers
of Shares in GoodGold and of General Information Sheets and Minutes of Meeting, and for
Damages with Application for a Preliminary Injunctive Relief," against his mother, Simny, and his
sisters, Geraldine, Grace, and Gladys. Gilbert alleged, among others, that no stock certificate ever
8 

existed; that his signature at the back of the spurious Stock Certificate Nos. 004-014 which
9 

purportedly endorsed the same and that of the corporate secretary, Emmanuel Paras, at the obverse
side of the certificates were forged, and, hence, should be nullified. 10 

Gilbert, however, withdrew the complaint, after the National Bureau of Investigation (NBI) submitted
a report to the RTC of Manila authenticating Gilbert’s signature in the endorsed certificates. The NBI
11 

report stated:

FINDINGS:

Comparative analysis of the specimens submitted under magnification using varied

lighting process and with the aid of photographic enlargements disclosed the
presence of significant and fundamental similarities in the personal handwriting
habits existing between the questioned signatures of "GILBERT G. GUY" and
"EMMANUEL C. PARAS," on one hand, and their corresponding standard
specimen/exemplar signatures, on the other hand, such as in:

- Basic design of letters/elements;

 - Manner of execution/line quality;

- Minute identifying details.

CONCLUSION:

A. The questioned and the standard specimen/exemplar signatures of Gilbert G. Guy

were written by one and the same person;

B. The questioned and the standard specimen/exemplar signatures of "EMMANUEL

C. PARAS" were written by one and the same person. (Emphasis supplied) 12 

The present controversy arose, when in 2008, three years after the complaint with the RTC of Manila
was withdrawn, Gilbert again filed a complaint, this time, with the RTC of Mandaluyong, captioned as
"Intra-Corporate Controversy: For the Declaration of Nullity of Fraudulent Transfers of Shares of
Stock Certificates, Fabricated Stock Certificates, Falsified General Information Sheets, Minutes of
Meetings, and Damages with Application for the Issuance of a Writ of Preliminary and Mandatory
Injunction," docketed as SEC-MC08-112, against his mother, Simny, his sisters, Geraldine, Gladys,
and the heirs of his late sister Grace. 13 

Gilbert alleged that he never signed any document which would justify and support the transfer of his
shares to his siblings and that he has in no way, disposed, alienated, encumbered, assigned or sold
any or part of his shares in GoodGold. He also denied the existence of the certificates of stocks.
14 

According to him, "there were no certificates of stocks under his name for the shares of stock
subscribed by him were never issued nor delivered to him from the time of the inception of the
corporation."
15 

Gilbert added that the Amended General Information Sheets (GIS) of GoodGold for the years 2000
to 2004 which his siblings submitted to the Securities and Exchange Commission (SEC) were
spurious as these did not reflect his true shares in the corporation which supposedly totaled to
595,000 shares; that no valid stockholders’ annual meeting for the year 2004 was held, hence
16 

proceedings taken thereon, including the election of corporate officers were null and void; and, that
17 

his siblings are foreign citizens, thus, cannot own more than forty percent of the authorized capital
stock of the corporation. 18 

Gilbert also asked in his complaint for the issuance of a Writ of Preliminary and Mandatory Injunction
to protect his rights. 19 

In an Order dated 30 June 2008, the RTC denied Gilbert’s Motion for Injunctive Relief which
20  21 

constrained him to file a motion for reconsideration, and, thereafter, a Motion for Inhibition against
Judge Edwin Sorongon, praying that the latter recuse himself from further taking part in the case.

Meanwhile, Gilbert’s siblings filed a manifestation claiming that the complaint is a nuisance and
harassment suit under Section 1(b), Rule 1 of the Interim Rules of Procedure on Intra-Corporate
Controversies.

In an Order dated 6 November 2008, the RTC denied the motion for inhibition. The RTC also
22 

dismissed the case, declaring it a nuisance and harassment suit, viz.:

WHEREFORE, the court resolves:

 (1) To DENY as it is hereby DENIED respondent’s Motion for Inhibition;

(2) To DENY as it is hereby DENIED respondent’s Motion for Reconsideration of the

June 30, 2008 Order; and,

(3) To declare as it is herby declared the instant case as a nuisance or harassment

suit. Accordingly, pursuant to Section 1(b), Rule 1 of the Interim Rules of Procedure
for Intra-Corporate Dispute, the instant case is hereby DISMISSED. No
pronouncement as to costs. 23 

This constrained Gilbert to assail the above Order before the Court of Appeals (CA). The petition for
review was docketed as CA-G.R. SP No. 106405.

In a Decision dated 27 May 2009, the CA upheld Judge Sorongon’s refusal to inhibit from hearing
24 

the case on the ground that Gilbert failed to substantiate his allegation of Judge Sorongon’s partiality
and bias.25 

The CA, in the same decision, also denied Gilbert’s Petition for the Issuance of Writ of Preliminary
Injunction for failure to establish a clear and unmistakable right that was violated as required under
Section 3, rule 58 of the 1997 Rules of Civil Procedure. 26 

The CA, however, found merit on Gilbert’s contention that the complaint should be heard on the
merits. It held that:

A reading of the Order, supra, dismissing the respondent’s complaint for being a
harassment suit revealed that the court a quo relied heavily on the pieces of
documentary evidence presented by the Petitioners to negate Respondent’s
allegation of fraudulent transfer of shares of stock, fabrication of stock certificates
and falsification of General Information Sheets (GIS), inter alia. It bears emphasis
that the Respondent is even questioning the genuiness and authenticity of the
Petitioner’s documentary evidence. To our mind, only a full-blown trial on the merits
can afford the determination of the genuineness and authenticity of the documentary
evidence and other factual issues which will ultimately resolve whether there was
indeed a transfer of shares of stock. 27 

Hence, these consolidated petitions.

G.R. No. 189486 is a Petition for Review under Rule 45 of the Rules of Court filed by Simny,
Geraldine, Gladys, and the heirs of the late Grace against Gilbert, which prays that this Court
declare Civil Case No. SEC-MC08-112, a harassment or nuisance suit.

Meanwhile, during the pendency of G.R. No. 189486, the trial court set the pre-trial conference on
the case subject of this controversy, constraining the petitioners to file a Motion to defer the pre-trial,
which was, however, denied by the court a quo in an Order dated 11 September 2009, viz.: 28 

In a Resolution dated September 3, 2009, the Honorable Court of Appeals (CA)

(Former Second Division) denied the Motion for Partial Reconsideration filed [by
petitioners] herein. Inasmuch as there is no longer any impediment to proceed with
the instant case and the fact that this court was specifically directed by the May 27,
2009 Decision of the CA Second Division to proceed with the trial on the merits with
dispatch, this court resolves to deny the motion under consideration.
 WHEREFORE, premises considered, the Motion to Defer Pre-Trial Conference and
Further Proceedings filed by petitioners is hereby DENIED. Set the pre-trial on
October 20, 2009, at 8:30 in the morning.

The denial of the petitioners’ motion to defer pre-trial, compelled them to file with this Court a Petition
for Certiorari with Urgent Application for the Issuance of TRO and/or A Writ of Preliminary Injunction,
docketed as  G.R. No. 189699. Because of the pendency of the G.R. No. 189486 before us, the
petitioners deemed proper to question the said denial before us as an incident arising from the main
controversy. 29 

OUR RULING

Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors

or other persons may be classified into individual suits, class suits, and derivative suits. 30 

An individual suit may be instituted by a stockholder against another stockholder for wrongs
committed against him personally, and to determine their individual rights – this is an individual suit
31 

between stockholders. But an individual suit may also be instituted against a corporation, the same
having a separate juridical personality, which by its own may be sued. It is of course, essential that
the suing stockholder has a cause of action against the corporation. 32 

Individual suits against another stockholder or against a corporation are remedies which an
aggrieved stockholder may avail of and which are recognized in our jurisdiction as embedded in the
Interim Rules on Intra-Corporate Controversy. Together with this right is the parallel obligation of a
party to comply with the compulsory joinder of indispensable parties whether they may be
stockholders or the corporation itself.

The absence of an indispensable

party in a case renders all
subsequent actions of the court null
and void for want of authority to act,
not only as to the absent parties but
even as to those present. 33 

It bears emphasis that this controversy started with Gilbert’s complaint filed with the RTC of
Mandaluyong City in his capacity as stockholder, director and Vice-President of GoodGold. 34 

Gilbert’s complaint essentially prayed for the return of his original 519,997 shares in GoodGold, by
praying that the court declare that "there were no valid transfers of the contested shares to
defendants and Francisco." It baffles this Court, however, that Gilbert omitted Francisco as
35 

defendant in his complaint. While Gilbert could have opted to waive his shares in the name of
Francisco to justify the latter’s non-inclusion in the complaint, Gilbert did not do so, but instead,
wanted everything back and even wanted the whole transfer of shares declared fraudulent. This
cannot be done, without including Francisco as defendant in the original case. The transfer of the
shares cannot be, as Gilbert wanted, declared entirely fraudulent without including those of
Francisco who owns almost a third of the total number.

Francisco, in both the 2004 and 2008 complaints, is an indispensable party without whom no final
determination can be had for the following reasons: (a) the complaint prays that the shares now
under the name of the defendants and Francisco be declared fraudulent; (b) Francisco owns
195,000 shares some of which, Gilbert prays be returned to him; (c) Francisco signed the certificates
of stocks evidencing the alleged fraudulent shares previously in the name of Gilbert. The inclusion of
the shares of Francisco in the complaint makes Francisco an indispensable party. Moreover, the
pronouncement about the shares of Francisco would impact on the hereditary rights of the
contesting parties or on the conjugal properties of the spouses to the effect that Francisco, being
husband of Simny and father of the other contesting parties, must be included for, otherwise, in his
absence, there cannot be a determination between the parties already before the court which is
effective, complete, or equitable.

The definition in the Rules of Court, Section 7, Rule 3 thereof, of indispensable parties as "parties in
interest without whom no final determination can be had of an action" has been jurisprudentially
amplified. In Sps. Garcia v. Garcia, et.al., this Court held that:
36 

An indispensable party is a party who has such an interest in the controversy or

subject matter that a final adjudication cannot be made, in his absence, without
injuring or affecting that interest, a party who has not only an interest in the subject
matter of the controversy, but also has an interest of such nature that a final decree
cannot be made without affecting his interest or leaving the controversy in such a
condition that its final determination may be wholly inconsistent with equity and good
conscience. It has also been considered that an indispensable party is a person in
whose absence there cannot be a determination between the parties already before
the court which is effective, complete, or equitable. Further, an indispensable party is
one who must be included in an action before it may properly go forward.

This was our pronouncements in Servicewide Specialists Inc. v. CA, Arcelona v. CA, and Casals v.
37  38 

Tayud Golf and Country Club, Inc. 39 

Settled is the rule that joinder of indispensable parties is compulsory being a sine qua non for the
40 

exercise of judicial power, and, it is precisely "when an indispensable party is not before the court
41 

that the action should be dismissed" for such absence renders all subsequent actions of the court
null and void for want of authority to act, not only as to the absent parties but even as to those
present. 42 

It bears emphasis that Gilbert, while suing as a stockholder against his co-stockholders, should have
also impleaded GoodGold as defendant. His complaint also prayed for the annulment of the 2004
stockholders’ annual meeting, the annulment of the 2004 election of the board of directors and of its
officers, the annulment of 2004 GIS submitted to the SEC, issuance of an order for the accounting of
all monies and rentals of GoodGold, and the issuance of a writ of preliminary and mandatory
injunction. We have made clear that GoodGold is a separate juridical entity distinct from its
stockholders and from its directors and officers. The trial court, acting as a special commercial court,
cannot settle the issues with finality without impleading GoodGold as defendant. Like Francisco, and
for the same reasons, GoodGold is an indispensable party which Gilbert should have impleaded as
defendant in his complaint.

Allegations of deceit, machination,

false pretenses, misrepresentation,
and threats are largely conclusions
of law that, without supporting
statements of the facts to which the
allegations of fraud refer, do not
sufficiently state an effective cause of
action.43 
"In all averments of fraud or mistake, the circumstances constituting fraud or mistake must be stated
with particularity" to "appraise the other party of what he is to be called on to answer, and so that it
44 

may be determined whether the facts and circumstances alleged amount to fraud." These 45 

particulars would necessarily include the time, place and specific acts of fraud committed. "The 46 

reason for this rule is that an allegation of fraud concerns the morality of the defendant’s conduct
and he is entitled to know fully the ground on which the allegations are made, so he may have every
opportunity to prepare his case to clear himself at the trial."
47 

The complaint of Gilbert states:

13. The said spurious Amended GIS for the years 2000, 2001, 2002, 2003, 2004 and
also in another falsified GIS for the year 2004, the petitioners indicated the following
alleged stockholders of GOODGOLD with their respective shareholdings, to wit:

NAME NO. OF SHARES

Francisco Guy Co Chia 195,000

Simny G. Guy 195,000

Gilbert G. Guy 65,000

Geraldine G. Guy 65,000

Grace G.-Cheu 65,000

Gladys G.Yao 65,000

Total 650,000

14. The above spurious GIS would show that form the original 519,997 shares of
stocks owned by the respondent, which is equivalent to almost 80% of the total
subscriptions and/or the outstanding capital stock of GOODGOLD, respondent’s
subscription was drastically reduced to only 65,000 shares of stocks which is merely
equivalent to only 10 percent of the outstanding capital stock of the corporation.

15. Based on the spurious GIS, shares pertaining to Benjamin Lim and Paulino Delfin
Pe were omitted and the total corporate shares originally owned by incorporators
including herein respondent have been fraudulently transferred and distributed, as
follows: x x x (Emphasis supplied)

xxxx

18. To date, respondent is completely unaware of any documents signed by him that
would justify and support the foregoing transfer of his shares to the defendants.
Respondent strongly affirms that he has not in any way, up to this date of filing the
instant complaint, disposed, alienated, encumbered, assigned or sold any or part of
the shares of stocks of GOODGOLD corporation owned by him and registered under
his name under the books of the corporation.
 19. Neither has respondent endorsed, signed, assigned any certificates of stock
representing the tangible evidence of his stocks ownership, there being no
certificates of stocks issued by the corporation nor delivered to him since its inception
on June 6, 1988. Considering that the corporation is merely a family corporation,
plaintiff does not find the issuance of stock certificates necessary to protect his
corporate interest and he did not even demand for its issuance despite the fact that
he was the sole subscriber who actually paid his subscription at the time of
incorporation.48 

Tested against established standards, we find that the charges of fraud which Gilbert accuses his
siblings are not supported by the required factual allegations. In Reyes v. RTC of Makati, which we 49 

now reiterate, mutatis mutandis, while the complaint contained allegations of fraud purportedly
committed by his siblings, these allegations are not particular enough to bring the controversy within
the special commercial court’s jurisdiction; they are not statements of ultimate facts, but are mere
conclusions of law: how and why the alleged transfer of shares can be characterized as "fraudulent"
were not explained and elaborated on. As emphasized in Reyes:
50 

Not every allegation of fraud done in a corporate setting or perpetrated by corporate

officers will bring the case within the special commercial court’s jurisdiction. To fall
within this jurisdiction, there must be sufficient nexus showing that the corporation’s
nature, structure, or powers were used to facilitate the fraudulent device or scheme. 51 

(Emphasis supplied)

Significantly, no corporate power or office was alleged to have facilitated the transfer of Gilbert’s
shares. How the petitioners perpetrated the fraud, if ever they did, is an indispensable allegation
which Gilbert must have had alleged with particularity in his complaint, but which he failed to.

Failure to specifically allege the

fraudulent acts in intra-corporate
controversies is indicative of a
harassment or nuisance suit and may
be dismissed motu proprio.

In ordinary cases, the failure to specifically allege the fraudulent acts does not constitute a ground
for dismissal since such a defect can be cured by a bill of particulars. Thus: 52 

Failure to allege fraud or mistake with as much particularity as is desirable is not fatal
if the general purport of the claim or defense is clear, since all pleadings should be
so construed as to do substantial justice. Doubt as to the meaning of the pleading
may be resolved by seeking a bill of particulars.

A bill of particulars may be ordered as to a defense of fraud or mistake if the

circumstances constituting fraud or mistake are not stated with the particularity
required by the rule.53 

The above-stated rule, however, does not apply to intra-corporate controversies. In Reyes, we 54 

pronounced that "in cases governed by the Interim Rules of Procedure on Intra-Corporate
Controversies a bill of particulars is a prohibited pleading. It is essential, therefore, for the complaint
to show on its face what are claimed to be the fraudulent corporate acts if the complainant wishes to
invoke the court’s special commercial jurisdiction." This is because fraud in intra-corporate
controversies must be based on "devises and schemes employed by, or any act of, the board of
directors, business associates, officers or partners, amounting to fraud or misrepresentation which
may be detrimental to the interest of the public and/or of the stockholders, partners, or members of
any corporation, partnership, or association," as stated under Rule 1, Section 1 (a)(1) of the Interim
Rules. The act of fraud or misrepresentation complained of becomes a criterion in determining
whether the complaint on its face has merits, or within the jurisdiction of special commercial court, or
merely a nuisance suit.

It did not escape us that Gilbert, instead of particularly describing the fraudulent acts that he
complained of, just made a sweeping denial of the existence of stock certificates by claiming that
such were not necessary, GoodGold being a mere family corporation. As sweeping and bereft of
55 

particulars is his claim that he "is unaware of any document signed by him that would justify and
support the transfer of his shares to herein petitioners." Even more telling is the contradiction
56 

between the denial of the existence of stock certificates and the denial of the transfer of his shares of
stocks "under his name under the books of the corporations."

It is unexplained that while Gilbert questioned the authenticity of his signatures indorsing the stock
certificates, and that of Atty. Emmanuel Paras, the corporate secretary, he did not put in issue as
doubtful the signature of his father which also appeared in the certificate as President of the
corporation. Notably, Gilbert, during the entire controversy that started with his 2004 complaint,
failed to rebut the NBI Report which authenticated all the signatures appearing in the stock
certificates.

Even beyond the vacant pleadings, its nature as nuisance is palpable. To recapitulate, it was only
after five years following the redistribution of GoodGold’s shares of stock, that Gilbert filed with the
RTC of Manila, a Complaint for the "Declaration of Nullity of Transfers of Shares in GoodGold and of
General Information Sheets and Minutes of Meeting, and for Damages with Application for a
Preliminary Injunctive Relief," against his mother, Simny, and his sisters, Geraldine, Grace, and
Gladys. Gilbert alleged, among others, that no stock certificate ever existed; that his signature at
57  58 

the back of the spurious Stock Certificate Nos. 004-014 which purportedly endorsed the same and
that of the corporate secretary, Emmanuel Paras, at the obverse side of the certificates were forged,
and, hence, should be nullified. Gilbert withdrew this complaint after the NBI submitted a report to
59 

the RTC of Manila authenticating Gilbert’s signature in the endorsed certificates. And, it was only
after three years from the withdrawal of the Manila complaint, that Gilbert again filed in 2008 a
complaint also for declaration of nullity of the transfer of the shares of stock, this time with the RTC
of Mandaluyong. The caption of the complaint is "Intra-Corporate Controversy: For the Declaration of
Nullity of Fraudulent Transfers of Shares of Stock Certificates, Fabricated Stock Certificates,
Falsified General Information Sheets, Minutes of Meetings, and Damages with Application for the
Issuance of a Writ of Preliminary and Mandatory Injunction," docketed as SEC-MC08-112, against
his mother, Simny, his sisters, Geraldine, Gladys, and the heirs of his late sister Grace. 60 
1âwphi1

When a stock certificate is endorsed

in blank by the owner thereof, it
constitutes what is termed as "street
certificate," so that upon its face, the
holder is entitled to demand its
transfer his name from the issuing
corporation.

With Gilbert’s failure to allege specific acts of fraud in his complaint and his failure to rebut the NBI
report, this Court pronounces, as a consequence thereof, that the signatures appearing on the stock
certificates, including his blank endorsement thereon were authentic. With the stock certificates
having been endorsed in blank by Gilbert, which he himself delivered to his parents, the same can
be cancelled and transferred in the names of herein petitioners.
In Santamaria v. Hongkong and Shanghai Banking Corp., this Court held that when a stock
61 

certificate is endorsed in blank by the owner thereof, it constitutes what is termed as "street
certificate," so that upon its face, the holder is entitled to demand its transfer into his name from the
issuing corporation. Such certificate is deemed quasi-negotiable, and as such the transferee thereof
is justified in believing that it belongs to the holder and transferor.1âwphi1

While there is a contrary ruling, as an exception to the general rule enunciated above, what the
Court held in Neugene Marketing Inc., et al., v CA, where stock certificates endorsed in blank were
62 

stolen from the possession of the beneficial owners thereof constraining this Court to declare the
transfer void for lack of delivery and want of value, the same cannot apply to Gilbert because the
stock certificates which Gilbert endorsed in blank were in the undisturbed possession of his parents
who were the beneficial owners thereof and who themselves as such owners caused the transfer in
their names. Indeed, even if Gilbert’s parents were not the beneficial owners, an endorsement in
blank of the stock certificates coupled with its delivery, entitles the holder thereof to demand the
transfer of said stock certificates in his name from the issuing corporation. 63 

Interestingly, Gilbert also used the above discussed reasons as his arguments in Gilbert Guy v.
Court of Appeals, et a.l, a case earlier decided by this Court. In that petition, Lincoln Continental, a
64 

corporation purportedly owned by Gilbert, filed with the RTC, Branch 24, Manila, a Complaint for
Annulment of the Transfer of Shares of Stock against Gilbert’s siblings, including his mother, Simny.
The complaint basically alleged that Lincoln Continental owns 20,160 shares of stock of Northern
Islands; and that Gilbert’s siblings, in order to oust him from the management of Northern Islands,
falsely transferred the said shares of stock in his sisters’ names. This Court dismissed Gilbert’s
65 

petition and ruled in favor of his siblings viz:

One thing is clear. It was established before the trial court, affirmed by the Court of
Appeals, that Lincoln Continental held the disputed shares of stock of Northern
Islands merely in trust for the Guy sisters. In fact, the evidence proffered by Lincoln
Continental itself supports this conclusion. It bears emphasis that this factual finding
by the trial court was affirmed by the Court of Appeals, being supported by evidence,
and is, therefore, final and conclusive upon this Court.

Article 1440 of the Civil Code provides that:

"ART. 1440. A person who establishes a trust is called the trustor;

one in whom confidence is reposed as regards property for the
benefit of another person is known as the trustee; and the person for
whose benefit the trust has been created is referred to as the
beneficiary."

In the early case of Gayondato v. Treasurer of the Philippine Islands, this Court
defines trust, in its technical sense, as "a right of property, real or personal, held by
one party for the benefit of another." Differently stated, a trust is "a fiduciary
relationship with respect to property, subjecting the person holding the same to the
obligation of dealing with the property for the benefit of another person."

Both Lincoln Continental and Gilbert claim that the latter holds legal title to the shares
in question. But record shows that there is no evidence to support their claim. Rather,
the evidence on record clearly indicates that the stock certificates representing the
contested shares are in respondents' possession. Significantly, there is no proof to
support his allegation that the transfer of the shares of stock to respondent sisters is
fraudulent. As aptly held by the Court of Appeals, fraud is never presumed but must
 be established by clear and convincing evidence. Gilbert failed to discharge this
burden. We agree with the Court of Appeals that respondent sisters own the shares
of stocks, Gilbert being their mere trustee.  (Underlining supplied).
66 

This Court finds no cogent reason to divert from the above stated ruling, these two cases having
similar facts.

WHEREFORE, premises considered, the petitions in  G.R. Nos. 189486 and 189699 are

hereby  GRANTED. The Decision dated 27 May 2009 of the Court of Appeals in CA-G .R. SP No.
106405 and its Resolution dated 03 September 2009 are  REVERSED and SET ASIDE. The
Court DECLARES that SEC-MC08-112 now pending before the Regional Trial Court, Branch 211,
Mandaluyong City, is a nuisance suit and hereby ORDERS it to IMMEDIATELY DISMISS the same
for reasons discussed herein.

SO ORDERED.

G.R. No. L-10232. February 28, 1958.]

CONVETS, INC., Plaintiff-Appellant, v. NATIONAL DEVELOPMENT COMPANY, ET

AL., Defendants-Appellees. 

M. Orbase, M. Silva, and Mariano M. de Joya for Appellant. 

Government Corporate Counsel Ambrosio Padilla and Feliciano C. Tumale

for Appellees. 

SYLLABUS

1. PLEADING AND PRACTICE; PRESCRIPTION OF ACTION FOUNDED UPON A WRITTEN

CONTRACT; CASE AT BAR. — Plaintiff’s claim is founded upon a written contract of
agency, which allows it a 10% commission on sales negotiated by it, the commission to
be payable within the first five days of the month succeeding the sale. As the sale was
consummated in December, 1949, plaintiff’s right of action for the recovery of the
commission accrued on January 5, 1950. From that date, plaintiff had ten years to
bring his action in court since the action is based upon a written contract (art. 1144,
new Civil Code). It is thus clear that when the complaint was filed in 1955, plaintiff’s
right of action had not yet prescribed. In any event, this Court has already held that
where it is not clear from the allegations of the complaint just when plaintiff’s cause of
action accrued, and consequently it cannot be determined with certainty whether that
action has already prescribed or not, the defense of prescription cannot be sustained on
a mere motion to dismiss based on what appears on the face of the complaint. Sison v.
McQuaid, 50 Off. Gaz., 96.) 

2. ID.; LACK OF CAUSE OF ACTION AS GROUND FOR DISMISSAL; SUFFICIENCY OF,

HOW DETERMINED. — The lack of cause of action as ground for dismissal must appear
on the face of the complaint, and to determine the sufficiency of the cause of action
only the facts alleged in the complaint, and no other, should be considered. (Moran’s
Rules of Court, Vol. I, 1957 ed., p. 140.) In the present case, the allegations of the
complaint do constitute a cause of action for the recovery of the stipulated commission;
and while the annexes to the complaint do also mention certain terms under which the
sales of merchandise in question should be made, there is really nothing in said
annexes that contradicts or nullifies the ultimate facts alleged in the complaint or
proves by itself alone that the terms prescribed were not complied with to the
satisfaction of the principal. Any such non-compliance is a matter of defense, which
should be alleged in the answer and proved at the trial. 

DECISION

REYES, A., J.:

This is an appeal from an order of dismissal. 

On September 13, 1955, the Confederation of Filipino Veterans (hereinafter referred to

as the CONVETS), a domestic corporation, filed a complaint in the Court of First
Instance of Manila against the National Development Company (hereinafter called the
NDC), the Land Settlement and Development Corporation (hereinafter called the
LASEDECO), and the Board of Liquidators created by Republic Act No. 1160 for the
recovery of the sum of P36,000 as agent’s commission on the sale of certain
commodities. 

For cause of action, the complaint, as later amended, alleges that on July 7, 1949 a
committee of the NDC in a memorandum submitted to the latter’s general manager
(attached to the complaint as annex A) recommended that plaintiff be allowed a 10%
straight commission on sales of items from the Caledonia Pile (a mass of surplus goods
which the NDC had in the compound in Manila) where plaintiff had a direct hand in the
sale; that in line with said recommendation, the NDC, as per resolution of its Board of
Directors on July 13, 1949, accepted CONVETS’ firm offer "to act as the exclusive sales
agent for the sale of all items whether inventoried or uninventoried, classified or not,
segregated or otherwise, of the Caledonia Pile" under the terms and conditions
embodied in the minutes of the Board’s meeting, an excerpt of which was attached to
the complaint as annex B; that on September 28, 1949, plaintiff informed the NDC
Board that it had found a buyer, the firm of Joseph Behr & Sons, Inc., of 1100
Seminary St., Rockford, Illinois, U.S.A., which had sent authorized representative to
Manila to deal with the NDC; that on November 25, 1949, through the direct
intervention of plaintiff in its capacity as sole agent of the defendant NDC, a contract of
sale of about 4,000 tons of spare parts in the Caledonia Pile at P90 per ton between the
NDC and Joseph Behr & Sons, Inc., was approved by the NDC’S Board of Directors in its
resolution of that date attached to the complaint as annex C, the deeds pertaining
thereto being also attached to the complaint as annexes D and E; that in confirmation
of previous commitments, promises and past business dealing between plaintiff and the
NDC, a written agency agreement was entered into between them on February 8, 1950,
with retroactive effect from July 13, 1949 copy of the agreement being attached to the
complaint as annex F; that the aforementioned sale of spare parts to Joseph Behr &
Sons, Inc., has already been executed with the latter paying the NDC the sum of $45 or
P90 for every long ton of said spare parts taken from the Caledonia Pile by establishing,
as stipulated in the contract, "an irrevocable Letter of Credit in the total amount of
$150,000" in a Manila bank; that upon the promulgation of Executive Order No. 355 on
October 23, 1950, the management and disposition of the Caledonia Pile were
transferred from the NDC to the LASEDECO and that upon the latter being dissolved by
Republic Act No. 1160 its assets were turned over to the Board of liquidators created by
said Act, plaintiff being, for that reason, uncertain from which one of the defendants it
is entitled to get relief; and that notwithstanding repeated demands, the defendants
have failed and refused to pay plaintiff its commission on the sale mentioned. 

Instead of answering the complaint, the defendants filed a motion to dismiss on the
grounds that the complaint did not state a cause of action and that plaintiff’s action, if it
had any, had already prescribed. 

Upholding both grounds, the lower court granted the motion to dismiss. Hence, this
appeal. 

We find the appeal meritorious. 

In holding that plaintiff’s complaint did not state a cause of action against the defendant
NDC, the lower court took into account the documents attached to the complaint as
annexes A to F, and inferred therefrom that the sale in question was neither initiated
nor consummated by plaintiff but was a direct transaction between the management of
the NDC and Joseph Behr & Sons, Inc., and that said sale was not according to the
conditions set forth in the aforementioned annexes in that it was not a "lot sale," at
"formula price," and "to the general public." But it is elementary that lack of cause of
action as ground for dismissal must appear on the face of the complaint and that to
determine the sufficiency of the cause of action, only the facts alleged in the complaint,
and no other, should be considered. (Moran’s Rules of Court, Vol. I, 1957 ed., p. 140.)
In the present case, the complaint, as amended, alleges in effect that plaintiff was
appointed by the defendant NDC its exclusive agent to sell "all items . . . of the
Caledonia Pile" on a 10% straight commission; that some time thereafter, plaintiff
informed the said defendant that it had found a buyer in the United States with
authorized representatives in Manila to deal with said defendant, the buyer being the
firm of Joseph Behr & Sons, Inc. of 1100 Seminary St., Rockford, Illinois; that "thru the
direct intervention of the plaintiff, acting in its capacity as (such) sole agent", a contract
of sale of certain items from the Caledonia Pile at a specified price, was finally approved
by said defendant’s Board of Directors and thereafter the sale was executed with the
buyer paying the seller the stipulated price by means of an irrevocable letter of credit;
and that notwithstanding the consummation of the sale, the defendants have failed and
refused to pay the stipulated commission notwithstanding repeated demands. These
allegations, the truth of which is hypothetically admitted by defendants’ motion to
dismiss, do constitute a cause of action for the recovery of the stipulated commission;
and while the annexes to the complaint do also mention certain terms under which the
sales of merchandise from the Caledonia Pile should be made, there is really nothing in
said annexes that contradicts or nullifies the ultimate facts alleged in the complaint or
proves by itself alone that the terms prescribed were not complied with to the
satisfaction of the principal. Any such non-compliance is a matter of defense, which
should be alleged in the answer and proved at the trial. As was said by this Court in the
case of World Wide Insurance & Surety Co., Inc. v. Manuel, Et. Al. (98 Phil., 46, 51 Off.
Gaz., 6214).

". . . To determine whether a complaint states a cause of action one must accept its
allegations as true. One may not go beyond and outside the complaint for data or facts,
especially contrary to the allegations of the complaint, to determine whether there is
cause of action. Of course, there are cases where there may be a conflict or
contradiction between the allegations of a complaint and a document or exhibit
attached to and made part of it. In that case, instead of dismissing the complaint,
defendant should be made to answer the same so as to establish an issue and then the
parties will be given an opportunity, the plaintiff to reconcile any apparent conflict
between the allegations in his complaint and a document attached to support the same,
and the defendant an equal opportunity to refute the allegations of the complaint and
to show that the conflict between its allegation and the document attached to it is real,
material and decisive." cralaw virtua1aw library

The court below also ruled that the complaint states no cause of action against the
defendants LASEDECO and Board of Liquidators on the theory that the articles sold to
Joseph Behr & Sons, Inc., no longer formed part of the Caledonia Pile when its
management and disposition were transferred from the NDC to the LASEDECO and that
consequently they were also not among the assets of the LASEDECO that were turned
over to the Board of Liquidators. The ruling is erroneous, for it is apparent that these
two defendants have been made parties to the action for having succeeded to the
management of the Caledonia Pile and to the obligations incurred in connection with its
disposal. 

Finally, the lower court also erred in declaring that plaintiff’s cause of action had
already prescribed when the complaint was filed on September 13, 1955. Plaintiff’s
claim is founded upon a written contract of agency, which allows it a 10% commission
on sales negotiated by it, the commission to be payable within the first five days of the
month succeeding the sale. As the sale was consummated in December, 1949,
plaintiff’s right of action for the recovery of the commission accrued on January 5,
1950. From that date, plaintiff had ten years to bring his action in court since the action
is based upon a written contract (art. 1144, new Civil Code). It is thus clear that when
the complaint was filed in 1955, plaintiff’s right of action had not yet prescribed. In any
event, this Court has already held that where it is not clear from the allegations of the
complaint just when plaintiff’s cause of action accrued, and consequently it cannot be
determined with certainty whether that action has already prescribed or not, the
defense of prescription cannot be sustained on a mere motion to dismiss based on what
appears on the face of the complaint. (Sison v. McQuaid, 94 Phil., 201, 50 Off. Gaz.,
96.) 

In view of the foregoing, the order complained of is set aside and the cases remanded
to the court below for further proceedings. No costs. 

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Concepcion, Reyes, J. B. L., Endencia

and Felix, JJ., concur.

SECOND DIVISION 

[G.R. No. 175514, February 14 : 2011] 

PHILIPPINE BANK OF COMMUNICATIONS, PETITIONER, VS. SPOUSES JOSE C.

GO AND ELVY T. GO, RESPONDENTS.

D E C I S I O N 

MENDOZA, J.:

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 Resolution [2] 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 P17,982,222.22
for the first loan, and P80 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 P27,827,122.22, was to secure payment of the first
loan, while the second pledge, valued at P70,155,100.00, was to secure the second
loan.[4]

Two years later, however, the market value of the said shares of stock plunged to less
than P0.04 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 complaint[6] 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 Judgment[13] 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 P117,567,779.75, 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

center>
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

I
 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 Comment[23] 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 arguendothat 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 notundisputed 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:
xxx xxx xxx

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";

xxx xxx xxx

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";

xxx xxx xxx.7

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 P350,000.00 for those copra, lumber, tools,
and machinery listed in par. 4 of the complaint and P100,000.00 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."

xxx      xxx     xxx.9

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 6. Defendants deny the allegations in

of the obligations on the two (2)
promissory notes (Annexes "A" and "B"
hereof) as he has paid only three (3)
installments on interests (sic) payments
covering the months of September,
November and December, 1999, on both
promissory notes, respectively. As a
consequence of the default, the entire
balance due on the obligations of the
defendant to plaintiff on both promissory
notes immediately became due and
demandable pursuant to the terms and
conditions embodied in the two (2)
promissory notes;[48]
paragraphs 8, 9, 10 and 11 of the
Complaint;
xxx
8. The promissory notes 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 3o, 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 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 10. While demand is a
for the payment of the obligations which the latter necessary requirement to
acknowledged to have incurred however, defendant consider the defendant to
imposed conditions such as [that] his [effecting] be in delay/default, such
payments shall depend upon the lifting of garnishment
has not been complied with
effected by the Bangko Sentral on his accounts.
by the plaintiff since the
Photocopies of defendant's communication dated March 3,
former is not aware of any
2000 and April 7, 2000, with plaintiff are hereto attached
demand made to him by the
as Annexes "F" and "G" hereof, as well as its demand to
latter for the settlement of
pay dated April 18, 2000. Demand by plaintiff is hereto
the whole obligation. 
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 P21,576,668.64 for the first loan and P95,991,111.11, for the second loan or
a total of P117,567,779.75.

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. Contrary to the plaintiff's

preference, defendant Jose
9. Defendants' outstanding obligations under the two (2)
C. Go has made substantial
promissory notes as of May 31, 2001 are:
payments in terms of his
P21,576,668.64 (Annex "A") and P95,991,111.11
monthly payments. There is
(Annex "B"), or a total of P117,567,779.75. Copy of the
therefore, a need to do some
Statement of Account is hereto attached as Annex
accounting works just to
"E"hereof.[51]
reconcile the records of both
parties.[52]

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 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.

G.R. No. 174673

REPUBLIC OF THE PHILIPPINES, Petitioner, 

vs.
FE ROA GIMENEZ AND IGNACIO B. GIMENEZ, Respondents.

DECISION

LEONEN, J.:

Rules of procedure are not ends in themselves. The object of these rules is to assist and facilitate a
trial court's function to be able to receive all the evidence of the parties, and evaluate their
admissibility and probative value in the context of the issues presented by the parties' pleadings in
order to arrive at a conclusion as to the facts that transpired. Having been able to establish the facts,
the trial court will then be able to apply the law and determine whether a complainant is deserving of
the reliefs prayed for in the pleading.

Dismissal on the basis of a very strict interpretation of procedural rules without a clear demonstration
of the injury to a substantive right of the defendant weighed against 19 years of litigation actively
participated in by both parties should not be encouraged.

There is likewise serious reversible error, even grave abuse of discretion, when the Sandiganbayan
dismisses a case on demurrer to evidence without a full statement of its evaluation of the evidence
presented and offered and the interpretation of the relevant law. After all, dismissal on the basis of
demurrer to evidence is similar to a judgment. It is a final order ruling on the merits of a case.

This is a Petition  for Review on Certiorari assailing the Sandiganbayan Resolutions dated May 25,
1

2006  and September 13, 2006.  The Sandiganbayan deemed petitioner Republic of the Philippines
2 3

(Republic) to have waived the filing of its Formal Offer of Evidence  and granted the Motion to
4

Dismiss of respondents Spouses Ignacio Gimenez and Fe Roa Gimenez (Gimenez Spouses) based
on demurrer to evidence. 5

The Republic, through the Presidential Commission on Good Government (PCGG), instituted a
Complaint  for Reconveyance, Reversion, Accounting, Restitution and Damages against the
6

Gimenez Spouses before the Sandiganbayan.  "The Complaint seeks to recover . . . ill-gotten wealth
7

. . . acquired by [the Gimenez Spouses] as dummies, agents[,] or nominees of former President

Ferdinand E. Marcos and Imelda Marcos[.]" 8

During trial, the Republic presented documentary evidence attesting to the positions held, business
interests, income, and pertinent transactions of the Gimenez Spouses.  The Republic presented the
9

testimonies of Atty. Tereso Javier, Head of the Sequestered Assets Department of PCGG, and of
Danilo R.V. Daniel, Director of the Research and Development Department of PCGG.  Witnesses 10

testified on the bank accounts and businesses owned or controlled by the Gimenez Spouses. 11

On February 27, 2006, the Sandiganbayan denied a motion to recall Danilo R.V. Daniel’s
testimony.  The Republic then manifested that it was "no longer presenting further
12
evidence."  Accordingly, the Sandiganbayan gave the Republic 30 days or until March 29, 2006 "to
13

file its formal offer of evidence."

14

On March 29, 2006, the Republic moved "for an extension of thirty (30) days or until April 28, 2006,
within which to file [its] formal offer of evidence."  This Motion was granted by the Sandiganbayan in
15

a Resolution of the same date. 16

On April 27, 2006, the Republic moved for an additional 15 days or until May 13, 2006 within which
to file its Formal Offer of Evidence.  This Motion was granted by the Sandiganbayan in a Resolution
17

dated May 8, 2006.  Following this, no additional Motion for extension was filed by the Republic.
18

In the first assailed Resolution dated May 25, 2006, the Sandiganbayan noted that the Republic
failed to file its Formal Offer of Evidence notwithstanding repeated extensions and the lapse of 75
days from the date it terminated its presentation of evidence.  Thus, it declared that the Republic
19

waived the filing of its Formal Offer of Evidence.

20

The first assailed Resolution provides:

It appearing that the plaintiff has long terminated the presentation of its evidence on February 27,
2006, and it appearing further that it failed or otherwise neglected to file its written formal offer of
evidence for an unreasonable period of time consisting of 75 days (i.e., 30 days original period plus
two extension periods totaling 45 days), the filing of said written formal offer of evidence is hereby
deemed WAIVED.

WHEREFORE, the reception of the defendants’ evidence shall proceed on June 22 and 23, 2006,
both at 8:30 o’clock [sic] in the morning as previously scheduled. 21

Ignacio Gimenez filed a Motion to Dismiss on Demurrer to Evidence dated May 30, 2006.  He 22

argued that the Republic showed no right to relief as there was no evidence to support its cause of
action.  Fe Roa Gimenez filed a Motion to Dismiss dated June 13, 2006 on the ground of failure to
23

prosecute.  Through her own Motion to Dismiss, she joined Ignacio Gimenez’s demurrer to
24

evidence. 25

Two days after Fe Roa Gimenez’s filing of the Motion to Dismiss or on June 15, 2006, the Republic
filed a Motion for Reconsideration [of the first assailed Resolution] and to Admit Attached Formal
Offer of Evidence.  The pertinent portions of the Republic’s offer of documentary exhibits attached to
26

the Motion are summarized as follows:

Exhibits A to G and series consist of the Income Tax Returns, Certificate of Income Tax Withheld
On Compensation, Statement of Tax Withheld At Source, Schedule of Interest Income, Royalties
and Withholding Tax, Statement of Assets, Liabilities & Net Worth of Ignacio B. Gimenez from 1980-
1986 proving his legitimate income during said period. Exhibits H -J and series refer to the Deeds of
Sale and Transfer Certificates of Title proving that spouses Gimenezes acquired several real
properties.

Exhibits K and series (K-1-K-4) pertain to Checking Statements Summary issued by the Bankers
Trust Company (BTC) proving that Fe Roa Gimenez maintained a current account under Account
Number 34-714-415 with BTC. Exhibits L and series (L1-L-114) are several BTC checks, proving
that from June 1982 to April 1984, Fe Roa Gimenez issued several checks against her BTC Current
Account No. 34-714-415 payable to some individuals and entities such as Erlinda Oledan, Vilma
Bautista, The Waldorf Towers, Cartier, Gliceria Tantoco, Bulgari, Hammer Galleries and Renato
Balestra, involving substantial amount of money in US Dollars. Exhibits M and series (M1-M-
25) are several The Chase Manhattan Bank (TCMB) checks drawn against the account of Fe Roa
Gimenez under Account Number 021000021, proving that she issued several checks drawn against
her TCMB account, payable to individuals and entities such as Gliceria Tantoco, Vilma Bautista and
The Waldorf Towers, involving substantial sums in US Dollars. Exhibit N is the Philippine National
Bank (PNB), New York Branch Office Charge Ticket No. FT 56880 dated December 9, 1982 in the
amount of US$30,000.00 for Fe Roa Gimenez proving that she received said enormous amount
from the PNB, New York Branch Office, with clearance from the Central Bank, which amount was
charged against PNB Manila. Exhibit N-1 is the PNB New York Branch Advice to Payee No. FT
56535 dated November 12, 1982 in the amount of US$10,990.00 for Fe Roa Gimenez proving her
receipt of such amount as remitted from California Overseas Bank, Los Angeles. Exhibits O and
series (O1-O-8) refer to several Advices made by Bankers Trust AG Zurich-Geneve Bank in
Switzerland to respondent Fe Roa Gimenez proving that she maintained a current account with said
bank under Account Number 107094.50 and that from July 30, 1984 to August 30, 1984, she placed
a substantial amount on time deposit in several banks, namely, Hypobank, Luzemburg, Luxemburg,
Societe Generale, Paris and Bank of Nova Scotia, London.

Exhibit P is the Certification dated March 19, 2002 issued by Director Florino O. Ibanez of the Office
of the President proving that Fe Roa Gimenez, from January 1, 1966 to April 1, 1986, worked with
the Office of the President under different positions, the last of which as Presidential Staff Director
with a salary of P87,072.00 per annum.

Exhibit Q and series (Q-1-Q-18) is the Affirmation of Ralph Shapiro filed with the United States
Court of Appeals in the case entitled, "The Republic of the Philippines vs. Ferdinand E. Marcos, et
al." which discussed certain acts of Fe Roa Gimenez and Vilma Bautista, among others, in relation
to the funds of the Marcoses.

Exhibits R and S and series (R-1, R-9; S-1-S-10) refer to the Certificate of Filing of Amended
Articles of Incorporation of GEI Guaranteed Education, Inc., the Amended Articles of Incorporation of
GEI Guaranteed Education, Inc., the Treasurer’s Affidavit executed by Ignacio Gimenez and the
Director’s Certificate executed by Roberto B. Olanday, Ignacio Gimenez and Roberto Coyuto, Jr.
proving Ignacio Gimenez and Roberto Olanday’s interests in GEl Guaranteed Education, Inc.

Exhibits T and series (T-1-T-8) are the Advices made by the Bankers Trust AG Zurich-Geneve
Bank in Switzerland to Ignacio Gimenez proving that he maintained a current account with said bank
under Account Number 101045.50 and that from March to June, 1984, he placed a substantial
amount on time deposit in several banks, namely, Credit Lyonnais, Brussels, Societe Generale,
Paris, Credit Commercial De France, Paris and Bank of Nova Scotia, London.

Exhibits U and V and series (U-1-U-5; V1-V-18) consist of the Affidavit dated April 25, 1986 and
the Declaration dated June 23, 1987 including the attachments, of Oscar Carino, Vice-President and
Manager of the PNB New York Branch, narrating in detail how the funds of the PNB New York
Branch were disbursed outside regular banking business upon the instructions of former President
Ferdinand E. Marcos and Imelda Marcos using Fe Roa Gimenez and others as conduit.

Exhibits W and series (W-1-W-4) are the Debit memos from the PNB to Fe Roa Gimenez
while Exhibits X and X-1 are the Acknowledgments of said respondent, proving that she received
substantial amounts of money which were coursed through the PNB to be used by the Marcos
spouses for state visits and foreign trips.

Exhibit Y and series (Y-1-Y-2) is the Letter dated August 25, 1986 of Juan C. Gatmaitan, Assistant
Chief Legal Counsel of PNB to Charles G. LaBella, Assistant United States Attorney regarding the
ongoing investigation of irregular transactions at the PNB, New York Branch proving that PNB
cooperated with the United States government in connection with the investigation on the irregular
transactions of Oscar Carino at PNB New York Branch.

Exhibit Z is the service record of Fe Roa Gimenez issued by Florino O. Ibanez of the Office of the
President which proves that she worked with the Office of the President from 1966-1986 holding
different positions, the last of which was Presidential Staff Director.
1âwphi1

Exhibits AA and series (AA-1 –AA-2) are the several Traders Royal Bank checks drawn against
Account No. 74-702836-9 under the account name of Fe Roa Gimenez which prove that she issued
said checks payable to individuals and entities involving substantial amount of money.

Exhibits BB and CC and series (BB-1–BB-17; CC-1-CC-3) are the several Transfer of Funds
Advice from Traders Royal Bank Statements of Account of Fe Roa Gimenez, proving that she
maintained a current account under Account No. 74-7028369 at Traders Royal Bank.

Exhibits HH and series (HH-1-HH-3) are the Certification dated October 3, 2002 of Lamberto R.
Barbin, Officer-in-Charge, Malacanang Records Office, that the Statement of Assets and Liabilities
of spouses Marcoses for the years 1965 up to 1986 are not among the records on file in said Office
except 1965, 1967 and 1969; the Statement of Assets and Liabilities as of December 31, 1969 and
December 31, 1967 of former President Ferdinand Marcos; and the Sworn Statement of Financial
Condition, Assets, Income and Liabilities as of December 31, 1965 of former President Ferdinand
Marcos. These documentary exhibits prove the assets and liabilities of former President Marcos for
the years 1965,1967 and 1969.

Exhibit II and series is [sic] the Statement of Assets and Liabilities as of December 31,1969
submitted by Fe Roa Gimenez which prove that her assets on that period amounted only to
P39,500.00.

Exhibit KK is the Table of Contents of Civil Case No. [0]007 before the Sandiganbayan entitled
"Republic of the Philippines vs. Ignacio B. Gimenez and Fe Roa Gimenez, et. al.", including its
Annexes which prove the assets and liabilities of spouses Gimenezes.

Exhibits KK-1 up to KK-12 are several transfer certificates of title and tax declarations in the names
of spouses Gimenezes, proving their acquisition of several real properties.

Exhibits KK-15, KK-18, KK-20 up to KK-27, KK-30, KK-32 up to KK-38 and KK-40 are the
General Information Sheet, Certificate of Filing of Amended Articles of Incorporation, and Amended
Articles of Incorporation of various corporations. These prove the corporations in which Ignacio B.
Gimenez has substantial interests.

Exhibits KK-41 up to KK-44 are the Writs and Letters of Sequestration issued by the PCGG which
prove that the shares of stocks of Ignacio Gimenez in Ignacio B. Gimenez, Securities, Inc. and the
real properties covered by Transfer Certificates of Title Nos. 137638, 132807, 126693 and 126694
located in San Fabian, Pangasinan, were sequestered by the PCGG.

Exhibit KK-45 is the Memorandum dated August 1, 1988 of Atty. Ralph S. Lee and Alexander M.
Berces, Team Supervisor and Investiogator, [sic] respectively, of IRD, PCGG, proving that the
PCGG conducted an investigation on New City Builders, Inc., Transnational Construction
Corporation, and OTO Construction and Development Corporation in relation to Ignacio B. Gimenez
and Roberto O. Olanday.
Exhibits KK-48, KK-49 and KK-50 are certain Lis Pendens from the PCGG addressed to the
concerned Register of Deeds informing that the real properties mentioned therein had been
sequestered and are the subject of Civil Case No. [0]007 before the Sandiganbayan.

Exhibits KK-51, KK-51-A, KK-52 and KK-52-A are the Letter and Writ of Sequestration issued by
the PCGG on Allied Banking Corporation and Guaranteed Education Inc. pursuant to its mandate to
go after ill-gotten wealth.

Exhibits NN, OO, PP, QQ and QQ-1 refer to the Memorandum To All Commercial Banks dated
March 14, 1986 issued by then Central Bank Governor Jose B. Fernandez and the Letter dated
March 13, 1986 of Mary Concepcion Bautista, PCGG Commissioner addressed to then Central Bank
Governor Fernandez requesting that names be added to the earlier request of PCGG Chairman
Jovito Salonga to instruct all commercial banks not to allow any withdrawal or transfer of funds from
the market placements under the names of said persons, to include spouses Gimenezes, without
authority from PCGG.

Exhibits KK and series, NN, OO, PP, QQ and QQ-1 which prove the various real properties,
business interests and bank accounts owned by spouses Gimenezes were part of the testimony of
Atty. Tereso Javier.

Exhibit RR and series (RR-1-RR-23) are the Affidavit dated July 24, 1987 of Dominador Pangilinan,
Acting President and President of Trader’s Royal Bank, and the attached Recapitulation, Status of
Banker’s Acceptances, Status of Funds and Savings Account Ledger wherein he mentioned that
Malacanang maintained trust accounts at Trader’s Royal Bank, the balance of which is
approximately 150-175 million Pesos, and that he was informed by Mr. Rivera that the funds were
given to him (Rivera) by Fe Roa Gimenez for deposit to said accounts.

Exhibits SS and series (SS-1-SS-29) are the Affidavit dated July 23, 1987 of Apolinario K. Medina,
Executive Vice President of Traders Royal Bank and attachments, which include Recapitulation,
Status of Funds, and Messages from Traders Royal Bank Manila to various foreign banks. In his
Affidavit, Medina divulged certain numbered confidential trust accounts maintained by Malacanang
with the Trader’s Royal Bank. He further stated that the deposits were so substantial that he
suspected that they had been made by President Marcos or his family.

Exhibit TT and series (TT-1-TT-3) is [sic] the Memorandum dated July 19, 2005 of Danilo R.V.
Daniel, then Director of the Research and Development Department of PCGG regarding the
investigation conducted on the ill-gotten wealth of spouses Gimenezes, the subject matter of Civil
Case No. [0]007. He revealed that during the investigation on the ill-gotten wealth of spouses
Gimenezes, it was found out that from 1977 to 1982, several withdrawals, in the total amount of
P75,090,306.42 were made from Trust Account No. 128 (A/C 76-128) in favor of I.B. Gimenez, I.B.
Gimenez Securities and Fe Roa Gimenez.

Exhibits RR, SS, TT and their series prove that spouses Gimenez maintained bank accounts of
substantial amounts and gained control of various corporations.  These are also being offered as
1âwphi1

part of the testimony of Danilo R.V. Daniel.  (Emphasis in the original, citations omitted)
27

In the second assailed Resolution dated September 13, 2006, the Sandiganbayan denied the
Republic’s Motion for Reconsideration and granted the Gimenez Spouses’ Motion to
Dismiss.  According to the Sandiganbayan:
28

While it is true that litigation is not a game of technicalities and that the higher ends of substantial
justice militate against dismissal of cases purely on technical grounds, the circumstances of this
case show that the ends of justice will not be served if this Court allows the wanton disregard of the
Rules of Court and of the Court’s orders. Rules of procedure are designed for the proper and prompt
disposition of cases. . . .

The reasons invoked by the plaintiff to justify its failure to timely file the formal offer of evidence fail
to persuade this Court. The missing exhibits mentioned by the plaintiff’s counsel appear to be the
same missing documents since 2004, or almost two (2) years ago. The plaintiff had more than ample
time to locate them for its purpose. . . . Since they remain missing after lapse of the period indicated
by the Court, there is no reason why the search for these documents should delay the filing of the
formal offer of evidence.

[Petitioner’s] counsel . . . admits that faced with other pressing matters, he lost track of the time. We
cannot just turn a blind eye on the negligence of the parties and in their failure to observe the orders
of this Court. The carelessness of [petitioner’s] counsel in keeping track of the deadlines is an
unacceptable reason for the Court to set aside its Order and relax the observance of the period set
for filing the formal offer of evidence.  (Citation omitted)
29

The Sandiganbayan also found that the Republic failed to prosecute its case for an unreasonable
length of time and to comply with the court’s rules.  The court also noted that the documentary
30

evidence presented by the Republic consisted mostly of certified true copies.  However, the persons
31

who certified the documents as copies of the original were not presented.  Hence, the evidence
32

lacked probative value.  The dispositive portion of the assailed Resolution reads:
33

ACCORDINGLY, there being no valid and cogent justification shown by the plaintiff for the Court to
Grant its Motion for Reconsideration and admit its Formal Offer of Evidence, the plaintiff’s Motion for
Reconsideration and to Admit Attached Formal Offer of Evidence is DENIED. The Motion to Dismiss
on Demurrer to Evidence filed by the defendant Ignacio B. Gimenez and adopted by defendant Fe
Roa Gimenez is GRANTED. The case is then DISMISSED.

SO ORDERED.  (Emphasis in the original)

34

The Republic filed its Petition for Review on Certiorari dated November 3, 2006 before this court. 35

The Gimenez Spouses were required to comment on the Petition.  This court noted the separate
36

Comments  filed by the Gimenez Spouses.  The Republic responded to the Comments through a
37 38

Consolidated Reply  dated June 22, 2007.

39

In the Resolution  dated August 29, 2007, this court required the parties to submit their
40

memoranda. 41

On February 18, 2008, this court resolved to require the parties to "move in the premises[.]" 42

On March 2, 2012, the Republic filed a Motion for Leave to Re-open Proceedings, to File and Admit
Attached Supplement to the Petition for Certiorari.  In this Supplement, the Republic argued that the
43

second assailed Resolution dated September 13, 2006 was void for failing to state the facts and the
law on which it was based. This Motion was granted, and the Gimenez Spouses were required to file
44

their Comment on the Supplement to the Petition.  Thereafter, the Republic filed its Reply.
45 46

Fe Roa Gimenez filed a Rejoinder  dated December 19, 2012 which was expunged by this court in a
47

Resolution dated January 23, 2013. Ignacio Gimenez’s Motion for Leave to File and Admit Attached
48

Rejoinder  was denied.

49 50
The Republic raised the following issues:

Whether or not the Sandiganbayan gravely erred in dismissing the case in the light of the allegations
in the Complaint which were substantiated by overwhelming evidence presented vis-a-vis the
material admissions of spouses Gimenezes as their answer failed to specifically deny that they were
dummies of former President Ferdinand E. Marcos and that they acquired illegal wealth grossly
disproportionate to their lawful income in a manner prohibited under the Constitution and Anti-Graft
Statutes.

Whether or not the Sandiganbayan gravely erred in denying petitioner’s Motion to Admit Formal
Offer of Evidence on the basis of mere technicalities, depriving petitioner of its right to due process.

Whether or not the Sandiganbayan gravely erred in making a sweeping pronouncement that
petitioner’s evidence do not bear any probative value. 51

The issues for consideration of this court are:

First, whether a Petition for Review on Certiorari was the proper remedy to assail the
Sandiganbayan Resolutions; and

Second, whether the Sandiganbayan erred in holding that petitioner Republic of the Philippines
waived the filing of its Formal Offer of Evidence and in granting respondents Ignacio Gimenez and
Fe Roa Gimenez’s Motion to Dismiss on demurrer to evidence.

We grant the Petition.

Respondent Ignacio Gimenez pictures petitioner as being confused as to the proper mode of review
of the Sandiganbayan Resolutions. According to him, petitioner claims that the Sandiganbayan
committed grave abuse of discretion.  Hence, petitioner should have filed a petition for certiorari
52

under Rule 65 and not a petition for review under Rule 45 of the Rules of Court.  Nevertheless, the
53

Sandiganbayan did not commit any error, and petitioner has to show that the Sandiganbayan
committed grave abuse of discretion amounting to lack of or in excess of jurisdiction. 54

Observance of the proper procedure before courts, especially before the Sandiganbayan, cannot be
stressed enough. Due process is enshrined in the Constitution, specifically the Bill of Rights.  "Due
55

process [in criminal cases] guarantees the accused a presumption of innocence until the contrary is
proved[.]"  "Mere suspicion of guilt should not sway judgment."
56 57

To determine whether a petition for review is the proper remedy to assail the Sandiganbayan
Resolutions, we review the nature of actions for reconveyance, revision, accounting, restitution, and
damages.

Actions for reconveyance, revision, accounting, restitution, and damages for ill-gotten wealth are
also called civil forfeiture proceedings.

Republic Act No. 1379  provides for the procedure by which forfeiture proceedings may be instituted
58

against public officers or employees who "[have] acquired during his [or her] incumbency an amount
of property which is manifestly out of proportion to his [or her] salary as such public officer or
employee and to his [or her] other lawful income and the income from legitimately acquired property,
[which] property shall be presumed prima facie to have been unlawfully acquired." 59

This court has already settled the Sandiganbayan’s jurisdiction over civil forfeiture cases:

. . . violations of R.A. No. 1379 are placed under the jurisdiction of the Sandiganbayan, even though
the proceeding is civil in nature, since the forfeiture of the illegally acquired property amounts to a
penalty.60

In Garcia v. Sandiganbayan, et al.,  this court re-affirmed the doctrine that forfeiture proceedings
61

under Republic Act No. 1379 are civil in nature.  Civil forfeiture proceedings were also differentiated
62

from plunder cases:

. . . a forfeiture case under RA 1379 arises out of a cause of action separate and different from a
plunder case. . . . In a prosecution for plunder, what is sought to be established is the commission of
the criminal acts in furtherance of the acquisition of ill-gotten wealth. . . . On the other hand, all that
the court needs to determine, by preponderance of evidence, under RA 1379 is the disproportion of
respondent’s properties to his legitimate income, it being unnecessary to prove how he acquired said
properties. As correctly formulated by the Solicitor General, the forfeitable nature of the properties
under the provisions of RA 1379 does not proceed from a determination of a specific overt act
committed by the respondent public officer leading to the acquisition of the illegal wealth. (Citation
63

omitted)

To stress, the quantum of evidence required for forfeiture proceedings under Republic Act No. 1379
is the same with other civil cases — preponderance of evidence. 64

When a criminal case based on demurrer to evidence is dismissed, the dismissal is equivalent to an
acquittal. 65

As a rule, once the court grants the demurrer, the grant amounts to an acquittal; any further
prosecution of the accused would violate the constitutional proscription on double jeopardy. 66

Hence, the Republic may only assail an acquittal through a petition for certiorari under Rule 65 of the
Rules of Court:

Accordingly, a review of a dismissal order of the Sandiganbayan granting an accused’s demurrer to

evidence may be done via the special civil action of certiorari under Rule 65, based on the narrow
ground of grave abuse of discretion amounting to lack or excess of jurisdiction.  (Citation omitted)
67

In this case, a civil forfeiture under Republic Act No. 1379, petitioner correctly filed a Petition for
Review on Certiorari under Rule 45 of the Rules of Court. Section 1 of the Rule provides the mode of
appeal from judgments, final orders, or resolutions of the Sandiganbayan:

SECTION 1. Filing of petition with Supreme Court.— A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial
Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition
for review on certiorari. The petition shall raise only questions of law which must be distinctly set
forth.

II
Petitioner argues that substantial justice requires doing away with the procedural
technicalities.  Loss of vital documentary proof warranted extensions to file the Formal Offer of
68

Evidence.  Honest efforts to locate several missing documents resulted in petitioner’s inability to file
69

the pleading within the period granted by the Sandiganbayan. 70

Respondent Ignacio Gimenez argues that petitioner cannot fault the Sandiganbayan for its
incompetence during trial.  Even if the evidence were formally offered within the prescribed period,
71

PCGG’s evidence still had no probative value.  It is solely petitioner’s fault "that the persons who
72

certified to the photocopies of the originals were not presented to testify[.]"  It is also misleading to
73

argue that the pieces of documentary evidence presented are public documents.  "The documents
74

are not public in the sense that these are official issuances of the Philippine government."  "The bulk
75

consists mainly of notarized, private documents that have simply been certified true and faithful." 76

According to respondent Fe Roa Gimenez, petitioner tries to excuse its non-filing of the Formal Offer
of Evidence within the prescribed period by raising its efforts to locate the 66 missing
documents.  However, the issue of the missing documents was laid to rest during the hearing on
77

November 16, 2004.  The Sandiganbayan gave petitioner until March 2005 to produce the
78

documents; otherwise, these would be excluded.  The testimonies of the witnesses related to the
79

missing documents would also be expunged from the case records. 80

Moreover, respondent Fe Roa Gimenez claims that "[t]he Sandiganbayan did not err when it ruled
that the great bulk of the documentary evidence offered by the PCGG have no probative
value."  Aside from the 66 missing documents it failed to present, almost all of petitioner’s pieces of
81

documentary evidence were mere photocopies. The few that were certified true copies were not
82

testified on by the persons who certified these documents. 83

Our Rules of Court lays down the procedure for the formal offer of evidence. Testimonial evidence is
offered "at the time [a] witness is called to testify."  Documentary and object evidence, on the other
84

hand, are offered "after the presentation of a party’s testimonial evidence."  Offer of documentary or
85

object evidence is generally done orally unless permission is given by the trial court for a written
offer of evidence. 86

More importantly, the Rules specifically provides that evidence must be formally offered to be
considered by the court. Evidence not offered is excluded in the determination of the case.  "Failure 87

to make a formal offer within a considerable period of time shall be deemed a waiver to submit it." 88

Rule 132, Section 34 provides:

SEC. 34. Offer of evidence.— The court shall consider no evidence which has not been formally
offered. The purpose for which the evidence is offered must be specified.

The rule on formal offer of evidence is intertwined with the constitutional guarantee of due process.
Parties must be given the opportunity to review the evidence submitted against them and take the
necessary actions to secure their case.  Hence, any document or object that was marked for
89

identification is not evidence unless it was "formally offered and the opposing counsel [was] given an
opportunity to object to it or cross-examine the witness called upon to prove or identify it." 90

This court explained further the reason for the rule:

The Rules of Court provides that "the court shall consider no evidence which has not been formally
offered." A formal offer is necessary because judges are mandated to rest their findings of facts and
their judgment only and strictly upon the evidence offered by the parties at the trial. Its function is to
enable the trial judge to know the purpose or purposes for which the proponent is presenting the
evidence. On the other hand, this allows opposing parties to examine the evidence and object to its
admissibility. Moreover, it facilitates review as the appellate court will not be required to review
documents not previously scrutinized by the trial court.  (Emphasis supplied, citations omitted)
91

To consider a party’s evidence which was not formally offered during trial would deprive the other
party of due process. Evidence not formally offered has no probative value and must be excluded by
the court.
92

Petitioner’s failure to file its written Formal Offer of Evidence of the numerous documentary evidence
presented within the prescribed period is a non-issue. In its first assailed Resolution dated May 25,
2006, the Sandiganbayan declared that petitioner waived the filing of its Formal Offer of Evidence
when it failed to file the pleading on May 13, 2006, the deadline based on the extended period
granted by the court. Petitioner was granted several extensions of time by the Sandiganbayan
totalling 75 days from the date petitioner terminated its presentation of evidence. Notably, this 75-
day period included the original 30-day period. Subsequently, petitioner filed a Motion for
Reconsideration and to Admit Attached Formal Offer of Evidence, and the Formal Offer of Evidence.

In resolving petitioner’s Motion for Reconsideration and to Admit Attached Formal Offer of Evidence,
the Sandiganbayan found the carelessness of petitioner’s counsel unacceptable. According to the
Sandiganbayan, it could not countenance the non-observance of the court’s orders.

This court has long acknowledged the policy of the government to recover the assets and properties
illegally acquired or misappropriated by former President Ferdinand E. Marcos, his wife Mrs. Imelda
R. Marcos, their close relatives, subordinates, business associates, dummies, agents or
nominees.  Hence, this court has adopted a liberal approach regarding technical rules of procedure
93

in cases involving recovery of ill-gotten wealth:

In all the alleged ill-gotten wealth cases filed by the PCGG, this Court has seen fit to set aside
technicalities and formalities that merely serve to delay or impede judicious resolution. This Court
prefers to have such cases resolved on the merits at the Sandiganbayan. But substantial justice to
the Filipino people and to all parties concerned, not mere legalisms or perfection of form, should now
be relentlessly and firmly pursued. Almost two decades have passed since the government initiated
its search for and reversion of such ill-gotten wealth. The definitive resolution of such cases on the
merits is thus long overdue. If there is proof of illegal acquisition, accumulation, misappropriation,
fraud or illicit conduct, let it be brought out now. Let the ownership of these funds and other assets
be finally determined and resolved with dispatch, free from all the delaying technicalities and
annoying procedural sidetracks.  (Emphasis supplied, citation omitted)
94

To be clear, petitioner was able to file its Formal Offer of Evidence, albeit, belatedly. Petitioner
hurdled 19 years of trial before the Sandiganbayan to present its evidence as shown in its extensive
Formal Offer of Evidence. As petitioner argues:

Undeniable from the records of the case is that petitioner was vigorous in prosecuting the case. The
most tedious and crucial stage of the litigation and presentation of evidence has been accomplished.
Petitioner completed its presentation of evidence proving the ill-gotten nature and character of the
funds and assets sought to be recovered in the present case. It presented vital testimonial and
documentary evidence consisting of voluminous record proving the gross disparity of the subject
funds to spouses Gimenezes’ combined declared income which must be reconveyed to the Republic
for being acquired in blatant violation of the Constitution and the Anti-Graft statutes.
95
This court is not unmindful of the difficulty in gathering voluminous documentary evidence in cases
of forfeiture of ill-gotten wealth acquired throughout the years. It is never easy to prosecute
corruption and take back what rightfully belongs to the government and the people of the Republic.

This is not the first time that this court relaxed the rule on formal offer of evidence.

Tan v. Lim  arose from two civil Complaints: one for injunction and another for legal redemption,
96

which were heard jointly before the trial court.  The defendant did not file a Formal Offer of Evidence
97

in the injunction case  and merely adopted the evidence offered in the legal redemption case.  The
98 99

trial court held that the defendant’s failure to file his Formal Offer of Evidence in the injunction case
rendered the plaintiff’s evidence therein as uncontroverted.  The Court of Appeals reversed the
100

Decision and was affirmed by this court.  This court ruled that while the trial court’s reasoning in its
101

Decision was technically sound, a liberal interpretation was more appropriate and in line with
substantial justice:

It may be true that Section 34, Rule 132 of the rules directs the court to consider no evidence which
has not been formally offered and that under Section 35, documentary evidence is offered after
presentation of testimonial evidence. However, a liberal interpretation of these Rules would have
convinced the trial court that a separate formal offer of evidence in Civil Case No. 6518 was
superfluous because not only was an offer of evidence made in Civil Case No. 6521 that was being
jointly heard by the trial court, counsel for Jose Renato Lim had already declared he was adopting
these evidences for Civil Case No. 6518. The trial court itself stated that it would freely utilize in one
case evidence adduced in the other only to later abandon this posture. Jose Renato Lim testified in
Civil Case No. 6518. The trial court should have at least considered his testimony since at the time it
was made, the rules provided that testimonial evidence is deemed offered at the time the witness is
called to testify. Rules of procedure should not be applied in a very rigid, technical case as they are
devised chiefly to secure and not defeat substantial justice.

....

The logic of the Court of Appeals is highly persuasive. Indeed, apparently, the trial court was being
overly technical about the nonsubmission of Jose Renato Lim’s formal offer of evidence. This
posture not only goes against Section 6, Rule 1 of the Rules of Civil Procedure decreeing a liberal
construction of the rules to promote a just, speedy and inexpensive litigation but ignores the
consistent rulings of the Court against utilizing the rules to defeat the ends of substantial justice .
Despite the intervening years, the language of the Court in Manila Railroad Co. vs. Attorney-
General, still remains relevant:

"x x x. The purpose of procedure is not to thwart justice. Its proper aim is to facilitate the application
of justice to the rival claims of contending parties. It was created not to hinder and delay but to
facilitate and promote the administration of justice. It does not constitute the thing itself which courts
are always striving to secure to litigants. It is designed as the means best adapted to obtain that
thing. In other words, it is a means to an end. It is the means by which the powers of the court are
made effective in just judgments. When it loses the character of the one and takes on that of the
other the administration of justice becomes incomplete and unsatisfactory and lays itself open to
grave criticism."  (Emphasis supplied, citations omitted)
102

Furthermore, "subsequent and substantial compliance . . . may call for the relaxation of the rules of
procedure." 103

Weighing the amount of time spent in litigating the case against the number of delays petitioner
incurred in submitting its Formal Offer of Evidence and the state’s policy on recovering ill-gotten
wealth, this court is of the belief that it is but only just that the Rules be relaxed and petitioner be
allowed to submit its written Formal Offer of Evidence. The Sandiganbayan’s Resolutions should be
reversed.

III

According to petitioner, the Sandiganbayan erred when it granted the demurrer to evidence filed by
respondents and dismissed the case despite a "prima facie foundation [based on the pleadings and
documents on record] that spouses Gimenezes amassed enormous wealth grossly disproportionate
to their lawful income or declared lawful assets."
104

Similarly, the Complaint alleged specific acts committed by respondent Ignacio Gimenez:

[T]aking undue advantage of his relationship, influence, and connection, by himself and/or in
unlawful concert and active collaboration with former President Ferdinand E. Marcos and Imelda R.
Marcos for the purpose of mutually enriching themselves and preventing the disclosure and recovery
of assets illegally obtained: (a) acted as the dummy, nominee or agent of former President
Ferdinand E. Marcos and Imelda R. Marcos in several corporations such as, the Allied Banking
Corporation, Acoje Mining Corporation, Baguio Gold Mining, Multi National Resources, Philippine
Oversees, Inc. and Pioneer Natural Resources; (b) unlawfully obtained, through corporations
organized by them such as the New City Builders, Inc. (NCBI), multi-million peso contracts with the
government buildings, such as the University of Life Sports Complex and Dining Hall as well as
projects of the National Manpower Corporation, Human Settlements, GSIS, and Maharlika
Livelihood, to the gross and manifest disadvantage of the Government and the Filipino people; and
(c) in furtherance of the above stated illegal purposes, organized several establishments engaged in
food, mining and other businesses such as the Transnational Construction Corporation, Total
Systems Technology, Inc., Pyro Control Technology Corporation, Asian Alliance, Inc., A & T
Development Corporation, RBO Agro Forestry Farm Development Corporation, Bathala Coal Mining
Corporation, Coal Basis Mining Corporation, Titan Coal Mining Corporation, GEI Guaranteed
Education, Inc., and I.B. Gimenez Securities, Inc. 105

Despite the specific allegations in the Complaint, petitioner contends that respondents merely gave
general denials to the allegations in the Complaint.  "[N]o specific denial [was] made on the material
106

allegations [in] the [C]omplaint."

107

Respondents, on the other hand, assert that the Sandiganbayan was correct in granting the Motion
to Dismiss on demurrer to evidence.

Respondent Ignacio Gimenez claims that petitioner cannot be excused from filing its Formal Offer of
Evidence considering the numerous extensions given by the Sandiganbayan. Petitioner had all the
resources and time to gather, collate, and secure the necessary evidence to build its
case.  Petitioner’s presentation of evidence took 19 years to complete, and yet it failed to submit the
108

necessary documents and pleading. 109

Similarly, respondent Fe Roa Gimenez argues that petitioner was negligent in failing to comply with
the Sandiganbayan’s orders considering the inordinate amount of time given to petitioner to present
evidence, which resulted in only five witnesses in 19 years. 110

To determine the propriety of granting respondents’ Motion to Dismiss based on Demurrer to

Evidence, we review the nature of demurrer.
Rule 33, Section 1 of the Rules of Court 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 Oropesa v. Oropesa  where this court affirmed the dismissal of the case on demurrer to evidence
111

due to petitioner’s non-submission of the Formal Offer of Evidence,  demurrer to evidence was
112

defined 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." We have also held that a demurrer to evidence "authorizes a judgment on the merits of
the case without the defendant having to submit evidence on his part, as he would ordinarily have to
do, if plaintiff’s evidence shows that he is not entitled to the relief sought."  (Citations omitted)
113

This court has laid down the guidelines in resolving a demurrer to evidence:

A demurrer to evidence may be issued when, upon the facts and the law, the plaintiff has shown no
right to relief. Where the plaintiff’s evidence together with such inferences and conclusions as may
reasonably be drawn therefrom does not warrant recovery against the defendant, a demurrer to
evidence should be sustained. A demurrer to evidence is likewise sustainable when, admitting every
proven fact favorable to the plaintiff and indulging in his favor all conclusions fairly and reasonably
inferable therefrom, the plaintiff has failed to make out one or more of the material elements of his
case, or when there is no evidence to support an allegation necessary to his claim. It should be
sustained where the plaintiff’s evidence is prima facie insufficient for a recovery. 114

Furthermore, this court already clarified what the trial court determines when acting on a motion to
dismiss based on demurrer to evidence:

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. . . .  (Emphasis supplied, citation omitted)
115

Petitioner, in its Supplement to the Petition, argued that the testimonial evidence it had presented
and offered during trial warranted consideration and analysis.  The Sandiganbayan erroneously
116

excluded these testimonies in determining whether to grant the motion to dismiss or not, hence:

. . . even assuming that the Sandiganbayan denied petitioner’s formal offer of evidence, petitioner
still had testimonial evidence in its favor which should [have] been considered. It behoved then upon
the Sandiganbayan to discuss or include in its discussion, at the very least, an analysis of
petitioner’s testimonial evidence.117

With our ruling reversing the Sandiganbayan’s Resolutions on petitioner’s Formal Offer of Evidence,
what should be determined now by the Sandiganbayan is whether petitioner’s evidence is sufficient
to entitle it to the relief it seeks after the Sandiganbayan rested its case. Petitioner is required to
establish preponderance of evidence.
In the second assailed Resolution, the Sandiganbayan granted respondents’ Motion to Dismiss
based on the lack of Formal Offer of Evidence of petitioner. At the same time, it observed that the
pieces of documentary evidence presented by petitioner were mostly certified true copies of the
original. In passing upon the probative value of petitioner’s evidence, the Sandiganbayan held:

On another note, the evidence presented by the plaintiff consisted mainly of certified true copies of
the original. These certified copies of documentary evidence presented by the plaintiff were not
testified on by the person who certified them to be photocopies of the original. Hence, these
evidence do not appear to have significant substantial probative value. 118

Petitioner faults the Sandiganbayan for making "a general and sweeping statement that the evidence
presented by petitioner lacked probative value for the reason that they are mainly certified true
copies which had not been testified on by the person who certified [them]."  Thus, its right to due
119

process was violated when the Sandiganbayan rejected petitioner’s documentary evidence in the
same Resolution which dismissed the case. 120

Petitioner argues that: a) respondents unqualifiedly admitted the identity and authenticity of the
documentary evidence presented by petitioner;  and b) the documents it presented were public
121

documents, and there was no need for the identification and authentication of the original
documentary exhibits.  Petitioner relies on the Sandiganbayan Order  dated August 6, 2002. The
122 123

Order reads:

Considering the manifestation of Atty. Reno Gonzales, counsel for plaintiff/PCGG, that
the defendant Fe Roa Gimenez, through counsel, is willing to stipulate that the documents to be
presented and identified by the witness are in her custody as Records Officer of the PCGG, the
parties agreed to dispense with the testimony of Ma. Lourdes Magno.

WHEREFORE, and as prayed for, the continuation of the presentation of plaintiff’s evidence is set
on October 9 and 10, 2002, both at 8:30 o’clock [sic] in the morning.

SO ORDERED.  (Emphasis supplied)

124

Petitioner claims that the following exhibits were acquired in relation to the PCGG’s functions
prescribed under Executive Order No. 1, Section 3(b),  and form part of the official records of the
125

PCGG:  "Certifications as to the various positions held in Government by Fe Roa-Gimenez, her

126

salaries and compensation during her stint as a public officer, the BIR Income Tax Returns and
Statement of Assets and Liabilities showing the declared income of spouses Gimenezes; the Articles
of Incorporation of various corporations showing spouses Gimenezes’ interests on various
corporations; and several transactions involving huge amounts of money which prove that they acted
as conduit in the disbursement of government funds." 127

On the other hand, respondent Ignacio Gimenez argues that petitioner’s documents are not "official
issuances of the Philippine government."  They
128
are mostly notarized private
documents.  Petitioner’s evidence has no probative value; hence, a dismissal on demurrer to
129

evidence is only proper.  Respondent Fe Roa Gimenez claims that the Sandiganbayan did not err in
130

holding that the majority of petitioner’s documentary evidence has no probative value, considering
that most of these documents are only photocopies. 131

The evidence presented by petitioner before the Sandiganbayan deserves better treatment.
For instance, the nature and classification of the documents should have been ruled upon. Save for
certain cases, the original document must be presented during trial when the subject of the inquiry is
the contents of the document.  This is the Best Evidence Rule provided under Rule 130, Section 3
132

of the Rules of Court:

SEC. 3. Original document must be produced; exceptions.— When the subject of inquiry is the
contents of a document, no evidence shall be admissible other than the original document itself,
except in the following cases:

(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith
on the part of the offeror;

(b) When the original is in the custody or under the control of the party against whom the evidence is
offered, and the latter fails to produce it after reasonable notice;

(c) When the original consists of numerous accounts or other documents which cannot be examined
in court without great loss of time and the fact sought to be established from them is only the general
result of the whole; and

(d) When the original is a public record in the custody of a public officer or is recorded in a public
office.

In case of unavailability of the original document, secondary evidence may be presented  as 133

provided for under Sections 5 to 7 of the same Rule:

SEC. 5. When original document is unavailable.— When the original document has been lost or
destroyed, or cannot be produced in court, the offeror, upon proof of its execution or existence and
the cause of its unavailability without bad faith on his part, may prove its contents by a copy, or by a
recital of its contents in some authentic document, or by the testimony of witnesses in the order
stated.

SEC. 6. When original document is in adverse party's custody or control. — If the document is in the
custody or under the control of adverse party, he must have reasonable notice to produce it. If after
such notice and after satisfactory proof of its existence, he fails to produce the document, secondary
evidence may be presented as in the case of its loss. (5a)

SEC. 7. Evidence admissible when original document is a public record.— When the original of a
document is in the custody of a public officer or is recorded in a public office, its contents may be
proved by a certified copy issued by the public officer in custody thereof. (Emphasis supplied)

In Citibank, N.A. v. Sabeniano,  citing Estrada v. Hon. Desierto,  this court clarified the applicability
134 135

of the Best Evidence Rule:

As the afore-quoted provision states, the best evidence rule applies only when the subject of the
inquiry is the contents of the document. The scope of the rule is more extensively explained thus —

But even with respect to documentary evidence, the best evidence rule applies only when the
content of such document is the subject of the inquiry. Where the issue is only as to whether such
document was actually executed, or exists, or on the circumstances relevant to or surrounding its
execution, the best evidence rule does not apply and testimonial evidence is admissible (5 Moran,
op. cit., pp. 76-66; 4 Martin, op. cit., p. 78). Any other substitutionary evidence is likewise admissible
without need for accounting for the original.

Thus, when a document is presented to prove its existence or condition it is offered not as
documentary, but as real, evidence. Parol evidence of the fact of execution of the documents is
allowed (Hernaez, et al. vs. McGrath, etc., et al., 91 Phil[.] 565). x x x

In Estrada v. Desierto, this Court had occasion to rule that —

It is true that the Court relied not upon the original but only [a] copy of the Angara Diary as published
in the Philippine Daily Inquirer on February 4-6, 2001. In doing so, the Court, did not, however,
violate the best evidence rule. Wigmore, in his book on evidence, states that:

"Production of the original may be dispensed with, in the trial court’s discretion, whenever in the case
in hand the opponent does not bona fide dispute the contents of the document and no other useful
purpose will be served by requiring production.

"x x x x x x x x x

"In several Canadian provinces, the principle of unavailability has been abandoned, for certain
documents in which ordinarily no real dispute arised [sic]. This measure is a sensible and
progressive one and deserves universal adoption (post, sec. 1233). Its essential feature is that a
copy may be used unconditionally, if the opponent has been given an opportunity to inspect it."

This Court did not violate the best evidence rule when it considered and weighed in evidence the
photocopies and microfilm copies of the PNs, MCs, and letters submitted by the petitioners to
establish the existence of respondent’s loans. The terms or contents of these documents were never
the point of contention in the Petition at bar. It was respondent’s position that the PNs in the first set
(with the exception of PN No. 34534) never existed, while the PNs in the second set (again,
excluding PN No. 34534) were merely executed to cover simulated loan transactions. As for the
MCs representing the proceeds of the loans, the respondent either denied receipt of certain MCs or
admitted receipt of the other MCs but for another purpose. Respondent further admitted the letters
she wrote personally or through her representatives to Mr. Tan of petitioner Citibank acknowledging
the loans, except that she claimed that these letters were just meant to keep up the ruse of the
simulated loans. Thus, respondent questioned the documents as to their existence or execution, or
when the former is admitted, as to the purpose for which the documents were executed, matters
which are, undoubtedly, external to the documents, and which had nothing to do with the contents
thereof.

Alternatively, even if it is granted that the best evidence rule should apply to the evidence presented
by petitioners regarding the existence of respondent’s loans, it should be borne in mind that the rule
admits of the following exceptions under Rule 130, Section 5 of the revised Rules of
Court[.]  (Emphasis supplied, citation omitted)
136

Furthermore, for purposes of presenting these as evidence before courts, documents are classified
as either public or private. Rule 132, Section 19 of the Rules of Court provides:

SEC. 19. Classes of Documents.— For the purpose of their presentation in evidence, documents are
either public or private.

Public documents are:

(a) The written official acts, or records of the official acts of the sovereign authority, official bodies
and tribunals, and public officers, whether of the Philippines, or of a foreign country;

(b) Documents acknowledge before a notary public except last wills and testaments; and

(c) Public records, kept in the Philippines, of private documents required by law to be entered
therein.

All other writings are private.

The same Rule provides for the effect of public documents as evidence and the manner of proof for
public documents:

SEC. 23. Public documents as evidence.— Documents consisting of entries in public records made
in the performance of a duty by a public officer are prima facie evidence of the facts therein stated.
All other public documents are evidence, even against a third person, of the fact which gave rise to
their execution and of the date of the latter.

SEC. 24. Proof of official record.— The record of public documents referred to in paragraph (a) of
Section 19, when admissible for any purpose, may be evidenced by an official publication thereof or
by a copy attested by the officer having the legal custody of the record, or by his deputy, and
accompanied, if the record is not kept in the Philippines, with a certificate that such officer has the
custody. If the office in which the record is kept is in a foreign country, the certificate may be made
by a secretary of the embassy or legation, consul general, consul, vice consul, or consular agent or
by any officer in the foreign service of the Philippines stationed in the foreign country in which the
record is kept, and authenticated by the seal of his office.

SEC. 25. What attestation of copy must state.— Whenever a copy of a document or record is
attested for the purpose of evidence, the attestation must state, in substance, that the copy is a
correct copy of the original, or a specific part thereof, as the case may be. The attestation must be
under the official seal of the attesting officer, if there be any, or if he be the clerk of a court having a
seal, under the seal of such court.

....

SEC. 27. Public record of a private document.— An authorized public record of a private document
may be proved by the original record, or by a copy thereof, attested by the legal custodian of the
record, with an appropriate certificate that such officer has the custody.

....

SEC. 30. Proof of notarial documents.— Every instrument duly acknowledged or proved and
certified as provided by law, may be presented in evidence without further proof, the certificate of
acknowledgment being prima facie evidence of the execution of the instrument or document
involved. (Emphasis supplied)

Emphasizing the importance of the correct classification of documents, this court pronounced:

The nature of documents as either public or private determines how the documents may be
presented as evidence in court. A public document, by virtue of its official or sovereign character, or
because it has been acknowledged before a notary public (except a notarial will) or a competent
public official with the formalities required by law, or because it is a public record of a private writing
authorized by law, is self-authenticating and requires no further authentication in order to be
presented as evidence in court. In contrast, a private document is any other writing, deed, or
instrument executed by a private person without the intervention of a notary or other person legally
authorized by which some disposition or agreement is proved or set forth. Lacking the official or
sovereign character of a public document, or the solemnities prescribed by law, a private document
requires authentication in the manner allowed by law or the Rules of Court before its acceptance as
evidence in court.  (Emphasis supplied)
137

The distinction as to the kind of public document under Rule 132, Section 19 of the Rules of Court is
material with regard to the fact the evidence proves. In Philippine Trust Company v. Hon. Court of
Appeals, et al.,  this court ruled that:
138

. . . not all types of public documents are deemed prima facie evidence of the facts therein stated:

....

"Public records made in the performance of a duty by a public officer" include those specified as
public documents under Section 19(a), Rule 132 of the Rules of Court and the acknowledgement,
affirmation or oath, or jurat portion of public documents under Section 19(c). Hence, under Section
23, notarized documents are merely proof of the fact which gave rise to their execution (e.g., the
notarized Answer to Interrogatories . . . is proof that Philtrust had been served with Written
Interrogatories), and of the date of the latter (e.g., the notarized Answer to Interrogatories is proof
that the same was executed on October 12, 1992, the date stated thereon), but is not prima facie
evidence of the facts therein stated. Additionally, under Section 30 of the same Rule, the
acknowledgement in notarized documents is prima facie evidence of the execution of the instrument
or document involved (e.g., the notarized Answer to Interrogatories is prima facie proof that
petitioner executed the same).

The reason for the distinction lies with the respective official duties attending the execution of the
different kinds of public instruments. Official duties are disputably presumed to have been regularly
performed. As regards affidavits, including Answers to Interrogatories which are required to be
sworn to by the person making them, the only portion thereof executed by the person authorized to
take oaths is the jurat. The presumption that official duty has been regularly performed therefore
applies only to the latter portion, wherein the notary public merely attests that the affidavit was
subscribed and sworn to before him or her, on the date mentioned thereon. Thus, even though
affidavits are notarized documents, we have ruled that affidavits, being self-serving, must be
received with caution.  (Emphasis supplied, citations omitted)
139

In Salas v. Sta. Mesa Market Corporation,  this court discussed the difference between mere copies
140

of audited financial statements submitted to the Bureau of Internal Revenue (BIR) and Securities
and Exchange Commission (SEC), and certified true copies of audited financial statements obtained
or secured from the BIR or the SEC which are public documents under Rule 132, Section 19(c) of
the Revised Rules of Evidence:

The documents in question were supposedly copies of the audited financial statements of SMMC.
Financial statements (which include the balance sheet, income statement and statement of cash
flow) show the fiscal condition of a particular entity within a specified period. The financial
statements prepared by external auditors who are certified public accountants (like those presented
by petitioner) are audited financial statements. Financial statements, whether audited or not, are, as
[a] general rule, private documents. However, once financial statements are filed with a government
office pursuant to a provision of law, they become public documents.
Whether a document is public or private is relevant in determining its admissibility as evidence.
Public documents are admissible in evidence even without further proof of their due execution and
genuineness. On the other hand, private documents are inadmissible in evidence unless they are
properly authenticated. Section 20, Rule 132 of the Rules of Court provides:

....

Petitioner and respondents agree that the documents presented as evidence were mere copies of
the audited financial statements submitted to the BIR and SEC. Neither party claimed that copies
presented were certified true copies of audited financial statements obtained or secured from the
BIR or the SEC which under Section 19(c), Rule 132 would have been public documents. Thus, the
statements presented were private documents. Consequently, authentication was a precondition to
their admissibility in evidence.

During authentication in court, a witness positively testifies that a document presented as evidence
is genuine and has been duly executed or that the document is neither spurious nor counterfeit nor
executed by mistake or under duress. In this case, petitioner merely presented a memorandum
attesting to the increase in the corporation’s monthly market revenue, prepared by a member of his
management team. While there is no fixed criterion as to what constitutes competent evidence to
establish the authenticity of a private document, the best proof available must be presented. The
best proof available, in this instance, would have been the testimony of a representative of SMMC’s
external auditor who prepared the audited financial statements. Inasmuch as there was none, the
audited financial statements were never authenticated.  (Emphasis supplied, citations omitted)
141

Indeed, in Republic v. Marcos-Manotoc,  this court held that mere collection of documents by the
142

PCGG does not make such documents public documents per se under Rule 132 of the Rules of
Court:

The fact that these documents were collected by the PCGG in the course of its investigations does
not make them per se public records referred to in the quoted rule.

Petitioner presented as witness its records officer, Maria Lourdes Magno, who testified that these
public and private documents had been gathered by and taken into the custody of the PCGG in the
course of the Commission’s investigation of the alleged ill-gotten wealth of the Marcoses. However,
given the purposes for which these documents were submitted, Magno was not a credible witness
who could testify as to their contents. To reiterate, "[i]f the writings have subscribing witnesses to
them, they must be proved by those witnesses." Witnesses can testify only to those facts which are
of their personal knowledge; that is, those derived from their own perception. Thus, Magno could
only testify as to how she obtained custody of these documents, but not as to the contents of the
documents themselves.

Neither did petitioner present as witnesses the affiants of these Affidavits or Memoranda submitted
to the court. Basic is the rule that, while affidavits may be considered as public documents if they are
acknowledged before a notary public, these Affidavits are still classified as hearsay evidence. The
reason for this rule is that they are not generally prepared by the affiant, but by another one who
uses his or her own language in writing the affiant’s statements, parts of which may thus be either
omitted or misunderstood by the one writing them. Moreover, the adverse party is deprived of the
opportunity to cross-examine the affiants. For this reason, affidavits are generally rejected for being
hearsay, unless the affiants themselves are placed on the witness stand to testify
thereon. (Citations omitted)
143
Notably, the Sandiganbayan’s evaluation of the evidence presented by petitioner was cursory. Its
main reason for granting the Motion to Dismiss on Demurrer to Evidence was that there was no
evidence to consider due to petitioner’s failure to file its Formal Offer of Evidence. It brushed off the
totality of evidence on which petitioner built its case.

Even assuming that no documentary evidence was properly offered, this court finds it clear from the
second assailed Resolution that the Sandiganbayan did not even consider other evidence presented
by petitioner during the 19 years of trial. The Sandiganbayan erred in ignoring petitioner’s testimonial
evidence without any basis or justification. Numerous exhibits were offered as part of the testimonies
of petitioner’s witnesses.

Petitioner presented both testimonial and documentary evidence that tended to establish a
presumption that respondents acquired ill-gotten wealth during respondent Fe Roa Gimenez’s
incumbency as public officer and which total amount or value was manifestly out of proportion to her
and her husband’s salaries and to their other lawful income or properties.

Petitioner presented five (5) witnesses, two (2) of which were Atty. Tereso Javier and Director Danilo
R.V. Daniel, both from the PCGG:

Petitioner presented as witnesses Atty. Tereso Javier, then Head of the Sequestered Assets
Department of PCGG, and Danilo R.V. Daniel, then Director of the Research and Development
Department of PCGG, who testified on the bank accounts and businesses owned and/ or under the
control of spouses Gimenezes. 144

Several exhibits excluded by the Sandiganbayan were offered as part of petitioner’s testimonial
evidence:

1) Exhibit "KK"  was offered "for the purpose of proving the assets or properties of the spouses
145

Ignacio B. Gimenez and Fe Roa Gimenez, and as part of the testimony of Tereso Javier." 146

2) Exhibits "KK-1" to "KK-12"  inclusive of sub-markings, were offered "for the purpose of proving
147

the real properties acquired by the spouses Ignacio B. Gimenez and Fe Roa Gimenez, and as part
of the testimony of Tereso Javier." 148

3) Exhibits "KK-15," "KK-18," "KK-20," "KK-27," "KK-30," "KK-32" to "KK-38" and "KK-40"  were 149

offered "for the purpose of proving the corporations in which Ignacio B. Gimenez has interest, and as
part of the testimony of Tereso Javier." 150

4) Exhibit "KK-45"  was offered "for the purpose of proving that the PCGG conducted an
151

investigation of New City Builders, Inc., Transnational Construction Corporation, and OTO
Construction and Development Corporation in relation to Ignacio B. Gimenez and Roberto O.
Olanday, and as part of the testimony of Tereso Javier." 152

5) Exhibits "KK-48" to "KK-50"  were offered "for the purpose of proving that the PCGG formally filed
153

notices of lis pendens with the Registers of Deeds of Taytay, Rizal, Lucena City, Quezon and San
Fabian, Pangasinan over the properties mentioned in said notices in connection with Civil Case No.
[0]007 pending with the Sandiganbayan, and as part of the testimony of Tereso Javier." 154

6) Exhibits "KK-51" to "KK-52"  and their sub-markings were offered "for the purpose of proving that
155

the PCGG sequestered the shares of stock in Allied Banking Corporation and Guaranteed
Education, Inc. as stated in the said writ/letter of sequestration, and as part of the testimony of
Tereso Javier." 156

7) Exhibits "NN" to "QQ"  and their sub-markings were offered "for the purpose of proving that the
157

PCGG formally requested the Central Bank to freeze the bank accounts of the spouses Igancio [sic]
B. Gimenez and Fe Roa Gimenez and that the Central Bank, acting on said request, issued a
memorandum to all commercial banks relative thereto. They are also being offered as part of the
testimony of Tereso Javier." 158

8) Exhibits "RR" to "RR-23"  were offered "for the purpose of proving that Dominador Pangilinan,
159

former Acting President and President of Traders Royal Bank, executed an affidavit on July 24, 1987
wherein he mentioned Malacanang trust accounts maintained with the Traders Royal Bank the
balance of which was very high, approximately 150-175 million pesos, as indicated in the monthly
statements attached to his affidavit. They are also being offered as part of the testimony of Danilo
R.V. Daniel." 160

9) Exhibits "SS" to "SS-29"  were offered "for the purpose of proving that Apolinario K. Medina,
161

Executive Vice President of Traders Royal Bank, executed an Affidavit on July 23, 1987 wherein he
mentioned about certain numbered (confidential) trust accounts maintained with the Traders Royal
Bank, the deposits to which ‘were so substantial in amount that (he) suspected that they had been
made by President Marcos or his family. They are also being offered as part of the testimony of
Danilo R.V. Daniel." 162

10) Exhibits "TT" to "TT-3"  were offered "for the purpose of proving that Director Danilo R.V. Daniel
163

of the Research and Development Department of the PCGG conducted an investigation on the ill-
gotten wealth of the spouses Ignacio and Fe Roa Gimenez and found that from 1977 to 1982, the
total sum of P75,090,306.42 was withdrawn from the account No. 128 (A/C 76-128) in favor of I.B
Gimenez, I.B. Gimenez Securities and Fe Roa Gimenez. They are also being offered as part of the
testimony of Director Danilo R.V. Daniel." 164

The court cannot arbitrarily disregard evidence especially when resolving a demurrer to evidence
which tests the sufficiency of the plaintiff’s evidence.

The difference between the admissibility of evidence and the determination of its probative weight is
canonical.165

Admissibility of evidence refers to the question of whether or not the circumstance (or evidence) is to
[be] considered at all. On the other hand, the probative value of evidence refers to the question of
whether or not it proves an issue. Thus, a letter may be offered in evidence and admitted as such
but its evidentiary weight depends upon the observance of the rules on evidence. Accordingly, the
author of the letter should be presented as witness to provide the other party to the litigation the
opportunity to question him on the contents of the letter. Being mere hearsay evidence, failure to
present the author of the letter renders its contents suspect. As earlier stated, hearsay evidence,
whether objected to or not, has no probative value.  (Citations omitted)
166

The Sandiganbayan should have considered Atienza v. Board of Medicine, et al.  where this court
167

held that it is better to admit and consider evidence for determination of its probative value than to
outright reject it based on very rigid and technical grounds. 168

Although trial courts are enjoined to observe strict enforcement of the rules of evidence, in
connection with evidence which may appear to be of doubtful relevancy, incompetency, or
admissibility, we have held that:
[I]t is the safest policy to be liberal, not rejecting them on doubtful or technical grounds, but admitting
them unless plainly irrelevant, immaterial or incompetent, for the reason that their rejection places
them beyond the consideration of the court, if they are thereafter found relevant or competent; on
the other hand, their admission, if they turn out later to be irrelevant or incompetent, can easily be
remedied by completely discarding them or ignoring them. (Emphasis supplied, citations omitted)
169

A liberal application of the Rules is in line with the state’s policy to recover ill-gotten wealth. In case
of doubt, courts should proceed with caution in granting a motion to dismiss based on demurrer to
evidence. An order granting demurrer to evidence is a judgment on the merits.  This is because
170

while a demurrer "is an aid or instrument for the expeditious termination of an action,"  it specifically
171

"pertains to the merits of the case." 172

In Cabreza, Jr., et al. v. Cabreza,  this court defined a judgment rendered on the merits:
173

A judgment may be considered as one rendered on the merits "when it determines the rights and
liabilities of the parties based on the disclosed facts, irrespective of formal, technical or dilatory
objections"; or when the judgment is rendered "after a determination of which party is right, as
distinguished from a judgment rendered upon some preliminary or formal or merely technical
point."  (Citations omitted)
174

To reiterate, "[d]emurrer to evidence authorizes a judgment on the merits of the case without the
defendant having to submit evidence on his [or her] part, as he [or she] would ordinarily have to do, if
plaintiff’s evidence shows that he [or she] is not entitled to the relief sought."  The order of dismissal
175

must be clearly supported by facts and law since an order granting demurrer is a judgment on the
merits:

As it is settled that an order dismissing a case for insufficient evidence is a judgment on the merits, it
is imperative that it be a reasoned decision clearly and distinctly stating therein the facts and the law
on which it is based. (Citation omitted)
176

To erroneously grant a dismissal simply based on the delay to formally offer documentary evidence
essentially deprives one party of due process.

IV

Respondents did not fail to specifically deny material averments in the Complaint.

Under Rule 8, Section 10 of the Rules of Court, the "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."  There are three modes of specific denial
177

provided for under the Rules:

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.178

In paragraph 14 of the Complaint, the PCGG, through the Office of the Solicitor General, averred
that:
14. Defendant Fe Roa Gimenez, by herself and/or in unlawful concert with Defendants Ferdinand E.
Marcos and Imelda R. Marcos, taking undue advantage of her position, influence and connection
and with grave abuse of power and authority, in order to prevent disclosure and recovery of assets
illegally obtained:

(a) actively participated in the unlawful transfer of millions of dollars of government funds into several
accounts in her name in foreign countries;

(b) disbursed such funds from her various personal accounts for Defendants’ own use[,] benefit and
enrichment;

(c) acted as conduit of the Defendants Ferdinand E. Marcos and Imelda R. Marcos in purchasing the
New York properties, particularly, the Crown Building, Herald Center, 40 Wall Street, 200 Wall
Street, Lindenmere Estate and expensive works of arts; 179

In their Answer, respondents claimed that;

9. Defendants Spouses Gimenez and Fe Roa specifically deny the allegations contained in
paragraphs 14(a), 14(b) and 14(c), the truth being that defendant Fe Roa never took advantage of
her position or alleged connection and influence to allegedly prevent disclosure and recovery of
alleged illegally obtained assets, in the manner alleged in said paragraphs. 180

Similarly, the PCGG made material allegations in paragraph 16 of the Complaint:

16. Defendant Ignacio B. Gimenez, taking undue advantage of his relationship, influence, and
connection, by himself and/or in unlawful concert and active collaboration with Defendants
Ferdinand E. Marcos and Imelda R. Marcos, for the purpose of mutually enriching themselves and
preventing the disclosure and recovery of assets illegally obtained, among others:

(a) acted as the dummy, nominee or agent of Defendants Ferdinand E. Marcos and Imelda R.
Marcos, in several corporations such as, the Allied Banking Corporation, Acoje Mining Corporation,
Baguio Gold Mining, Multi National Resources, Philippine Overseas, Inc. and Pioneer Natural
Resources;

(b) unlawfully obtained, through corporations organized by them such as the the [sic] New City
Builders, Inc. (NCBI), multimillion peso contracts with the government for the construction of
government buildings, such as the University of Life Sports Complex and Dining Hall as well as
projects of the National Manpower Corporation, Human Settlements, GSIS, and Maharlika
Livelihood, to the gross and manifest disadvantage to Plaintiff and the Filipino people.

(c) in furtherance of the above stated illegal purposes, organized several establishments engaged in
food, mining and other businesses such as the Transnational Construction Corporation, Total
Systems Technology, Inc., Pyro Control Technology Corporation, Asian Alliance, Inc., A & T
Development Corporation, RBO Agro Forestry Farm Development Corporation, Bathala Coal Mining
Corporation, Coal Basis Mining Corporation, Titan Coal Mining Corporation, GEI Guaranteed
Education, Inc., and I.B. Gimenez Securities, Inc. 181

To which respondents specifically denied through the following paragraph:

11. Defendants Spouses Gimenez and Fe Roa specifically deny the allegations contained in
paragraphs 16, 16(a), 16(b) and 16(c) that defendant Gimenez allegedly took advantage of his
alleged relationship, influence and connection, and that by himself or in alleged unlawful concert with
defendants Marcos and Imelda, for the alleged purpose of enriching themselves and preventing the
discovery of alleged illegally obtained assets: (1) allegedly acted as dummy, nominee or agent of
defendants Marcos and Imelda; (2) allegedly obtained multi-million peso projects unlawfully; and (3)
allegedly organized several establishments, the truth being: (1) that defendant Gimenez never acted
as dummy, nominee or agent of defendants Marcos and Imelda; (2) that defendant Gimen[e]z never
once obtained any contract unlawfully; and (3) that defendant Gimenez is a legitimate businessman
and organized business establishments legally and as he saw fit, all in accordance with his own
plans and for his own purposes. 182

In Aquintey v. Spouses Tibong,  this court held that using "specifically" in a general denial does not
183

automatically convert that general denial to a specific one.  The denial in the answer must be so
184

definite as to what is admitted and what is denied:

A denial is not made specific simply because it is so qualified by the defendant. A general denial
does not become specific by the use of the word "specifically." When matters of whether the
defendant alleges having no knowledge or information sufficient to form a belief are plainly and
necessarily within the defendant’s knowledge, an alleged "ignorance or lack of information" will not
be considered as a specific denial. Section 11, Rule 8 of the Rules also provides that material
averments in the complaint other than those as to the amount of unliquidated damages shall be
deemed admitted when not specifically denied. Thus, the answer should be so definite and certain in
its allegations that the pleader’s adversary should not be left in doubt as to what is admitted, what is
denied, and what is covered by denials of knowledge as sufficient to form a belief .  (Emphasis
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supplied, citations omitted)

However, the allegations in the pleadings "must be contextualized and interpreted in relation to the
rest of the statements in the pleading."  The denials in respondents’ Answer comply with the modes
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provided for under the Rules. We have held that the purpose of requiring specific denials from the
defendant is to make the defendant disclose the "matters alleged in the complaint which he [or she]
succinctly intends to disprove at the trial, together with the matter which he [or she] relied upon to
support the denial."  The denials proffered by respondents sufficiently disclosed the matters they
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wished to disprove and those they would rely upon in making their denials.

To summarize, the Sandiganbayan erred in granting the Motion to Dismiss on demurrer to evidence.
It erred in making a sweeping declaration on the probative value of the documentary evidence
offered by petitioner and in excluding other evidence offered during trial without full evaluation based
on reasons grounded in law and/or jurisprudence.

The third part of Rule 33, Section 1 of the Rules of Court provides that "[i]f the motion [to dismiss] is
granted but on appeal the order of dismissal is reversed [the movant] shall be deemed to have
waived the right to present evidence." As this court held:

[I]f a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the movant
shall be deemed to have waived the right to present evidence. The movant who presents a demurrer
to the plaintiff’s evidence retains the right to present their own evidence, if the trial court disagrees
with them; if the trial court agrees with them, but on appeal, the appellate court disagrees with both
of them and reverses the dismissal order, the defendants lose the right to present their own
evidence. The appellate court shall, in addition, resolve the case and render judgment on the merits,
inasmuch as a demurrer aims to discourage prolonged litigations.  (Citations omitted)
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This procedure, however, does not apply.

In this case, we principally nullify the assailed Resolutions that denied the admission of the Formal
Offer of Evidence. It only follows that the Order granting demurrer should be denied. This is not the
situation contemplated in Rule 33, Section 1.  Respondents were not able to even comment on the
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Formal Offer of Evidence. Due process now requires that we remand the case to the
Sandiganbayan. Respondents may, at their option and through proper motion, submit their
Comment. The Sandiganbayan should then rule on the admissibility of the documentary and object
evidence covered by the Formal Offer submitted by petitioner. Respondents then may avail
themselves of any remedy thereafter allowed by the Rules.

WHEREFORE, the Petition is GRANTED. The assailed Resolutions dated May 25, 2006 and
September 13, 2006 of the Sandiganbayan Fourth Division in Civil Case No. 0007
are REVERSED and SET ASIDE. The case is remanded to the. Sandiganbayan for further
proceedings with due and deliberate dispatch in accordance with this Decision.

SO ORDERED.